1.

25 MW Wind Capacity Installed in Tamil Nadu

The Energy Crisis:

Future Directions for India’s Energy Policy
Systems Research Institute Prepared by:
sri@pn1.vsnl.net.in Gireeja Ranade
Pune, August 2004 1
Objective of this Presentation
• As India’s oil consumption is increasing, world oil
supply will soon stabilise and then start dwindling
while oil prices are bound to rise further
• For economic as well as environmental reasons we
need to shift to alternative non-polluting sources
of energy.
• The aim of this presentation is to raise questions
and provoke discussion regarding the future of
India’s energy policy and to consider various
possible solutions
2
 Sections of the Presentation
1. Global facts on Oil 24. Tackle the Transport Industry – Urban – 1
2. Our Oil Obsession 25. Tackle the Transport Industry – Urban – 2
3. World Oil Supply 26. Energy Reduction in Industry
4. World Oil Demand 27. GNP reductions after Oil Price rise
5. India’s Energy Demand 28. The transition toAlternative Energy Sources
29. Electricity From Renewable Sources
6. The Oil Peak 30. More Renewable Energy
7. Peak Oil
31. Hydrogen – Not a Feasible Fuel
8. Contradicting Optimistic Views
32. Watts From the Winds – 1
9. Oil Economy
33. Watts From the Winds – 2
10. Future Exploration 34. Super Solar Power –1
11. Future Extraction 35. Super Solar Power – 2
12. Illustrating Oil Extraction process 36. Renewable Energy Policy
13. ERoEI
Formulating a Strategy – 1
14. Future alternatives 24. Formulating a Strategy – 2
15. Non-conventional Oil to the Rescue? 25. Formulating a Strategys – 3
16. After Oil – Natural Gas? 26. Formulating a Strategys – 4
17. SOS – The Energy Emergency! 27. Formulating a Strategys – 5
The Way to a New Tomorrow 28. The Transition
1. Sorry – There are Limits to Supply 29. A Smooth Transition? – 1
2. Reducing Our Requirements 30. A Smooth Transition? – 2
3. The Population Predicament – 1 31. A Smooth Transition? – 3
4. The Population Predicament – 2 32. References – 1
5. Tackle the Transport Industry 33. References – 2 3
Our Oil Obsession
• Our civilization has evolved based on an abundant
supply of cheap oil
• The transportation industry and agricultural
fertilizers heavily depend on oil
• The current world oil production and consumption
rates are almost equal
• World oil consumption grew 2.9% from 2003 to
2004 (projection from Quarter 1, IEA, 2004)
• Oil demand is projected to rise to 121 million
barrels per day by 2025 (International Energy Outlook, EIA,
2004)
4
 World Oil Supply

90.00
80.00
Million Barrels per Day

70.00 Total OECD

60.00 Total OPEC

Former USSR
50.00 China

40.00 Other Non-OECD

Total Supply
30.00
20.00
10.00
0.00
2000 2001 2002 2003

Source: EIA, 20045

 World Oil Demand
World Demand
2001-2004
90 Growth Rate:
80 1.8 %p.a.
Million Barrels per Day

70
60 Brazil
50 India
40 China
30
Europe (OECD)
20
US
10
0 World
2001 2002 2003 2004
6
Source: IEA, 2004
 India’s Energy Demand
• From 2001 – 2004, India’s oil
demand has been growing by
Oil Demand
2.68% but it will grow by
7 6.33% from 2003 – 2004
6 (projection from Qtr 1, IEA, 2004)
5
• Oil and gas represent 38% of
4 China
India’s energy consumption
Mb/d

3 India

2 (IBEF, 2004)
1 • By 2010, India will be the
0
fourth largest consumer of oil
2001 2002 2003 2004

Summary of Global Oil Demand

and gas in the world (IBEF,
(Mb/day) 2004)
• (In fact, China’s demand growth is
even more - disastrously - rapid)
7
 Peak Oil
PRODUCTION

• ASPO (Association for the Study of Peak Oil and Gas) predicts8
world oil production will peak around 2007, as shown above.
 Contradicting Optimistic Views
• The Energy Crisis is often overlooked based on the
following misconceptions:
1. “Higher prices will bring in larger investments, which will
lead to more production”
2. “Rise in prices will lower consumption”
3. “Oil shale and tar sands will replace conventional oil”
4. Fudging of reported reserves by oil companies and countries
for political/economic reasons
5. “Many previous ‘crisis’ predictions proved wrong – this one
will too”

9
 Oil Economy
• The world market can be said to depend on OPEC almost
entirely since it has 77% of the current world oil reserves
• The day-to-day market prices of oil reflect many factors like the
current stocks, shipments, economic situation, speculative
investment, etc. and not so much the size of reserves of oil
• We have now reached a stage in the exploitation of the earth
where trying harder to produce more oil can have only limited
results
• Oil consumption on a short-term basis does not depend on the
price of oil, as is the case for other goods. There is a large time
lag before consumers shift to alternatives or reduce demand
• In fact, some experts believe that a rise in oil prices increases
demand on a short term basis. E.g Oil and natural gas demand
growth rates in China have been in the range of 7-15% per year
since 1999, despite the tripling of oil prices since then 10
 Future Exploration
• The major oil fields in the world have already been
discovered – the largest fields are always found first
• Except for some parts of the China Sea and of the
western desert in Iraq, major regions in the world have
been fully explored.
• Advances in geological technology allow us to predict
promising areas for oil – we now know reasonably well
where new oil will be found
• Oil in the Caspian Sea has high sulfur content which
corrodes the pipes and is expensive to extract and
refine. Caspian Sea oil is not likely to become a
significant factor in the world oil scenario. 11
 Future Extraction

• The best known extraction techniques are already in use in many

of the giant fields in the Middle East
• Increase in the fraction of Oil-in-Place which is actually
recovered will require diligent field management, technical
knowhow, motivation and discipline, as well as capital
investment, which may not always be feasible
• Oil which can be recovered using these techniques could give us
only a breathing break, e.g. advanced recovery from Indian
fields could amount to 4 MMM bbl more (Narayanan, 1999). At
current Indian consumption rates, this would give us about 4
years more supply, though at world consumption rates, this will
last for less than 2 months

12
 ERoEI
• Oil is important to us as a source of energy; it is not a
mineral resource
• A certain amount of energy must be invested to recover
oil from wells
• ERoEI (Energy Returned on Energy Invested) must be
greater-than-one for the extraction to be useful
• Oil is not like gold – the energy invested to extract the
gold is irrelevant
• If enhanced extraction requires more energy input than the
output oil contains, clearly, that oil will never be extracted

13
 Non-conventional Oil to the Rescue?
• “Non-conventional” oil produced from oil shale and tar
sands may become economical as oil prices skyrocket
• Canada and Russia may have 300 billion bbl of tar sands
and shale oil. Venezuela has 1.2 trillion bbl of oil (mixed
with heavy metals and sulfur) (Campbell, 1998)
• Extraction from oil shale and tar sands is slow, expensive,
heavily polluting and resource- (e.g. water) and time-
consuming
• It may not be possible to achieve the necessary rates of
production to meet demand by processing oil shale / tar-
sands, even when it is economical
14
 After Oil – Natural Gas?
• Natural Gas cannot be a permanent replacement for oil
• Use of natural gas in daily life, (e.g. as transport fuel)
requires extensive infrastructure build-up
• The production of natural gas will peak between 2020 -
2030 as well, hence it is only a temporary solution
(Goodstein)
• Delhi has shifted to running all its public transportation
buses on gas, greatly reducing the levels of air pollution
• India does not have large gas reserves. The best option
for India is to obtain gas from Iran, but a gas pipeline
across Baluchistan (Pakistan) may have significant
security liabilities
15
SOS – The Energy Emergency!
• We seem to be running out of the cheap
sources of energy.
• No solution is immediately apparent
• The date of the oil peak is widely debated in
geological circles around the world.
• We need to refocus our attention to the more
practical question of ‘What next?’ rather
than debating ‘When?’

16
 The Way to a New Tomorrow
• Three approaches to solution
– Increase supply
(Scientists/Technicians/Managers)
– Reduce demand (Economists / Policy makers)
– Alternative sources (Scientists and Economists)
• Efforts are required in all three arenas

17
Sorry – There are limits to
Supply
• Geological, technical and economic
constraints limit supply growth
• With advanced technology, we are aware of most of
the new discoveries which will be made
• Increases in the ratio of recovered oil to Oil-in-Place
are also limited; optimistic predictions (of such
increases) should be viewed skeptically
• Possibility of production improvements from
exploration and extraction are useful but limited
• Increase in supply will only postpone, but not
alleviate the problem. 18
 Reducing Our Requirements
• Curbing demand and wanton use of energy resources
is a much more effective and practical strategy
• Energy conservation efforts must be taken up by
Government bodies – and private agencies - on a large
scale. Very large savings are possible.
• Energy prices should be graded to punish wasteful
behavior and reward efficiency
• The three major areas to attack are
– Energy reduction in industry
– in Transport -- by the Population
19
 The Population Predicament – 1
• India has a comparatively low per
capita energy consumption of 1.5
barrels/capita-year, but it is increasing
(Europe-Japan-US consume 12-25 barrels/capita-year,
McKillop, 2004)
• Large population growth will itself
cause an increase in energy
consumption
• World population grew 0.33% faster
from 1979-1999 than did world energy
production
20
The Population Predicament – 2
• Policies to reduce population could be oriented
towards high energy consumption groups
• Indian society is based on large families with many
children. This makes effectively implementing a
birth control policy much harder.
• A one child policy must consider sociological and
cultural issues.
but…
• Efforts to reduce population will go a long way
towards reducing demand for energy
21
 Tackle the Transport Industry
• 90% of the transport industry is fueled by oil
• Improve public transportation – quality of vehicles
and comfort of journey - use specialised bus-bodies
for different services.
• Major obstacle – Convenience of private vehicle v/s
that of public transportation
• Encourage railway use for long distance goods
transport. Trains running on electricity are more
environment friendly as well as more energy
efficient, since the frictional force of
steel on steel is the lowest
22
Tackle the Transport Industry – Urban 1
• Unified ticket/pass valid along all routes could make
the journey more comfortable and viable
• Have a shuttle service in residential areas to enable
the commute to bus station
• Have different types of bus routes serving different
customers
– E.g. Point-to-point Express buses for the business
traveler at peak hours; but also frequent buses with
more stops for shoppers / casual travelers
– Gradation in quality of buses – a/c buses, luxury
buses, regular buses etc, to suit the convenience of
the passenger
23
Tackle the Transport Industry – Urban 2
• Private contractors could operate large bus
stations, with facilities like bookstores, cafés,
restaurants…and parking
• Involve employers to encourage use of public
transport (e.g. Bus-passes through employer etc)
• Provide late night service and early morning
services
• Etcetera

24
Energy Reduction in Industry

• Indian Industrial associations have had energy-

conservation programmes for a long time.
• There are many energy-efficiency engineers
• Now we need a Crash Programme, with many
more incentives and bonuses for energy reductions in
processes, product design and product user -- and
penalties for failure.
• Japan has shown that it is possible to drastically
improve its GNP:Energy ratio ..
25
GNP reductions after Oil price rises
• Although Japan imports virtually all of its oil, rising crude
prices do not hurt as much as they have in the past because
Japan's economy has now been made less oil-dependent.
• Japan's dependence on oil for its energy needs, which
stood at 77% around the time of the first oil crisis of 1973,
has now dropped below 49%, according to Japan's Agency for
Natural Resources and Energy.
• This decline reflects the progress of efforts in industry
to reduce the amount of oil and energy used. As a direct
result of these efforts ...
•For a $10 increase in oil price, according to the IMF (2004),
Japan’s GNP would lose 0.4%,. By way of contrast,
• China’s GNP would lose 0.8%;
• The Philippines’ GNP would lose 1.6 %
• India’s GNP would lose 1.0 % 26
The transition to Alternative
Energy Sources
• Demand can only be reduced in limited amounts
• To sustain our population, we must make an
effective shift towards alternatives, and preferably
to renewable sources of energy
• A smooth transition to the new sources of energy
is also crucial and the importance of this may be
overlooked. We need to start this transition
mechanism soon, even if the oil peak may not be
immediate

27
 Electricity From Renewable Sources
• Maximal generation of electricity from renewable sources,
like wind and hydro, on a large scale, is one direction
India could move toward in the post-peak era.
• Wind farms are still very underdeveloped in India, they
can be linked to grids based on long distance transmission
of electricity at HV-DC which has very low losses
• Electricity is an environmentally friendly option, as its use
does not result in any emissions
• Electric vehicles could become economical with rising oil
prices (Efficiencies of 50% are envisaged assuming renewable sources, battery
losses of 20%, regenerative braking, etc… Rechsteiner,2004)
• Hydel Power has been explored in our country; the
potential in Nepal has been explored, but not yet tapped
28
 More Renewable Energy
• Energy from biomass and household use of solar
energy can effectively be implemented at a more local
level
• Biomass today generates about 468 MW (MNES, 2003.)
• Biomass potential could be about 19,500 MW of
which 16,000 MW could be grid quality power (MNES,
2003.)
• Solar power for purposes of cooking and drying has
been used for many years in our country.
• A box solar cooker for small families can save 3-4
LPG cylinders / year. Larger cookers for 40-50 people
can save up to 30 LPG cylinders / year (MNES, 2003.)
29
 Hydrogen – Not a Feasible Fuel
• Hydrogen is not a means to generate energy – it is an
energy carrier
• Conversion of energy from one form to another always
involves a loss of energy
• The breakdown of water to obtain hydrogen for fuel
cells and convert it to electricity will necessarily result
in a loss of net energy; hydrogen will always be more
expensive per unit energy than the energy source used
to produce it (Rechsteiner, 2004)
• Many friends of hydrogen fuel cells fail to consider all
the processes involved – compression, liquefaction,
transport, storage, re-expansion etc, while calculating
the practicality of hydrogen fuel (Rechsteiner, 2004)
30
Watts From the Winds – 1
• India’s wind power potential has been assessed to
be 45,000 MW but the installed capacity is
only 1,700 MW (MNES, 2003)
• Even so, India is the fifth largest wind power-
producing nation in the world (MNES, 2003)
• Locations having annual mean power density of 150
MW at 30 meter height can be considered
suitable for projects (Bakthavatsalam, IREDA, 2000)
• Wind energy will prove to be one of the main sources
of renewable energy in the future
• The ERoEI for wind energy is very high – in
the range 80 – 100 (Wind Power Note, 1997)
• Despite high initial energy and monetary investment, the
zero fuel costs make them economical on a life-cycle 31basis
 Watts From the Winds – 2
• A 1MW wind farm required, in 2000, an investment of
USD 1 million & annual maintenance cost of USD
15,000 with a payback period of 5-6 years and FIRR
(Internal rate of return) of 29% (Bakthavatsalam, IREDA, 2000); the
economics are, in fact, improving every day with larger
generators (currently upto 3 MW per unit!)
• Wind farms have short building times of 2-20 weeks
(Rechsteiner, 2004)
• Other advantages include no emissions, no fuel or
disposal costs and low maintenance requirement
• Wind energy is one of the largest contenders to build
our energy future – we need to realize this and act!
• Fluctuation in power output with wind-speed requires
either a largish grid or a mechanism (e.g. pumped
hydro) to store energy 32
 Super Solar Power –1
• India has the advantage of being a
tropical country which receives more
than 5,000 trillion kWh solar energy
per year.
• The main obstacle in utilizing solar power is the
high technology cost involved and low energy
density
• Solar energy can be exploited using two methods:
– Solar photovoltaic
– Solar thermal
33
 Super Solar Power – 2

• Solar water heaters are

being commercialized
and the pay back period
varies from 2–6 years
(MNES, 2003)
• Solar Photovoltaic power
projects of an aggregate
of 2.5MW have been
established in the country 2500 lpd Solar Water Heating System at Teachers'
Training Center at Bellary, Karnataka
(MNES, 2003)

34
 Renewable Energy Policy
• Renewable energy currently accounts for 3700MW, about
3.5% of total installed capacity from all sources (MNES,
2003)
• Solar power development has the largest budget of all
renewable energy sources
• The budget for wind energy development is much smaller in
comparison. The potential for large scale power generation
from wind appears to be much higher than that of solar, and
is also less capital intensive. Wind energy deserves more
attention.
• The current policy seems directed towards increasing use of
renewable energy sources for remote and rural areas where
grid power is not available. In addition to this, we need to
focus now on replacing electricity from fossil fuels by35
solar and wind on a larger scale
 Formulating a Strategy – 1
• We are not sure when oil is going to peak – we cannot predict
the oil peak accurately because of uncertainty of data and
technique -- but it does not matter. We need to start action NOW.
• There are three aspects to consider in our energy outlook, and
each must be coordinated with the other two for the effort to be
successful. Isolated implementation will be ineffective. These
aspects are:
Who is involved?
– Increase of supply (Scientists / Technicians / Managers)
– Reduction of Demand (Economists and Policy Makers)
– Alternative energy sources (Scientists and Economists)
36
 Formulating a Strategy – 2
• We should endeavor to increase supply; but not rely on
any significant increase, and plan for the worst
• Our growing Population, the Transport sector and
Industry have the most significant impact on our energy
consumption and improvements here will have far-
reaching effects
• Tax and Incentive Policy decisions to encourage
conservation and check carelessness should be
implemented
• Control of supply and demand has limited scope;
therefore - implementation of alternative sources is
imperative for our survival
37
 Formulating a Strategy – 3
• Research and Development money may be spent on
studying, researching and evaluating various new
possibilities, such as methane hydrates and hydrogen
fuel cells, to determine their potential, but
• Given that India is a developing country with limited
resources, and many needs for investment, we must be
very conservative when making decisions about large
operational investments in such new technologies
• India should channel operational investments towards
more proven, but under-exploited, energy resources
such as wind energy, and proven techniques of
improved oil recovery from existing wells 38
 Formulating a Strategy – 4
• Renewables, Renewables, RENEWABLES!!!
They will help us answer all the questions about
the future of energy
• Localized applications – Solar and Biomass
• Large scale applications – Wind, Hydro, Solar
• Policy is currently focused on use of renewables
where conventional power supply does not reach,
or is impractical. We need to start pushing for
renewables to replace other power sources
• Wind Energy is the most promising – Non-
polluting, great potential, economically feasible
39
 Formulating a Strategy – 5
• Lastly, but not the least, we should also direct
attention to facilitating a smooth transition
between the current energy sources and the next
generation of energy sources. This transition
period could be as long as 20 years.
• Effective planning and diligent
application will take us
towards a bright
tomorrow

40
 A Smooth Transition? – 1
• Any transition to alternative energy sources will be a massive
world wide event – comparable to the extinction of dinosaurs,
or to the dot-com era. It will involve changes in lifestyle for
everyone
• Therefore, India needs a unified energy policy. There is today
a lack of coordination between the various ministries dealing
with Coal and Hydro, Electricity, Petroleum, Non-
conventional energy, and Scientific energy research.
• Systems (a consultation process? an organization?) must be
established to coordinate their policies and develop a unified
energy policy for India. Such a policy should take into
account petroleum depletion, conservation efforts, and the
transition to renewable sources, as well as other relevant
issues, such as pollution-control and global warming
(which constrain many options, such as using more Coal). 41
 A Smooth Transition? – 2
• The transition to the next generation of energy includes
-- Political recognition, at the highest level, of the importance of this transition
– Accumulation of (our own) reserves of extractable oil through technological
innovation
– Time-targeted set up of plants for alternative and renewable energy
– Time-targeted and sector-wise reduction in our petroleum consumption and CO2
generation (which leads to Global Warming)
– Anticipation of geo-political and economic changes that will occur in the world as
related to energy issues
– Identification of specific sectors where reforms need to be implemented
– Prudent decision making regarding investment in research and development in
newer energy sources (e.g. methane hydrates)
– Implementation of effective and transparent politico-economic policies to
encourage the setting up – and profitable survival -- of renewable power plants,
such as wind farms, micro-hydel power plants, solar thermal: covering issues such
as subsidies v/s buyback v/s tax rebates v/s simplified licensing, as well as other
incentives, and administrative facilitation.
 
42
 A Smooth Transition? – 3
• The transitional changes must be gradual and will involve long
term planning and policy, starting from today
• India as a developing country may have an advantage over
more developed countries; we have the opportunity to set up
infrastructure with a broader outlook; our economy is not yet
as locked into petroleum as some others - and has a low
percapita consumption.
• Renewable sources of energy are preferable in many ways to
the use of fossil fuels, we don’t need to wait till we run out of
oil to change over
• Global policy needs to be considered so that we can continue
importing oil till we can sustain ourselves with other energy
sources – thus, collaboration with other nations to introduce
global rationing is definitely an idea to consider
43
 References – 1
• Ministry of Non-Conventional Energy Sources, Annual Report 2003, India
• Notes on Demands for Grants, 2001-2002, MNES, India
• Wind Energy Development Incentives in Selected Countries, Louise Guey-Lee, EIA
• Wind Energy in India, V. Bakthavatsalam, Indian Renewable Energy Development Agency
Ltd., India
• Power Generation from Wind Energy in India, www.techo-preneur.net
• Potential for use of renewable sources of energy in Asia and their cost effectiveness in air
pollution abatement
o Tata Energy Research Institute, India
o Energy Research Institute, China
o Wageningen Agricultural University, The Netherlands
o IIASA, Austria
• Wind Power: experiences and future direction, TERI, India www.teri.org
• Viable Alternatives, Arcot Ramchandran, TERI, India
• Ten Steps to a Sustainable Energy Future, Rudolf Rechsteiner rechsteiner@rechsteiner-basel.ch
• The Association for Study of Peak Oil and Gas, Newsletter 42, June 2004 www.peakoil.net
• Energy Information Administration (EIA), India Report, March 2003 www.eia.doe.gov
• EIA website data, World Oil Supply 2000-2004
• The End of Cheap Oil, Colin J. Campbell & Jean H. Laherrère, Scientific American, Mar 98
44
 References – 2
• Nationmaster.com
• Worldoil.com
• Radovic Oil, 1999
• Oil market report, IEA, June 2004 www.oilmarketreport.org
• Oil Strategy and Energy Economic Considerations for India, Andrew McKillop, March 2004
• Indian Energy Strategy and Central Asia, Maj. Gen S.C.N Jatar
• Interview – Dr. Colin Campbell, Petroleum Geologist, Dec 2002 www.peakoil.net
• The Future of Energy, Guinness Atkinson, 2004
• India’s Quest for Energy, India Brand Equity Foundation, 2004
• Challenges and Opportunities for Re-development of Mature Fields, Dr. Kottilil Narayanan,
Petrotech, 1999
• Energy, Technology and Climate: Running Out of Oil, David Goodstein
• ICFAI Questionnaire, Oil Shock v/s Global Economy, Replies and Comments, Andrew McKillop
March, 2004
• Energy Trends, Country Profiles, India 2000
• Three World Oil Forecasts Predict Peak Oil Production, Richard C. Duncan, Institute on
Energy and Man
• United States Geological Survey data
• Predicting the World Oil Peak, Cavallo, April 2003
• Asia Times Online Ltd, August 2004 www.atimes.com 45