India charts a new path to address rising energy demand

India charts a new path to address rising energy demand

Overcoming complexities in its energy ecosystem, India could pioneer a new model for low-carbon and inclusive growth

  • By Rahul Koul | June 02, 2023

The country’s energy and electricity demand is likely to grow at a CAGR of 3.7-4.5% and 5.4-5.7% respectively till 2047, the pressure on natural resources to fuel the demand would only rise in the future. 

India continues to be a major force in the global energy economy scenario. Thanks to rising incomes and improving standards of living, it is the world’s third-largest energy consuming country. Since the year 2000, India’s energy use has almost doubled, with 80% of demand still being met by coal, oil and solid biomass. On a per capita basis, a country's energy use and emissions are less than half the world average, as are other key indicators such as vehicle ownership, steel and cement output.  

Over 80% of India’s energy needs are met by three fuels - Coal, oil, and solid biomass. Coal has underpinned the expansion of electricity generation and industry, and remains the largest single fuel in the energy mix. Oil consumption and imports have grown rapidly on account of rising vehicle ownership and road transport use. Biomass, primarily fuelwood, makes up a declining share of the energy mix, but is still widely used as a cooking fuel. Despite recent success in expanding coverage of LPG in rural areas, millions of Indians have still not fully switched to modern, clean cooking fuels or technologies. 

As the country’s energy and electricity demand is likely to grow at a CAGR of 3.7-4.5% and 5.4-5.7% respectively till 2047, the pressure on natural resources to fuel the demand would only rise in the future. Over the coming years, millions of Indian households are set to buy new appliances, air conditioning units, and vehicles. India will soon become the world’s most populous country, adding the equivalent of a city the size of Los Angeles to its urban population each year. To meet growth in electricity demand over the next twenty years, India will need to add a power system the size of the European Union to what it has now. 

Thrust on Gas based Vconomy 

The market for natural gas is growing fast in India, but its role varies by sector, by scenario and over time. The 6% share of natural gas in India’s current energy mix is among the lowest in the world. However, affordability is a sensitive issue for consumers, especially given the complex patchwork of additional charges and tariffs that, on average, doubled the cost of wholesale gas by the time it reached end-users in 2019. As India builds out its gas infrastructure, natural gas can find multiple uses in India’s energy system, including to help meet air quality and near-term emissions goals if supply chains are managed responsibly. But the sustainable development scenario also underlines that a long-term vision for gas needs to incorporate a growing role for biogases and low-carbon hydrogen, for which India has large potential. 

Sustainability: A Top Priority 

India’s energy future depends on buildings and factories yet to be built, and vehicles and appliances yet to be bought. Within 20 years, the majority of India’s emissions in the STEPS come from power plants, industrial facilities, buildings, and vehicles that do not exist today. This represents a huge opening for policies to steer India onto a more secure and sustainable course. India’s ambitious renewable targets are already acting as a catalyst for the transformation of its power sector. Natural gas and modern renewable sources of energy have started to gain ground. The rise of solar PV in particular has been spectacular; the resource potential is huge, ambitions are high, and policy support and technology cost reductions have quickly made it the cheapest option for new power generation. 

A crucial and even more challenging task ahead is to put the industrial sector on a similarly new path through more widespread electrification, material and energy efficiency, technologies such as CCUS, and a switch to progressively lower-carbon fuels. Electrification, efficiency, and fuel switching are also the main tools for the transport sector, alongside a determined move to build more sustainable transport infrastructure and shift more freight onto India’s soon-to-be-electrified railways. These transformations require innovation, partnerships and capital. The additional capital required for clean energy technologies to 2040 in the Sustainable Development Scenario is $1.4 trillion above the level in the Stated Policies Scenario (STEPS). But the benefits are huge, including savings of the same magnitude on oil import bills. Government policies to accelerate India’s clean energy transition can lay the foundation for lasting prosperity and greater energy security.  

Challenges Galore

India’s combined import bill for fossil fuels tripled over the next two decades in the STEPS, with oil by far the largest component, pointing to continued risks to India’s energy security. Domestic production of oil and gas continues to fall behind consumption trends and net dependence on imported oil rises above 90% by 2040, up from 75% today. This continued reliance on imported fuels creates vulnerabilities to price cycles and volatility as well as possible disruptions to supply.  

Among other key challenges that continue to bother the policymakers are unhindered carbon emission and constraints within the energy supply chain. India is the third-largest global emitter of CO2, despite low per capita CO2 emissions. The carbon intensity of its power sector in particular is well above the global average. Additionally, particulate matter emissions are a major factor in air pollution, which has emerged as one of India’s most sensitive social and environmental issues. Again, the energy use on a per capita basis in India is well under half the global average, and there are widespread differences in energy use and the quality of service across states and between rural and urban areas. The affordability and reliability of energy supply are key concerns for consumers. 

Way Forward 

As per the International Energy Agency (IEA), India is likely to see the world's biggest rise in energy demand this decade, with demand climbing 3% annually due to urbanization and industrialization. Taking this an opportunity, India must uniquely position itself to pioneer a new model for low-carbon, inclusive growth. Many aspects of such a model are already evident in India’s policy vision, and many more are highlighted in the Sustainable Development Scenario that points the way for India towards net-zero emissions. The success of such a model will demonstrate that robust economic expansion is fully compatible with an increasing pace of emissions reductions and the achievement of other development goals. 

India is already a global leader in solar power and solar combined with batteries will play a massive part in the future. To chart this new path, India will need a whole host of technologies and policies. As new industrial sectors emerge and clean energy jobs grow, India will also need to ensure that no one is left behind, including in those regions that are heavily dependent on coal today. 

Unfulfilled Demand for Energy

With a share of 18% in the world population, India consumes only 6% of the world’s primary energy. This is evident from the low per capita energy consumption of India (521 kgoe in 2014) which is one-third of the world’s average. Moreover, India houses nearly 304 million people without access to electricity and 800 million people without access to clean cooking fuels.

Set for a Global Role 

India’s energy sector is set for a sea change with recent developmental ambitions of the Government of India – 175 GW of installed capacity of renewable energy, 24X7 power for all, housing for all, 100 smart cities mission, 10% reduction of oil and gas import dependence, and provision of clean cooking fuels. Envisaged to play a key role in the global energy scenario, India is likely to account for 25% of the rise in demand by 2040 says, International Energy Agency.

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