Energy imports: India must tap local resources to avert crisis

energy imports, coal energy
India needs to balance its growth and emission goals as storage and grid issues weigh on its transition from coal energy.

India’s energy imports may touch $1 trillion mark by 2026 at the current growth rate, even as the country is struggling to become a $5 trillion economy by the 2025 deadline. A report by independent think tank GTRI says the situation warrants urgent intervention by the government to avoid a financial disaster.

The rise in energy imports in the form of coal, coke, crude oil, LNG, and LPG can be attributed to the tense macroeconomic conditions across the globe. India’s energy imports are growing at 43.6% in FY2023, compared with the previous year. Compare this to merchandise goods imports which are estimated to grow at 4.2%. Energy related imports account for more than a third of the total merchandise import bill. For the current financial year, the energy import bill is estimated to be $260 billion.

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Added to these woes, India also imports goods like photovoltaic cells, and Lithium-Ion batteries which are deployed towards clean energy. The bigger question is where and how is India failing as far as generating energy is concerned, especially when the government is also focussing on clean energy.

Current energy imports in $ billion

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India has taken several policy initiatives such as green hydrogen policy, offshore wind policy, promotion of electric vehicles, introduction of a green day-ahead market, and easing terms for open access to procure green energy. This illustrates the country’s seriousness about making strides towards clean energy. Despite the push, India’s current energy reliance is primarily on coal and crude oil. It would take significant investments to replace these with clean energy sources.

According to a report by GE and EY titled ‘Decarbonization of India’s energy sector,’ India would need significant capital as it transitions towards net zero. The current estimates point to a massive investment of about $10.1 trillion by 2070. While the estimates may vary, policymakers must consider ways to mobilise the required capital.

Measures to reduce energy imports

Ramping up local production of energy from renewable or non-renewable sources is the first step towards reducing energy imports. According to the GTRI report, India must re-energize the exploration of local oil fields and enhance production through coal mines. By enhancing domestic production, India will be able to substantially cut imports and improve its current account situation.

There was a time when India was able to meet most of its crude oil needs, mainly from ONGC’s Bombay High offshore oil field. However, today the nation imports 85% of its crude. India is the third highest energy consuming country in the world and it should be made the highest priority to become self-reliant in energy.

Other than re-exploring oil fields, India must also invest in leveraging other sources of energy such as hydrocarbons as the country has discovered such basins but commercial production is yet to commence. India must evaluate its options to increase local production.

As India still meets most of its energy demand via coal, policymakers must also pay attention towards best utilising Indian deposits as reducing energy bill cannot happen through a dramatic reduction in coal imports. While New Delhi does not have enough scope for reducing the import of coking coal as India does not have high-quality reserves, the import of thermal coal can be managed.

One reason that the country continues to import coal despite having reserves at home is poor utilisation of coal at home. Firstly, India has been largely unable to make high-grade which is favoured by new power plants. These plants cannot deploy the low quality (high ash content of 30-40%) found in Indian coal. Secondly, Coal India Ltd has been unable to increase production and use technology to increase the calorific value of coal, and there are within-country transport restrictions as well. An early resolution of these issues will likely reduce imports substantially.

There are other policy interventions as well which may help in cutting high import bill via clean energy route. In fact, ramping up clean energy adoption is even more suitable for India as it is in direct firing line of climate change effects. The government and policymakers must take active steps towards clean energy adoption. This includes increasing the RPO or Renewable Energy Purchase Obligation to encourage power distribution companies (DISCOMs) to purchase a higher percentage of renewable energy. This will help create a market for renewable energy and ensure that developers have a guaranteed buyer for their energy.

Further, India must implement a Renewable Energy Certificate (REC) mechanism. REC is a market-based instrument that provides financial incentives to power generators for generating clean energy. Further, the government should provide tax incentives to investors in the clean energy sector. These could include accelerated depreciation, tax holidays, and tax exemptions.