Does India deserve International Energy Agency’s praise on energy policy?

A review of India’s energy policy by the International Energy Agency (IEA) could have been an invaluable contribution. However, an agency uniquely qualified for the task failed perhaps because of diplomatic nicety. A 304-page report was released in January in New Delhi.

The IEA was started in 1974, soon after the first oil shock. Its monthly oil Market Report and annual World Energy Outlook influence both short and long-term energy markets.

It came as a surprise that the IEA, with such a rich background, has given not just a passing grade but close to an excellent grade to India’s energy policy. India has been an associate member since 2017. In my view, India deserves a passing grade at best, in comparison to most developed countries, and may deserve an above-average grade in comparison to most developing countries.

In the IEA’s words, “India offers an inspiring example for many countries around the world, with an impressive track record of expanding access to electricity and clean cooking for its citizens, implementing a range of energy market reforms and swiftly deploying renewable energy technologies, notably solar energy.”

Around 750 million people in India have gained access to electricity between 2000 and 2019. This is definitely impressive. While electricity is available in all the villages of India today, supplying power 24/7 is still a distant dream even in large cities. The IEA glosses over this, praising India merely for giving high priority to doing so.

While the IEA is all praise for the working of the Energy Regulatory Commissions, the continuing losses racked up by distribution companies (Discoms) on a large scale and their impact on the power sector has not been discussed in any detail, nor recommendations made. UDAY (Ujwal DISCOM Assurance Yojana) is certainly a much-needed central initiative to improve the balance sheets of the Discoms, but the IEA could have discussed how to overcome the political compulsion of giving “free electricity” to some sections.

The importance of coal to the energy sector is recognized by the IEA and so also the inefficiency of Coal India. While appreciating the baby step India has taken to invite private participation in the coal sector, the IEA does not give any innovative idea to transform the sector.

The IEA also has no creative policy suggestions to improve the operations of the oil and gas sector. While Hydrocarbon Exploration and Licensing Policy (HELP) has been praised, the reasons for such commendation are missing. Has there been any interest shown by MNCs to invest in India’s oil exploration after HELP?

The IEA supports the policy decision of increasing the gas share to 15% in the energy mix by 2030 from the current level of 6%. But it does not go into any discussion on the optimum way of increasing gas supplies and simply recommends market-based pricing.

By promoting the use of LPG through Ujjwala program, the use of biofuel for cooking has been reduced to some extent. While LPG is now available for a large percentage of people in India (95% of households by end of 2019), the rural poor are still unable to completely switch over to LPG. This has not been discussed in the IEA report.

IEA has high praise for India’s efforts to increase power production from renewables. By December 2019, India had 84 GW of grid-connected renewable electricity capacity and by 2022, it wants to have 175 GW. Modi has announced India’s intention to have 450 GWs (no timeframe), which is admirable. The IEA should have discussed what needs to happen for India to achieve these ambitious targets. There is no such analysis except to stress the obvious -- that there needs to be better system integration.

The IEA has some kind words for the yet-to-be-completed National Energy Policy (NEP) by NITI Aayog, which has been in the developmental stage for over three years. NITI’s draft NEP came under severe criticism from different experts. But the IEA seems to feel that it is an excellent framework for policymaking. One wonders if the IEA experts have really studied the NEP.

The IEA has discussed the subsidy issue in a politically correct manner by highlighting how India has eliminated selling petrol and diesel below cost and how subsidies for residential LPG and kerosene are decreasing gradually to phase out the subsidies. But it has failed to discuss how subsidizing petroleum products results in generating large amounts of black money, which is politically inconvenient to discuss, and also the compulsion to give LPG subsidy to the middle class.

As the world and that too, the developed world has already started to make the transition by decarbonization of energy sector, the IEA could have helped India by suggesting how to leapfrog to avoid stranding of fossil fuels-oriented investment using coal, oil and gas. In the telecom sector, India leapfrogged to mobile telephony and avoided investing in expensive fixed line telephony. India could do the same in the energy sector by adapting energy technology which has minimum impact on the environment and contributes to fighting climate change.

After highlighting several successful initiatives of India to reform the energy sector, the IEA lists several high-level recommendations. Unfortunately, none of them is any out-of-the-box type or transformative type. Here are some: Establish a permanent energy policy to coordinate the different energy sector activities; continue to rationalize subsidies and cross-subsidies; emphasize market to allocate energy supplies; promote smoother integration of variable renewable energy; promote energy security by increasing strategic petroleum reserves; improve data collection in energy sector.

While the IEA has developed an excellent primer on India’s energy sector, it could have done a far better job of analysing all that information and recommending policies to help India make a smooth and efficient energy transition to a decarbonized economy. And IEA has the required expertise.