Is the draft national energy policy actionable?
One cannot envy the task given to the NITI Aayog to produce a National Energy Policy (NEP). Almost all projections for future energy needs, worldwide, have not panned out, as this space is very dynamic and assumption-driven. The erstwhile Planning Commission did focus on broad energy issues beyond the line-item ministries with their Integrated Energy Policy (2006), and the Expert Group Reports on Low-Carbon Inclusive Growth (2012 and 2014). As a think tank of the Union government, NITI Aayog is best positioned to do energy planning in terms of its mandate and coordinating role. The recent draft NEP is a further step in this direction. But is it an actionable policy?
Let’s start with asking what the purpose and ambition of the NEP is. Is it merely a guidebook of possible solutions to existing and future energy challenges, or a blueprint or road map? The latter involves considerable strategizing, evaluating the trade-offs and taking judgement calls in the national interest. NEP attempts to do all in part, first by examining demand and supply, and then by reviewing a few facilitating mechanisms of regulatory, infrastructural, technical capabilities and international cooperation. But these are not tied back together in terms of a coherent set of prioritized strategies. The coverage of issues is comprehensive, but in terms of assessing priorities, preparedness or uncertainty, the NEP misses an opportunity.
Inheriting a top-down energy policy legacy focused extensively on supply planning and targets, the NEP misses out much of the dynamics in the individual demand sectors. Hence, it also misses the ways in which they can be harnessed to create frameworks that leave almost everyone better off, whilst also providing mechanisms to meet the NEP objectives set out in its preamble. It mentions many key issues for the future almost in passing, such as time of day electricity pricing, load management (including demand response), and growth of electric vehicles (EVs)—areas with great potential but also uncertainty, where choices have to be made.
India’s electricity or energy demand elasticity to gross domestic product (GDP) has shown a declining trend, owing to the rise of services and improved energy efficiency. How the two are teased apart is crucial to understanding the future scenarios. For example, while manufacturing output is assumed to almost double its share by 2040, industrial energy grows under 5% compound annual growth rate (CAGR) in the same period as per the NEP. This doesn’t add up, given highest energy intensities in industry.
Issues of the supply side, including energy security, access, affordability and sustainability are covered well in the NEP, with numerous fresh perspectives. But, importantly, lack of supply isn’t the future bottleneck—doing it cleanly, securely, and inclusively are the real needs. In many cases, the NEP accepts government’s ambitions as a given (perhaps, e.g., fuelled by falling renewable energy or RE costs), but in other cases it doesn’t. What is likely versus what is not is the key—e.g., the NEP should elaborate policy implications if it projects domestic coal production by 2040 is at least 7% lower than government’s 2020 target of 1.5 billion tonnes coal production. This is striking because NEP’s supply-side “ambitious” scenarios aim to maximize domestic fuel production with energy security as the ultimate goal, unlike low carbon scenarios used in earlier integrated studies.
NEP reports 2022 and 2040 results for its BAU (business as usual) and ambitious scenarios. It must also provide 2030 projections. India’s nationally determined contributions (NDCs) for the Paris Climate Accord are tied to 2030, and most domain research focuses on likely 2030 energy and emissions portfolios, so NEP could serve as valuable feedback to and from the policymakers. Moreover, 2030 is a relatively comfortable time-frame for energy system modelling—neither too long nor too short—to capture the technological and market dynamism and policy impetus.
All future transitions will involve trade-offs. India extracts one-seventh of its Central budget from petrol and diesel, through taxes, cesses, etc. (totalling almost 3% of GDP, including state levies). A significant chunk of this is what the government is implicitly willing to forego with its EV targets. Similarly, targets for domestic coal production significantly affect the revenue stream for railways and its ability to cross-subsidize passenger rail. If the NEP simply uses the government’s coal targets, it presents a rosier than actual picture for the railways, when analysis suggests otherwise.
Such trade-offs and discontents are necessary to acknowledge and address in any national policy. Probably the biggest challenge is the issue of multiple stakeholders in a federal structure, a reason why even the US also grapples with a “national” energy policy. In electricity, the states are a key stakeholder, with different levels of preparedness, ability, and even appetite for change. So recommending better pricing mechanisms, for example, is easier said than done. In the broader ecosystem, we have multiple jurisdictions, ministries, and stakeholders. While NEP held extensive consultations, the next time different domain experts should be tasked with approaching problems in coordination rather than silo-like manner.
This brings us to the true value proposition of an NEP—how to create appropriate conditions to achieve policy goals. More than targets, we need better energy frameworks, for example, those that value electricity at the right time and place. The difference between no-regret (win-win) options versus those involving trade-offs must be evaluated. Finally, how the decision is implemented is a crucial part of the process—via legislations, standards and codes, or simply regulatory tweaking? Thanks to rapidly evolving technologies, there is consensus on the inevitability of disruptions. The question is: are we ready for these, rather, enabling positive disruptions?
A realistic energy policy cannot be purely top-down or “national” but must also incorporate multiple smaller policies, e.g., one meant to stimulate domestic oil and gas production, which the ambitious scenario represents. Such coordination is the need of the hour and NITI Aayog is in a great position to play that role. Part II of the NEP could focus on such strategizing, prioritizing and road-mapping of India’s energy policy priorities.
Rahul Tongia and Sahil Ali are, respectively, fellow and visiting scholar at Brookings India. They have been involved at various stages of the NEP and NITI Aayog’s Energy Model IESS, 2047. Views are personal.
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