By: K Raveendran
The rate of urbanisation in India has so far been slower than other emerging countries. But this is expected to change drastically in the coming decades. So much so that in the next two decades, the country is expected to add a new city of the size of Los Angeles every year.
According to current estimates, some 270 million people are likely to be added to India’s urban population up to 2040. Most of the buildings that will exist in India in 2040 are yet to be built. Urbanisation underpins a massive increase in total residential floor space from less than 20 billion square metres today to more than 50 billion in two decades time.
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These are some of the assumptions used by International Energy Agency to project India’s energy pattern in the coming decades. According to IEA, the Covid pandemic has introduced major new uncertainties into the outlook for India’s energy sector, although it has not altered the key underlying drivers.
Chief among them are urbanisation and industrialisation. Until now, India’s economic growth has been driven mainly by the services sector, rather than the more energy-intensive industry sector. Urbanisation prompts huge growth in demand for energy-intensive building materials, with the demand for steel expected to more than double and that for cement nearly triple. Also projected is a transition in household energy use away from solid biomass and towards electricity.
Rising ownership of appliances and demand for air conditioners mean that the share of energy demand taken by electricity in India’s buildings sector rises from a quarter today to around half by 2040. There is considerable scope for India to expand the application of its Energy Conservation Building Codes and further tighten appliance standards to limit future strains on its energy system.
Transport is currently the fastest-growing end-use sector in terms of energy demand, and urbanisation is expected to foster further growth. In many Indian cities, increasing demand for transport has so far led to much congestion and poor air quality. This has prompted a range of policy initiatives on fuel efficiency and quality, mass transit, and the electrification of transport. However, today’s policy settings are not yet enough to avoid a large projected increase in oil demand for road transport, which doubles by 2040.
Industry is the end-use sector that currently uses most energy, and its share in total final consumption is anticipated to rise from 36 percent today to 41 percent by 2040. As coal use for power generation flattens out, industry accounts for almost two-thirds of the growth in India’s coal demand and becomes the major source of growth in emissions. Moreover, since the majority of goods transported in India move by road, industrial expansion translates into rapid growth in diesel use for road freight, despite initiatives to shift more of the freight market onto the railways.
Efforts to promote energy efficiency and material efficiency, and greater use of natural gas and electricity, in particular for lighter manufacturing, all mitigate the rise in industrial energy use, but there is considerable potential for further efficiency gains. Alongside improved air quality and enhanced energy access, India sees an early peak in energy-related CO2 emissions and a rapid subsequent decline, putting the country on track for net zero emissions by the mid-2060s, says IEA.
The Covid-19 crisis has exacerbated many of the challenges facing fuel suppliers and electricity generators. To some degree this has worked to India’s advantage, as lower prices ease its fuel import bills. But strained balance sheets and uncertainties over demand also affect the prospects for domestic energy investment and supply.
Despite the shock from Covid-19, India’s electricity demand is still projected to grow by almost 5 percent per year to 2040, which is nearly double the rate of energy demand as a whole. India adds capacity the size of that of the European Union to its installed base over the next two decades, with solar PV and wind accounting for more than three-quarters of the capacity additions as their costs fall. By 2030, new solar PV, whether alone or paired with battery storage, becomes competitive with existing coal-fired power.
The rise in demand for electricity is expected to bring with it much greater variability in both supply and demand. On the supply side, this reflects the growth in solar PV and wind. On the demand side it is related in large part to a six-fold increase in peak daily electricity consumption for air conditioning to 2040; higher efficiency standards for this equipment could remove the need for $9 billion to $15 billion of investment in peaking plant capacity.
According to IEA, India’s requirement for power system flexibility rises faster than anywhere else in the world. The achievement of ambitious renewable energy targets which call for 450 GW of non-hydro capacity by 2030 has to be accompanied by a transformation of the power system in order to accommodate this growth, and this requires flexible operation of the coal-fired fleet, robust grids, and battery storage and demand-side response.
India’s ambition to become a ‘gas-based economy’ comes at a time of ample international supply. However, price remains a very sensitive issue for Indian consumers, especially given the complex patchwork of additional charges and tariffs that turn an average wholesale cost of gas in 2019 to an estimated average end user price that is double. If all proposed gas infrastructure were to be built, some 70 percent of India’s population would have access to gas, up from around 3 percent today, but there remain a host of permitting and financing challenges.
India’s ambitions to reduce import dependence for oil and coal rest in part on expanding domestic supply. Despite ongoing efforts to improve the investment framework, this is challenging in the oil sector because of the complexity and the relatively limited size of the domestic resource base. In the case of coal, the domestic resource base is large enough to support increased production, but today’s steep coal production targets are difficult to reconcile with India’s evolving energy needs and environmental priorities, according to IEA. (IPA Service)
