How India's Energy Mix Has Been Rationalised Since 2014
Through a series of decisions, India is looking at energy gains that will come through wider energy options, better efficiency, higher value addition and improved energy security.
Energy is the driving force of many or most changes in the world economy. Traditionally, India had been slow to adapt to such changes, leading to a loss of opportunities. The gas economy was largely restricted to the West. Coal-power capacity was expanded once the China-led global boom was behind us.
India is not making that mistake anymore. Fast progress in electrification, electric vehicle (EV) boom, oil price deregulation and extension of gas pipeline are bringing rapid change in energy use patterns. The trends will be evident in the next few years.
The gains will come through wider energy options, better efficiency, higher value addition and improved energy security.
Consider this: In 2014, the Indian Railways used to purchase 3.24 per cent of diesel consumed in the entire country. As in 2020-21, the share was down to 1.73 per cent. If you think this was largely due to Covid-related restrictions, you are making a mistake.
The rail track electrification programme started in the colonial days (1925). As of 31 March 2014, a total of 21,191 route km (RKM) or 34 per cent of the broad-gauge network was electrified. The tally stood at 71 per cent in March 2021.
A mammoth 24,080 RKM was electrified in the past seven years. The entire rail network will be electrified by December 2023. Railways is all set to lose the status of largest bulk diesel consumer in the country and for better. There will not be as many loco changes and a loss of time.
The average speed of cargo trains should increase from 25 km per hour (36 kmph in China) making way for better usage of the same track and rolling stock capacity. The logistics efficiency, which is at the core of manufacturing efficiency, should improve. The earning-expenditure operating ratio of Indian railways should improve from 98 per cent.
Diesel has lost a part of the market to petrol in the past seven years due to deregulation in fuel price and petrol-diesel price parity.
In 2012, diesel variants accounted for 54 per cent of car sales. That was the time under-recoveries in diesel reached 14 a litre. The nation paid for rich men to drive around in SUVs. Today, 75 per cent of the new cars run on petrol. Under-recovery is a thing of the past.
A 2014 study attributed 13 per cent diesel sales to private cars and utility vehicles. Anticipatedly, the majority of these vehicles are already replaced by petrol variants. The results are visible in the domestic consumption trend of petrol and diesel.
Between 2013-14 and 2019-20, domestic consumption of petrol rose by 70 per cent from approximately 17 million tonne (mt) to 29 mt. High-speed diesel sales increase by 22 per cent from 68 mt to nearly 83 mt. Strikingly enough, diesel sales were stagnating at this level for three years since 2017-18.
The gains of petrol may be short-lived.
Unlike diesel, petrol is almost entirely used for transportation. Roughly 61 per cent of petrol is consumed by two-wheelers. Three-wheelers consume another 2.5 per cent. Both segments are witnessing the fast adoption of EV.
Though EVs were only 1.3 per cent of the total number of vehicles sold in 2021, the monthly sales zoomed by 3.4 times to 51,000 units during the year. According to JMK Research, roughly 95 per cent of EVs sold are two or three-wheelers (two-wheeler 48.6 per cent, three-wheeler passenger 41.7 per cent and three-wheeler cargo 4.3 per cent).
India’s EV transition is led by common citizens. Sensitivity to fuel price and improved availability of electricity at reasonable tariff are two biggest drivers of this change. A favourable policy push is making this transition faster and more gainful.
The impact should be felt on petrol sales, sooner than later.
Expansion Of Gas Economy
It is incorrect to see this energy transition from the prism of import substitution. Demand replacement in the domestic economy may open wider opportunities for the export of refined products. India’s increasing auto-fuel exports in the neighbourhood is clear proof of the policy direction.
With personal cars shifted to petrol, diesel is left with demand from the truck (28 per cent), bus (9.5 per cent), agriculture (13 per cent), industry (9 per cent), commercial cars and utility vehicles (9 per cent), three-wheelers (6 per cent), and mobile towers (1.5 per cent).
For various reasons, this demand is unlikely to move away quickly. EVs cannot be a solution for heavy tonnage vehicles (in both truck and industry segments) unless battery technology improves significantly. However, the expansion of the gas economy can potentially change this equation.
For a long time, India’s gas pipeline network was limited to the west and parts of north and south. The Narendra Modi government is creating a national gas grid. Also under construction is a new LNG (liquefied natural gas) terminal in the coal country of the east.
Eastern Indian states of Odisha and Jharkhand are rich in mining resources. Availability of LNG can replace part of the demand for diesel in dump trucks used in opencast mining. LNG is a proven solution in countries like the US, Russia etc.
The state-owned Coal India Ltd is now running a pilot project to retrofit LNG kits in dump trucks. The company spends Rs 3,500 crore on diesel annually. Over and above costs, the mining sector is keen to adopt greener fuels to improve its image.
Gas may also replace the demand for fuel oil in energy-intensive manufacturing. The final usage pattern will be known depending on the price and availability of gas.
Efficiency And Security
Imports cannot go down in a growing economy. Gas supplies based on imported LNG is helping open a number of fertiliser manufacturing capacities in the east. This will reduce import bills on fertiliser, create jobs and will make Indian agriculture more secure.
Reduced demand for liquid auto-fuel will lead to increased import of raw material for batteries from other sources. The benefit will come through broad basing the primary energy source. The transition will help the domestic power generation sector immensely.
The coal-power push by the former United Progressive Alliance government increased India’s installed generation capacity by 2.5 times between 2007 and 2017. This was topped up by a renewable push by the Modi government taking the country’s installed capacities to 392 GW.
However, capacity utilisation, particularly in the coal-power segment, suffered leading to a major financial mess.
From 77 per cent in 2009-10, the plant load factor (PLF) in coal-power was down to 56 per cent in 2019-20. State government-run generation, owning 26 per cent of capacity, saw PLF declining to 50 per cent. Even the renewable sector has its share of idle capacities.
The problem may now be corrected. The imposition of stricter emission control norms will phase out old thermal plants, mostly under states. Cap is imposed on addition to new coal-power capacities. Meanwhile, fresh demand is created for electricity.
Since new coal-power plants are more efficient; there will be growth barriers to both demand for coal and the price of electricity. Moreover, the recent addition of private commercial miners is expected to increase domestic coal production at a faster rate than before. As base energy, coal holds the key to energy security at this juncture.
A lot of work, however, is still to be done in the key area of electricity distribution sector reforms. If electricity becomes a key to mobility, the generation sector must remain in good health. That depends on the ability and intention of the state government-run distribution utilities to pay for reliable supplies.
To date, there is not much consensus at the state level in that direction.
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