1.

25 MW Wind Capacity Installed in Tamil Nadu

The Energy Crisis: Future Directions for Indias Energy Policy

Systems Research Institute
sri@pn1.vsnl.net.in Pune, August 2004

Prepared by: Gireeja Ranade

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Objective of this Presentation

As Indias 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 Indias energy policy and to consider various possible solutions
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Sections of the Presentation

1.
2. 3. 4. 5.

Global facts on Oil

Our Oil Obsession World Oil Supply World Oil Demand Indias Energy Demand

6.
7. 8. 9. 10. 11. 12. 13. 15. 16. 17. 1. 2. 3. 4. 5.

The Oil Peak

Peak Oil Contradicting Optimistic Views Oil Economy Future Exploration Future Extraction Illustrating Oil Extraction process ERoEI Non-conventional Oil to the Rescue? After Oil Natural Gas? SOS The Energy Emergency!

24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 24. 25. 26. 27. 29. 30. 31. 32. 33.

Tackle the Transport Industry Urban 1 Tackle the Transport Industry Urban 2 Energy Reduction in Industry GNP reductions after Oil Price rise The transition toAlternative Energy Sources Electricity From Renewable Sources More Renewable Energy Hydrogen Not a Feasible Fuel Watts From the Winds 1 Watts From the Winds 2 Super Solar Power 1 Super Solar Power 2 Renewable Energy Policy

14. Future alternatives

Formulating a Strategy 1
Formulating a Strategy 2 Formulating a Strategys 3 Formulating a Strategys 4 Formulating a Strategys 5 A Smooth Transition? 1 A Smooth Transition? 2 A Smooth Transition? 3 References 1 References 2

The Way to a New Tomorrow

Sorry There are Limits to Supply Reducing Our Requirements The Population Predicament 1 The Population Predicament 2 Tackle the Transport Industry

28. The Transition

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)
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World Oil Supply

90.00 80.00 70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00

Million Barrels per Day

Total OECD Total OPEC Former USSR China Other Non-OECD Total Supply

2000

2001

2002

2003

Source: EIA, 2004

World Oil Demand

90 80 70 60 50 40 30 20 10 0 2001 2002 2003 2004
6 Source: IEA, 2004

Million Barrels per Day

World Demand 2001-2004 Growth Rate: 1.8 %p.a. Brazil India China Europe (OECD) US World

Indias Energy Demand

Oil Demand
7 6 5 Mb/d 4 3 2 1 0 2001 2002 2003 2004 China India

From 2001 2004, Indias oil demand has been growing by 2.68% but it will grow by 6.33% from 2003 2004
(projection from Qtr 1, IEA, 2004)

Oil and gas represent 38% of Indias energy consumption

(IBEF, 2004)

Summary of Global Oil Demand (Mb/day)

By 2010, India will be the fourth largest consumer of oil and gas in the world (IBEF,
2004)

(In fact, Chinas demand growth is even more - disastrously - rapid) 7

Peak Oil
PRO UCTION

ASPO (Association for the Study of Peak Oil and Gas) predicts 8 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

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
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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
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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
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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
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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?

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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

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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

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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
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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
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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
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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
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Tackle the Transport Industry Urban 2

Private contractors could operate large bus stations, with facilities like bookstores, cafs, restaurantsand 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

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Energy Reduction in Industry

Indian Industrial associations have had energyconservation 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 ..
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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), Japans GNP would lose 0.4%,. By way of contrast, Chinas GNP would lose 0.8%; The Philippines GNP would lose 1.6 % Indias 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
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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 28 potential in Nepal has been explored, but not yet tapped

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)
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Watts From the Winds 1

Indias 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 powerproducing 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-cycle31basis

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 32 hydro) to store energy

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
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Super Solar Power 2

Solar water heaters are being commercialized and the pay back period varies from 26 years
(MNES, 2003)

Solar Photovoltaic power projects of an aggregate of 2.5MW have been established in the country
(MNES, 2003)

2500 lpd Solar Water Heating System at Teachers' Training Center at Bellary, Karnataka

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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 by 35 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)
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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 37 is imperative for our survival

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 Nonpolluting, great potential, economically feasible
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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
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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, Nonconventional 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.
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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 dont 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
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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. Laherrre, Scientific American, Mar 98
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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 Indias 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 45 Asia Times Online Ltd, August 2004 www.atimes.com