Railways
High Speed Rail (HSR)
Presently, Indian Railways (IR) operates 13,523 passenger trains daily, on both long-distance and suburban routes, covering 7,321 stations across India.
The average speed of Mail and Express trains is just 54km/h, while freight trains run at an average of 26 km/h. Most of the main train routes run at over 100% capacity leading to delays and accidents. The IR presently is highly constrained by capacity (and not by the demand).
Per capita mobility in India is lower than most of the developed countries. Driven by increase in population, GDP, income level and urbanization, intercity passenger travel demand is expected to leapfrog in the coming years.
The High-Speed Rail (HSR) System comprises the infrastructure system, rolling stock (locomotives, wagons used on a railway) and operating conditions. Globally high-speed trains differ in their technology, infrastructure, rolling stock and achievable speeds. Currently, high speed rails can achieve speeds ranging from 200 kmph to 350 kmph depending on the technology and infrastructure.
The Indian Railways’ vision 2020 envisages a two- pronged approach to bring high speed rail in the country.
The first strategy involves using conventional technology to increase the speed on segregated existing passenger corridors on trunk/ main routes, from the existing 80- 100km/hr to 160-200 km/hr.
The second approach involves identifying viable intercity routes to build new advanced high-speed corridors for speeds up to 350 km/hr (HSR).
Recently, Work on a detailed project report for the proposed Delhi-Varanasi high-speed rail (HSR) corridor has begun on the instructions of the central government.
The 865-km-long corridor is one of the eight HSR passageways that have been proposed to optimise high-speed rail connectivity between major cities and give an impetus to the industrial sector. Work has already started on the 508-km-long Ahmedabad -Mumbai corridor that will see bullet trains running at 320 km per hour.
Once the Delhi-Varanasi corridor is ready, a bullet train could reduce travel time between the two cities to about four-and-a-half hours. Last year, the country’s first semi-high-speed Vande Bharat Express train was flagged off between New Delhi and Varanasi.
Advantages of HSR
HSR is more time efficient as compared to air travel for distances below 800 km, if the access and exit to airports is considered. HSR also delivers multiple benefits including encouraging high density real estate development along corridors, boosting the development potential of smaller cities along the corridor, providing employment access and choice to workers through better connectivity, linking cities into integrated economic regions and enhancing tourism.
HSR transports more passengers per unit of energy compared to all other modes like air bus and private car. Hence it will offer a friendly environment, electrified railway with minimal environmental damage.
HSR can provide an opportunity to develop domestic manufacturing capacity for wagons and allied infrastructure. Railway modernization and HSR, in particular, are technology and capital intensive. The domestic manufacturing of rail and its components can promote innovation, opportunities for technology transfer and demand for industry in particular, steel industry from manufacture of wagons and allied infrastructure.
HSR creates opportunities for regional economic development by improving connectivity between large urban centres, as well as other small and medium cities along the corridors.
Criticism of HSR
HSR trains run at loss in every single country where they operate currently, despite the fact that tickets on these trains are often priced higher than an air ticket. For a country where the majority of the population finds even Rajdhani fares beyond its reach, the number of people using the fancy HSR would be very limited, and it could prove to be a white elephant.
Some experts believe that India’s current tracks can be improved to run trains at around 200 kmph, so we don’t need HSR, which will arguably soak in the entire budget of the Indian railways.
Upfront investments for developing high speed rail corridors are high, however, the sustainability benefits are diffused and occur over a longer time frame. Therefore, investments for HSR would have to be viewed comprehensively for the long-term development benefits they generate.
Foreign Investment in Railways up to 100%
Government has allowed 100% FDI through automatic route in railway infrastructure but not in train operations and safety. Railways are a capital intensive (i.e., huge amount of funds are required for development) sector and its growth depends heavily on availability of funds for investment in rail infrastructure.
Currently, internal revenue sources (profit generated from Indian railway) and government funding through budget are insufficient to meet the capital requirement of the cash strapped rail sector. Increased foreign investment cap of 100% in building and maintenance of rail infrastructure will help in bringing the required capital for the highly congested rail infrastructure.
Cross Subsidization
A strategy where support for a product comes from the profits generated by another product. The low price of a product is sustained by the earnings of another product sold by the same company. In Indian Railway, low passenger fares are supported by high freight (cargo) rates. That is why Indian railway freights are among the costliest in the world making Indian industry uncompetitive.
Railway Safety
Problems in the Rail sector
The railways are under the financial crunch, and it is borrowing funds from liaison financial institutions. There is a 30,000-crore subsidy on passenger services. The government must think of increasing the fares gradually.
Solutions
Massive investments in replacing the ICF coaches with LHB coaches
Improve maintenance–maintenance requires consistent supply of funds to the Depreciation Reserve Fund.
Training of staff – There are a large number of training institutes. The railways training programmes are regularly conducted along with refresher courses. The failure which takes place is because of operating staff and drivers who tend to work for long hours which can cause lack of efficiency.
Detecting equipment failure: If there is any rail fracture, it should be immediately sensed so that the train can be controlled in advance.
Providing sensing equipment in the rail bogies Automatic train control systems to ensure that if the signal is red the brakes apply automatically.
Building Rail over Bridges (ROBs) and Rail under Bridges (RUBs) is a very important requirement because as traffic increases and speeds go up it is important that the level crossings have to be eliminated to the maximum possible extent. There are issues that the state governments are not cooperating in providing the land because of the local pressure which needs to be sorted.
Kakodkar Committee Recommendations
The Kakodkar Committee recommended that almost 1 Lakh crore rupees should be invested for the safety measures in the railways. This should be used for renewing the rolling stocks and the tracks.
There should be Rail over Bridges (ROBs) and Rail under Bridges (RUBs). This process is taking place, but it is a huge task which takes a lot of time.
Railways should defer the dividend payment to the central government so that the funds could be utilised for the safety works.
The railways should impose safety cess.
Sam Pitroda Committee Recommendations(2012)
The ‘Committee on modernization of Indian Railways’ headed by Sam Pitroda had unveiled an ambitious Rs. 8.39 lakh crore modernisation roadmap for Indian railways to be carried out in ‘mission mode’ in next five years.
Some of the parts and parcels of the report focussed on the below measures:
The Pitroda panel had also recommended construction of a high-speed railway line between Ahmedabad and Mumbai with Speed of 300 kmph. It wanted to reshuffle the Railway Board and its head to work as Chief Executive Officer. It also wanted to give authorization to Zonal railways to take investment decisions along with accountability for return on capital, transport output, safety, and profitability.
Dedicated Freight Corridor (DFC)
DFC is a high-speed and high-capacity railway corridor dedicated exclusively for freight (goods and commodity) movement.
The project was first proposed in April 2005 to address the needs of the rapidly developing Indian economy.
In 2006, the Government of India established a dedicated body, the Dedicated Freight Corridor Corporation of India (DFCCIL), to develop two corridors- Western Dedicated Freight Corridor (WDFC) and Eastern Dedicated Freight Corridor (EDFC).
The DFCCIL is a Special Purpose Vehicle set up under the administrative control of Ministry of Railways (India) to undertake planning & development, mobilisation of financial resources and construction, maintenance and operation of the Dedicated Freight Corridors. DFCC has been has been set up with 100% equity by Ministry of Railways and registered as a company under the Companies Act 1956 .
The two DFCs are
The Dedicated Freight Corridor Corporation of India Ltd. (DFCCIL) has opened the more than 300-km section between Rewari, Haryana to Madar, Rajasthan, for commercial trial runs for the WDFC.
This is the first section to be opened on the under-construction 1,500-km western freight corridor which is a broad-gauge corridor.
Need of DFCs
Significance of DFC
1.Reduce unit cost of transportation: By speeding up freight train operations & higher productivity. The western DFC will separate freight and passenger traffic to increase the speed of freight movement. DFC can allow train speed to a maximum of 100 kmph from the current average speed of around 25kmph.
It will allow time-table freight services for movement of the cargo to the gateway ports with guaranteed transit time. This would enhance international connectivity from India.
The current axle load of wagons is 22.9MT which for the DFC would be enhanced to 32.5 MT. The enhancement would cater to the transportation requirement for the next 50 years.
Challenges faced
Clear policies which can fasten up the process of land acquisition need to be developed.
Draft Guidelines for Private Trains
Recently, the Ministry of Railways and NITI Aayog released Draft Documents for discussion on Private Participation in Passenger Trains to seek stakeholder comments on them.
Key Recommendations
Role of Private Entity: The private entity shall be responsible for financing, procuring, operation and maintenance of the trains. The Private Entity shall pay to Indian Railways pre-determined charges for haulage and any other payments as specified in the Agreement.
Routes: It has identified 100 routes, including Mumbai Central-New Delhi, NewDelhi-Patna, Allahabad-Pune and Dadar-Vadodara, which will be split into 10-12 clusters.
Determination of Fare: The Private Entity shall have the freedom to decide on the fare to be charged from its passengers.
Operation and Maintenance: The maintenance of the trains shall be the responsibility of a private entity. Operation and maintenance of the passenger trains would be governed by standards to be laid down by Research Designs & Standards Organisation (RDSO).
Design of the Rolling Stock: Private Entity shall be free to procure trains and locomotives from a source of its choice, provided such trains and locomotives are compatible with specification and standards specified in the Concession Agreement. The trains could be either loco hauled or distributed power.
Penalties for non-performance: Pre-specified penalties shall be recovered from the Concessionaire for failure to meet the prescribed performance standards and outcomes.
Bidding: It proposes a two-stage bidding Process–Request for Qualification (RFQ) & Request for Proposal (RFP).
RFQ process will be for pre-qualification and shortlisting of bidders based on their technical and financial capacity who will be required to offer a fixed price bid at RFP stage for undertaking the project.
Selection of successful bidder based on highest revenue share.
The operators could be domestic or international entities.
Privatization of Railways
Benefits:
Improved efficiency: A private firm is interested in making a profit, and so it is more likely to cut costs and be efficient.
Lack of political interference: Governments often make poor economic managers as they are motivated by political pressures rather than sound economic and business sense.
Long term Planning: A government might think only in terms of the next election and thus be unwilling to invest in infrastructure improvements which will benefit the firm in the long term. This could be facilitated by private enterprises.
Shareholders: Private players face pressure from shareholders to perform efficiently.
Increased competition: It would ensure improved quality of service with competitive fares.
Prevent Government’s loss: The revenue generated by the Indian Railways is low and keeps the system always in losses.
Improved quality of service: The quality of service in Indian Railways faces massive criticism especially in the fields of catering and punctuality.
Latest technology: The privatization will also help in accommodating the latest technology in railway coaches, station facilities, online services etc.
Lesser accidents: Private ownership is considered synonymous with better maintenance, which will reduce the number of accidents, thus resulting in safe travel and higher monetary savings in the long run.
Reducing the supply demand deficit: Since waitlisted passengers comprise ~15% of the reserved passengers.
Facilitating capacity augmentation: as capacity constraints lead to loss of passenger business to other modes such as air travel.
Challenges:
Natural monopoly: Privatization in railways might create a private monopoly which might seek to set higher prices which exploit consumers.
Public interest: Given that a private enterprise runs on profit, it might hike fares, thus rendering the service out of reach for lower income groups.
Coverage Limited to Lucrative Sectors: With privatization routes which are less popular could be eliminated, thus having a negative impact on connectivity, rendering some parts of the country virtually inaccessible.
Accountability: Private companies are unpredictable in their dealings and do not share their governance secrets with the world at large. In such a scenario it would be difficult to pin the accountability on a particular entity, in case of a discrepancy.
Fragmentation in railways industry: In the UK, rail privatization led to breaking up the rail network into infrastructure and train operating companies. This led to areas where it was unclear who had responsibility.
Regulatory Burden: High costs and lower returns, policy uncertainty, lack of a regulator to create a level playing field, lack of incentives for investors and procedural/operational issues such as delays in land acquisition etc. have significantly restricted private sector participation.
Roads
NHAI
The National Highways Authority of India was constituted by an act of Parliament, the National Highways Authority of India Act, 1988. It is responsible for the development, maintenance and management of National Highways entrusted to it and for matters connected or incidental thereto.
Bharatmala
It is the second largest highways construction project in the country since NHDP
The Government of India has approved Phase-I of Bharatmala Pariyojana with financial outlay of Rs 5.35 Lakh Crore to develop 24,800 km Highways along with 10,000 km residual NHDP stretches over a period of five years.
It focuses on the new initiatives like development of Border and International connectivity roads, Coastal & port connectivity roads, improving efficiency of National Corridors, Economic corridors and others.
It will subsume unfinished parts of the National Highway Development Program (NHDP).
Challenges
Earlier similar plans execution suffered due to problems of funding and delays in approval and execution. Governments in the past have struggled with several operational issues such as land acquisition and other approvals.
The big concern is funding, the plan depends more on government funding, and as much as 15 percent of the total investment is expected from the private sector.
Given the patchy record of public-private partnership schemes in India, there is no clarity on private sector investments.
Big construction companies such as Larsen & Toubro, GMR and GVK have been missing from auctions for highway projects.
Pradhan Mantri Gram Sadak Yojana-III (PMGSY-III)
PMGSY was launched in the year 2000 with an objective to provide single all-weather road connectivity to eligible unconnected habitation of designated population size (500+ in plain areas and 250+ in North-East, hill, tribal and desert areas as per Census, 2001) for overall socio-economic development of the areas.
A total of 5,99,090 Km Road length has been constructed under the scheme since inception till April 2019 (inclusive of PMGSY-I, PMGSY-II and Road Connectivity Project for Left Wing Extremism Area (RCPLWEA) Scheme.
Cabinet Committee on Economic Affairs has given its approval for the launch of Pradhan Mantri Gram Sadak Yojana-lll(PMGSY-III). Under the PMGSY-III Scheme, it is proposed to consolidate 1,25,000 Km Road length in the States.
It involves consolidation of Through Routes and Major Rural Links connecting habitations to Gramin Agricultural Markets (GrAMs), Higher Secondary Schools and Hospitals.
It will entail an estimated cost of Rs 80,250 croreThe funds would be shared in the ratio of 60:40 between the Centre and State for all States except for 8 North Eastern and 3 Himalayan States (Jammu & Kashmir, Himachal Pradesh & Uttarakhand) for which it is 90:10.
Plastic waste will also be used during work on these roads. The duration of this phase will be of five years till 2024-25
Selection of candidate roads will be based on the sum total of the marks obtained by particular road on the basis of parameters of the population served, market, educational and medical facilities, etc.
Construction of bridges up to 150 m in plain areas and 200 m in Himalayan and NE States proposed, as against the existing provisions of 75 m and 100 m in plain areas and Himalayan and NE States respectively.
Electric Vehicles and Infrastructure
The centre estimates that 25% of the total vehicles on roads will be electric vehicles by 2030. This necessitates the erection of robust electric vehicle (EV) charging infrastructure across the country.
Besides, India is committed to the United Nations’ goal to take urgent action to combat climate change. Government has initiated several steps to reduce dependence on fossil fuels. One of such steps is to encourage environment-friendly electric cars.
FAME India Scheme
FAME India is a part of the National Electric Mobility Mission Plan. Main thrust of FAME is to encourage electric vehicles by providing subsidies.
Vehicles in most segments – two wheelers, three wheelers, electric and hybrid cars and electric buses will obtain the subsidy benefit of the scheme.
FAME focuses on 4 areas i.e., Technology development, Demand Creation, Pilot Projects and Charging Infrastructure.
The Union cabinet has approved the proposal for implementation of scheme titled ‘Faster Adoption and Manufacturing of Electric Vehicles in India Phase II (FAME India Phase II)’ for promotion of Electric Mobility in the country.
The scheme with a total outlay of Rs 10000 Crores over the period of three years will be implemented with effect from 1st April 2019.
This scheme is the expanded version of the present scheme titled ‘FAME India1 which was launched on 1st April 2015.
FAME-India Scheme Phase – II:
India’s Electric Mobility Transformation
India could achieve high penetration of electric vehicles (EV) by 2030 on the back of the success of FAME II and other measures, according to a report by NITI Aayog and Rocky Mountain Institute.
Recent Policy Initiatives to Support Electric Mobility
Guidelines to upgrade the charging infrastructure
Government has issued guidelines to upgrade the charging infrastructure in the country to boost electric vehicles. In this regard, the Union Housing and Urban Affairs Ministry has made amendments to the Model Building Byelaws (MBBL) 2016 and Urban Regional Development Plans Formulation and Implementation (URDPFI) Guidelines 2014, making provisions for establishing EV charging infrastructure
Key Features of the Guidelines
A public charging station should be on both sides of the highways or roads on every 25 km.
For long range and heavy-duty electric vehicles, there should be at least one station on each side of the highway every 100 kilometres.
Charging facilities will also be available at bus depots and transport hubs within three years. In the first phase, to be completed by 2021, mega cities — with a population of over 4 million as per the 2011 census — will be covered.
The government has also permitted private charging at residences and offices.
National Mission on Transformative Mobility and Battery Storage
The Mission launched the Phased Manufacturing Programmes (PMP) for Batteries and for Electric Vehicle components. It will finalise and implement strategies for transformative mobility and Phased Manufacturing Programmes (PMP) for electric vehicles, their components and batteries.
Ports
Ports are under concurrent list i.e., they can be administered by centre as well as states. India’s long coastline is serviced by 12 major ports, 205 notified minor ports and intermediate ports (as per Ministry of Shipping).Major ports are administered by the Central Government’s Ministry of Shipping while non-major ones are managed by relevant departments in the state government.
The major ports of India moving from east to west are: Haldia, Paradip, Visakhapatnam, Ennore (private), Chennai, Tuticorin, Enayam, Kochi, Panambur Port (Mangalore), Marmagoa, Nhava Sheva- Maha- rashtra, Mumbai Port, Kandla Port- Gujarat, Port Blair- Andaman.
Importance of port development for India
Ports acquire immense significance because maritime trade accounts to about 95% of Indian trade by volume and close to 70% by value. Port development also plays a key role in fulfilling India’s role in achieving global integration and engagement with its trading partners. Port led development can provide immense job opportunities thus serving a social function also.
Port Management Models
Service Port model– The port authority owns the land and all available assets—fixed and mobile—and performs all regulatory and port functions. Here, the port trust is both the landlord and the cargo terminal operator. It is also called trust port.
Landlord port model– The publicly governed port authority acts as a regulatory body and as landlord while private companies carry out port operations—mainly cargo-handling activities.
Here, the Port Authority maintains ownership of the port while the infrastructure is leased to private firms that provide and maintain their own superstructure and install their own equipment to handle cargo. In return, the landlord port gets a share of the revenue from the private entity.
The role of the landlord port authority would be to carry out all public sector services and operations such as the award of bids for cargo terminals and dredging. E.g. Kamarajar(Ennore) Port. Currently, most major port trusts in India carry out terminal operations as well, resulting in a hybrid model of port governance.
The involvement of the port authorities in terminal operations leads to a conflict of interest and works against objectivity.
The neutrality of the landlord port authority is a basic requirement for fair competition between port service providers, particularly the terminal operators.
Problems with Indian ports
Solutions
There has been demand to wind down rate regulator TAMP (Tariff Authority for Major Ports) to facilitate market driven pricing at the ports.
The Tariff Authority for Major Ports (TAMP) was constituted in April 1997 to provide for an independent Authority to regulate all tariffs, both vessel related, and cargo related, and rates for lease of properties in respect of Major Port Trusts and the private operators located therein.
The Major Ports Trust Act, 1963 was amended by Port Laws (Amendment) Act 1997 to constitute the TAMP regulates rates which are detrimental to investors. (Non-major ports don’t come under TAMP).
Due to this overall capacity utilization in major ports has come down to 67%. After abolition of TAMP, the major ports would determine the tariff for the services rendered by them and also tariff for port owned assets & utilities.
Major Port Authorities Bill 2020
Major Port Authorities Bill 2020 was recently introduced in the Lok Sabha by the Ministry of Shipping. The bill will replace the Major Port Trusts Act, 1963.
This will empower the Major Ports to perform with greater efficiency on account of full autonomy in decision making and by modernizing the institutional framework of Major Ports.
The salient features of the Major Port Authorities Bill 2020 are:
Sagarmala & CEZs
Many countries with long coastlines have used ports for supporting industrial growth. Energy, minerals and manufacturing industries have strong port linkages due to the volume of cargo handled.
Logistics contributes a significant proportion of the total costs in these industries and ports have played a crucial role in reducing logistics costs, thus adequate port linkages can significantly improve the competitiveness of these industries.
Globally cargo of these three types of industries form the majority of the cargo handled at ports and thus these industries must be considered under any port led development programme.
India has a 7,500 km coastline covering 13 states and UTs, a strategic location on key international trade routes and 14,500 km of navigable and potentially navigable waterways.
In India, the planning of industrial clusters and zones have not adequately taken into account proximity to ports because of which the port land has not been adequately utilized for setting up industries and manufacturing.
Since adequate road and rail connectivity linkages to ports have not been developed in tandem with port development, resulting in instances of new ports with modern facilities being underutilized due to connectivity bottlenecks. Raw material often travels a large distance from coastal areas to the hinterland and then finished products travel back from the hinterland to the coast for exports. This reduces the competitiveness of Indian exports compared to other exporting countries.
The Sagarmala initiative has been bought by the Government of India to address the challenges and capture the opportunity of port-led developments Sagarmala is a national programme aimed at accelerating economic development in the country by harnessing the potential of India’s coastline and river network.
Sagarmala was articulated by the then Prime Minister Shri Atal Bihari Vajpayee in 2003 and announced by the Prime Minister Shri Narendra Modi in 2014. It was approved by the Union Cabinet in March 2015.
The vision of Sagarmala is to reduce logistics cost for both domestic and EXIM (export & import) cargo with minimal infrastructure investment. The Sagarmala project intends to enhance the capacity of major and minor ports and promote port-led direct and indirect development.
The Sagarmala project has been proposed to connect all coastal cities in the country through road, rail, ports and airports through a special development package. It will include coastal economic zones, smart cities, islands to attract tourists etc. The project is designed to enhance the unique identities of coastal cities in consonance with their sea-side culture.
The Sagarmala project is based on four pillars: –
Civil Aviation
UDAN(Ude Desh ka Aam nagrik) Regional Connectivity Scheme (RCS)
The objective of the RCS is to make flying affordable for the masses, to promote tourism, increase employment and promote balanced regional growth. The scheme intends to put on the aviation map India’s smaller cities and towns, which were till now uneconomical for commercial airlines to fly.
Integral to the scheme is the development of the 450 odd airports/ airstrips in the country which has immense potential but are lying dormant. The civil aviation ministry with the assistance of state governments, wants to develop “no frills” airports, (airports with basis essential services only and no luxuries) at an indicative cost of Rs. 50-100 crore each.
UDAN will be applicable on flights which cover between 200 km and 800 km with no lower limit set for hilly, remote, island and security sensitive regions.
The scheme seeks to reserve a minimum number of UDAN seats i.e. seats at subsidized rates and also cap the fare for short distance flights.
The scheme UDAN envisages providing connectivity to unserved and under-served airports of the country through revival of existing air-strips and airports.
The scheme would be in operation for a period of 10 years.
Constraints
There is less availability of slots at larger airports. Due to the hub and spoke mode (where airports of bigger towns will act as hubs and airports of small towns will act like spoke) there will be congestion at big airports and this model may not work.
Proposed subsidy is too less for a small aircraft as cost of seat/km & acquisition cost is twice that of a regular 80-seater aircraft.
Airlines have expressed their interest but haven’t committed. So in future the burden to implement the scheme may fall on Air India.
The whole idea behind RCS is to rationalize cost of flying but that doesn’t seem to happen as all costs are increasing e.g. landing costs, excise duty on fuel, user development fees etc. Moreover, to compensate for the decrease in fares at non metro airports, the fares for metro routes will be increased.
Significance
It provides an additional business opportunity by increasing the potential for moving existing perishable cargo, fragile goods and high-value export-oriented products by air.
The state governments would reap the benefit of development of remote areas, enhance trade and commerce and more tourism expansion through the introduction of small aircrafts and helicopters.
Privatization of Air India
Everything that could possibly go wrong with a public sector company has gone wrong with Air India. It is operationally inefficient and unable to compete with private sector operators. The airline has been grossly mismanaged over the years.
It is under a mountain of debt and is surviving on doles (stimulus packages) from the government. NITI Aayog has given its suggestions to the aviation ministry on privatizing Air India, and it will now explore all options for privatization of the airline.
Reasons to support Privatization
Failure of turnaround plan: 2012 turnaround plan has not shown the desired results. Infusion of equity capital (Around Rs 40,000 crore) by the government in the period of 20 years starting from 2011-12 had also set targets for monetization for airlines assets. But it has not been able to raise even 10% of those targets.
Highly indebted: Apart from this, it has accumulated debt to the tune of Rs. 50000 crore which really matters in Indian economy especially in current scenario of rising NPAs.
Government’s involvement undesired: Going by the established norms of market economy, the government should not be in the business of providing goods and services where the private sector has a vibrant presence and 14th Finance Commission has also said that the opportunity cost of such investments should be considered and the cost is a lot higher for Air India.
Divestment will be a signal for everyone: Divesting the loss-making Air India will send a strong signal to investors that India is serious about reforms. This will pave the way for disinvestment of other loss-making companies, such as Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telephone Nigam Ltd (MTNL)
Challenges for the Government
Making the deal attractive: Government will have to work with professionals and investment bankers to find ways and make the deal reasonably attractive for a prospective buyer.
Reducing debt: Government will have to bring down the level of debt in the company.
The government has fiscal constraints and needs to spend more in important areas such as health and education. There is absolutely no rationale why it should be running a company like Air India. The status quo cannot continue for long.
Energy Policy of India
The energy policy of India is largely defined by the country’s expanding energy deficit and increased focus on developing alternative sources of energy, particularly nuclear, solar and wind energy. India attained 63% overall energy self-sufficiency in 2017.
The primary energy consumption in India grew by 2.3% in 2019 and India is the third biggest consumer after China and USA with 5.8% global share. The total primary energy consumption (2018) is from coal (55.88%), crude oil (29.55%), natural gas ( 6.17%), nuclear energy (1.09%), hydroelectricity ( 3.91%) and renewable power ( 3.40%).
India is largely dependent on fossil fuel imports to meet its energy demands–by 2030, India’s dependence on energy imports is expected to exceed 53% of the country’s total energy consumption. About 80% of India’s electricity generation is from fossil fuels.
35% of the population still lives without electricity. China’s installed capacity is more than India. Moreover, the power is available 24 x 7 x 365, with no fluctuations.
This allows the manufacturing sector to thrive. In India, power is available with fluctuations. Industries are shut down for one day to manage these power fluctuations, as it damages equipment. Make in India can’t be successful without continuous electricity supply.
To solve the above issue, the government has launched a scheme named, Power for All. It aims to provide continuous and uninterrupted electricity supply to all households, industries and commercial establishments.
Oil and Gas Industry
The Oil and gas industry is divided in upstream, midstream and downstream sectors, based on the value chain which starts from crude oil & ends at products such as petroleum, High speed diesel, LPG, Polypropylene, synthetic rubber etc. reaching the customers.
Actually this is common in almost every industry, that raw material is extracted, processed, transported and converted into finished consumable items. But huge investments and technicality at every stage, particularly in this sector, makes these distinctions desirable. There are very few companies in the world which take up all three sectors simultaneously.
Upstream Sector
It involves oil exploration and extraction/production from oil wells. It is quite common that oil is found, but it is not commercially exploitable i.e., costs of extraction are significantly higher that realizable value of oil. This makes this business quite riskily and only few companies operate in this area. Some of the leader companies are Chevron, Exon Mobil, Shell. In India, Oil India ltd, Reliance industries and Cairn energy are involved in exploration.
New Exploration licensing policy, 1997 (Brought Technology + Money + Competition)
Before NELP, oil exploration was open for public enterprises only, but after it, even private players could also bid.
This aimed to facilitate the exploration sector by providing a level playing field to private players against public enterprises. This was a result of dismal performance of state enterprises in the past (They didn’t explore enough areas). Under this policy oil blocks are allotted, and production sharing contracts are signed with oil explorers through competitive bidding.
Production Sharing Contracts-Since oil is national resource, revenue is to be shared with government. Hence, it is a method to share revenue, where explorer is allowed to recover its investment before sharing revenue with government.
Revenue sharing Contracts (RSC) as an alternative to production sharing contracts (PSC): Under revenue sharing model, government gets share in revenue from the exploration from the very beginning. In contrast PSC, allows government to have revenue share only when capital costs are recovered by explorer.
Reasons for shifting from Production sharing contracts to Revenue sharing model:
HELP (Hydrocarbon Exploration & Licensing Policy)
HELP replaced New Exploration Licensing Policy (NELP), which remained in existence for 18 years.
Features of HELP
Midstream Sector
This sector is involved in transportation of oil and gas from blocks to refineries and from refineries to distribution centers. It also includes storage infrastructure. Most cost-effective way is through pipeline, in comparison to road and railways which have higher economic and environmental costs.
Current pipeline infrastructure in India is skewed in favor of north and west India, which accounts for 60% of gas pipeline and 80% of gas consumptions. To remedy this, central government has proposed to set up National Gas Grid under which additional 15000 km of pipeline will be laid down
Downstream Sector
This sector involves refining, processing and marketing of products and by-products of crude oil. India’s refining sector is quite efficient. Government adopted a policy to make India a refining hub and currently, India is a net exporter of petroleum products.
Some special economic zones were notified for this purpose. Jamnagar is SEZ. The Jamnagar Refinery is a private sector crude oil refinery owned by Reliance Industries Limited in Jamnagar, Gujarat, India.
India has 21 public sector refineries and 3 refineries in the private sector/or as a joint venture, the largest refineries being RIL Jamnagar (Gujarat), NEL Vadinar (Gujarat) and IOC Panipat (Haryana).
Oil in Post COVID-19 world
With COVID-19 pandemic spreading to nearly 180 countries and impacting the global economy by bringing it to near standstill combined with the recent oil-market meltdown, can bring changes in the Oil Sector post the crisis.
Let us have a look at possible changes and what India should do to prepare for an uncertain & contingent future
Why has Oil Prices reduced?
The reason is two-fold.
One, Saudi Arabia has ramped up production from 9.8mbd(million barrels per day) to in excess of 12 mbd to hold on to their market share post the failure of OPEC meeting with Russia
Two, the unprecedented COVID-induced fall in demand. The two main drivers of oil consumption — transportation and industry – have nearly stopped.
Three consequences now hang over the petroleum market.
1.Budgetary crisis in major oil-exporting country
Qatar needs an oil price of around $40/bbl (“barrel of oil.” ) to balance its fiscal activities.
Algeria needs an excess of $100/bbl and Saudi Arabia requires around $80/bbl.
Reduction in oil prices means lack of adequate financial resources to sustain their social and economic commitments.
Even though some of these countries have abundant sovereign reserves, the long term outlook (of price rise) doesn’t look positive.
This means that countries have to cut back subsidies & increase taxes which may cause political unrest
Impact on India: Political instability in oil supplying nations endangers our supply security.
Large number of companies are finding it difficult to cover their cash costs and have been forced to shut their operations.
Those that will survive the crisis will have substantially slimmed balance sheets and reduced valuations
Exxon’s market capitalisation has, for instance, halved over the March 2020
Strategic Petroleum Reserve
It is a storage of crude oil which would act as a cushion during any external supply disruptions or supply-demand mismatch shock. The crude oil storages are constructed in underground rock caverns and are located on the East and West coast of India. They are considered to be more environment friendly and incur less evaporation loss than ground level storage.
Emergency fuel store of 5mn metric tons has been made by India. Strategic crude oil enough for 90 Days has been stored in underground reserves at Mangalore, Vizag & Padur near Udupi). Moreover, project of three additional reserves is in pipeline -at Chandikhol (Odisha), Bikaner (Rajasthan) and Rajkot (Gujarat).
Coal Sector
Energy security in India revolves around the coal sector, which has dominant use in three core sectors i.e., power, steel & cement. The Coal Industry itself too is part of core sector.
There is increased impetus on moving away from coal-based technologies to cleaner and efficient technologies. But still demand for coal will continue to rise almost in proportion to industrial growth in India. This is because base infrastructure in all core sectors is designed for coal consumption and still India’s supply of power and steel does not match the demand.
India has the 4th largest reserves of coal. The reserves are located mainly in states of Jharkhand, Odisha, Chhattisgarh, West Bengal, Madya Pradesh, Telangana and Maharashtra. Indian coal reserves are primarily of Lignite and Bituminous types (other two types are Peat and Anthracite.)
Problems with Indian coals are-It has lower calorific value and Higher ash content
Indian coal is classified in two categories i.e., coking coal and non-coking coal. This is a usage-based classification, as coking coal is essential for the iron and steel industry.
Bituminous coal contains bitumen, which on heating in absence of oxygen is converted into coking coal. This removes volatile material in the coal and is further heated to get coke, which is used in blast furnaces to extract iron from iron ore. This type of coking coal is what India lacks, as 88% of reserves are of non –coking type and rest 12% have high ash content.
Indian coking coal is cheap and of poor quality and imported coking coal is expensive and good quality. Steel industry blends both to secure a moderate cost and quality.
India’s coal sector is almost wholly in the hands of Coal India Ltd. (CIL), a central government PSU. It produces about 80% of national production & is the largest coal producer company in the world.
Coal accounts for around 70% of the country’s power generation, and for energy security assured coal supply is needed. To ensure this, coal mining was nationalised in 1973 by Coal Mines (Nationalisation) Act, 1973.
Following nationalisation, only state-owned CIL was allowed to sell coal for commercial purposes. And even till recently, private sector firms were only allowed to mine coal for use in their cement, steel, power and aluminium plants i.e., for their captive (own) use.
Only a few captive mines with Tata steels, Steel Authority of India and Damodar Valley Corporation were made exceptions. Later, this privilege was extended to power (1993), cement and coal to the liquid sector (2006), in addition to iron and steel (1976). So, CIL, was so far the lone commercial miner in the country and accounted for 84% of India’s coal output.
From 1993-2014, 204 coal mines/blocks were allocated to the various government and private Companies under the provisions of Coal Mines (Nationalisation) Act, 1973. However, these allocations were often tainted with corruption and large kickbacks. So, in the backdrop of C&AG report, alleging loss of 1.85 lakh crore to exchequer, Supreme Court of India cancelled these allocations in 2014.
Enabling provisions have been made in the Coal Mines (Special Provisions) Act, 2015 for allocation of coal mines by way of auction and allotment for the sale of coal
India will now offer coal mines to private companies ‘only for commercial mining and sale purpose’, thereby moving away from the earlier regime of offering mines for captive use.
The coal ministry will auction coal blocks for commercial mining on a revenue sharing basis and proposes to announce incentives for faster production.
Intended benefits of Private Entry in Commercial Coal Mining
Increased production and energy security: It will help the country come closer to its vision of producing 1.5 billion tonnes of coal annually by 2022.
Reduced imports: India still meets 20% of its annual coal requirement through imports, which costs about Rs 1 lakh crore.
Benefit to power sector: It would help stressed power plants to attempt a turnaround due to cheaper domestic coal. Also, cement and steel sectors will gain the most being the largest consumers and importers of non-coking coal.
Improved efficiency: Participation of private miners would increase much-needed competition, enhance productivity and efficiency by facilitating the use of latest equipment, technology and services through higher investments.
Development of coal bearing states: especially in the eastern part of the country, as the entire revenue from these auctions will accrue to them. Also, revenue may increase as the coal blocks will be allocated to the highest bidder.
Attract foreign investment: as it provides a great opportunity to overseas companies in countries where coal mining is either on the wane or has been stopped completely.
Issues plaguing Coal Mining
Civil unrest is one important reason for not mining efficiently. Coal reserves are most highly concentrated in areas where Maoist guerrillas operate, making the area hostile for mining.
Rising imports– imports of the coal have surged to a record over the same period. The reasons include higher costs of domestic coal at distant locations (exacerbated by high railways transportation costs), better quality of imported coal and lower ash content, selected power plant boilers being designed to a particular quality of imported coal, and a lack of domestic coking coal production (for the steel sector).
Infrastructure- e.g., an overworked railway network has hampered transport of the fuel.
Restrictive norms for auctioning: The last two auction-tranches had to be cancelled due to the shortage to sufficient bidders because private industry remained impassive to the set norms.
Factors such as delays in land acquisition, multiple approvals at the state and the Central government levels, as well as issues with coal transportation account for stagnant or decreasing coal production and consumption.
Shift to renewable energy: In current times there is an increasing shift to renewable energy. In such a scenario it is difficult to attract investors.
Shrinking and uncertain market: As against a large market for coal industry in industries, railways, defence, power etc. earlier, the market has now shrunk only to power and cement sectors. Unless a private investor is able to tie up with captive power utilities, it is extremely unlikely for them to venture into an uncertain market.
The final cost of coal consists of taxes, duties, cess and transportation charges; each of these components has been increasing steadily over the past few years. Therefore, even if the actual cost of production comes down due to commercial mining, the net landed cost of coal at the consumer end is unlikely to be impacted too much.
No independent regulator: For the coal sector, there is no structure for independent regulation. Thus, there is no redressal mechanism in place for resolution of problems arising due to commercial mining or to protect the interest of consumers.
Way Forward
Besides, provisions in the Minerals & Mines Development Regulation Act and Coal Mining Special Provisions Act that give preference to government companies should be removed.
FDI in Coal Mining
Recently, the Government allowed 100 per cent Foreign Direct Investment (FDI) under the automatic route in coal mining and associated infrastructure to help attract international players to create an efficient and competitive coal market.
Earlier, 100 per cent FDI under automatic route was allowed in coal and lignite mining for captive consumption in power projects, iron and steel and cement units. Now, the same has been allowed for sale of coal and mining, including associated processing infrastructure such as coal washery, crushing, coal handling, and separation (magnetic and non-magnetic).
Because of FDI in coal mining, there will be coming in of professional coal miners, overall improvement in coal mining technologies. Also, by raising domestic supply of the key raw material for power, steel and cement production there will be cost cutting and reduction in burgeoning imports.
Foreign direct investment (FDI) in commercial coal mining from an entity of a country that shares land border with India will be allowed only after government approval.
Coal Bed Methane
CBM has been looked at as a clean alternative fuel. Coal Bed Methane (CBM) is an unconventional form of natural gas found in coal deposits or coal seams. CMB is formed during the process of coalification, the transformation of plant material into coal. The methane is usually held in place by water pressure.
The methane is held underground within the coal and is extracted by drilling into the coal seam and removing the groundwater. The resulting drop in pressure causes the methane to be released from the coal.
The country’s coal and CBM reserves are found in 12 states of India, with the Gondwana sediments of eastern India holding the bulk.
CBM can be used for power generation, as compressed natural gas (CNG) auto fuel, as feedstock for fertilisers, industrial uses such as in cement production, rolling mills, steel plants, and for methanol production.
Nuclear Power in India
India US Nuclear Deal
It was a landmark deal, signed in 2008, which resulted in the end of India’s isolation for civil nuclear technology and supply of nuclear fuel. After 1972’s Pokhran tests there were sanctions on India which prohibited all countries to supply anything for India’s nuclear program.
But the deal has placed India’s civil nuclear installations under watch of IAEA (International Atomic Energy Agency) subject to India’s ratification of ‘Additional protocol’ which it did recently. Under this agreement the US was expected to supply India nuclear reactors. There was India specific waiver by Nuclear Supplier’s Group NSG, which was vehemently opposed by China. Now India is the only country outside NSG’s 5 members (US, UK, China, France & Russia) who possess nuclear weapons but are allowed to trade in civil nuclear materials. (Japan & Germany are non-nuclear powers as they enjoy US umbrella).
Similar deals were entered with France, South Korea and the latest with Australia.
But the other contentions issue has been of Civil Nuclear Liability Act of India, It originally held that on accident, operator (which as of now will be NPCIL (Nuclear Power Corporation of India Limited)), has liability up to Rs. 500 crore and rest will be paid by government. (NPCIL is a government entity so we can suppose that everything is paid by the government only).
Further Operators can claim compensation up to Rs.1500 crore from foreign supplier if provision to this regard is there in contract.
Another provision states that, if on accident, patent or latent defect is established in components supplied or damage is as a result of intentional act or omission by the supplier, then right to compensation will be unlimited. For this, the operator can sue the supplier. Time for compensation is fixed at 10 years.
This is contrary to international law on nuclear liability agreed upon in Vienna convention, which keep supplier aloof from any liability.
This Act while safeguarding Indian interests, has kept nuclear suppliers away from India. Since this law came in force, not a single new deal has been agreed at. Nuclear plants consist of thousands of components manufactured by different companies. If any single supplier does not agree with this clause, then whole deal will get down.
Nuclear supplier claims that probability of nuclear accident is extremely low (once in thousands of years). But there have been accidents like Chernobyl, Ukraine where 31 people died and costs were as high as $18 billion in 1987.
Civil Liability for Nuclear Damage Act, 2010
This Act seeks to create a mechanism for compensating victims of nuclear damage arising from nuclear incidents. This Act made changes in the Atomic Energy Act, 1962, allowing private investment in Indian Nuclear Power programme.
Representatives of equipment vendors have repeatedly made pointed references to uncertainties over CLND act with the liability issue being flagged as a concern by equipment firms who have said that even companies that do not supply directly to NPCIL but are sub-suppliers (Supplying components to an NPCIL vendor) are increasing unwilling to supply equipment as NPCIL is refusing to give them indemnity from the liability provisions of the Act.
Back in January 2016, India and the United States reached an understanding, in public at least, on the commercial liability of suppliers for nuclear accidents in India. The general understanding appears to be that operators of nuclear facilities in India will continue to remain primarily liable for a nuclear incident and that any residual liability of suppliers for damage arising from a nuclear accident will be mitigated by an insurance pool, funded by Indian insurers and the Government of India.
India’s Civil Liability for Nuclear Damage Act, 2010 (the “Act”) essentially created a mechanism for compensating victims from damage caused by a nuclear accident, allocating liability and specifying procedures for compensation.
It was the last piece of the jigsaw to operationalize the 2008 Indo-US Civilian Nuclear Agreement (the “2008 Agreement”) since US operators required the Act to be in place in order to be insurable in the US.(to get insurance, the insurance companies should be aware of how much compensation they will have to pay to the US company, which will depend on how much compensation Indian operators ask the US supplier).
Liability
The Act is clear about the allocation of responsibility for nuclear damage. The operator is strictly liable (which is in line with the general principle internationally) for nuclear damage arising out of a nuclear incident except in the case of a force majeure event, in which case the central government takes the risk.
Uranium Requirements of India
A parliamentary panel has recommended that necessary steps must be taken to open new uranium mines to ensure sufficient amounts of uranium in India.
Current Scenario in India
Presently, a major portion of uranium for domestic production comes from the Jaduguda mines in Jharkhand.India currently imports uranium from Kazakhstan, Canada, France and Russia. Recently India also signed deal with Uzbekistan to get Uranium supply.
In India, Uranium Corporation of India Ltd. (UCIL) under the Department of Atomic Energy, is the only organisation responsible for mining and processing of uranium ore for commercial purposes. Uranium mined by the UCIL is used for weapons and civil nuclear programmes both. The imported uranium is used for civil nuclear energy purposes only.
Need
Fuel for current Nuclear Plants: The scarcity of uranium has often made the nuclear power plants to run below their capacities. A stockpile of 15,000 tonnes of uranium is required to achieve supply security of fuel for nuclear plants in the country.
Need Domestic Uranium for Non-IAEA plants: Domestic uranium is used in nuclear plants which are not under the international nuclear energy watchdog, International Atomic Energy Agency (IAEA).
Fuel for Future capacity addition: The government has planned 22,480 MW nuclear power capacity addition target by the year 2031-32.
Challenges
Uranium contamination of ground water due to Mining: Recently, a study has found uranium contamination in groundwater from aquifers in 16 Indian states. For example, most of the wells tested in Rajasthan and Gujarat had more uranium than the WHO’s recommended limit of 30 μg/L.
Purity of Uranium: In comparison to world occurrences, uranium deposits established in India are mostly of low-grade (less than 0.15per cent U).
Anti-nuclear protests: Following the 2011 Fukushima nuclear disaster in Japan, populations around proposed Indian Nuclear power plant sites have launched protests. E.g., Protests in Jaitapur
Other Issues: Factors such as problems of land acquisition, rehabilitation/resettlement of affected persons, reserve forest/tiger sanctuary locations, socio-political issues, public consensus, etc. also influence the decisions on mining and exploitation of established uranium and thorium resources in the country.
Steps taken by the government
Apart from signing deals with countries for importing uranium, domestic production is expected to achieve to record ten-fold increase by 2031-32 as per the vision plan prepared by the government.
Nuclear Power Plants
Presently, India has 22 operating nuclear power reactors, with an installed capacity of 6780 MegaWatt electric (MWe).
The nuclear energy programme in India was launched around the time of independence under the leadership of Homi J Bhabha.
Target set by DAE is that by 2050 33% of India’s total electricity requirement will be from nuclear power. This comes out to be about 275000 MW.
This target seems unachievable and undesirable because of following concerns:
1.India’s domestic Uranium Reserve can support only 10000 MW of energy. So, our future potential depends upon development of third stage of nuclear program. Otherwise, there will be again overdependence upon imported Uranium as it is case with oil currently. Hence, long term strategy will be only determined when third stage is functional.
2.Current nuclear reactors consume significant amount of water. So, most of upcoming plants will be set up near sea coasts. It will put pressure on the coastline as India’s western coastline is home to fragile ecology of Western Ghats.
3.There are long gestation periods which increase costs of the plant significantly. Only a Nuclear Industry revolution in the future in nuclear energy can make this achievable.
4.New safeguard requirements post Fukushima disaster, has pushed per MW costs of nuclear power significantly higher in comparison to thermal, solar and winds plants. Jaitapur plant in Maharashtra (AREVA) is expected to cost 21 crore/ MW/in comparison other sources cost 8-10 crore/ MW.
5.Some argue that total costs of a nuclear life cycle which involves mining of uranium, transportation and storage, capital costs of plants, processing/reprocessing of plants, possible disasters and then handling of waste generated for hundreds of years is significantly more that economic value generated during lifetime of the functioning of the plant, which is generally 40-50 years
7.India does not yet have a credible waste disposal policy and infrastructure in place.
Strong arguments which justify use of nuclear energy are –
1.No greenhouse gasses are emitted in nuclear power generation and in this way environmental costs are significantly less.
Developed countries are changing their power share to renewal resources. EU, Japan are shutting down their nuclear plants. US has not setup any new nuclear plant since 40 years. China has not set up any new nuclear plant since 2012. Nuclear industries in these developed nations are looking towards developing countries like India to sell the reactors.
US has shifted to shale gas (even though nuclear fuel reactor is easily available to them)
Germany was the first country to start shutting down its nuclear plants and moved towards solar energy.
We can conclude that nuclear energy though is critical for India’s energy security but is not panacea for the problem. People of India have the right to have safe and sustainable energy. So future development should depend upon cost benefit analysis, taking into account all the externalities involved in various components of energy mix. If this is done, it is most likely that policy will get inclined strongly in favour of non-conventional sources of energy that is solar, wind and biomass.
Cost of Electricity Production
In the past few years, India has been aggressively expanding its power generation capacity. India has an installed capacity of 358 GW, which is four times of what it was in 1997-98.
India’s per-capita energy consumption is about one-third of the global average. Though India accounts for around 18% of the world’s population, it uses only around 6% of the world’s primary energy.
Source |
Installed Capacity (March 2019) |
Percentage of Total Installed Capacity |
Thermal Energy |
200.7 GW |
56% |
Hydel Energy |
45.39 GW |
13% |
Solar Energy |
28.18 |
7.9% |
Wind Energy |
35.63 |
10% |
Nuclear Energy |
6.7 GW |
2% |
Renewable Sources of Energy
India’s energy mix is heavily skewed in favour of conventional sources of energy, more particularly coal and big hydro plants, there is growing clamour for increasing share of renewable energy.
Renewable sources of energy mainly include-Solar, wind, small hydro, waste to energy, Bio energy.
These have numerous advantages over conventional sources. All conventional resources use a scarce resource which is expected to exhaust in near future. Renewable sources on the other hand, uses resources which are abundant from nature. Wind and Solar resource wont exhaust even if fully exploited. Other renewable sources such as waste to energy, bio energy aim to turn waste into resource.
This character of renewable sources is also expected to give cost advantage over other sources, once current technical and economic barriers are overcome. While doing cost benefit analysis if we include costs of damages to ecology then renewable energy is preferable even if its current economic costs are substantially higher.
Combustion of fossil fuels emits greenhouse gasses such as carbon dioxide, carbon monoxide, nitrogen oxide, sulphur dioxide, methane. Coal undergoes incomplete combustion which emits carbon soot and more carbon monoxide. Both of this cause respiratory problems.
Carbon monoxide is extremely poisonous and has affinity with haemoglobin cells, and hence it can eliminate oxygen from human cells
Further coal mining operations are one of the riskiest jobs and result in gross violation of human rights of miners to have a safe working environment. There have been many instances where miners got killed due to mining roof collapse or suffocation by hazardous gases such as methane. Similarly, oil rigs and pipelines have time and again leaked in seas, causing havoc with marine ecology and biodiversity.
Nuclear energy as we have seen, gives hazardous radioactive wastes which are to be handled for hundreds of years. Any accident can cause genetic mutations in the affected people. Further, use of nuclear energy might have some link with corresponding increase in nuclear arms because of growth and free flow of nuclear knowledge, which is beyond any one’s control.
In this background, fortunately, costs of clean energy, particularly of wind and solar is falling from few years. There have been technological barriers and unsupportive external environment, which is now turning around by increasing competition in industry and indigenous innovations too. Further government’s attempts of positive intervention by diplomacy with countries such as Germany is expected to bring much benefit.
Advocacy for renewable energy also came from United Nations, through its ‘United Nations Framework Convention on Climate Change’ in pursuance of which India adopted National Action Plan for Climate Change NAPCC. This action plan has 8 core missions. Among them 2 missions i.e.
The National Solar Mission and national mission for Enhanced Energy Efficiency have direct bearing on renewable energy. Around 23% of rural India continues to use traditional fuels such as firewoods, crop residue and dung cakes. This too has environmental and health concerns as their combustion releases poisonous gases. It also brings hardship on rural women and girls as they spend substantial time on collecting this fuel. In recent years decentralized clean energy sources have increased and use of portable solar cookers is catching up. This is important part of government agenda of ‘Inclusive and Sustainable Development’.
Top ten countries with the highest proportion of renewable energy
Rank |
Country |
% Of renewable energy used |
1 |
Germany |
12.74 |
2 |
UK |
11.95 |
3 |
Sweden |
10.96 |
4 |
Spain |
10.17 |
5 |
Italy |
8.8 |
6 |
Brazil |
7.35 |
7 |
Japan |
5.3 |
8 |
Turkey |
5.25 |
9 |
Australia |
4.75 |
10 |
USA |
4.32 |
India’s domestic renewable power generation base is expanding rapidly on the back of various incentives such concessional loans, tax holidays. Government has also allowed 100% FDI in renewable energy and there is interaction of government in this field with about 22 countries. As a result, sector is growing at 20% from the last 5 years.
National Clean Energy Fund
This is a non lapsable fund established in 2011 to promote research & development in clean energy. It draws funds from coal mined or imported on which clean energy cess at Rs 200/ton. This is in pursuance to the polluter pays principle.
Fund is mainly to be utilized for promotion of renewal energy, cleaner energy (CBM, shale, gas etc) grid improvement etc. Having said this, corpus of fund is severely underutilized and misutilised. Misutilised in the sense that grants from these funds are being used for making good budgetary shortfalls, rather than for R&D.
Renewable Energy Certificate (RECs)
A Renewable Energy Certificate (REC), sometimes called a Renewable Energy Credit, is a tradable, legal mechanism that represents the environmental benefits associated with one Megawatt-hour of electricity generated from a renewable energy resource.
There is a renewable purchase obligation policy in place (Under Electricity Act 2003), under which distribution companies (DISCOMS) have obligation to purchase certain amounts of renewable energy (fixed % age of their total electricity supply). This was needed because renewable energy is expensive when compared to conventional sources.
To fulfill this obligation, they can alternatively buy RECs from renewable power producers. A producer gets 1 REC when 1 MWh (Megawatt hour) power is fed to the grid. When he sells this certificate in the market or to the DISCOM, money he earned will reduce cost of power generated.
RECs are a policy mechanism to promote renewable energy-based power generation in India. Technologies such as wind, solar PV, solar thermal, biomass and hydro are eligible to earn RECs.
Off Grid/Interactive Grids
Renewable energy systems can be either standalone (Off grid) or Grid interactive ones. Off grid use energy for their own needs such as solar tube lights, solar water heaters. There can also be standalone power plants based on wind, solar, small hydro or biomass energy which power a particular locality, industry, remote area etc. These will be off grid if not connected to the national grid.
Grid interactive systems are connected with national grid. Roof top solar panels can also be grid interactive. These are smart systems, which can convert direct current to alternating current in order to have interface with grid. They manage supply to users by automatically switching to grid power in case renewable sources are out of power due to bad weather. These include ‘advance metering system’ which takes into account power generated by renewable source of a house/industry/locality and deducts it from total electricity bill. Further, these also have facility of transferring surplus electricity to the national grid.
Diversifying India’s energy sources
The effects of global warming are already visible. Average temperatures today are only 0.8 degree Celsius higher than in 1880. Yet there is already an increasing frequency of extreme weather events, rising ocean.
temperatures and disappearing corals, melting glaciers and shrinking polar ice caps, and rising sea levels.
Public actions have been too small and poor to cope with such looming disaster. The Paris accord has been signed and containing global warming is now on the policy agenda. Still, it is mostly business as usual both in private industry and in public policy.
According to an estimate by the Intergovernmental Panel on Climate Change (IPCC) –
Containing the earth’s temperature increase over the 1880 benchmark to under 1.5 degrees Celsius will require a 20% reduction in oil and gas production by 2030.But several oil companies have plans to produce 25% more oil and gas by 2025, and other oil majors are headed in the same direction.
Irony is that the same oil majors support the Paris accord. They are also among the largest investors in solar power and other renewables.
The roughly $300 billion of annual investment in renewables is just a fraction of the investment being made in extracting more fossil fuels.
Fossil fuels like coal, oil and gas are more profitable than renewables and account for 85% of the total energy supply. That is what drives the current shareholder value of oil companies.
According to BP Energy Outlook (BPEO) –
Renewables will account for just about 16% of total energy supply in 2040, up from around 3% today
Hydro and nuclear power will account for another 11%
Fossil fuels will still account for over 70% of total energy supply.
BPEO also envisages that there will be a shift from coal to oil and further to gas, not from fossil fuels to renewables.
Therefore, market incentives fall well short of what it will take to contain global warming within the limits necessary for global survival. It is this market failure that requires muscular policy intervention by governments.
India remains heavily dependent on vast reserves of coal, which is also the dirtiest fuel.
But switching from coal to cleaner oil or gas poses a security risk since India is heavily dependent on imports for these fuels. Hence, India’s long-term strategic interest requires a radical shift from fossil fuels to renewables, including hydropower.
Solar Energy
Solar panels in past years were quite expensive which made this sector perform poorly by making this energy uncompetitive to conventional energy sources. Fortunately, from the last few years prices are consistently falling. This fall is due to fall in prices of photo voltaic panels because of increased competition, more efficient production and economies of scale. It is hard to quantify potential of solar energy because it is directly proportional to area covered by PV cells. Yet one can have idea by the fact that most parts of India receive, clear sunlight for 300 days a year.
Solar energy offers great prospectus for countries like India for the following reasons.
1.The high initial cost has continuously come down in the last decade with intensified global research especially led by Germany. The cost will continue to decline in the future. It is the only source where the raw material will always be free of any charges and per unit cost would only be lower in the future and would never increase from the present level.
Targets for National Solar Mission
It had set a target of 20,000 MW of grid-connected solar power by 2022. It was revised in June 2015 to 1,00,000 MW (100GW) by 2022.
The 100 GW solar power capacity has been divided into:
But there are challenges for India in building competitive capabilities in manufacturing of solar panels which would be required in large scale and ability to withstand competition both from US & Chinese companies. Endeavour should not be for low-cost solar panels but high quality for long term durability & also reducing the size of solar panels through research.
Like mainframe computer giving way to more powerful laptops, there would be a need for smaller solar grid for re-distributing power from surplus to deficit areas. The present expansion of solar panels is horizontal and thus covering a larger land area. In the long run, it will require scaling of such panels to save our land area.
Solar systems do not operate efficiently during monsoons or winters when there is fog.
Blending of solar energy in the grid with thermal energy – and that poses all sorts of practical problems.
Domestic manufacturing remains a weak link. Indian products are of low technology. Self-sufficiency in production will save $42 billion in equipment imports by 2030 and create 50,000 direct jobs and at least 125,000 indirect jobs.
Land ownership and the willingness of the owners to part with their lands are an issue that needs to be addressed.
Evacuation of power from remote areas is difficult. Wasteland is available, but the problem is that they are typically in remote locations.
Many investors are asking deeper questions about viability. Nearly one square kilometer of land is needed to put up a 40-60 MW solar plant. Such large chunks of land are not readily available except in isolated areas from which evacuation of power becomes even more difficult
Jawaharlal Nehru Solar Mission
Launched in 2010 under ‘National Action Plan for Climate Change’. It is getting implemented in 3 phases. 1st phase is over, and the 2nd is going on.
Targets under the mission are –
2.2000 MW of ‘off grid solar applications’ and 20 million ‘solar lights’ by 2022.
Grid parity (or socket parity) occurs when an alternative energy source can generate power at a levelized cost of electricity (LCOE) that is less than or equal to the price of power from the electricity grid. The term is most commonly used when discussing renewable energy sources, notably solar power and wind power.
Highest capacity is in Gujarat followed by Rajasthan.
Challenges in achieving the target
1.The biggest challenge for the development of renewable energy investment in India is the health of the public electricity distribution utilities. State government-owned electricity distribution companies, which will have to buy the costly green power, are in financial mess.
2.Lower oil prices can potentially derail or at least delay the world’s shift to solar and wind energy, as it makes less economic sense to tap costlier renewable energy sources when cheap oil is available.
Grid Connected Rooftop Solar Programme
Cabinet has approved Phase-II of Grid Connected Rooftop Solar Programme for achieving cumulative capacity of 40,000 MW from Rooftop Solar Projects by the year 2022.
Impact
1.The Programmes will have substantial environmental impact in terms of savings of CO2 emission. Considering average energy generation of 1.5 million units per MW, it is expected that addition of 38 GW solar rooftop plants under Phase-II by year 2022 will result in CO2 emission reduction of about 45.6 tonnes per year.
2.The programme has directed employment potential. Besides increasing self-employment, the approval is likely to generate employment opportunity equivalent to 9.39 lakh job years for skilled and unskilled workers.
Potential for rooftop solar in India
Rooftop solar installations—as opposed to large-scale solar power generation plants — can be installed on the roofs of buildings. As such, they fall under two brackets: commercial and residential. This simply has to do with whether the solar panels are being installed on top of commercial buildings or residential complexes.
Benefits
Rooftop solar provides companies and residential areas the option of an alternative source of electricity to that provided by the grid. While the main benefit of this is to the environment, since it reduces the dependence on fossil-fuel generated electricity, solar power can also augment the grid supply in places where it is erratic.
Rooftop solar also has the great benefit of being able to provide electricity to those areas that are not yet connected to the grid — remote locations and areas where the terrain makes it difficult to set up power stations and lay power lines.
The Ministry of New and Renewable Energy has pegged the market potential for rooftop solar at 124 GW. However, only 1,247 MW of capacity had been installed as of December 31, 2016.That is a little more than 3% of the target for 2022, and 1% of the potential.
Why is it not being adopted widely?
One of the major problems with rooftop solar — and what affects solar energy generation in general — is the variability in supply. Not only the efficiency of the solar panels varies on any given day depending on how bright the sunlight is, but the solar panels also produce no electricity during the night. Arguably, night is when off-grid locations most need alternative sources of electricity.
Storage is one solution. Storage technology for electricity, however, is still underdeveloped and storage solutions are expensive. Most residential customers will find the cost of installing both rooftop solar panels and storage facilities prohibitive. Residential areas also come with the associated issues of use restrictions of the roof — if the roof is being used for solar generation, then it cannot be used for anything else.
Another major reason why rooftop solar is not becoming popular is that the current electricity tariff structure renders it an unviable option. Many states have adopted a net metering policy, which allows disaggregated power producers to sell excess electricity to the grid. However, the subsidised tariffs charged to residential customers undermine the economic viability of installing rooftop solar panels. The potential profit simply does not outweigh the costs.
Power Distribution
Over the past few years India has made impressive progress in overall power generation capacity but the same is not true for the power distribution sector.
Now, a paradoxical situation has arisen, on one hand state distribution companies (DISCOMs) lack the means/finances to buy power from power generating units leading to severe power cuts and blackouts and on the other hand surplus power is available in the hands of power generators due to which power generators are running at less than full capacity.
This poor state of State DISCOMs is because of the inability of successive State governments to implement the crucial pricing reforms.
Since long, DISCOMs have been tasked with the procurement of power from power generators and its distribution to the consumers. Being under the control of state governments, they have served as tools of populism year after year.
While free power to farmers has been the one example often in the limelight, the beneficiaries of subsidized power are a far larger group distributed across interest groups. Power theft is another major factor adding to the huge losses incurred by DISCOMs.
The result has been balance sheets severely dented by debt as DISCOMs have borrowed heavily to compensate for the lack of revenues from consumers.
Aggregate Technical & Commercial losses
The concept of Aggregate Technical & Commercial losses provides a realistic picture of loss situation in the context it is measured. It is combination of energy loss (Technical loss + Theft + inefficiency in billing) & commercial loss (Default in payment + inefficiency in collection). Discoms have also missed the year 2019 UDAY target to bring down their Aggregate Technical and Commercial (AT&C) losses to 15%. The primary reason is the failure of discoms to collect the full cost that they pay for power.
The total debt burden of DISCOMs has continued to increase at a rapid pace over the years, which experts say could pose a severe threat to the banking sector.
The NDA govt. launched a new scheme in Nov 2015, to improve the situation of the DISCOMs, Ujjwal Discom Assurance Yojana (UDAY), and it is up to the states whether to join it or not.
UDAY
Ujwal DISCOM Assurance Yojana aims to provide financial and operational turnaround of power distribution companies and is aimed at long term affordable and accessible 24×7 power supply to all.
It had a target of making all DISCOMs profitable by 2018-19 through four initiatives such as improving operational efficiencies of DISCOMs, reduction of cost of power, reduction in interest cost of DISCOMs, enforcing financial discipline on DISCOMs through alignment with state finances.
Under this programme, States had to take over 75% of DISCOM debt over two years i.e 50% of DISCOM debt shall be taken over in 2015-16 and 25% in 2016-17.
States were to issue non-SLR including SDL (State Development Loans) bonds in the market or directly to the respective banks / financial institutions (FIs) holding the DISCOM debt to the appropriate extent.
DISCOM debt not taken over by the state were to be converted by the banks / FIs into loans or bonds.
Performance of UDAY
Implications for State Governments
It is important to address the root cause. State governments need to allow the discoms to price power fairly and transparently. There is now enough evidence to prove that there is no alternative.
Other interventions would only postpone the problem and increase the fiscal burden. At a broader level, distribution is not the only problem that the State needs to address in the power sector. Tariff for solar power has been falling and hit a record low of Rs 2.36 per unit last week.
Increasing solar power supply will affect capacity utilisation in thermal plants. While higher solar power production is desirable from an environmental standpoint, it is also critical to keep thermal plants viable to meet overall power demand.
Policymakers need to find a balance so that thermal plants don’t become unviable, leading to a demand-supply mismatch. Smooth functioning of both generation and distribution sectors is critical for sustainable economic growth.
Liquidity injection for DISCOMs Under Atmanirbhar Bharat financial stimulus
Power Finance Corporation will infuse liquidity of Rs 90,000 crore to DISCOMs against receivables. Loans will be given against state guarantees for the exclusive purpose of discharging liabilities of DISCOMs to Gencos. Central Public Sector Generation Companies shall give a rebate to DISCOMs, which shall be passed on to the final consumers (industries).
‘Saubhagya’ Scheme:
Pradhan Mantri Sahaj Bijli Har Ghar Yojana –‘Saubhagya’ was launched in 2017. Under Saubhagya free electricity connections to all households (both APL and poor families) in rural areas and poor families in urban areas will be provided.
Rural Electrification Corporation (REC) has been designated as nodal agency for the Saubhagya scheme.
The scheme aims to achieve universal household electrification in all parts of the country.
All DISCOMs including Private Sector DISCOMs, State Power Departments and RE Cooperative Societies shall be eligible for financial assistance under the scheme in line with Deen Dayal Upadhyaya Gram Jyoti Yojana(DDUGJY).
The prospective beneficiary households for free electricity connections under the scheme would be identified using SECC 2011 data. However, unelectrified households not covered under SECC data would also be provided electricity connections under the scheme on payment of Rs. 500 which shall be recovered by DISCOMs in 10 instalments through electricity bill.
Challenges Remaining:
2.No 24*7 power supply-While the median hours of supply increased from 12 hours in 2015 to 16 hours a day in 2018, it is still far from the goal of 24×7.
Energy Efficiency Services Limited (EESL)
It is a joint venture of NTPC Limited, Power Finance Corporation, Rural Electrification Corporation and POWERGRID.
It is set up under the Ministry of Power (India) to facilitate implementation of energy efficiency projects.
Objectives:
Mitigate climate change by implementing energy efficient LED based street lighting.
Reduce energy consumption in lighting which helps DISCOMs to manage peak demand.
Street Lighting National Programme (SLNP)
Under the SLNP programme, over 1.03 crore smart LED streetlights have been installed till date, enabling an estimated energy savings of 6.97 billion kWh per year with an avoided peak demand of 1,161 MW and an estimated greenhouse gas (GHG) emission reduction of 4.80 million tons CO2 annually.
LED streetlights have been installed in various states across the country, helping generate approximately 13,000 jobs to support the Make in India initiative.
The power utilities of states where the installation of LEDs has been implemented save up to 50% in electricity bills.
By March 2020, SLNP aims to replace 1.34 crore conventional streetlights in India with smart LEDs.
UJALA
The main objective of the Unnat Jyoti by Affordable LEDs for All (UJALA) is to promote efficient lighting, enhance awareness on using efficient equipment which reduce electricity bills and help preserve the environment.
UJALA is a flagship project of the Govt. of India where it wants every home in India to use LED bulbs so that the net power or energy consumption rate comes down and the carbon emission rates can also be checked
Schemes:
Previous Year Questions:
What is infrastructure?
Role of infrastructure in an economy
Physical and Social infrastructure
Initiatives of GOI in boosting infrastructure
Issues of financing and mobilisation of resources
Investment models