Is India dealing with its 95% increase in energy demand ?

In a series of posts leading up to the World Economic Forum’s New Energy Architecture report launched on Monday 23rd April 2012, Tejpreet Singh Chopra, President and Chief Executive Officer of Bharat Light and Power, talks about the challenges of meeting India’s spike in energy demand. 

Driving through the interiors of Punjab this November, I would find miles of harvested rice fields with the remaining rice straw being burnt to prepare the soil for the next harvest. In a country where roughly 300 million people do not have access to electricity, it made me wonder about the huge potential being wasted each year. The 160MT of agricultural waste produced could theoretically produce 16 GW of electricity. As India continues on its growth journey, it is essential that it tackle such issues, creating a more sustainable and secure energy architecture in the process.

Three challenges are evident: availability, accessibility and sustainability. India’s energy architecture is straining under the weight of the 95 per cent increase in energy demand seen over the past two decades. Despite 50 GW of total power generating capacity added over the past five years, peak demand deficits are expected to remain worryingly high during 2012, ranging from 5.9% in the north-eastern region to 14.5% in the southern region. In individual states, such as Goa, Daman and Diu, these deficits run at over 40%. Put simply, India lacks the infrastructural capacity to deliver sufficient supply.

With the biggest rural population in the world, India faces a huge accessibility challenge. 25% of the population (289 million) does not currently have access to electricity. 72% of the population (836 million) relies on the traditional use of biomass for cooking which produces a vast amount of smoke and air pollutants.

The country has a responsibility to achieve its growth trajectory in an environmentally sustainable manner. The challenge is significant. Despite having made significant progress in renewables, with an installed capacity of 22 GW as of December 2011 (greater than the installed capacity of countries such as Austria), India remains the fourth largest emitter of greenhouse gas emissions after China, the US and Russia.

During my work with the World Economic Forum’s research initiative on the New Energy Architecture, which has included the production of a deep-dive country study on India, it became clear that to tackle these challenges India should not look to copy the Western model of energy sector development. Instead new models are required across the energy value chain, adapted to local conditions.

On the demand side, energy efficiency is of central importance, with extensive innovation-driven change required. In both rural and urban areas consumer preferences need to be changed if India is to alleviate the pressure on its energy infrastructure. This consumer change needs to be enabled by new technologies. Just as Apple was able to revolutionize the way in which consumers interacted with media, so too must energy companies focus on creating products that transform the way in which people interact with energy.

On the supply-side decentralized distribution and generation will be key. The development of village-scale mini-grids based on hybrid systems (using a combination of technologies adapted to local conditions) should be a focus for the future. Decentralized systems will be the nano car of the energy sector, enabling rural electrification to reach new users faster and at a lower cost than grid extension. These systems, particularly combined heat and power cogeneration, should also be rolled out to urban areas. Such systems reduce transmission losses, operating costs and the environmental impact of overhead power lines. In addition, these are low water stress solutions, small land footprint solutions, modular in nature, and better suited for the digital economy. Lastly, these solutions are going to require low cost technology innovations. India needs to develop the infrastructure to support such innovation – in terms of R&D facilities, manufacturing and talent.

To fund these changes, new financing mechanisms will be required. The cost of capital remains a key challenge for the energy sector. The expansion of the renewable sector will be central to creating a more sustainable energy system. Renewable energy should be classified as a priority sector, resulting in subsidised interest rates, and creating deeper debt financing markets, with an independent regulator instituted to manage the sector.

Finally a fair regulatory framework needs to be put in place. In particular India needs a well-instituted market mechanism in which energy prices are based on the interaction of supply and demand. In both the petroleum and electricity sectors such a move would remove a major barrier to private investment. It would furthermore improve allocative efficiency in the Indian economy, relieving considerable fiscal pressure and allowing revenues to be better directed towards achieving India’s development goals.

As the country begins to deliver on its 12th Five Year Plan, it will have a unique opportunity to create a New Energy Architecture that supports economic growth and development, in an environmentally sustainable way, while ensuring energy security and access. Given the urgency of the challenges we face, this is an opportunity that should be at the top of the country’s agenda.

Author: Tejpreet Singh Chopra, President and Chief Executive Officer, Bharat Light and Power; Young Global Leader and Member of the Global Agenda Council on New Energy Architecture, World Economic Forum

Picture: An ice-cream cart is pictured next to the India Gate before Earth Hour in New Delhi March 31, 2012. REUTERS/Parivartan Sharma