By Ishita Misra
In the 2017 budget, the government made ambitious announcements for the energy sector. These announcements included a 100 percent electrification of all census villages by 2018, the supply of electricity throughout the day in every part of the country by 2022, a reduction in oil imports and an increase in renewable energy capacity.
To help the government make these ambitious goals a reality, the NITI Aayog has drafted a National Energy Policy (NEP). The NEP incorporates the recent developments in energy technology, global energy markets and reflects the priorities of the government. This policy will replace the Integrated Energy Policy that was drafted by the Planning Commission in 2008.
The NEP at a glance
Global developments regarding the energy sector have created a need for India to adopt a new energy policy that incorporates these developments. They comprise of changes in the energy mix from one that is dependent on fossil fuels to a mix that focuses on renewable energy, changes in the oil and gas markets resulting in a fall in their prices, and the development of renewable energy technologies.
In order to deal with the energy-related issues that plague the country in such a way that it incorporates the global developments, the NEP has set national energy objectives and has created strategies to meet them. The key objectives are to provide access to energy to everyone at affordable prices, improved energy security resulting in lesser dependence on imports, greater sustainability and rapid economic growth.
The policy recommendations made by NEP
The NEP has recommended certain policies to the government in order to meet the objectives. The policy emphasises on concerns of energy efficiency, regulatory oversight, air quality considerations, effective overseas engagement and the development of technology. Currently, India is highly dependent on imports of oil, gas, and coal to meet its energy requirements. To improve energy security and reduce import dependency, the NEP suggests diversification of import sources and increased domestic production.
The NITI Aayog has asked the government to promote mass transport systems like metro rail and levy a higher tax on big cars and SUVs in order to improve air quality. According to the NEP, tax differentiation between cars or levying higher taxes on big cars will promote the use of more fuel-efficient cars and will lead to a decrease in car emissions. Furthermore, to encourage the development of technology and investments in the energy sector, the NEP has asked the government to provide a conducive regulatory framework.
The recommendations also include increased commercialisation of energy producers, transporters, and distributors as it will lead to more efficient markets and a resultant reduction in energy prices. In accordance with this, the NITI Aayog has suggested the conversion of the seven subsidiaries of Coal India Ltd (CIL) into independent companies so that they can compete against each other. Due to its monopoly in the market, the CIL has been able to charge the coal buyers very high prices. However, if the CIL was split into seven individual companies, the competition would cause the companies to become more efficient and the prices of coal to come down.
Cash crunch and the way forward
According to the NITI Aayog, the biggest challenge for the NEP is the extensive need for capital. The energy sector will need almost $150 billion of capital investment annually till 2040. Moreover, the amount of capital needed by the energy sector will have to be generated without impacting the availability of capital in other sectors to ensure that they continue to grow. The problem of cash crunch is worsened by the high-interest rates on loans as compared to developed countries. The reluctance of the private investor to invest capital because of the higher risk associated with the energy sector as compared to other sectors also remains a hurdle.
The NITI Aayog has recognised some methods to deal with this cash crunch. They include external commercial borrowing and the use of overseas equity in financially viable, long duration projects. Another option is to attract private capital through financial tools such as extended debt tenure, viability gap funding, and dollar-denominated returns. As per the draft of the NEP, the Ministry of Finance will be responsible for promoting investment in the energy sector, attracting both Indian and foreign investors.
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