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Energy Consumption & Energy Security: A Rising Concern

We are energy secure when we can supply lifeline energy to all our citizens irrespective of their ability to pay for it as well as meet their effective demand for safe and convenient energy consumption to satisfy their various needs at competitive prices, at all times and with a prescribed confidence level considering shocks and disruptions that can be reasonably expected.
The above definition is motivated by the following considerations:
  • It is important that energy is supplied to all citizens. When the energy needs of only some citizens are met, it cannot be a sustainable situation.
  • It is necessary to provide “lifeline” energy to all citizens irrespective of their paying capacity. Energy up to a certain level is a basic necessity and whether the state supplies it or not, people will procure it in any way possible. If the state does not provide such lifeline energy, environmental degradation can be expected. Lifeline energy consumption for those who cannot afford energy at market price has to be made good through subsidies that, preferably, target the intended beneficiaries directly. Energy security requires that the lifeline energy needs of the Nation are met in full.
  • Effective demand, i.e. demand backed by the ability to pay at market determined prices, should be met fully. If it is not, the rich will get what they desire but the poorer classes won’t.
  • If demand is not met at competitive prices the competitiveness of the Indian economy would be compromised.
  • Safe and convenient energy is desirable as the use of traditional fuels such as wood or dung cakes causes indoor air pollution and leads to an adverse impact on health, particularly that of women and children.
  • Energy is required in different forms to meet different needs. Energy in one form cannot be easily substituted by other forms. Often such substitution involves cost or loss in the quality of service. For example, kerosene can replace electricity for lighting but at a cost and a loss in quality of service. Fuel cells or batteries could replace IC engines using petrol or diesel but at a cost.
  • Energy should be available at all times. Interruptions in energy availability and energy consumption  can impose high costs on the economy and also on human well-being.
  • To ensure energy security at all times, shocks and disruptions that can be reasonably expected must be anticipated. Ability to withstand such shocks and disruptions is essential for energy security. However, one cannot guard against all possible shocks at affordable costs. The surety of energy supply cannot be 100 percent. One can ensure supply only within a certain prescribed confidence level.
The  Problem
Energy security has become a growing concern because India’s energy needs are growing with rising income levels and a growing population. At the same time, our dependence on imported energy has increased. The primary energy consumption in India is the third biggest after China and USA with 5.3 per cent global share in 2015. The total primary energy consumption from crude oil (195.5 Mtoe; 27.91 percent), natural gas (45.5 Mtoe; 6.50 percent), coal (407.2 Mtoe; 58.13 percent), nuclear energy (8.6 Mtoe; 1.23 per cent), hydroelectricity (28.1 Mtoe; 4.01 percent) and renewable power (15.5 Mtoe; 2.21 percent) is 700.5 Mtoe (excluding traditional biomass use) in 2015. In 2013, India’s net imports are nearly 144.3 million tons of crude oil, 16 Mtoe of LNG and 95 Mtoe coal totalling to 255.3 Mtoe of primary energy which is equal to 42.9 per cent of total primary energy consumption. About 70 per cent of India’s electricity generation capacity is from fossil fuels. India is largely dependent on fossil fuel imports to meet its energy demands — by 2030, India’s dependence on energy imports is expected to exceed 53 per cent of the country’s total energy consumption. In 2009-10, the country imported 159.26 million tonnes of crude oil which amounts to 80 per cent of its domestic crude oil consumption and 31 per cent of the country’s total imports are oil imports. By the end of 2015, India has become a power surplus country with huge power generation capacity idling for want of electricity demand.
In 2015-16, the per-capita energy consumption is 22.042 Giga Joules (0.527 Mtoe ) excluding traditional biomass use and the energy intensity of the Indian economy is 0.271 Mega Joules per INR (65 kcal/INR). Due to rapid economic expansion, India has one of the world’s fastest growing energy markets and is expected to be the second-largest contributor to the increase in global energy demand by 2035, accounting for 18 per cent of the rise in global energy consumption. Given India’s growing energy demands and limited domestic fossil fuel reserves, the country has ambitious plans to expand its renewable and most worked out nuclear power programme. India has the world’s fifth largest wind power market and also plans to add about 100,000 MW of solar power capacity by 2020. India also envisages to increase the contribution of nuclear power to overall electricity generation capacity from 4.2 per cent to 9 per cent within 25 years. The country has five nuclear reactors under construction (third highest in the world) and plans to construct 18 additional nuclear reactors (second highest in the world) by 2025.
The installed capacity of utility power plants is 314.64 GW as on January 31, 2017 and the gross electricity generated by utilities during the year 2015-16 is 1168.359 billion kWh which includes auxiliary power consumption of power generating stations. The installed capacity of captive power plants in industries (1 MW and above) is 47,200 MW as on March 31, 2016 and generated 183.611 billion kWh in the financial year 2015-16. In addition, there are nearly 75,000 MW aggregate capacity diesel generator sets with units sizes between 100 KVA and 1000 KVA. All India per capita consumption of Electricity is nearly 1075 kWh during the financial year 2015-16.
Our projected energy requirement and various supply options show the country’s growing dependence on import of energy. Not only oil and gas but also coal imports are likely to grow substantially over time. Energy security thus is an important concern for India’s energy policy.
The growing dependence on energy import raises several concerns. Will we get all the energy that we need even when we are willing and able to pay the price? What will we do if supply is disrupted due to events outside our control? Wars, strikes, and political upheavals in the oil exporting countries can suddenly and drastically reduce global oil supply. Also in a situation of conflict, an oil blockage may be imposed against India. One can think of many such eventualities. How do we keep our economy going in such a situation? How do we deal with this supply risk? The threat to energy security arises not just from the uncertainty of availability and price of imported energy, but also from the possible disruption or shortfalls in domestic production.
The second concern is not disruption of supply but the market risk of a sudden increase in oil price. While we may be able to pay for imports, a high oil price can cause inflation, slow down the economy and impose hardship on our people. Given that world oil prices have fluctuated substantially over the years, the adverse impact on the economy of sudden and large increases in oil price is perhaps a more likely risk than supply disruption.
Any disruption in access to energy consumption can be very expensive in welfare terms as energy is critical not only for economic growth but also for human survival and well-being. For example, if an increase in the price of oil, a disruption of oil supply or erratic power supply forces farmers to reduce the use of their pumps and tractors, the consequent reduction in agricultural output and employment can have a serious and adverse impact on the poor. Thus, a government may choose not to immediately transmit a sudden large increase in the international price of imported energy to consumers. To be able to insulate consumers against such sudden price increase, governments may have to bear the burden of this price rise for some time. This requires certain resilience in the government finances.
Policy Options for Energy Security
The effectiveness of measures to enhance energy security and energy consumption depends on the nature of the disruption. The costs of the various measures also differ. One wants to minimise the expected cost for a desired level of confidence. Such measures include: reduction in the need for energy and the consequent reduction in energy imports; diversification of supply sources; maintenance of strategic reserve; and obtaining equity oil or gas abroad that could, under some cases, help in reducing the consequences of both supply and market risks.
Actions to improve energy security can be classified broadly into two groups, one that reduces risks and another that deals with the risks after they occur. The major policy options are:
Reduce Energy Requirements
Major opportunities exist in reducing energy requirements without reducing energy services. Improvement in energy efficiency or conservation is akin to creating a new domestic energy resource base. Such efficiency improvements can be made in energy extraction, conversion, transmission, distribution and end-use of energy. All of these efficiency improvements can come using currently available commercial technologies.  Some examples are detailed below:
  • The efficiency of extracting fossil fuels in India as well as other mining activities can easily be improved by some 10 per cent. For fossil fuels this would mean a lower level of energy spent per unit of energy extracted.
  • Fuel efficiency of Coal Power Plants: The average fuel conversion efficiency of Indian power plants is just about 30.5 percent though the new 500 MW plants have efficiency of 36 per cent. State of the art super critical pulverised fuel fired boilers can reach an efficiency level of 46 per cent depending on plant location. Under Indian conditions an efficiency level of 38-40 per cent should be attainable. Considering our large dependence on coal-based power plants, obtaining this technology for all new power plants should be our first target.
  • Another major option is provided by freight traffic. The railways’ goods traffic has increased to 1050 million tonnes in 2014. If the railway carried 70 per cent of the goods traffic today, it would carry 3000 million tonnes of additional traffic. Assuming that all of this goods traffic would have been carried by Railways using diesel, the diesel saved would have been around 5 Mt out of a total consumption of 40 Mt. If all of the goods traffic was carried by Railways using electric traction, the diesel saved would have been around 8 Mt. Thus a significant saving of diesel is possible if Railway operations can be upgraded to win back the haulage lost to road traffic.
  • Energy efficiency and demand side management also have a large scope to reduce energy requirement. These include the use of energy efficient appliances and automobiles, hybrid cars, energy efficient buildings, efficient lighting, cogeneration, distributed generation with Combined Heat and Power (CHP) use, energy efficient and well-maintained irrigation pumps, smokeless improved woodstoves, etc.
  • In the long-term, promotion of public transport in urban areas can significantly reduce energy consumption particularly the need for imported oil and gas. Some advance actions that can be taken now are as follows-Develop effective and attractive mass transport such as underground, elevated trains, light rail, monorail or dedicated bus lanes in existing metros; For medium size cities, make plans for efficient public transport corridors to serve future population and acquire the right of way. Public transport can then be further developed as the city develops. Development of city infrastructure can be financed by gradually increasing permissible built up area or Floor Space Index (FSI) and auctioning the right to build. Even existing land owners should be required to purchase the additional right to build, if they want to extend their buildings; and congestion charges and parking fees should be levied in city centres to discourage the use of private cars.
Substitute Imported Energy by Domestic Alternatives
Energy security can be increased by reducing the need for imported energy by substituting it with other forms of energy. Though this does not reduce the need for total energy, it reduces import dependence. If the domestic substitutes increase dependence on one particular fuel, however, it can increase domestic supply risk. Conversely, if substitutes diversify the domestic energy mix, they can also reduce supply risk particularly if the substitutes are local renewables. Some important options include:
  • Electrification of railways can replace diesel trains. Of course this calls for investment in electrification of tracks, electric locomotives and electricity generation.
  • Wood plantations with a potential of yielding up to 20 tonnes of wood per hectare per year in a sustainable way could significantly expand the domestic energy resource base. Wood can be burned directly or gasified for power generation. This would reduce the need for future gas/coal imports.
  • Bio-diesel and Ethanol can substitute diesel and petrol. Bio-diesel becomes particularly attractive when it is derived from inedible oilseeds from trees that need little water and fertiliser and can thus grow without care on wasteland. Ethanol can be obtained from molasses, which may have other economically more paying uses. Ethanol can also be obtained from other starchy crops and from cellulosic plant matter. The competition for using limited land resources and availability of water pose the main challenges to increasing the production of ethanol.
  • Use of hybrid vehicles and/or of electric vehicles, cars, scooters and motorbikes can significantly reduce requirements of petrol. This requires development of low weight, high density batteries. An advantage of such vehicles is that individuals can adopt this technology without the development of a supporting fuel supply network as would be required by hydrogen or fuel cell based vehicles.
  • If hydrogen can be produced as a byproduct of industry or with locally available energy sources, hydrogen based vehicles could provide an option to reduce dependence on oil imports.
  • Coal can be converted into oil as is done in South Africa. The technology is well-developed and in use for years. Sasol is routinely available at filling stations along with petro and diesel in South Africa.
Diversify Supply Sources
The impact of a short-term disruption in the normal source of supply will depend on how important that source is in our total import mix. Thus the first measure for increasing security is to diversify our sources of supply both domestically as well as for the import of oil or gas. India currently imports oil from many different countries. While we import oil from 25 different countries, nearly two-thirds of our imports are from four countries, i.e. Saudi Arabia, Nigeria, Kuwait and Iran.
Energy security can be increased not only by diversifying sources of import of a particular fuel but also by diversifying the energy mix by using different types of fuels. An economy that uses coal, oil, gas, nuclear, hydro and renewables of various kinds is naturally less dependent on one particular fuel, and hence less vulnerable to supply disruptions of either domestic or imported energy sources. The security provided by such diversification is enhanced when the ability of the users to switch among fuels increases.
Apart from sourcing oil or LNG imports from different countries, supply risks can also be reduced by policy coordination among importing and exporting countries, by importing gas through pipelines, or getting hydropower from neighbouring countries. Many countries in India’s neighbourhood have very large resources of natural gas. Among these are Iran, Turkmenistan, Bangladesh and Myanmar. Turkmenistan’s gas can be augmented by gas from Uzbekistan, Kazakhstan, Azerbaijan and the Astrakhan littoral on the Russian shore of Caspian sea. Developing such a supply chain poses geopolitical challenges.
Import of Hydro-Power Through Nepal/Bhutan: Substantial scope exists for import of hydro-power from Nepal and Bhutan. Their combined potential is estimated to be in excess of 55,000 MW. This could enhance energy security as hydro-power (which is particularly suited for meeting peak power demand) can replace natural gasbased generators which are also used for peaking purposes.
Expand Resource Base and Develop Alternative Energy Consumption Sources
Our resource base can be expanded in many ways: enhance recovery from existing resource bases; explore to find new reserves; obtain equity energy abroad; and develop new sources of energy through R&D.
  • Enhanced Recovery: Enhanced oil, gas and coal recovery from existing fields is an obvious option. India’s recovery of in-place reserves can improve easily by 5-10 percentage points. Better mine design and the use of technologically advanced mining techniques are valid options. Recovery of oil and gas from abandoned and/or marginal fields may also be taken up. However, the cost of such recovery should be balanced against the total amount of oil or gas that may be recovered from the field.
  • In-situ Coal Gasification: Similarly for coalfields, in-situ gasification may permit much higher recovery of coal than can be economically mined by conventional techniques. Technology development for in-situ gasification should be vigorously pursued and entry barriers for gasification removed.
  • Coal Bed Methane: Methane is absorbed in coal seams. This Coal Bed Methane (CBM) usually escapes into the atmosphere when coal is mined. Tapping and utilising the CBM as a source of commercial energy has been in vogue in the US and Australia for several years. The estimated potential of CBM in India is in the range of 1400-2600 billion cu. metres (BCM).
  • Exploration: Efforts can be stepped up to find new reserves. Recent success by private as well as public sector companies such as Reliance and Gujarat State Petroleum Corporation Ltd. in finding gas shows the need to attract more players in exploration in the country. Exploration for all energy resources – coal, oil, gas and Uranium – should be stepped up. Offshore wind energy potential should also be mapped.
  • Coal to Oil: Rising oil prices in the world market makes conversion of coal to oil economically attractive. Sasol claims that its technology for converting South African coal to liquids is viable if crude oil stays above US$65 per barrel. India should establish the viability of Sasol technology with domestic coal and establish the breakeven price at which coal to liquids would make sense for Indian coal.
  • New Domestic Sources: The domestic resource base can also be expanded through developing hitherto poorly developed or new sources of energy. Some of these resources may require R&D to make them economical. Among these are:
  • Nuclear Power: With meagre availability of uranium in the country and vast resources of thorium, any long-term nuclear strategy has to be based on thorium. The three stage strategy of development of nuclear power from pressurised heavy water based reactors to fast breeder reactors to Thorium based reactors requires a sustained R&D effort. Success in these efforts could deliver some 2,50,000 MW of nuclear power by 2050 and much more thereafter. Given the limited resources of oil, gas and uranium, solar energy and thorium based nuclear option are the only two sizeable sources (apart from fusion) of energy for the country. Thus, the thorium option must be pursued.
  • Gas Hydrates: Very large reserves exist in Indian waters and have the potential to provide vast amount of gas. Technology to exploit these economically in ecologically safe ways is yet to be developed. However, the potential size of the resource makes it critical to vigorously pursue R&D.
  • Wind: The potential for onshore wind power has been assessed to be 45,000 MW. The Wind Energy Society of India claims it to be as high as 65,000 MW. However, given that the average capacity factor realised by India’s wind farms is only about 17 per cent, the total contribution to energy  from these plants would be relatively small. Thus while wind power may be pursued for environmental and economic reasons, its contribution to energy security will remain very limited. Off-shore wind power potential has not yet been assessed. As mentioned above such assessments should be taken up immediately.
  • Solar: Solar energy, if it can be economically exploited constitutes a major energy resource for the country. Solar electricity generated through either the thermal route or using photovoltaic cells provides comparable amounts of electricity per unit of collector area. Both methods currently provide about 15 percent conversion efficiency. While it is clear that the ratio of capital cost to the efficiency of energy conversion needs to be brought down significantly, solar thermal and solar photovoltaic routes to electricity generation remain attractive alternatives to enhance India’s energy security. Nanotechnology holds the hope for making a major breakthrough in solar photovoltaic technology. It is stressed here that solar water heating is cost effective for India even today and can reduce India’s demand for oil, gas and coal if pursued to meet the hot water demand in industry and households.
  • Energy Plantations: Growing fuel wood for running power plants either directly or after gasification can save the coal or gas used for generating power. Since the country’s energy needs are growing, imports of coal and LNG are also likely to grow. Fuel wood plantations can help improve energy security. The scope for such plantations is substantial. For example, if 10 million hectares of wasteland can be converted to fuel wood plantations with a sustained yield of 200 Mt of wood per year, it would obviate the need for some 200 Mt of domestic coal. Moreover since wood is a renewable fuel, no net carbon emission takes place. Thus all compensatory afforestation should be made in the form of energy plantations to improve India’s energy security.

Policies and Initiatives for Energy Security

India’s energy security concerns have, thus far, been largely defined by a narrow focus on supply disruptions and the consequent need to increase redundancy in our stocks of crude oil and petroleum products through the creation of a strategic storage. In reality, India’s energy security and energy consumption concerns go well beyond a narrow focus on a likely supply disruption in our crude oil imports. India’s energy security, at its broadest level, has to do with the continuous availability of primary commercial energy at a competitive price to fuel our economic growth and to provide reliable access to modern forms of primary and secondary energy and energy services needed for lifeline support to over 50% of our population which lacks access to any form of commercial energy barring the unreliable and often costly supply of PDS kerosene primarily for lighting. Again, energy security requires that such access to lifeline energy be ensured even if it requires directed subsidies.
Conclusion
We have discussed how to reduce risk to our energy security by way of policies aimed at reducing our energy requirements and import dependence (through efficient production, transmission, distribution and use of energy, development of efficient energy markets, instituting well-targeted “lifeline” entitlements, and diversifying/expanding the domestic resource base using commercial or near-commercial technologies). India’s ability to effectively manage such risks can only grow with her rising economic and political stature in the world economy. Yet, there are certain additional policies that can be instituted to enhance our energy security and energy consumption. These are:
  • A legal claim to energy resources abroad can marginally enhance India’s energy security and energy consumption to the extent that such a claim increases the diversity of supply sources. Equity oil and gas abroad are being currently pursued. The NITI Aayog, recognising the looming coal import requirements, has been, emphasising equity coal for the past three years in order to further increase the diversity of supply of fuels. Nonetheless, these acquisitions should be primarily assessed as commercial investments.
  • Another mitigating policy could be to diversify imported fuels as well as the sources of such imports. Today, almost 100 per cent of our energy import is in the form of crude oil with 67 per cent being sourced from the Middle East. A strategy to import larger quantities of Gas, LNG, coal, ore emulsion, ethanol etc, as additional energy sources should be considered. Further, imports from other countries can be enhanced for strategic diversification of supply sources.
  • Power plants at coastal locations should be set up with captive jetties to run on imported coal.
  • If and when the gas pipeline from Iran materialises, we may have a sudden increase in supply of natural gas of nearly 30 Mtoe a year. After meeting the feedstock requirement for fertilizer and chemical plants, the temptation will be to use this increased supply for power generation. Advance planning should be done to use this gas in more appropriate ways such as in distributed generation and CHP applications where we can get an efficiency of 80 per cent or more.
  • India currently has stocks equal to about 85 days of requirement excluding line-pack and the strategic stocks for the defence department that are maintained by Indian oil. However, these stocks are more in the nature of raw material and finished good inventories (for which facilities had been built during the comfortable cost plus regime) and not in the nature of strategic reserves. Internationally, a 90 day strategic reserve is considered adequate for providing security against short-term supply disruption and/or extreme price spikes. India could earmark part of the available storage capacity with oil companies as strategic reserve controlled by the Government. Japan follows this practice and requires its oil companies to carry and maintain a strategic reserve. Additional strategic storage may also be built to supplement such mandated strategic reserves. Regional cooperation in South Asia in this respect can be fruitful. For a country like India, given the uncertainty about benefits, it may be more economical to hold the minimum reserves required to tide over very short-term supply disruptions.
(Courtesy: Integrated Energy Policy: Report of an Expert Committee, Government of India.)

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