Draft New Energy Policy Underplays Role Of Renewables, NITI Aayog Should Redo It

While Niti Ayog has some ambitious objectives like universal access to electrify on 24X7 basis, clean cooking fuels to all and some excellent recommendations to promote renewables, it should redo the Draft New Energy Policy (DNEP) and not end with simply tweaking it. Otherwise 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% of commercial energy needs in business as usual (BAU) scenario in 2040 and in Ambitious scenario it increases to 13.4%. Annual energy growth rates for these two cases are between 3.4% to 4.2%.

DNEP has assumed that India’s GDP growth will be 8.0% per year during the plan period resulting in Energy Growth/GDP Growth coefficient of 0.43 to 0.53. If we can achieve high GDP growth with relatively low energy growth as projected by DNEP, then it will be remarkable. In the case of developed countries Energy/GDP coefficient was 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% in 2012 to 78% in 2040 in Ambitious scenario and increases to 85% in BAU scenario. With prices for renewables falling in recent years and even competitive with fossil fuels, one would have expected DNEP to assign a significantly larger role for renewables.

It is surprising that when there are so many uncertainties regarding how future technology will develop and energy sector will unfold, DNEP has only two scenarios (BAU and Ambitious). Even in this case difference in demand for these scenarios is just 17% which is not significant when viewed on a long planning horizon of 24 years. It is a mystery that 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 as discussed later.

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, a concept which was accepted till few years back we have now peak oil demand. There is no agreement on when it will happen. More than likely it may be 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. The same is likely to be 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% to 55% from the current level of 33%. But this need not be a cause for worry unlike in the past.

DNEP talks of EVs only in passing. It does not discuss the possibility of India completely banning the production of 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 strategy to achieve this goal is to launch National Mission on Clean Cooking fuels. This will enable 40% of rural residents who are currently dependent on biomass to have access to LPG, electricity, improved stoves etc. by 2022. In the past also there have been such ambitious goals. Can we achieve them this time?

Energy share of cooking is projected to drop from 23% in 2012 to 3.4% in 2040 as a result of replacing biomass fuels by cleaner fuels. This is indeed dramatic shift if it happens. 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 and India gas (TAPI) pipelines, promote LNG imports, incentivize 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 liberalize gas market for one reason or the other. Unless this very important point is stressed enough and politicians take the courage to liberalize 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 liberalization and they will embrace free market. This may turn out to be a pipe dream.

Recent draft New Power Plan had given a rosy picture of India’s power scenario with coal power plants working at 63% plant load factor even if renewables fall short by 50000 MW. It has also concluded that India does not need any new coal power plant till 2027 besides the 50 GW which are under construction now. DNEP could have discussed how India could meet all its power needs in 2040 without adding any more coal power plants even after 2027. Instead it has new 175 GW coal power plants in BAU case and 74 GW in Ambitious case after 2022.

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 man power 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.)

Implementing strategies however sound they may be has been difficult because of political compulsion. It is here NITI Aayog should have suggested some novel ways of overcoming these obstacles after pointing out the critical strategies. At one point in passing, it suggests making use of enormous expertise available from expatriate Indians living abroad. This is an excellent suggestion. But there is no road map to implement this as is the case with many such suggestions.

 Four key objectives driving DNEP are 1.To banish energy poverty by providing energy at affordable price, 2. Improve security and independence, 3. Greater sustainability and 4. Economic Growth. No attempt has been made in the report to optimize decision making while selecting different sources of energy based on multiple criteria like the four mentioned here.

Energy modeling may be at fault or might not have incorporated these four criteria properly. Otherwise how could reduction in fossil fuel contribution be only 3% when renewables are competitive already? In some areas like supplying clean cooking fuel, some analysis has been attempted to consider multiple criteria. When LPG is promoted in rural areas, it helps to banish poverty but increases energy dependence. While reducing coal power plants by increasing LNG imports, it will reduce greenhouse gases but it will increase energy dependence and also cost of producing power. It is never easy to handle decision making involving multiple criteria and DNEP has not discussed how it handled the multiple criteria optimization.

One of the objectives of DNEP is to achieve energy independence. But the projections show that energy dependence increases from 31% in 2012 to 36 to 55%. This is likely to be even worse if the government fails to attract investment in oil and gas exploration and to reduce demand for fossil fuels. It is instructive to compare some of the key high priorities given during the development of Integrates Energy Policy (see Box-3) with the recommended strategies for different sources of energy.

DNEP wants to lay the foundation for India to match the energy consumption parameters of the developed world over the long period. This is most unfortunate. While the developed world is trying to reduce its energy consumption, it does not make sense for India to imitate their energy consumption in the name of promoting development. In fact India should be a shining example to the world by

promoting its civilizational value of “simple living, high thinking” to limit temperature rise to two degrees. This was the strategy suggested by PM Modi at the Paris Summit. Instead of highlighting and incorporating this message, DNEP emphasizes the aspirational goal of ever increasing energy consumption to compete with the developed world.

With the exception of coal sector which gets less priority now, priorities assigned in IEP and DNEP are more or less the same. The difference is mostly in the prevailing global environment. When IEP was prepared oil prices were on higher trajectory, peak oil was still in vogue, shale oil and gas production had not yet started, and EVs were not on the horizon. IEP stressed power sector reforms,

wanted to promote energy efficiency, renewables, energy security, clean energy and electricity for all, demand side management, etc (Box-3). These are also the goals of DNEP. When IEP failed in achieving most of these goals to varying degrees, DNEP should have at least discussed how to overcome the problems faced earlier.

Unfortunately there is no such discussion in DNEP. Such a discussion would have helped in designing an appropriate roadmap.

DNEP should redo the study, have a full blown scenario analysis, select few critical strategies (as suggested in the BOX-2) and give a roadmap for their implementation.