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Old wine in old bottle

NITI Aayog’s draft New Energy Policy (DNEP) has some ambitious objectives like universal access to electricity on 24x7 basis, clean cooking fuels to all (see Box-1) and some excellent recommendations to promote renewables. It should redo the DNEP not without just tweaking it.  Else we would miss a golden opportunity of preparing India for the transition from fossil fuel era to renewables. 

According to DNEP, renewables will meet only 8.9 per cent of commercial energy needs. (See Table) in business as usual (BAU) scenario in 2040 and in Ambitious scenario it increases to 13.4 per cent. Annual energy growth rates for these two cases range between 3.4 per cent and 4.2 per cent.

DNEP has assumed that India’s GDP growth will be 8 per cent per year during the plan period resulting in Energy Growth/GDP Growth coefficient ranging between 0.43 and 0.53. If we can achieve high GDP growth with relatively low energy growth as projected by DNEP, it will be remarkable. Developed countries had a coefficient of more than 1.00 when they were at the level of India’s development. 

However while developing different scenarios DNEP has failed to consider the possibilities of reducing the role of fossil fuels significantly. Fossil fuel share falls from 81 per cent in 2012 to 78 per cent in 2040 in Ambitious scenario and increases to 85 per cent in BAU scenario. With prices for renewables falling in recent years, one would have expected DNEP to assign a significantly larger role for renewables. 

 

Why just two scenarios?

It is surprising that when there are so many uncertainties regarding how energy sector will unfold, DNEP has only two scenarios (BAU and Ambitious). Even in this case difference in demand for these scenarios is an insignificant 17 per cent. It is a mystery why DNEP has failed to carry out a full-blown scenario analysis to consider at least some out of the box type of developments in energy sector. 

We may soon see the beginning of the end of the fossil fuel era, because of the falling cost of renewables, rapid development of electric vehicles (EV), which can compete with internal combustion engines (ICE) and greater awareness of climate change. 

Instead of peak oil supply, we have now peak oil demand. There is no agreement on when it will happen. It may happen around 2040. But DNEP has no mention of peak oil demand and its implications for India. It is a certainty that coal will be a stranded asset in many parts of the world as coal will not be a preferred fuel in the future. Ditto in the case with oil and gas. 

Since peak oil demand is more than likely, India need not give high priority to build strategic oil reserves as suggested in DNEP. By 2040, India’s energy import dependence goes up to 36 per cent to 55 per cent from the current 33 per cent. But this need not be a cause for worry. 

 

Impact of EVS...

DNEP talks of electric vehicles (EVs) only in passing. It does not discuss the possibility of India completely banning the production of internal combustion engines (ICEs) say by 2030 and transiting to EVs by 2040. This will reduce oil demand considerably. DNEP should have developed at least one scenario to assess the impact of such a dramatic transformation of auto sector. 

One important strategy discussed to reduce oil consumption is to promote more use of public transportation and railways. Ever since the first oil crisis in 1973 this strategy has been highlighted. But the railways and public transportation has been losing market share resulting in increasing oil consumption. DNEP should have given a roadmap to achieve this very important strategy learning from past experience. 

One of the objectives of DNEP is to banish energy poverty. One recommended 

The most disappointing aspect of DNEP is its handling of the gas sector. It suggests that India should try hard to construct Iran-Pakistan-India (IPI) and Turkmenistan-Afghanistan-Pakistan-India gas (TAPI) pipelines, promote LNG imports, incentivise shale and conventional gas exploration, replace LPG in urban areas by piped gas and divert LPG to rural areas. All these are great suggestions and most have been made earlier. Trans-national gas pipelines like IPI and TAPI have been under discussion for over 20 years. But there has been no success. 

DNEP does not discuss lessons learnt from the colossal failures of the government both led by UPA and NDA to liberalise gas market for one reason or the other. Unless this very important point is stressed enough and politicians take the courage to liberalise gas market, India will never be able to develop its gas sector. 

DNEP presumes that as subsidy delivery is streamlined using aadhar platform to help the poor and farmers, politicians will stop protesting against liberalisation and they will embrace free market. This may turn out to be a pipe dream. 

Throughout the report, DNEP has discussed how competitive markets in oil, coal, gas and renewables will be able to serve the consumers more efficiently. It also has recommendations to improve/establish regulatory bodies for these sectors to ensure such competition. DNEP has also stressed the urgent need for trained manpower for energy sector along with recommendations. 

We all know that it is easy to make these suggestions. In fact the report has too many of them. Most of these recommendations are old. It would have been more useful if only DNEP had selected few critical ones and concentrated on them. It is easy to give a laundry list of hundreds of suggestions, but difficult to highlight which are critical (see Box-2 for a suggested list of critical success factors based on the experience of the author.) 

DNEP should redo the study, have a full-blown scenario analysis, select few critical strategies and give a roadmap for their implementation.  

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