Energy, the lifeline of human civilisation is the prime mover of the economic growth engine. Energy assets, therefore, needs to be secured, more so when there are deep interconnections of global economies. Availability of energy with required quality of supply is not only key to sustainable development, but also the commercial energy has a direct impact and influence on the quality of service in the fields of education, health and, in fact, even food security. Inadequacy of energy supply would obviously affect very adversely on these vital and essential requirements of any society. There is, therefore, an urgent need to enhance substantially the energy availability at a rapid pace so that aspirations of those who have remained insulated from such important inputs and services are fulfilled and they are enabled to have a reasonable access.

History has shown that countries that have sustainable fuel reserves have tackled problems   arising from conflicts or threats to national security.  India’s ability to have a strategic and ready to use reserve of fuel is vital not only for the growth of the economy, but also to meet requirements at times of emergency, conflict and instability. The real challenge is to ensure that India is insulated from the ever-volatile international energy market by enhancing energy-use efficiency in the domestic economy, ensuring source diversification to minimise possibilities of supply disruption, and exploring possibilities of developing strategic petroleum stockpiles to handle sudden supply disruptions. Comprehensive policy changes that foster opening up of the domestic energy market to multiple players encouraging competition, adoption of rational principles for energy pricing, establishment of credible energy pricing regulatory framework, development of alternative energy sources and decentralised mechanisms for energy conservation, have to form the core of India's economic and industrial development policy.

The past few weeks have seen global oil prices entering the "super-spike" phase. International oil prices have vaulted to over $55 a barrel. Energy experts predict that prices could surge all the way above $100 as consumption peaks with the onset of summer. With the prospect of a further steep hike in fuel prices looming large, the vulnerability of the economy to the vagaries of the global oil market comes into focus yet again.

This is not the first time that the economy is being subjected to the pull and push of high and fluctuating global fuel prices. There have been over 20 such instances in the last 50 years. However, this time, there are reasons for worry. By April, the oil prices had climbed around 25 percent compared to the levels seen in the previous year.

Oil futures on the New York Mercantile Exchange have averaged $50.02 a barrel so far in 2005, up from a record $41.48 a barrel last year.

Studies have indicated that a sustained 5 per cent rise in the oil price over a year would slash India's GDP growth rate by 0.25 percent and raise the inflation rate by 0.6 percent.
Global oil price fluctuations have a stagflationary impact on the macro-economy of an oil importing country. It slows the rate of economic growth, propels inflation and reduces economic output by acting as a tax on consumption.

The oil price shock in 1973, for instance, decelerated the economy by 0.3 per cent and pushed the inflation rate to a high of 20.2 percent.

In 1979, the spurt in global oil prices sent the economic growth hurtling down by 5.2 percent with the inflation rate skyrocketing to 14 per cent.

Can the country, which has been a net oil importer for over 50 years, handle such recurrent and high fuel price flare-ups?

Burgeoning population, coupled with rapid economic growth and industrialisation, has propelled India into becoming the sixth largest energy consumer in the world, the prediction being that by 2010; it should emerge as the fourth largest energy consumer. With the gap between domestic oil consumption and production particularly wide, India is in a rather desperate predicament compared to its peers.

Its energy vulnerability can be gauged from the fact that the country imports about 70 percent of the total oil consumed. Oil imports constitute the single largest item in the country's total annual import bill. About 40 percent of the export earnings are funnelled back into importing oil for domestic consumption.

The country is rated as one of the highest energy-intensive economies in the world and the expectation is that the annual demand for oil will only rise with time. Energy intensity is a measure of energy required by an economy to produce one unit of GDP growth.


Energy Scenario

India accounted for 12.5 percent of total primary energy consumption in the Asia-Pacific region and 3 percent of the world primary energy consumption in 2000-01. The per capita energy consumption remains low at 486 KGOE (kilograms of oil equivalent) compared with a world average of 1659 KGOE in 1998.  In spite of the low consumption as compared to the global standards, there is an increasing oil and coal imports in recent years with net energy imports increasing from 8% in 1980 to 20% in 2001, which is an area of concern for the Indian energy sector. 

Coal

The major consumer of coal in India is the power sector which consumes more than the two-third of the production. The other industries that depend on coal are steel, cement, fertilizers, chemicals, paper etc. India is comfortable with the reserves of this resource. Therefore, it has a dominant position in the economy even today. Three quarters of the total coal reserves in India are concentrated in the states of Bihar, Madhya Pradesh, and West Bengal. Apart from tremendous environmental flack, coal is facing supply chain constraints and reserves are limited. Indigenous coal production has picked up.  However, India’s premier coal supplying agency has clearly stated its instability to meet the rising demand.  With numerous upcoming Ultra Mega Power projects (UMPPs) being coal based, India needs to import more coal and step-up mining.  However, bottlenecks in pre-mining clearances are severe, progress in imports are very slow, and existing infrastructural support ( rail, road, and port) is not able to cater to the required increase in coal imports and its subsequent distribution.

Oil and Gas

Most of the demand of the Oil and Gas emerged from the transportation sector. The industries and agriculture also are the major consumers. However the domestic production is quite not enough to meet the growing domestic requirements. The import dependency reached 73.3% in the recent past. However, the effects of global slowdown were reflected in the Indian economy too and were manifested as postponement of several planned refinery capacity additions/pipelines, and work-in-progress of grassroots refineries.

The recent success of the discovery of the Godavari basin in the Andhra Pradesh region has not only improved the energy security of the country by boosting possible gas production by 50%, but also raised the prospects of Indian sedimentary basins in the international arena.
 

Power

The power sector reforms need to strengthened and made deeper for meeting the rising domestic needs. The increasing demand supply gap, the obsolescence of the installed plants, frequent failures of the grids, rising losses faced by the electricity boards, loss in the distribution, relatively high cost of production are some of the major concerns in this sector.  Too much reliance on the non-renewable sources to generate power is also unviable in the long run.

India at present has an installed generating capacity of around 107 GW, which is classified further into 70% thermal, 25% hydro, 3% nuclear; and 2% wind & power. A major portion of this installed capacity is still under the government control and only a small portion is owned by private sector. However the situation was quite reverse before independence where the power sector was dominated by private sector presence. Later due to its strategic nature, all the segments of the power sector were nationalized. It is paradoxical that today again we would be seeking the help of private players to meet the demand supply gap. This model is already being followed in certain states of India such as Maharashtra, AP and Orissa. 
 

The present power scenario and the impressive growth  attained by the Indian Power Sector from  mere 1713 MW in 1950 to 144130 MW by 2008 is as under.

·         Thermal                91906 MW

·         Hydro                   35908  MW

·         Nuclear                 4120   MW

·         Renewable            12196  MW

Nuclear Power

With the signing of the Indo-US nuclear deal, India is looking at nuclear power as a major element in moving towards energy independence.  The deal gives India access to new technology and enriched nuclear fuel after over 30 years of isolation.  With this major development, and keeping in mind depleting fossil fuel resources and global pressure for emissions reduction, India now has a real opportunity to boost its energy generation capability to meet the future demand of its growing economy while simultaneously meeting environmental concerns.

As India has a severe capital constraint and nuclear power requires heavy investment, there is an obvious need for significant participation from the private sector, which the state needs to encourage.  Simultaneously, financing for nuclear power projects from international consortiums also needs to be encouraged.  However, in order to persuade private investment, assurances from the government are required on issues related to sanctity of contract, limitation of liabilities, site availability and access, motivation return on investment, fuel availability and fuel disposal.

From all the above alternatives it means that renewable energy and energy conservation have emerged as the only viable option to achieve the goal of socio – economic development and to ensure the environmental protections.

The pursuit of Energy Conservation is a win – win situation in managing resources efficiently and reducing the cost of energy.

Future Trends

With the forecasts of faster growth of the economy in the near future, the demand for the energy will surely increase from all the sectors. The highest demand will for the coal as it forms the major source of energy all over the globe. The estimates show that coal imports will meet 22% of total coal consumption requirements in 2006. The shortfall has to be met by increased domestic production, lest it increases the pressure on the import bill. The demand for oil and power will also be high; this implies that the imports of oil might increase in the future if domestic sources are not exploited quickly. It is estimated that 75 percent of oil consumption needs will be met by imports in the near future.   At present, India does not import any natural gas but demand is supply constrained and imports of gas is likely to arise in the coming years. This import dependence not only means huge foreign exchange outflow, but it implies the vulnerability of the country on external market. This results in frequent fluctuations in the domestic economy especially those sectors which are directly dependent on energy imports.

Solutions

India will continue to experience an energy supply shortfall through the forecast applied. The gap has been exacerbated since 1985, when the country became a net importer of coal. India has been unable to raise its oil production substantially in the 1990s. Rising oil demand of close to 10 percent per year has led to sizable oil import bills. In addition, the government subsidizes refined oil product prices, thus compounding the overall monetary loss to the government.  The demand growth at a projected annual rate of 4.6 percent is expected till 2010. This is the highest incremental energy demand rate of any major country. In the wake of depleting fossil fuel resources, renewable energy sources such as solar, wind, biomass, small hydro, etc. are emerging as alternative energy options.

The potential for expanding the use of RETs (Renewable Energy Technologies) for energy generation is vast in India and awaits exploitation. Chemical sources of energy such as hydrogen energy, alternative /biofuels for surface transportation, geothermal energy, and ocean energy are also being explored as an opportunity to harness energy in the long run. Inspite of the slow growth there is a lot of potential in this sector. Though environmentally friendly, the high initial cost of RET has been a major deterrent in harnessing the renewable resources. Indian economy not only is highly import dependent but it also shows high level of geographic concentration in the import of the energy requirements. This calls for diversification of sources of oil imports.

Major Solutions and Strategy

1.    Develop renewable source technologies as quickly as possible.  Find substitutes for the energy sources and uses.
2.    Develop of new technologies which will preserve the existing energy and also makes its usage efficient.
3.    Try and find ways and means to impart awareness among the people towards effective consumption.
4.    Allow domestic firms to explore opportunities abroad in exploration and refining so as to earn foreign exchange.
5.    Allow the Foreign Direct Investment in these sectors on a priority basis to enhance the capacity and also share the burden of creating productive infrastructure. 
6.    Increase the utilization of the domestic energy resources to give a boost to output.
Create new capacities to improve the energy infrastructure. 
7.    Allow more and more private sector participation and reduce the control of government in pricing.
8.    Bring about more competition and competitiveness in these sectors.