Financial Express

Securing the Future

Despite evidence of a direct relationship between energy access and social, economic and political stability, policymakers in India rarely fully appreciate the importance of energy security to national and economic security. It’s no surprise that India's least electrified states are also the ones that suffer the greatest internal strife.

Without serious energy-sector reforms, India's impressive economic growth may be short-lived. The country is not prepared to deal with the range of factors that are putting upward pressure on energy demand and downward pressure on energy supply. For one, India’s population and economy are growing at astounding rates, as is the growing urbansation movement, which puts a particular strain on energy resources. Cities account for 75% of global energy consumption; and by 2030, roughly 590 million people will live in Indian cities.

Another factor increasing demand is energy subsidies: cheap prices for goods such as diesel, natural gas, and electricity have eliminated incentives for energy conservation. Conversely, subsidies have hurt supply by diminishing private sector interest in investing in resource extraction or power generation. Now, industry and businesses pay high tariffs, effectively subsidising electricity consumed by the residential sector.

The country also desperately needs private sector investment. Yet private businesses are shackled by opaque and inconsistent policies and regulation. Businesses that are offered a friendly business environment are confronted by corruption and toothless regulators.

Infrastructure and logistical impediments also inhibit the supply scenario: its creaking electricity transmission and distribution grid is unacceptably inefficient. The natural gas network is still poorly distributed and the rail network still cannot cheaply and efficiently transport coal to major load centres.

Some developments show the government is slowly responding to these issues. In June 2010, the government deregulated the price of petrol, and reset the natural gas price for industrial and petrochemical consumers at a higher rate. In the coming weeks it will discuss further pricing reforms. Moreover, the government is slowly fostering a better environment for independent power producers, and remains bullish on nuclear power,.

Yet much more can be done for both short-term and long-term energy security. First, India must continue to embrace steady reform of its energy pricing policies. This does not mean immediate pricing deregulation: such a drastic shift would disproportionately hurt India’s poorest. Rather, reform should be delicate and deliberate and independent of political pressures. Politicians will have to target subsidy abuse, which is rampant throughout the country, but particularly so amongst wealthy farmers and landowners.

The second necessary immediate reform is a concentration of investment in improving T&D networks. Huge generation projects are not the ones desperately needed, nor are they as cost-effective as infrastructure improvements in the delivery of electricity. Finally, embrace bold and enforceable energy efficiency standards. It is estimated that 90% of India’s commercial buildings in 2030 does not exist today. It illustrates an immense opportunity for developers to make India a global standard for building efficiency. Similarly, the growing automobile sector presents an opportunity to implement stringent vehicle fuel efficiency standards.

For long-term security, one fundamental mantra remains constant: India cannot remain an isolated energy producer and consumer. The gains from trade in coal, natural gas, and hydroelectricity are too abundant to be ignored. Pipelines from Turkmenistan, Oman, and even Iran, should continue to be worked towards. Trade of coal, natural gas, and even hydropower with Bangladesh must go forward. India should take a more constructive role in establishing Nepal’s potent but dilapidated hydropower sector. Regional cooperation yields astounding economic benefits and reduces regional tensions.