India’s Modernization Case of Energy Sector

1. India’s ModernizationCase of Energy Sector Presentation at International Conference on Development Models of Modernization Processes, China and the World September 24 – 26, 2005 Liuzhou, Guangxi Zhuang AR P.R. China By T L Sankar Administrative Staff College of India, Hyderabad, India.

2. CHINA & INDIA Similarities & Differences • Most Populous Countries. It is No.2. China is No. 1. • It has unique history of Political stability and a Socialistic Pattern of Government which has continued for 47 years. • The Country was very poor when Independence came. • Today it has Commendable Achievements in different fields.

3. INDIA-Previous Achievements.. • GDP Low Rate of Growth • Food Crisis • Foreign Exchange Crisis • Emerging Energy Crisis

4. GDP Growth – Story so far From the dawn of independence, India registered a slow but steady rate of growth of GDP of only 2 to 3 % per year,criticized as the “Hindu-rate” of growth.In the early eighties with some changes in the economic management the growth rate increased to a norm level of 5 to 6%. India is reaching out to a 8% GDP growth in the new millennium.

5. India – Green Revolution Whenever faced with a Challenge, India bounced back stronger and self reliant. From a food starved country in 1967, India became self sufficient in food-grain by the early eighties. • India was among the most successful countries in ushering in the Green Revolution. Food grain production almost doubled from 72 MT in 1965-66 to 129MT in 1978-79 during the green revolution. Today the production is close to 212 MT.

6. India – Forex Reserves After Green Revolution, India proved itself again – this time on the Forex Front Source : India Infoline -Economic Survey of India • With less than $ 2 Billion forex reserves in 1991, the reserves have leapfrogged to nearly $130 Billion due to a series of economic reforms and continued focus on economic development

7. Growth of Installed Capacity since Sixth Plans Plan/Year Hydro Thermal Wind Nuclear Total March, 1985 (End of VIth Plan) 14460.00 27030.00 1095 42585.00 March, 1990 (End of VIIth Plan) 18308.00 43763.00 1565 63636.00 March, 1992 (End of 2 Annual Plans) 19194.00 48086.00 1785.00 69065.00 March, 1997 (End of VIIIth Plan) 21658.00 61912.00 2225.00 85795.00 March, 1998 21904.51 6404.64 968.12 2225.00 89102.27 March, 1999 22479.13 67565.41 1024.01 2225.00 93293.55 March, 2000 23857 70493 1154.88 2680.00 98184.47 March, 2001 25142.00 72355.00 1269.00 2860.00 101626.00 March, 2002 (End of IXth Plan) 26269.00 74549.54 1507.46 2720.00 105046.00 March, 2003 26910.23 76606.91 1735.66 2720.00 107972.80 March, 2003 29500.23 77968.53 1869.66 2720.00 112058.42 July, 2004 29625.23 78491.45 1869.66 2720.00 112706.34

8. Per Capita Energy Consumption In spite of this growth, the per capita energy consumption of India is far lower than that of the developed nations and some developing nations. Even to reach world average it has to increase five fold. With a population of over a billion, fast moving towards 1.5 billion, this would be a daunting task with some consequences for the world energy market. Source : BP Statistical Review of World Energy 2004 India’s approach towards self-reliance in energy could help India & also other countries

9. Energy Situation • Major sources of Energy are: • Coal – Growth Rate How it has achieved ? • Oil – Growth Rate – How it has achieved? • Gas Growth Rate – How it has achieved ? • Electricity Growth Rate – How it has achieved ?

10. India: Growth of fuel supply 1970-2000

11. Item Units 1989-90 1994-95 1999-00 2003-04 Rate of Growth 1989-2003 Traditional Fuels Total Million tons 234 267 305 340 2.7% Commercial Fuels - - - - - - Total Coal Million tons 208 269 324 381 3.5% Total Oil Million tons 57 71 103 124 5.7% Natural Gas Million m3 11172 17339 26885 30900 7.5% Hydroelectric Million kWh 62132 82727 80853 75242 1.4% Nuclear Electricity Million kWh 4625 5648 13249 17980 10.2% Others (Renewable) etc. Million kWh 146 769 5294 16121 Very Low base Total Primary Electricity Supply Million kWh 66903 89144 99396 109343 3.6% Summary Primary Fuel Consumption 1990-2004 (In Primary Units)

12. Item 1989-90 1994-95 1999-00 2003-04 Traditional Fuels Total 72 83 95 106 Commercial Fuel Total - - - - Coal 95 121 145 171 Oil 57 71 105 124 Gas 10 16 24 44 Hydroelectric 14.4 19.8 19.4 18.0 Nuclear Electricity 1.1 1.4 3.2 4.3 Others (Renewable) etc. 0.04 0.18 1.27 4.2 Total Primary Electricity Supply 15.5 21.4 23.9 26.5 Total Commercial Energy Supply (sum of 2.1 to 2.7) 177.5 229.4 297.9 365.5 Grand Total Energy Supply (1 + 3) 249.5 312.4 392.9 471.5 Energy Consumption in Oil Equivalent Terms (mtoe)

14. Year Coal & Lignite (mtoe) Oil (mtoe) Natural Gas (mtoe) Hydro-Electric Generation (mtoe) Nuclear & Renewable (mtoe) Available Total supply (mtoe) Imports (mtoe) Import Dependency % 1980-81 58.5 34.0 1.3 10.9 0.8 105.5 23.7 22.5 1989-90 95.0 57.0 10.0 14.4 1.1 177.5 28.4 16.0 1994-95 121.0 71.0 16.0 19.8 1.6 229.4 48.4 21.1 1990-00 145.0 105.0 24.0 19.4 4.5 297.9 84.1 30.0 2001-02 171.0 124.0 44.0 18.0 8.5 365.5 109.0 29.8 India: Commercial Energy Consumption – Import Dependency Total Commercial

15. Year 1970-80 1980-90 1990-2003 Non-power-Coking Coal 3.62% 2.75% 0 Non power-Non Coking coal 1.96% 2.34% 2.04% Non Power Oil products 5.40% 6.00% 4.90% Non Power Gas 8.90% 23.00% 8.20% Past Rates of Growth of fuel supply

16. India – Energy Needs 1/2 Several forecasts of India’s energy needs have been attempted by different agencies. However, they have used data of different periods and the GDP growth rates and horizons of the forecast vary. For this presentation, using the latest data and based on long-term elasticity's, a new forecast has been attempted. TCPES =Total Primary Commercial Energy Supply. GDP = Gross Domestic Product at constant Factor cost . M Units = Million kWh of electricity mtoe = Metric Tonne Oil Equivalent.

17. India – Energy Needs 2/2 Population Electricity Year Mn Bwh 2004-05 1084 341 680 2009-10 1169 465 981 2014-15 1259 634 1415 2019-20 1356 848 1966 2024-25 1461 1135 2731 2029-30 1573 1490 3700 Based on Elasticities set out, demand for Total Primary Commercial Energy Supply (TPCES) and Electricity supply have been projected assuming, a GDP Growth of 8% and official population estimates. TPCES A comparison of the rates of increase of supply of energy in the past with the rates required as per the forecast is set out in the table below : The demand forecast suggest that the effort in supplying total primary energy consumption in the next decade would be about 1% higher than in the past it was around 5%. This will call for some concerted effort.

19. India – Specific Fuel Needs for Non Power uses The important commercial energy sources are Coal Oil ,Gas and Electricity. Power is generated from primary sources namely, nuclear, hydro and renewable and as thermal electricity from fuel sources namely coal and natural gas.The demand for oil,gas and coal for non-power uses and production of electricity from primary sources are first estimated. The coal and natural gas requirements for power generation are added, to derive the total fuel needs including for power generation. Past Rates of Growth of fuel supply Year 1970-80 1980-90 1990-2003 Non-power-Coking Coal 3.62% 2.75% 0 Non power-Non Coking coal 1.96% 2.34% 2.04% Non Power Oil products 5.40% 6.00% 4.90% Non Power Gas 8.90% 23.00% 8.20% Based on these growth rates, and adjusting for a higher 8% GDP growth, the specific fuel needs for non power uses are projected.

20. Total Electricity Supply Reqd Fuel Based (a) Hydro –(20%) Nuclear - =(a)-(b)-(c)- (b) (c) (d) 2004-05 680 136 15 29 500 2009-10 981 196 25 49 711 2014-15 1415 283 41 70 1021 2019-20 1966 393 66 98 1409 2024-25 2731 546 108 136 1941 2029-30 3700 740 175 185 2600 Fuel Needs for Power generation • The preferred source for power generation should be non-fuel sources - hydroelectric sources, nuclear wind, solar& other renewables. • Production from non-fuel sources, however, is constrained by a few factors: • Nuclear – Policy constraints, uranium availability, likely date of commercializing fast breeder reactors or • thorium based cycles. • Hydel – Adequate investigations, obtaining environmental clearance, making R&R • arrangements • Renewable – Snags in technology, high costs • The following targets have been adopted by for this exercise: • Nuclear cumulative capacity 25,000 MW by 2030. • Hydel – 20% of total power generation by 2030. • Renewable – 5% of total electricity generated by 2030. The fuel needs or forecast is done by first deriving the electricity likely from Non -fuel sources and then estimating the share of different fuels in power generation Billion kWh. Non- Fuel based Power Generation Non Thermal Thermal Renewable (5%) (d) Year

21. India Projected Fuel Needs for power • Coal continues to be preferred fuel for power generation. There are additional factors in favour of coal • Predictability of future prices is higher in coal than in gas. • Long term fixed price contracts indexed to labour costs are possible in case of coal. • However, the recent shortages have led to a view that coal will not be available to support the power development fully. Natural Gas will be the alternative. To arrive at total fuel needs of India, two alternative scenarios are developed. Scenario-II Coal production will be constrained to a growth rate of 5% considered as easily achievable and the rest of power requirement would be using gas. Scenario – I Gas based generation would be as at present, 13% of total thermal generation and rest 87% will be from coal.

22. Year/Plan End Generation Requirement Billion kWh Capacity Required MW Reference Year 2006-07, 10th Plan End 700 140,500 2011-12, 11th Plan End 823 165,152 2016-17, 12th Plan End 1,209 242,663 2021-22, 13th Plan End 1,776 356,552 2026-27, 14th Plan End 2,610 523,892 2031-32, 15th Plan End 3,835 769,769 Long-Term Forecast of Electricity Requirements and Generation Capacity Note: The reference year consumption assumed is lower than the figures assumed by the Central Electricity Authority (CEA) given in the earlier para.

24. Depth Ranges in Meters Assessed Resources Total Proved Indicated Inferred Prognosticated 0-300 63.2 40.8 7.1 2.2 113.3 300-600 5.8 21.5 6.5 13.9 47.7 0-600 (Jharia Only) 13.7 0.3 0.0 0.0 14.0 600-1200 m 1.7 6.4 1.7 19.7 29.5 Total 0-1200 84.4 69 15.3 35.8 204.5 Estimated Assessed Coal Resources (Billion Tons) a

25. Area Crude Oil (Million Tons) Natural Gas (Bullion Cubic Meters On-Shore 308 301 Off-Shore 352 462 Total 660 763 Average annual production 33 29 R/P Ratio 26 20 Oil and Gas Reserves a.

27. Indian Nuclear Power Programme CAPACITY MWe 14 reactors at 6 sites under operation2770 2,770 6 PHWRs under construction 1,960 2 LWRs under construction 2,000 PFBR at Kalpakkam500 Projects planned till 202013,900 TOTAL by 2020 21,180 India plans to have an installed Nuclear power capacity of about 21,180 MW by 2020 India’s Nuclear Power Programme is designed with the long term objective to serve as the source of electricity when other sources get exhausted. It is a key element of the energy self reliance strategy.In is dependent on developing technologies to use fuel breeding fast breeder reactors and Plutonium thorium mix as fuel.For this we may have to use imported fuel in about 7000 Mwe capacity.

29. Region Energy Potential (TWH) Capacity Potential at 60 % Load Factor (MW) Percentage Developed Northern 225.0 30155 14.3 Western 31.4 5679 31.9 Southern 61.8 10763 49.2 Eastern 239.3 31857 1.0 Regional Distribution of Hydroelectric Potential a.

30. Potential Potential Exploited Solar Energy 5x10 whr/yr 47 MW Biomass-based power 17,000 MW 484 MW Small hydro 15,000 MW 1509 MW Wind Energy 45,000 MW 1870 MW Ocean Thermal 50,000 MW -- Sea Wave Power 20,000 MW -- Tidal Power 9,000 MW -- Renewable Energy Potential & Achievements March (2003) a

31. Fuel/Energy Form Units 2009-10 2019-20 Electricity mu 892570 1755685 Oil Products mtoe 150.2 246.9 Natural Gas mtoe 47.2 101.9 Coal mtoe 248.7 447.6 Long-Term Forecast of Energy Demand a.

32. Natural Gas-Strategies for Future Natural Gas production stands at 32 BCM per annum and the reserves at 922 BCM • After a major jump in the production of natural gas in late 90s, the production has stagnated • The new gas finds especially in deep off shore wells have added reserves of another 195 BCM in Reliance and 560 BCM in GSPC Fields.ONGC has not disclosed the reserves . These are yet to be certified by DGH. • The new exploration by all agencies including ONGC is delaying the development of the gas fields in the hope that there will soon be a severe shortage of power and gas at high cost will be purchased by power generators.Even signed agreements are dishonored with impunity !

33. Natural Gas – Demand Supply-price nexus BCM This demand-supply is on Business-as usual basis. .New finds of gas deposits and promise of more have raised hopes of increased use of gas for power generation. India’s unique location of being close to some of the world’s largest gas deposits in Qatar, Oman, Iran and Central Asia has raised hopes to get piped gas or LNG from these sources. The price of gas defines the sectors and levels of use. At $4 per MMBTU and above gas can be used only in fertilizer, petrochemical and as auto fuel and domestic fuel. If the price of imported gas is about $3 per MMBTU, gas can substitute coal for power generation and its demand can become very large. Market rumours are that oil ministry is keen that gas prices settle at a high level !

34. Petroleum India is the sixth largest oil consumer in the world with a share of 3.1% of the world consumption. The dependence on import for oil has reached a level of 72%. The crude refining capacity of India today is at 132 MT. India has achieved self sufficiency in refining, at the present demand level.

35. Oil Pricing& Subsidies • Problem • Crude is imported-products are not imported or exported ,except marginally. Product prices are revised with reference to the average of two price publications.Index of product price has risen faster than crude price.Refiners get windfall gains! • Duties & taxes are ad-valorem and increase retail prices further.! • Diesel & kerosene price difference leads to large scale adulteration. Kero subsidy is not focussed on BPL population.PDS is defunct in many places. • LPG benefits commercial establishments • Possible Actions • Product price should be indexed to crude price allowing a good Gross Refinery Margin. • Duties and taxes should be fixed w,r.t quantity and adjusted on a half-yearly basis to absorb part of the oil price increase shock. • Market retail price of kerosene and diesel should be equal .The BPL families would get Kero-coupons and collect kerosene at a lower price with coupons which could be encased by oil companies. • Misuse of subsidized LPG should be ruthlessly weeded out.

36. Power Sector-Continuing Challenges. • CHALLENGES • With theenactment of the Electricity Act 2003 the legal & Institutional problems resolved. • Managerial and governance problems remain: • - Inadequacy of supply • - High T&D losses • -Poor quality of supply • -Total lack of consumer • concerns • -Irrational tariffs • -Metering and billing • inefficiency • POSSIBLE SOLUTIONS • Encouraging Generation investment in all sizes of plants. • Aggressively promoting Captive power generation by clarity in regulation of open access & surcharge. • Enforcing franchisee system at sub-station or feeder level involving consumers, • Introducing total transparency in distribution through publishing a)Feeder level daily energy flows • b).All info on the connected load and total collection of revenue under each feeder and list of customers with pending bills of > 3months • c) Daily feeder-wise interruption report • CAIDI should be published. • Spot billing with instantaneous printing. • * . .

37. Hydro Power India holds a potential to the tune of 150,000 MW of low PLF Installed capacity today is 23,488 MW -just about 17% of the potential. GOI in a recent exercise, Hydro Electricity Initiative, has made a comprehensive l survey of all potential hydroelectric sites for 50000 MW capacity and has identified 7000 MW projects which can deliver power at less than Rs 2.0/Kwhr. India has established mutually beneficial arrangements with Bhutan where projects constructed mostly with Indian capital are handed over to Bhutan Government for management and power is purchased at mutually agreed rates. About 300 MW is being purchased and a new project with over 1000 MW will be ready by 2006 . Further potential is over 10000 MW for imports from Bhutan. Nepal is also likely source for over 20000 MWs The possibilities of developing power generation from multiple sources and the opportunity to import hydel power from neighbouring countries suggest that achievement of the required level of power supply is within reach.

38. Alternate Energy Resources A

39. Summing up Today the energy scene in India is admittedly disappointing. A crisis is brewing. The wakeup call has been given India has started responding. We have the material resources. We have a competent technical man-power of adequate quality and quantity. We have the appropriate leadership at the top. India’s Prime Minister is arguably the most erudite and honest leader in the World. He has the reputation for having steered India over the forex crisis. We are acutely aware that managing the emerging Energy Crisis involves: -managing Oil imports – how much would depend on actions taken towards conservation of oil in transport sector, introduction of new mass transport, and development of environment friendly cost effective bio-liquid fuels. - improving efficiency of power sector,in respect of governance, modernization and professionalization and - introducing appropriate reforms in the coal sector including environment policies to accelerate coal production. Achieving these would not be easy. But, The will to overcome the crisis is emerging .

40. Public Sector Strategy • Public Sector to begin with consolidating the small things into bigger ones. • When Public Sector will established, allow local Private Sector to compete.

41. Prices Regulations Gradually Removed. • Current Problems – How it is proposed to be solved ?

42. Introducing Competition in Power Sector • Open Access Allowed. • All transmission lines operated by Central Government and State Governments. • Any Consumer or Utility can use transmission facility of anyone else, subject to availability of capacity.

43. He should pay a Wheeling Charge as fixed by concerned regulation. • If the purchaser is not a utility, he should pay a surcharge equals marginal cost of procurement plus wheeling charge plus average T&D loss reduced from the tariff. • Surcharge should be faced out _____ with the gross subsidy.

44. Policy Framework for the New Policy • New capacity can be put up by central PSU, State PSUs, State utilities, private sector based power purchase agreement with the utility. • Private sector units as merchant plants to supply bulk means.

45. Methodology and Principles of Tariff Determination are specified by CERC for CPSUs • Government shall with the advice of Regulatory Commissions specify the process of bidding. • All procurement should be on the basis of bidding usually bidding item is cost of supply of power fixed cost plus variable cost. Variable cost is a pass through.

46. Why Open Access ? • It will enhance supply auction and introduce competition will open up markets and will help purchaser to sell to consumers outside the distribution area. • It will support trading market. • Should lead to optimal resource exploitation.

47. Why Surcharge ? • Normally Incharge should be allowed. • In India all utilities and the regulators charged the HT industrial consumers much more than poorer consumers like Households, Agriculture, Cottage Industries etc. • The element of excess is called Gross Subsidy. • This gross subsidy will have to be determined.

48. The installed capacity and its growth rates since 1947 are given below :- Installed Capacity As on I.C. (MW) Annual growth rate (%) 1947 1362 31.3.1985 (End of 6th Plan) 42585 8.36 31.3.1990 (End of 7th Plan 63636 31.3.1991 66086 3.85 31.3.1992 69065 4.50 31.3.1993 72330 4.72 31.3.1994 76753 6.11 31.3.1995 81171 5.76 31.3.1996 83293 2.61 31.3.1997 (End of 8th Plan) 85795 3.0 31.3.1998 89021 3.8 31.3.1999 93263 4.7 31.3.2000 97796 4.9 31.3.2001 101695 3.9 31.3.2002 104851 3.1 31.3.2003 107973 2.98 31.3.2004 112058 MW 3.78 The Growth of Power Sector – Installed Capacity