India is the only country of its size with such a serious energy deficit, and the nuclear deal helps correct that.
There is a gap of 16 per cent in supply to meet peak demand for electricity currently in India. These levels are likely to persist even after assuming the ambitious addition of 160,000 mw by 2017. The present indications are that much of this will be thermal. The proportion of nuclear power in the overall energy basket is likely to increase from the present level of 3 per cent to about 9 per cent, with the proposed addition of about 60,000 mw of nuclear power generation capacity by 2032. Japan, the only country to have suffered direct consequence of nuclear attack, today produces roughly 30 per cent of its total electricity from nuclear sources. France produces 80 per cent of its total electricity from nuclear sources. China is already the twelfth-largest producer of nuclear power, but has aspirations to be the fastest growing nuclear power generator — it will produce nearly 40,000 mw from this source in 2020 and will become the largest producer of nuclear power at 130,000 mw in 2030, overtaking the US, which is now the largest producer of nuclear power at 98,000 mw.
The reason this comparison is important is that in the last few years, the paradigm to evaluate the source from which to produce electricity has altered dramatically with escalating oil prices. This has taken the prices of all fossil fuels very high, altering the economics of producing electricity from nuclear fuels. While non-conventional sources are important and gaining weight in the overall supply, they are unlikely to provide the scale that nuclear and hydel energy can possibly produce. India needs to pursue hydel power generation to the maximum potential, but that is another story. Apart from the scalability, nuclear energy intrinsically diversifies the risk away from fossil-based energy sources such as oil, gas and coal, which are getting correlated even closer. This hedge is an important element of the risk mitigation strategy for India’s energy sufficiency, given the huge deficit India has in domestic resources of these fuels. Lastly, nuclear power has the attraction of being a cleaner energy source, as opposed to the environmental disaster that fossil fuels are.
It is not for no reason that China is investing so heavily in nuclear energy. Even though China has far larger reserves of coal and has tied up far more strategic sources of oil and gas than India, it still feels the need to build nuclear power on a gigantic scale. It already enjoys a much superior position with respect to energy security than India, both in terms of adequate supply, and mitigation of risk for future supply with a well diversified energy mix tilting much more heavily towards the less import-intensive nuclear power in the next two decades. The US has already built the largest nuclear power base. This investment in nuclear energy has clearly enabled these countries and others such as Japan and France to overcome the shortage of domestic energy sources and therefore has enabled securing their energy future. India is perhaps a solitary exception — at this size of economy and population and with such a serious deficit in captive energy sources — that does not have a plan to incorporate nuclear as a staple source of energy. That is an unacceptable level of risk both from human sustainability and an economic development perspective.
Thus far, India has been handicapped by restricted access it had to technology and supplies to support a more aggressive nuclear power program. India has a well-defined national stance against signing the nuclear non-proliferation treaty on the grounds of its well-developed safeguard mechanisms and being a responsible nation state, aware of its obligations to keep the world safe. While its progress on the technology front has been well documented, the Indian nuclear program continues to suffer from denial of supplies.
Viewed in this context, the recent decision of the Government to sign the nuclear deal with the United States is a huge breakthrough for India. Of course, the United States and the rest of the world have benefits attendant to this deal. Of course there are some conditions that come with this deal, which might require India to move forward from its earlier position. While there is not complete clarity on these conditionalities, the government has repeatedly assured that the benefits considerably out weigh the costs. There are some concerns on the cost of nuclear power as compared to power generated from other sources. There are three reasons why we need to consider these comparisons very carefully: there is a discontinuity in the cost of electricity produced from fossil fuel from the past, with the huge surge in oil prices in recent times. With China having already embarked on such a gigantic nuclear power program, India’s entry also has the potential to alter the dynamics of this industry dramatically, just as it happened in the communication space. Clearly these two industries dance to very different tunes. Clearly there is far greater hegemony amongst the nuclear supplier group than among telephony suppliers. However, the long term trend to lay greater emphasis on nuclear energy on a global basis, is likely to yield a benefit to nuclear power as compared to the present situation. Thirdly, the longer the time frame for which the comparison is done, the better the nuclear option will turn out, given the seminal trend of depleting reserves of fossil fuels. But even if those cost savings were not significant, the access to nuclear power is needed even as a measure of strategic diversification of India’s energy basket. This is critical to sustain human development in India.
Adequate electricity and the right price and quality is of course key to economic progress of the country. But even more important, electricity is a key element in social and human development. Without electricity there will be no light, no power to reach water, deliver education, communication and vital information that is needed to improve lives of people. With limited electricity, the divide between the haves and the have-nots will increase, as those that have the money will buy it even at higher cost. Lack of electricity for the poor will dampen the trickle down effect and decelerate programs for inclusive growth. Given the larger and growing income disparities, it is essential that a heightened effort be made to incorporate this social dimension in all economic initiatives.
Given the potential to change the lives of millions in India from a poverty-ridden, dark, under-developed economy to one where good economic progress lifts them to progressive levels of livelihood, this nuclear deal ranks as perhaps the most impactful decision that the government has taken in recent years. It opens up a path for greater national self-sufficiency as well as for robust progress on the back of the huge investment potential it opens up for power generation. It also brings India centre stage in the comity of nuclear powered nations as a responsible nuclear state with its attendant opportunities to pursue many related economic activity. The current generation will get the benefit of additional investments and the peace of mind that the future generations have now a good chance to grapple with their power requirements. For these reasons, I think the nation owes our leaders a big salute of appreciation.
The author is the Managing Director & Region Head of Standard & Poor’s, South and Southeast Asia. Views expressed in this article are personal. He can be contacted at r_ravimohan@standardandpoors.com
