Reducing Pollution in Delhi: Neither odd nor even

Neeraj Tiwari, Observer Research Foundation

Franklin D. Roosevelt rightly said “It is common sense to take a method and try it. If it fails, admit it frankly and try another. But above all, try something.” Following Roosevelt’s advice, the Delhi government did try out a solution for 15 days in January 2016 when Delhi was choking because of high level of suspended particle matter (SPM) in the air. The method chosen was rationing traffic based on whether the last digit on the number plates of personal vehicles (with some exclusions) was odd or even. Now it is time to assess the outcome and learn from it. Since the end of the trail period, a number of assessments have come on whether Delhi’s ‘odd – even’ scheme was a success. As of now it is safe to say that we do not know yet. It is a complex task to determine the level of pollution in Delhi. It is affected by various independent factors such as weather conditions, speed of wind, time of measurement and polluting activities in neighbouring states. There is no common consensus on methodology to measure the level of pollutions. Odd-even formula may or may not have decreased pollution but one thing is certain: it did decreased the number of cars in Delhi and decongest its roads.

Power scenario after odd even

Even though the decision was taken in a haste and even if the move failed to achieve its primary objective of reducing pollution completely, we must give credit to the fact that for the first time in recent years the blame for pollution in Delhi has been shifted from power plants to personal vehicles. For many years the power sector was being targeted as the only source of pollution in the capital. Even today a number of civil society movements are fixated on blaming the power sector as the source of pollution. Many are raising demands to shut down the Coal power plants in Delhi.

According to 1997 white paper on pollution 67% emission are from vehicles and 13% emissions are from thermal power plants. Currently Delhi is adding 1400 vehicles per day which contributes 70% to the total air pollution.

Change in number of cars vs change in the electricity generation in Delhi

image (1)

Source: Economic Survey of Delhi, 2014-15 and Delhi Statistical Handbook, 2015

As shown in the chart since 2003 – 04 the number of vehicles has increased by 112 % whereas the power generation from local power plants has fallen by 4% (60% since 2007-08). Delhi has only two coal power plants and often generation from Rajghat is zero or even negative (consumes power for maintenance but produces nothing). Badarpur and Rajghat power plants are the only reliable power plants within the Delhi region. Every year the demand for electricity increases in summers and demands for new power plants is made. In fact gas based power plants were set up for that purpose but now they are also lying idle because of lack of cheap gas. Last year the Delhi government also bid for pithead power plants because it wanted to address the issue of shortage of power. The Delhi government policy responses appear to be reactions to media pitches.  The Delhi government needs to make policy based on considered thought that are firm and consistent rather than policy based on popular demand.

New emission standards for vehicles

In Europe stringent emission standards were one of the most successful policies to reduce pollution. Europe is currently having Euro 6 standards which have reduced NOx pollution by approximately 70%. Currently barely 20 Indian cities follow Euro 4 emission standards for new vehicles, while others are still following Euro3. Euro 4 is seven years behind European standards and Euro 3 is behind by 12 years. In Europe adopting Euro 6 has reduced NOx pollution level by 85% as compared to Euro 4 level. If the government is really serious about reducing vehicular pollution then adopting stringent emission standards alone could reduce pollution drastically like it did in Europe.

The drop in the pollution level of NOx and PMx with changing euro standards

image (2)


Will Delhi do it again?

The Delhi government has already announced that the odd-even rule will come back in April for another 15 days. Whether it will be successful in decongesting roads as it did the first time is not certain.  As the frequency of odd even rule is increased there is high probability that a section of affluent car owners will buy a second car to beat the system. Owning of second car gives high comfort at low cost. There is a need to increase the upfront and overall cost of owning a car. A car not only causes pollution but also occupies the high value real estate when it moves and when it is parked. The Government needs to charge for the real estate occupied by the cars. There should be an access fee for entry and use in congested cities and also heavy parking fee in publicly owned spaces. In Delhi every car owner receives a huge subsidy in the form of free parking even on pavements meant for pedestrians. The vehicle owner must be asked to purchase the plot used for parking his vehicle next to his house or given the option of low cost parking next to a bus-stop or metro station. This will reduce the incentive for using personal vehicles and favour public transport.  In order to reduce the transaction cost in collecting a fee for car usage every day a lump-sum tax may be collected upfront based on average car use patterns in Delhi. The policy that will discourage the use of cars and make it a costly and uncomfortable affair every day would be more effective in decreasing the number of vehicles and pollution caused by the vehicles.


Short and medium term measures to clean up the air of Delhi December 2015, Centre for Science and Environment.


Views are those of the author                     

Author can be contacted at

Courtesy: Energy News Monitor | Volume XII; Issue 41



Will Renewable Energy Make Indian Power Utilities Non-renewable?

Lydia Powell and Akhilesh Sati, Observer Research Foundation

Large quantities of solar (and other renewable energy forms) energy is expected to flow into India’s power grid in the coming years. Many believe that this will be a cost-less transition to lower reliance on coal, lower emission of carbon and other local pollutants and most importantly lower electricity bills. Unfortunately the transition to a low carbon energy system is neither likely to be cost-less nor simple (in terms of policy or technology).

The economics of electricity is shaped by the laws of physics. Laws of electromagnetism that capture the physics behind the generation of electricity limit storage, transmission and flexibility. Since storage and flexibility (available in energy forms such as oil) are complex, electricity must be seen as a heterogeneous good along time and space. In plain language this means that one cannot say that ‘electricity is electricity’ in the same way we would say that ‘milk is milk’. Electricity generated at 5 pm in India is more valuable than electricity generated at 12 am. Electricity generated at a certain place and time has a different value from electricity generated at a different place and time. Electricity that can be switched off and on at will has greater value than electricity that cannot be switched on and off easily.

Different primary sources such as coal and solar produce different goods with different heterogeneity and marginal value. When large quantities of renewable power is being generated (such as when the sun is shining brightly) their marginal cost of generation is low because renewable energy sources have low or zero marginal costs (they don’t have to pay for fuel).

In reality solar and other forms of renewable energy have higher overall costs than conventional fuel sources that they replace. If solar power developers are reliant on market forces to recover all their costs they are very likely to lose money. The case of decentralised (off-grid) solar power generation projects operating in rural areas of India are a good example.  Even in cases where the project receives capital funding in the form of a grant or aid, the tariff is said to be higher than that for diesel based generation with some quoting a tariff as high as Rs 20-30/kWh (five to ten times average tariff for grid based power). (These figures are mentioned only in whispers and off the record as solar energy has gained reverence not only as the slayer of dirty and evil fossil fuels but also as the dependable target for policy that can give an international clean makeover to domestic political leaders who may be anything but clean in other contexts).

Dharnai village in the district of Jehanabad in Bihar was declared to be energy independent in 2014 when a 100 kW micro-grid project set up by Green Peace started supplying electricity to over 2000 people in the village. Today the project is reported to be struggling to meet ends.  Its sources of aid have been cut off (for reasons unrelated to solar economics) and the project is reported to be unable to recover all costs through tariff payments.

This story explains why less than 3% of solar projects operating in India are off-grid projects. Grid connected projects free ride on the system designed for conventional power that are designed to have sufficient capacity to meet highest (peak) demand and also be flexible enough to change output of generation in response to change in demand. Renewable power generators are essentially policy driven and policy supported (as opposed to market driven or supported by market prices). They receive income through capital subsidies, viability gap funding, feed-in-tariffs and other government hand-outs. The low tariff quoted in solar auctions in India reflect both the low cost of capital and the low and negligible marginal cost of producing solar energy.  They are neither expected to be flexible enough to meet changing demand nor are they expected to maintain sufficient capacity to meet peak demand. This means that renewable energy generators do not have to price these attributes in their tariff calculations.

As policy privileged energy renewable energy is allowed to get on and off the grid as per their convenience irrespective of changes in demand at the retail end. As solar developers are not reliant on the market they ignore even the weak ‘market’ signals that say that there is unwanted capacity in the system. Effectively government support encourages production and supply of renewable power which are in conflict with the nascent market system that is emerging in India. With distribution utilities under severe financial strain, it is not clear how the underlying higher costs can be recovered. In many countries (particularly Germany) they are simply passed on to consumer bills which have been going up along with costs at a time when wholesale market prices have been going down (refer Chart 1). This has resulted in a gap between market prices and underlying costs and a gap between wholesale market prices and consumer prices. The overall outcome has been the nullification of market signals.

Chart 1

image (1)

Source: Compiled from various sources: Eurostat for European electricity prices & India Stat for avg. India electricity prices for domestic sector 2013-14 & (INR/EUR = 70.49); BP for Renewables (Solar and Wind) Capacity & UN for population data (as of July 1, 2015).

One consequence of this is the deterioration of the financial position of utilities in the European Union. Conventional plants in Europe are facing multiple problems. The demand for electricity is low because of the economic slow-down;  whole-sale price for electricity is low because of the growing share of government supported renewables; exit of high volumes consumers on account of the increase in tariff at the retail end.  Many conventional plants even efficient clean new plants are reported to be closing because they are losing money; in most cases they are not covering their fixed costs and in many cases not even their operating costs.  Some have mistakenly hailed this as the victory of solar energy over fossil fuels. But these plants provide key value to the system such as flexibility needed to cope with periods of low renewable output and the capacity to ensure security of supply at times of peak demand. Renewable energy generators (including household roof top solar generators) help themselves with these stand by facilities but not pay for it.

As a result many European governments have decided not to close these plants and are looking at options in introducing charges for maintain capacity to provide extra incomes in addition to energy (kWh) charges. If this is applied to India, the question arises as to who will pick up the additional costs? Unlike countries in the European Union it cannot be passed off to consumer bills for various reasons that we will not go into here.  State governments in India are unlikely to voluntarily take on this responsibility. State governments that sign up to the Ujwal Discom Assurance Yojana (UDHAY) scheme launched by the central government to restructure state utility finances have to take over 75% of Discom debt as well as take on future losses. Most importantly they will lose access to advance short term debt from banks to finance losses. This means that any rational state government that signs up to the UDHAY scheme is unlikely to be interested in adding to the losses of the utilities by forcing obligations over renewable energy and add to costs. State governments that sign up to the UDHAY scheme are also offered the incentive of additional domestic coal which will further reduce interest in renewable energy. This complexity is neither understood nor acknowledged by policy makers and solar energy enthusiasts.

According to the government press release on the UDHAY scheme the accumulated losses of Indian distribution companies is estimated to be about Rs 3.8 lakh crore ($61 billion) and out-standing debt of about Rs 4.3 lakh crore ($69 billion) as of March 2015.  The primary reason for such large accumulated losses is stated to be the growing gap between cost of service (of supplying electricity) and the revenue realised. State governments that sign up to the UDHAY scheme and the distribution companies (discoms) that they control must strive to decrease this gap through better technical and commercial efficiency.

Chart 2

image (2)

P: Projection based on provisional reporting by States

Source: Ministry of Power, Coal and New & Renewable Energy

The press release observes that ‘financially stressed discoms are not able to supply adequate power at affordable rates which hampers quality of life and overall economic growth and development’. One cannot disagree with this observation but we must also ask ‘affordability for whom?’  If affordability refers to the poor rural household consumer then ‘affordable rates’ must mean low tariffs. If affordability refers to distribution companies (which are now being asked to demonstrate commercial viability in a market environment as per the UDHAY scheme) affordable rates means high tariffs.  How this contradiction will be resolved is not clear.

The overall high cost of accommodating large volumes of solar energy on the grid must be recovered either through the tax payer or the rate payer. Unlike the German rate payer, the average Indian rate payer is unwilling to pay higher tariff for power even if it comes with the label ‘clean’. This is understood well by politicians if not policy makers. For example the budget for 2016-17 increased the cess on domestic coal from Rs 200/tonne to Rs 400/tonne supposedly to fund clean energy programmes. The day after the budget was released, the Minister in charge for Power had to issue a ‘clarification’ that the increase in cess on coal will not result in increase in tariff for power. How this will be achieved was left unexplained.  Laws of economics would require that an increase in fuel costs translate into an increase in tariff.  In theory, a dramatic improvement in commercial and technical efficiency in distribution of electricity can accommodate an increase in the cost of fuel (coal) without an increase in tariff. But in practice improvement in efficiency in the distribution segment have proved to be difficult if not impossible.

In Delhi where a private-public partnership arrangement is in place for distribution, a decrease in the gap between cost of supply of electricity and the revenue realised has been achieved primarily through an increase in tariff and not through an increase in efficiency. Delhi has little or no agricultural or industrial electricity consumption.  Over 80% of consumers are households.  This means that it is probably one of the least difficult Indian states for improvement in efficiency in the power sector. If efficiency initiatives are difficult to implement in Delhi it will be even more difficult to implement in the rest of India which have agricultural consumers and over 70 different tariff slabs on average.

Returning to the press release on the UDHAY scheme, there is a statement that ‘efforts towards 100% electrification, 24X7 power supply and clean power cannot be achieved without performing discoms’. This is a statement that we cannot contest but there are inherent contradictions in the three objectives listed.  100% electrification and clean power are to be met by state (central government) led interventions while 24X7 power supply is to be achieved by market oriented distribution companies owned by state (regional) governments.  100% electrification has been historically driven by publicly funded programmes under various names such as the minimum needs programme (early 1980s), Kutir Jyoti programme (late 1980s and early 1990s), Rajiv Gandhi Grameen Vidyutikaran Yojana (2000s) and the Deen Dayal Upadhyaya Gram Jyoti Yojana, (new name for the Rajiv Gandhi scheme given by the current government).

The primary mandate for these schemes has been to erect infrastructure for electricity access in rural India. Once basic infrastructure such as distribution transformer and distribution lines are provided in the inhabited locality as well as the dalit bastis (areas segregated for lower castes in a village), electricity is provided to public places like schools and health centres and at least 10% of households access electricity (for how long is not specified by the official definition of electrification), the village is declared as electrified and the central government role in providing electricity access literally ends. The responsibility of supplying power 24X7 trough this infrastructure now shifts to the regional government owned discom that is being asked to follow market signals under the UDHAY scheme. If the discom does follow market signals, it would prefer to cut off supply to rural households with low loads and little or no revenue potential.

The last objective of clean energy is a state (primarily central government) driven intervention. This is also an intervention that the distribution companies would rather ignore if they are to follow market signals as explained in Part I of this column. The cheapest way for discoms to meet constraints imposed on them by the UDHAY scheme is to provide no energy to poor rural households. Providing clean energy will make them worse off compared to providing ‘dirty’ energy.  The press release on the UDHAY scheme says that ‘default on bank loans by the financially stressed discoms has the potential to seriously impact the banking sector and the economy at large’. Distribution companies that sign up to the UDHAY scheme will not have access to short term borrowing from banks. This means that the only way in which distribution schemes can meet the goal of reducing the gap between cost of supplying power and revenue realised is by resorting to the ‘power-outage’ model – that of supplying no energy because the more energy they supply the more money they are likely to lose. In the absence of deep structural changes that will increase efficiency and in turn reduce costs this is the only option discoms have. This is where solar energy ‘enthusiasts’ are likely to rush in and say that this is a great opportunity for decentralised mini-grids to power rural households. We would like to pose the question: ‘opportunity for whom’?

Installing solar panels in rural India, putting up a few bulbs and fans in a poor households and taking pictures of smiling families under solar panels is a great opportunity for those who are ideologically committed to solar energy to portray the victory of solar energy over rural poverty and dirty coal in India. But does it really have an impact on rural poverty and coal based grid power? Is it just a claim similar to that of the claim of ‘electrification’ in India which does not demand continues supply of power to all households? What long term economically viable opportunity does it open up for a rural household especially if its fate is most likely to be that of the decentralised solar project of Green Peace in Bihar (see part I of this column)? If providing energy is the goal (as opposed to limiting carbon emissions) would it not make more sense to use efficient diesel generators in mini-grids as it is done in most islands?

Solar panels are not among the aspirational dreams of rural households.  To get out of poverty; to have wage incomes from salaried jobs (probably similar to the young people coming to rural areas from urban cities in India wearing fine clothes and holding tab computers – both manufactured from petrochemicals – to install and inspect their solar panels – made using fossil fuels and transported by petroleum fuels. These youngsters come to the village only because they know they can return to the coal fired comfort of their urban homes using the efficiency and speed of their petrol fired cars and this is what the rural poor want for their children) rather than derive sustenance incomes from self-employment in their tiny agricultural plots; to have air-conditioners, televisions and fridges that run at the flick of a switch are among their aspirational dreams.  These dreams may not be to the taste of the affluent ‘other’ who are infatuated by the idea reversing climate change but aspirations are by definition only the strong desire to imitate or become the powerful ‘other’. As long as the powerful ‘other’ remains wedded to fossil fuel fired production and consumption, the poor are unlikely to conform to the aspirations of the affluent that the poor obey the laws of climate change policy that they conveniently ignore. We will leave this bit of digression at his point and return to the question posed by the title of the column.

Will the growing share of renewables make power utilities non-renewable? Though this is not an immediate problem for Indian utilities given the share of power from new renewable energy sources such as wind and solar are small, it may become a problem when the share grows or forced to grow.

Increasing penetration of renewable energy in Germany is flattening the intra-day price curve. This means that the gap between the peak and non-peak prices in a day is growing small (See Chart 3).  The gap is reported to have fallen from 3 to 1 in the last decade.  As pointed by a recent paper, the irony is that the energy sources with the highest overall costs (solar) is reducing overall prices of electricity.

Chart 3

image (3)

Note: Euro to Rs conversion- by taking values at the end of each year from

Source: Bloomberg

In India there is no ‘time of the day’ pricing and so this has flattening of the price curve is not yet materialised into a major problem but the fact that increasing share of renewables can reduce overall tariff and yet at the same time increase overall costs for distribution companies is an issue that Indian discoms under the UDHAY medication must take note of. The celebration of low prices quoted in solar auctions in India should send shivers down the spines of discoms under the UDHAY scheme.  As the volume of renewable energy grows, the tension between policy driven renewable energy and market driven discoms could grow. This will mean that all that renewable energy will counter the impact of UDHAY and make Indian discoms non-renewable in the long run.

Views are those of the authors                    

Authors can be contacted at,

Courtesy: Energy News Monitor | Volume XII; Issue 39

Courtesy: Energy News Monitor | Volume XII; Issue 40


Oil Production Cuts: Damned if you Do and Damned if you don’t!

Lydia Powell, Observer Research Foundation

Conventional Fuels

Oil & Gas

As crude oil prices continued to fall, the prospect of cooperation between OPEC and Russia to contain production volumes was opened in the first week of February. Russian oil output stood at a post-Soviet record high of 10.88 million barrels per day (mbpd) in January. Given the history of Russia’s unfulfilled promises to cut production to sustain prices during the 1998 Asian financial crisis, the 2001 terrorist attacks on USA and the more recent 2008 financial crisis, oil producers and oil sector investors who are eagerly awaiting signals on an increase in crude prices would be ill advised to pin hopes on anything concrete emerging from these talks. Russia has consistently got away with the explanation that production cuts in freezing temperatures would result in irreversible damage to its fields. Furthermore even if the Russian state did impose production cuts and blocked transport through the Transneft pipeline system Russian oil is likely to reach the market through other means of transport as it has done historically. This time may not be very different.

Oil company results were reported to be showing heavy stress. BP reported the worst ever loss of $6.5 billion for 2015. ExxonMobil reported revenue of $ 16.1 billion but this was a 50% reduction over earnings in the previous year. According to Wood Mackenzie decommissioning of oil rigs is accelerating in the North Sea. It says that 50 oil & gas fields may shut permanently. A report from Deloitte said that 175 of the 500 publicly traded oil companies that it reviewed were in trouble with more than $150 billion debt.

Saudi Arabia was reported to be in talks with China’s CNPC and Sinopec for joint ventures in refining. Some observers interpreted this as Saudi Arabia’s attempt to replicate its strategy of investing in US refineries in the oil price collapse of the late 1990s to maintain its US export volumes. The competition between Saudi Arabia and Russia for oil market share in China was reported to be heating up. Russia is said to have increased its market share from 10% in 2014 to 12% in 2015 with a 28% increase in exports to China. On the other hand, Saudi Arabia’s market share is said to have fallen from 20% in 2012 to 15% in 2015.

Signals from China did not help global oil prices. Manufacturing data from China was reported to be less than optimistic with the purchasing managers index (PMI) falling to 49.7 in December 2015 and 49.4 in January 2016 (values below 50 indicate contraction). January was reported to be the sixth consecutive month for PMI contractions in China. Fears of the oil crises leaking into other sectors of the economy began growing in February. This was puzzling. If a dramatic increase in oil prices is among key causes of an economic recession, a dramatic fall in oil prices cannot also be among causes of an economic recession. One or the other statement must be inaccurate.

The Obama administration was reported to be planning a proposal for a $10/bbl tax on oil production to raise money for investment in public transportation and clean energy. The probability of this bill becoming law is not seen to be very high.

Among other causalities of the oil price collapse was Nigeria which was reported to be in line for a $15 billion loan from the World Bank to make up for its budget deficit. Jorge Luiz Zelada, former Director of Petrobras International Business Division was reported to have received a sentence of over 12 years in prison for charges of corruption and money laundering.

Meanwhile Iran was reported to have begun shipping oil to Europe for the first time in many years. The CEO of GE was also reported to have paid a visit to Iran recently which increased speculation on US investments in Iran. By the end of the month, oil prices appeared to stay around $30/bbl with some speculating that the happy days of $40/bbl oil was just around the corner. Oil output from the USA is reported to be about half a million barrels lower than last year.

On the gas front, one of the most interesting piece of news was the release of a proposal by the European Commission that called for a more centralised authority over energy deals. The idea was that bilateral deals between any EU member and a third party (such as Gazprom) would require EU approval. This was seen by observers as a reaction to the Nord Stream pipeline expansion that carries Russian gas to Germany. Another item that made the headlines was Cheniere sending out its first cargo of LNG from Sabine Pass to Brazil. When gas prices were high LNG leaving the US shores was awaited like the second coming of Jesus but now that prices have tumbled it was seen more as the sighting of the fifth horseman. Other horsemen of the LNG apocalypse such as the $54 billion Gorgon LNG facility in Australia are also reported to be nearing completion with six more projects expected to come online next year. Barring a miracle that revives energy prices, these projects are probably damned if they produce and damned if they don’t.


The fortunes of coal continued to be worse than that of oil and gas as it remained the target for climate enthusiasts. Glencore the world’s fourth largest diversified minor announced a $4.96 billion loss in 2015. The Chinese owned Australian coal company announced a loss and put some of its operations on hold. As always coal did not make it to the headlines like oil despite the seriousness of its troubles. Despite the gloom the industry appeared to be patiently waiting for a reversal of its fortunes.

Power and Renewables

In the USA the sudden death of US Supreme Court judge Antonin Scalia revived hopes of Obama’s clean energy plans. As renewables continued their assault on conventional fuels aided by government crutches, Warren Buffet highlighted growing threat to utilities from solar and wind as they drive down wholesale prices.  Demand for LNG for power generation fell in Japan as a result of warmer weather, slower economy and the return of three nuclear reactors. The prospect of 21 out of 43 of Japan’s nuclear reactors returning to service by 2017 did not help the case for LNG.

Views are those of the author                    

Author can be contacted at

Courtesy: Energy News Monitor | Volume XII; Issue 38