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We need to reform energy pricing structures: Prabhu

According to reports, Former power minister and current chairperson of the Council on Energy, Environment and Water, Suresh Prabhu, in an interview with The Indian Express, spells out his roadmap for the energy sector. Excerpts:

Reforms to expect in energy sector: Now that the dust of the historic elections have settled, it is time to start rebuilding India’s economy and empowering its society.

With a clear majority for the NDA coalition, India has the opportunity to take decisive action with regard to one of the most important stumbling blocks to its renewed and sustained growth — energy. A multi-pronged strategy could make us mukt of inflation pressures, balance of payment pressures and security pressures while yielding greater opportunities for India’s “energy swaraj”. We require a strategic focus on energy matters for boosting growth, creating jobs, checking inflation, improving social development, and for India’s standing in the world.

With rising incomes there is also rising demand for more and better quality of energy. Yet, we are still unable to provide electricity to 80 million households. Analysis by the Council on Energy, Environment and Water (CEEW) found that the absence of sufficient modern energy sources means that consumption of traditional biomass keeps increasing even with rising incomes in rural areas. Energy access is not just a problem associated with poverty and inequality. There are deep structural bottlenecks to supply.

On gas pricing: We need to reform our pricing structures for energy. In our polity, it is difficult to administer shock therapy but we also have to be conscious of necessary reform. Inefficient fossil fuel subsidies and poor targeting of subsidies has ensured that the poor do not benefit while our economy’s macroeconomic conditions worsen.

Pricing reform would need to find balance in three areas: prices that encourage upstream investment while not overburdening the consumer; prices that balance notional energy costs with the real costs on the environment; and prices that balance current economic pressures with those that create opportunities for energy transitions for the future.

Further, our rising dependence on fossil fuel imports makes our economy vulnerable and compromises our national security. We will have to broaden our import horizon through a combination better integration in global energy markets and building an optimal supply infrastructure.

Also, we need greater policy clarity to ensure time-bound statutory clearances for exploration projects and create a level playing field for India and foreign firms willing to invest in exploration and production. Further, infrastructure bottlenecks in the railway network undermine higher coal production while underutilised and concentrated pipeline network prevents expansion of gas supply to demand centres.

Structural reforms: One approach would be to gradually turn our focus to gas, which (if extracted properly) has half the carbon content as coal-based power. Also, an energy transition will also mean a growing share of renewable energy. India’s renewable energy aspirations have many drivers — greater energy access, energy security, responding to local environmental challenges and addressing global climate change risks.

India now has more than 20 gigawatts (GW) of installed wind power and more than 2 GW of solar power (the latter in just three years, in large part due to installations in Gujarat and Rajasthan). Yet, we have not yet established a robust financing ecosystem for renewable energy projects. CEEW’s evaluation of India’s green industrial policy reveals that incentives such as feed-in tariffs and generation based incentives have had less success than preferential tax treatment and income tax holidays.

This is because project developers are worried about the enforcement of contracts and the financial health of state utilities. This has ensured that there is little confidence in the enforcement of renewable purchase obligations and little activity in the renewable energy certificates market. For a country with 30 days of sunshine and upwards of 100 GW of wind potential, it is a shame that we have not addressed such policy barriers adequately.

Manufacturing and job creation: Renewable energy can be an important component of India’s manufacturing revival. This is not to suggest that India should turn protectionist and impose trade barriers. In fact, we have benefited from the imports of solar panels, whose prices have rapidly fallen in recent years.

At the same time, we need not be wholly dependent on imports as well and could, instead, build an R&D and manufacturing base which leverages opportunities in a global market. The top ten importers of solar equipment in the world are also the top ten exporters. India should be part of this global supply chain.

We should promote a Solar Club, bringing together the world’s main countries with solar potential and the world’s leading countries with solar technologies. Such an “S-30” could create a larger market for solar deployment, deepen cross-border manufacturing opportunities, and drive prices down. If we can create conditions for Indian firms to create value across the supply chain, then we would also manage to tap into larger opportunities for job creation in balance of systems, project installation, project management, and servicing and maintenance.

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