Energy Poverty in India and What’s Needed to Address It

By Anil Razdan
Energy Consultant and Chairman,
Energy and Environment Foundation

Former Secretary, Ministry of Power, Government of India
Poverty and inclusive growth

For a developing country such as India, the eradication of poverty is the foundation of the planning process for the economy. Accelerated growth is often the vehicle to eliminate poverty, and adequate energy is central to India’s growth strategies.

Poverty is reflected not only in the disposable income of a household, but also in the level of energy available to a household to meet its need for cooking, lighting, and gainful employment. There is an increasing recognition of the importance of access to clean and reliable energy for poverty alleviation. Improving the poor’s access to modern energy sources can make an important difference to their welfare and can be a catalyst for human development. The UN’s Millennium Development Goals clearly acknowledge that access to energy services is a prerequisite to halve the number of people living below the poverty line by 2015. However, there is also a consensus that ensuring sustainable progress requires solutions to be affordable, limit environmental impact, efficiently use energy resources, and offer energy security.

The concepts of faster growth and good governance were recurring themes during India’s 2014 general elections, which saw a sweeping victory by the Bhartiya Janata Party led by Narendra Modi.

The concepts of faster growth and good governance were recurring themes during India’s 2014 general elections, which saw a sweeping victory by the Bhartiya Janata Party led by Narendra Modi.

Recent acceleration in India’s growth may act as the catalyst needed to reduce poverty rates. During the 11th Five-Year Plan period (2007–2012) India’s GDP growth was 8%, compared with 7.6% in the 10th Five-Year Plan (2002–2007) and 5.7% in the 9th Five-Year Plan (1997–2002). The population below the poverty line declined at the rate of 1.5 percentage points per year from 2004–2010 and has been decreasing faster in recent years. In 2009–2010, an estimated 29.8% of India’s population—350 million people—lived below the poverty line.1

Even so, India is well poised to meet the Millennium Development Goal target of 50% reduction of poverty between 1990 and 2015. Notably, India has a younger population not only in comparison to advanced economies, but also in relation to other large developing countries. The labor force in India is expected to increase by 32% between 2012 and 2032, whereas it will decline by 4.0% in industrialized countries and 5.0% in China.2 These additional workers can add to growth potential, provided that improved health services, education, and skill development are made available to ensure meaningful employment for India’s young men and women.

India’s aspirations and awareness of inequalities can be powerful instruments of change. In the words of Jim Yong Kim, the President of the World Bank Group, “For a very long time, the rich have known to some extent how the poor around the world live. What’s new in today’s world is that the best-kept secret from the poor, namely, how the rich live, is now out.”4

For India, the 21st century can be a period when aspirations to help the poor and the underdeveloped are met. Mere growth is not enough. It has to be faster, more inclusive, and sustainable growth.3 This is the theme of India’s current 12th Five-Year Plan.

India’s 1.25 billion citizens have higher expectations about their future today than they have ever had before. They have seen the economy grow quickly over the last 10 years; a large number of people have benefitted as a result of this growth. This has understandably raised the expectations and impatience of all Indians, especially those who have benefitted less. Meeting these expectations was a central theme during the momentous 2014 general election, which resulted in a sweeping victory for the BJP party led by Narendra Modi.

Assessing Energy Poverty in IndiaA

Poverty largely cohabits with energy poverty. While there are many definitions for energy poverty, a pragmatic view is that energy poverty is the lack of access to modern energy services. At the time of independence in 1947, India’s entire electricity generation capacity was merely 1362 MW, leaving most of the country without adequate access.

Illegal connections and electricity theft are common in India, resulting in loss of revenue and dangerous conditions.

Illegal connections and electricity theft are common in India, resulting in loss of revenue and dangerous conditions.

In 2007 the International Energy Agency’s World Energy Outlook (WEO) focused on China and India. To accurately convey energy poverty and to allow for progress to be measured, the WEO used the Energy Development Index (EDI). Three indicators were used to calculate the EDI:

  1. Share of households using cleaner, more efficient cooking and heating fuels such as LPG, kerosene, electricity, and biogas
  2. Share of households with access to electricity
  3. Electricity consumption per capita

Based on data from 2005, the average EDI for India was 0.295; for reference, this was lower than countries such as South Africa (0.808) and China (0.636), but higher than others such as Indonesia (0.263) and Bangladesh (0.123). Within the Indian states there was wide disparity: The Union Territories had an EDI above 0.707, while 12 states had an EDI well below the national average, between 0.292 and 0.058. Importantly, five highly populated states were among those with low EDIs: West Bengal (0.246), Jharkhand (0.171), Orissa (0.154), Uttar Pradesh (0.142), and Bihar (0.058).4

The 2007 WEO estimated that 412 million Indian people were without access to electricity in 2005. In the Reference Scenario for the future, 60 million people in rural India would still lack access to electricity in 2030. The reference case also projected that the number of people relying on wood and dung for cooking and heating fuels would decline from 668 million in 2005 to 472 million in 2030.

The IEA also estimated that an investment cost of $41/person, translating to a total cost of US$17 billion, would be required to connect all Indian people to electricity. A sum of over US$6 billion has already been spent, as of March 2014, on the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY), a scheme aimed at building accelerated rural electricity infrastructure and household electrification. An equal amount is committed to be spent over the next three years.6

One might expect that the energy access situation should have changed significantly from 2005 as the installed on-grid capacity, which was 146 GW in 2005, has increased to 243 GW as of March 2014. In the same period nearly 125,000 previously unelectrified villages have been electrified, 305,093 villages have received intensified electrification, and 21.7 million households below the poverty line have been electrified under the massive RGGVY effort. However, according to the IEA’s 2011 EDI calculation, which was based on 2009 data and included an additional indicator related to per capita commercial energy consumption, India’s EDI has remained nearly unchanged.7 I believe this means that the IEA’s EDI calculations are not yet fully able to capture all progress toward reducing energy poverty in India and it is worthwhile to consider some different approaches.

In addition to the IEA’s work, other efforts have been made to assess energy poverty levels in India. Researchers from the Swiss Federal Institutes of Technology utilized National Sample Survey (NSSO) data and assumed that energy consumption can be measured at various levels of the energy supply chain: primary energy, end-use energy, useful energy, and energy services.8 An energy access/consumption matrix was created and used to make the following broad conclusions for 1983–2000:

  1. During this period, India’s energy poverty decreased from more than 75% to less than 40%.
  2. The number of people having access to only enough biomass and kerosene to cook only one meal a day decreased from 38% to 14%, while the number of people having access to electricity, and possibly LPG, and cooking two meals a day increased from 3.5% to 15%.
  3. Improvements in access to higher quality energy sources took place at a slightly faster pace than changes in other socio-infrastructural characteristics of households.
  4. Improvements in the bottommost segments of the rural energy poor were sluggish, highlighting the need for large infrastructure investments.

The World Bank sponsored another significant research effort,9 which aimed to measure energy poverty based on energy demand. This work defined the energy poverty line as the threshold at which energy consumption begins to rise with increases in household income. This approach was applied using data from the comprehensive 2005 India Human Development Survey, a household survey that included those living in both urban and rural areas. The findings suggested that, in 2005, 57% of households in rural areas were energy poor while 22% were income poor. In urban areas, the energy poverty rate was 28% compared to 20% income poor. The researchers suggested measures to reduce energy poverty, including support for rural electrification, promotion of modern cooking fuels, and greater adoption of improved cookstoves.

The World Bank-funded work used lighting as an example to illustrate the joint relationship between income and energy use because high-quality lighting services can extend productive activities beyond daylight hours. In addition, electricity contributes to increased income and better educational achievements for school children, information, and entertainment.

Based on data collected in India’s 2011 census, Table 1 provides the number of households using different sources of lighting. Today, electricity supplies nearly 67% of lighting, leaving ample room for improvement. In some cases, houses may be connected to the grid, but may not receive reliable or adequate electricity, due to insufficient generation or transmission capacity or theft. Illegal connections and aging infrastructure are major challenges facing India’s energy suppliers. Loss of revenue and dangerous conditions reveal the need for significant improvements.

Table 1. Household lighting source

Table 1. Household lighting source

India’s Path to Alleviate Energy Poverty

Based on an exhaustive analysis of energy poverty and its ramifications—taking into consideration sustainability, affordability, energy security, as well as the tremendous amount of energy needed to fill the existing gap—I believe the following steps warrant urgent attention.

  1. Increase energy availability for commercial use
  2. Promote all forms of power generation, preferably with cleaner fuels
  3. Concentrate immediately on affordable power
  4. Improve availability of power through healthy distribution utilities
  5. Intensify rural electrification
  6. Undertake household electrification in rural areas that are economically weaker
  7. Promote improved cook stoves for biomass fuel in rural areas
  8. Improve energy efficiency to reduce power consumption and requirement
  9. Promote clean coal technologies
  10. Enhance energy security through the greater extraction of domestic fuel
  11. Appropriately price liquid fuels and electricity to curb wasteful consumption

According to the World Bank, India is the third-largest economy after adjustment for purchasing power parity.10 India is also the fourth-largest consumer of primary energy in the world after the U.S., China, and Russia,11 but it is not endowed with abundant energy resources. It was assessed in early 2014 that India imports 80% of its oil, 18% of its gas, and 23% of its coal.12 Volatile energy prices, particularly of oil, have added to India’s foreign exchange burden. The percentage of imports is expected to increase, as no significant oil discovery has been made in recent years. In addition, India’s offshore gas production has fallen substantially over the last decade, leaving a large number of gas-based power stations stranded.

India is facing an energy dilemma. It desperately needs to maintain the rapid growth experienced over the last decade to alleviate economic and energy poverty. Being heavily dependent on expensive oil imports, which could fill up to 85–90% of oil demand in the coming decades, India’s choices are limited. The under-recoveries of state-run oil marketing companies due to the sale of subsidized diesel, kerosene, and LPG were Rs.161,000 crore (1 crore = 10 million) in 2012–2013 and Rs.140,000 crore in 2013–2014.13 This is on the order of US$24 billion annually. There is also a subsidy of Rs.450 on each cylinder of LPG and a subsidy of nearly Rs.34 on each liter of kerosene. Besides the foreign exchange issue, there is also the burden incurred for heavily subsidizing these fuels. This leads to no viable option other than pushing for electricity, essentially coal-fired, to meet the need for affordable energy.

Table 2 includes the actual and projected sources of electricity. In 2012, coal accounted for 56% of the installed power capacity and 70% of generation. In the 12th Five-Year Plan the Planning Commission projected future sources of electricity. In 2017 the share of coal was projected to be 57% of capacity and 69% of generation. Due to a major emphasis on new renewables, hydro and natural gas’s combined share in generation was expected to be only 14% by 2030.

Table 2. India’s projected electricity sources through 203014

Table 2. India’s projected electricity sources through 203014

The Reality of India’s Electricity Options

Reviewing the actual electricity capacity reveals that even the recent projections underestimated coal’s role. As of 31 March 2014, the capacity of coal was nearly 60% (see Figure 1), nearly three percentage points higher than projections for 2017.

Figure 1. Installed electricity capacity as of 31 March 2014

Figure 1. Installed electricity capacity as of 31 March 2014

It is clear that the workhorse of the power sector in India is coal-based power—a fact that is not expected to change, especially in the face of the need to expand electricity access from affordable sources. The price for renewable power is decreasing, but the average price of most solar power is still twice that for coal-based power. The price of natural gas is becoming unaffordable for baseload power generation. Few power distribution utilities have peaking power tariffs. The price of domestic gas at the well head is expected to double soon to $8.4/MMBTU, while regasified liquefied natural gas (RLNG) is in the range of $10–$12/MMBTU. This would correspond to a variable cost alone of Rs.6–7/kWh, when grid power, mostly coal thermal, is available at about Rs.4/kWh.B

Hydropower capacity additions have fallen substantially in the last decade because new potential projects have been located in areas that are environmentally sensitive, remote, and/or geologically complex. Some hydro projects have been hindered by environmental or forest reviews, as well as by inter-state issues. Considerable opposition from domestic and international environmental NGOs has also developed.

India has developed a strong domestic nuclear power capacity and has a good record regarding safety and reliable operation. An international agreement is also in place for the supply of uranium, as domestic availability is low. However, since the Fukushima disaster local opposition to new nuclear power stations has grown substantially. For instance, the commissioning of a Russian-built 1000-MW light water nuclear reactor at Kudankulam was delayed by local protests in Tamil Nadu.

Even in rural areas, electricity is an essential requirement for enhancing agriculture production and providing drinking water in villages that do not have surface irrigation or water sources. Renewable energy from micro-hydro, solar PV, biomass gasifiers, or wind can provide off-grid solutions for remote or otherwise resource-rich areas. This approach saves investment on high-voltage transmission systems in such locations. However, in the absence of sophisticated microgrid controls, the preference in rural areas is for grid power even though supplies may not exceed eight hours in most cases.

Electricity is provided in rural and urban areas in India through distribution companies that are almost entirely owned by the respective state governments. Unfortunately, many of these entities are experiencing financial difficulty owing to inadequate tariffs set by the regulators and very high aggregate technical and commercial losses. Given their acute financial condition and the mandate to cover diverse customers, they are compelled to buy baseload power not exceeding about Rs.4/kWh. Most distribution utilities do not have peaking power tariffs. Affordability and availability issues make coal-based thermal power the most viable option.

For all these reasons, India is investing in coal. The proposed capacity addition target during the 12th Five-Year Plan (2012–2017) is 88.537 GW (see Figure 2), out of which coal will be responsible for 78% (69.280 GW).

FIGURE 2. On-grid electricity capacity addition target from conventional sources in the 12th Five-Year Plan

Figure 2. On-grid electricity capacity addition target from conventional sources in the 12th Five-Year Plan

Rural Electrification

Realizing the gravity of rural energy poverty and the role of electricity in driving inclusive growth in rural areas, India’s government has launched successive rural electrification
programs. The flagship RGGVY was launched in April 2005 with a 90% subsidy and 10% loan to make up the total project cost in an attempt to electrify all the reported unelectrified villages. The Rural Electrification Corporation has assessed that out of the target 124,139 villages, 108,280 villages had been electrified by 31 March 2014. The others are essentially too remote for grid connection. Similarly, out of the target 602,506 villages for intensive electrification, work has been completed in 305,093 villages. Under this program, which covers 578 districts in the country, 21.68 million below-poverty-line households have been provided free electrification. An independent evaluation of the program in 2012 showed that free connections had provided the targeted poor families with around six to eight hours of daily power supply, and made a positive impact on children’s education, empowerment of women, security, and commercial activity.

Improved Biomass Cookstoves

The 2009–2010 Natural Sample Survey indicated that 76% of rural households still used wood for cooking, as did 17.5% in urban areas.15 It is well known that such low-efficiency, high-emissions energy causes health and environmental problems. From 1984–2003, 34 million cookstoves in rural areas were improved. In December 2009 a National Biomass Cookstoves Initiative was launched to enhance the availability of cleaner and efficient cookstoves. State-of-the-art testing, certification, and monitoring facilities were set up. Field testing and evaluation of community-size stoves for midday meals in eight states was taken up in 2010–2011. The revised standard in August 2013 for thermal efficiency in natural-draft stoves is not less than 25% and, for forced draft stoves, is not less than 35%, with a fairly strong control on emissions.

Clean Coal Technology and Efficiency

Subcritical coal thermal power plants offer an efficiency of 33% (global average). Supercritical plants and ultra-supercritical plants can offer efficiencies of about 40% and 46%, respectively. Shifting to more efficient technologies can result in substantial savings of coal and reduce emissions of CO2 and other criteria emissions by up to 40% compared to plants operating at the global average efficiency. India’s first supercritical unit was commissioned in December 2010. At present, 25 supercritical units with a total capacity of 17,000 MW have been commissioned. It is proposed that 50% of the coal-based capacity additions between 2012 and 2017 will be supercritical. From 2017–2022 it has been proposed that all new coal-based thermal capacity will be supercritical. The country’s first advanced ultra-supercritical plant, under development, is a joint effort of Bharat Heavy Electricals Ltd. (BHEL), NTPC (National Thermal Power Corporation), and Indira Gandhi Centre for Atomic Research. It is expected to be operational in 2017. If coal is to be India’s energy mainstay in the coming decades it would be appropriate to focus on high-efficiency, low-emissions plants.

Demand-Side Efficiency

India has identified 12 focus areas for low-carbon strategies for inclusive growth. They cover energy efficiency programs for designated energy-intensive industries, an energy-efficient lighting labeling program, and a super-efficient equipment program for a large range of consumer goods. The star rating of the Bureau of Energy Efficiency Certification on consumer products helps inform consumers about the energy usage of their purchases. Incandescent bulbs are being replaced by CFLs and LEDs, while fans and cooling devices are labeled for consumer guidance. Green building codes have also been prescribed for public and commercial buildings.

Energy Security

While the country is pursuing an energy-dependent growth path, it is obvious that India’s import dependence will increase substantially; thus, energy security concerns will intensify. To address these issues, some Indian experts are coming together to find solutions by 2030. McKinsey & Company have reported several steps to increase energy independence and limit energy dependence on imports.12 In 2010, India imported 30% of its primary energy requirements and 38% of its primary commercial energy. In a business-as-usual scenario, fuel imports would increase to 51% by 2030. Among initiatives to reduce import dependence to about 20% in 2030 is one to increase domestic coal production to 1220 MTPA in 2030 from 484 MTPA in 2010. This will mean a massive opportunity for coal exploration, mine development, and operation. The measures also include lighting 50,000 villages with solar power, and reducing industry and building power demand by 30% through efficiency. The bright side is that these steps are eminently possible.

Conclusions

India is a vibrant democracy determined to root out poverty and energy poverty. The process may be slow, but it is steady. Success will lie in optimizing domestic strengths, indigenous resources, and the best technologies worldwide. Today, progress can be highlighted by the fact that per capita power consumption nearly doubled between 2002 and 2013, from 567 to 912 kWh.C Power shortages have decreased by more than half within the last two years across India. The silent revolution should culminate in extending benefits of useful, affordable, efficient, and adequate energy to all.

 

NOTES

  1. This section was compiled as a literature review of three separate energy poverty studies in India and is limited to the results of the studies.
  2. A scan of the notified tariff of Central Power Stations as published by the Central Electricity Regulatory Commission in its Annual Report 2012-13 Annex-IV and Annex-VI indicates coal thermal tariffs not exceeding Rs.4/kWh and hydro tariffs not exceeding Rs.5.83/kWh. Tariffs of LNG-based stations ranged from about Rs.7/kWh to Rs.11.6/kWh.
  3. Based on information from the Central Electricity Authority, India. (2014). Data from the Statewise Per Capita Consumption table. Per Capita Consumption = (Gross Energy Generation + Net Import)/Mid-Year Population. Figure for 2012–2013 is provisional.

 

REFERENCES

  1. Planning Commission of India. (2013). Twelfth Five Year Plan (2012–2017), Vol. I, Para 1.24.
  2. Planning Commission of India. (2011). Approach to the Twelfth Five Year Plan, Para 1.18.
  3. Planning Commission of India. (2013). Twelfth Five Year Plan (2012–2017), Vol. I, Para 1.8.
  4. World Bank Group. (1 April 2014). Count on us [speech by World Bank Group President Jim Yong Kim at Council on Foreign
    Relations], www.worldbank.org/en/news/speech/2014/04/01/speech-world-bank-group-president-jim-yong-kim-council-on-foreign-relations
  5. International Energy Agency (IEA). (2007). World energy outlook.
  6. Rural Electrification Corporation. (31 March 2014). Sanctions and achievements for RGGVY.
  7. IEA. (2014). The energy development index, www.iea.org/publications/worldenergyoutlook/resources/energydevelopment/theenergydevelopmentindex/.
  8. Pachuri, S., Mueller, A., Keramier, A., & Spreng, D. (2004). On measuring poverty in Indian households. World Development, 32, 12.
  9. Khandeker, S., Barnes, D., & Samad, H. (2010). Energy poverty in rural and urban India: Are the energy poor also income poor?, documents.worldbank.org/curated/en/2010/11/12952406 (accessed March 2014).
  10. World Bank. (2014). GDP, PPP (current international $), data.worldbank.org/indicator/NY.GDP.MKTP.PP.CD/countries/order%3Dwbapi_data_value_2012%20wbapi_data_value%20wbapi_data_value-last?order=wbapi_data_value_2012%20wbapi_data_value%20wbapi_data_value-last&sort=desc&display=default (accessed March 2014).
  11. BP. (2013). BP statistical review of world energy 2013, www.bp.com/en/global/corporate/about-bp/energy-economics/statistical-review-of-world-energy-2013.html
  12. McKinsey & Company. (2014, January). India: Towards energy independence 2030.
  13. Data accessed from Policy Planning and Analysis Cell (PPAC), Ministry of Petroleum and Natural Gas India.
  14. Planning Commission of India. (2013). Twelfth Five Year Plan (2012–2017), Vol. 2, Table 14.17 and Para 14.50.
  15. Ministry of New and Renewable Energy, India. (2014). Presentation, National Biomass Cookstoves Programme (NBCP), www.mnre.gov.in/schemes/decentralized-systems/national-biomass-cookstoves-initiative/

 

The content in Cornerstone does not necessarily reflect the views of the World Coal Association or its members.

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