Important Materials on National Security for IPS LCE Examination
Topic: India's Strategy Toward Energy Development and Energy Security
By: —Mr. R.V. Shahi
Courtesy: Ministry of Home Affairs
Ministry of Power
Energy is the prime mover of economic growth. Availability of energy with required quality of supply is not only key to sustainable development, but also the commercial energy has a direct impact and influence on the quality of service in the fields of education, health and, in fact, even food security. Inadequacy of energy supply would obviously affect very adversely these vital and essential requirements of any society. There is, therefore, an urgent need to enhance substantially the energy availability at a rapid pace so that aspirations of those who have remained insulated from such important inputs and services are fulfilled and they are enabled to have a reasonable access.
There is a big divide between the developed and the developing countries in per capita availability of energy. The developed countries not only have a significantly higher per capita energy consumption but also mainly depend on commercial energy. On the other hand, developing countries are highly energy deficient and also the large proportion of energy consumed is comprised of non-commercial energy sources such as bio-mass. As per the projections made by International Energy Agency (IEA), most of the developing countries are not expected to reach, even by the year 2030, the level of Energy Development Index achieved by the OECD countries way back in 1971. There is an urgent need to revisit the prevailing world energy order and to initiate necessary steps and to restructure and augment investments and technology transfer strategies to expand the reach of commercial energy to all the countries as per their developmental needs.
With consumption of 530 kg of oil equivalent per person of primary energy in the year 2004 compared to 1240 kg of oil equivalent per person in China and the world average of 1770 kg of oil equivalent per person, India's per capita consumption of energy has been quite low, despite the fact that India is the sixth largest electricity market in terms of power generation. Per capita electricity consumption in India is only 615 Kwhr per year as compared to world average of 2516 Kwhr and 1585 Kwhr in China.
On 9th December, 2006, while speaking to the Chief Ministers of all the States in the meeting of the National Development Council, the Prime Minister of India outlined the approach to the Eleventh Five Year Plan (year 2007-12) and said "The GDP growth target proposed in the Approach Paper involves accelerating growth rate from 8% likely to be achieved in the base year (2007-08) to 10% in the final year (2011-12) of the Plan, yielding an average of 9% growth in the XI Plan period. This is ambitious but feasible. Growth has averaged 8 per cent over the past three years and is likely to be at this level again this year. This has never happened in the past. If we achieve the target of 9% growth in the 11th Plan, India will be firmly placed in the front ranks of fast growing economies. Most observers believe that we are at a historic cusp when this transition is possible". To deliver a sustained growth rate of 8% to 9% through next 25 years till 2031-32 and to meet the life line energy needs of all citizens, India needs, at the very least, to increase its primary energy supply by 3 to 4 times and its Electricity generation capacity by about 6 times.
Thus, if we take a conservative view, India's commercial energy supply would need to grow at the rate of 6% per annum while its total primary energy supply would need to grow at 5% annually. This is based on the assumption that elasticity of GDP in relation to supply of energy would be less than 1. However, this assumption may not be true entirely as, over a period of time, when economy grows, industrial sector is bound to increase at a faster pace and thus with the change in sectoral composition, demand of electricity would grow at much faster rate than projected above. Increase in the reach of the electricity has its own dynamism and would certainly act as catalyst towards more demand of electricity with growing consumerism in the country. Therefore, the correlation between electricity growth and GDP will tend toward 1:1. As noted economist Samuelson has said that choices create its own preferences. This is true in the context of Indian energy sector as well. We believe that availability of electricity creates demand for electricity. To meet the growing demand, there is a difference of opinion among the experts about supply options and market structure. One school of thought advocates that a competitive market is the most efficient way to realize optimal fuel and technology choices for extraction, conversion, transportation, distribution, supply and end use of energy. This approach believes that an energy market being managed on competitive principles is bound to minimize market distortions and maximize efficiency gains. However, there is another school of thought which questions the wisdom of assuming automatic efficiency gains in utter disregard to the prevailing market conditions and absence of a matured market with sufficient number of players in the supply chain and highly skewed demand – supply mis-match. Nobel Laureate Amratya Sen forcefully argues, "Market mania involves an under-examined faith in the efficiency and other virtues of the market, regardless of the context."
Primarily there is no disagreement with the fundamentals of market approach. The problem arises when an ideal goal is projected without a skillfully structured road map to reach the goal. Management of transition to a matured market is what needs to be appreciated. In absence of tangible number of market players, particularly in supply chain, our fear is not misplaced in assuming that in case we have two or three big players in mind when we talk of competition, then strong cartels is always a possibility with a sole aim of sharing the supernormal profits. In such a situation assumption of passing of efficiency gains to consumers may not hold good.
INTEGRATED ENERGY POLICY
8. The Committee set up by the Government of India has recently come out with the Integrated Energy Policy, which aims to bridge the prevailing gap in the demand and supply of energy in short, medium and long term perspective. Recognizing the role of both private and public sector participation in meeting the energy needs of the country, the policy strikes a right balance by stating that "wherever possible energy market should be competitive. However, competition alone has been shown to have its limitation in a number of areas of the energy sector and independent regulation becomes even more critical in such instances".
The approach of Integrated Energy Policy is summarized below :-
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