Financial Daily from THE HINDU group of publications
Tuesday, May 09, 2006
Industry & Economy - Economy
To power 7-8% GDP growth
N. R. KRISHNAN
There is much talk of 7-8 per cent economic growth, but does the country have the electricity to achieve these numbers? A Plan panel-constituted committee has estimated the energy requirement and identified, in quantitative terms, alternative energy mixes to meet it. N. R. KRISHNAN analyses the committee's findings.
IT IS CERTAIN that coal will dominate the Indian energy scene for a long time to come.
When we talk of 7-8 per cent annual GDP growth, we take it for granted that the country has the energy security to fuel this growth. But the economic planners need to be more circumspect in making such an assumption. They would have to do the exercise of relating economic growth with energy requirements, explore optimal energy mixes, least cost options and policy prescriptions. This is what the Planning Commission did in appointing an expert committee to prepare a Draft Integrated Energy Policy. The committee, headed by a Plan panel member, Dr Kirit Parikh, submitted its report in December 2005.
The Parikh Committee has come out with interesting projections of the energy requirements based on GDP growth rates of 7 per cent and 8 per cent at constant and falling energy elasticities. Energy elasticity with reference to GDP is the "percentage change in energy consumption for one per cent change in GDP." Currently, this elasticity is 0.80. The Committee considers lower elasticites of 0.75 to be attained by the decade beginning 2011-12 and 0.67 from the decade beginning 2021-22.
The energy mix
There are several notable features of India's energy scene. According to the Tenth Plan document, non-commercial energy, that is energy provided by such sources as fuelwood, and agricultural and animal wastes, which are non-traded, accounted for about 24 per cent of the total energy supplied in 2001-02. Primary commercial energy sources such as coal, oil and gas provided the rest. Over time, the share of non-commercial energy in the overall mix is expected to go down, being only about 12 per cent in 2031-32 due to rising rural incomes causing a switch to use of commercial energy and better coverage of the rural areas with arrangements for supply of such energy.
Second, India's per capita primary commercial energy consumption per year is as low as 520 kg OE (kilograms of oil equivalent) compared to the world average of 1,688 kg OE. To reach anywhere near the global levels, a massive step-up in energy consumption would be necessary with attendant energy supplies, indigenous and imported.
Third, though India's energy elasticity of GDP is a fairly efficient, at 0.8, its further fall is doubtful, as the initial low base of per capita energy consumption coupled with rising incomes will favour more energy intensive life-styles. Four, the energy mix is dominated by coal (50 per cent) with 75 per cent of electricity generation dependent on it. In terms of oil equivalence, crude oil accounted for about 10 per cent of primary energy supply and gas about 9 per cent in 2001-02. Hydro and nuclear power came far behind at hardly 2 per cent and 1.6 per cent (these figures should not be confused with the share of their installed generation capacities for power generation).
Finally, net imports of primary commercial energy in 2001-02 were a significant 29.41 per cent of total energy supplies, showing the dependence of the economy on imports, particularly of oil. Imports would go up in the years to come, with all their implications for energy security.
The above facts and figures form the bases for the Parikh Committee to make its projections for the future. While doing so, the Committee has kept in mind demand-side management as well policy and pricing interventions, promoting energy efficiencies in all consuming sectors and creating a strong market for energy trading. Most important, the Committee, instead of reinventing the wheel, has adopted what it considered to be the most realistic among the projections already available with minor modifications. Hence, the Committee's results have an air of reliability about them.
Let us now analyse the findings of the Committee. A feature that strikes one first is that the projected energy requirements vary but little with energy elasticity (Table 2.3 on Page 22 of the report). For a 7 per cent GDP growth, the total primary energy requirement (TPES) turns out to be 1,333 mtoe (million tonnes of oil equivalent) and 1,344 mtoe in 2031-32 and even for periods in between, the difference is very narrow.
Similar is the case for an 8 per cent growth rate, the corresponding figures for 2031-32 being 1,620 and 1,633 mtoe. This is a curious result. No explanation is available for energy requirements being neutral to elasticity.
Since one would expect from an expert committee something more than projections, however refined, the Committee has worked out possible energy supply scenarios based on 11 combinations of inputs (Table 3.6 Page 43). Of these, ten exclude non-commercial energy sources such as wind, solar power and biomass.
They range from purely supply side options with reliance on conventional sources such as coal, oil, gas and hydro power to combinations incorporating demand side management and other measures such as increasing the freight haulage share of the railways and power generation efficiencies. A final combination with renewables including biodiesel and ethanol has also been attempted. Using a linear energy programming model developed by the Observer Research Foundation and with the guidance of Dr Parikh, the least cost fuel mixes, in physical terms, under the 11 possible scenarios have been arrived at for 2031-32 based on 8 per cent GDP growth rate (Table 3.7 Page 44).
It turns out that the coal-dominant mix involves the highest energy requirement of 1,672 mtoe compared to the lowest requirement of 1383 mtoe for the option involving optimal development of all possible sources, conventional and non-conventional. It is for the policymakers to pick their option which anyway would be governed by availability and price movements of inputs.
It is certain that coal would dominate the Indian energy scene for a long time to come. The Parikh Committee expects the share of coal to go down from 85 per cent in power generation now to 78 per cent by 2031-32 with a corresponding increase in the share of gas from 12 per cent to 20 per cent.
Despite this, coal's share in the total energy supply would be a substantial 42 per cent even when supplies from all other sources have been maximised.
In the coal-predominant scenario, its share would be a high 65 per cent of total energy in 2031-32. Coal will be the mainstay of India's energy security.
The role of oil is projected to go down from the present 32 per cent to 29 per cent and just as well. India's reserves of 740 million tonnes which even if fully exploited may meet only six years of consumption at current rates. New oil strikes have been few and far between. Any further increase in oil intensity of economic growth is clearly inadvisable for India notwithstanding ventures abroad to augment supplies.
The Parikh Committee has taken a hard look at the potential of hydro, nuclear and renewable sources in meeting energy needs in the short, medium and long terms. Much as one may wish, their role seems to be limited. To quote the Committee, "It is seen that even if India succeeds in exploiting its full hydro potential of 150,000 MW, the contribution of hydro to the energy mix would be around 5-6 per cent.
Similarly, even if a 20-fold increase takes place in India's nuclear power capacity by 2031-32, the contribution to the energy mix is also, at best, expected to be 5-6 per cent."
What of renewables? While the Committee accepts that they have their social benefits it cautions that "Even with a concerted push of 20-fold increase in capacity, renewables can account for (only) around 5-7 per cent of India's energy mix by 2031-32."
Dwelling on energy security, the Committee suggests greater reliance on indigenous resources, import substitution, development of new sources such as coal-bed methane, clean coal technologies which can ensure higher recovery of energy from Indian coals and building a strategic oil reserve. Cooperation with neighbours such as Nepal and Bhutan in developing their hydropower for export to India and oil and gas exploration abroad have also been recommended.
Rationalisation of taxes, Central and State, on energy supplies is another suggestion.
Would the Parikh Committee please everyone? Possibly not. The greens would be rather disappointed with its emphasis on conventional energy sources. To sum up, the Parikh Committee has done a commendable job in estimating India's energy requirements and identifying in quantitative terms, alternative energy mixes to meet them.
(The author is a former Secretary, Ministry of Environment and Forests, Government of India.)
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