Making the country’s energy secure

Recently, the International Energy Agency (IEA) has acknowledged India would be the fastest growing energy consumer – and market – till 2040. This applies not only to the hydrocarbon sector but also for renewable energy (RE), as fast-declining costs turn solar and wind energy into the main drivers of growth in the power sector.

What does this mean for India, and more importantly, for its energy security? Poised to be among the top five renewables generators in the world in a few decades, moving up several notches from its current seventh position, will renewables solve India’s energy insecurity? After all, despite having an installed generation capacity of around 303 GW – the fourth largest – more than 300 million citizens are yet to gain access to electricity.

Yet, its stagnating domestic oil and gas production has seen import dependency for both growing year-on-year. While low oil and gas prices saw India’s oil and gas bill decreasing despite a rise in import volumes, a combination of OPEC strategy and West Asian geopolitics has led to the price of oil ascending gradually from a low of US $28 a barrel in early 2016 to more than $60 (Brent) currently.

No doubt, oil is not really a major contender for the power sector – except when intermittent power supply compels the use of diesel generators – and here renewables seem to be ruling as prices per unit of solar and wind-based generation are falling rapidly. Prices have dropped from a high of ₹17/unit in 2010 to ₹2.44 per unit by mid-2017 for solar and to between ₹ 3.51 to 5.92 per unit for wind as against coal which stands at around ₹3.20 per unit.

India’s impressive growth of RE generation has led to a vast demand for further growth, which, in turn, has led to huge imports of solar panel modules, mainly because domestically manufactured solar modules were more costly – around 10 to 15 per cent more – than imported ones from China, Taiwan and Malaysia. This led to the Indian government filing a petition for anti-dumping duty on module imports.

That, in turn, led to a growing reluctance by solar exporters, particularly from China, Taiwan and Malaysia, to supply modules to India. In fact, around 89 per cent of solar modules used in India in 2016-17 were imported, and it is unlikely that domestic alternatives will be able to fill the gap. Moreover, the price of imported solar modules have increased by almost 12 per cent since the second half of 2017, due to the increased demand in overseas markets as well as a shortage of polysilicon, an important component in solar panels.

Manufacture of solar panels and wind turbines depend on access to rare earth elements (REE), which are a special class of 17 elements or minerals that have extensive use across various industries, including computer, healthcare, defence systems and batteries, apart from clean energy systems.

As of now, China has the largest reserves of REE and largely controls the market, sometimes even using it as a strategic tool.4 Interestingly, India too has significant reserves of REE. According to some studies, it has the fourth largest reserves after China, the US and Australia. However, despite commencing rare earth mining activities more than five decades ago, India has not leveraged its advantage.

A combination of low-cost Chinese production and lack of R&D, including in extraction techniques and facilities for the separation of individual elements from combined elements, has kept the sector from progressing up the value chain. Taking cognizance of the challenge, the government has initiated a review of requisite policies to provide a fillip to the sector. In August 2017, the Supreme Court directed the central government to revise the 2008 National Mineral Policy by the end of the year and emphasised the need to encourage scientific mining through proper survey and exploration, as well as the need for adopting better mining practices, advancing R&D, and regulation of unauthorised activities.

A new committee has been set up comprising representatives of various ministries and industry – keeping in mind the importance of involving the private sector – as well as representatives of organisations such as Indian Bureau of Mines, Geological Survey of India, Niti Aayog and the Railway Board. One of the main focus areas recommended was improved exploration and scoping of minerals, including rare earth and strategic minerals.

With policies like electrification of the transport sector and sourcing 40 per cent of power requirements from RE, India needs to ensure that it has the necessary primary resources required to power its energy sector if it is to achieve its goal of energy security.

No doubt, finding alternatives to low-priced Chinese REE or developing substitutes will take time and investment. But in the current situation, where China controls the global supply of REE and has even begun stockpiling in preparation for future market demand, efforts to diversify the REE supply chain is critical, both from the economic and security perspectives. (Courtesy: https://idsa.in)

By Shebonti Ray Dadwal