Cabinet announces integrated energy policy for sustainable growth

The government has announced an `Integrated Energy Policy' that envisions a roadmap for sustainable growth with energy security over a reasonable period of time. The union cabinet also approved the setting up of a monitoring committee under the chairmanship of the cabinet secretary for the implementation of an integrated energy policy for the country.

The integrated energy policy aims at sustaining an economic growth rate of at least 9 per cent so as to eradicate poverty over the next 25 years.

''Meeting the energy requirements of this growth in a sustainable manner presents a difficult challenge and one that has become more formidable following the steep rise in international energy prices since 2006. It is necessary in this backdrop to evolve an integrated energy policy that provides a coherent framework of policy covering different energy sources in a consistent manner,'' a government release said.

''The primary energy supply (including gathered non-commercial such as wood and dung) must increase at the rate of 5.8 per cent annually for fuelling the growth. Meeting this requirement is a challenge which needs to be addressed through an integrated energy policy.

The integrated energy policy aims to reliably meet the energy demand of all sectors, including the lifeline energy needs of vulnerable households in all parts of the country with safe, clean and convenient energy at the least-cost.

Salient features of the policy are:

  • Provide appropriate fiscal policies to take care of externalities and independent regulation to take care of anti-competitive market behaviour;
  • Both the tax structure and regulatory philosophy applied in each energy sector should be consistent with the overall energy policy should provide a level playing field to all players whether public or private;
  • Taxes should be neutral across energy sources except where differentials in taxation across energy sources are specifically intended to counter differential externalities, such as those reflecting environmental externalities;
  • Subsidies must be transparent and targeted. Consideration should be given to alternative means of achieving the social objectives sought to be achieved by energy subsidies;
  • Promote energy-efficiency by enforcing energy standards effectively;
  • PSUs operating in the energy sector must operate with autonomy and also full accountability to ensure incentives for adequate investment through their own resources and improvements in efficiency in energy production and distribution;
  • India will have to pursue all available fuel options and forms of energy and must seek to acquire new energy sources abroad;
  • India must actively promote technologies that maximise energy efficiency, demand side management, conservation and energy security and this must be done by encouraging domestic research into such technologies and free access to suitable energy related technologies available abroad;
  • For economic efficiency and for promoting optimal investment in energy, energy markets should be competitive wherever possible. Competitive markets would lead to trade parity prices ensuring that energy use and inter-fuel choices would be economically rational. But a truly competitive market requires that there are multiple producers and that there are no entry barriers to new producers or to imports;
  • Energy prices must send the right signal to producers and energy users to conserve energy and, where relevant, switch to preferred sources;
  • Prices of all commercial primary energy sources which are tradable should be set at trade parity prices at the point of sale;
  • A phased adjustment of domestic petroleum prices to trade parity prices must be undertaken in a relatively short period;
  • Coal prices should ideally be left to the market and trading of coal, nationally and internationally, should be free. Coal prices should be made fully variable based on Gross Calorific Value (GCV) and other quality parameters instead of the current system of pricing on the basis of broad bands of useful heat value.
  • Trade parity principles cannot be easily applied to natural gas because it requires significant investments in pipelines or, alternatively, in liquefaction, cryogenic shipping and re-gasification for trading. Natural gas price can be determined through competition among different producers where multiple sources and a competitive supply-demand balance exist.
  • Reduce technical and commercial losses in transmission and distribution utilities.
  • Separate the cost of the pure wires business (carriage) from the energy business (content) in both transmission and distribution;
  • All generation and transmission projects should be competitively built on the basis of tariff-based bidding;
  • Set multi-year tariffs and differentiate them by time of day tariff;
  • Incentives for promoting renewables should be linked to outcomes (energy generated) and not just outlays (capacity installed). Alternative incentive structures such as mandated feed-in-laws or differential tariffs or specifying renewable portfolio percentage in total supply would encourage utilities to integrate wind, small hydro, cogeneration etc. into their systems;
  • Fuel wood plantations, bio-gas plants, wood gasifier based power plants, bio-diesel and ethanol should be promoted;
  • Set-up a National Energy Fund (NEF) to finance R&D in energy sector;
  • A number of technology missions, including solar energy mission should be mounted for developing near-commercial technologies and rolling out in a time bound manner new technologies that emphasise nationally relevant sources of energy; and
  • Ensure energy security by : -
    • lowering the requirement of energy,
    • substituting imported fuels with alternatives,
    • expanding the domestic energy resource base,
    • maintaining reserve equivalent to 90 days of oil imports,
    • building strategic stockpile of nuclear fuel to counter the risk of disruption of international fuel supply,
    • acquiring energy assets abroad and setting up energy using industries such as fertiliser plants in energy rich countries.
  • Provide electricity to all rural households through Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) and clean cooking energy such as LPG, NG, biogas or kerosene to all within ten years;
  • Subsidy for electricity and cleaner fuels, kerosene or LPG to targeted households should be delivered through  a system of debit card in phased manner;
  • A large scale socio-economic experiment should be financed to operate community sized bio-gas plants as a commercial enterprise either by a community cooperative or by a commercial entrepreneur. Bio-gas plants on this scale could meet the need for clean cooking energy of a sizable segment of the rural population;
  • Recommended initiatives would have effect on reducing the green house gas intensity of the economy by as much as by one third.