India’s ability to ensure affordable, clean and reliable energy for its growing population will be vital for the future development of its economy, according to a report by the International Energy Agency (IEA).

The India Energy Outlook 2021 examines the opportunities and challenges faced by the planet’s third-largest energy consuming country as it seeks to recover from the COVID-19 crisis. India is set to experience the largest increase in energy demand of any country worldwide over the next 20 years as its economy continues to develop and bring greater prosperity to its citizens.

Dr. Fatih Birol, Executive Director, IEA said, “What our new report makes clear is the tremendous opportunity for India to successfully meet the aspirations of its citizens without following the high-carbon pathway that other economies have pursued in the past. The energy policy successes of the Indian government to date make me very optimistic about its ability to meet the challenges ahead in terms of energy security and sustainability.”

IEA’s updated assessment shows an estimated fall of about 5% in India’s energy demand in 2020 due to lockdowns and related restrictions, with coal and oil use suffering the biggest falls. The pandemic has also hit investment in the energy sector, which fell by an estimated 15% in 2020, exacerbating financial strains across the board, in particular among India’s electricity distribution companies. How long the impacts last will depend on how quickly the spread of the virus is brought under control, and on the policy responses and recovery strategies that are put in place.

India’s energy future depends on buildings and factories that are yet to be built, and vehicles and appliances that are yet to be bought. Based on India’s current policy settings, nearly 60% of its CO2 emissions in the late 2030s will be coming from infrastructure and machines that do not exist today. This represents a huge opening for policies to steer India onto a more secure and sustainable course.

The country would need to address critical challenges of the industrial sector through efforts like more widespread electrification of processes, greater material and energy efficiency, the use of technologies like carbon capture, 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 infrastructure and shift more freight onto India’s soon-to-be-electrified railways.

The additional funding for clean energy technologies required to put India on a sustainable path over the next 20 years is $1.4 trillion, or 70%, higher than in a scenario based on its current policy settings. But the benefits are huge, including savings of the same magnitude on oil import bills.

Way forward

Based on today’s policy settings, India’s combined import bill for fossil fuels is projected to triple over the next two decades, with oil by far the largest component. 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.

“Government policies to accelerate India’s clean energy transition can lay the foundation for lasting prosperity and greater energy security. The stakes could not be higher, for India and for the world,” said Dr. Birol.

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. It almost doubles in the STEPS as gas use rises in the industrial sector and in city gas distribution. In the India Vision Case, natural gas also helps to displace coal in power generation, bringing India’s aspiration of a “gas-based economy” closer still. 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.