India needs to prepare for world energy transition

Now that the dawn of the renewables has finally arrived, influenced by decarbonisation efforts to fight climate change, India must prepare to manage this unavoidable energy transition. Recently, experts interviewed by the Wall Street Journal have predicted the biggest shift in energy consumption since the Industrial Revolution, when coal started to replace wood.

Historically, humanity transited from wood to coal starting in the late 17th century, and then to oil from the late 19th century. In 20th century, soon after the first oil shock in 1973, a new era based on alternative energy sources like nuclear, solar, wind, etc., was predicted. Instead, the demand for oil continued to increase, resulting in some experts predicting 'peak oil supply'. This turned out be wrong.

We are stepping into the age of renewable energy, with 'peak demand' replacing 'peak oil'. It is high time India heralded the same by planning aggressively and smartly to leapfrog to the new era. India should seriously think about the need for strategic petroleum reserves, should peak demand become a reality.

In 2014, the Indian government, under UPA, decided to manufacture diesel locomotives in Bihar and signed a contract with GE. Later, when Suresh Prabhu was Railway Minister, the NDA government sealed the deal. However, when Piyush Goyal took over the ministry, he announced that Indian Railways would complete electrification by 2022. This flip-flop resulted in the government asking GE to change the plan of manufacturing diesel locomotives. When GE threatened to hamper future FDI if India went back on the deal, the government rescinded its decision and agreed to comply with the original contract of building diesel locomotives.

Before signing a contract with GE, did the government study the pros and cons of
diesel versus electric engines? Did it undertake a scenario analysis to find out what
would happen should the government decide to go for total electrification? Can such a significant investment in a diesel loco plant, designed to operate for over 30 years,
change in a span of a mere four years?

As the world is on the verge of another energy transition, India cannot afford these flip-flops. This energy transition will be more complex than the earlier ones. India should institute a high-level committee of world-class experts from multiple fields to chart a new strategy. The Draft National Energy Plan (DNEP) by NITI Aayog did kick off well, but neither did it comprehensively study the impact of energy transition nor did it suggest a credible plan of action.

Neither do the long-term energy forecasts made by the International Energy Agency (IEA), the US Energy Information Administration (USEIA) or even companies like BP and ExxonMobil reflect the impact of energy transitions. For example, according to USEIA, fossil fuels will meet 77% of world primary energy demand in 2040, which is only about 8% less than in 2015. A realistic forecast to reflect energy transition would have showed a larger drop in fossil fuels.

EV's tectonic shift

At the beginning of the 20th century, Internal Combustion Engine (ICE)-driven cars replaced horse-drawn carts within 15 years. Some experts are predicting a similar development with electric vehicles. Such a massive change in transportation is bound to impact oil demand. In India, consumption of petrol and diesel by the transportation sector accounts for about 40% of the total.

While Norway, France, Netherlands and a few other European countries have declared a target of banning ICEs between 2025 and 2040, India has affirmed it will go 'all electric' by 2030. It's one thing to say that all new cars sold from that date will be
EVs, itself a monumental task; but to say that all cars on India's roads on that date will be EVs is almost inconceivable. Even assuming a large percentage of them will be EVs will mean a huge impact on the consumption of petrol and diesel which, in turn, will impact future refinery construction.

Increasing the number of EVs will need a substantial number of charging stations while downsizing the number of petrol bunks. Such an increase in charging stations would not only spike electricity demand, but the stability of the grid itself could be challenged based on how and when the EVs are charged. Are our planners for the private and public sector oil companies attuned to these possibilities?

Distributed power supply is the next big thing. With dropping solar and wind energy prices competing with coal, India should earnestly consider distributed power for electrifying villages. In recent months, during the auction for wind energy, the bid price of Rs 2.64/kwh was lower than the coal-based power cost of Rs 3.20/kwh. The last bid price for solar was even lower at Rs 2.44/kwh.

Electrifying villages based on solar energy, distributed with or without connection to the grid, will revolutionise the power market in India. It will be similar to the rapid spread of cable TV in India. Each village can have a micro/mini unit based on distributed solar energy.

Smart Power India, an NGO supported by Rockefeller Foundation, has already supplied power to about 106 villages in UP, Bihar and Jharkhand, meeting the power needs of 42,000 households through mini-grids. It is surprising that NITI did not incorporate such a model while developing DNEP, though the plan provides for 120 GW of distributed power (10% of total generating capacity) in 2040.

Developed countries have already invested in infrastructure needed for fossil fuels (refineries, petrol stations, power plants, pipelines, etc). They, however, need huge investments in the future to transition to renewables. On the other hand, developing countries like India have the advantage of avoiding huge investments in fossil fuel infrastructure by proper planning. They can leapfrog to renewables, as they were able to do with mobile telephony. This clearly demands that India should plan smartly and aggressively for energy transition.