BackOpinion | An agenda for energy sector to fuel growth
In the next five years, expect continuity on the policy front with a focus on implementation
PremiumThe energy sector was at the centre of the Narendra Modi government’s development agenda in its first five years. The unprecedented expansion of universal energy access was achieved through schemes such as Saubhagya (household electrification) and Pradhan Mantri Ujjwala Yojana (cooking gas to the poor). The government also implemented UJALA (distribution of LED bulbs) and UDAY (turnaround of electricity distribution companies) schemes to improve energy efficiency.
India also committed to energy sustainability and signed the COP 21 Paris climate change agreement. It launched a massive renewable energy (RE) programme to achieve 175 GW of capacity by 2022. RE capacity grew from 32 GW in 2014 to 80 GW to date. The upstream oil and gas licensing regime was revamped through the Hydrocarbon Exploration and Licensing Policy (HELP) and Discovered Small Field (DSF) bidding rounds. Strategic oil reserves were created and filled. India emerged as a key player in the geopolitics of energy.
The overall objective of reviving investment and creating jobs can be achieved by policy intervention in the energy sector. Some of these interventions are listed here:
•An RE capacity of 80 GW will have to be bid out in the next three years to achieve the 175 GW target by 2022. Recent RE bids were under-subscribed. This may be due to issues related to tariff caps, land availability in states with a high RE potential, and grid connectivity. These issues will be addressed. Utilities should also honour existing contracts and accept outcomes of bid processes.
•About 25 GW of gas-based generation capacity, running at sub-optimal levels, leads to a default to the banking system and the under-utilization of gas infrastructure. The government may consider using this capacity, along with RE power, to lower the overall carbon footprint and increase asset utilization.
•Stressed power projects continue to be the biggest concern in the power sector and a drag on the banking system. The central government should facilitate procurement of un-contracted capacity of these projects by pooling state utilities’ requirement and providing coal linkage.
•UDAY provided one-time relief to distribution utilities by restructuring 75% of the debt. This was to be accompanied by improvements in operations and the implementation of cost-reflective tariffs. Many utilities achieved good results. Of late, however, there are slippages in tariff hikes and efficiency gains are not in line with the plan agreed with the government of India. The government will have to revisit the UDAY monitoring mechanism and urge states to work according to the memorandum of understanding.
• After the successful HELP and DSF bidding rounds, the centre should ensure that the continuous decline in domestic oil and gas production is arrested and the prime minister’s vision of replacement of 10% imports is achieved. Enhanced oil recovery techniques must be deployed in ageing fields to improve production. A national biofuel policy is an important initiative from an energy security and sustainability standpoint. This will also generate local employment and help enhance farmers’ incomes.
• India has been struggling to increase the share of natural gas in the primary energy basket. Despite its target of raising the share to 15%, it has fallen to 6%. The government should bring in facilitating policies in user industries to increase the use of gas. The move will reduce carbon footprint and help fight pollution.
• In the past five years, India benefitted from a low-to-moderate crude oil regime. India should continue its global engagement and lead the charge in voicing the concerns of the consuming nations.
Success in the energy sector is crucial in “fuelling" growth in the economy and Modi Government 2.0 seems to be well placed to achieve it.
Debasish Mishra is partner at Deloitte India.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
