Securing India’s electricity supply
India has to aggressively pursue every available energy option to sustain its economy
Secure and affordable access to electricity is critical for sustaining economic growth and development. This is particularly true in developing countries like India where electricity use is growing faster than primary energy use because of its convenience for various applications. However, the current electricity shortage across the country could hurt the growth prospects. Although the government promised to reduce power shortages by 2012, it has fallen far behind in adding new generation capacity. Media reports recently highlighted the precarious fuel supply situation in coal power stations that supply the bulk of India’s electricity. Apparently, many critical coal plants have fuel stock for only three to seven days against the norm of three to four weeks. This, along with inadequate availability of gas and delay in commissioning completed nuclear projects, has led to idling of over 10,000 MW of existing generation capacity and has resulted in frequent blackouts and brownouts. Load shedding in major cities is becoming more frequent and villages in most states do not get electricity for 12-14 hours every day.
As such, India’s annual per capita electricity consumption is just around 600 unit and well below the world average of around 2000 unit. To reach China’s level (2600 unit) India has to nearly quadruple its electricity generation capacity. Although official statistics claim 90 percent rural electrification, independent estimates suggest that close to 40 percent of Indian households (rural and urban poor) live without electricity and a majority of rural households depend on traditional biomass for cooking. Hence expanding access to electricity is critical for attracting investment as well as improving the living conditions of people who have been left behind in development. This is a major policy challenge that requires substantial investment in generation, transmission and distribution infrastructure.
Historically, addition of electricity capacity has been very slow in India due to market regulations, insufficient investment, difficulties in obtaining environmental approval, and public acceptance for major power projects. The current primary energy and electricity supply is largely based fossil fuels, specifically coal. In electricity generation, coal-fired plants dominate the system and supplies 69 percent, hydropower accounts for 14 percent, natural gas for about 12 percent, and the remaining comes from nuclear and renewable sources. Another major concern relevant for future supply is the growing energy import dependence. Current share of imports is 10-12 percent for coal, 20 percent for natural gas, and nearly 80 percent for oil and refined products. Since oil is mainly used for transport and other industrial applications and is not significant for electricity supply in India, the sources relevant to future electricity generation are coal, natural gas, renewable, and nuclear.
As electricity consumption in India continues to increase, it is likely that its use of coal will continue to increase. India has one of the largest coal reserves in the world although its heating quality is low and ash content is high. Officially reported coal reserves could last for 200 years at current rate of production, but this overlooks other issues that can affect production. Major bottlenecks for increasing domestic production include poor infrastructure (rail network and port capacity) and social issues caused by displacement of tribal communities from the coal belt. India’s coal reserves are at relatively shallow depth, but they are located very far away from the demand areas. The distance and the difficulties in transportation affect the coal industry and remains an obstacle for the growth of main industries in India. Coal deposits occur mostly in the east-central and south-eastern region of India but the demand is in the industrial belts mainly located in the north (Delhi, Punjab and Haryana), west (Maharashtra and Gujarat), and in the south (Tamil Nadu, Northern Karnataka, and Andhra Pradesh).
During the 11th Five Year Plan period that ended in March 2012, only 42,000 MW of the planned 59,000 MW capacity addition was realised. Even if capacity additions are on track in future, current domestic fuel supply issue remains a concern leaving future power plants more dependent on imports. This is likely to increase the price of electricity as imported coal is around 40 percent more expensive than domestic coal. Hence, despite being endowed with a large coal resource base, the requisite growth in domestic supply is inadequate to meet current and projected demand. Sources privy to the decision making apparatus in India told one of the authors that the coal reserves figures are overestimated based on geological occurrence and not on technically and economically feasible criteria. Also, many areas originally identified as coal provinces are either inaccessible or heavily populated. Environmental clearances are also cited as the primary reason for the inability of the coal producers to ramp up production at the required rates. The practice of allotting coal blocks for captive mining has not worked very well and many blocks lie unexplored. Not surprisingly, import of steam coal has grown at a rate of 13.7 percent over the last decade.
Currently gas is among the fastest growing source of electricity because of the lower capital cost of plant (lower financial risk) and relative environmental benefits. However, domestic gas reserves are modest and estimated at around 1000 billion cubic meters. Only 45 percent of the domestic production goes towards power generation and rest is allotted to other critical sectors like fertilizer plants, petrochemical units, CNG consumption, etc. Large gas deposits that could be piped conveniently are located in Iran and Qatar, but international political difficulties continue to a major obstacle in realising the project. Though the Iranians insisted on having a land-based pipeline to ship gas to India via Pakistan, the Indian initially skirted the issue on grounds of security, and conveyed their preference for a sea-based pipeline. Even though there is now a common understanding on this issue between Iran, India, and Pakistan, political pressure exerted by the United States have delayed those prospects.
Given the current difficulties of having a regional gas pipeline connecting the Indian subcontinent with the gas fields in Middle East, India has also been building LNG import terminals. Current Indian imports are less than 5 percent of the global LNG trade and recent developments have driven up the spot market price for LNG. After Fukushima, Japan has increasingly relied on LNG imports to make up for the shortfall resulting from the temporary shutdown of its nuclear plants. Unless India’s planners and industrial end-users negotiate long term LNG contracts, LNG fuel purchased in the spot market is a very expensive form of electricity.
Increased use of renewable and non-conventional energy sources has become imperative, especially in the context of potential future climate change commitments and current fuel supply issues for fossil thermal power generation. Large hydroelectric power plants only contribute 14 percent of the supply and there is still scope to increase its share. The government plans to increase hydropower capacity from the current 38,000 MW to 150,000 MW by 2030. However, construction of large hydro facilities has been met with stiff social resistance and NGOs as the government compensation schemes have failed to satisfy the displaced population.
The potential for other renewable energy technologies like biogas, improved solar cook stoves, biomass, solar energy; wind energy; small hydropower, ocean energy and energy from urban, municipal, and industrial wastes (which is called as non conventional energy) is immense in India. Grid quality power from these energy sources is now a reality. For instance, the Gujarat government recently launched a 600 MW solar PV project, which is the largest in the world. The potential for solar energy utilization is tremendous as receives plenty of sunshine with an annual average insolation varying from 4-7 unit per square meter/day with 250-300 clear sunny days per year.
Several renewable energy systems and products are now commercially available and could compete economically with fossil fuels if environmental externalities of fossil fuels are factored. Though renewable sources lack the advantage of coal or nuclear plants in providing large capacity additions, they can play an important role in meeting demands of the rural population where grid and other transmission problems persist.
Since 1947 India has pursued a grand “three-stage nuclear program” to develop long term electricity supply using a mix of heavy water reactors, breeder reactors, and thorium fuelled reactors. The first stage of this program involves using the limited indigenous uranium in Pressurised Heavy Water Reactors (PHWRs) which produce energy and fissile plutonium. In the second stage, by reprocessing the spent nuclear fuel and using the recovered plutonium in Fast Breeder Reactors (FBRs), the non-fissile depleted uranium and thorium can breed additional fissile nuclear fuel, plutonium and uranium respectively. In the third stage thorium-uranium reactors are to meet India’s long-term energy requirements. The ultimate goal was to utilize the abundant thorium reserves (32 percent of world’s reserves) in the country.
Engineering impediments and international sanctions after India’s first nuclear test in 1974 and refusal to sign NPT resulted in difficulties and near stagnation for nearly three decades. Even after reaching maturity in the first stage (heavy water reactor program), India faced uranium fuel supply crisis from 2004 forcing its reactors to run at much below the rated capacity. The civilian nuclear deal with the United States in 2005 and the negotiation with the international nuclear suppliers’ cartel has offered a new lease of life for the nuclear program. Following this, the government announced plans to increase its nuclear generation capacity from the current 4800 MW to 63,000 MW by 2030 using a mix of domestic and imported reactors. However, future development plans remain uncertain. Part of the difficulty arises from the challenges posed by well-organized protest movements after the Fukushima disaster against nuclear projects. Other difficulties that stand in the way are site acquisition for planned projects, negotiation of contracts with international reactor vendors and fuel supply services. Hence nuclear is unlikely to play a major role in addressing India’s power shortages in the near and medium term.
India’s economic growth has been averaging around 6 percent to 7 percent in recent years. Poverty alleviation requires at least two to three decades of growth of 7 percent or more, which requires a matching rate of growth in infrastructure facilities of which power ranks in the highest order of priority. The next five year plan envisages an addition of 100,000 MW of generation capacity from all sources.
One of the main problems faced by the utilities is the substantial amount of cross-subsidy and under-recovery due to the populist programs of various state governments. Except in some states like Gujarat, the governments are defaulters and owe a large sum to the utilities and distribution companies. Financial morbidity of state electricity boards (SEBs) partly explains the slow rate of capacity addition in India and the poor response for investment in power projects. Among technical problems, the high transmission and distribution loss of electricity, which has consistently been around 30 percent, is a primary concern. The quality of electricity is also very poor in most parts of the country with varying voltages and frequencies. Initiatives to address these technical deficiencies can improve efficiency.
Finally, India will have to aggressively pursue every energy option that is available and execute them by balancing immediate needs and long term societal interest. India has many avenues to pursue higher efficiency in the energy sector, especially in generation and distribution of electricity. Demand side management (DSM) can be pursued in parallel to reduce the demand for energy through the use of efficient processes and equipment, efficient lighting, sustained improvements to public transport to make it more attractive and improving the competitiveness of rail freight when compared to road transport.
Despite the gains that can be achieved through DSM and efficiency gains, the long term goal will be to augment capacity at a sustained rate. In particular, the near term focus should be on traditional thermal power sources namely, coal and natural gas. The developments in large hydro, nuclear power and renewable source entail different constraints as compared to the traditional thermal energy sources. They are highly capital intensive and have a very long gestation period. Although they will provide significant additions in the coming years, they are unlikely to contribute the lion’s share of India’s energy needs by 2030.
Karthik Ganesan is a graduate student at the Lee Kuan Yew School of Public Policy (LKYSPP), National University of Singapore. T.S. Gopi Rethinaraj is a faculty member at LKYSPP and specialises in energy policy.