PERSPECTIVES ON INDIAN ENERGY

SECTORAnil K Jain

Additional SecretaryGovernment of India

Oxford. 2nd October, 2017

Presentation Structure

■ Background – India’s Energy Challenges■ Energy System in Transition– New Impetus to Energy Markets– Adoption of Energy Efficiency Across Demand Sectors– Emphasis on Clean Energy– Renewables and Rising Stress in Power Market– Universal Coverage of Energy – Electricity and Clean

Cooking Fuel■ Outlook

India’s Energy Challenges

■ Inequity –250 mln. out of the world’s 1.3 billion people without electricity, and 500 mln. out of 2.7 billion without clean cooking solution reside in India

■ Inflexible energy system with continued high dependence on fossil fuels –between 1980 and 2015, dependence on fossil fuels has grown

■ High share of biomass and its inefficient burning – nearly 20% of total primary energy is non-commercial – a large population is out of the energy market, and exposed to smoke

■ High and rising import dependence, threatening energy security – over 80% of oil and 50% of natural gas is imported. Large dependence on the Gulf.

■ Challenge of attracting capex and managing a smooth transition to efficient energy markets – regulatory oversight, free pricing, policy framing etc.

Energy Mix – High Fossil Fuel Share (1980-2015)

31%

1%

55%

1%

12%

0%

1980

Coal

Hydro

Oil

Nuclear

Gas

29%

6%

58%

1%4% 2%

2015

Oil

Gas

Hydro Other RenewablesNuclear

Fossil share 93%Coal

Fossil share 87%

Source of Indian Crude & LNG ImportsREGION Oil Imports LNG Imports

2015 2016 2015 2016

Middle East 57% 68% 66% 64%

Africa 20% 14% 22% 25%

SouthAmerica

17% 15% 3% 3%

Australia - - 6% 6%

Others 6% 3% 3% (South East Asia)

2%(USA)

TOTAL 100% 100% 100% 100%

Energy System in Transition

New Impetus to Energy Markets ■ Markets to determine fuel mix. No more top-down ‘Five Year Plan’ approach for

determining demand/supply.

■ Coal mining opened to commercial mining – a first in decades.

■ Only LPG and kerosene (15% of all petroleum sales) are subsidised. Subsidies are based on unique identity via cash transfers to bank accounts.

■ Domestic natural gas producers allowed market prices. Production from difficult areas linked to prices derived from LNG, naphtha and imported coal.

■ No feed-in-tariffs for wind and solar. Auction mechanism for solar PPAs has long been in vogue; now wind also through auctions. Has yielded 0.3p and 0.4p per kWh LCOE for solar and wind, respectively.

Removal of Distortion in Pricing of Petroleum Products (post-2014)

Removal of Disparity in Fuel Taxation

Energy Efficiency – the New Mantra■ Market prices of energy are helping in adoption of efficiency across demand

sectors. Historical energy subsidies having resulted in grossly inefficient lighting, cooling, pumping devices – opportunity of rapid returns on investment.

■ Efficiency could shave-off 17% - 25% of energy demand in 2030 (www.indiaenergy.gov.in)

■ A scheme (Perform-Achieve-Trade) for trading of industrial efficiency savings in vogue

■ Bulk procurement by the Government has resulted in a dramatic market transformation. During 2015-17, price of 6 W LED bulb has dropped from Rs 350 to Rs 60. CFL to become history, its demand has plummeted from 550 mln to 200 mln. Same strategy now rolled out for fans, ACs, irrigation pumps, and even EVs!

■ National cooling strategy to drive efficiency in buildings. Also linked to phase out of ODS (Montreal Protocol)

13191

13191

13501

14999

15584

15721

15764

15821

11500 12000 12500 13000 13500 14000 14500 15000 15500 16000 16500

Energy Demand after interventions

Buildings

Industry

Transport

Pumps& Tractors

Telecom

Cooking

Energy Demand in Reference Scenario

17% Drop in Energy

Demand

Demand Scenario Projection via Energy Efficiency (2040, in TWh)

Switch To Clean Vehicles Or Be Bulldozed: Nitin Gadkari Tells Automakers

The minister is clear that electric cars, buses, taxis and bikes are the future and India should move forward in this direction

Given that electrification is the roadmap for the future, the Railways is considering the possibility of exiting or winding up the Marhowra diesel locomotive factory being set up in Bihar’s Saran in partnership with General Electric, two years after the project was awarded.

EESL’s tender is part of the government’s plan to promote electric vehicles in the country in a big way. Photo: Hindustan TimesNew Delhi: State-run firm Energy Efficiency Service Ltd (EESL) has floated a tender for procuring 10,000 electric cars and 4,000 chargers for coal, mines, power and new and renewable energy ministries as well as for providing them on rent to other departments.EESL has floated a tender for procurement of 10,000 electric cars including complete system warranty under the faster adoption and manufacturing of electric vehicles in India (FAME) scheme of the ministry of new and renewable energy.

New Emphasis on Clean Energy■ For India, Renewables are an energy solution that augment supply, not

just a climate change agenda (300 clear, sunny days)

■ Until 2027, no new thermal power plant likely (only the ones under way); but new 115 GW of renewable capacity envisaged by 2022.

■ Even after 2027, possible declines in battery prices and other storage options, may deliver a decisive blow to any new fossil based prospect

■ Both wind and solar have achieved grid parity with thermal power

■ Various renewable applications such as Rooftop solar, solar irrigation pumps, 1 GW solar farms, canal-top solar, long-term solar power contracts by bulk power consumers (Railways, Industries) are now the norm

Renewables and Stress in Power Market

■ Renewables are leading to grid instability and aggravating discom finances –moves afoot to manage the transition

■ Daunting challenge of integrating variable renewables in the grid – regional and seasonal concentration – wind surges in monsoon months, and is concentrated in southern India

■ Technical challenge is aggravated by a commercial one; as LNG is expensive and hydel power has not grown, storage and balancing costs are very high.

■ Captive generation of renewables is cheap - flight of large consumers from discoms is posing a threat to viability of distribution sector. Resultantly, a fall in PLFs of thermal generators (60% at present against 75% in 2010)

■ At a low per capita electricity consumption of 1000 kWh/year, demand needs to rise much faster than the current 5% per annum

India launches World’s Largest Programmefor Universal Energy Coverage

■ Low price of hydrocarbons and solar PV have come as a boon for India. With large savings in subsidy, Government has committed major funds for extension of energy services.

■ Schemes launched for assistance to the poor – government to bear cost of last-mile connectivity of electricity, and conversion to LPG cooking.

■ Aiming at 100% electrification by 2018. Nearly 14,000 villages electrified between since Aug, 2015. 4,500 villages remain.

■ 100% clean cooking solution (LPG) by 2019. 30 mln. household connections released since June, 2016.

■ Adoption of technology in removing fakes and leakages in subsidy has emboldened the Government to launch universal coverage approach.

NEW DELHI: Shares of power finance companies such as Rural Electrification Corporation and Power Finance Corporation hogged limelight after the Finance Minister Arun Jaitley in his Union Budget speech announced 100 per cent village electrification by May 2018. However, the BSE Power index was trading 0.43 per cent down at 2158 around 11.59 am (IST).

Read more at:http://economictimes.indiatimes.comhttp://economictimes.indiatimes.com/markets/stocks/news/100-rural-electrification-by-may-2018-power-stocks-electrified/printarticle/56910227.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

Over 82 per cent LPG coverage in 2017-18, 95 per cent by 2018-19: Official

Outlook■ Big energy push expected to mainstream rural India where 70% of the

population resides, and improve their living conditions■ Urban air quality concerns already driving a shift towards improved liquid

fuel quality and emission norms:(i) Leapfrogging from Euro IV to VI by 2019 (ii) CAFÉ norms for HDVs in the offing (for LDVs

already in existence) (iii) Globally at-par emission standards for power plants

■ Policy makers are devising strategy for India to adopt BAT both on demand and supply sides – efficient appliances and devices, ultra super critical power generation tech., smart grids.

■ There is a recognition that improving the finances of Power Distribution sector will be the critical factor for success of the renewable and energy equity related goals of the Government

■ Proposed new National Energy Policy has adopted energy market reform as its central theme (www.niti.gov.in)

anilk.jain@gov.in

‘Views expressed above are personal, and do not reflect the official position of the Government of India’