India's integrated energy policy

The integrated energy policy of India, which has been in the making since 2005, finally received Cabinet approval in the last week of December 2008. The report of the expert committee set up to define the integrated energy policy was available in 2006. However, it is only the press release of the 2008 version that is available at present and we can hope to see the full document soon. The salient features of the integrated energy policy outlined in the press release must be lauded. These features cover all the desirable elements of an enlightened policy, including moving to full cost pricing; having a consistent tax structure across each energy sector; public sector autonomy, competitive operations and targeted subsidies. The government now needs to go ahead and define/strengthen the mechanisms by which we would be able to translate the principles contained in this document into reality. The integrated energy strategy for the country would imply, at various levels, an integrated approach to this entire sector: consistent data collection and compilation; for defining both the short and long-term energy demand scenarios; for understanding the linkages between development choices in other sectors of the economy (eg. urbanisation, transport and agriculture) and the energy sector; for pricing energy resources in a consistent manner as well as for ensuring consistency in the regulatory frameworks. At an institutional level, India has been experimenting with various mechanisms for implementing such a coordinated strategy starting with the advisory board on energy that was set up in the early 1980s; to having an integrated energy ministry with a single cabinet-level minister (supported, of course, by a bureaucracy representing each energy sub-sector); to setting up, most recently, the Energy Coordination Committee under the chairmanship of the prime minister of India. None of these mechanisms, prior to the latest one, at least, seem to have stood the test of time. If the Energy Coordination Committee can ensure effective coordination at the policy level, then the focus of efforts to follow an integrated strategy would shift to redefining clearly the role of a ministry as one primarily of policy making, while leaving the translation of policy into strategy and implementation with regulatory commissions. The appellate bodies are, of course, there to address grievances, if any. It may also be desirable to re-visit the effectiveness and advisability of having an independent regulatory agency for each energy sector, instead of a single energy regulator. Additionally, the differential levels of empowerment of each of these regulatory agencies also challenge the implementation of an integrated energy strategy. A key proposal of the policy that needs to be supported is that of tax neutrality across energy sources. This combined with full cost pricing should remove the grouse of the renewable energy industries regarding the absence of a level playing field to a large extent and give us a true estimate of cost difference between renewable energy and conventional energy forms. Having said that, and in support of the energy strategy of the country, the government should also ensure that the fiscal structure governing energy intensive appliances/equipments results in the economy moving to a more efficient, environmentally benign path. India has recognised the need to promote energy efficiency and to reduce energy demand for several decades, albeit without too much success in implementation. A serious exercise must be undertaken to determine the incentives required to move the economy in this direction and to compare the costs of these efficiency-led incentives against the real subsidies provided to various energy forms. The press brief does not give enough detail on the issue of gas pricing, which continues to be a complex issue. The policy very rightly recognises the fact that the use of natural gas is completely tied to the very large infrastructural investments that are required for this purpose. However, while it adopts the principles of separating the pure wires business (T&D network) from the energy flow in the electricity sector, it has not attempted to apply a similar concept for gas supply and pricing. The scale of India’s energy challenge is huge and the future quite uncertain. A large part of this uncertainty arises from factors that are beyond our control: the global demand/supply for energy that would impact availability and prices for India; the technological progress that we might see internationally both in energy supply and consumption arising out of climate considerations as well as the discovery of newer energy forms. It is, therefore, imperative for us to revisit this policy at periodic intervals and be able to dovetail short-term requirements into a longer-term strategic vision.