Energy security remains an elusive goal

That an integrated energy policy is central to our growth strategy has been stated many times before. Harmonising stakeholders? conflicting interests is not easy. Guaranteeing consumers assured energy at affordable cost has policy implications, which are not symmetric, to, say, pricing energy efficiently, promoting its alternative forms, determining inter-se fuel options to name a few. Besides, sustainable development needs multiple policy changes. The goals are not harmonious; reconciling conflict involves both political and economic choices for which there are no easy answers. The recent Kirit Parikh Report of the Expert Committee on Integrated Energy Policy significantly contributes to the debate. It must be commended for reasons including a holistic view on energy policy, incorporating a variety of suggestions received on the draft report and attempting to balance the interest of all stakeholders. Few will quarrel with the basic thrust of the report and its many sensible recommendations.

The basic problem of implementation, however, needs to be more centrally addressed. Who will implement these or oversee that these are factored in our policy approaches? Securing implementation involves coordinating the policy prescriptions of various ministries and impinges on Centre-state relations. Coalition politics will always inhibit the creation of an overreacting ministry of energy, a pattern seen in many countries.

The report raises some important issues. The opening sentence of the overview which says ?India faces formidable challenges in meeting its energy needs and in providing adequate energy of desired quality in a sustainable manner and at competitive prices? is accurate, if only a bit of an understatement on the seriousness of the problem and not in what it doesn?t say. For instance, the need to encourage demand side management or development, and use of more efficient technologies to improve standards of living at lower energy costs is mentioned a few paragraphs later, but then it moves on to discuss clean coal technologies (supply side) rather than demand side innovation.

The opening sentence?s emphasis on ?competitive prices? rather than sustainable prices also sweeps the problem of under-pricing electricity under the rug. The need to restructure pricing to encourage conservation is raised more subtly in the description of the approach, suggesting policies must reflect externalities of energy consumption.

The demand side, in particular how to shape incentives for conservation and development of efficient technology, needs stronger emphasis. The approach to pricing is sensible but these things have been said before, and must be taken more seriously now. The credibility of the recommendations, in terms of being accompanied by plans to achieve them is mixed. Transparent and targeted subsidies have, fortunately, been incorporated, but how is it to be achieved?

Mix of competition and credible regulatory oversight is a must. The recommendations to separate regulatory functions from the ministries involved in the energy sector should be taken seriously?convergence of ministries, PSUs, and regulators is common in infrastructure sectors. The approach to reducing theft is, in contrast, specifically operational. The proposed GIS and MIS systems for managing energy audits should be put into place as soon as possible.

The discussion on the value of energy saved raises important issues, but it is hard to see what would cause many negawatts to be created unless the merger of the BEE and the PCRA happens quickly to create an effective and credible body to carry out the golden carrot incentives, labeling initiatives, and other best-practices. The list of duties for the proposed autonomous statutory body is excellent; the question is whether, and how quickly, such a body can be brought online. And whether some shorter-term policy options are needed to improve energy efficiency.

On a positive note, the attention to household energy security, especially rural energy security, are commendable. The goal of electrifying all households is ambitious?some thoughts about the components of the proposed ?viable business model? would be useful, but that is a topic unto itself. It is possible, and there are many experiences around the country to learn from. The proposal for debit cards to target LPG subsidies is important.

There are separate recommendations on federal issues and supply side management. On federal issues, it is not unreasonable for resource rich states to demand special compensation. Hydro and coal are national resources, but, the effects of harvest in states are local, and need to be incorporated in the debate on appropriate sharing with shareholders.

Further, does it make sense to compensate the entire state when only a specific area is affected? And, the conferring of benefits to those affected within the general fiscal framework needs closer examination. A targeted mechanism should ensure that those affected by the approaches?almost a sub-sect of the states? population?do benefit from the compensation. Conversely, whether states which have no natural resources should be deprived of power or down-stream manufacturing activity, raises broader issues of more proportionate sharing of natural resources. While this might mitigate against harnessing comparative factor advantages and resource endowments, depriving states who have no coal the benefit of captive energy sources must be seen in the broader context of balanced regional development.

The Parikh Report has raised important issues. Some, concerning demand management, have been discussed here. Others, on supply management and regulatory oversight, will be the subject of the next column. The quest for energy security remains elusive and formidable.