Energy consumption in India

Developing self sufficiency in energy production

By: Sanjib Pohit and Sameer Malik, The authors are Senior Fellow and Research Associate at National Council for Applied Economic Research, respectively
Energy consumption in India has increased greatly since the 1980s, but domestic production has remained sluggish. Renewable energy now offers a remedy to the low domestic production levels.
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Historically, there exists a significant positive association between the energy consumption and countries’ Human Development Index (HDI)—a composite indicator of human well-being (Pasternik 2000, International Energy Agency 2004). Countries with lower per capita energy consumption tend to have lower HDI; a higher HDI goes hand in hand with increased per capita electricity consumption (PCEC, kilowatt-hour). Once a country reaches a reasonably high level of HDI, its energy consumption will mainly depend on sectoral and geographical factors.

Chidambaram (2001) observed that PCEC is an important measure of development in countries such as India. The author showed that PCEC is not only related to per capita gross national product (GNP), but it also correlates strongly with life expectancy in developing countries. Dubash (2012) opines that historically, no country has improved its HDI without a corresponding increase in energy consumption and India cannot be an exception. Presently, estimates from International Energy Agency and World Bank databases show that India’s PCEC is approximately 20 per cent of the global average, 4 per cent of the USA and 28 per cent of China’s per capita energy consumption. Of course, it must be mentioned that PCEC differs widely across states and there are only a few states which may have reached a plateau in respect of PCEC and HDI (Fig. 1).Thus, if India aspires to be a developed country in the coming decades, its per capita electricity consumption is likely to increase at a significant pace.

Energy consumption in India

Energy consumption in India has grown by 5.5 per cent per annum since 1980, at par with the fastest growing economies in the world, particularly in Asia. Of the total increase in consumption between 1980 and 2014, 93 per cent was met by fossil fuels, with coal contributing the largest at 57 per cent of the total increase, followed by oil at 28 per cent and gas at 8 per cent. Non-fossil fuels together contributed just 7 per cent of the consumption increase during this period.

Domestic production has been sluggish in responding to energy demand growth, and imports have been high. India’s net energy imports increased by 5.5 per cent per annum during 2010–14, as compared to 4.8 per cent per annum in the first decade of the century. While coal led the trend, with imports rising by 28.6 per cent per annum during this period, gas and oil imports also rose by 12.4 and 4.9 per cent per annum, respectively (Deb and Appleby, 2015/16). Underlying this rapid increase in coal imports were developments in domestic gas production. As domestic gas production collapsed in India in 2010, energy demand shifted to imports. LNG, on the other hand, entered a three-year lull in supply growth in 2011. Following the 2011 Fukushima nuclear disaster, there was an increased demand towards gas based power in Japan and other countries. As a result, Asian LNG demand (and prices)  were pushed to record highs, making gas imports much more expensive than coal imports. The result was the dramatic increase in coal imports by India during 2010–14 (Fig. 2b). With regard to sources of electricity generation, Figure 3 clearly shows India’s growing dependence on ‘coal’. While this is certainly a cause of concern, we also see the decline in the use of other fossil fuels like oil and gas. This may have been possible due to the reduced use of fossil fuels with renewable energy such as wind, solar, biomass, water (hydro-power), and waste, stepping up the electricity generation.   The dependence on coal can thus decline if the growth in supply of renewable energy exceeds the growth in demand of electricity. Certainly, it is very promising to see the contribution of renewable energy in electricity production almost doubling from 51,226 GWh in 2011-12 to 101,839 GWh in 2017-18 (Estimates from Central Electricity Authority, India).

In the present century, India is running one of the largest renewable capacity expansion programmes in the world. Between 2002 and 2015, the share of renewable grid capacity has increased over six times, from 2 per cent (3.9 GW) to around 13 per cent (36 GW). In the years 2016-17 and 2017-18, aggregate capacities of 11.32 GW and 11.89 GW of renewable energy have been added respectively, increasing the renewable energy capacity installed in India to a total of 71.33 GW till June 2018  (Press Information Bureau,  2018). This increase in the past 16 years has to be however, significantly scaled up with the aim to achieve 175 GW of renewable energy capacity in the next few years. Of course, this momentum is driven partly by India’s commitment to the Paris Agreement, where India has agreed to reduce the emission intensity of its GDP by 33 to 35 per cent by 2030 from the 2005 levels. Further, the plan is to achieve about 40 per cent cumulative electric power installed capacity from non-fossil fuel based energy resources by 2030 with the help of transfer of technology and low cost international finance including from Green Climate Fund (GCF).  Thus, India intends to push towards renewable sources as part of its commitment. Of course, this is a win-win situation since India is relatively poorly endowed in fossil fuel. Thus, the earlier India shifts its energy mix away from fossil fuel towards green (renewable) ones, the better it is in the long run.

Already, India’s domestic policy measures towards clean energy (175 GW renewable energy by 2022, which is equivalent to 50 per cent of currently existing grid capacity) is more stringent than the Paris commitment, and this target is higher than that set by other countries that are a party to the Agreement. In all likelihood India will meet this target. Among the 175 GW renewable energy target by 2022, the distribution is as follows:  100 GW of solar, 60 GW of wind, 10 GW of biomass and 5 GW of small hydel. Among renewables, the solar energy sector seems to have grown fastest, accounting for the largest capacity addition to the Indian electricity grid in the last year and its rank in terms of overall growth is expected to be the same this year.

However, the process of this growth in solar capacity is not without blemish. India’s import dependence for meeting its solar equipment demand was more than 90 per cent in past three financial years (PTI, 2018). Currently, extremely low priced imports of solar cells/ module products under consideration (PUC) are resulting in a drop in sales in the domestic industry, hampering internal growth. Statistics show that import of solar cells primarily from China, Malaysia, Singapore and Taiwan, has increased from 1,275 MW in 2014-15 to 9,331 MW in the fiscal year (2017-18) (PTI, 2018). On the other hand, domestic production stood at 246 MW in financial year (FY) 2015 and is likely to increase to 1,164 MW in the current financial year. Consequently, the market share of domestic players has steadily diminished from 13 per cent in FY15 to an estimated 7 per cent in FY17. Thus in hindsight, we are not achieving energy security in the real sense.

It seems that India is making the same mistake that it made in the mobile revolution. The revolution was entirely fuelled by imports—in mobile architecture, associated software or mobile sets. After a decade or so of this mobile revolution, one can barely find an Indian made mobile set. In contrast, China has embarked on a full-scale mobile revolution wherein they can produce an entire architecture in-house. The same is true in the case of China’s shift towards solar energy.

In comparison, India seems to be too eager to embark on a full-fledged solar programme riding on import led growth.

If we ponder over the target set by the government and the current levels (till March 2018) of the renewable energy capacity, we realise that even though the growth rate of solar energy sector is the fastest, it is also the sector that is unable to meet most of its targets (Fig. 4). India still has to increase its solar energy capacity by a whopping 80 GW over the next four years to meet this target. This presents both an incredible opportunity and a perilous state of affairs. If India, with the help of the government sector, can start producing all the solar products domestically, it will give a huge boost to the manufacturing sector, and would also create a great number of jobs. But, if we continue importing solar panels, India can get snared in an ever increasing deficit. Even if India keeps on managing its trade deficits, it will still be a huge mistake to miss a win-win situation to increase manufacturing and employment along with providing a fillip to renewable energy!

India has enormous potential to produce renewable energy. As per the information available with the Ministry of New and Renewable Energy (2015), India can produce around 102 GW of energy from wind, 748 GW from solar, 19 GW from small-hydro, 22 GW from bio-power, and 2.5 GW from waste. This amounts to a total of 896 GW of energy. Placing this against the target of 175 GW by the year 2022, it is easy to see the huge untapped potential renewable energy has to offer.

References

International Energy Agency, 2004. World Energy Outlook 2004, Available at: bit.ly/2ntPALp

Press Information Bureau, 2018. Cost of Generation of Solar Power, Ministry of New and Renewable Energy, August 2.

Press Trust of India, 2018. Government imposes safeguard duty on solar cells import for two years, The Times of India, July 30.

________________, 2018. India’s import dependence for solar equipment over 90 per cent in last 3 fiscal: Government, Economic Times, July 19.

Pasternak A., 2000. Global Energy Futures and Human Development: A Framework for Analysis, US Department of Energy.

Dubash N.K., 2012. Handbook of Climate Change and India Development, Politics and Governance.

Chidambaram R., 2001 Nuclear energy needs and proliferation misconceptions, Current Science 81(1).

Deb K. and Appleby P.,  2015/16. India’s Primary Energy Evolution: Past Trends andFuture Prospects. India Policy Forum,12.

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