India’s draft National Energy Policy raises questions

The 2017 National Energy Policy (NEP), drafted by the NITI Aayog, takes the baton forward from the 2006 Integrated Energy Policy (IEP) in setting the trajectory of growth for the energy sector in India. The value proposition of the NEP is to present a broad framework for the overall energy sector, taking into account the multiple technology and fuel options.

However, the NEP draft comes at a time when the energy sector is seeking clarity. In the face of claims of surplus power, even as rampant energy poverty continues to plague the country, the sector needs clear signals of the future pathways.

This need has become particularly pronounced with the rapid decline in renewable energy tariffs, and an associated and projected scaling up of grid connected clean energy.

NEP versus IEP

Highlighting the difference between the IEP and NEP, Piyush Goyal, Minister of Power, Coal, New and Renewable Energy, and Mines, lauded the NEP for taking the sharp decline of crude oil prices, change in solar energy technology, heightened concern of climate change issues, and the government’s rural electrification agenda into account.

However, apart from this, there is a stark difference in the broad approaches adopted by the erstwhile Planning Commission in framing the IEP and the NITI Aayog in framing the NEP. The IEP laid out a roadmap and provided a basket of specific measures to meet specific objectives. For instance, the section in the IEP on the advancement of renewable energy recommended the conversion of the Indian Renewable Energy Development Agency (IREDA) into a national refinancing institution on the lines of NABARD, specifically to advance clean energy.

The NEP, however, contains a list of general courses of action for the government-identified objectives that could be considered for implementation by the government.

Could the NEP be a game changer?

Going by the broad strokes of the NEP, credit is due to the NITI Aayog for recommending some revolutionary reforms, such as the opening up of the entire power sector value chain to private investment in order to create an efficient electricity market. The proposed reform could further be extended to recommend the creation of a separate capacity market and ancillary market for thermal power. This would encourage the supply of flexible power to supplement intermittent power from renewable sources, in a cost-effective manner.

Further, the NITI Aayog has taken an encouraging step forward by identifying and addressing pressing issues such as air quality and human resource development from an energy perspective. To pursue pathways to improve air quality, the NEP contains specific recommendations for efficiency improvements in various sectors such as transport, power and urban households.

Lacunae in the NEP

However, the NEP fails to provide an adequate framework for a number of issues that have arisen and intensified over the course of India’s ongoing energy transition, which is still in its nascent stage.

On the renewable energy front, the NEP disappoints by failing to address the rampant uncertainties, specifically on issues around renewable purchase obligations (RPO) and renewable energy certificates (REC). The only half-hearted consolation on offer is targeted at the distribution companies (DISCOMs) who have been assured government support for implementation of RPO and REC obligations. The RPO system has perhaps already served its purpose in nudging states with renewable energy potential to incorporate clean energy into their energy mix. As renewable power becomes more commercially viable, states could be left to decide how, when, and what source of power to integrate into their system, as no clear measures are being adopted to provide the much-needed enforcement of the obligations.

Policy uncertainty is further highlighted in the NEP’s focus on utilising coal powered thermal plants for securing the base load requirement to meet rising energy demand. Currently, a number of the existing coal plants are running at low efficiencies, or have been retired early, in line with the Ministry of Power’s strategy for reducing the carbon footprint of the sector. However, despite this market reality, the NEP’s reliance on thermal power fuels scepticism about India’s commitment to clean energy, and could distort investor confidence in the renewables sector.

From both an air quality and a climate leadership perspective, it would not be ideal for India to stress on expanding its thermal power capacity to 441 GW in 2040 from 125 GW in 2012, as proposed in the NEP, without having adequate technology in place for improving the efficiency and reducing the emissions from these plants. The Ministry of Environment, Forests and Climate Change had come down hard on coal-fired thermal power producers in 2015, setting a December 2017 deadline for meeting revised norms on emissions of particulate matter, sulphur dioxide, nitrogen oxides, mercury and reduced water usage. However, with developers being reluctant to absorb the high cost for retrofitting their projects to meet the new standards (around INR 1 Crore or USD 1.56 million per megawatt), the government is likely to push the deadline for compliance to December 2019. Lack of affordable technology is one of the principal reasons for the high cost and thereby the associated reluctance in compliance.

The NEP makes broad recommendations on how India should work towards developing and acquiring technology needed for advancing the energy sector. However, the policy does not recommend consistent and strong policy and budgetary support for technology development, as in China. Despite China’s success, and India’s growing reliance on Chinese imports to drive its clean energy revolution, not enough urgency has been expressed in the NEP to make India’s energy future in India.

Grid versus Off-grid

The NEP prescribes grid-based supply to all households to be India’s primary endeavour, with renewable energy implemented to address the access issue only in cases where grid power is unavailable. The NITI Aayog in this instance has used the term renewable energy interchangeably with decentralised renewable energy. A rationale for this position has not been indicated, even as the government continues to promote decentralised electrification programmes.

The position to promote grid based electrification continues to mystify as a significant percentage of grid connected households do not meet an adequate level of electricity access. This was validated by the Council on Energy, Environment and Water’s (CEEW) ACCESS study focusing on the state of energy access in six of India’s most energy deprived states. The study found that though 96% of the villages were considered electrified, with 69% of all surveyed households having an electricity connection, only 37% had any meaningful level of electricity access. Rather than promoting a particular means of electrification, the NEP could encourage context-specific electrification approaches, by considering economic viability, consumer demand and aspiration, affordability, as well as reliable provision of electricity.

As India’s importance and role in the global energy markets continues to grow, it needs to be strategic in its energy planning. To build on the successes of the recent past, such as record low tariffs, increased investment flows into the energy sector, successful introduction of auction-based bidding for wind projects, and others, it cannot afford to lose momentum with policy uncertainty and unclear energy pathways.

While the NEP does little to mitigate uncertainty for power generators, distributors, and investors, it provides the government sufficient room to manoeuvre in the implementation of tailored solutions as the market evolves.

Anjali Viswamohanan is a research analyst at the Council on Energy, Environment and Water, where Kanika Chawla is a Senior Programme Lead.

This piece was first published at indiaclimatedialogue.net