UJJWALA YOJANA: IS POLITICS WORKING FOR WOMEN OR ARE WOMEN WORKING FOR POLITICS?

Lydia Powell & Akhilesh Sati, Observer Research Foundation  

The Pradhan Mantri Ujjwala Yojna scheme, launched by the Ministry of Petroleum and Natural Gas of the Government of India offered liquid petroleum gas (LPG) to women of poor Indian households at subsidized rates.  This scheme was said to be one of the many reasons for the victory of the BJP in Uttar Pradesh in the recent elections where female voters outnumbered male voters.  Subsidised LPG will definitely improve efficiency and comfort levels of rural kitchens but will it give rural women ‘due respect and dignity’ as posters advertising the ujjwala yojana scheme claim?

Historically growth in the use of LPG has been far slower than the growth of electricity in Indian households.  In 2014, household surveys revealed that roughly 80 per cent of households had access to electricity and less than 40 per cent of the households had access to LPG.  In urban India roughly 75 percent of households had access to LPG while in rural India less than 20 percent did.   In 2017, 70 percent of households were said to be using LPG based on the number of registrations recorded by LPG dealers.  This may not be as accurate as household surveys but it would not be incorrect to claim that LPG consumption by households in India is now growing at a faster pace.

Investment in rural electrification preceded investment in LPG access by more than three decades and was driven by strategic concerns of food security.  Rural electrification meant for pumping ground water for agriculture in the 1960s and 70s had the side benefit of lighting up rural households.  In the last few decades the rural living room in India modernised, though at a much slower pace than its urban counterpart, with electricity powering fans, television sets and mobile chargers but the kitchen stayed where it was.  This was despite the fact that LPG cylinders are decentralised packaged forms of energy that can be adopted even in rural areas without significant investment. Unlike grid based electricity, LPG does not require elaborate infrastructure and centralised control and coordination at the distribution end.  And yet LPG did not replace firewood in most rural households in India partly because poor women lack agency.  They cannot choose the fuel they wanted even if it was available and affordable to the household.

Energy access for women in India partly depends on strategic calculations of political parties and governments.  Women’s role in influencing electoral outcomes (as in the case of Uttar Pradesh) have transformed women into a strategic target for gendered energy policies. Energy access for women also depends on economic and social calculations of the household.  For the rural household, the ‘opportunity cost’ of women is low because they are not given access to quality education and consequently have few prospects of alternative employment.  It is far cheaper for the poor rural household to use the woman to gather fuel wood, process animal dung to use as cooking fuel or stand in long lines to get subsidised kerosene from public distribution schemes (PDS) rather than invest in other forms of energy such as LPG.  Put crudely, the woman will remain the cheapest form of energy for a poor kitchen as long as she is denied quality education.  This situation contributes to reducing effective demand for LPG in rural areas.  LPG dealers who shun rural areas because of low density of households in a given area are unlikely to be motivated by the competition from poor women.

A survey based study concluded that even in an urban Indian household the probability of opting for LPG was higher when the first child is male.  The increase in the status of a woman who bears a male child (even if temporary) and the interest in the health of the male child are cited as reasons for adoption of LPG.

Like aadhar, (the scheme for issuing biometric identity numbers for Indian residents) the ujjwalla yojana scheme presents technology as a mediator for complex social problems.  While aadhar is promoted as the answer to distributional conflicts in India (targeted distribution of social security goods such as food, fuel etc. to the poor), ujjwalla yojana is projected as a means to alter inter and intra household gender relations.  Neither is likely to succeed to the extent projected.

Technology has rarely been a sufficient condition for social transformation even if it is a necessary one.  On the other hand, there is undisputable evidence that politics and the resulting policies that facilitate the education and employment of women have increased the agency of  women in India. Though access to education and employment now depend on access to family income or wealth, state-funded initiatives that increased access to quality education and employment to relatively poor women have had a dramatic impact on empowering women. In the context of rural household energy, education substantially increases the opportunity cost of women as they become too expensive to be deployed merely as firewood collectors or animal dung processors. When an educated woman is the only woman available in the household, modern energy sources such as LPG become the only choice of the household.

Projecting the offer of subsidised LPG as a means to respect and dignity essentially demeans rural women.  It reinforces the inequitable assumption that underpins most services and solutions offered to the rural poor: ‘make-do’ short term solutions offered primarily by non-government organisations are more than sufficient for the rural poor but expensive and long term state funded programmes are necessary for the urban rich.  The ujjwala yojana scheme offers ‘due respect and dignity’ in cylinders to empower rural women in lieu of long term investment in high quality education and employment opportunities that is offered for the empowerment of urban women.

Oversimplifying the complex social and political problem of gender inequality or broader social and economic inequality into sanitised technological or administrative problems of distributing LPG cylinders or issuing identity cards is the newest of political propaganda tools being deployed in India.  Rather than making politics work for women it merely makes women work for politics!

A version of this article was published in the onfrontiers blog.

Views are those of the authors                    

Authors can be contacted at lydia@orfonline.orgakhileshs@orfonline.org

 

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NATURAL GAS: SQUEEZED BY ENTRENCHED COAL AND SUBSIDISED RENEWABLES

Monthly Gas News Commentary: June – July 2017

India

India may see at least six times growth in Indian gas market by 2030 from the current levels, Global oil major Royal Dutch Shell said. It said that LNG may be the largest contributor to it. The prediction comes at a time when India is trying to increase the share of gas in the overall energy mix to over 15 percent by 2030. Currently, India is the fourth largest LNG importer after Japan, Korea, and China, and has four LNG terminals with close to 22 mtpa of re-gasification capacity. Industry experts believe that lack of infrastructure is the major constraint for the absence in demand. India’s pipeline infrastructure stands at 16,240 km and an additional 10,258 km of pipelines are under construction. Though Shell had planned to float an LNG terminal off the coast of Kakinada in tie up with GAIL (India) Ltd and Engie, its progress is also slow because of the demand shortage. LNG demand growth from China, India and new entrants absorbed supply growth in 2016

Petronet LNG Ltd, India’s biggest importer of liquid gas, is in talks to buy 25% stake GSPC almost complete ₹ 45 billion Mundra LNG import terminal in Gujarat. The 5 mtpa import terminal, the third facility in Gujarat for import of natural gas in its liquid form in ships, is nearing completion and GSPC is keen to shed some of its stakes to lighten its debt burden. GSPC first offered its 50% stake in the project to state refiner IOC but the company was willing to take no more than 25-26%. So now, GSPC is talking to Petronet for selling 25% stake. The Adani group holds 25% interest in the LNG import terminal. GSPC LNG, a unit of GSPC, will hold 25% stake, similar to IOC and Petronet once the deal concludes. With a view to expanding its gas business, IOC is keen to buy a stake in the Mundra terminal. Petronet, too, is keen to raise its import capacity. Petronet operates a 15 mtpa LNG import facility at Dahej in Gujarat and has another 5 mtpa terminal at Kochi in Kerala. IOC is building a 5 mtpa LNG import terminal at Ennore in Tamil Nadu by 2018-end. Besides the Dahej LNG import facility of Petronet, Gujarat has another 5 mtpa terminal of Shell at Hazira. Initially, eight firms, including state gas utility GAIL, had expressed interest in buying the stake, but only three were finalised. GSPC has now rejigged the entire stake sale, by offering half of its stake to IOC and another 25% to Petronet. GSPC is looking at a partner which can bring in LNG or consume the imported liquid gas. The Mundra terminal, which is to be financed with a debt to equity ratio of 70:30, is expandable up to 10 mtpa in the near future.

The GST Council may decide to include natural gas in the GST regime as a measure to provide some relief to the oil and gas sector. Currently, crude oil, petrol, diesel, jet fuel and natural gas are not included in the new indirect tax structure. This essentially means that various goods and services procured by the oil and gas industry will be subject to GST, but the sale and supply of oil, gas and petroleum products will continue to attract earlier taxes like excise duty and VAT. Unlike other industries which can take credit for any tax paid towards furtherance of business, no credits on input GST will be available to the oil and gas industry leading to huge additional indirect tax burden with stranded costs of about ₹ 250 billion. The oil ministry has taken up with the finance ministry for early inclusion of all the five exempted products in GST. So far, inclusion of natural gas in GST has not been listed on agenda, but there is a concentrated push for doing so. If natural gas is included, GST paid on inputs and services used for producing natural gas can be set off against taxes on its sale. This would cut the losses to the industry by one-fifth. The move will benefit companies like ONGC as well as gas retailers like IGL.

An OVL led consortium has offered to invest as much as $6 billion on the Farzad-B field and spend the remaining amount to build an LNG export facility. The group is seeking a return of about 18 percent, and Indian companies are willing to buy all the gas exported from the project. As India, the world’s fourth-largest LNG buyer, seeks to lock up gas resources to meet growing demand and spur the use of cleaner-burning fuels, Iran is emerging from sanctions that stifled investment in its energy sector. The two countries had aimed to conclude a deal by February on developing the field, which India has said holds reserves of almost 19 trillion cubic feet. The consortium, which includes IOC and OIL, has been trying to secure development rights to the Farzad-B gas field since at least 2009. OVL and IOC each own 40 percent interest in the Farsi block that holds Farzad-B field, while OIL has 20 percent.

RIL is reportedly considering a plan to enter retailing of LNG and setting up of charging stations for electric vehicles at its petrol pumps. At the end of April 2017, RIL operated 1,221 of its 1,470 fuel retail outlets. The company plans to re-open the rest of the outlets by the end of the year. RIL holds licences for 5,000 fuel retail outlets. Royal Dutch Shell and Petronet LNG, importers of LNG are also planning to set up LNG retail outlets in the country. RIL and BP said that the companies would expand their existing partnership for strategic cooperation on new opportunities across India’s energy sector.

CCI ordered a fresh investigation against GAIL for alleged abuse of dominant position with regard to supply of natural gas. This is the second time in less than one year that the company has come under the lens of the watchdog for alleged unfair business practices. After finding prima-facie evidence of competition norms violations, the CCI has ordered the probe based on a complaint by Rajasthan-based TMT bars maker Shri Rathi Steel (Dakshin) Ltd. It was alleged that GAIL abused its dominant position by incorporating unfair terms and conditions in the GSA. For this case, the regulator considered the market for supply and distribution of natural gas to industrial consumers at Alwar in Rajasthan as the relevant one. Shri Rathi Steel had entered into a GSA pact with GAIL in March 2009. The conduct of GAIL in implementing such ToP liability from 2015 appears to be a modus to ensure de facto exclusivity of the contractual arrangement.  It is observed that imposition of ToP liability as per contractual terms cannot per se be regarded as abuse of dominant position, the CCI said.

RIL, which began commercial production of CBM gas from two blocks in Madhya Pradesh this March, is buying the gas for its own use at around $7.8 per mmBtu. The two blocks are located in Sohagpur East and West. RIL was awarded these blocks in 2001, in the first round of CBM auctions. The government had on 15 March approved pricing and marketing freedom for producers of natural gas from CBM. The company had been deferring CBM gas production due to lack of clarity over pricing. CBM is a natural gas stored or absorbed in coal seams and contains 90-95% methane. Other than RIL, Great Eastern Energy Corp Ltd and Essar Oil Ltd are the two existing players selling CBM gas in the market. RIL holds another CBM block in Sonhat, Chhattisgarh. Reliance Gas Pipeline Ltd, an RIL subsidiary, has laid around 312 km of pipeline to carry natural gas from Shahdol in Madhya Pradesh close to its CBM blocks to Phulpur in Uttar Pradesh.

ONGC has reiterated that it had taken up only routine maintenance work in the oil well at Kadiramangalam in Thanjavur district and denied allegations by certain organisations that it had taken up exploration of coal bed methane and shale gas in the delta. The Kadiramangalam well was drilled in 2000 and oil and natural gas was produced from it and later on linked to the nearby Gas Collection Station at Kuttalam. The production was through pipes with very small diameter and at a depth of more than 2,300 metres which operations called for proper cleaning and replacement of old tubing in a scheduled interval. Previously, maintenance work was done in 2009 when the tubings were replaced and similar works were carried out a fortnight back. Explaining that during the maintenance work no harmful chemicals were used they also observed that the ONGC was extracting only oil and natural gas for the past 34 years in the Cauvery delta region. The ONGC programme remained the same though several technological developments have been brought into the field operations over the years, they pointed out in the release.

Rest of the World

China’s LNG receiving capacity is expected to rise 8.6 percent a year to 100 mtpa by 2025, the NDRC said. Storage capacity of natural gas, including LNG, is forecast to rise 17 percent a year from 2015 to 2025 to reach 40 bcm, the NDRC said. The NDRC also expects pipeline capacity for natural gas imports to rise 7.6 percent a year from 2015 to 2025 to hit 150 bcm. The world’s top consumer of oil and coal, China has embarked on a huge investment programme to expand its LNG and pipeline infrastructure. China’s oil and gas pipelines are expected to total 169,000 kms by 2020 and 240,000 kms by 2025, the NDRC said.

China is ramping up both imports and domestic production of natural gas, with the combined rate of growth running well ahead of the government’s target for boosting the use of the cleaner-burning fuel. Official data for domestic production, imports via pipelines and imports of LNG show the total amount of natural gas available in China in the first five months of the year was the equivalent of 72.01 mtpa of LNG. China has set a target of increasing the share of natural gas in energy consumption from 5.9 percent in 2015 to 10 percent in 2020, an average annual increase of 4.1 percent. So far this year, China’s output and imports of the fuel are running at more than double the annual rate needed to reach the official target. The biggest gainer has been imports of LNG, which are up 38.4 percent in the first five months of 2017 to 12.86 mt while pipeline imports have dropped 4.4 percent to 12.65 mt. Domestic natural gas production has been a strong gainer, rising almost 7 percent in the January to May period to 62.88 bcm to 64 bcm. The rise in natural gas output stands in sharp contrast to the decline in crude oil production, which fell to the lowest on record in May as output declines from older fields. Natural gas has also outperformed coal in the first five months of the year. The jump in imports of LNG shows how the super-chilled fuel is becoming more competitive with pipeline imports from central Asia. Customs data from May shows that the average landed cost of LNG was $7.28 per mmBtu. Among China’s LNG suppliers Australia has fared best, with imports rising 42.7 percent in the first five months to 5.39 mt almost double that of second-placed Qatar at 2.84 mt. Malaysia is the third-biggest supplier to China, with 1.82 mt in the first five months, up 90 percent from the same period in 2016. The price being paid by China for LNG tells part of the story, with cargoes from Australia landing at $6.80 per mmBtu in May, well below the $8.95 per mmBtu for Qatar and slightly ahead of the $6.49 per mmBtu for Malaysia. Australia’s price advantage is still largely tied to the 25-year supply deal from the North West Shelf venture, signed in 2002 at a fixed price of $3.80 per mmBtu.

Russia’s largest natural gas producer Gazprom will start supplying fuel to China through Siberia on December 20, 2019. The deal is the latest sign that Russia is tightening its ties with China, a major gas buyer. It comes at a time of turmoil for rival major exporter Qatar amid a dispute with its Gulf neighbours who have imposed political and economic sanctions on Doha. The new pipeline, dubbed the “Power of Siberia”, has a planned annual capacity of 38 bcm. CNPC said that it agreed to speed up the construction of pipeline and market development, as well as natural gas processing plants and domestic underground gas storage facilities to make sure the project starts on time. While the start date appears ambitious, analysts said the volume on the pipeline by the end of 2019 would likely be low and ramping up to full capacity would take some time. Russia needs to develop two new gas fields in order to fill it.

Thirteen EU nations voiced support for a proposal to empower the bloc’s executive to negotiate with Russia over objections to a new Russian gas pipeline to Germany, despite opposition from Berlin. At an informal debate among EU Energy Ministers, Germany’s partners in the 28-nation bloc spoke out against Russia’s Nord Stream 2 pipeline plan to pump more gas directly from Russia’s Baltic coast to Germany. EU nations are expected to vote in the autumn on the European Commission’s request for a mandate to negotiate with Russia on behalf of the bloc as a whole. Germany, the main beneficiary of the pipeline, sees it as a purely commercial project, with no role for the Commission. The plan taps into divisions among the bloc over doing business with Russia, which covers a third of the EU’s gas needs, despite sanctions against Moscow over its military intervention in Ukraine. With the pipeline expected to reroute some Russian gas supplies around Ukraine to the north, Italy voiced concerns it would increase gas prices for customers further down the line.

Cheniere Energy Inc, the sole exporter of LNG from US shale basins, commenced a 20-year supply agreement with Korea Gas Corp. Under the deal originally signed in 2012, Cheniere will make available for delivery about 3.5 mt of LNG to South Korea, the world’s second-biggest buyer last year, representing at least $548 million of revenue per year. Just last year, the first cargo of LNG from the lower 48 states sailed from Cheniere’s Sabine Pass terminal in Louisiana. Now, buyers including South Korea, Mexico, Chile and Japan have set the US on a path to becoming a net gas exporter for the first time in decades. As the surge in production from America’s shale reservoirs transforms the nation into a global gas powerhouse, the US may surpass Australia and Qatar to becoming the world’s largest LNG supplier by 2035. South Korea has already received eight cargoes loaded with Sabine Pass gas as of June 21, according to data. But the vessel that will arrive early next month will be the first to be received under the long-term supply deal. South Korea bought 34.19 mt of LNG last year, according to the International Group of LNG importers, the second most after Japan. Cheniere is already the biggest US buyer of physical natural gas. And once all seven trains the company’s building at Sabine Pass and a Corpus Christi, Texas, terminal are online, it expects to be two to three times bigger than the second-largest consumer.

President Donald Trump is expected to use fast-growing supplies of US natural gas as a political tool with a dozen countries that are captive to Russia for their energy needs. In recent years, Moscow has cut off gas shipments during pricing disputes with neighbouring countries in winter months. The message from the US would be that exports from the US would help reduce their dependence on Russia. This will help US companies to ship more LNG to central and eastern Europe. The Three Seas project which is designed to meet this goal aims to expand regional energy infrastructure, including LNG import terminals and gas pipelines. Members of the initiative include Poland, Austria, Hungary and Russia’s neighbours Latvia and Estonia. The US is expected to become the world’s third-largest exporter of LNG in 2020, just four years after starting up its first export terminal. US exporters have sold most of that gas in long-term contracts, but there are still some volumes on offer, and more export projects on the drawing board. Cheniere Energy Inc, which opened the first US LNG export terminal in 2016, delivered its first cargo to Poland in June. Five more terminals are expected to be online by 2020.

Japan’s Tokyo Gas, the world’s largest importer of LNG, is in talks to renew supply contracts and will push to revise terms to get more flexibility and cut prices. The push for easier terms, a major concern among Japanese utilities after the Fukushima nuclear disaster six years ago led to a surge in LNG imports and drove prices higher, got a boost when the country’s anti-trust regulator last month ruled restrictions in supply contracts were anti-competitive. The decision by Japan’s Fair Trade Commission to rule that so-called destination clauses that restrict resale of LNG cargoes are anti-competitive is likely to lead to more trading by buyers in Japan and could prompt challenges to similar restrictions elsewhere in Asia. Asian LNG buyers have long complained that having destination clauses in LNG contracts unfairly restricts trading of the fuel at times when it would make more economic sense for buyers to on-sell supplies to other markets.

Indonesia is unlikely to need to import LNG until at least 2020 due to robust gas production from the Jangkrik gas field operated by Eni even as the government has pushed increased domestic gas consumption. The field was designed to produce 12.7 mcm per day of gas but output could be up to 16.9 mcm per day. Currently the world’s fifth-biggest exporter of LNG, Indonesia has lost market share to new production from Australia and Qatar and as output is reserved for domestic needs. However, the domestic gas market has not developed as anticipated even after the government promoted the fuel to replace coal for power plants and as an industrial fuel. BP’s Tangguh Train 3 project will supply more gas to Indonesia from 2020 onwards. These supplies could be redirected to other LNG buyers in Asia, particularly Bangladesh.  Meanwhile, Indonesia is looking for buyers for 16 to 18 uncommitted LNG cargoes for this year. He expects an average of 50 to 60 uncommitted cargoes per year until 2035.

Iran will see a steep rise in its natural gas output and exports after last year’s easing of Western sanctions. Iran’s gas production would rise to 1 bcm per day by the end of the year from the current 800 mcm per day. Volumes available for export should reach 365 mcm per day by 2021, which is higher than the exports of the world’s top LNG producer Qatar. France’s Total signed a deal earlier this month to help Iran increase gas output from the giant South Pars gas field, which the country shares with Qatar. Total will be the operator with a 50.1 percent stake, alongside China National Petroleum Corp with 30 percent and National Iranian Oil Co subsidiary Petropars with 19.9 percent. The deal marked the first by a major global energy company signed with Iran since the easing of sanctions against Tehran in January 2016.

Pakistan said it could become one of the world’s top-five buyers of LNG as imports could jump more than fivefold as private companies build new LNG terminals. Pakistan’s ambitious plans, if fully implemented, could shake up the global LNG market. Imports could top 30 mtpa by 2022, up from just 4.5 mtpa currently. Cheaper than fuel oil and cleaner burning than coal, LNG suits emerging economies seeking to bridge electricity shortfalls and support growth on tight budgets. Pakistan built its first LNG terminal in 2015 and, after some delays, a second terminal is due to come online in October, doubling annual import capacity to about 9 mtpa. A consortium of Exxon Mobil, Total, Mitsubishi, Qatar Petroleum and Norway’s Hoegh is expected to decide by September whether to build a third LNG terminal for about $700 million. Pakistan has dropped plans to finance up to two more terminals, as private companies have said they would finance these themselves and use Pakistan’s existing gas network to sell directly to consumers. Pakistan is in talks with Russia, Indonesia, Malaysia and Oman about government-to-government deals for up to three monthly LNG cargoes for its second terminal, which can import 16.9 mcm per day equal to six cargoes a month. Tenders for two of the terminal’s six cargoes have already been won by trading house Gunvor and Italy’s Eni, which have signed 5-year and 15-year deals, respectively. The contracts are worth about $5 billion over their lifetime. Qatar supplies most of the gas for Pakistan’s first LNG terminal.

Qatari exports of LNG remain stable amid ongoing tension between the world’s biggest LNG exporter and its neighbours. Qatar said that its exports, including of LNG, to Japan, India, South Korea and China had not been affected by a boycott. Exports to the four Asian countries account for nearly three quarters of its total exports.

France’s Total signed a deal with Tehran to develop phase 11 of Iran’s South Pars, the world’s largest gas field, marking the first major Western energy investment in the Islamic Republic since the lifting of sanctions against it. Total will be the operator with a 50.1 percent stake, alongside China National Petroleum Corp with 30 percent, and National Iranian Oil Co subsidiary Petropars with 19.9 percent. The project will have a production capacity of 400,000 boe per day including condensate, Total said that the gas will supply the Iranian domestic market starting in 2021. The first stage of the South Pars development will cost around $2 billion, Total said. The project will cost up to $5 billion and production is expected to start within 40 months, Iran’s oil ministry said. The offshore field was first developed in the 1990s. Total was one of the biggest investors in Iran until the country drew international sanctions in 2006 over suspicions that Tehran was trying to develop nuclear arms. Iran, the third-largest producer in the Organization of the Petroleum Exporting Countries, hopes its new petroleum contracts will attract foreign companies and boost oil and gas output after years of under-investment.

Iran has begun exporting gas through a pipeline to Baghdad under a deal set to make Iraq the Islamic republic’s top customer, the oil ministry said. A new pipeline links western Iran to Baghdad, while a second in Iran’s southwest will pump Iranian gas to the southern Iraqi city of Basra. Once the Basra pipe comes online, Iraq’s total gas imports from Iran are set to reach up to 70 mcm per day. Iran sits on the world’s second largest natural gas reserves and produces some 600 mcm per day. But despite almost doubling its oil exports since international sanctions were lifted under a 2015 nuclear deal, it consumes most of its gas domestically – partly for lack of export infrastructure. Turkey has so far been its only export client, importing some 30 mcm per day under a 1996 deal. The Islamic republic, seeking to expand its gas market, is developing production facilities in the huge offshore oil and gas field of South Pars, which it shares with Qatar.

Poland temporarily halted gas deliveries from Russia via the Yamal pipeline due to poor quality of the gas, which Russia said was due to a “short-term technical problem.” Poland’s state gas pipeline operator Gaz-System said it would not resume receiving gas deliveries until June 23, but that the move would have no impact on the security or balance of the Polish domestic gas distribution system. Gazprom Export, the export arm of the Russian gas monopoly Gazprom, said a technical problem occurred on June 20 and the company’s specialists were taking all necessary measures to solve the issue. Poland consumes some 16 bcm of gas a year but most of it comes from Russia as Poland’s biggest gas firm PGNiG has a long-term gas supply contract with Gazprom – the so-called Yamal contract – that runs until 2022. PGNiG said it had stopped receiving gas from the Yamal pipeline for winter reserves.

Polish gas pipeline operator Gaz-System expects the North-South Gas Corridor linking LNG terminals in Poland and Croatia to be ready by 2022. For Poland, seeking to reduce its dependence on Russian gas, 2022 could mark a turning point for its domestic gas market. Warsaw has said it does not intend to extend the long-term gas deal with Russia’s Gazprom when it expires in 2022. By then Poland plans to build a gas link called the Baltic Pipe to Norway to tap into gas deposits in the North Sea. With its already operational LNG terminal on the Baltic Sea, Poland could then replace Russian gas with other sources and also resell the excess to neighbouring countries. A key part is a cross-border gas link connecting the Polish and Czech systems, which has faced numerous delays. The gas market in central Europe is undergoing significant change in the light of increased LNG supplies and as in many countries long-term supply deals with Russia were about to expire.

LNG: liquefied natural gas, mtpa: million tonnes per annum, km: kilometre, GSPC: Gujarat State Petroleum Corp, Indian Oil Corp,   GST: Goods and Services Tax,  VAT: Value Added Tax,  OVL: ONGC Videsh Ltd, OIL: Oil India Ltd, RIL: Reliance Industries Ltd, CCI: Competition Commission of India, GSA: gas sale agreement, ToP: Take-or-Pay, CBM: coal-bed methane, mmBtu: million metric British thermal units, ONGC: Oil and Natural Gas Corp, NDRC: National Development and Reform Commission, bcm: billion cubic meters, mt: million tonnes, mcm: million cubic meters, boe: barrels of oil equivalent, CNPC: China National Petroleum Corp, US: United States, EU: European Union

Courtesy: Energy News Monitor | Volume XIV; Issue 7

RISING DEMAND INCREASES IMPORT DEPENDENCY

Monthly Oil News Commentary: June – July 2017

India

Despite government policy to reduce oil imports by 10 percent, growing demand for oil in India has only led to more dependence, which has gone up to 81 percent from 77 percent in 2015. Current recovery factors of ONGC and OIL for crude oil are as low as 27 percent and 23 percent, against international benchmark of 35-40 percent and 55-70 percent.

Vietnam has extended an Indian oil concession in the South China Sea and begun drilling in another area it disputes with China in moves that could heighten tensions over who owns what in the vital maritime region. The moves come at a delicate time in Beijing’s relations with Vietnam, which claims parts of the sea, and India, which recently sent warships to monitor the Malacca Straits, through which most of China’s energy supplies and trade passes. Vietnam granted Indian oil firm ONGC Videsh a two-year extension to explore oil block 128. Part of that block is in the U-shaped ‘nine-dash line’ which marks the vast area that China claims in the sea, a route for more than $5 trillion in trade each year in which the Philippines, Brunei, Malaysia and Taiwan also have claims.

Despite the fall in crude oil prices, upstream companies such as ONGC and OIL are said to offer better risk-reward ratio compared with downstream companies such as BPCL, HPCL and IOC due to superior volume visibility and attractive valuations. ONGC has guided for strong production in gas, as new projects start by the end of 2017. Oil and gas production has been lackadaisical in the past few years. However, ONGC and OIL reported a turnaround in FY17. ONGC’s monthly hydrocarbon (oil and gas) production in the FY17 was the highest in two years. Total domestic hydrocarbon production in FY17 was 44.3 mtoe 1.8 percent higher than in the previous fiscal. ONGC expects offshore crude oil production to increase to 16.8 mtoe in FY18 from 16.3 mtoe in FY17. Offshore production is expected to increase from incremental crude oil production in the fields, including WO-16, B-127. ONGC has also guided for production rebound in gas to 64 mmscmd in FY18 as compared with 54 mmscmd, up 18.5 percent YoY. A positive policy environment may further benefit production growth. The Directorate General of Hydrocarbons is evaluating a policy for incentivising EOR, which focuses on the implementation of various techniques for increasing the amount of crude oil that can be extracted from an oil field. Any green nod for implementation of EOR technique will be positive for the upstream companies and could potentially be a significant share of incremental volumes. Also, the expected recovery in domestic gas prices augurs well for earnings growth. According to analysts’ estimate, domestic gas price is likely to rise to $3.3/mmBtu and $3.6/mmBtu in the second half of FY18 and the first half of FY19, respectively, compared with the current $2.8/mmBtu. The domestic gas price formula is linked to global gas prices with a lag. The burden of the subsidy of LPG and kerosene is gradually coming down due to monthly price increases. This has resulted in a drop of ₹ 70 billion per year in the subsidy, which makes cash flows of upstream companies more predictable. The losses on kerosene and LPG may end by 2020 if crude prices remain at or below $50 per barrel. ONGC and OIL are expected to deliver 8 percent annualised earnings for the next two years. They trade at 25 percent discount to global peers based on a price-to-cash flows, higher than the historical average of 16 percent. This offers reasonable risk reward ratio.

India, the world’s third-largest oil importer, has sealed a first deal to import crude oil from the US and the shipment is expected to touch Indian shores in October.  US Mars is a heavy, high-sulphur grade which will be processed at IOC’s newest refinery at Paradip in Odisha. The IOC move has already led to more purchases by other Indian refiners. BPCL too tendered to buy one million barrels of crude either for loading on August 16-September 5 or delivery on September 26- October 15. But for importing crude from the US, IOC had to take special permission from the shipping ministry. So, IOC obtained permission to buy the cargo on a delivered basis where the seller arranges for the ships. The cargo contracted will be delivered at Paradip refinery in the first week of October. IOC is looking at five to six grades of US crude, including Mars crude, for future purchases.

Indian companies have also stepped up purchases of high-sulphur crude oil from the Middle East and Russia in the spot market to feed demand from expanded refining capacity. Four refiners in the world’s third largest crude importer bought 9 million barrels of Middle East and Russian crude loading in July-August via spot tenders last month, drawing down excess supplies in the market after China’s demand slowed. Refiners such as IOC and BPCL have opted to buy more spot crude as they gradually ramp up output, rather than increase long-term crude supplies, traders said. IOC expects to run its new 300,000 bpd Paradip refinery at full capacity this year, while BPCL plans to ramp up output at its Kochi refinery to 310,000 bpd by September after an expansion. Indian refiners have also increased spot purchases during a period of abundant supplies, allowing them to react quickly to market changes and pick up cargoes when prices are competitive. IOC said that in May it plans to buy 68 percent of its oil needs from term suppliers, down from 80 percent earlier. MRPL and BPCL have bought Omani and Bahraini crude while IOC bought 5 million barrels of Abu Dhabi, Iraqi and Russian Urals crude. India is buying more Brent-linked Urals crude this year, with imports to hit an all-time high of 4 million barrels in July, after the price gap between Brent and Dubai narrowed to multi-year lows of below $1 a barrel. India’s crude demand is expected to fall early in the fourth quarter as several refineries are scheduled to shut for maintenance.

India’s diesel imports this year may rise to the highest since at least 2011 as refiners shut down to upgrade their units to meet new fuel standards and as warmer temperatures spur demand. India’s state-owned refiners are already seeking or have bought up to 967,000 tonnes of diesel through July. That exceeds then-record imports of 962,000 tonnes in 2016, according to full-year government data going back to 2011. The upgrades to meet new Euro IV fuel standards implemented on April 1 and warmer temperatures are boosting diesel imports into the world’s third-largest oil consumer. While monsoon rains typically reduce the need for diesel used in irrigation pumps, the curtailed supply because of the maintenance shutdowns will likely continue to boost imports into the country. India is a net exporter of diesel with its refinery production usually enough to meet domestic demand, limiting imports. But the change in fuel standards has boosted imports of cleaner diesel while it has exported more lower sulphur diesel. India’s diesel demand is expected to rise to record levels again this year as a slew of infrastructure projects boosts the use of the fuel, although a government-induced cash shortage will hold growth to its slowest in three years. Diesel demand is expected to grow by 3 percent this year, lower than the 5.1 percent growth in 2016.

Petrol pump dealers have deferred till month-end their planned ‘no-purchase, no-sale’ agitation against daily revision in fuel prices on expectations that oil companies will raise their sales commission. FAIPT, which claims to represent petrol pump operators in 23 states, had called on its members not to buy any fuel from oil companies or sell any petrol and diesel to consumers on July 12. The oil companies have promised to study the implementation of the daily price revision till August 15 to see if the dealers actually suffer any losses. Dealers said they suffer losses as they buy petrol and diesel from oil companies at one rate but the very next day rates would be cut. All India Petroleum Dealers Association said the OMCs have promised to devise some compensation scheme if the two months study (June 16 to August 15) throws out findings that dealers had suffered substantial losses due to daily price revision. Prices of petrol and diesel are revised at 0600 hrs every day since June 16 to reflect any change in international oil price in the previous day. Previously, the revision in rate would happen on 1st and 16th of every month and was based on average international oil price and foreign exchange rate in the preceding fortnight.

Before the rollout of daily price revision FAIPT demanded an automated system to reflect price changes from the state-run oil marketing companies. The main concern of the dealers is that they will have to stop the sales every midnight for considerable time to change the daily rates. However, the IOC successfully rolled out the daily revision of petrol and diesel prices across the country through its network of 26,000-plus petrol pumps. IOC has developed various information modes for the customers to check the price being charged by the petrol pumps including the mobile app wherein the customers will be able to fetch daily updated prices of petrol and diesel at all cities through IOC’s mobile app Fuel@IOC. It will also enable customers to cross-check the prices applicable in their cities by sending SMS on various dealer codes, including various other options.

A city-based start-up MyPetrolPump which recently started a first-of-its-kind door delivery of diesel here, has hit a roadblock, after PESO directed state-run OMCs and private retailers not to sell fuel to it, citing “safety.”  A request to pass an interim order for certain limited quantity of delivery which would allow the firm to resume its operations on pilot basis until PESO notifies guidelines for doorstep fuel delivery businesses has been sent.  The government was said to be exploring ways to facilitate home delivery of petroleum products. ANB Fuels, under the brand MyPetrolPump, had launched its operations from June 18 with three delivery vehicles, each with a capacity of 950 litres, but had to suspend the delivery within four days of launch due to a circular issued by PESO to oil companies to stop providing fuel to it that resulted in the nascent firm losing over ₹3 million per month. The firm received 4,000 calls and 600 order requests for delivery within three days of the launch.

PESO has instructed all the state-run oil marketing companies and the private retailers to not sell fuel to the Bengaluru-based start-up which recently started home delivery of diesel in the city. In a strongly worded letter, the agency entrusted with the responsibility to ensure safety of public and property from petroleum products said in absence of guidelines, the act of site delivery of petroleum products is fraught with danger.  The letter noted that the truck and tank used by the company is not approved by the agency. It also said as per the Petroleum Rules 2002, retail outlets should only dispense petroleum products in tanks connected to automobiles.

Petroleum products such as petrol, diesel and aviation turbine fuel have been kept out of the GST as of now. The Centre is said to be keen on bringing petroleum products under GST.  However, state governments have consistently opposed including petroleum under GST. Petroleum, including oil and gas, is a strategic sector that is still not under GST, while the industry has been pushing for its inclusion so as not to be deprived of the benefits of input credit. BP Europe’s third-biggest oil company and RIL have been invited by the MoPNG to invest in fuel retailing. While RIL already has a fuel retailing license and has some 1,400 petrol pumps on the ground, BP last year got approval to set up petrol pumps in India. RIL and BP are partners in oil and gas exploration but have no such collaboration in downstream fuel retailing business. BP is the tenth player to enter the lucrative fuel retailing business that is seeing double digit growth, not seen anywhere in the world. BP had in January last year won in-principle approval to retail ATF to airlines in India. RIL too operates aviation fuel services separately. India currently has about 59,595 petrol pumps, with public sector firms operating a majority of them. Private sector operators are limited to Essar Oil and RIL, which between them have some 4,900 petrol pumps. Royal Dutch Shell operates 85 petrol stations. NRL and MRPL are late entrants and have six outlets between them. IOC owns 26,212 petrol pumps, HPCL 14,412 stations and BPCL 13,983 outlets. In ATF or jet fuel retailing, there are 211 aviation fuel stations, 104 of which are owned by IOC, 42 by BPCL and 37 by HPCL. RIL has 27 aviation fuel stations at airports, while joint venture of Shell and MRPL owns one. India is currently the ninth largest aviation market in the world. Its jet fuel market is circa 7.3 mtpa and is expected to continue to grow at over 8.6 percent to support the growth of the Indian economy.

Rest of the World

The global oil market is expected to rebalance in the second half of 2017, but further output increases among key producers such as Nigeria and Libya could hamper this process according to the IEA.  Some key producers including Libya and Nigeria had significantly increased output in recent months. The North Sea crude oil market is finally showing signs of long-lost strength, suggesting that some of the pessimism that has driven down oil futures by 5 percent and created a record bet against a price rise may be unjustified. About 6 million barrels of North Sea Brent crude were being stored on ships, down from four-month highs of as many as 9 million. A major driver of the weakness in both the physical and the futures market has been the resistance of global crude inventories to the efforts of OPEC and its 11 major partners to force a drawdown by cutting their oil production. OPEC and a number of exporters such as Russia and Oman agreed to extend a 1.8 million bpd production cut into March next year to force global inventories to return to their long-term average levels and help price rise.

Oil prices fell in early July weighed down by a continuing expansion in US drilling that has helped to maintain high global supplies despite an OPEC led initiative to tighten the market by cutting production. The price of oil is down around 14 percent since late May, when producers led by the OPEC extended their pledge to cut output by 1.8 million bpd by an extra nine months. There was a relatively big draw of around 50 million barrels from floating storage and a drop in industrialised nations’ onshore storage of 65 million barrels compared to July last year. Compliance in April and May with the OPEC-led output deal was above 100 percent. Libya’s production is expected to return to normal levels. OPEC members Libya and Nigeria were exempted from the supply cuts because unrest had curbed their output. If the US rig count continues rising beyond the end of July, oil prices may need to fall further to bring the drilling boom back under control.

The US shale drilling boom is likely to ease next year as demand on the industry’s service sector is unsustainable according to Halliburton. The number of rigs drilling for oil in the US rose to 763, the highest in more than two years, showing that despite oil trading below $50 a barrel, shale oil explorers are still ramping up activity. The count may rise above 1,000 by the end of the year, but not beyond that. Oil services companies cut back dramatically when demand for their products fell oil prices started falling in 2014 and it has taken them longer to readjust their output. 800-900 rigs is a more sustainable level in the medium term. The increase in shale activity has been a boon for companies like However, appetite for oil and gas equipment is still weak outside of the Americas. Halliburton was said to be under additional pressure following the acquisition of rival Baker Hughes, which it failed to buy last year after regulatory opposition, by GE Oil & Gas. GE-Baker Hughes will leapfrog Halliburton to become the world’s second-biggest oil services company after Schlumberger. OPEC oil output has risen in June by more than 300,000 bpd according to figures the exporter group uses to monitor its supply, as a recovery in two nations exempt from a supply cut deal countered high compliance by many others. OPEC agreed to cut output by about 1.2 million bpd from January 1 to reduce a glut and support prices. Russia and 10 other non-OPEC states agreed to cut half as much. Including Nigeria and Libya, which are exempt from the deal, output by all 13 OPEC members in June rose to about 32.47 million bpd, according to the average assessments of secondary sources OPEC uses to monitor its output. OPEC is scheduled to publish the assessment of June output based on secondary sources in its monthly oil market report. OPEC uses two sets of figures to monitor its output figures provided by each country and those provided by secondary sources that include industry media. This is a legacy of old disputes over real production levels. The production cut agreed last year was from levels as assessed by the secondary sources.

Oil price agency S&P Global Platts is proposing to remove from next month restrictions it had placed on Qatari crude in its pricing assessment after Saudi Arabia and some other Arab states cut ties with Doha. Platts, a unit of S&P Global Inc, initiated a review on June 6 on the deliverability of crude loading from Qatari ports in its Middle East crude price assessments after Saudi Arabia and the other states moved to isolate Qatar over charges that it was supporting terrorism. The dispute disrupted Gulf shipping routes and raised problems with oil and gas deliveries. That prompted Platts to stipulate that during its review Al-Shaheen loading from Qatar could not – unless mutually agreed by buyer and seller – be nominated for delivery once a deal had been struck in its pricing process known as market-on-close. Platts said it will continue to monitor events in the Middle East crude markets and is ready to renew its review of any crude stream deliverable into the Dubai and Oman benchmarks.

As the global oil market frets about a stubborn supply glut, faltering demand growth in key Asian crude importers is further hampering efforts to restore market balance. A fuel glut in China, a hangover from demonetization in India, and an ageing, declining population in Japan are holding back crude oil demand growth in three of the world’s top four oil buyers. The three countries make up a fifth of 97 million bpd in global oil consumption, and any hiccups among them will mean lower-than-expected oil demand growth in Asia, helping to undercut the OPEC led effort to support prices. In China, vying with the United States as the world’s biggest oil importer, imports in May were still at a near record of 9 million bpd, but a looming cut in refinery operations is set to hit demand for crude oil in the third quarter.  For the first five months of the year, India’s imports are about flat to the same period last year, following an annual rise of 7.4 percent last year. In Japan, Asia’s most advanced economy, oil demand has been in structural decline for years due to a declining, ageing population, and the rise of cars with better mileage or that use alternative fuels. The cheap spot price comes despite the effort led by the OPEC to cut production by 1.8 bpd that has been in place since January. Doubts over OPEC’s compliance with its own targets and soaring US output have led to scepticism that markets will re-balance soon.

BHP Billiton said that its $20 billion investment in US shale oil and gas six years ago was, in hindsight, a mistake. BHP entered the shale business at the height of the fracking boom in 2011 and invested billions more developing the operations. The fall in oil prices since then has led to pre-tax write-downs of about $13 billion on the business. Activist shareholder and hedge fund Elliott Management, holding 4.1 percent of BHP’s London-listed shares, has been trying to gain support from other shareholders to persuade BHP to sell the shale oil and gas business.

Longer horizontal wells and technology improvements will help Argentine state-run oil company YPF SA lower costs at its most productive shale field, but better infrastructure is still needed in the remote Vaca Muerta play. The breakeven price at the Loma Campana field is $43 per barrel and falling while development costs are $12.90 per barrel and expected to fall to $10 next year. YPF produces 40,000 barrels of oil equivalent per day and co-investor Chevron Corp produces another 20,000. The cost cuts are good news for Argentina which has sought to attract investment to Vaca Muerta to help close Argentina’s costly energy deficit since taking office in late 2015. While the play is thought to have some of the world’s largest shale oil and gas reserves, just two of its 19 concessions have moved from the pilot to production stage amid investor concerns over high labour costs and logistical difficulties in the distant Patagonian province of Neuquen. Vaca Muerta contains 308 trillion cubic feet of shale gas and 16.2 billion barrels of shale oil, according to the US Energy Information Administration.

Some of China’s top oil refineries are having to take the highly unusual step of cutting operations during what is typically the peak demand summer season when hot weather drives up power usage and families take to the road during school holidays. Almost 10 percent of China’s refining capacity is set to be shut down during the third quarter, signaling that demand growth from the world’s top crude importer is stuttering further. West African and European suppliers are already feeling the chill from China’s reduced demand, and a global glut has dragged spot prices for crude this week to their lowest since November, 2016. Major Chinese oil refineries, including PetroChina’s Jinzhou will set their run rates around 6,500 bpd lower than the second quarter, sources at the affected refineries said. Petrochina’s Fushun refinery, with an annual capacity of 233,200 bpd, began a 45-day full shutdown at the start of June. Rival Sinopec is considering slashing as much as 230,000 bpd, equivalent to about 5 percent of its average daily production last year, in what would be only the second time in 16 years that the firm has cut runs.

China has opened more than 6,000 trading accounts for its long-awaited crude futures contract – with three-quarters coming from individual traders, as it pushes ahead with plans to compete with global pricing benchmarks. China’s oil majors and about 150 brokerages have also registered, but the strong interest by ‘mom-and-pop’ investors looks set to mark out China’s crude futures from western counterparts, which are dominated by institutional investors. Shanghai’s crude futures are aimed at giving China more clout in pricing crude in Asia and a share of the trillions of dollars in oil futures trade. Most oil trades are priced off two crude derivatives, US WTI and London’s Brent, traded on the Intercontinental Exchange and the New York Mercantile Exchange owned by CME Group. Successful crude derivatives would be the jewel in the crown in China’s push to ramp up futures trading on products from dates to steel to open up markets and offer new avenues for investors. While Chinese banks are barred from futures trading, the new market is expected to attract interest from deep-pocketed private equity firms and funds, while state-owned oil majors, like PetroChina and Sinopec will provide liquidity.

Oil traders are shipping diesel out of Europe to Asia and the Middle East where strong demand and tighter supplies have boosted prices, in a rare arbitrage that reverses traditional routes. At least three 90,000 tonne diesel cargoes were booked in recent days out of northwest Europe options to go to Singapore and the Middle East, shipping data showed. BP chartered the long-range Nan Lin Wan and Front Antares tankers for loading out of the Amsterdam-Rotterdam-Antwerp storage and refining hub in mid-July, the data showed. Asia’s diesel refining margins have received a reprieve recently, climbing to a 2-1/2-month high as a buying spree from India that began in April and higher than usual regional refinery maintenance lowering supply. Imports from the Middle East and Asia, where a large number of state-of-the-art refineries have been constructed in recent years, have steadily increased to become a regular source of supply for Europe. But still, the strong Asian market in recent weeks has opened the rare arbitrage. The Netherlands shipped nearly 100,000 tonnes of diesel to Singapore in late June.

GST: Goods and Services Tax, FY: Financial Year, Indian Oil Corp, BPCL: Bharat Petroleum Corp Ltd, HPCL: Hindustan Petroleum Corp Ltd, ONGC: Oil and Natural Gas Corp, OIL: Oil India Ltd, mtoe: million tonnes of oil equivalent, ATF: Aviation Turbine Fuel, mmscmd: million metric standard cubic meter per day, bpd: barrels per day,  EOR: Enhanced Oil Recovery, mmBtu:  million metric British thermal units, mtpa: million tonnes per annum, LPG: Liquefied Petroleum Gas, US: United States,  FAIPT: Federation of All India Petroleum Traders, OMCs: Oil Marketing Companies, PESO: Petroleum and Explosives Safety Organisation, MoPNG: Ministry of Petroleum & Natural Gas, RIL: Reliance Industries Ltd, MRPL: Mangalore Refinery and Petrochemicals Ltd, IEA: International Energy Agency, OPEC: Organization of the Petroleum Exporting Countries, WTI: West Texas Intermediate

Courtesy: Energy News Monitor | Volume XIV; Issue 6

Growth without Emissions

Lydia Powell & Akhilesh Sati, Observer Research Foundation  

One of the significant announcements made last month in the context of energy was that the economy had decoupled from emission of carbon-di-oxide (CO2). The evidence is from preliminary data of the International Energy Agency (IEA) which says that global emission of CO2 stood at 32.3 billion tonnes (BT) in 2014 which is the same as that in 2013 even though the global economy grew by 3 percent in this period.  The IEA observed that in the 40 years in which it has been collecting data on CO2 emissions, there have been instances when emission of CO2 has stalled but all these were associated with a decline in economic growth rates.

Chart 1: Growth in CO2 Emissions and Carbon Intensity

Source: CDIAC Data; Le Quéré et al 2013; Global Carbon Project 2013

The Chart 1 which maps emissions from 1960 to 2012 shows the trend of increasing emissions that is broken by brief periods of stagnation in emission growth linked to periods of economic stagnation or decline. What one would infer from the above chart is that emissions decrease only when economic growth slows down. Latest data from the IEA appears to contest this observation.

The IEA attributes the halt in emissions growth in 2013-14 largely to changes in energy consumption patterns in China and OECD countries. Increase in renewable energy use in China and in OECD countries and gains in energy use efficiency in OECD countries are given most of the credit.

If the economy has decoupled from emissions it must be celebrated as it will pave the way for a prosperous, equitable and clean world.  However two questions must be considered before we open the champaign bottle.

The first is whether it is accurate to draw lines of causation from the share of renewable energy/increase in efficiency of energy use to the decoupling of the global economy from CO2 emissions. The second is whether the developed world is using information ‘creatively’ to nudge developing countries towards its own instrumental goals.

Ever since man started using modern fossil fuel based energy sources to improve his life, he has consistently improved the efficiency of energy use either by shifting to more efficient energy sources or by using energy sources more efficiently.

Chart 2: Falling Hydrogen to Carbon Ratio

Source: Nebojša Nakićenović, International Institute for Applied Systems Analysis and Vienna University of Technology, 2nd HyCARE Symposium, Laxenberg, Austria, 19-20 Dec 2005    

As shown in Chart 2 the ratio of hydrogen to carbon has been increasing since 1800 which means that the world’s energy system is de-carbonising naturally. The shift towards hydrogen marks a shift towards more efficient sources of energy as the oxidation of hydrogen releases more energy than the oxidation of carbon.

This shift is likely to continue naturally as technologies are developed to harness low carbon energy sources.  This does not necessarily mean the use of solar or wind energy. If we track the natural course of global energy systems, the shift so far has been from solid (wood, coal) to liquid sources (oil) and then towards gaseous sources (natural gas).

Experts believe that the final shift would not be towards new sources of primary energy but towards efficient ways of generating zero carbon secondary energy carriers such as electricity and hydrogen. Nuclear power is seen as a front runner in generating electricity and hydrogen (during off-peak hours as a store of energy and for use as fuel for transportation).

Chart 3: Shift Towards Gaseous Fuels

Source: Nebojša Nakićenović, International Institute for Applied Systems Analysis and Vienna University of Technology, 2nd hycare Symposium, Laxenberg, Austria, 19-20 Dec 2005    

BPs Energy Outlook for 2040 observes that fading industrialisation will slow growth in energy demand in the future and that dramatic increase in the rate of decline of energy intensity on account of technological improvements will widen the gap between GDP and energy consumption. It adds that gains in energy efficiency would lead to far greater reduction in projected energy demand than improvement in fuel mix such as increasing the share of renewable energy in power generation. This means that increasing the share of renewables is not necessarily the only means of decoupling emissions from economic growth.

The second concern is over the creative use of data and information by OECD countries to nudge development countries towards investment in expensive energy sources. The press release of the IEA on the decoupling of emissions and economic growth includes statements by the high ranking officials of the IEA appear to convey a hidden message for participants in the upcoming climate summit in Paris that increasing the share of renewables is an effective means of controlling carbon emissions.

The IEA has been accused of under-estimating oil supply in order to nudge oil producing countries in the Middle East to invest in enhancing oil supply. Improved oil supply favoured OECD economies through lower oil prices. But IEAs persistent projection of oil supply shortages has created a glut in oil production today. The IEA may be indulging in yet another nudge towards investment in renewables to create a market for OECD technologies. Developing countries will do well to focus on efficient use of energy rather than rushing into grand programmes for renewable energy.

Views are those of the authors                    

Authors can be contacted at lydia@orfonline.org, akhileshs@orfonline.org

Courtesy: Energy News Monitor | Volume XI; Issue 42

SOLAR POWER TARIFF REPLACES CRUDE PRICE AS THE MOST WATCHED NUMBER

Monthly Non-Fossil Fuels News Commentary: June – July 2017

India

India’s latest solar auction, one of the biggest in the country, drew a surprisingly enthusiastic response with a big chunk of the 1,500 MW of projects on offer won by public sector mining giant NLC India Ltd. The lowest bid in the auction in Tamil Nadu, where solar radiation is weaker than in Rajasthan, came from Bengaluru-based Raasi Green Earth Energy, which won 100 MW at ₹ 3.47/kWh. Bids were invited in May and the results were declared. The tariff of ₹ 3.47/kWh is well above the lowest solar bid in the country so far of ₹ 2.44/kWh made at an auction at the Bhadla Solar Park in Rajasthan in May, but it is a substantial drop from the winning bid of  ₹ 4.40/kWh at Tamil Nadu’s auction in February. The biggest winner was public sector mining giant NLC India, which had bid for the entire 1500 MW, but was awarded 449 MW. The company mines lignite, which is also called brown coal, and generates power.  What is interesting to note is that domestic investment in large solar projects is coming from large fossil fuels companies particularly coal companies. Notwithstanding attractive subsidies, experts said that some political pressure to invest in solar energy could not be ruled out.

Joining the NLC is CIL the world’s largest miner of coal which said that it will generate 1 GW of renewable electricity this year as part of its plan to produce as much as 10 GW clean power in total in a bid to reduce its carbon footprint. Even Rashtriya Ispat Nigam Ltd a steel company is said to have been advised to make a foray into solar and renewable energy to reduce dependence on fossil fuels to generate thermal power.

State companies such as CIL and NTPC Ltd, the country’s biggest thermal power producer, are planning to aggressively spend on solar projects probably out of pressure from the central government. Solar power generation capacity has more than tripled in three years to over 12 GW. Indian solar power plant developers – including companies backed by Japan’s Softbank and Goldman Sachs – are meanwhile quoting ever-lower tariffs in auctions to win big projects, raising questions over India’s role in the renewable energy market. Experts say that the choice of becoming a consumer rather than producer of renewable technologies India may bear a disproportionate share of the cost of making a transition to low carbon energy sources. While financial and non-financial subsidies (such as RPOs or feed in tariffs that are underwritten by tax payers or rate payers) make solar energy investment an attractive option for overseas and domestic investors, the domestic socialisation of the large transaction costs of integrating intermittent and uncertain solar energy into a grid committed to 24*7 electricity service imposed costs on an economically challenged sections of the population.  Some social science experts commented that India may be producing a global public good (carbon reduction) at domestic cost which is not necessarily equitable.

Yet another crutch was offered to solar power with transmission subsidies.  Solar power projects will be exempted from interstate transmission charges till the end of December 2019, making it feasible to compete with thermal power. The decision was taken by the power ministry in consultation with the MNRE and other stakeholders since imposition of charges would have raised cost of using solar power from another state by ₹1-2.50/kWh, depending on the distance it is transmitted and voltage at which it is supplied. The Delhi Metro Rail Corp, for example, signed an agreement in April to draw most of its daytime power needs from the 750 MW ultra mega solar power project – three plants of 250 MW each – being built at the Rewa solar park, Madhya Pradesh.

Providing solar pumps to farmers is the new give away scheme that cannot be easily be criticised by economic observers even if they are committed to liberal market fundamentals as it involves solar energy which is enjoying divine status.  A number of states are unrolling massive subsidy schemes to offer expensive solar pumps to farmers.  The Punjab government plans to set up solar photovoltaic projects to run over 2000 agriculture pump sets by extending 80 percent subsidy in FY18. In the budgetary provision for FY18 an allocation of ₹1 billion was made under the scheme. Punjab provides free power to over 1 million agriculture tube-wells and incumbent Congress government has announced to continue the subsidy on power. The state government was liable to pay ₹ 63 billion as power subsidy to Punjab State Power Corp Ltd for supply to agriculture sector, BPL and SC households in FY17 as per the tariff orders of Punjab State Electricity Board.

Not to be left out farmers in Tamil Nadu too can avail themselves of 90 percent subsidy for solar-powered irrigation pump sets if they exit the waiting list for farm connections. The State government will give 1,000 solar-powered irrigation pump sets of 5, 7.5 and 10 hp under a model programme to farmers across the State. These off grid units will be available with 40 percent State government subsidy, 20 percent from the Union Ministry of New and Renewable Energy; 30 percent from Tamil Nadu Generation and Distribution Corporation and the farmer’s share will be 10 percent. This scheme will be implemented at a cost of ₹ 150 million. To avail this benefit, farmers will have to apply for irrigation pump sets under the seniority scheme. The government will also offer Tatkal scheme in which farmers can get conventional agriculture connection within six months of application. They will have to shell out ₹ 250,000 for a 5 hp motor connection; ₹ 275,000 for a 7.5 hp motor supply; and ₹ 300,000 for a 10 hp supply. The connection will be provided within six months for 10,000 applicants. The government also plans to establish a 500 MW solar park through a private player; and a mobile app will also be developed for power consumers to pay their utility bills.

In addition, over 12,000 solar pumps have been distributed so far to the farmers at subsidised rates under ‘Saur Sujala Yojna’ in Chhattisgarh. Focus will be on 85 tribal-dominated development blocks for the distribution of the solar energy-based irrigation pumps. 20,000 farmers may be covered under this scheme by the end of this year and farmers belonging to remote areas and inaccessible regions, should be given priority while distribution. Farmers are being provided solar-irrigation pumps of 5 hp and 3 hp at heavily subsidized rates in the state. Solar irrigation pump worth ₹ 350,000 (3 hp) is being given to Scheduled Caste and Scheduled Tribe classes at the cost of ₹ 7,000, to Other Backward Class (OBC) at ₹ 12,000 and general category farmers at ₹ 18,000. The remaining amount is borne by the state government.

Gujarat saw its highest ever levels of power generation from wind energy, thanks to high wind velocities on its coast and steadily increasing generation capacity. Wind power generation in the state reached a record 3,460 MW on June 20, 2017. The rise also come as a major relief to GUVNL, which is currently getting less from private companies under PPAs. According to data from the Union ministry of new and renewable energy, of all the states, Gujarat added the second highest wind power generation capacity, 1,275 MW, in FY17. The state currently has total installed capacity of 5,339 MW. Wind power production has picked up at a time when the state-run power utility has been getting less power from private sector power producers for quite a while. GUVNL is bullish on green power to meet its future needs. The state entity recently invited bids to purchase 1,000 MW of renewable energy. GUVNL floated tenders to procure 500 MW each from wind and solar power projects, to fulfil its RPOs and meet the future needs of its distribution companies.

Attracted by the opportunities in India’s green energy space, Rosatom State Atomic Energy Corp. is planning to enter the country’s renewable energy sector. To start with, the Moscow-based Rosatom, through its unit JSC OTEK, may acquire wind energy projects in India. Rosatom, which has a partnership with NPCIL for the Kudankulam nuclear plant in Tamil Nadu, is also planning to set up small hydropower projects in the country. Rosatom’s India strategy follows US withdrawal from the Paris climate agreement on grounds the deal favoured India and China and was unfair to the US. Of the total capacity targeted, 60 GW is to come from wind power. Wind power is the major component of India’s renewable sector. Of India’s 57.26 GW of installed renewable energy capacity, wind power accounts for over 56% or 32.27 GW. Having control over the supply chain will help Rosatom in reining in costs and offering competitive tariffs as India’s wind energy sector moves away from feed-in tariffs to an auction-based market. SECI plans to auction 4,000 MW of wind energy power-purchase contracts every year. With the disruption caused by India’s low clean energy tariffs playing out, rating agency Crisil cautioned that the risk profile of wind projects will increase. India’s ultra thermal plants, designed to run on foreign coal, may no longer afford to do so economically in the future, Tim Buckley, Director of Energy Finance Studies Australasia with the IEEFA said. This can be seen in the case of India’s two largest thermal power projects in Gujarat’s port town of Mundra — Adani Power’s 4.6 GW and Tata Power’s 4 GW plants. Both are no longer competitive owing to nearly doubled price rise of coal from Indonesia since their planning and incapability to hike tariffs, Buckley said. Adanis’ Mundra plant has previously been disclosed to be operating with 100 percent imported coal from Indonesia while Adani Power has been operating at a net loss, and has been doing so for the last seven years, Buckley said. As India works through and resolves domestic supply shortages, the need for imported thermal coal will continue to progressively decline. India targets for all public sector undertakings to be using 100 percent domestic coal by this fiscal, following NTPC’s move to virtually cease coal imports in 2016-17. An IEEFA report titled “NTPC as a Force in India’s Electricity Transition” showcases how the Indian government is shifting rapidly towards a low-carbon economy — a step towards achieving the 2015 Paris Climate Agreement aim of cutting greenhouse gases from burning fossil fuels. India’s draft “Ten Year Electricity Plan” calls for a staggering 275 GW of renewable energy by 2027, in addition to 72 GW of hydro and 15 GW of nuclear energy.

An Indian social business has launched the country’s first solar satellite television service, bringing clean energy powered entertainment to households and businesses through a pay-as-you-go payment scheme. Simpa Networks, which began operations in 2011, is one of thousands of social enterprises in India tapping into the renewable energy market in a country where one-fifth of the 1.3 billion population has no access to electricity. With the majority of those without power from poor communities in countryside, the company focuses on selling solar powered products such as LED lights, phone charging points and fans on financing to rural homes and shops in northern India. The system, which includes an 80 W solar panel, 20″ energy efficient LED television, battery, solar charge controller, is available on a repayment plan of up to 36 months. Interest applies but approximate rates were not revealed. Customers make an initial payment to have the system installed then use a pay-as-you-go model for the electricity. The payments contribute to total cost and, once fully paid, the customer owns the system and the electricity is free. The service, which was launched, has around 350 customers so far in the northern state of Uttar Pradesh. Simpa uses its “SmartPanel” technology which enables remote monitoring and control of the rooftop solar panel. Customers prepay for the energy and the SmartPanel delivers power until the prepaid credits expire and the customer must then recharge. The company said the payment plan is effective as such technology would be unaffordable for most rural families. With no credit history, most are considered “unbankable” and would not be able to access loans easily, it said. Given solar television service is new and few know how to use and maintain it, the company said, Simpa has trained rural solar technicians who are responsible for installation, after sale services and monthly collection of payments.

Cab aggregator Ola and WWF-India joined hands to support ‘Sahasra Jyoti’, a renewable energy project in the Sundarbans. The ‘Sahasra Jyoti’ initiative is aimed at bringing sustainable development to the Sundarbans by enabling energy access to 1,000 households through solar energy. The ‘Sahasra Jyoti’ project is aimed at setting up individual micro solar power stations for 15-20 hamlets in the Satjelia Island which is a forest-fringe island, sharing its boundary with the Sundarban Tiger Reserve and has an approximate population of 40,000 people.

Not surprisingly all this capacity will contribute to India’s solar power generation capacity which is expected to nearly double to 22 GW by the end of current fiscal. India has set ambitious target of having 100 GW of solar energy and 60 GW of wind power capacities by 2022. In FY17 net capacity addition of renewable energy was higher than that of conventional energy. As India is moving towards meeting its commitments under the Paris agreement on climate change, its renewable energy market is likely to witness a strong growth over many years, the rating agency Moody’s Investors Service said. According to the rating agency, India’s emission reduction commitments under the Paris agreement will lead to a sharp rise in renewable energy capacity. India aims to achieve 40 percent of cumulative installed capacity through non-fossil fuel sources by 2030 from the current 30% and also plans to grow its renewable energy capacity to 175 GW by 2022 from the current 57 GW. It further said the rise in renewable energy capacity will bring execution challenges, including land acquisition, establishing resource quality, grid connectivity and availability. On the financing of renewable energy projects, India will need to invest close to $150 billion to meet its 2022 renewable energy targets. Since domestic banks are constrained in their lending to renewable projects, foreign capital will play an important role. However, foreign currency financing is constrained by the limited hedging products available to fully cover the rupee currency risk of purchase power agreements, it said.

India is staying true to its ambitious renewable energy targets by showing a steady growth in renewable energy installations in India, which as of April 2017 account for 17.5 percent of the total energy source. The latest data, which is provided by the ministry of new and renewable energy, has been analyzed by Mercom Capital Group. India’s overall installed capacity has reached 329.4 GW, with renewables accounting for 57.472 GW. The figures show a significant rise on the data released by the ministry in February when the figure stood at around 50 GW. In April 2017, solar reached 3.8 percent of total installed capacity up from 2.23 percent in April 2016. Country’s coal-fired fleet remains strong with a 59 percent share in the total energy mix, although NTPC has showed itself to be the principle supporter of the government’s green energy agenda. India has set a target of reaching 170 GW of renewable energy capacity by 2022, out of which 100 GW is to come from solar. Though Niti Ayog’s draft energy policy is refreshingly forthright on the challenge of incorporating renewables it observes that rooftop solar set-ups would have become the norm by 2040. But in the immediate run-up to universal coverage of electricity, it may not be viable to tap rooftop solar for homes, according NITI Aayog’s Draft National Energy Policy. The policy notes that the share of solar and wind is expected to be 14-18 percent and 9-11 percent in electricity, and 3-5 percent and 2-3 percent in the primary commercial energy mix by 2040. However, oil and gas would have almost maintained their shares of 26 percent and 6.5 percent in 2015-16 to 25-27 percent and 8-9 percent in 2040, respectively. This will be in spite of a more than three times increase in gas consumption, owing to a large increase in total energy, the increase in gas would be less in percentage terms. While coal would have risen in absolute terms (nearly double), but in relative terms, it would have reduced its contribution from 58 percent in 2015 to 44-50 percent in 2040. The overall share of fossil fuels would have come down from 81 percent in 2012 to 78 percent by 2040. By 2040, solid biomass is expected to be replaced by liquid and gaseous fuels, and electric cooking will be a major practice across the country, according to the Niti Aayog’s vision. But 30 percent of the rural households will remain dependent on solid biomass for cooking.

The finance ministry has rejected an ambitious ₹200 billion plan to prop up local solar equipment manufacturers with incentives and subsidies to help them withstand the flood of Chinese imports. The domestic industry is concerned about rising imports of solar equipment, which rose 38 percent to ₹ 214 billion in FY17, accounting for 90 percent of the solar cells and modules used by Indian solar developers. The MNRE began working on the policy soon after an appellate body of the WTO upheld a complaint made by the US against the ‘domestic content requirement’ component in India’s Jawaharlal Nehru National Solar Mission in September last year. The solar mission had a provision by which a part of India’s solar capacity target had to be met using locally made solar panels and modules, which the US maintained contravened three separate WTO agreements to which India was a signatory. The plan, intended to help Indian solar manufacturers’ lower their costs through various subsidies and thereby enable their products to match global prices, would have cost the exchequer ₹200 billion.

India’s Adani Group inked a deal with East Hope Group, one of China’s largest companies, which will invest over $300 million to set up a manufacturing unit for solar power generation equipment in Gujarat. An estimated investment of more than $300 million is expected to be made by East Hope Group in India, as part of the proposed cooperation between the two conglomerates. East Hope Group, a 70 billion yuan company, is one of the largest corporate houses in China.

Private utility Tata Power said it has completed the construction of its 187 MW Shuakhevi hydro power project in Georgia. The company, through Adjaristsqali Georgia, its joint venture with Norway’s Clean Energy Invest AS Norway and IFC InfraVentures has completed the construction of the 187 MW plant, Tata Power said in a statement. The Shuakhevi project is the largest hydropower plant to be built in Georgia over the past fifty years, and its project investment cost exceeded $420 million, it said. The project will generate about 470 GW of clean energy while lowering greenhouse gases emissions by more than 200,000 tonnes per year and the power generated by this will be exclusively sold within Georgia throughout the winter which is a period of energy deficit.

The Union Cabinet may take up for approval this month the hydro-power policy which aims to provide about ₹167 billion support for stalled 40 hydel projects, entailing 11,639 MW capacity, and to classify all such ventures as renewable energy. Once it is approved, the distinction between large and small hydro plants would go, which would enable India to achieve clean power capacity of 225 GW by 2022. At present, a hydropower project of up to 25 MW is classified under renewable energy and is entitled to various incentives provided by the government. Projects beyond this capacity are not in this category and hence not entitled to the benefits. Out of the 30 GW installed power generation capacity, 44.59 GW comes from large hydro projects (above 25 MW) and 57.26 GW from other renewable power generation capacities. India has set an ambitious target of adding 175 GW of renewable energy capacity by 2022 which includes 100 GW of solar, 60 GW from wind, 10 GW from bio-power and 5 GW from small hydro-power (up to 25 MW capacity each). Under the policy, the government will provide interest subvention of 4 percent during construction for up to 7 years and for 3 years after the start of commercial operation to all hydropower projects above 25 MW. It is proposed that the funding for this policy would come from coal cess or national clean energy fund or non- lapsable central pool of resources for northeastern states for eight years till 2024-25. A Hydro Power Fund would be created under the power ministry for providing funds to the projects under the policy. The policy provides for Hydro Purchase Obligation for hydro projects of over 25 MW capacity. Under this, the distribution companies would be mandated to buy a proportion of power from these plants. However, this benefit would be available to those hydropower plants, which would be able to begin commercial operations after five years of notification of this policy. The policy would also mandate power ministry to engage with bankers and financial institutions for modifying lending terms and conditions for hydropower projects.  The list of purchase obligations on distribution companies may actually grow as producers and importers of natural gas want an obligation to purchase gas based power.

The second 1,000 MW unit at the KNPP will restart generation soon, the NPCIL said. The unit was under outage due to control circuit malfunction, Power System Operation Corp Ltd said. In May only, the unit was shut down due to water and steam leakage. It was reconnected to the grid several days later. India’s atomic power plant operator, NPCIL has two 1,000 MW nuclear power plants at the KNPP built with Russian equipment. The first unit was shut down for annual maintenance and refuelling, a process that would take around two months.

Rest of the World

Technological breakthroughs made most of the non-fossil fuel sector internationally.  A solar-powered drone backed by Facebook that could one day provide worldwide internet access has quietly completed a test flight in Arizona after an earlier attempt ended with a crash landing. Facebook’s long-term plan for the drone, called Aquila, is to have it and others provide internet access to 4 billion people around the world who are currently in the dark.

Scientists have developed solar-powered smart windows with tunable glazing that can control the heat and light inside a home, saving up to 40 percent in an average building’s energy costs. The system developed by researchers at Princeton University in the US features solar cells that selectively absorb near UV light, so the windows are completely self-powered, inexpensive and easy to apply to existing windows. The smart window controls the transmission of visible light and infrared heat into the building, while the new type of solar cell uses near-UV light to power the system. Since near-UV light is invisible to the human eye, the researchers set out to harness it for the electrical energy needed to activate the tinting technology.

Scientists at Stanford University in the US have developed a device that can wirelessly charge a moving object at close range. The technology could one day be used to charge electric cars on the highway, or medical implants and cellphones as you walk nearby. According to the study, published in the journal Nature, wireless charging would address a major drawback of plug-in electric cars their limited driving range. A charge-as-you-drive system would overcome these limitations. A coil in the bottom of the vehicle could receive electricity from a series of coils connected to an electric current embedded in the road. Mid-range wireless power transfer is based on magnetic resonance coupling. The team transmitted electricity wirelessly to a moving LED light bulb but the demonstration only involved a one milliwatt charge, far less than what electric cars require. The scientists are now working on greatly increasing the amount of electricity that can be transferred, and tweaking the system to extend the transfer distance and improve efficiency.

NASA will test a new flexible solar panel on the International Space Station, that rolls up to form a compact cylinder and may offer substantial cost savings as well as an increase in power for satellites in the future. Traditional solar panels used to power satellites can be bulky with heavy panels folded together using mechanical hinges. Smaller and lighter than traditional solar panels, the ROSA consists of a centre wing made of a flexible material containing photovoltaic cells to convert light into electricity. ROSA can be easily adapted to different sizes, including very large arrays, to provide power for a variety of future spacecraft. It also has the potential to make solar arrays more compact and lighter weight for satellite radio and television, weather forecasting, GPS and other services used on Earth. The technology conceivably could be adapted to provide solar power in remote locations. The technology of the booms has additional potential applications, such as for communications and radar antennas and other instruments. The ROSA investigation looks at how well this new type of solar panels deploys in the micro-gravity and extreme temperatures of space. The investigation also measures the array’s strength and durability and how the structure responds to spacecraft manoeuvres.

US solar installations will fall 16 percent this year, according to a report by GTM Research and the Solar Energy Industries Association, as utilities slow procurement of projects to meet state mandates and residential systems become harder to sell. Following a banner 2016 driven by expectations that a key federal tax credit would expire at the end of that year, the utility-scale market is expected to drop to 8 GW this year from more than 10 GW last year, the report said. The utility market, which accounts for about half of all solar systems, is expected to resume growth in 2019 as utilities seek to procure projects before the 30 percent federal tax credit for solar projects begins to step down in 2020. Prices on solar systems dropped further during the first quarter, falling below $1 per watt for the first time, the report said. Residential solar is expected to rise 2 percent for the year, well below the 19 percent growth it logged last year. California is experiencing a major decline in adoption of home installations that contributed to a 17 percent first-quarter drop in the nationwide market. Large national installers that make up close to half the market, like Tesla Inc’s SolarCity and Vivint Solar Inc, have slowed growth to focus on profitability. The market for non-residential solar, which includes commercial and community solar installations, rose 30 percent in the first quarter thanks in part to a robust community solar market in Minnesota and growth in New York.

With the Trump administration expected to publish an analysis that could undermine the US wind and solar industries, two renewable energy lobbying groups released their own study saying new energy sources pose no threat to the country’s power grid. Wind and solar advocates have said the government study’s outcome appeared to be pre-determined to favour fossil fuel industries. The new report, commissioned by the American Wind Energy Association and Advanced Energy Economy, said cheap natural gas is behind most of the decline in the numbers of US coal-fired power plants in recent years, not government subsidies that have bolstered the growth of wind and solar power. It also said there is no evidence to show that wind and solar energy are threatening the reliability of the electric grid. The groups commissioned the report shortly after Energy Secretary Rick Perry in April ordered a 60-day study of the reliability of the grid and said Obama-era policies offering incentives for the deployment of renewable energy had come at the expense of energy sources like coal and nuclear.

Solar energy in the US alone employs more people traditional coal, gas and oil combined. The US Department of Energy report said solar power employed 3,74,000 people over the year 2015-2016, leading to 43 percent of the power sector’s workforce. Whereas, the traditional fossil fuels employed 187,117 people, making up to just 22 percent of the sector’s workforce. In 2016, employment in the solar power has increased by 25 percent, adding 73,000 new jobs to the economy, while wind energy employment witnessed an increase of 32 percent. In a period of ten years, between 2006 and 2016, the net generation from the traditional fossil fuels has declined by 53 percent, whereas, electricity generation from the natural gas increased by 33 percent, and solar by over 5,000 percent in the same period. The report suggests that 6.4 million Americans now work in the energy industry. In 2016, 300,000 new net jobs were added, which made up 14 percent of the entire job growth of the US for the year. The revelation is contrary to the ideology of the US President Donald Trump, who has just stepped out the Paris climate deal. Donald Trump’s environmental document has made no serious note of climate change or global warming.  Some experts observed that higher employment numbers could signal higher transaction costs rather than economic or energy efficiency of the sector.

Germany raised the proportion of its power produced by renewable energy to 35 percent in the first half of 2017 from 33 percent the previous year, according to the BEE renewable energy association. Germany is aiming to phase out its nuclear power plants by 2022. Germany has been getting up to 85 percent of its electricity from renewable sources on certain sunny, windy days this year. The overall share of wind, hydro and solar power in the country’s electricity mix climbed to a record 35 percent in the first half, the BEE said. The government has pledged to move to a decarbonized economy by the middle of the century and has set a target of 80 percent renewables for gross power consumption by 2050. It aims to cut greenhouse gas emissions by 40 percent in 2020 from 1990 levels and 95 percent by 2050.

Brazil’s government will not award new licenses for wind and solar power generation projects, despite requests from the renewable energy sector, as power markets struggle with oversupply in a sluggish economy. Brazil was one of the world’s fastest growing markets for the wind power sector in the first half of the decade with a flurry of farms appearing along the nation’s vast, windy coast. But a deep recession that began in early 2014 and from which Brazil is only now emerging brought the trend to a halt. The last licenses for new wind or solar generation projects were awarded in 2015. An auction for licenses was called off in 2016 and it is unlikely new licenses will be issued this year.

EDF’s Flamanville 3 nuclear reactor being built in northwest France is fit for service despite weak spots in its steel, but the utility will have to replace the reactor cover by 2024 at the latest, nuclear regulator ASN said. The ASN’s provisional ruling – which will be followed by a final ruling in October after consultation of the public – is in line with recommendations in a report by its technical arm IRSN, which says Flamanville can start up safely but will need constant extra monitoring over its lifetime and will need to replace its reactor cover after a few years of operation. Following the discovery of carbon concentrations in the Areva-made base and cover of the Flamanville reactor late 2014, ASN had ordered EDF and reactor maker Areva to do extensive testing of the reactor’s steel and has reviewed the results of these tests in the first half of this year. The ASN’s green light for Flamanville, slated for start-up in late 2018, is also a European Commission precondition for approving EDF’s planned takeover of Areva’s reactor business. EDF plans to build two of the same Areva-designed European Pressurized Reactor models in Hinkley Point, Britain.

South Korea’s oldest nuclear reactor, the 40-year-old Kori No. 1, will halt operations, becoming the country’s first nuclear plant to close permanently amid plans for a shift towards natural gas and renewables. South Korea is the world’s fifth-biggest consumer of nuclear energy, and one of few countries to export its technology, having won an order to build reactors in the United Arab Emirates. But a scandal over forged certificates for spare parts in 2012 and the 2011 Fukushima meltdown in neighbouring Japan have undermined public support for nuclear power, while the new left-leaning government aims to speed up plans to move away from both coal and nuclear. Another 11 of South Korea’s 25 reactors are set to shut down by 2030 as they reach the end of their operating lives, although some may push to have their operating licenses renewed. With the country still setting its long-term energy plans, it is unclear how many will be replaced by new reactors. Since Kori No.1 began operations on June 19, 1977, the 587 MW reactor has generated enough electricity to meet the entire country’s current demand for around 100 days, according to data from the Nuclear Safety and Security Commission. The energy ministry estimated it will take at least 15 years to fully dismantle Kori No. 1, at a cost of about $571 million. Some experts hope that shutting the reactor may help South Korea catch up to the United States, Japan and Germany in decommissioning plants. The global decommissioning market is expected to grow to about $980 billion by 2050, according to a report by the Korea Atomic Energy Research Institute.

MW: Megawatt, GW: Gigawatt, kWh: kilowatt hour, CIL: Coal India Ltd, RPOs: Renewable Purchase Obligations, MNRE: Ministry of New and Renewable Energy, hp: horsepower, GUVNL: Gujarat Urja Vikas Nigam Ltd, SECI: Solar Energy Corp of India, LED: Light Emitting Diode, KNPP: Kudankulam Nuclear Power Project, PPAs: Power Purchase Agreements, FY: Financial Year, NPCIL: Nuclear Power Corp of India Ltd, IEEFA: Institute for Energy Economics and Financial Analysis, WTO: World Trade Organization, US: United States, NASA: National Aeronautics and Space Administration, ROSA: Roll-Out Solar Array

Courtesy: Energy News Monitor | Volume XIV; Issue 5

Key Requirement for Setting up Coal Washeries on Coal Company’s Land in India

Ashish Gupta, Observer Research Foundation

Quality Parameter of Ministry of Coal Ø  Develop India coal industry in an eco-friendly, environmentally sustainable and cost effective manner to support various associated industry.

Ø  Facilitate state of the art technology for optimisation of coal resources of the country.

Ø  To promote compliance of all the quality management systems.

Ø  To promote transparent governance system.

Setting up of washery Ø  Any consumer company with Fuel Supply Agreement (FSA) or a long term linkage can set up a coal washery for its own consumption.

Ø  Any public or private company can set up a washery or operate on behalf of a coal company on the land of any of the subsidiaries of Coal India Ltd (CIL).

Ø  If the land is acquired under Coal Bearing Areas Act, 1957 and the rights are vested with a coal company, the land can be leased for a maximum period of 30 years.

Ø  In case the land is not utilised for the coal washing, the land will be given back to the coal company.

Ø  The lease rent needs to be approved by the Board of the Coal Company.

Qualifying Parameter Ø  Operator should have a Memorandum of Understanding with coal consumer or group of consumer who have FSA or long term linkage.

Ø  Should have a financing plan for erecting coal washery supported with a comfort letter from financial institution or banks.

Life of the washery Ø  The life should not be less than 20 years.
Maximum throughput Ø  For optimum utilisation, the throughput of the washery should not be less than 2 Million Tonnes/ Per Annum.
Technology Ø  It should be selected on the basis of coal quality in such a way that it may produce less rejects with minimum heat value and dumped or stacked as per the Environment Management Plan (EMP).
Environment Management Plan Ø  The operator should prepare EMP as per the government guidelines and on regular basis shall get the same approved by the concerned authority.

Ø  The operator shall ensure close water circuit operation so that no effluent is discharged in the natural streams.

Utilities Provision Ø  During the construction phase, water and electricity can be provided by the coal company at one point on chargeable basis.

Ø  The washery operator can also obtain water and electricity on his own.

Railway siding Ø  The siding facility will be provided by the coal company to the washeries or their operators on chargeable basis.
Monthly Reports Ø  Details of the parties for whom washing was undertaken.

Ø  Quantity and quality of receipts of raw coal.

Ø  Quantity of raw coal processed.

Ø  Quantity of washed coal dispatched to the consumers.

Ø  The quantity of rejects generated, dumped, stacked or disposed off.

Access Ø  During the operation of the washery the coal companies shall have the right to access the plant to ascertain the suitability and maintainability of the plant.
Washery of CIL under Build Own Operate mechanism Ø  Entire raw coal produced from the identified mine will be linked to the concerned washery for supply of washed coal to the consumers as decided by the company.

 Views are those of the author                    

Author can be contacted at ashishgupta@orfonline.org

Courtesy: Energy News Monitor | Volume XI; Issue 44

OVERSUPPLY STRESSES POWER ASSETS

Monthly Power News Commentary: June 2017

India

The government expects the demand for electricity to pick-up in the next couple of years, which experts believe is critical to revive the power sector saddled with stressed assets. Experts said transferring the assets from one developer to the other would not be enough to revive the stranded assets till the time demand for electricity does not pick up. The government, however, feels the problem is of over-supply rather than of lean demand. The demand for power has grown by a robust 6.4% in the last three years against 6.2% in 2004-2014, the power ministry said. The government proposes to set up a special purpose vehicle to hold stressed power assets and revive them by debt-equity swaps, offering last mile equity or asking public sector companies like NTPC Ltd to operate them on a contractual basis. The government is close to resolution of the stressed thermal power projects where developers are not wilful defaulters or there are no significant irregularities.

While one hand of the government is dealing with over supply the other is trying to resolve the crisis of bad loans of the sector.  The government said it is close to resolving the issue for companies that owe money and are not avoiding repayment on purpose. Bad loans in the power sector continue to weigh on India’s banks, and the government has been looking for ways to help ease the pain for companies struggling to service their debts. he power ministry, which is also working on reviving stalled hydro projects, already had extensive discussions with bankers and stakeholders. The power ministry and the Niti Aayog, are jointly working on a policy for next 25 years to ensure energy security.

Government companies are poised to play a crucial role in the revival of stressed power plants by acquiring them or enabling their lenders to operate them on contract. Once converted into public assets, the private projects will resolve issues of lack of fuel, funds or even PPAs. The National Tariff Policy, amended in January last year, allows state-run power generation companies to sign PPAs with discoms without tariff bidding. PSUs are also entitled to coal blocks and coal supply from Coal India on nomination basis. The government is considering setting up a holding company for identified stressed assets with the help of NTPC, PFC and Rural Electrification Corp besides banks, which will auction such plants or lease them on contract basis after the lenders take management control. The proposal includes converting debt into equity, bringing last mile equity for under-construction projects, or auctioning the power projects once the lenders take over their management. In most cases, the lenders and promoters will have to take a haircut through debt-equity swap. Estimates show that of Rs 9 trillion of stressed assets in the country, more than half are in the power generation sector.

PFC tried to allay fears of rising stressed assets on its books, saying that it was caused by the lender’s decision to apply new central bank rules and not because of any sudden deterioration in asset quality. The company will expand into refinancing and launch special financial packages for power transmission projects won through competitive bidding. The state-run company, the largest financier of the power sector, posted a net loss for the fourth quarter and a sharp drop in fiscal 2017 profit as it made a huge retroactive provision against the stressed assets. PFC has been applying the guidelines spelt by the power ministry for treatment of loans sanctioned to electricity generation projects before April 2015. The company will expand into refinancing and is developing small tenure loan products for transmission projects bid under tariff-based competitive bidding.

To add insult to injury the CEA said that India is building more power plants than it can utilize as state-level distributors struggle to connect 50 million households.  As a result, about 25 GW of coal-fired power-generating capacity is “stranded” and unused, CEA said. That’s equivalent to the entire installed capacity of neighbouring Pakistan.Demand growth for power is slowing as discoms struggle to purchase enough electricity for the populations they serve. Most discoms lose money selling below cost to poor and agricultural customers and through power theft. The CEA defines demand as the amount of electricity that distributors buy, not necessarily how much would be needed for the whole country, helping explain why millions still lack power and several cities face regular blackouts despite the under-utilized capacity. Electricity use is estimated to grow 6.2 percent a year over the six years ending March 2022. Consumption over the previous six years expanded 5.3 percent, missing a 7.6 percent forecast, the CEA said.

Desperate to contain the growing losses in electricity supply, the Rajasthan government has succeeded in bringing down AT&C by 4-5%, which has accrued a benefit to the tune of Rs 18 billion. The programme has brought significant results in not only bringing down the electricity losses but also ensuring quality and uninterrupted power supply to the consumers. The first phase of the programme saw renovation of 6,500 feeders out of the total 20,000 feeders across the state and this proved to be successful in obtaining the desired results.

AAP accused the BJP government in Madhya Pradesh of grossly overestimating the power consumption by agricultural pumps, leading to wrong people benefiting from subsidy of Rs 40 billion. The figure of Rs 84 billion is based on the estimate of consumption of 20.75 billion units of power, but the actual consumption by farm pumps is 10.63 billion units, AAP said. This huge amount of Rs 40 billion could have been used for loan waiver or other schemes for farmers which would have prevented many suicides, AAP said.

After a delay of almost six months, the four discoms of UP Power Corp have filed their ARR for determination of the electricity tariff with the regulator for three years starting 2017-18. The discoms have projected a total deficit of Rs 206.18 billion in the current financial year alone. The four discoms, Madhyanchal, Paschimanchal, Poorvanchal and Dakshinanchal, have projected their total revenues at Rs 48,056 crore in 2017-18 against the expected expenditures of Rs 686.74 billion out of which Rs 527.90 billion will be spent on the electricity purchase alone. Even if the Rs 55 billion government subsidy, later in the year, is taken into account, the gap would still be a whopping Rs 151.18 billion. The revenue gap in the previous year’s ARR was less than Rs 80 billion. Kanpur Electricity Supply Company, the fifth discom, will file the ARR later. With power to all in mind, the four discoms will purchase 128.908 billion units of electricity worth Rs 529.19 billion in FY18 and if transmission charges are included, the amount comes to around Rs 547.87 billion. As per the proposal, for FY19, the discoms would need to purchase 153.577 billion units of power worth ` 660.33 billion and in the third year (2019-20), 17.955 billion units would be purchased at Rs 774.33 billion. Based on the ARR, it is expected that the four discoms would file the tariff hike proposal separately to make up for the projected deficit during the current financial year.

Since July 1, transformers as well as other power equipment cost more for TANGEDCO as the GST rate for such equipment will rise to 28% compared to lower rates now. Due to this, the discom has calculated that the total cost will increase by Rs 5 billion per year. Though electricity is not part of GST, the equipment used by TANGEDCO will be part of GST. The discom will not be transferring the increase in equipment cost to consumers and will bear the cost of changing transformers as well as power equipment in all areas as they are situated in public places. At the same time, GST will also help the discom save millions of rupees in the form of lower taxes on coal. The discom has calculated the total saving after GST on coal alone to be around Rs 3 billion annually. The green cess is laid on coal to prevent it being burned as this increases pollution. The Power Minister sees no possibility of increase in power tariff across the country post GST. The GST, which is set for July 1 kick-off, will usher in a new system under which there will be one tax on commodities and services across the country. One of the issues is the tax on product made up of fly ash, a by-product at coal-based thermal power plants. The industry association has not sought postponement of the GST implementation and all are content with the new framework. The power ministry will make an analysis on the basis of tax collection before and after implementation of GST to find out if the new tax rates are “inordinately” high or not.

The capacity of India’s southern electricity grid has increased 89 percent in the last three years and the Centre plans to double it in the next three years. The central government is blaming the Karnataka government for posing hurdles to these plans. There is apparently no shortage of power in any state, including Karnataka, and if a state wants to purchase power it is available at a price of Rs 2.40/kWh.

UP power employees and engineers threatened to hold an indefinite strike if the state power board fails to implement the seventh pay commission. Backed by various employee unions including four-zone discoms, two city discoms, UP power transmission corporation, UP hydro electric power corporation and UP thermal power generation corporation, more than 60,000 chief engineers and below rank employees are gearing up to boycott work across the state. Advance notices have been given to senior officials of corporation, as the union of power employees is going to hold massive protest against the board in Lucknow though to ensure that residents don’t suffer. India is scaling back expectations for power demand growth as it struggles to electrify millions of homes despite a glut in generation capacity.

In a bid to shed light on the unprecedented negative growth in power consumption recorded during this summer, Kerala State Electricity Board has decided to carry out a comprehensive study. While the daily power demand in the state reached 4,004 MW during the peak of the summer in 2016, the same recorded during the 2017 summer was 3,843 MW only. This happened at a time when the board was expecting an average six percent annual growth in power consumption. The fact that the negative growth in power consumption took place during one of the worst summer the state has ever faced has baffled the board. The consumption forecast the board prepares every year plays an importance role in its planning and decisions regarding power purchase and internal generation. If the consumption dip is not a onetime wonder, the long-term power purchase agreement the board had signed with various generators would backfire.

The Indian Railways, which is working on a mega energy saving plan, is looking forward to more states coming on board in allowing Non-Objection Certificates for procurement of electricity directly from a supplier of the transporter’s choice and reducing its dependence on state discoms. This comes following the nod given by the CERC in 2015 to Indian Railways granting the national transporter the status of deemed distribution licence under the Electricity Act, 2003 bringing railways on a par with discoms. CERC has issued directions to state transmission utilities and state load dispatch centres to facilitate open access to railways on existing transmission network as deemed licensee. The railways expects the governments of West Bengal and Odisha too to come on board soon. As other states like Tamil Nadu, Telangana and Kerala start allowing direct sourcing of electricity from generators, railways expects total savings of Rs 10.5 billion in the current financial year in its energy bill. The railways expected savings of Rs 30 billion accruing as a result of the 2015 CERC order. The national transporter contracted about 500 MW power from Ratnagiri Gas and Power Pvt Ltd in 2015 for consuming it in the states of Maharashtra, Gujarat, Madhya Pradesh and Jharkhand at about Rs 4.70/kWh. Railway Energy Management Company Ltd, an arm of Indian Railways, contracted 50 MW power through open tender at Rs 3.69/kWh in its central transmission utility-connected network from Dadri to Kanpur in Uttar Pradesh in December 2015, according to the railways ministry. The railways, which expects its energy demand to go up to 49 billion units by 2030, currently consumes 18 billion units of electricity annually drawing a bill of around Rs 100 billion. The transporter’s power bill stood at Rs 92 billion last financial year.

Rest of the World

The Norwegian and Swedish power TSOs Statnett and Svenska Kraftnät have started to propose an updated power system balancing model between the two countries, based on new methodology and IT solutions. They have also invited Finnish (Fingrid) and Danish (Energinet) TSOs to join.The main driver of the idea is to ensure the maintained balance and security of power supply in the Nordic system and cope with the closure of thermal power plants and the increasing integration of renewables in it. The new power system model will be called Modernized Area Control Error and is based on the existing Area Control Error model.

The EIB has signed a €300 mn loan agreement with Norwegian transmission system operator Statnett for the completion of the 500 kilovolt Nordlink interconnector between Germany and Norway. The construction of the €1.5-2 bn NordLink project, consisting of a bipolar High Voltage Direct Current 1,400 MW subsea interconnector between Schleswig-Holstein (Germany) and Tonstad (Norway), started in September 2016. Commercial operations are expected to come onstream in 2019-2020. Germany would then be able to import hydropower surplus from Norway, while Norway would be supplied with German wind and solar surplus.

A 483 MW gas-steam CHP plant built by a China-Russia joint venture has been officially brought online, China’s Huadian Corp announced in Moscow. The CHP is the tangible result of the Huadian-Teninskaya joint project, which was launched by China Huadian Hong Kong Co. Ltd and Russia’s second regional power company TGC-2 in 2011, with a total investment of $571 million.Listed as a priority project in 2014 by Yaroslavl authorities, the new CHP plant is expected to tackle the province’s chronic problem of power shortages. According to TGC staff, the project will bring down Yaroslavl’s power deficit from 40-50 percent to 5-15 percent and fully cover its total power demand in warmer months. The project is widely seen as a symbol of further deepening of cooperation between China and Russia in the field of electric power.

Natural gas constraints in Southern California could pose a risk to the region’s power supply this summer, while New England and Texas could face tight electricity supplies, the US FERC said. The anticipated reserve margin in ISO New England, the regional power grid operator, is forecast at 14.9 percent, slightly below the target of 15.1 percent. The operator could be forced to import additional power from neighbouring regions in case peak summer conditions materialize, as forecast, since the commissioning of about 700 MW of new resources could be delayed, FERC said. In Texas, FERC forecast that reserve margins in the Electric Reliability Council of Texas, which operates the power grid for about 75 percent of the state, would continue to be tight when compared to other regions, even though the operator expects to have adequate generating capacity to meet peak demand.

Eastern Australia’s power grid will be stretched again if fierce heatwaves hit over the next two summers, despite recent government steps to beef up supply, the AEMO said. The latest outlook from the AEMO comes three months after it warned that Australia’s most populous states face a gas shortfall from the end of 2018 that could spark power or gas cuts to homes and businesses. The AEMO said power supply should be adequate in normal summer weather, assuming 140 MW of energy storage backed by the South Australian and Victorian state governments is in place, there are no planned generator outages and three gas-fired generators return to service as promised. The market will need more coal-fired power in the state of New South Wales, more renewable power and higher output from gas-fired generators to replace a 1,600 MW plant shut by France’s Engie SA in neighbouring Victoria in March.The grid would be most vulnerable in extreme heat on weekday afternoons and evenings when people switch on air conditioners, with the risk rising if the wind drops and the sun is down or other generation is disrupted at the same time, the AEMO said.

Last year, Pakistan held informal talks with General Electric, Siemens and Switzerland’s ABB to build the country’s first high-voltage transmission line. Chinese power giant State Grid committed to building the $1.7 billion project in half the time of its European counterparts – and clinched the deal. In Pakistan, whose geographical position makes it central to Beijing’s “Silk Road” plans, contracts have been awarded for projects worth more than $28 billion – all by Chinese companies working together with local firms. More than $20 billion in new investment is likely in the next few year. In the transmission line project deal, for example, General Electric estimated it could make one key part of the line – the converter stations – for about 25 percent less than what State Grid was charging. By awarding the contract to State Grid, Islamabad paid a higher price.The edge of Chinese companies in Pakistan is likely to continue. Under the Silk Road plan, China and Pakistan are planning to build $57 billion worth of power plants, port facilities, railway lines and roads in Pakistan.The transmission line project was conceived as a government-to-government contract to build a 878 km connection between soon-to-built power plants near the coastal town of Matiari and Pakistan’s industrial heartland by the eastern city of Lahore.

Four Western African countries have broken ground for a new 1,303 km electricity interconnector project built with an investment of €370 mn. The four countries include Liberia, Guinea, Cote d’Ivoire and Sierra Leone, which are all part of the Mano River Union with the interconnectivity project expected to help them out with access to reliable and affordable energy. Dubbed as CLSG Interconnector, the project developed by Transco CLSG will see the first ever cross-border energy supply through a new transmission line and substations. The energy project will be assisted with a 25-year loan of €75 mn from the EIB apart from funding from the African Development Bank, World Bank and KfW, and the respective governments involved. Another notable funding coming for the CLSG Interconnector project is the €27 mn grant from the EU-Africa Infrastructure Trust Fund. The grant is expected to support feasibility studies, assistance for engineering, and electrification in rural areas.

Sharp gains in US utilities stocks have driven the safe-haven group to expensive levels, leaving doubts about how far the rally can go as equity investors look elsewhere for returns. Utility stocks, with hefty dividends, are among the sectors considered “bond proxies” and have benefited from declines in longer-dated Treasury yields this year. Goldman Sachs, Bank of America-Merrill Lynch and Credit Suisse have recommended since last year that investors be “underweight” in utilities. The sector includes power and energy companies such as NextEra Energy, Duke Energy and Dominion Energy and offers an overall dividend yield of 3.4 percent. Utilities are trading at a 2 percent premium to the broader market, based on price-to-earnings ratios. Historically, the group has traded at a 7.5 percent discount.

PPAs: Power Purchase Agreements, PSUs: Public Sector Undertaking, PFC: Power Finance Corp, CEA: Central Electricity Authority, AT&C: Aggregate Technical and Commercial, AAP: Aam Aadmi Party, BJP: Bharatiya Janata Party, UP: Uttar Pradesh, ARR: annual revenue requirement, discoms: distribution companies, GST: Goods and Services Tax, FY: Financial Year, TANGEDCO: Tamil Nadu Generation and Distribution Corp, kWh: kilowatt hour, MW: Megawatt, CERC: Central Electricity Regulatory Commission, US: United States, FERC: Federal Energy Regulatory Commission, EIB: European Investment Bank, CHP: combined heat and power, EU: European Union, AEMO: Australian Energy Market Operator, TSOs: transmission system operators

Courtesy: Energy News Monitor | Volume XIV; Issue 4