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India’s Energy Sector Plan: NITI Aayog draws up a three-year action agenda [free access]

June 2, 2017

In an attempt to provide a clear view of the government’s overall policy roadmap, last month, the India’s apex government think tank, NITI Aayog, presented a three-year action agenda, recommending ambitious targets to various ministries and departments to be achieved during the period 2017-18 to 2019-20.

 

The action agenda is the first in the series of three key vision documents being prepared by NITI Aayog – the other two being a long-term seven-year strategy and a 15-year vision till 2031-32, both of which are yet to be released. These documents are part of the exercise to break away from the five-year planning process, which was followed until the last five-year plan which concluded in 2016-17. The three-year plan will thus ensure that there is no vacuum at the end of the Twelfth Plan. The action agenda is currently in the draft form, and will be finalised by NITI Aayog after taking into account suggestions from various state governments.

 

Energy has been identified as one of the most complex sectors of the Indian economy. “The presence of many sub-sectors, the interconnected nature of different sources of energy, different environmental implications of different fuels and the social objective of access to energy at affordable prices greatly add to the complexity of policy making in the sector,” NITI Aayog notes.

 

Policy reforms for the sector include increasing per capita energy consumption, enhancing energy efficiency, overhauling the transmission and distribution infrastructure, augmenting generation, coal production, and oil and gas supply, and expanding renewable energy.

 

The action agenda comprises a mix of concrete measures and new ideas. It envisages the addition of nearly 2.8 GW of nuclear energy by 2019, the completion of 100 per cent consumer and feeder metering, the establishment of a coal regulator, the phasing out of old thermal power plants by 2020 and operationalising all four renewable energy management centres (REMCs). In terms of new ideas, it proposes a cost-benefit approach to assess energy efficiency projects (and not just decarbonisation), the launch of a new large-scale programme for biogas and strengthening institutional capacity in the energy efficiency segment.

 

A synopsis of NITI Aayog’s policy prescription for the sector till 2020...

 

Generation

On capacity addition targets, the report calls for ensuring that almost 61.6 GW of capacity is added from conventional power sources by 2020. For large hydro projects, it prescribes a target of 6.9 GW by 2019-20. To achieve this goal, it states that the government should ensure satisfactory rehabilitation and resettlement of people. For wind and solar power, the goals prescribed are 15.8 GW and 53 GW over the next three years.

 

One of the key areas that the report emphasises is nuclear energy. “India is betting on nuclear energy,” it states. In order to meet the target of 63 GW of nuclear capacity by 2032, NITI Aayog states that the segment must achieve a capacity addition of 2.8 GW by 2019. This would require the commissioning of the 600 MW prototype fast breeder reactor (FBR) and initiating work on new FBRs. It adds that work on nuclear projects under construction at existing locations and Kudankulam Units 3 and 4 would have to be pursued actively.

NITI Aayog also suggests a cautious approach for capacity addition beyond 2019-20 in the context of declining plant load factors (PLFs). It says that capacity augmentation beyond this period should be scheduled as per the demand for power and operational viability. It also says that the PLFs of gas-based plants must be raised to achieve grid balance. Further, to leverage regional connectivity, it calls for facilitating cross-border power trading during 2017-18 to 2019-20. It adds that the joint venture hydro projects coming up in Bhutan must be expedited and the transmission corridors readied on the Indian side.

 

Transmission and distribution

The report states that India needs to overhaul its transmission and distribution (T&D) systems in order to limit its T&D losses (which stood at 23 per cent in 2015, one of the worst in the world) and aggregate technical and commercial losses of 25 per cent.

 

Three key policy reforms have been suggested for overhauling the T&D segment.

 

First, the report suggests that the transmission capacity in southern India must be increased to 18.4 GW in the next three years to create a robust national grid. Second, it calls for ensuring 100 per cent metering at the 11 kV level for all consumers and feeders. Third, it says that targets under the Ujwal Discom Assurance Yojana (UDAY) must be actively monitored and cooperative efforts made by the centre and states to achieve them. Yearly targets pertaining to several parameters must be set and monitored actively. It further adds that it must be ensured that discoms do not face any working capital constraints.

 

Energy efficiency

NITI Aayog emphasises that the promotion of energy efficiency through interventions must depend on a cost-benefit analysis and that decarbonisation alone cannot be the justification for promoting more energy efficient technology.

 

A number of action points have been suggested by NITI Aayog in this regard. To begin with, the National Mission for Enhanced Energy Efficiency must conduct an in-depth cost-benefit analysis of the available energy efficient technologies and products across all sectors, especially agriculture, housing and transportation. Based on this analysis, the reach of energy efficiency programmes must be extended to the sectors currently not covered.

 

Another action point that NITI Aayog talks about is continuing the success of Cycle-1 of the Perform, Achieve and Trade (PAT) scheme into the recently launched Cycle-2. It lauds the PAT policy and states that it exemplifies the country’s priority in terms of achieving energy efficiency in a manner that also concurrently delivers economic benefits. It commends the achievements under Cycle-1, which covered 478 designated consumers in eight sectors, which were together able to exceed the targets by 30 per cent. For PAT Cycle-2, which will run from 2016 to 2019 and cover 621 consumers across 11 sectors (including three new ones), it recommends that the trading of energy saving certificates (escerts) should commence at the earliest. Another area with huge energy efficiency potential, according to NITI Aayog, is thermal power plants (TPPs). The report states that by 2019, the efficiency of the existing TPPs should be raised (from the current level of 30 per cent-32 per cent), old plants with a high station heat rate should be phased out, further research on integrated gasification combined cycle should be actively pursued, and new power projects to be initiated in the action agenda period should be based on ultra-supercritical technologies. Besides these, the other action agenda points for the government should include strengthening of the national and state designated agencies working in the area of energy efficiency, extending the momentum of gains under the LED lighting programme to ACs, fans and pumps by 2019, and extension of the standards and labelling scheme to all appliances.

 

Renewable energy

NITI Aayog identifies renewable energy as a key element in achieving multiple objectives such as energy efficiency, energy security, decarbonisation and sustainability. There are seven actions recommended for the segment:

 

Coal production

Given that around three-quarters of power in India comes from coal-based power (a scenario that is not expected to change significantly in the coming decades), NITI Aayog notes that there is a need for increasing domestic coal production. To achieve this, the strategies it recommends are:

 

By 2019, the government needs to explore 25 per cent of the untapped potential of the balance coal-bearing area to ensure availability of more coal mining blocks. It will also step up efforts to convert 25 per cent of the 139.15 billion tonnes (bt) of coal reserves in the indicated category into proved category by engaging exploration companies contractually. Further, Coal India Limited (CIL) has to raise its production to 1 bt by 2020, depending on coal demand. For Singareni Collieries Company Limited (SCCL), the targeted coal production by 2020 is 80 million tonnes (mt).

 

NITI Aayog states that an independent organisation will be created at the institutional level during the action agenda period to develop and maintain coal-related geological information. Further, it states that the long-overdue proposal for a coal regulator should be implemented.

 

NITI Aayog advocates the use of market mechanisms to open up the coal mining sector for commercial mining. It also states that the proposal to spin off subsidiaries of CIL as separate entities must be implemented.

 

Another key area that NITI Aayog talks about is improvement in labour productivity. It states that the output per man-shift from underground mines should be raised to increase coal production.

It emphasises the need to ensure the completion of three critical rail links – Tori-Shivpur, Jharsuguda-Barpalli and Mand-Raigarh – by 2019 in order to augment coal evacuation.

 

For improving coal quality, it states that the government must draw up more coal handling and preparation plans and, in this context, 15 new coal washeries must be commissioned. Efforts must also be made to reduce the use of low quality coal.

 

To boost production, the ongoing auction process and transfer of mining leases of captive mines to new successful bidders must be expedited by 2018. Further, to meet the cumulative coal production of 400 mt by 2020, there should be yearly targets and where required, the coal mines should be reallocated.

 

Energy consumption

NITI Aayog states that there is considerable scope for growth in energy consumption, with India’s per capita electricity consumption at 1,010 kWh, as against the world average of 3,200 kWh.

 

It states that while India has already committed to bring electricity to every village by May 2018 and to every household by 2022, a more ambitious goal would be to provide electricity to all households on a 24x7 basis. For streamlining demand in the industrial segment, NITI Aayog has suggested a substantial reduction in cross-subsidies.

 

It has also suggested stepping up solar irrigation pump distribution targets. The option to connect these pumps to small solar plants must be explored, it adds. Finally, the government should study the cost and benefits of adopting electric vehicles in the coming years.

 

Conclusion

Most experts have given a thumbs-up to the action agenda. First, it rightly focuses attention on a number of sector issues such as enhancing coal productivity, actively monitoring UDAY targets and improving plant efficiency. Second, with the three-year timeline, the current government is expected to be directly accountable for the implementation of the policy plans.

 

Further, clubbing the three-year agenda with a seven-year and a 15-year document allows for better alignment of policies with changes in the sector, say experts. Also, this is the first time that the planning process is taking into account suggestions from the states. While the NITI Aayog proposals have all the right ingredients, real success will finally hinge on effective action on the agenda.

 

Figure 1: Key focus areas in energy sector under NITI Aayog’s action agenda

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Box 1: Energy sector action agenda snapshot

Generation

– Conventional source-based capacity addition of 61.6 GW by 2020

– Nuclear capacity addition of 2.8 GW by 2019

– Large hydro capacity addition of 6.9 GW by 2020

– Cautious approach in new capacity addition after 2020

T&D

– Transmission capacity in southern India to be enhanced to 18.4 GW

– Transmission corridors to evacuate power from Bhutanese joint venture projects to be expedited

– 100 per cent metering of all 11 kV feeders

– Targets under UDAY to be strictly monitored and achieved

– Discoms should not face any working capital paucities

Renewables

– 100 GW target to be achieved by 2020

– Off-grid target of 20 GW by 2020, advancement of small hydro target of 5 GW to 2019-20

– Expedite green energy corridors

– SECI to develop energy storage solutions

– All four REMCs to be operationalised

– Launching of programme for tapping biogas potential

Energy efficiency

– Ensuring cost-benefit structure for energy efficiency initiatives

– Expanding coverage of PATs to more sectors

– Escert trading should commence at the earliest

– Phasing out of old thermal plants

– Raising efficiency of existing thermal plants from current levels

Coal production

– Exploration of 25 per cent of untapped coal-bearing areas by 2019, conversion of 25 per cent of   indicated coal reserves to proven

– CIL to achieve 1 billion tonne target by 2020, SCCL to achieve 80 mt target by 2020

– Opening sector to commercial mining and set up coal regulator

– Complete all three critical rail links by 2019