Energy and the Low carbon Path to Development in India

India is the world’s 6th largest energy consumer, accounting for 3.4% of global energy consumption. In March 2009, the installed power generation capacity of India stood at 147,000 MW. Despite this figure the per capita power consumption is about 600 kWH, one of the lowest in the world.

According to the Planning Commission, to eradicate poverty and to meet its human development goals, India will need to sustain an 8-10% economic growth rate over the next 25 years. And to achieve this growth rate, it will need to increase total electricity generation capacity from 148 GW to nearly 800 GW by 2030.

Despite all this growth, India has an energy shortage of 9%. Add this peak hour shortage of 17%. According to the Central Electricity Authority (CEA) estimates, in 2007 transmission and distribution systems lost nearly 29% of generated power. CEA also estimated the technical and commercial losses (losses due to power pilfering or power for which charges were uncollected) exceeded 32% — one of the highest rates in the world .

Analysis of Power

Our global needs are currently met, 78% by fossil fuels, 18% by renewable resources and 4% by nuclear energy. In India, coal and oil provide 3/5th and large hydroelectricity dams provide about 1/4th of the power generated in India. The estimated potential in India for generation of power from wind, small hydro, and biomass is around 80,000MW .

As far as climate change is considered, our total CO2 emission from power sector is 1.3 billion tonnes. This is about 4% of the total world emissions. If we break it to per capita emission, it is about 1.5 metric tonnes. This compares with the average American who consumes 25 metric tonnes, about 25% more per capita emission. It is in this context that India has been opposed to taking up mitigation work at the cost of development which she says is essential to raise the majority of her people above poverty.

However TERI (The Energy and Resource Institute) made a dramatic assessment of India’s projected commercial energy demand at the Poznan COP as seven times by 2031/32, with coal accounting for close to 60 per cent of the total energy, under the business(development)-as-usual scenario. Under this scenario, India’s per capita CO2 emission reaches 5 tonnes per year. This estimate was considered highly exaggerated in many official quarters and by some NGOs like CSE, who were battling the onslaught on developed countries led by the US that countries like India should also be made to mandatorily cut emissions. The statement is nonetheless indicative of the kind of blind growth that many sectors like mining, infrastructure, construction have been working at.

TERI was however laying the terms of what they called the reference scenario so as to call for more attention and funds for alternative energy development. This is posited against what it called the ambitious scenario, where India’s emission would in any case double around 2 billion tonnes in 2031/32. Under this scenario, India would need to install 700,000 MW of solar energy (India does not even have 100 MW currently), more than 50,000 MW of nuclear energy (current capacity is less than 5000 MW) and 150,000 MW of hydropower (five times the current capacity and communities are opposing all large hydro projects across the country). Under this scenario, India will need close to $10 trillion (10 times its current annual GDP) to setup its energy generation infrastructure till 2036/37. If successful this plan could keep our per capita emission at only 1.2 tonnes per annum.

TERI, however, recommended what it called a Resolution scenario, under which India’s CO2 emission would triple to around 3 billon tonnes in 2031/32; per capita emission reaches 1.9 tonnes per annum . Under this scenario, about 75 per cent of India’s commercial energy is met from fossil fuels and the rest from renewables (mainly solar), nuclear and hydro power. In its comment on the TERI presentation, the Centre for Science & Environment, said that the scenario requires commercial energy to be about half the business-as-usual scenario. It would also need over $6 trillion to implement this scenario . Would such a large amount be made available through CDM (Clean Development Mechanisms) financing and technology transfer?

Officially, India has launched its National Mission for Enhanced Energy Efficiency (NMEEE), which plans to create a market for energy efficiency which is estimated to be around Rs. 74,000 crores, by creating a new regulatory and policy regime that would encourage innovative and sustainable business models around more efficient use of energy. By 2015, about 23 million tons oil-equivalent of fuel savings- in coal, gas, and petroleum products, will be achieved every year along with an expected avoided capacity addition of over 19,000 MW. The consequential carbon dioxide emission reduction is estimated to be 98.55 million tons annually.

The Action Plan is based on initiatives which sound very much like the CDM under the Kyoto Protocol, which tends to give an escape route to polluters, to continue with old inefficient technologies, if the change over is too expensive. Principle among them is the Perform Achieve and Trade (PAT) initiative which is a market based mechanism to enhance cost effectiveness of improvements in energy efficiency in energy-intensive large industries and facilities, through certification of energy savings that could be traded. Units that achieve savings in excess of their target will be provided the excess savings as Energy Savings Certificates. Units that under-perform can buy these certificates to meet their target compliance requirements. The only difference between this and the Clean Development Mechanism(CDM) model is that the Bureau of Energy Efficiency (BEE) will probably set an efficiency norm. But the rope trick depends on what will be the basis for setting the efficiency norm. Will it be in line with the efficiency required of that sector world wide to achieve a target of reduction of emission targets, or will it continue to hide behind the low per capita figures – an indulgence borrowed from the poor of this country?

The cap and trade type of initiative is being supplemented by two fiscal instruments.

• The Partial Risk Guarantee Fund (PRGF) will provide commercial banks with partial coverage of risk exposure against loans made for energy efficiency projects. It is expected to increase the incentives to banks to finance new technologies and new business models associated with energy efficiency projects.

• The Venture Capital Fund for Energy Efficiency (VCFEE) is meant to cover risk capital availability to companies who invest in the supply of energy efficient goods and services. The problem here is that any such risk coverage for loans, is bound to increase innovative scam activity, in an increasingly derivative driven economy, something which quick turnaround venture capital in collusion with mutual funds, has been known to specialise in.

The Bureau of Energy Efficiency (BEE) has launched energy efficiency programs like standards and labeling programs for appliances, building codes, and industrial process. An important initiative has been to develop project reports for certain clusters of small and medium enterprises (SMEs), aimed at increasing energy efficiency. In view of the rising costs of energy, the plan is to go beyond the normal fiscal incentives, and technological support for increased performance to promoting energy efficiency. The clusters chosen are illustrative in that they cover burgeoning industries in moffusil areas, which tend to be energy inefficient. They include:

• the chemical industries in Ahmedabad and Vapi,

• the oil mills of Alwar and Sawai Madhopur,

• textiles mills in Surat, Sholapur and Pali,

• engineering industries like galvanising, wire drawing in Howrah, casting and forging in Batala, Jalandhar and Ludhiana, machine tools in Bangalore, and refractories in East Godavari West Godavari districts,

• manufacturing like Ceramic in Morvi, Brass in Jamnagar, brass and aluminium utensils in Jagadiri, utensils in Bhubaneshwar and

• brick kilns in Varanasi.

Low Energy Intensity

The Prayas Energy Group, which has successfully demonstrated alternative models for reduced power consumption in rural areas through better distribution and equipment efficiency have reported that industrial energy intensity is on a declining trend, indicating that it is those trends, rather than money market mechanisms that need to be encouraged. They also feel that energy use in the residential and transport sectors have been relatively low intensity in comparison to the US, EU and China.

Industry’s declining energy intensity is driven by a number of factors, including structural shifts in the economy towards less energy intensive activities, and efficiency improvements in energy-intensive industries. Because of the rapid growth of services at a rate well above industry growth and overall GDP, its contribution to the economy has grown from 44 percent in 1990 to 52 percent in 2005. If growth in services continues to outpace that of industry, energy intensity will continue to decline.

According to Prayas, the relatively high industrial energy and electricity prices have also disciplined energy growth, resulting in a steady reduction in the energy intensity of industries.

The Group in its report “An overview of Indian Energy Trends: Low Carbon Growth and Development Challenges”concluded that

• India’s energy-related emissions need to grow to alleviate poverty and raise living standards. They however caution that the business-as-usual trends do not favor the poor’s development nor do they sufficiently exploit co-benefit opportunities between climate mitigation and equitable development.

• Despite reliance on coal, India is on a low carbon growth path due to low and declining energy intensity, and significant growth in carbon-free electric capacity.

• In the near future, the recent trends of declining energy and carbon intensity seem likely to continue. However, they are weakened by unsustainable patterns of development, such as high passenger vehicle growth.

Government policies offer mixed support for these trends, for example, with promising initiatives in demand reduction and renewable energy growth on the one hand, but continued neglect of persistent inefficiencies in electricity supply on the other.

Rural Energy

The entire edifice of policy on climate change is based on the premise that development is needed to alleviate poverty. But as Prayas shows there is no evidence of the poor directly benefiting from the new programme, except through trickle down.

The reality is that more than 20 million households in rural India still do not get power. The Central Government outlined a plan for 100% village electrification by the end of 2007 and total household electrification by 2012. For this the government was looking to strengthen the national power grid by adding more than 60,000 circuit kilometers of new transmission at a cost of about Rs 7.5 billion.

The main challenge which confronts us today is to provide energy access to the vast rural populations in a way that does not lead to the proliferation of emissions in the atmosphere and at the same time ensures sustainable development particularly to those populations which are marginalized and out of the mainstream.

Renewable energy sources such as solar, wind, micro hydro, and biomass are indigenous, non–depleting and environment friendly and can play an important role in securing future energy requirements. In 2007, renewable energy provided more than 18 percent of total final energy supply. Solar energy, wind power, and other renewable technologies have experienced double-digit annual growth rates for more than a decade. The renewable share of additional global power generation (excluding large hydropower) jumped from 5 percent in 2003 to 23 percent in 2008, and this ratio is significantly greater in many individual countries.

However the major issue facing civil society organisations is, how this search for clean and renewable energy be achieved without adverse affects on equity and democracy. A poster of the Putsil micro hydel project reads: “We dedicate our community micro hydro plant to those who have sacrificed their lives and resources for the so called development of a few […] Our village is within 200 kilometers from four major hydro projects, which displaced 2,50,000 people to produce 1020 megawatts of electricity. Proximity to these mega-centres of power generation was no use to us. Like many villages in the region, our villages too did not have electricity. Now we enjoy the benefits of electricity – Power which we Generate, Use, Manage and Own”.