Indias energy intensity rises 10.5% since FY06

Written by Raj Kumar Ray | New Delhi | Updated: Apr 1 2014, 05:30am hrs
India's energy imports have been rising inexorably, amplifying its economy's vulnerability to external shocks, but that was also in good part due to inefficient use of energy, rather than greater demand in the economy. The country's energy consumption rose at a compounded annual growth rate (CAGR) of 9.96% since 2005-06, beating the GDP growth of 8.6% and raising imports of fuels like oil and coal as domestic output growth remained sluggish, a government report showed on Monday.

So, efficient use of fuels and energy itself could significantly tame India's fiscal and current account deficits by reducing energy import bill.

Data from the ministry of statistics and programme implementation (Mospi) on per capita energy consumption and energy intensity of India's GDP follows a recent Netherlands-based Ecosys report, International Comparison of Fossil Power Efficiency and CO2 Intensity, that said thermal power plants in India consume 50% more fuel to generate every unit of electricity than those in Japan, 44% more than plants in France, 36% more than those in Germany and 34% more than US power stations.

What's worrisome is that the energy intensity of India's GDP or the amount of energy needed for increasing one unit of output has gone up significantly from 0.1355 kilowatt hour per rupee since the Lehman crisis to 0.1518, indicating a less efficient use of scarce energy resources.

Economists say that while the rise in energy consumption was a consequence of rising income levels and faster development, the increase in energy intensity could be due to populist measures like free power to farmers, delays in completing projects and a slowdown in overall GDP growth. But there are also technology issues. While the maximum economically useful life of a thermal power plant is 25 years, nearly a third of India's 1.32 lakh MW of coal-fired generating capacity is well past the critical mark.

The Energy Statistics 2014 report released by MOSPI shows electricity consumption has more than doubled from 4,11,887 giga watt hours in 2005-06 to 8,35,513 GWh in 2012-13, a CAGR of 9.24% in seven years. Since 2005-06, coal consumption has grown by a CAGR of 4.3% to 570.23 million tonnes while crude oil consumption grew 6.74% to 219.21 million tonnes and natural gas was up by 3.11% to 34.30 billion cubic metres.

India's per capita energy consumption grew at a CAGR of 8.56% since 2005-06 to 6,748.61 kilo watt hour in 2012-13, almost matching the GDP growth of 8.6% during the period.

However, the situation is somewhat different during 2012-13 when energy consumption growth remained strong at 10.54% while the GDP growth was slower at 5.8%. During 2012-13, consumption of electricity was up 10.54% from a year earlier, while coal was up 6.41%, crude oil rose 7.39% and natural gas fell 16.39%.

Income levels have gone up and so energy consumption is rising. However, when projects get delayed and the economy slows down, the energy consumption may still grow at a robust pace but output growth slows resulting in higher energy intensity ratio," said Devendra Pant, chief economist of India Ratings, an unit of Fitch Ratings.

Care Ratings chief economist Madan Sabnavis pointed to free power for agriculture in some states such as Punjab and said the energy consumption may be going up as the water table keep falling every year while there is no commensurate rise in farm output. Moreover, the manufacturing sector is reluctant to embrace costly energy-efficient technology in times of slowdown. Until we optimise the use of energy and cut wastage, the energy intensity will keep going up, he said.

With the rise in energy demand, India's import of coal has steadily increased from 36.60 MT during 2005-06 to 134.73 MT during 2012-13 while import of crude oil surged from 99.41 MT to 184.80 MT during the same period. With rising fuel imports, the government's subsidy bill and hence the fiscal deficit has also gone up while the current account deficit has widened between 2009-10 and 2012-13.

While use of energy-efficient technology is increasing slowly, energy pricing reforms are urgently required so as to avert the twin deficit, said Pant.