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Surya P. Sethi, Former Principal Advisor (Energy), Planning Commission

13 Oct 2010

InfralineEnergy's Chhavi Tyagi engages Sethi in a conversation where he makes detailed comments on recommendations of The Integrated Energy Policy. He critices the existing distortions in pricing of various energy resources.He points out the flaw in governments'vision to provide power for all and suggests possible solutions to adequately address country's power related issues.

Edited excerpts

Do you think that the Integrated Energy Policy - a Report by the Expert Committee, formulated in the year 2006, is going on the track as it had laid down for India’s energy sector?

The Integrated Energy Policy made many recommendations; some were about structural issues and some were on very specific issues. If I were to look and assess at what it has achieved today, I’ll say it has achieved something between 15-20 percent. The success rate, though low, is there, which is not that bad because some policies don’t even have this success rate. One of the biggest findings and recommendations of the report was that energy efficiency was going to be our biggest source of energy. And, clearly most specific steps have been taken in that direction through the Bureau of Energy Efficiency. Also, some other positive outcomes have been the availability of coal blocks to other producers other than Coal India and others. Also, in the meetings during the formulation of the policy, we had suggested giving away almost 20 billion tonnes of coal to other producers, which actually happened later on.

However, on the negative side, there has been very little progress as regards to the major issues that were highlighted in the policy. The policy basically laid out that we cannot have the situation where the five ministries, plus the environment ministry, are pulling in different directions and not looking at this problem in an integrated manner. That was the reason we created the PM’s Energy Council, but it still has not started delivering. The ministries still look at the problems and issues in a fragmented way.

Another suggestion was that we must develop competitive energy markets, but we are far away from reaching there. The policy also suggested that relative pricing must be compatible amongst various energy resources, but we simply keep on introducing more and more distortions. We have talked of regulatory reforms in the report - both at upstream and downstream, but still the sector is nowhere near it. So, as I said, maybe 15-20 percent success rate is there but a lot of major issues are still unaddressed.

Taken into consideration the new major roadblocks, do you think that the Indian government’s mission “Power for All by 2012” can be realised at all?

Basically, the first thing is that ‘Power to All’ is not a good goal to set. Even the most developed countries have not been able to provide “power to all”. One can say that we will have grid connectivity to 90 percent of the population or 95 percent of the population, which can still be realised. However, from day one and it goes back to the 10th plan, I have vehemently questioned the programme that they have put in place to deliver this promise. The programme that the government has set is a programme that revolves around the so-called village electrification. Now, as regards to the villages that were electrified 40 years ago, up to 40 percent of the houses in those villages do not have electricity. So, in those villages that were electrified 40 years ago and yet if 40-odd houses do not have electricity, then something is wrong with the way we are designing the programme.

"There are basic deficiencies in the way these plans have been designed. You can’t have a sustainable revenue model through village electrification programmes, unless you have productive loads."

The Policy had suggested an alternative approach to this electrification, which for a variety of reasons has not yet been deployed. The programme, itself, is deficient because it is not sustainable as we do not have energy to deliver to these villages. Take my own case, I live in Noida and we have 8-10 hours of power cut everyday and if that is the condition in the NCR region, you can imagine, what the condition elsewhere is. So, whatever infrastructure we are creating under RGGY, like in the past, will get uprooted or will get lost and I don’t think we will deliver this objective of electricity for all by 2012. We are far from it! So maybe, the number of people who do not have electricity will come down by 2012, but we will still have a vast number of people without electricity.

So, what are your suggestion regarding this initiative?

See, if your objective is to give electricity to all, then your programme should be household electrification and not village electrification. Look at the old definition of village electrification; if there was an electric pole, then the village was regarded as electrified, but just having a electric pole doesn’t ensure you electricity. So, they changed the definition to say that all the public buildings must be electrified and at least 10 percent of the households must be electrified, a definition which the village panchayats need to confirm. But, even that definition does not provide electricity to all. So, why have such a programme; why don’t you have a programme which says that households should be electrified? Also, the programme does not concentrate on the villages that have been declared electrified. When would it be easier to provide electricity to these households, which do not have electricity, at a marginal cost? The government would have covered more households then it is covering right now.

Secondly, if you simply do not have energy, there is no point in running of these 5 KVs of transformers in household connections. They need productive load. If you can’t deliver them the productive load, then they will misuse whatever load you provide. They will load that 5 KV with whatever they need to do, and eventually, the transformers will burn out. So, there are basic deficiencies in the way these plans have been designed. You can’t have a sustainable revenue model through village electrification programmes, unless you have productive loads. A counter example of that is that Jyoti Gram Yojna in Gujarat, where productive load is paid for and is assured. So, you have to use schemes of that nature if you really want to address this problem.

Also, with coal being the most important energy source and it being already under severe constraint, do you think the new environmental policies like the go and no go areas are one-sided?

This is the whole conflict of environmental goals and more coal production. An important thing that the Integrated Energy Policy pointed out was that contrary to popular belief, we can run out of our coal reserves in about 45 years. So far, nobody had said so and this was the first document to say it. Also, this whole concept that coal doesn’t have a cost to it is unreasonable. We are selling this coal at the pithead at one of the most uneconomic prices. Its value is much more at the pithead than what we are selling it at. The Policy suggested that the relative pricing between resources should be compatible. There is no point in pricing coal so cheap, because by doing so, we destroy the environment more, as the producers resort to so-called open cast mining, which has much more severe environmental consequences.

It’s not that we do not have coal, but we do not have coal which is extractable, using available technologies. So, one of the key recommendations of the Policy was that there should be gasification of coal. You gasify the coal where it exists so you don’t have to mine it. Then, you use that gas to raise power. But, again, nothing has happened on that count. These 40 years of coal supply could easily become 120 or 130 years of supply, if we could gasify the coal and extract the gas. Environmentally also, it would be better and you will have more energy available. Specifically to your question, I don’t think that we should blame the environment ministry because the environmental cause will become more and more internalised as we go forward. So, the sooner that we recognise that the era of cheap coal is over, the better it is for everybody.

Also, with dwindling resources, environmental issues and underdeveloped renewable energy resources, and in contrast, the rising demand for power, what can India do to avoid the increasing dependence on importing these resources?

Going back to the Policy, if we follow the energy efficiency pathway, we can reduce our energy requirement from the most energy-intensive pathways for about 25-30 percent. Also, our overall import dependence is not going to rise that drastically. Here, I am talking of overall energy import dependence. This in the case of coal would become 90 percent of import dependence but if you look at the overall energy mix, our import dependence would still remain in the reasonable area of 40-45 percent.

"Gujarat has set a very ambitious target and the question is that whether they can they achieve it or not. No, I don’t think so. But at least, that state is showing consciousness that we are an energy–scarce society and that we need to do something about it in a sustainable manner."

Also, I don’t think it is such a huge bugbear as it is made out to be. Remember, Japan is 100 percent energy import dependent. Also, it’s not that import energy is the only problem. After importing the energy and then not using that energy could be a problem. I am not saying that we should not explore whatever domestic resource we have, but whatever we must do, we must do it in a sustainable manner.

Do you think Gujarat’s endeavour to become the “energy hub of India” and its goal to generate 50 per cent of power from green technology is plausible?
It is not possible. It is like the plan that we have of delivering 80,000 MW of electricity in the 11th plan. Nobody believes that could be done. The good thing is that, I think, that Gujarat is recognising the problem much ahead of everybody. They have set a very ambitious target and the question is that whether they can they achieve it or not. No, I don’t think so. But at least, that state is showing consciousness that we are an energy–scarce society and that we need to do something about it in a sustainable manner. To that extent, I support the endeavour, but I don’t think if they will achieve 50 percent through renewable resources. However, even if renewable resources rise to 40 times in 25 years, renewable will still count for 5-6 percent of our energy mix. So, may be Gujarat will achieve 10-12 percent of its energy through renewable, but that is better than not doing anything about it.
Do you think India, as suggested by former minister for Petroleum and Natural Gas, Mani Shankar Aiyar, should look more towards Asian neighbours for energy import than farther and comparatively expensive Western nations?
Yes, I do agree that we need to look at countries which are in the neighbourhood. And, not only the Middle Eastern countries but also countries like Russia, which have been a major energy supplier in one way or another. Also, we need to strengthen our relations with them as they are in our neighbourhood and they have cheaper resources of energy and if you can tap this, then why not?
What are your views on energy diplomacy initiatives taken by the Indian government, especially with the fellow Asian countries? Are we late as regards to China’s growing influence in the neighbourhood?

The fact is that China is better located to some of these countries by land. And, they have already connected themselves to a pipeline with Kazakhistan, for example, a 10,000 km pipeline, which will soon be pumping in almost 30 billion cubic metre of gas rising to 60 billion cubic metre of gas. So, yes, China has taken a march on us in tapping more energy. Also, the share of global supply of energy is rising at a very low pace and India consumes about 3.8 percent, which is rising at 1.7 percent per annum. This rate of growth will double our share in the next 35-40 years, whereas, China has managed to increase its share of global supply in the matter of 10-15 years to three times what it used to be. But a lot of that has also to do with their domestic coal production, which they were able to push from about 500 million tonnes to two and a half billion tonnes within a matter of 10 years, which we cannot do. China has done better than us in tapping energy resources. But, China still needs more, as they have built the infrastructure.

"And, going from 8 to 1,000 MW in three years is not going to be simple. Ultimately, the burden will fall on the consumers. I am not convinced if it is a bright solution; it only introduces more distortions, rather than reforms."

However both the nations are struggling, and so the situation is not going to become easier. It is gong to become more severe. That’s why more is the need for diplomacy. Another problem with India is that we do not have a direct land route to our energy supplying neighbours. Take the case of the Iran pipeline or the case of TAPI pipeline, both pass through territories which are hostile territories.

The national solar mission boasts of delivering 1,000 MW during its first phase (2010-2013), which may seem plausible due the kind of benefits provided in terms of bundling of power. But, in your opinion, is this a feasible practice and who will bear the burden and how much during the next two phases of the scheme?

The question is not about being feasible but that it is a wrong practice. I am not a great fan of 20,000 MW solar mission. Even, the subsidy requirement estimated in this plan is grossly underestimated. The government has completely and grossly underestimated them. I don’t think that this 20,000 MW is going to happen even by a far margin. And, by doing this 1,000 MW and pooling it with cheap power, I don’t know whom are we trying to fool? If you say that I am going to combine solar power with that, it is simply going to raise the electricity price of that state. It is not a viable solution to provide large quantities of power, it’s just a gimmick to accomplish this first 1,000 MW of power so as to say that something has happened. Considering that we have only 8 MW of solar energy, this 1,000 MW of solar power is a huge capacity. And, going from 8 to 1,000 MW in three years is not going to be simple. Ultimately, the burden will fall on the consumers. I am not convinced if it is a bright solution; it only introduces more distortions, rather than reforms.

However, that is not to say, that I am against solar energy but some parts of the country will anyways have costly power so providing any energy to them is going to be costly. Therefore, solar can be cost-competitive there but this concept of having grid connected solar power is not going to the poor as they don’t have that grid. Providing solar energy to those off-grid locations is a viable solution.

(InfralineEnergy thanks Surya P. Sethi, Former Principal Advisor (Energy), Planning Commission for sharing his valuable insights with our readers. The column ‘In Conversation’, is a platform to engage experts from various sectors to share their views on the different transformations in the Indian energy sector.)