Last month, in the world’s largest and longest election, Prime Minister Narendra Modi secured another 5-year term in a landslide victory that delivered an undeniable mandate for Modi to continue his structural and financial reform agenda, underpinned by a litany of energy sector improvements that have already secured billions of dollars in U.S. investment.
The International Energy Agency said last month in its World Energy Investment 2019 that foreign energy investments in India grew to $85 billion under Modi’s leadership, a record 12% increase, which reflects the highest growth of energy investments anywhere in the world.
“India is the present and future for our industry. If we can get it right, India will clearly benefit, but more significant, the entire world will,” said Chris Tucker, Washington, DC.-based global head of energy at FTI Consulting.
International investment in Indian energy infrastructure could catapult the country’s economy to become the fifth largest in the world, according to the International Monetary Fund, ironically taking over a spot held by its former colonial power, the United Kingdom.
“This is a chance for the U.S. government to double down on supporting India’s energy transition. We have a solid foundation from the previous 16 years of cooperating with India on energy…now’s the time to help power the new India,” said Kartikeya Singh, senior fellow of Energy and National Security Program at the Center for Strategic and International Studies.
Singh, also the deputy director and senior fellow of Wadhwani Chair in U.S.-India Policy Studies, is often in India leading CSIS engagement with Indian states to boost public and private investment in energy. Canadians, Germans, Europeans, Australians and Japanese investors have already lined up.
$1 trillion investment up for grabs
And why not? There’s $1 trillion of energy improvement projects at stake from pipelines to transmission lines.
India is the world’s third largest producer of electricity, yet power outages are an expectation not an anomaly.
According to The World Bank and the Indian government, about 90% of Indian households have electricity.
“The connections are there but it’s hard to say for how many hours and how reliably the electrons are flowing,” Singh said.
Against this reality, the Indian Ministry of Power predicts energy consumption on the subcontinent will grow 4.2% per year for the next 20 years overtaking China as the world’s largest energy growth market before 2030.
Improving the electricity grid--commercializing the distribution piece of the grid, and expanding transmission from population centers to rural areas--is critical to accommodating the predicted demand.
Clarifying how electricity prices are set and making sure state energy providers and distribution companies are solvent are also critical.
Power tariffs are used in India as an economic signal to determine power supply and demand across the grid.
But those power tariff patterns are distorted, Singh said.
They allow for cross subsidies, which allow the domestic and agricultural industries in India to pay less per kilowatt/hour than the cost of the power itself.
The result are major losses across the bottom lines of distribution companies, which cannot be made whole under the current system.
Singh said Indian distribution companies need uniformity and common operational standards which he calls “distribution franchising licensing to improve operational and technical performance.”
This requires “a massive infusion of capital in innovation” he said.
“Also the agendas of the various energy-related departments both at the center and state need to be consolidated. Do we need a ministry of coal and a ministry of power and a ministry that looks after hydro and another that looks after renewable energy? Especially when all power is power?” Singh said.
“Creating a new spot market for electricity purchases in India will also help reduce renewable energy curtailment that we are experiencing in India right now," he said.
India is doing everything all at once, according to Amrit Singh Deo, Mumbai-based managing director for strategic communications for FTI Consulting. With Modi’s win, the government is making longer, stronger strides to meet its reform goals, he said.
The Indian government is moving simultaneously on infrastructure expansion across the energy sector, preparing to build power generation capacity, improve energy efficiency, integrate more renewable energy onto its grid, expand pipeline infrastructure and import liquefied natural gas while creating a real-time natural gas trading hub, through which India could supply buyers across the entire region.
It’s a massive number of projects to overhaul an entire energy system currently reliant on coal, which accounts for about 75% of all electricity generated in India.
Fatih Birol, IEA’s Executive Director, worries about rising global emissions because of the growth of coal use in emerging economies.
In a statement following the release of the World Energy Investment 2019 last month, Birol said the world is “storing up risks for the future” by not investing enough in cleaner energy technologies to change course.
IEA data show emissions are up and investment in fossil fuels is also up. IEA said the new report shows “a growing mismatch between current trends and the paths to meeting the Paris Agreement and other sustainable development goals.”
Indians Looking for More Gas and Renewables
India’s Center for Science and Environment said air pollution—indoor and outdoor—in the country takes 2.5 years off a person’s life thanks to major respiratory diseases and pollution that seeps into the bloodstream to harm every organ in the body.
But reducing indoor air pollution indoors requires moving the poorest communities reliant on wood, charcoal and animal waste to cook with fuels like natural gas.
While India’s coal use and emissions are rising, the government is diversifying its energy mix to incorporate natural gas and renewables.
India has opened 52 coal mines since 2014, but replacing some of India’s coal generation is high on the agenda. Modi aims to develop enough solar power to run at least one light bulb per home by the end of 2019 and develop at least 100 gigawatts of solar energy capacity by 2022.
“India is a singularly important energy market for U.S companies, particularly in helping to create a natural gas economy that will someday make a meaningful dent in power demand for India,” FTI’s Tucker said.
Last year, the U.S. and India signed the U.S.-India Strategic Energy Partnership to support each other’s energy sectors by making it easier and more attractive for U.S. energy companies to help India build out its energy system while securing a major market for U.S. LNG.
India wants to double down on natural gas, increasing its share of natural gas in its total energy mix from 7% to 14%, much of which will be met by LNG imports, FTI’s Tucker said.
“We think we can do even better than that. And we have to, if we’re going to make any meaningful impact on the global climate challenges we know confront us,” Tucker said.
The U.S.-India partnership codified what President Donald Trump and Prime Minister Modi announced during the June 2017 summit in Washington.
Meanwhile, Indian firms are investing $4 billion in U.S. shale assets.
Coal Plants Can Be Cheaper
Overall global emissions are up because of increased global energy demand coupled with an increase in coal use.
To build a coal plant in Asia costs about $200 million, whereas a natural-gas plant costs nearly $1.2 billion, Andrew Minchener, General Manager of the IEA Clean Coal Center, told the IEA Clean Coal Conference in Houston this month.
If India continues to rely on coal in large measure, its population and environmentalists worldwide may insist on clean energy technology to capture the emissions.
Clean energy technologies, namely carbon capture and storage (CCS), are “a drag on GDP,” said Constance Hunter, KPMG’s chief economist, speaking at the KPMG Global Energy Conference in Houston this month.
Emerging markets will not be adopting the technologies to pair with their thermal coal plants any time soon. “It won’t start in emerging markets because the transition costs are too high,” Hunter said.
The U.S. and Australia, both leading on CCS and other clean energy technology development, should find ways to drive down the cost of the technology, including but not limited to, the 45Q tax credit, she said. The proposed U.S. tax break gives companies a $35 tax credit by 2024 per ton of CO2 captured for enhanced oil recovery, and $50 per ton of CO2 captured for straight sequestration in a geologic formation.
U.S. Energy Association’s Executive Director, Barry Worthington, who speaks extensively on adoption of carbon capture technologies, said, “We need additional incentives to bridge the gap between the actual cost and the economic value those tax credits can provide.”
