LPG CONSUMPTION TAKES OFF

Monthly Oil News Commentary: December 2017

India

The price of the Indian basket of crude oil crashed from $113 per barrel in 2014 to $50 by January 2015. That was a bonanza for a government struggling to manage fiscal deficit and planning large social-sector spends. Oil prices tumbled to $29 by January 2016.  Tightened by OPEC-led production cuts, oil is sensitive to all kinds of shocks. Prices have already touched the above-$65 mark. India’s import bill has gone up and so has the current account deficit. India is heavily dependent on imports for a large chunk of the crude oil that it consumes. In 2016-17, around 82.1 percent of the oil consumed in India, was imported. The rising oil prices in the global markets have caused the oil import bill to grow 15% in the second quarter ending September 2017 to $23.7 billion from $20.5 billion in the same period. A bigger oil import bill contributed to India’s current account deficit doubling to 1.2% of GDP or $7.2 billion in the September quarter from 0.6% of GDP or $3.5 billion in the same period in 2016. The current account deficit is expected to widen and end the fiscal year at 1.7-2.0% of GDP. The higher the imports, the bigger negative impact it has on the net rate. So with oil prices on the decline since 2014, it meant that the export metric in GDP calculation did not have as severe a negative hit. A 2014 report from Macquarie Capital Securities India said a $10 per barrel fall in oil prices would reduce India’s import bill and the current account deficit by $9.2 billion (0.43% of the then GDP). Due to falling oil prices India’s macro-economic indicators such as inflation, CAD, and trade balance improved. On the back of contraction in the trade deficit, the CAD came down to $22.1 billion, or 1.1 percent of GDP from $26.8 billion, or 1.3 percent of GDP, in 2014-15. In the last three years, despite the fall in global crude oil prices, the average Indian consumer of petroleum products has not been a beneficiary of it. Instead, increased excise duty and VAT on petrol and diesel has meant that despite the 56 percent fall in oil prices, the prices of petrol and diesel are at most 5 percent less than what they were in May 2014. Since June 2014, when international oil prices started declining, India has increased its excise duties from ₹ 15.5 per litre to ₹ 22.7 per litre as of December 2016 for branded petrol and from ₹ 5.8 per litre to ₹ 19.7 per litre for branded diesel. In contrast, the governments of most advanced countries simply passed on the benefits to consumers. With oil prices increasing, an unchanged excise duty would mean that the end consumer would have to pay even more, while a cut in excise duty would mean that petroleum companies will not be able to reap the benefits of the revival in the industry. The government thinks the oil prices are within the range where they cannot upset the fiscal math. India is one of the major OPEC consumers. 85 percent and 94 percent of India’s crude oil and gas imports respectively come from the OPEC countries.

ONGC’s partners in six pre-NELP blocks will have to share royalty, cess and other government charges with the state firm in proportion to their stakes, ending the current practice of ONGC alone bearing state levies for entire production, according to an oil ministry proposal that would soon be sent to the Cabinet. Once the proposal gets the Cabinet’s nod, Vedanta, Essar Oil, GSPC, Focus Energy, Hindustan Oil, and UK’s Hardy Oil would have to bear the burden of government charges in their respective fields where they partner with ONGC. The DGH had recently recommended ONGC exit the contract and let other partners share the government charges in proportion to their stakes in these six blocks. But the government didn’t accept the DGH proposal of removing ONGC from the blocks while taking its recommendation of allowing shared liability. These six blocks—CB/OS-2, CBON/2, CB-ON/3, CB-ON/7, CYOS90/1 (PY3), RJ-ON/6—are located mainly in Gujarat and Rajasthan. The prolific Barmer block (RJON-90/1) too had the same royalty and cess sharing rule earlier, but about six years back Vedanta, while purchasing the field from Cairn Energy, agreed to share with ONGC the liability of paying government charges. Vedanta is the operator of the field with 70% participating interest in the Barmer block. In other six pre-NELP blocks too, partners operate fields with ONGC owning only minority interest. These are called pre-NELP blocks because they were auctioned before the NELP, was launched, which mandated proportionate sharing of government charges by all contractors of a block. The oil ministry is now planning to extend the model adopted in Barmer to other six blocks.

IOC has said that the impact of the GST would be nearly ₹ 42 billion as it would not be able to claim ITC for automotive fuels that fall outside GST. ITC allows an entity to reduce the tax on outputs by the same amount already paid as tax on inputs.

State oil companies are aiming to augment their cooking gas distribution network by nearly a third in a little more than a year to cater to the rapidly expanding consumer base, mainly in rural areas. The past three years have witnessed a spectacular rise in access to cooking gas, putting strain on the current distribution network that hasn’t grown as fast. Between April 1, 2015, and September 30 this year, the number of active domestic cooking gas consumers has risen 44% to 214 million while the number of LPG distributors has expanded just a fifth to 19,200. The government is now pushing oil companies to accelerate the process of appointing new distributors and ensure they quickly become operational, the oil ministry said. The government has already issued 2,000 new licences. In addition, nearly 600 applicants have been selected through draw of lots in recent months while another 3,400 are slated to be picked for licences by March. After obtaining licence from an oil company, it usually takes about a year for an applicant to set up a cooking gas distribution agency, which involves obtaining many local regulatory clearances as well as readying an office and warehouse. New distributors are mainly coming up in regions that have been short on distributors or places which have seen a surge in new cooking gas consumers. States like Uttar Pradesh, Bihar, Bengal, Odisha and Maharashtra are set to have a big share of new distributors. The new LPG consumers are mostly located in remote and rural areas and from underprivileged background. Big distance to gas agencies become a deterrent for consumers to seek a refill when they run out of gas. In these regions, services by distributors are relatively weak and home delivery of cylinders mostly absent, making it difficult and expensive for consumers to use cooking gas. By staying close to consumers, state oil companies can hope to overcome these consumption hurdles and increase their sales volume.

After hiking cooking gas or LPG price by ₹ 76.5 in 19 installments in 17 months, national oil companies skipped the monthly revision in rates this month ahead of elections in Gujarat. State-owned IOC, BPCL and HPCL have been since July last year raising price of LPG on 1st of every month with a view to eliminating government subsidies on the fuel by 2018. The oil companies however skipped the hike this month. The price of subsidised LPG was last raised by ₹ 4.50 per cylinder on November 1 to ₹ 495.69, according to a price notification issued by state-owned firms. The government last year had asked state-run oil firms to raise prices every month to eliminate all the subsidies by March 2018. Since the implementation of the policy of monthly increases from July last year, subsidised LPG rates have gone up by ₹ 76.51 per cylinder. A 14.2 kg LPG cylinder was priced at ₹ 419.18 in June 2016. Every household is entitled to 12 cylinders of 14.2 kg each at subsidised rates in a year. Any requirement beyond that is to be purchased at market price. Initially, the hike in LPG rate was ₹ 2 per month which was raised to ₹ 3 from May this year. The November 1 hike in the LPG price was the sixth since the May 30 order of the oil ministry to raise rates by ₹ 4 per cylinder every month. According to the PPAC of the oil ministry, there is a subsidy of ₹ 251.31 on every 14.2 kg subsidised LPG cylinder. Incidentally, the non-subsidised or market priced LPG rates were raised by ₹ 5 per cylinder to ₹ 747 a bottle on December 1. Non-subsidised LPG rates have moved in tandem with their cost since December 2013.

The Centre has sanctioned ₹ 75 billion for setting up a LPG bottling plant in Meghalaya which will help increase the clean fuel’s penetration, especially in the rural areas of the state. A Memorandum of Understanding (MoU) was inked between the oil ministry and the state government.  Only 27 percent of the households in the state are linked with LPG connectivity which is much below the national average. Another 20 LPG distributors have now been added for Meghalaya. Meghalaya is the only state in the region which has no bottling plant. The new bottling plant will be constructed at an existing site located in Shillong itself.

India is set to surpass China as the biggest importer of LPG this month as a drive to replace wood and animal dung fires for cooking boosts consumption. Shipping data shows LPG shipments to India will reach 2.4 million tonnes in December, pushing it ahead of top importer China, on 2.3 million tonnes, for the first time. India’s LPG purchases have surged from just 1 million tonnes a month in early 2015 on the back of a government program to bring energy to millions of poor households relying on open fires. China, India and Japan together make up about 45 percent of global LPG purchases.

The government is planning to curb the imports of petroleum coke, which is believed to be a major polluter. Policy is being framed by various stakeholder ministries to put curbs on its imports. Petroleum coke does not cause pollution if it is used as fuel in certain industries such as cement production.

The government will be soon announcing a policy which calls for 15 percent blending of methanol in petrol to make it cheaper and also reduce pollution. Union Roads Minister Nitin Gadkari said methanol gets made from coal and costs only ₹ 22 per litre as against the prevailing price of about ₹ 80 per litre for petrol and added that China is making the coal byproduct for ₹ 17 per litre itself.  Volvo has got a special engine to the financial capital which runs on methanol and using the locally available methanol. Total investment opportunity on ethanol alone if ₹ 1500 billion.

India’s refiners imported nearly half as much crude oil from Iran in November as the month before, ship tracking data showed, cutting purchases to a 21-month low in protest at Tehran’s decision to award a giant gas field to a Russian company. India, the world’s No. 3 crude oil consumer, received about 266,000 bpd of oil from Iran last month, a decline of 43 percent from October and 55 percent from a year ago. For the fiscal year to March 2018, Indian refiners have opted to order about a quarter less Iranian crude as Tehran decided to award development rights for its huge Farzad B gas field to Russian rivals instead of an Indian consortium that discovered the field. For April-November, the first eight months of this fiscal year, India shipped in 19 percent less Iranian oil at about 427,200 bpd, according to the data. But India’s oil imports from Iran will likely rise in December, as vessels holding about 4 million barrels of oil sailed from the Iranian ports in end-November and discharged cargoes in early December, the data showed.

All powerful GST Council will consider bringing electricity, petroleum products and some other items under the ambit of GST in future. If petroleum products are brought under the GST regime, Bihar Finance Minister Sushil Modi said, it will attract the highest tax slab prevalent at that time and states would be at liberty to levy cess on it in order to protect their revenues. Both states and the Centre earn 40 percent of their revenue from petroleum products at present. The subsidy on kerosene is likely to be phased out by 2020. While there could be an increase in the subsidy on LPG, analysts said there would not be much net increase. For the first six months of FY18, the cumulative subsidy claims on LPG and kerosene to the petroleum ministry stood at ₹ 90.79 billion. The kerosene subsidy is expected to decline by 40 percent from ₹ 7,595 billion in 2016-17 to ₹ 45 billion this financial year. According to the PPAC, kerosene consumption fell 33.7 percent for the period April to October from the same period last year. The annual fall in kerosene consumption over the past five years has been 8.1 percent. During 2016-17, it was 5.3 million tonnes, down from 6.8 mt in 2015-16. Over the years, LPG has been replacing kerosene as a fuel in rural India. During 2016-17, its consumption rose almost 10 percent from the year before, to 21.5 mt. Under PMUY, the government has so far added 31.9 million consumers, taking the India total to 251.1 mn as of November.

ONGC has torn into regulator DGH’s proposal for auctioning its discovered oil and gas fields, saying national oil companies can raise production if they are offered the same fiscal concessions as being extended to private companies. In para-wise comments on the DGH’s proposal to auction 60 percent stake in some producing oil and gas fields of ONGC and OIL, ONGC said national oil companies (NOCs) should also be allowed to participate in the auction. DGH has identified 15 discovered and producing fields – 11 of ONGC and four of OIL – with a cumulative in-place reserve of 791.2 million tonnes of crude oil and 333.46 billion cubic metres of gas, for auctioning on the plea that private involvement will raise output. DGH has in the policy proposed to auction the fields to the bidder who commits the maximum investment and pledges the largest share of its net revenue to the government.

HPCL has written to Airtel and sought a reversal of subsidy amounts that have been wrongfully credited to the Airtel Payment bank accounts. ₹ 1.67 billion have been wrongfully credited to the Airtel Payment Bank interface through 310000 transactions. The OMCs and the oil ministry have been getting a large number of complaints from consumers regarding non-credit of the LPG subsidy amounts into their earlier bank accounts for the past few weeks, HPCL said. In order to link LPG subsidy to earlier bank account, HPCL has written to Airtel Bank and requested that the subsidy amounts of these consumers be immediately either transferred back to the customer’s earlier bank account or to the respective OMC’s, HPCL said.

The National Green Tribunal dismissed the application of the LPG Virudha Samara Samithi against IOC’s LPG import terminal at Puthuvypeen. In the application, the leaders of the Samara Samithi, wanted the tribunal to direct IOC not to implement the project. However, the tribunal refused to countenance the demand. The tribunal found no substance in the allegation that the project posed safety threats to the residents of the area. The tribunal upheld Indian Oil’s contention that storage of LPG is a permitted activity at the seashore under the CRZ norms and hence the project does not in any way offend those norms. However, the tribunal has observed that the company may undertake sea protection measures to arrest erosion at the project site. With this, IOC has overcome all the legal hurdles to the project. Earlier, the tribunal had also dismissed the Samara Samithi’s appeal against the extension of environmental clearance to the project. Samara Samithi preferred an appeal before the apex court against this. The Supreme Court, however, dismissed the appeal even without admitting the same. Though there was no stay against developing the project, the Samara Samithi had been obstructing the development of the project for more than 10 months now. IOC is stated to have suffered a loss of ₹ 1 billion per day on account of the delay. The project was conceived to meet the increasing demand for LPG in the country. For now, the oil major is transporting LPG by road in bulk LPG carrier trucks from a similar facility at Mangaluru.

The plan by state-run OMCs to expand its liquefied petroleum gas dealership has gathered momentum with the addition of 2,156 dealers in the past two months across 23 states. The road map is to appoint 6,149 distributors across the country through an online selection process, which might see an investment of ₹ 20 billion in the industry. However some opposition-ruled states such as West Bengal were not co-operating with the online bidding process despite several letters from the ministry of petroleum and natural gas and the OMCs —IOC, HPCL and BPCL. Kolkata-based MSTC is conducting the online draw for the OMCs. This is for the first time that OMCs have changed the selection process from physical to the digital mode, with the introduction of online receipts of application, processing and online draw.  This initiative of the ministry is part of promoting Digital India and to bring more transparency and accountability in the selection process.  The goal is to increase LPG penetration to 95 percent by 2020 from 74 percent. There are around 19,000 agencies and the government wants to increase that to 27,000 by 2019. Among the new distributors, 3,000 would be for IOC, while BPCL and HPCL would have 1,500 each. Meanwhile, the Cabinet is likely to take a call next month on a proposal to increase the reach of PMUY schemes by adding 30 million connections.  In the past two years, the BJP-led government was also successful in increasing LPG reach by more than 18 percent. To achieve this target, the Centre had launched the PMUY to provide 50 million LPG connections in three years to below-poverty-line families, with a government support of ₹ 1,600 a connection. So far, 32-million LPG users have been added under the scheme. Of the 6,149 distributors to be appointed, 1,028 would be in Uttar Pradesh, 986 in Bihar, 631 in West Bengal, 400 in Odisha, 300 in Jharkhand, 300 in Gujarat, 455 in Maharashtra, 355 in Madhya Pradesh and 298 in Tamil Nadu.

The government has withdrawn its decision to raise LPG prices by ₹ 4 per cylinder every month as the move was seen contrary to its Ujjwala scheme of providing free cooking gas connections to the poor. The government had previously ordered public sector oil marketing companies to raise domestic cooking gas or LPG prices by ₹ 4 per cylinder every month beginning June 2016 with a view to eliminating subsidies. The order was, however, withdrawn in October. IOC, BPCL and HPCL have not raised LPG prices from October.

India’s MRPL has made its first purchase of US crude oil, buying high-sulphur grade Southern Green Canyon through a buy tender for an early February delivery. MRPL bought a 1 million-barrel cargo for a February 1-10 delivery. Other Indian refiners – IOC, HPCL, BPCL and RIL – have also bought US oil in recent months. He declined to elaborate on the award of a separate MRPL buy tender for a million barrels of sour grades for January loading. MRPL bought Oman crude in the January tender. Both cargoes were sold by Royal Dutch Shell.

The oil ministry has set up a high-level committee to help frame fuel economy rules for tractors to moderate their diesel consumption that constitutes nearly 7.7 percent of India’s annual diesel use. The nine-member Steering Committee, headed by an additional secretary in the oil ministry, will submit an interim report in six months and a final one on the road map for development of the norms in 15 months. Tractors are used for different applications and the average fuel consumed for each application varies. On a rotavator, they may consume 7-8 litres per house while on a trailer, they may give an efficiency of 5-7 kilometre per litre with the load. On static application like alternator or straw reaper, it could be 6-7 litres per house. Diesel is the most consumed fuel in India, accounting for over 56 percent of 82 million tonnes of petroleum products used in April-October. As much as 57 percent of diesel is used by automobiles, with trucks guzzling 28.25 percent. Tractors, agri equipment and agri pumpsets use 13 percent diesel while cars and SUVs use 13.15 percent of the fuel.

India’s crude oil production in October remained flat at 3,038 tmt as compared to the corresponding month a year ago while natural gas output grew 1.95 percent to 2,755 mmscm in the same month. The country’s gross petroleum imports in value terms increased a whopping 27.5 percent to $8.8 billion in October as compared to the corresponding month a year ago. Cumulatively, gross petroleum import bill increased 19 percent to $52.3 billion in the first seven months of 2017-18 as compared to the corresponding period last year on the back of increased international crude oil prices. Oil production dipped marginally by 0.4 percent due to poor performance of fields under Production Sharing Contracts (PSC), data shows. The growth in natural gas production is attributed to healthy performance of acreages under government-owned ONGC, data released by PPAC indicated. On a cumulative basis, the country’s crude oil production in the first seven months of 2017-2018 remained almost flat at 21,063 tmt decreasing 0.24 percent as compared to the corresponding period a year ago. Cumulative natural gas production during the period grew 4 percent to 19,222 mmscm as compared to the corresponding period a year ago. Government-owned ONGC, responsible for 62 percent of country’s crude oil production in October, witnessed a crude output growth of 0.93 percent to 1,890 tmt for the month. Cumulatively, the oil and gas behemoth witnessed a 2.25 percent increase in production to 13,192 tmt in the first seven months.

Rest of the World

US oil prices closed above $60 a barrel on the final trading day of the year, the first time since mid-2015, as the commodity ended 2017 with a 12 percent gain spurred by strong demand and declining global inventories. International benchmark Brent crude futures ended the year with a 17 percent rise, supported by ongoing supply cuts by top producers OPEC and Russia as well as strong demand from China. The spread between the benchmarks widened throughout the year, as Brent responded to the drawdown in supply from major world producers while US output continued to grow. The gains indicate that the global glut that has dogged the market since 2014 is shrinking. Earlier this year, oil prices slumped on concerns that rising crude production from Nigeria, Libya and elsewhere would undermine output cuts led by the OPEC and Russia. But prices have rallied nearly 50 percent since the middle of the year on robust demand and strong compliance with the production limits.

Saudi Arabia’s King Salman and Russian President Vladimir Putin held a telephone conversation during which they agreed to continue close cooperation to ensure stability on global hydrocarbon markets, the Kremlin said. During the call, the Saudi leader voiced his concern about a missile attack on Riyadh by a Yemen-based rebel group on December 19. The Kremlin said that Putin had condemned the attack and spoken of the need for a thorough investigation into it.

Ministers from OPEC and their allies have agreed to extend their production pact all the way to the end of 2018 but with a review in June that will take into account market conditions and progress toward rebalancing. The outcome represents a successful compromise between de facto OPEC leader Saudi Arabia (which wanted to announce an extension throughout 2018) and non-OPEC heavyweight Russia (which wanted to avoid giving such a long commitment). Saudi Arabia’s Oil Minister Khalid Al-Falih said the excess of OECD oil stocks over the five-year average had already shrunk from 280 million barrels in May to just 140 million in October. If OECD stocks were to decline to the five-year average, the market would almost certainly feel uncomfortably tight, given the enormous growth in oil consumption since 2012.

The US EIA cut its 2018 world oil demand growth forecast by 40,000 bpd to 1.62 million bpd. The EIA raised its oil demand growth estimate for 2017 by 80,000 bpd to 1.39 million bpd.

Brazil will likely limit planned cuts in local content requirements for future oil exploration and production contracts in a move aimed at appeasing local suppliers and to pave the way for an extension of customs breaks for oil companies. The measures would be a concession to some opponents of “Repetro,” a preferential customs regime for oil and gas companies, who were angered by steep cuts in local content requirements for oil contracts, according to Abimaq, a group which represents local suppliers. Famously tough requirements in Brazil have stymied investment by oil firms which had complained that complying made oil development in the country unprofitable. OPEC has started working on plans for an exit strategy from its deal to cut supplies with non-member producers. OPEC, Russia and other non-OPEC producers on November 30 extended an oil output-cutting deal until the end of 2018 to finish clearing a glut. But the market is increasingly interested in how producers will exit the deal once the excess is cleared. Oil prices have rallied this year and are trading near $64 a barrel, close to the highest since 2015, supported by the OPEC-led effort. This is above the $60 floor that sources say OPEC would like to see in 2018. Publicly, OPEC Ministers said it is too early to talk of an exit strategy. But OPEC has said producers want to continue working together beyond the end of 2018, including on supply management. While oil prices have risen to levels seen as favorable by OPEC, the stated goal of the supply cut is to reduce inventories in developed economies, which built up after a supply glut emerged in 2014, to the level of the five-year average. Non-OPEC Russia, which has been the biggest contributor to cuts from outside the group, has been suggesting a review of the deal as early as June. However, its biggest producer Rosneft said the cuts could last into 2019. Russia held on as China’s largest crude oil supplier for the ninth month in a row in November, also topping Saudi Arabia for the year so far, China’s General Administration of Customs data showed. Shipments from Russia in November reached 5.12 million tonnes, or 1.26 million bpd, up 11 percent from a year ago, according to detailed commodity trade data for last month from China’s General Administration of Customs. That compared to October’s 1.095 million bpd in Russian oil imports, and a record set in September at 1.545 million bpd. Saudi Arabia came in second, with November imports from there dropping 7.8 percent from a year ago to 1.056 million bpd. For the first 11 months of the year, Russian supplies expanded 15.5 percent on the year to 54.77 million tonnes, or 1.2 million bpd, overtaking Saudi Arabia by 159,000 bpd. The boost in Russian supplies was supported in part by robust demand from China’s independent refineries, and also by increases in supplies via a trans-Siberia pipeline. Iraq supplies ranked third in November with shipments at 4.21 million tonnes, or 1.023 million bpd. Year-to-date Iraq supplied 5.5 percent more oil than a year earlier at 762,900 bpd, the data showed. China’s total crude oil imports rebounded to the second highest on record last month to 9.01 million bpd, with imports partially driven by a new additional batch of import quotas released to independent refiners.

Swiss-based trading and mining giant Glencore Plc has partly completed the sale of a 51 percent stake in its storage and logistics businesses to a unit of China’s HNA Group, although transfer of some assets is pending US clearance. Glencore in March agreed to sell the stake in HG Storage International Ltd, a vehicle that carries its petroleum products storage and logistics portfolio, to HNA Innovation Finance Group Co for $775 million. HNA said that the companies had completed the deal and would operate HG Storage International Ltd’s portfolio in Europe, Africa and the Americas as a joint venture. Glencore had been looking to sell a bundle of its global oil storage stakes, following similar moves by rivals as a boom period for storage showed signs of ending. Demand for storage exploded following the oil price plunge in 2014 because the abundance of crude for immediate delivery meant traders could make millions by buying oil cheaply and storing it to resell later at higher prices.

ONGC: Oil and Natural Gas Corp, OPEC: Organization of the Petroleum Exporting Countries, GDP: Gross Domestic Product, CAD: Current Account Deficit, VAT: Value Added Tax, NELP: New Exploration Licensing Policy, UK: United Kingdom, DGH: Directorate General of Hydrocarbons, IOC: Indian Oil Corp, BPCL: Bharat Petroleum Corp Ltd, HPCL: Hindustan Petroleum Corp Ltd, ITC: Input Tax Credit, LPG: Liquefied Petroleum Gas, PMUY: Pradhan Mantri Ujjwala Yojana, PPAC: Petroleum Planning and Analysis Cell, FY: Financial Year, OIL: Oil India Ltd, OMCs: Oil Marketing Companies, MRPL: Mangalore Refinery and Petrochemicals Ltd, US: United States, bpd: barrels per day, tmt: thousand metric tonne, RIL: Reliance Industries Ltd, mmscm: million metric standard cubic meter, OECD: Organization for Economic Cooperation and Development, EIA: Energy Information Administration

Courtesy: Energy News Monitor | Volume XIV; Issue 31

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Death Warrant for Fossil Fuels?

Lydia Powell and Akhilesh Sati, Observer Research Foundation

One of the news items in this week’s international news in this journal says that among Saudi Arabia’s key concerns today is that of the oil age ending before we run out of oil just like the Stone Age ended before we ran out of stones. Saudi Arabia is justified in its concern as there are many forces actively writing the death warrant for fossil fuels. Some of these forces are natural such as the overall decline in demand for oil and other fossil fuels from OECD countries. Some are man-made such as the mitigation mandates issued by multilateral climate bodies that have taken it upon themselves to reduce the use of fossil fuels and the civil society organisations that are determined to make up for any lack of commitment from multilateral climate bodies.

Among many civil society organisations that have sprung up in the recent past with fossil fuels as their biggest enemy are the Carbon Tracker Initiative (CTI) and the Grantham Institute for Climate Change at the London School of Economics. They are actively issuing reports on ‘un-burnable’ carbon which is based on an academic paper published in Nature in 2009. According to the paper published in Nature, the world has a Carbon Budget of 886 Giga tonnes of Carbon dioxide (GtCO2) for the period 2000-2050.  Out of this 423.10 GtCo2 has already been emitted between 2000 and 2013.  This leaves a budget of only 462.90 GtCo2 for the period 2014-2050 but global fossil fuel resources hold Carbon that is equivalent to about 6 times the Carbon budget for the next 35 years. If so, oil, gas and coal resources held by large energy companies are likely to become sub-prime assets.  Drawing inspiration from this conclusion, CTI has issued its report targeting the top 200 listed fossil fuel Companies with resources estimated at $7.42 trillion in February 2011. CTI’s hope is to initiate large scale divestment from these Companies so as to potentially reduce the probability of the release of 745 GtCO2 Carbon embedded in their fossil fuel assets.

Share of Carbon in World Fossil Fuels Reserves

Share of Carbon by country of listing of Fossil Fuel Company

                                                            

The activist organisations seeking radical action against fossil fuel investment are quite optimistic on large scale divestment from fossil fuels. They point out that over 27 cities, 29 religious institutions and 17 major investment foundations have already agreed to divest their interest in fossil fuel Companies and that well known personalities including the President of the World Bank, the Governor of the Reserve Bank of England, Desmond Tutu and Naomi Klein have endorsed the move. Institutional investors including Stanford University and the Rockefeller Fund have announced that their funds would exit the fossil fuel sector. The US Natural Resources Defence Council along with the big investment house Blackrock and the FTSC group are promoting a global equity index that specifically excludes fossil fuels.  All this has added momentum to the CTI.  If this momentum is sustained in the longer term, developing countries may have to prepare for far reaching consequences.

First, in the short term we may conclude that the risk for Indian fossil fuel companies is limited. The Government of India owns about 90% of CIL shares and about 70% of ONGC shares and it is very unlikely that the Carbon Tracker report would convince the Government to act against its own interest and divest its interest in these companies. If foreign institutional investors who hold about 5% of CIL shares and about 6% of ONGC divesting their interests, the valuation of these companies and consequently their ability to borrow and invest may suffer.

Second, the world would not become carbon free and climate proof when all investors pull out of listed fossil fuel companies. Fossil fuels will continue to be available because companies listed in the Carbon Tracker report represent only 27% of the global proven fossil fuel reserves. The remaining 73% lies with large national coal and oil & gas companies which may continue to produce fossil fuels. Third, the price of fossil fuels may increase substantially in the global market on account of the loss of roughly a third of production from listed companies.  This will increase the import costs for net fossil fuel importing countries like India. Fourth, there may be actual physical shortage of energy in India. Though Indian companies hold only 3.5% of the ‘un-burnable carbon’ with the top 200 listed fossil fuel companies, the production of coal from CIL accounts for roughly two thirds of power generation in India and the production of oil and gas by ONGC accounts for about a third of oil consumption in India.

If a limit is placed on how much coal CIL can extract or how much oil ONGC can extract, there would be a substantial loss of production, reduction in profit and loss of many jobs. If India’s fiscal constraints limit import of expensive fossil fuels, domestic production will struggle to meet even basic needs. Second order impacts such as a substantial reduction in economic growth on account of energy scarcity and a sharp division in the society as to who can and who cannot access energy could follow. The impact on power generation, transportation and consequently most other economic activities would be far more widespread and damaging than the impact of frequent floods and droughts in India that is attributed to climate change. Geo-political tensions between countries that produce and do not produce fossil fuels cannot be ruled out.

While these consequences appear severe, the probability of this actually materialising may be small. Even as the President of Stanford University accepted the demands of his students and pulled funds out of coal, he remarked ‘Stanford like the rest of the world runs mostly on fossil fuels’. This is an inconvenient truth that the Carbon Tracker effort may find difficult to contest. As of today, the market continues to value fossil fuels far more than it does alternatives. Using the global oil & gas index STOXX (including Exxon and Chevron) and global renewable energy index RENNIXX which includes Tesla and Vestas, Bjorn Lomborg has pointed out that $100 invested in fossil fuels in 2002 would be worth $ 238 today while the same invested in renewable energy would be worth $28.

Carbon Tracker and other civil society movements such as the Smith School of Entrepreneurship and Environment and Oxford University may be drawing their inspiration from the contribution of Harvard and other University activism in defeating apartheid and arresting the growth of tobacco companies. But unlike Apartheid and Tobacco addiction, carbon is an inevitable by-product of modern society and not the murder weapon of crimes committed by Governments and fossil fuel companies as some civil society organisations like to portray fossil fuels. The entire population of the world is internal to the problem and not external observers as it was the case with the movement against tobacco and apartheid. In their rush to embrace a just cause, civil society movements against fossil fuels may essentially be asking millions of poor people to wait in poverty for technologies that are yet to discovered or yet to become viable.

(A shorter version of this article appeared in Oped section of the Pioneer on December 26, 2014)

Views are those of the authors                    

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

Courtesy: Energy News Monitor | Volume XI; Issue 33

MAKE IN INDIA FOR SOLAR CELLS

Monthly Non-Fossil Fuels News Commentary: December 2017

India

To promote manufacturing in India of solar PV cells and modules, MNRE has drafted a set of proposals for financial and other support. Direct financial support of ₹ 110 billion is proposed. Domestic solar manufacturing had been hit by cheaper import in earlier years. So, MNRE initiated a Domestic Content Requirement (DCR) under the National Solar Mission. Government proposes ₹ 110 billion plan to boost domestic solar panel manufacturing Government procurement is proposed at 12,000 MW, from the existing 1,000 MW. A new quality order is proposed for solar cells and molecules, with infrastructure for quality testing. The plan proposes Central Financial Assistance in the form of a capital subsidy of 30 percent for setting up or upgrading manufacturing capacity. The policy will target the creation of manufacturing capacity of 10 GW over five years, with focus on an integrated silica to modules package and intermediate standalone packages or combinations. The central government would also offer exemption from customs duty on import of capital goods. With a manufacturing unit requiring high capital investment, the government would allow a solar power plant of twice the required capacity, to earn through power sale as well. However, any manufacturing plant availing of this would not be eligible for any other incentive, goes the draft.

India has started a probe to determine imposition of safeguard duty on surging imports of solar cells with a view to protect domestic manufacturers. Domestic manufacturers have approached the DGS with a complaint that their market share has remained stagnant despite rapid expansion in demand for solar cells in the country. India is targeting to 100 GW solar capacity by 2022. The current installed capacity is about 15 GW. The government has planned to auction 20 GW capacities by March 2018, and 30 GW each in next two fiscals. Solar cells, electrical devices that convert sunlight directly into electricity, are imported primarily from China, Malaysia, Singapore and Taiwan. The application for imposition of the import restrictive duty has been filed by the ISMA on behalf of five Indian producers – Mundra Solar PV, Indosolar, Jupiter Solar Power, Websol Energy Systems and Helios Photo Voltaic. They want safeguard duty on ‘solar cells whether or not assembled in modules or panels’ immediately for four years. The domestic industry also asked the DGS for imposition of provisional safeguard duty in view of steep deterioration in the performance of the local players as a result of increased imports of the solar cells.

Indian solar module makers are struggling to stay in business as the price differential with imports has widened to 10-12%, prompting developers to opt for overseas supplies and stunting government’s ‘Make in India’ campaign. Nearly all major domestic players such as Indosolar, Tata Power Solar, Adani Group, Jupiter Solar and BHEL are struggling to remain viable in the face of undercutting by cheaper supplies from modules manufactured by Chinese-owned companies located in the mainland and outside. Developers opted for cheaper equipment from China to offer low tariffs, which nearly pushed domestic manufacturers to the brink till the government levelled the field with quality and other norms. Ironically, the government is faced with the same question as it targets to set up 100 GW solar power capacity by 2022. India is expected to place orders for about 80,000 MW of solar power installations worth nearly ₹ 2440 billion at current prices. India’s utility-scale solar power capacity stands at 16 GW, while 11.5 GW is in the pipeline and 5.6 GW is being readied for bidding.

Patanjali Ayurved Ltd, the consumer goods products upstart, is poised to diversify into solar power equipment manufacturing. This will be the company’s first exposure to the infrastructure sector and comes after its runaway success in consumer products. Just like it identified the opportunity to compete with established multinational packaged consumer goods companies, Patanjali is seeing a opening for itself in solar equipment manufacturing. The government is considering a 30% capital subsidy as part of a new solar manufacturing policy. India is working to improve its per capita power consumption of around 1,200 kWh, among the lowest in the world. Alongside, it is also proposing a “rent a roof” policy to support its ambitious plan of generating 40 GW of solar power by 2022. For China’s solar panel manufacturing industry, with an estimated capacity of around 70 GW per year, the US and India are major markets. Patanjali acquired Advance Navigation and Solar Technologies Pvt Ltd, a manufacturer of navigation aid equipment, earlier this year. Currently, the facility has a manufacturing capacity of 120 MW. Patanjali plans to invest around ` 1 billion in solar equipment manufacturing and its factory in Greater Noida is expected to be fully operational within the next couple of months. With the average efficiency of a solar panel usually at just 16-22%, sub-standard quality will impact generation. India proposes to award 100 GW of solar and wind contracts by March 2020. This includes a plan to invite bids for setting up 20 GW solar power capacity—the world’s largest solar tender—at one go, to spur domestic manufacturing of solar power equipment.

Despite the increase in prices of solar panels in recent months and the GST burden, Hero Solar Energy Pvt Ltd and SBE Four Ltd bagged 500 MW offering to sell solar power to Uttar Pradesh government at ₹ 2.47 and ₹ 2.48/kWh respectively. This is slightly higher than the record lowest rate of ₹ 2.44/kWh that ACME Solar Holdings Pvt Ltd had bid for the 200 MW project in Rajasthan in May this year. The power will be drawn by Uttar Pradesh from Power Grid Corp of India’s national network for no extra cost. In April this year, DMRC had signed a power purchase agreement with Rewa Ultra Mega Solar Ltd in Madhya Pradesh to procure close to 200 MW solar power as inter-state open access consumer at ₹ 2.97/kWh. In the reverse auction carried out by SECI for Uttar Pradesh government for 500 MW, Hero Solar Energy Pvt Ltd won 300 MW offering a tariff of ₹ 2.47/KWh while SBE Four Ltd bagged the rest 200 MW at ₹ 2.48/kWh.

China-based Trina Solar, the world’s biggest solar panel maker, has put on hold its make-in-India plan to set up a 1,000 MW manufacturing unit in India because of low prices and absence of supportive policies but it will invest up to $500 million if it gets the right incentives. International players like Trina will be interested in incentives to set up manufacturing in India, and the government’s domestic manufacturing policy for solar, which is in the works, may provide some clarity on the plans.

In 2015, Trina Solar bought land near Visakhapatnam to set up a manufacturing unit for solar cells and modules, with an estimated capacity of over 1 GW. The project entailed a Skill India element, where 2,000-3,000 individuals would be trained and then eventually absorbed to work at the manufacturing unit. The plant at Visakhapatnam would require an investment of $400-500 million. Industry experts say demand had firmed up in the Chinese market, influencing prices. India, on the other hand, remains an extremely price sensitive market.

Madhya Pradesh laid the foundation stone for the “world’s largest” ultra-mega solar power plant at Gurh tehsil in the district. The green energy generated at this station will be provided to DMRC to run its trains in the national capital. The solar plant will generate 750 MW electricity and is being established with at an investment of ₹ 45 billion. It will spread in an area of nearly 1,600 hectares land.  The SECI and Madhya Pradesh Urja Vikas Nigam (MPUVN) have joined hands and are facilitating the work of setting up the plant with the help of private players.

The government is confident of achieving the target of 100 GW of solar power capacity by 2022. As against the target of installing 100 GW of solar power capacity as on December 15, a capacity of 16,676 MW has been installed with another 6,500 MW capacity under installation,. The trajectory of bidding of the rest of solar power capacity has been finalised as 20,000 MW in 2017-18, 30,000 MW in 2018-19 and 30,000 MW in 2019-20. Since the country does not have enough manufacturing capacity at present for solar cells and modules to meet the full demand, both imported and indigenous solar cells and modules are being utilised for achieving the targets.

The GST has led to 10-12 percent rise in overall cost of solar projects, the AISIA has said, while petitioning the government against the rise in tax incidence on solar power equipment under the new regime. While solar power generating systems are charged 5 percent tax, procurement and supply of equipment like module mounting structures, trackers, inverters, transformers and cables are being charged the GST at varying rates. AISIA said solar module were exempt from all duties in the pre-GST regime but since July 1 they are being charged 5 percent GST. Inverters, cables and transformers were levied by 2 percent central sales tax and excise was exempt but post GST they are charged 5-8 percent tax. Similarly, the tax incidence on services and civil work has risen to 18 percent from 15 percent and 6 percent respectively previously. Under the current GST regime, “solar power cost will see upward escalation”, AISIA said, while urging the government to remove the ambiguity. It suggested re-introduction of MNRE certification or self-certification supported by an undertaking that such equipment is required for the setting up of a solar power generating system.

Solar tender and auction activity declined steeply in India during November, Mercom Capital Group said. The solar capacity tendered across the country during the month fell by 25 percent to 300 MW compared to October and the amount of solar auctioned dropped by 98 percent to just 5 MW, Mercom said. The largest tender seen during the month was issued by Karnataka Renewable Energy Development Ltd (KREDL) which re- tendered 200 MW of solar to be developed at the Pavagada Solar Park in Karnataka. The SECI was responsible for the only solar auction held in November when it auctioned a 5 MW grid-connected solar PV project under the National Solar Mission Defense VGF programme for the Ordinance Factory in Kanpur, Uttar Pradesh. Giriraj Renewables Pvt Ltd emerged as the successful bidder by quoting a tariff of ₹ 4.18/kWh without VGF. According to Mercom’s India Solar Project Tracker, cumulative solar installations in India surpassed 17 GW as of September 2017, with over 7 GW installed in the first nine months of 2017.  In the third quarter of 2017, a total of 1,456 MW of solar power was tendered and 1,232 MW of solar was auctioned. That total represented a marked reduction from the activity seen in the second quarter when 3,408 MW of solar projects were tendered and 2,505 MW projects were auctioned.

The DGAD heard the views of all the affected parties in the matter of the anti-dumping duty petition on solar cells and modules. Representatives from the petitioner Indian Solar Manufacturers Association were present in the oral hearing, apart from representatives from the embassies of China, Taiwan and Malaysia. The issue relates to import of “Solar cells whether or not assembled in modules or Panels” originating in, or exported from, China, Chinese Taipei, and Malaysia. The DGAD had initiated an investigation, with the petitioner ISMA claiming that the cheap imports were hurting the domestic industry. The representatives of the embassies of the China, Taiwan, Malaysia and other stakeholders also got the opportunity to make their case and the case was registered orally in front of the designated judicial representative, ISMA said. The affected parties will present their submissions in written by December 19, 2017 and thereafter the petitioners (ISMA) will give a response to these submissions by January 2, 2018.

Renewable energy consultancy firm Bridge to India said it has lowered projections for rooftop solar capacity addition to 10.8 GW, as against 13.2 GW, by 2021. Bridge to India, a knowledge services provider in the Indian renewable space, has released the latest edition of its info-graphic report, ‘India Solar Rooftop Map’. As per the report, India added new rooftop solar capacity of 840 MW in the 12 months ending September 2017, at an annual growth of 82 percent and total installed capacity as of September 2017 stood at 1,861 MW. The report said that Maharashtra has taken over Tamil Nadu to become the biggest solar rooftop state, as per the latest edition of ‘India Solar Rooftop Map’ by Bridge to India.

The power ministry said it has issued guidelines for transparent procurement of wind power through tariff-based competitive bidding in a bid to boost the clean source of energy. The government has already auctioned 2 GW wind capacity so for in the first and second round this year. In the third round, it has floated tender for another 2 GW capacity. The norms are significant because the government had decided to put for bidding 10 GW wind capacities each in 2018 -19 and 2019-20 to meet the target of 60 GW by 2022. At present, wind power installed capacity is 32 GW. The government has issued guidelines under Section 63 of the Electricity Act, 2003, providing a framework for procurement of wind power through a transparent process of bidding including standardisation of the process and defining of roles and responsibilities of various stakeholders, the ministry said. According to the ministry, these guidelines aim to enable the distribution licensees to procure wind power at competitive rates in a cost-effective manner. The ministry said the guidelines are applicable for procurement of wind power from grid-connected wind power projects having individual size of 5 MW and above at one site with minimum bid capacity of 25 MW for intra-state projects. Besides, it will also cover individual size of 50 MW and above at one site with minimum bid capacity of 50 MW for inter-state projects. The ministry said these guidelines will give boost to the wind power sector as it would facilitate the windy states to go for bidding process for procurement of wind power themselves. After transition of tariff regime from feed in tariffs to bidding route, it was mainly the central government bids through SECI, which were helping the sector. State bids from Tamil Nadu and Gujarat had objections from the wind sector in absence of guidelines, the ministry said.

The country can save up to ₹ 540 billion in power costs and reduce air pollution by replacing expensive coal plants with renewables, according to a new analysis by Greenpeace India. The analysis compared 2015-2016 tariff data published by the Central Electricity Authority with an “assumed” renewable energy tariff of ₹ 3/kWh, it claimed. New tariff bids for solar energy and onshore wind have dropped well below ₹ 3/kWh, with solar power reaching a record low of 2.44 and wind reaching a record low of 2.64, it said. Greenpeace said that it is now widely accepted that new coal power plants are not financially competitive with new renewables in India. Significant cost-savings can accrue to the country and to cash-strapped distribution companies through a planned phase out of the most expensive coal power plants already in operation and their replacement with cheaper renewable energy.

An expert panel of the union environment ministry has cleared the 800 MW Bursar hydroelectric project in Jammu and Kashmir, reversing its stand that the power project was to be located in a rich biodiversity area and could only be cleared after a site visit by a sub-committee. The project, permitted under the IWT, is strategically important for India and its clearance is in line with the Indian government’s decision to step up exploitation of India’s share of water in the IWT. At a meeting in October, the environment ministry’s EAC for River Valley and Hydroelectric Projects deferred granting clearance to the Bursar project in the absence of a site visit. However, in the first week of December, the panel went ahead and cleared the project without a site visit, saying that a visit was not possible before June 2018 due to poor weather conditions, which would delay the project. The estimated cost of the project is ₹ 245.89 billion. The EAC then said it would reconsider the project for environmental clearance after seeing the sub-committee’s report. However, in its subsequent meeting on 5 December, the EAC recommended environment clearance without a site visit. Once the EAC recommends or denies environmental clearance for a project, the environment ministry takes the final call but rarely overturns the EAC’s recommendation.

The government is looking at extending fixed cost recovery period of hydro projects to 30- 35 years, from 12 years at present, to bring the tariff down to as low as ₹ 2/kWh. The ministry is working on the hydro power policy to provide ₹ 160 billion assistance to projects to promote the clean source of energy and it is expected to be tabled before the Union Cabinet for approval this month.  Hydro power plants that the tariff remains high at ₹ 6/kWh during the recovery period and after realisation of fixed cost, it comes down to 0.80/kWh. India has realised about 45 GW, out of 145 GW hydro power potential in the country. The government would buy equipment to aid generation of 20 GW but the bidders would set up manufacturing capacity in stages.

India will begin construction of an 800 MW advanced ultra supercritical thermal power plant in 2019, which will run on an indigenous technology that is developed to reduce carbon emissions. The project is being executed by a consortium of three government entities, Bharat Heavy Electrical Ltd, Indira Gandhi Centre of Atomic Research and National Thermal Power Corp. It will involve Indian industries in the design, manufacture and commissioning of the plant. The prototype fast breeder reactor, which is built in Kalpakkam, will achieve criticality in another two months and is expected to generate full power of 500 MW by next year.

India has moved closer to signing its tripartite Inter Governmental Agreement (IGA) involving Russia and Bangladesh for Rooppur Nuclear Power plant near Dhaka — Delhi’s first such civil nuclear document — amid foundation stone laying for the project that would power South Asia’s second fastest growing economy. Bangladesh saw the first concrete pouring into the reactor building foundation of its first Rooppur Nuclear Power Plant, which will mark the construction of Bangladesh’s first nuclear reactor and make it the third country in South Asia after India and Pakistan to have a civil nuclear project. While India has been working with major powers (USA, Russia and Japan) across various sectors as well as firming up joint ventures in third countries in Africa, SE Asia and Central Asia, it would be the first occasion where Delhi will conclude a tripartite civil nuclear project marking India’s global entry into a strategic sector. In fact, India for the first time ever is playing a substantive role in building a nuclear power plant on foreign soil with the proposed supply of equipment and material for the power station being built by Bangladesh with Russian assistance. Bangladeshi nuclear scientists and technicians are undergoing training at the Kudankulam Nuclear Power Plant which is also built with Russian assistance and uses Russian nuclear technology. It will also boost the Make in India initiative amid a proposal by Delhi to Moscow for manufacturing of some nuclear power reactor equipment in India. The Rooppur plant involves two units, each with a capacity of 1200 MW and is situated on the bank of Padma river. Rooppur Nuclear Power Plant’s generation units will be based on VVER-1200 reactors of the 3+ generation technology. VVER-1200 technology is also likely to be offered to India for the second set of six Russian built nuclear reactors. This technology uses “post-Fukushima” safety standards for a nuclear power plant.

Rest of the World

South Korea said it plans to increase its solar-generated power by five times current amounts by 2030 to boost use of renewable sources in the nation’s energy mix. Since a new government came to power in May 2017 on a platform of cutting South Korea’s reliance on nuclear power, the government has torn up plans to build six more reactors in favour of “eco-friendly” energy sources. The world’s fifth-biggest nuclear energy user currently operates 24 nuclear reactors that generate about a third of its total electricity needs. South Korea plans to provide a fifth of the country’s total amount of electricity from renewable energy by 2030, up from 7 percent in 2016. As of 2017, South Korea has 5.7 GW of generating capacity from solar power and 1.2 GW from wind power.

EU Environment and Energy Ministers agreed renewable energy targets for 2030 ahead of negotiations next year with the European Parliament, which has called for more ambitious green energy goals. Ministers said they would aim to source at least 27 percent of the bloc’s energy from renewables by 2030, up from a target of 20 percent by 2020. EU member states set a 14 percent renewables target for fuels used in road transport by 2030, with bonuses given for the use of renewable electricity in road and rail transport. The inclusion of rail into the renewable transport targets was criticized by the European Commission, as large parts of the European rail network are already electrified. The European Council and the European Parliament will need to find a compromise in talks over the final legal texts on these matters next year. The EU’s renewables targets are part of a set of proposals to implement the bloc’s climate goals of reducing greenhouse gas emissions by at least 40 percent below 1990 levels by 2030, in the wake of the Paris Agreement to limit further global warming to no more than 2 degrees.

Three state senators in New Jersey sponsored a bill that could cost electric ratepayers about $320 million a year to subsidize nuclear reactors that could otherwise be closed. The reactors were profitable now but could start losing money over the next couple of years because cheap natural gas has depressed power prices. In 2016, New York and Illinois adopted rules to subsidize some reactors that were in danger of closing. Ohio, Pennsylvania and Connecticut have also considered proposals to protect their reactors.

The final version of comprehensive tax legislation being negotiated by House and Senate lawmakers will preserve key renewable energy tax credits that were once at risk of being removed. Congressional and business sources confirmed that the production tax credit for wind energy and the $7,500 electric vehicle tax credit, which the House version of the bill had targeted, will remain in the final bill. Lawmakers have been working to produce a tax package after the Republican-controlled House and Senate passed different versions of legislation. Meanwhile, the renewable energy industry is awaiting final details on how congressional negotiators will address problems created by a provision included in the Senate-passed bill called the Base Erosion Anti-Abuse Tax (BEAT).

A Japanese court ordered Shikoku Electric Power Co not to restart one of its reactors, overturning a lower court decision and throwing into turmoil Japan’s protracted return to nuclear power after the Fukushima disaster. The decision by the High Court in Hiroshima in western Japan has no immediate effect on Shikoku Electric’s operations because the reactor in question has been idled for maintenance, but it casts into doubt any restart. The ruling also marks a victory for Japan’s anti-nuclear movement, which has won a number of lawsuits seeking to halt or prevent nuclear operations in recent years, only to see them overturned by more conservative higher courts. Kansai Electric and Kyushu Electric are the only other two nuclear operators with reactors running. Just four reactors are currently operating out of 42 commercially viable units. All reactors in Japan had to be relicensed after a new regulator was set up following the Fukushima disaster of 2011. Residents have lodged injunctions against most nuclear plants across Japan. Lower courts have been increasingly siding with them on safety concerns, but the verdicts are usually overturned in higher courts.

Egypt will sign contracts with Moscow during Russian President Vladimir Putin’s visit to Cairo for the country’s first nuclear power plant. The construction of the 4,800 MW capacity plant, which is supposed to be built at Dabaa in the north of the country, is expected to be completed within seven years. Moscow and Cairo signed an agreement in 2015 for Russia to build a nuclear power plant in Egypt, with Russia extending a loan to Egypt to cover the cost of construction. The trial operation of the first nuclear reactor is expected to take place in 2022. Egypt, with a population of nearly 104 million and vast energy needs, wants to diversify its energy sources. The nuclear plant is expected not to just cover the country’s energy needs, but to produce excess which can be exported.

With its smog-prone north desperate to slash coal consumption, China is looking to deploy nuclear power to provide reliable winter heating, raising public safety concerns – though developers said, the risks are minimal. CNNC recently conducted a successful 168-hour trial run in Beijing for a small, dedicated “district heating reactor” (DHR) it has named the “Yanlong”. With the north facing natural gas shortages as cities switch away from coal, CNNC presented the “DHR-400” as an alternative heat supplier for the region, with each 400 MW unit capable of warming 200,000 urban households. With northern China still relying on “centralised” heating systems, a DHR in every city could be an ideal solution. The government is keen on the technology, but cautious about deploying it too quickly, especially amid widespread public anxiety about the risks of nuclear power.

The French government dropped a legal target set by the previous government to reduce the share of nuclear to 50 percent by 2025, from 75 percent.

MNRE: Ministry of New and Renewable Energy, MW: megawatt, GW: gigawatt, DGS: Directorate General of Safeguards, kWh: kilowatt hour, DMRC: Delhi Metro Rail Corp, AISIA: All India Solar Industries Association, GST: Goods and Services Tax, SECI: Solar Energy Corp of India, PV: photovoltaic, VGF: viability gap funding, DGAD: Directorate General of Anti-Dumping and Allied Duties, ISMA: Indian Solar Manufacturers Association, IWT: Indus Water Treaty, CNNC: China National Nuclear Corp, EAC: Expert Appraisal Committee, EU: European Union

Courtesy: Energy News Monitor | Volume XIV; Issue 30

One Billion Tonne per annum Coal Production Conundrum

Ashish Gupta, Observer Research Foundation

Actual Production Target is taken till 2013-14

Then average growth rate over the period 2000-01 to 20013-14 is taken for projection

Given the current growth rate of coal production in the country, it will be next to impossible to achieve the 1 Billion Tonne (BT) per year coal production target by 2019. According to Business as Usual (BAU) scenario from 2014 till 2025, the coal production is envisaged to reach 1 BT after 2024-25. Even the target for coal production for 2016-17 set in the Twelfth Five Year Plan is estimated to each 715 MT by 2016-17 in BAU scenario and 795 MT in the optimistic scenario may not be achieved. As per the ORF estimates (if production grows at 4.5 percent during the projected period, while other things remaining constant), by the terminal year of Twelfth Five Year Plan, the coal production will reach only 647 MT and 707 MT by 2019 under the two scenarios.

Given the current administrative, political and policy framework in the coal sector, the ambitious target appears unrealistic. The separation of consuming sectors from mining operations is necessary.  However the target is not impossible to achieve in theory if circumstances change and if the Government is able to implement deeper and far reaching reforms.

Views are those of the author                    

Author can be contacted at ashishgupta@orfonline.org

Courtesy: Energy News Monitor | Volume XI; Issue 34

POWER REFORMS TO POWER ELECTIONS

Monthly Power News Commentary: November – December 2017

India

All the villages of Bihar would be electrified by the end of this month. By May 2018, electricity would reach 10,000 human habitations (“tola”) and not a single of these habitations would remain without electricity. This is part of the work on installing separate feeders for irrigation under the Centre’s Deen Dayal Upadhyaya Gram Jyoti Yojana, at an estimated cost of ₹ 60 billion.

The government had set a deadline of January 2019 for bringing down power losses due to theft and unmetered supply to 15 percent of the total generation in the country. The deadline was fixed at a meeting of Power Ministers of all states as some states had more losses than others. UP suffered a loss of 21 percent. The main reason for power losses were theft and unmetered supply of power. In ideal world, the power losses should be down to 5-6 percent.

Moody’s Investors Service and its Indian affiliate, ICRA said that their stable outlook for the power sector in India over the next 12-18 months reflects their expectation of generally stable industry conditions and government policy initiatives. Improvements in the financial position of state-owned electricity distribution companies are likely to be seen in this period. The Indian government’s debt restructuring of the financially weak distribution utilities under the Ujwal Discom Assurance Yojana (UDAY) will gradually improve the financial conditions of state-owned distribution companies, thereby alleviating off-taker risk, which is a key negative factor for the credit quality of power generators, Moody’s said.

Power ministry may ask discoms to accept the revised tariffs quoted by power plants to win coal contracts in auctions without waiting for the regulator’s nod. Under the scheme, power plants have to amend PPAs with distribution companies to factor in the discount in tariffs offered by them during the auction. As per the scheme, state-run miner CIL has to issue letters of intent to the power companies within 15 days of conclusion of the auction and the companies have 45 days to amend the PPAs and get approval of Electricity Regulatory Commission. CIL will have 30 days to convert the letters of intent into fuel supply agreements. The move is being planned in the backdrop of a three-month delay in approval of the bids by CIL’s board that led to worry that some plants might have to shut down in absence of coal supply. The board approved the winning bids of a bunch of power producers including Adani Power, GMR Energy and KSK Energy that quoted PPA the highest discount in electricity tariffs to receive coal from CIL.

In order to add pace to the Prime Minister’s Saubhagya scheme to electrify over four billion households across the country in one year, UP has decided to set up committees in each district and encourage competition among them to emerge as the best performer on set parameters. Out of the 41.2 million un-electrified households to be covered under the scheme by December 2018, 15.6 million households are in UP. Electricity is a major issue in UP and ‘Saubhagya’ is seen similar to the electrical success as Gujarat Chief Minister by bringing 24X7 power in Gujarat villages. UP has 52% electrification, only better than Bihar (48%) and Jharkhand (45%). The maximum un-electrified households in UP are in Azamgarh (521 000), Bahraich (489,000), Lakhimpur Kheri (430,000), Ghazipur (429,000) and Jaunpur (403,000). Districts like Sonbhadra, Saharanpur, Jalaun, Jhansi and Lalitpur are the least electrified ones in UP. Under the Saubhagya scheme, poor families in both urban and rural areas are to be provided metered electricity connections free-of-cost while above-poverty-line families in rural areas are to be charged ₹ 50 per month for 10 months for the same.

Punjab reiterated the Congress government’s commitment to providing electricity to the state industry at ₹ 5/kWh claiming the required modalities to implement it were being worked out. Without elaborating on the reasons behind the delay in issuance of the notification to bring down the cost of power for the industry from existing ₹ 6.12-₹ 7.39/kWh to ₹ 5/kWh the government said it is keen on implementing the proposal. According to the Punjab State Power Corp Ltd (PSPCL), offering electricity at ₹ 5/kWh to the industry, along with other subsidies being offered in the state, would increase the annual subsidy bill of the government to over ₹ 13,000 billion. The subsidy to be given to the industrialists would add around ₹ 28 billion to this bill.

In a bid to end the bane of power outages even at a time of surplus production, the government will bring in a law to penalise discoms in the event of their indulging in “gratuitous load-shedding”. Such penalties are part of a road map being prepared by the government to fulfil its vision of providing uninterrupted electricity for all. Ethical obligation of the discom as the sole license holder to provide uninterrupted power would now be made into an enforceable service obligation by introducing in the Electricity Act, 2003, such a penalty for outages without good reason. To gear up to meet the demand of uninterrupted power for all, the system needs to be strengthened on all sides. Changes were being proposed to the Act to remove human interface in billing, metering and collections by introducing prepaid systems that would help poor consumers and smart metering, as well as cap the permissible limit for factoring in discom losses in the tariff policy.

State Power Minsters have resolved to prepare a plan to reduce cross-subsidies by March 2018 as per the guidelines in the tariff policy, which would reduce the power rates for commercial and industrial consumers. The resolution to adopt an action plan to realise the changes made last year to the Electricity Act providing for a lower cross subsidy level of 20 percent was one among other reforms agreed on at the states’ Power Ministers meeting. Cross subsidy, which currently can be as high as 200 percent in some cases, is the mechanism by which industrial and commercial consumers pay higher tariffs that subsidise the lower charges paid by domestic, agricultural and other users. The power ministry advocated standardising electricity tariffs across the country. Many states have agreed to reduce the number of slabs for selling power.  Cross subsidies in the tariff policy will be phased out to bring it down to 20 percent in the first phase.  Power will be made available to industry at a reasonable cost to ensure the success of the ‘Make in India’ programme. The states resolved to clear all government dues of discoms for the current year along with 25 percent of arrears so that all previous dues are paid off by March 2019. The power sector accounts for a major chunk of the non-performing assets, or bad loans, in the Indian banking system that have crossed a staggering ₹ 8 trillion.

The government has set up a high-level committee headed by NITI Aayog CEO to address the problem of stressed assets in India’s power sector. NPAs in power generation accounted for around 5.9% of the banking sector’s total outstanding advances of ₹ 4.73 trillion, according to the second volume of the Economic Survey 2016-17 released in August. Tackling the issues that afflict the so-called stranded power assets will provide much-needed relief for Indian banks weighed down by bad loans. A total of 34 coal-fuelled power projects, with an estimated debt of ₹ 1.77 trillion, have been reviewed by the government after being identified by the department of financial services. Issues faced by these projects include paucity of funds, lack of PPAs and absence of fuel security. Experts said that PPAs hold the key to solving the problem of 60 GW of stressed assets across fuel sources. Of India’s installed power generation capacity of 331,118 MW, 58%, or around 193,426 MW, is fuelled by coal. Gas-based and hydropower projects account for 25,150 MW and 44,765 MW, respectively. The recently launched Saubhagya programme, which aims to provide electricity connections to more than 40 million families by December 2018 is expected to boost underutilized power plants.

Consumers will be able to change their power suppliers just like telecom services, after proposed amendment to the existing Electricity Act is approved. The power ministry will push Electricity Amendment Bill in forthcoming Budget session, which provides for segregating the distribution network business and the electricity supply business. The separation will pave the way for introducing a new system where consumers will have option to choose from multiple electricity service providers in their areas, similar to that of telecom services. Amendments would also provide for stricter enforcement of RPO. Besides, the bill will also provide for making tariff policy mandatory to keep cross subsidy below 20 percent. It means that difference between highest and lowest tariff rates should not be more than 20 percent. This will help to make industrial tariff reasonable which is unsustainable at present. The bill would also provide direct benefit transfer of subsidy to farmers to improve efficiency in power consumption. It also seeks service obligation on part discoms (distribution companies) to ensure reliable power supply service by March, 2019. The per capita consumption in the country will also increase in future. It is 1,075 kWh in India as against 5,000-6,000 units in Europe and around 1,1000 units in the United States. Village electrification in Jammu & Kashmir will start in March or April. And in Arunachal Pradesh, it will be completed by January or February next year, excluding areas affected due to snow fall. The power ministry has identified some states where leakages or losses are more than 21 percent and written a letter to them for reduction of these losses. AT&C loses should not be more than 5 to 7 percent otherwise it can be construed that there is theft of power, Singh said. In order to deal with this issue, the government is promoting pre-paid and smart meters. The power ministry has asked the states to reduce their AT&C losses below 15 percent by 2019.

The government may allow power plants to pass on their investments in equipment to meet stringent environmental norms to consumers, and such costs will not be included during preparation of dispatch order to ensure these plants remain competitive. The government is expected to soon issue an advisory in consultation with the Central Electricity Regulatory Commission towards this. Power producers had sought a clarification from the ministry and the regulator to incur the costs for meeting the environment norms. The projects would require an estimated ₹ 700,000 to ₹ 1,000,000/MW capital expenditure to meet the norms and the clarification was required to comfort lenders, the producers had told the ministry. The capital expenditure is estimated to raise the tariff by about 0.20-0.30/kWh.

The Congress party has alleged the BJP Gujarat government “squandered ₹ 260 billion of the public exchequer” by purchasing electricity from four private companies at “unimaginably high rates”. The companies in question Adani, Essar, Tata and China Light & Power. None of the companies responded to the allegations, made in Ahmedabad. The reported payments are ₹ 108.96 billion to Adani, ₹ 42.82 billion to Essar, ₹ 84.91 billion to Tata and ₹ 19.66 billion to China Light, over 2013-16. State-owned power plants had a capacity to generate 8,641 MW but were operated at a mere 33-38 percent capacity in those three years. Power was bought from these private companies at ₹ 24.67/kWh many times more than what was charged by the government-owned NTPC.

Reliance Power said it has completed signing of agreements to execute first phase of its $1 billion power project in Bangladesh. It said the integrated project entails an investment outlay of over $1 billion, which represents the largest FDI in Bangladesh and the largest investment in Bangladesh’s energy sector. Reliance Power will relocate one module of world-class equipment procured from internationally reputed original equipment manufacturers for its 2,250 MW combined cycle power project at Samalkot in Andhra Pradesh for the Phase-1 project in Bangladesh. Reliance project will give a tremendous boost to the economic and industrial growth of Bangladesh and will enhance the energy security of the country with clean, green and reliable LNG based power.

The Adani Group dismissed Congress’ allegation of charging exorbitant electricity tariff in Gujarat, saying it sold power to the state at a “very attractive” price of ₹ 2.65/kWh over the last four years. Adani Power Ltd sells electricity to Gujarat under long-term power purchase agreements, entered through competitive bidding and duly approved by Regulatory Commission. Adani Power offers one of the cheapest power supplies, and went on to list the price charged in last four years — ₹ 2.71/kWh in 2013-14, ₹ 2.64 in 2014-15, ₹ 2.57 in 2015-16 and ₹ 2.67 a unit in 2016-17.

UP energy watchdog has spared the industrial sector from power tariff hike for 2017-18 even as it announced a 12 percent increase in the average tariff payable by the sector across board. The exemption in power tariff not only provides relief to the industrial sector, but it also places the government on a better footing right ahead of the global investors’ meet that is slated to take place on February 21 and 22 in 2018. The two-day mega event is expected to attract investments into the state. However, the recent average hike has been the steepest over the past three years. In the preceding financial years- FY16 and FY17- the average increase stood at 5.47 percent and 3.18 percent respectively. The UPERC has also approved a power tariff hike of 63 percent and 67 percent for the unmetered rural domestic and commercial consumers. The move is expected to encourage customers to migrate to the metered segment, offering a lower tariff hike of 57 percent and 43 percent respectively. The ‘Power for All’ pact signed between the state government and the Centre aims at providing power supply to every household in UP. This seems to be a mammoth of a challenge, given the total number of power consumers in the state is estimated to burgeon from existing 18 million to 40 million by 2019-20. Meanwhile, urban consumers would bear a power tariff hike of 8.49 percent (domestic) and 9.89 percent (commercial). Likewise, the Commission has also increased the fixed charges on power connection to partially remunerate the beleaguered discoms in UP. Giving relief to the social sector, the energy watchdog has exempted shelter homes, orphanages, old age homes and similar institutions from commercial tariffs- a move that would effectively reduce their power bills. The new tariffs would be effective after seven days of issuing a public notice on the matter by the UPPCL. At present, the UPERC approves new power tariffs based on the aggregate revenue requirement (ARR) filed by power utilities that has details on estimated income, expenditure, power demand and supply, among other relevant data. Last year, domestic power consumers were spared from a power tariff hike. Tariffs remained unchanged for the large and heavy industries as well. However, the small and medium enterprises (SMEs) had witnessed their tariffs rise by almost 4 percent.

The UPERC has adopted ₹ 7.02/kWh as the solar tariff for the year 2015-16 for nine bidding companies who have already commissioned their projects for 12 years. For the remaining six bidders, whose projects have not been commissioned, and which the UPPCL wants to terminate, the commission said that since these companies had filed petitions against the pre-termination notices and the matter is under its consideration, it will pass necessary orders on them separately. Of the nine companies who have commissioned their projects, Essel Infraprojects is set to gain as it was the lowest bidder at ₹ 7.02/kWh, while Adani Green Energy was among the highest at ₹ 8.44/kWh.

As part of the ongoing process to deal with the issue of massive stressed assets in the sector NTPC has floated a tender to acquire commissioned stressed coal-fired thermal power plants. Of the 40 GW stressed thermal power generation capacity, around 12 GW capacity worth around ₹ 500 billion commissioned after April 1, 2014 is eligible under this tender. NTPC will shortlist the suitable operational domestic power assets located for possible acquisition. As per the tender, each plant size should be at least 500 MW. The power sector accounts for a substantial chunk of the NPAs, or bad loans, in the Indian banking sector, which have reached a staggering level of over ₹ 8000 billion.

The Indian Railways will start tendering 8,000 km of rail lines for electrification every year, starting next financial year, to complete the network electrification target in the next five years. In a first, the contract size that will be awarded on the government-funded EPC model, will be mostly in the range of 1,500-2,000 km to achieve faster completion. The railways, which currently has a fuel bill of ₹ 265 billion, will save ₹ 105 billion in fuel bill annually by electrifying its entire route. The cost for electrifying would be around ₹ 300-350 billion. Railways is aiming to cut project cost by at least 20% by offering large contracts. Railways to invite tenders for electrifying 8,000 km every year from next fiscal. To raise the required funds, railways would deploy funds raised from Life Insurance Corp of India and Indian Railway Finance Corp towards electrification. The national transporter could also go for borrowings from Rural Electrification Corp.

Rest of the World

Scottish and Southern Electricity Networks is taking to the skies to improve the resilience of its electricity networks. Working with NM Group, SSEN is using innovative aerial 3D laser scanning technology (LiDAR) to survey its entire overhead electricity network and is using this data to carry out preventative works designed to minimise the risk of tree-related power cuts to customers. Using a fleet of specially equipped aircraft, the LiDAR system uses light sensors to create extremely accurate and detailed maps, revealing the exact distance – to as little as 2cm accuracy – that trees and other vegetation are positioned next to SSEN’s overhead electricity lines in the north of Scotland and central southern England. In central southern England, SSEN has now flown 99% of its network and processed this data to directly inform its tree-cutting programmes and improve the resilience of the electricity network.

Tanzania’s power utility said it had started to restore electricity to parts of the country after the East African nation was hit by a country-wide blackout. TANESCO apologised for the power outage, but did not explain what caused a “technical glitch” in the national power grid that left the region’s No. 3 economy in a blackout that lasted more than 12 hours. TANESCO said it had also restored electricity in the administrative capital Dodoma, as well as Iringa region in the centre and Tanga in the northeast. Tanzania’s energy infrastructure has suffered from decades of underinvestment, neglect and corruption allegations, and investors have long complained the lack of reliable power hurts business there. Tanzania aims to boost power generation capacity to 10,000 MW over the next decade by also using some of its vast natural gas and coal reserves.

The Brazilian government is looking at all options, including large batteries, to help northern Roraima state with power supplies after a series of blackouts in recent months largely related to its dependency on cash-strapped neighbour Venezuela. Roraima is the only Brazilian state not connected to the national power grid. Its capital, Boa Vista, and most other cities in the state are supplied by power produced in Venezuela and transmitted through a line that was opened in 2001. Documents produced by a Brazilian government committee monitoring the power sector show the state suffered 17 large-scale power outages since August. The documents said only one instance was not related to Venezuela. The situation underscores how Venezuela’s economic collapse is affecting its neighbours The government plans to award a new license early next year for the construction of a power line to connect Roraima to the grid.

French consumers could save as much as €2.5 billion ($3 billion) a year if the government stopped setting electricity prices, France’s association of independent power producers Anode said. A decade after liberalisation, former monopoly EDF retains an 84 percent share of the retail power market, with the vast majority of its customers on regulated tariffs. A study commissioned by Anode said that if all retail customers on regulated tariffs were to switch to the most competitive market offer, their combined gain in purchasing power would add up to €2.5 billion. Anode proposes scrapping regulated tariffs for new contracts from next July and ending them completely by mid-2022. In Britain, the government has said it plans to impose a price cap on the energy market to help millions of households. EDF is also one of the “big six” energy providers in the British market. Anode has also filed a claim to overturn power tariffs with the State Council, but the court has yet to rule on that.

CIL: Coal India Ltd, discoms: distribution companies, PPAs: power purchase agreements, UP: Uttar Pradesh, UPERC: UP Electricity Regulatory Commission, UPPCL: UP Power Corp Ltd, kWh: kilowatt hour, CEO: Chief Executive Officer, NPAs: non-performing assets, MW: megawatt, RPO: Renewable Purchase Obligation, AT&C: Aggregate Technical and Commercial, BJP: Bharatiya Janata Party, FDI: foreign direct investment, LNG: liquefied natural gas, km: kilometre, TANESCO: Tanzania Electric Supply Company

Courtesy: Energy News Monitor | Volume XIV; Issue 29

Energy Forecasts: More than what meets the Eye?

Lydia Powell, Observer Research Foundation

Reports that emerged in the early 1980s from high profile global conferences such as the Workshop on Alternative Energy Strategies, the Istanbul World Energy Conference and the voluminous report ‘Energy in a Finite World’ by the International Institute for Applied Systems Analysis (IIASA) which included the contribution of over 250 scientists concluded that the most important development in the 21st century would be the exponential growth of third world energy needs.

By year 2000, third world countries were expected to be consuming energy of the same order of magnitude as Western European or U.S. consumption in 1980s. A vicious cycle of growth of third world energy needs that leads to heavier demand on the petroleum market which increases oil prices which in turn aggravates the world economy and limits growth in the oil-importing third world countries was anticipated. This trend towards catastrophic world energy growth gave rise to a common consensus to accelerate nuclear programmes and the exploitation of coal in both industrialised and third world countries by year 2000. Once this was accomplished, third world nations, including OPEC countries were expected to be net importers of energy and the OECD countries net energy exporters. This reversal of energy flows was based essentially on the exploitation of coal.  78 percent of known reserves of coal are located in western countries and only 3 percent in the third world (not including China).

The fundamental implication was that the future of energy growth was already fully determined and that the only possible path-namely, a coal-nuclear strategy must be pursued without fail. The proposals called for a mechanical transposition of the solution that had been applied in the industrialised countries: reduction of the demand for traditional energies and the introduction of commercial energies with priority given to large inter-connected grids for electricity. This outlook clearly neglected many aspects that were important for future projections for the third world: (1) the specific features of the energy service needs and links between energy and specific development paths of the third world (2) the relevance of taking energy as a homogeneous product the requirements of which were linked to economic growth by a technical elasticity coefficient (3) the versatility of oil as a fuel and its competitiveness vis-à-vis other fuels. Western economies looked at the traditional sector of developing countries strictly as a technical reality that would progressively disappear following the introduction of commercial energy sources. They estimated energy demand in synthetic units (tonnes of oil equivalent-toe, MW) that essentially masked the real composition of energy needs and limited the possibilities of modulating energy profiles.

In general, long-run forecasting models assume that there exist underlying structural relationships in the economy that vary in a gradual fashion. In the real world, discontinuities and disruptive events abound as demonstrated by global financial crisis and the latest oil price collapse. The longer the time frames of the forecast, the more likely it is that key events will change the underlying economic and behavioral relationships that all models attempt to replicate.

Though the projected reality of IIASA did not materialise, development in the Western mould has transferred the general pattern of Western economic growth and affluence to the developing world. Increase in the price of oil has made developing countries increasingly dependent on developed countries for additional foreign currency to pay for petroleum products. Countries with oil and gas resources remain dependent on Western capital and technologies for developing their resources. Despite the rule of the market, the system of international interdependencies remains one of hierarchical dependence, one of asymmetric vulnerability, i.e., unequal ability of the interacting units to inflict damage on one another, therefore making the welfare of some units dependent on the will of others.

The objective of forecasts, especially from Western funded research bodies such as the IIASA, the International Energy Agency (IEA), the energy think tank for OECD countries and Intergovernmental Panel on Climate Change (IPCC) by the UN is not that of being accurate but that of shaping or colonising the future in which the West comes out on top. The World Energy Outlook brought out annually by the IEA routinely predicts a supply crunch in oil followed by a dramatic increase in the price of oil. This is a hidden call on OPEC to invest in increasing oil production. When OPEC obliges, the West along with the rest of the world benefits even though OPEC pays a price.

Recent projections by the IPCC that portray developing countries that use fossil fuels as villains follow the same logic. The IPCC projections have convinced most countries that the use of fossil fuels by developing countries would sink small islands and lead the world into extinction unless an immediate shift towards non-fossil fuels is made. Developing countries are actively responding to these projections and lining up to show case the investment they are making in renewable energy sources. They call for ‘technology-transfer’ from developed countries so that their shift towards renewable energy sources can be accelerated.  Rather than aiming to climb on top of the energy hierarchy by becoming owners of knowledge and patents they are once again lining up to become large consumers of new and expensive energy technologies. Developed countries could not have asked for more. They hold most of the cards in the non-fossil renewable energy sources and they want markets for these and other technologies in the developing world. As Churchill said, those who fail to learn from history are condemned to repeat it.

Views are those of the author                    

Author can be contacted at lydia@orfonline.org

Courtesy: Energy News Monitor | Volume XI; Issue 34