Indian power sector: Reflecting on the past as we move ahead – Part II

This segment of the blog will focus more on political factors and government reforms that have impacted India’s energy sector since the country’s independence.

Late independence, globalization, and energy reforms.

India attained independence from Great Britain on August 15, 1947. By this time, most of the now developed countries were already several steps ahead in their energy policies and power sector technologies. The pre-liberalization era in India, which lasted until 1991, saw little progress in terms of either power sector reforms or upgrades in technology due to the independence struggle, partition, and restructuring of the constitution. However, since the opening up of the Indian economy in 1991, foreign investments in the power sector have been encouraged. Advanced technology and investments in the power sector therefore reached India only in the late 1990s and early 2000s.

Political setup

Lack of political will coupled with successive governments’ short sightedness has cost the country dearly in terms of implementing several projects. For example, in 2008, the energy infrastructure company Reliance had proposed to build an 8 gigawatt (GW) natural gas power plant. The political party in power at the time allowed the company to acquire the land in Dadri, Uttar Pradesh, for power plant construction after compensation was given to land owners and farmers. When the opposition party came into power in the next session, political rivalry triggered biases and this land was declared disputed. Reliance lost the case in Supreme Court and construction of the plant has now been shutdown. This plant could have been instrumental in reducing the daily power cuts utilities make in and around Uttar Pradesh, but it’s debatable as to which party stands fair and in best public interest.

Increase in government loan interest

The interest rate on government land loans has increased from 9 percent in 2010 to 14.5 percent in 2011. This increase in land loan interest rates has made it less feasible for private firms to invest in power plants. Higher land costs increase the amount of initial capital needed, and the impact can be seen in the form of increased electricity costs and lower returns for utilities. To combat these trends, the government should subsidize loans to power plant developers or reconsider its interest rate increase.

International relations

India’s relations with certain neighboring countries have hindered the development of its power sector, as seen in the case of the Iran-Pakistan-India Pipeline. India has considered various proposals for international pipeline connections with other countries. One such scheme is the Iran-Pakistan-India (IPI) Pipeline, which has been under discussion since 1994. The plan calls for a roughly 1,700-mile, 5.4-Bcf/d (billion cubic feet per day) pipeline to run from the South Pars fields in Iran to the Indian state of Gujarat. While Iran is keen to export its abundant natural gas resources and India is in search of ways to meet its growing energy demand, a variety of economic and political issues have delayed the project agreement. Indian officials have made it clear that any import pipeline crossing Pakistan would need to be accompanied by a security guarantee from officials in Islamabad. Due to the uncertainties involving this pipeline, the Indian government’s 11th Five Year Plan does not project any gas supply from this route.

The Way Forward

Despite these setbacks and a late start, India is on its way to making a resounding entry into the renewable energy sector. The recent Solar EPC summit on May 16 and 17, 2012, in New Delhi, paints a very promising picture of the future. Speakers from organizations like the Ministry of New and Renewable Energy, Lanco, First Solar, solar energy associations, and many more came together to talk about their mission and vision for solar energy in India. The focus of the summit was on reviewing the current status of solar and discussing plans and policies for promoting solar energy in India in the future. As of March 2012, 25 GW of India’s total installed power capacity of 200 GW came from renewables, but solar power accounted for only a small percentage of that total (pie chart).

Optimistic and aggressive targets have been set for the future as a part of many missions, including the Jawaharlal Nehru National Solar Mission, which aims to install 20 GW of solar power by 2022. In total, India aims to have 55 GW of installed capacity from renewable sources by 2017 and 74 GW by 2022.  With severely depleted fossil fuel reserves and a largely stagnated nuclear program, renewables look like the only way for India to meet its ever-growing energy needs. The next five to ten years will be extremely exciting for the country and its energy sector, as there are likely to be massive changes in the grid and the sources used for energy production. I feel that a combination of renewable energy development and long-pending energy sector reforms will usher in a new era for this sector.

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