Green Signs in Indian Government's Integrated Energy Policy

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Researched by Industrial Info Resources (Sugar Land, Texas)--The Indian cabinet last week approved the new Integrated Energy Policy (IEP), which is aimed at providing energy independence to the country. The IEP comes close on the heels of the stimulus package announced by the government that includes investments on roads and highways, home loan interest subsidy for the urban poor, and complete risk cover for small units on earnings from exports.

The IEP report, prepared by the Planning Commission of India, covers areas like energy security, formulation of energy standards, commercialization of alternate energy resources, market-based pricing strategy for coal, and reduction of fuel subsidies.

The policy report proposes to enhance India's energy independence by acquiring energy resources and assets overseas and also prospect and develop new energy bases domestically. The report also suggests the stocking of raw nuclear material and maintaining a minimum 90-day reserve of oil imports to avoid sudden supply disruptions. The report states that India should focus on identifying other sources of fuel that can be used instead of imported fuel. The document also emphasized the need for focused effort by the government and public and private organizations to increase awareness about maintaining fuel efficiency, helping bring down energy demand.

Steps will be taken to commercialize alternate energy avenues like biodiesel, biogas, ethanol-based power plants and wood-gasification plants nationally. Large industrial users will be encouraged to tap cogeneration, hydro and wind power as well. Incentive schemes will be announced to make these energy sources popular. The report indicates that incentives will be awarded based on actual energy generated by these units as opposed to the total capacity installed. To make these alternate sources more viable to industrial users, a differential tariff system is also being developed, where the pricing will be based on the percentage contribution of renewable power to the total consumption. The report suggests that the government considers establishing experimental power-generating plants through public-private partnerships to make biofuel, especially biogas, more accessible to everyday consumers. According to the report, clean fuels like liquefied natural gas and biogas will be made available across the country in the next 10 years. Rural electrification has been planned through the Rajiv Gandhi Grameen Vidyutikaran Yojana.

The IEP suggests that there should be a continuous effort to identify and develop new technologies in this field. A National Energy Fund has been proposed to provide financial aid to research and development in this area. Energy standards will also be put in place and implemented to ensure energy efficiency. The IEP has put forward the submission of uniform tax on all energy sources except in cases where there is a need for differential taxing structure. This will be applicable to both public and private sectors.

The report recommends competitive pricing in the energy sector which will not only help in leveling prices, but also encourage new players, increase production capacity and reduce entry barriers. The report also indicates that varying investments and the processes of regasification, cryogenic shipping and liquefaction would make uniform pricing in the natural-gas sector difficult. Market-based pricing methodology has been recommended in coal trading. India presently follows the system of useful heat value (UHV) to determine the price of coal. The UHV uses a system of grading coal based on moisture and ash content. Price is fixed based on the grade. The IEP report suggests that gross calorific value (GCV) and other quality parameters should be used to establish pricing. GCV refers to the number of units of heat produced when one unit of coal is burned with oxygen. GCV defines the energy efficiency of coal.

Also suggested is that retail petroleum prices should be gradually adjusted to the prevailing market rates. The Indian oil marketing companies presently sell petrol and other products to retail consumers at subsidized prices and in return receive oil bonds from the Indian government to make up for the subsidies.

India's growth plan includes a GDP of 9% over the next 25 years. The report indicates that to reach the target GDP the country must increase power supply capacity 5.8% every year in order to meet increasing demand. A strong energy policy is therefore critical to provide the necessary policy framework to reach this goal.

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