India raised living standards for 1.4 billion citizens by expanding access to electricity and cleaner energy sources but must do more to achieve energy security and long-term growth, the International Energy Agency said on Friday.
In a new study, Paris-based IEA said about half of India’s population — 700 million people — gained access to electricity between 2000 and 2018. India's government also made big progress in reducing the use of traditional biomass in cooking, the chief cause of indoor air pollution that particularly affects women and children, by encouraging use of liquefied petroleum gas and solar photovoltaics, or PV.
Increased access to affordable energy raised the living standards of all segments of the population, and India now has the institutional framework to attract more investment for energy needs. The government will allow private-sector investment in coal mining, and it is opening up its oil and gas retail markets.
“The creation of functioning energy markets will ensure economic efficiency in the management of the coal, gas and power sectors, which is critical to achieving energy security and supporting the country’s economic growth,” IEA said in its report. “This will be increasingly important in the future, as energy demand and investment needs increase in line with India’s economic expansion.”
Reform of India’s electricity sector will need to be comprehensive to achieve these goals, IEA said. A country-wide wholesale market is needed as a backbone for the national grid, and India must take steps to ensure the financial health of its power sector, which is dealing with surplus capacity, lower use of coal and natural gas plants, and increasing shares of variable renewable energy, according to the report.
India’s government is working to improve the power sector's financial viability. Faced with the challenge of some “stressed assets” in coal and gas-fired generation, it has been taking measures to enhance the availability of finance and economic efficiency of coal and gas supply for power generation, IEA said.
Price signals and regulations
Electricity security in India has improved through creation of a single national power system and major investments in thermal and renewable capacity, IEA said. The power system is experiencing a major shift to higher shares of variable renewable energy, which raises the importance of system integration and flexibility. India's government has supported greater interconnections across the country and now requires the existing coal fleet to operate more flexibly. It also is promoting affordable battery storage.
“International experience suggests that a diverse mix of flexibility investments is needed for the successful system integration of wind and solar PV,” IEA said in the report. “This flexibility is available not only from the coal fleet — it can also come from natural gas capacity, variable renewables themselves, energy storage, demand-side response and power grids."
IEA said many of these solutions are not fully used in India. “To fully activate a diverse set of flexibility options," the 30-nation organization reported, "it is critical for the government to put in place electricity market reforms that enable the appropriate price signals and create a robust regulatory framework.”
India is the world’s third‑largest consumer of oil, the fourth‑largest oil refiner, and a net exporter of refined products. The rate of growth of India’s oil consumption is expected to surpass that of China in the mid-2020s, making India an attractive market for refinery investment, IEA said.
To maintain India’s position as a refining hub, the government is pursuing a very ambitious long-term roadmap to expand its refining capacity in line with the country’s projected demand growth through 2040. As proven oil reserves are limited compared with domestic needs, India’s import dependency — above 80% in 2018 — will increase significantly in the coming decades, according to the report.
To improve oil security, the government has prioritized reducing oil imports, increasing domestic upstream activities, diversifying its sources of supply and increasing Indian investments in overseas oil fields in the Middle East and Africa.
India’s strategic petroleum reserve supplements the commercial storage available at refineries. Strategic reserve capacity of 40 million barrels can cover just over 10 days of net imports. However, the same volume may cover only four days of net imports in 2040.
“It is important that the government pursue the second phase of its strategic stockholding policy, which would add an additional 50 million barrels, and also prepares subsequent phases,” IEA said in the report.
Decarbonizing the economy
The government aims to increase the share of natural gas in the country’s energy mix to 15% by 2030, up from 6% today. This will allow India to improve the environmental sustainability and flexibility of its energy system, according to IEA. Increasing domestic gas production is a government priority, as output has fallen short of forecasts in recent years. India has five operating terminals for liquefied natural gas. Projects under construction could add 11 more over the next seven years.
The role of gas has grown in India’s residential and transport sectors but fallen in power generation, where imported natural gas remains squeezed by cheap renewables and coal. The government is committed to further liberalizing the country’s natural gas market.
“Strengthening regulatory supervision of upstream, midstream and downstream activities should be part of the market reforms, as it is likely to bring greater efficiency and drive up demand for gas and investment in gas transport infrastructure,” IEA said. “A liquid and well-functioning domestic gas market would be a strong pillar for India’s security of gas supply.”
India has made important progress towards meeting the United Nations' 17 anti-poverty Sustainable Development Goals for 2030, IEA said. Both the energy and emission intensities of India’s gross domestic product have decreased by more than 20% over the past decade. This represents commendable progress even as total energy-related carbon dioxide emissions continue to rise. India’s per capita emissions today are 1.6 metric tons of CO2, well below the global average of 4.4 metric tons, while its share of global total CO2 emissions is some 6.4%.
The country’s contribution under the 2015 Paris Agreement on climate change sets targets to reduce the emissions intensity of its economy and increase the share of non-fossil fuels in its power generation capacity, while also creating an additional carbon sink by increasing forest and tree cover. Although the emissions intensity of India’s GDP has decreased in line with targeted levels, progress towards a low-carbon electricity supply remains challenging, IEA said.
India has taken significant steps to improve energy efficiency which have avoided an additional 15% of annual energy demand and 300 million metric tons of CO2 emissions from 2000-2018, according to IEA analysis. The major programs target industry and business, relying on large-scale public procurement of efficient products such as LEDs and use of tradable energy efficiency certificates.
“Based on current policies, India’s energy demand could double by 2040, with electricity demand potentially tripling as a result of increased appliance ownership and cooling needs,” IEA said. “Without significant improvements in energy efficiency, India will need to add massive amounts of power generation capacity to meet demand from the 1 billion air-conditioning units the country is expected to have by 2050.”
More renewables needed
By raising the level of its energy efficiency ambitions, India could save US$190 billion per year in energy imports by 2040 and avoid electricity generation of 875 terawatt hours per year, almost half of India’s current annual power generation, IEA reported.
IEA analysis shows in 2018, India’s investment in solar PV was greater than in all fossil fuel sources of electricity generation together. Large-scale auctions contributed to swift renewable energy development at rapidly decreasing prices. By December 2019, India deployed a total of 84 gigawatts of grid-connected renewable electricity capacity. By comparison, India’s total generating capacity reached 366 GW in 2019.
India is making progress towards its target of 175 GW of renewables by 2022, IEA said. In September 2019, India's prime minister, Narendra Modi, announced India’s electricity mix would eventually include 450 GW of renewable energy capacity. Progress towards these targets will mean unlocking the flexibility needed for effective system integration. This can potentially be achieved by improving the design of renewables auctions, with clear trajectories and criteria to reflect quality, location and system value, along with measures to foster grid expansion and demand-side response across India.
India is particularly vulnerable to climate change impacts and is exposed to growing water stress, storms, floods and other extreme weather events, IEA said.
“Adaptation and resilience of the energy system to these extreme climate conditions should be a high political priority,” the international organization reported. “Furthermore, the energy sector is a large water user. As India’s energy demand continues to grow, the government should ensure that energy planning takes into account the water–energy nexus, as well as future space cooling needs.”