Enhanced Energy Security: Select Initiatives for Indian Policymakers and Stakeholders

As India pursues the objective of greater energy security, it is essential that fossil fuels should not be demonized. Fossil fuels, including coal, will continue to be a part of the energy mix of India as well as the world. To quote:
“…there is an obsession to demonize fossil fuels. That leads to under-investment in fossil fuel production, storage, and distribution. The result is a shortage.

Germany shut down nuclear power production in a knee-jerk reaction to the Fukushima reactor meltdown in the wake of the Tsunami in Japan. Germany did not read the book, ‘Meltdown’ which described why the reactor melted down. You don’t build a Tsunami protection wall for the average wave height but for the extremes. Low probability of an extreme event with huge consequences must be taken seriously. ”

Forced energy transition, without properly securing supply chains and logistics, and competent longer-term planning and phasing-in of the transition could prove to be severely counterproductive.
Moreover, as Branko Milanovic has argued that, “There is here a very important lesson for all climate change activists. They need, as I have many times insisted, to think much more seriously about the trade-off between economic growth and climate change control”.

Forced energy transition, without properly securing supply chains and logistics, and competent longer-term planning and phasing-in of the transition could prove to be severely counterproductive.
Moreover, as Branko Milanovic has argued that, “There is here a very important lesson for all climate change activists. They need, as I have many times insisted, to think much more seriously about the trade-off between economic growth and climate change control”.

India’s per capita CO2 emission at 1.91 tonnes is low because its per capita income at around USD 2000 is low. South Korea has CO2 emissions per person of 11.85, but its per capita income is USD 32000.
India’s first goal is to reach USD 5 trillion in current nominal GDP by 2027. This implies that its per capita income will still be less than USD 4000. Some projections suggest India’s GDP is likely to approach USD 40 trillion by 2050, implying a per capita income of USD 26000, less than South Korea.

India’s climate change goal should be to minimize the increase in per capita CO2 emissions per USD 1 billion additional GDP generated. This would also require much closer communication and interactions with the scientists doing basic research on energy and related areas. Basic research has a longer but larger pay-off. This is India’s opportunity to be a technology generator as well as the receiver of technology from others.

Select Initiatives for Enhanced Energy Security

Initiative 1: Integrate the Critical Role of Minerals, metals, and Rare Earths in Renewable Energy Policies and Research
India at the first leader-level meeting on energy in 2021 under the UN General Assembly in 40 years has made commitments to increase renewable energy installed capacity to 450 GW by 2030, and develop and implement a National Hydrogen Energy Mission to scale up annual green hydrogen production to 1 MT by 2030.
Green hydrogen is produced through electrolysis which is a process of separating water into hydrogen and oxygen. Brown hydrogen is formed through coal gasification. Production of grey hydrogen from natural gas throws off carbon waste. That is its production results in the production of large volumes of carbon dioxide.

Blue hydrogen is a cleaner version for which the emissions of carbon are captured and stored or reused. Indian policies while focusing on green hydrogen do not preclude developing other types of hydrogen.

Currently, green hydrogen is more expensive than the other types due to the cost of electrolysis. But this cost is expected to decline over time. India also announced that it is introducing a Production Linked Incentive Scheme to add 10 GW solar PV manufacturing capacity by 2025.

Indian policymakers and stakeholders must plan for the fact that renewable energy sources are much more intensive users of the above. As an example, a typical electric car requires six times the minerals of a conventional car. An on-shore wind farm requires nine times more minerals than a gas-fired power plant of similar output.

Therefore, strategic diplomacy; addressing technical and political economy issues of India’s mining sector; technological innovations (including hydrogen as a carrier of energy), and others are to be pursued in a focused and competent manner to ensure that renewable energy sources are sustainable over a long period; and economic costs of transition remain affordable for the country.

The distinction between energy carriers and sources is important. Energy carriers exist in a variety of forms and can be converted from one form to another, while energy sources are the original resource from which an energy carrier is produced.

India is a member of a newly formed group called Quad, comprising Australia, India, Japan, and the United States. In a joint statement after their first in-person summit in Washington, D. C. on 24 September 24, 2021, Quad leaders stated: “Our work is organized across three thematic areas: climate ambition, clean-energy innovation and deployment, and climate adaptation, resilience, and preparedness, with the intent to pursue enhanced actions during the 2020s, contributing to the aim of achieving global net-zero emissions preferably by 2050, and taking into account national circumstances.

We are pursuing nationally appropriate sectoral decarbonization efforts, including those aimed a decarbonizing shipping and port operations and the deployment of clean-hydrogen technology.
We will cooperate to establish responsible and resilient clean-energy supply chains and will strengthen the Coalition for Disaster Resilient Infrastructure and climate information systems.

Quad countries will work together for successful outcomes at the COP26 and G20 that uphold the level of climate ambition and innovation that this moment requires.
India thus has an opportunity to leverage the technology prowess of Japan and the United States, and benefit from the mineral and metal resources of the United States and Australia.

Initiative 2: A shift from Water-intensive crops, and Rationalizing Crop Selection Among Different Locations in India It is widely recognized that India is a water-scarce country. Optimization of water use through crop selection, through locations where water-intensive crops such as sugar cane are grown; and a measured shift towards plant-based consumption of agricultural items, while reducing wastage, and increasing share of processing of perishable crops are necessary.

States such as Maharashtra, Karnataka, Punjab, and Haryana must plan a shift away from sugar Cane and other water-intensive crops. Small-scale local initiatives for the desired shift in crop selection and in consumption patterns as well organization of local supply and logistic chains need due recognition in policies, and incentives provided.

This Shift has become even more essential as India aims to progress from a current replacement level of 8.2% of ethanol to a 20% replacement by 2025.
It is estimated that around 12 billion liters of installed capacity would be required by the year 2025 for ethanol production, with 6-6.5 billion liters of installed capacity in sugarcane, a water-intensive crop; and 5-5.5-billion liter capacity from grain or corn.

Such a shift will require reducing the role of sugar cane in ethanol production and this will need to be planned on a systemic basis. It is also recognized that India will need vehicles that can take 20% blended ethanol.

The government has announced that from April 2023 all new vehicles will be E20 compliant. The government will order FFV (flex fuel vehicle) production soon. So, a significant part of the fleet of vehicles will run on 85% ethanol. It has also fixed standards for E12 and E15 vehicles, which are expected to be rolled out over the next two to three years.

Hence, by 2025, India plans a fleet of vehicles that are E12-15 compliant, E20 compliant in addition to FFVs .

Initiative 3: Power Sector Reforms, Particularly of Discoms

The Power value chain is: Raw material (Coal, Fuel) –> Generation –> Transmission –> Distribution –>

Consumption. In this chain, Distribution companies (or discoms) have been the weakest link for the last three decades.

India has over 30 Discoms and they run deep losses each year (loss of ₹ 900billion in FY 2021). Thus, the Discoms are unable to pay Gen-cos on time (dues of ₹ 67,917 crores at Mar-21). Which impacts new capacity creation. Hence discoms are the core focus of new reforms.

A 2021 study by NITI Aayog has provided a comprehensive road map for power sector reforms.

Reforms needed in the power distribution sector may be summarized as follows:

  • Delicensing of state monopolies- open the sector to competition/contestability
  • Meet requirements for Consumers should be able to choose discoms (like telcos)
  • Widespread adoption of Smart meters to plug leakages
  • Easier resolution of disputes
  • Make 24×7 electricity a reality
  • Reward consumers who are shifting to solar energy

The policymakers are receptive to power sector reforms. Thus, the Union power ministry is set to implement the first phase of the Market Based Economic Despatch (MBED) system from April 1, 2022.

MBED is an electricity market design, aimed to cut power procurement costs of power distribution companies

(discoms), which will accumulate demand requirements from all states in a central pool and allocate power to them from the cheapest source available across the country. Power plants that supply electricity across multiple states will have to mandatorily participate in the MBED system while other generation plants can also, volunteer.

“A robust day-ahead market will also form the basis for transitioning away from the country’s over-dependence on longer-term power purchase agreements (PPAs) to sustainable market-based operations,” the ministry said.

Before the implantation of the first phase of MBED, the Central Electricity Regulatory Commission (CERC) will align their regulations and a mock drill will be carried out to ensure that the system runs smoothly. Currently, the discoms have to optimize their power costs based on their available resources among the limited portfolio of plants with which they have PPAs.

The system is estimated to generate an estimated annual savings of more than INR 120 billion for electricity consumers. The electricity market operations reform through MBED is seen to help in moving towards a “one nation, one grid, one frequency, one price” framework.

The development comes at a time when power exchanges have been allowed to introduce longer-duration delivery-based physical spot market contracts, which are currently restricted to only 11 days.

The restriction was imposed on the power exchanges due to the 10-year-old legal battle between CERC and the Security Exchange Board of India (Sebi) over the jurisdiction to regulate electricity derivatives trading. The matter was brought to an end by a recent decision by the Supreme Court.

Initiative 4: Accelerate Atmanirbhar Bharat initiatives for EV Battery supply and Logistics Chain

Currently, China has the dominant share in the global production of EV batteries. U. S. President Biden’s strategy to make the United States a powerhouse in electric vehicles includes boosting domestic production of batteries has positive implications for India. European countries are also looking to reduce decades of growing reliance on China in this area.

India has approved a production linked incentive (PLI) scheme with an outlay of ₹180 billion to promote manufacturing, export, and storage of lithium-ion cells, essential for developing electric vehicles.

Through this scheme, the Union government aims to install a manufacturing capacity of a 50-gigawatt hour (GWh) of Advanced Chemistry Cells (ACC) and 5GWh capacity of “Niche” ACC. ACCs are essentially lithium-ion cells.
The projected direct investment is around ₹450 billion from leading manufacturers Panasonic Corp., Toshiba Corp., and others.

Tata Chemicals Ltd has announced a lithium-ion cell manufacturing project in Gujarat. The government hopes to save ₹2-2.5 trillion on account of the reduction in oil imports during the period of this program, due to the increased adoption of electric vehicles. India needs to fast-track battery research and development activities. India could use its IT ecosystem to develop solutions for managing batteries.

Concluding Remarks

India must progress toward energy security goals by devising strategies, policies, and tactics that are appropriate for its context; and make required trade-offs between the pace of progress in energy security and broader economic development goals. High and sustained economic growth is imperative for India given its current low per capita income.
The Union Government, state governments, and public and private sector organizations should plan to generate carbon credits, and publicize its energy-efficient projects. Finally, a mindset change and a political economy that incorporates India’s rise is and efforts required to sustain its geo-economic and geostrategic interests are also needed.