What should India do in the Current International Energy Market?
03, Jan 2023
Prelims level : Economy Mains level : GS-III Economy - Inclusive Growth & Issues
Why in News?
- India marches ahead carrying the same challenge projected as last year that it will have to navigate the choppy waters of a volatile petroleum market without straying from the green path towards clean energy. Energy security cannot be achieved by focusing only on the supply and distribution side of the equation. The demand conservation and efficiency sides are equally important.
Current situation of international energy market:
- Fragmented energy market: the energy market has fragmented and energy nationalism is the driving force behind policy.
- Restricted markets for Russia: Irrespective of how and when the Ukraine conflict ends, Russia will not be allowed access to the western markets for as long as President Putin is at the helm of the affairs. One fallout is the tightening energy embrace between Russia and China.
- Declining western orbit and increasing non-aligned approach: Three, OPEC plus one which is, in effect, Saudi Arabia plus Russia has stepped outside the Western orbit. Saudi Arabia has made clear it intends to pursue a Saudi first, non-aligned approach to international relations including with the US.
- Emergence of new energy centres: The new centres of energy power are emergent around countries that have a large share of the metals, minerals and components required for clean energy. China is currently the dominant power.
What should India do against this backdrop?
- Government must increase productivity of existing sources: Discounted Russian crude is an opportunistic panacea. It does not provide a sustainable cover to meet our requirements. To secure such a cover, government must increase the productivity of our existing producing fields; additional resources should be allocated for accessing relevant enhanced oil recovery technologies.
- Secure long- term supply relationship with Saudi Arabia and Iran: Further, it should leverage the country’s market potential to secure a long-term supply relationship with Saudi Arabia and an equity partnership with Iran.
- Enhance the strategic petroleum reserves: It should enhance the strategic petroleum reserves to cover at least 30 days of consumption and remove the sword of Damocles that the CBI/CVC/CAG wield over the heads of the public sector petroleum companies so that their traders can, without fear, take advantage of market volatility.
- Expediate gas pipeline grid: The construction of a pan-India national gas pipeline grid should be expedited.
Analysis: Phasing out coal and the energy transition in India:
- Coal one of the major sources of energy in India: Coal will remain the bulwark of India’s energy system for decades. It is no doubt the dirtiest of fuels, but it remains amongst, if not the cheapest, source of energy. Plus hundreds of thousands depend on the coal ecosystem for their livelihood.
- Phasing out is not yet a near possibility: The option of phasing out coal whilst environmentally compelling is not yet a macroeconomic or social possibility.
- Need a balance: In the interim, the government has to find an energy transition route that balances livelihoods and pushes forward the green agenda.
- Steps to be taken: Some small, politically feasible steps in that direction would include increased R&D expenditure for coal gasification and carbon capture and sequestration technologies; setting a carbon tax; the establishment of regulatory and monitoring mechanisms for measuring carbon emissions from industry; the closure of inefficient and old plants and a decision not to approve any new ones.
- Determining competitiveness: In parallel, it would help if Niti Aayog were to pull together a group of economists and energy experts to determine the competitiveness of coal versus solar on a full-cost basis
Other possible measures
- Upgrading the transmission grid: Allocation of funds for upgradation of the transmission grid network to render it resilient enough to absorb clean electrons on an intermittent basis. The sun does not shine at night and the wind does not blow all the time. In parallel, the underlying structural issues currently impeding the scaling up of renewables must be addressed.
- Repairing the balance sheets of discoms through various regulatory reforms: In parallel, the repair of the balance sheets of state distribution companies (discoms), easing the procedures for the acquisition of land and the removal of regulatory and contract uncertainties are most important.
- Building up the domestic chip industry: It will take decades to harness our indigenous resources of the metals and minerals critical for clean energy and build up a domestic chip industry. In the interim, diplomats should secure diversified sources of supply to reduce the country’s vulnerability.
- Developing and commercializing 3G clean energy technologies: Finally, the creation of an enabling ecosystem for developing and commercializing third-generation clean energy technologies like hydrogen, biofuels and modular nuclear reactors. Nuclear, in particular, should be pushed.
- India is not responsible for global warming, but it will be amongst the worst affected. Millions live around its coastline. Their livelihoods will be undermined by rising sea levels. Millions will also be affected by melting glaciers and extremes of temperatures. So irrespective of who is to blame, India has to stay on the path of decarbonization. It cannot afford to develop first and clean up later.