GS Paper II

News Excerpt:

India's energy sector needs a dynamic, integrated approach to balance low-carbon transition with growth and energy security.

Need for an integrated energy policy:

• India relies on coal and oil, which account for 53% and 20% of the country's commercial primary energy consumption.
• Recent power shortages that have been partly precipitated by an imbalanced growth in renewables capacity over the last decade reflect the need for better resource planning, both at the central and state levels. 
• The country’s energy basket requires a larger presence of renewable, gas, hydro, and nuclear-based capacities. Currently, they stand at modest levels at 25% of the total generation.
• A key aspect of the climate imperative narrative in the country’s approach to fuel/ feedstock switching is stepping down on coal and oil, and stepping up on low-carbon fuels like natural gas, and carbon-free sources like hydel, solar, and nuclear.

Challenges in energy transition:

• Coal: 
  • The challenge in weaning away from coal for power generation (accounts for 75% of generation, and 50% of carbon emission) lies in developing round-the-clock (RTC) alternate supplies at affordable prices. 
  • While solar tariffs are competitive, for the short to medium term, the complementary low-carbon capacities for RTC supplies are currently expensive (battery), or risk laden (hydel resources). 
  • The supply security in meeting the rising demand is equally important. For example, owing to water bodies going dry, Canada, which was dependent largely on its vast hydel resources, is now buying fossil fuel-fired electricity from across the border.
  • The challenge on the demand side is equally of a tall order: it is fraught with the political predicament of raising electricity tariffs to align with supply costs.

• Natural gas: 

• In the case of the transport sector, which contributes 12% of the country’s carbon emissions, CNG and LNG offer a ‘soft landing’ since currently, green hydrogen is expensive, while EVs suffer from a lack of adequate charging infrastructure. 
• The government is committed to increasing the use of natural gas from the current primary energy levels of 7% to 15% by 2030. 
• In the agriculture sector, nitrogen is the most consumed nutrient. No doubt, its production largely relies on the use of natural gas. However, a shift to a cleaner option, namely green ammonia, is expensive. 
• In the case of cooking gas, piped natural gas is a cheaper option than the dominant supply of LPG (without subsidy) in the country.

Way Forward:

• This calls for a larger policy framework involving electricity sector reforms to reduce appetite for coal. 
• To improve fuel diversity in an ‘organic’ manner, the risk models used by lenders to appraise projects are currently biased towards coal projects, and needs to be reviewed. For example, according to a study, in Europe, the loan loss-provisioning for low carbon sectors is twice that for big emitters.
• This approach will also facilitate faster adoption of newer technologies to reduce emissions in hard-to-abate sectors like cement and steel that use coal or the petrochemical sector which uses naphtha as a feedstock.
• To improve the viability of gas vis a vis coal in electricity, regulatory reforms are required to bring forth the real cost of electricity that consumers ought to pay. For example, the coal supplies to power do not reflect the cost of environmental rehabilitation and repurposing of ‘End-of-Life’ mines and are sold at prices fixed in 2018.
• With the rising need for climate action and the limitations posed by the fastest growing Renewables sources, that of supplies dependent on the sun shining and the wind blowing, nuclear power offers immense potential. This needs to be harnessed, from both ‘base load’ supply security as well as competitiveness perspectives.
• Low-emission strategies must provide for a differential approach to our energy mix through policy incentives in keeping with our social-economic obligations.
• One approach to formulating such a policy, a dynamic one, would be through the outreach and synthesis efforts of an institution like NITI Aayog. 
• This would address the gamut of climate issues such as calibration of fossil vis-a-vis clean fuels from a taxation standpoint, pricing of mass consumption products, the development of carbon markets, addressing ‘Just’ transition imperatives, etc. 
• This will also efficiently facilitate medium-to-long term energy transition wherein stakeholders are able to smoothly play their part in a synergistic manner with measurable outcomes in every sector.

Over the last decade, the Indian energy sector has carefully navigated the throes of climate change concerns and the contentious issue of political economy imperatives while not losing sight of the need to cater to the energy demand required to become a developed country by 2047. As a developing country on its journey to Viksit Bharat by 2047, ‘Just’ transition is an important aspect of government policy, one that enables reasonable pricing and availability of mass consumption products.