Vandana Gombar: The India-first energy plan

The new way is to lock in maximum amount of super low-cost clean power, or 'base-cost renewables'

The world was introduced to the “America-First Energy Plan” last month, which showed the priorities of the new US President, Donald Trump.  There are three key parts to the plan — lower costs, maximum use of domestic resources such as shale, oil and natural gas, revival of the coal industry —and they are somewhat interrelated.
 
What would an India-first energy plan look like? There is certainly a case for lower costs. Every country would prefer to have the lowest possible cost of energy for all categories of user, a feat which is sometimes managed by offering subsidies. India still has to provide grid access to about 250 million people, who could remain without electricity if it is priced too high. Lower costs would also mean increased consumption, and enhanced productivity.
 
Lower costs and lower prices cannot be secured by diktat, and if they are, the exercise is not sustainable. If the cost of power supply is Rs 5 per unit, and the sale price is Rs 4, it does not take mathematical genius to figure out that the business would be loss-making. And there would be severe ripple effects of the losses on future investments, and on the future supply of power.
 
Here is what happened in East Africa’s Tanzania earlier this year: There was a large deficit in the accounts of Tanzania Electric Supply Company (Tanesco), so it sought a tariff hike of over 18 per cent to control losses, and to clear outstanding debts. The regulator allowed a hike of 8.5 per cent. Tanzanian President John Pombe Magufuli reversed the tariff hikes and fired the head of Tanesco, reportedly saying that such actions ran counter to the government’s bid to provide electricity access to access to more people, and to encourage manufacturing in the country. The question is whether investors will consider cheap power in Tanzania as an incentive to set up manufacturing units or a risk factor?
 

On using the maximum domestic resources available, there can be no argument against it. One of the most abundant domestic resources that India has is the sun, which shines for over 300 days of the year in many parts of the country. The tariff at which developers offer to supply solar power is widely expected to fall below Rs 4 per unit this year, against the previous record low of Rs 4.3. There are other free fuels which India could use better — wind, hydro and biomass, for example. And then there are coal and lignite.
 
The logic of seeking a revival of the coal industry, when cheaper and cleaner sources of electricity are available, is elusive. Such a forced revival goes against the grain of the first objective — lower costs — and cannot be sustainable over the longer term.
 
There is also the issue of what costs to consider. If the polluting effects of coal are added to the cost of power generated, in the form of a carbon emissions tax, or the levy of a substantial cess on coal, the cost of power from coal would be even more prohibitive. In many countries, the cost of power from a new coal plant with emissions control far exceeds that of renewable energy or gas plants.
 
There are those who say that there is no alternative to coal in India because it provides steady base load power. As Bloomberg New Energy Finance argued in a recent report, the new way is to lock in the maximum amount of super-low-cost clean power, or “base-cost renewables”, and supplement it with more expensive flexible capacity. Meanwhile, keep a keen eye on the cost of storage, and electric vehicles.

The author is editor, Global Policy, for Bloomberg New Energy Finance; vgombar@bloomberg.net