Akshay Oorja or Akshay Paisa?

Who said the Indian government is dull?! It loves to party, all it needs is an excuse. In case you missed the full page adverts by the Ministry of Non-Conventional Energy Sources in the national dailies, August 20th (Rajiv Gandhi’s birthday) was celebrated as Akshay Oorja Divas (Infinite Energy Day!), with the customary book releases, plaque-unveilings and “Run for Green Energy” marathons across the country.
In a country where 20000 villages still need to be electrified, people need to consume more, not less energy, and cheap, reliable energy sources are imperative for better standards of living, the Ministry of Non Conventional Energy Sources (MNES) – the only one of its kind in the world – surely wins the White Elephant Ministry award. In an energy-poor economy like ours, a continuing government-sponsored crusade promoting ‘Green’ (or renewable) energy is unfathomable.
Consider this: The bogey of impending energy crises and doomsday scenarios proclaiming vanishing fossil fuels have been proven wrong repeatedly. In India, proven reserves of coal alone would last more than five hundred years. Recent studies indicate that no more than a quarter of India’s known oil and gas receives have seen serious exploration activity. Commercial exploration by the private sector could yet lead to huge oil and gas discoveries. The comfortable reserves position has been reflected in the real prices of fossil fuels, which have declined steadily since the 70’s. New technologies have dramatically reduced pollution and environmentally harmful emissions from fossil fuel based electricity generation units.
Not only is there enough ‘conventional’ energy, renewable (read wind, solar, and biomass – nuclear energy is not politically correct enough for the greens) energy sources also fail most technological and economic efficiency tests. Renewable energy technologies are still primitive compared to fossil fuels. A single fossil fuel plant can generate hundreds of MWs of energy, while the capacity of renewable energy plants is significantly less. (according to one estimate, it would take over 3 million solar photovoltaic plants to generate enough electricity for Delhi’s current consumption needs!) Capacity utilisation in a fossil fuel based plant can be as high as 90%, while the most efficient ‘green’ plants can notch up only about 30% capacity utilisation.
Renewable energy sources are also generally intermittent: wind speeds vary, and the sun does set! Storage is another problem with renewable energy sources.
Contrary to popular perception, even though the raw material is ‘free’, renewable energy is not cheap either. Renewable energy plants have both high capital costs (large land requirements, investments in transmission infrastructure) and high operational costs. Low capacities of the plants mean that economies of scale are practically non-existent, and the low capacity utilisation results in a very high per unit cost of output. Also the intermittent nature of the ‘raw material’ means money has to be spent on back-up supplies of fossil fuels.
All this means that renewable energy plants cannot possibly compete with conventional power plants unless they are propped up by massive subsidies, which is exactly the case. Currently renewable energy sources contribute less than 2% of total power generation in India and nearly all of that rests on taxpayers’ money. (Read the sordid tale of the Delhi Energy Development Agency, the Delhi government version of MNES, here). Estimates of the total government support in the form of subsidies, grants and tax-breaks to renewable energy projects range from Rs 5000 crores to Rs 25000 crores.
Government mandated imposition of renewable energy when technology and the markets are not yet ready for it can only mean higher opportunity costs for consumers – higher energy prices and diversion of scarce funds from use in other sectors.
Economic poverty relates directly to energy poverty: and the Indian government is only perpetuating both by distorting incentives, intervening unnecessarily in energy markets, and overregulating existing conventional energy sources.