The Future of Energy Markets in India: Structure and its Regulation

1. IITK REACH Symposium 2008 Theme: Future of Energy The Future of Energy Markets in India: Structure and its Regulation Anoop Singh Dept. of Industrial and Management Engineering, Indian Institute of Technology Kanpur Kanpur - 208 016

2. Outline • Energy and Economic Growth • Interdependence of Energy Markets • Reforms in • Power Sector • Natural Gas • Coal • Case for a Multi-sector Energy Regulator

3. Energy Indicators So: Report on Integrated Energy Policy

4. Energy Vs. GDP So: Report on Integrated Energy Policy

5. Energy and Economic Growth • Economic growth significantly depends on availability of energy inputs at economical prices. • Energy mix is determined by • Resource Availability • Technological Options • Economics • Environmental Considerations • Energy Security

6. Interdependent Energy Markets • Electricity • Natural Gas • Coal

7. Interdependent Energy Markets • Policy and Regulatory Environment outline the evolution of the industry structure (towards a competitive outcome). • The structure of energy markets determines the outcome in terms of investment, supply, technology choice, access and price. • Interdependence of energy markets further highlight the need for greater scope for energy sector reforms.

8. Power Sector

9. Power Generation Capacity by Mode and Ownership (31st March 2007; in MW) Note: This excludes 14636 MW captive generating capacity (MW) connected to the grid.

10. Vertically Integrated (erstwhile) SEBs } G Vertically Integrated SEBs T D C C C

11. Electricity (Amendment) Act 2007 D RS C C C Wholesale Competition - Post Electricity Act 2003 G Captive IPPs Traders T BS

12. Structure of Power Sector

13. Why Fuel Sector Reforms are important?

14. Sector Wise Coal Consumption (1970-71) (million tonnes)

15. Sector Wise Coal Consumption (2004-05) (million tonnes) Significantly high share by Power Sector.

16. Ownership Wise Coal Production (1970-71) (Total = 72.95 million tonnes)

17. Ownership Wise Coal Production (2004-05) (Total = 382.62 million tonnes) Significantly high share of Govt. Sector.

18. Sector Wise Demand Projection for Natural Gas (2007-08)

19. Sector Wise Demand Projection for Natural Gas (2011-12)

20. Supply Projection for Natural Gas (2007-08)

21. Supply Projection for Natural Gas (2011-12)

22. Power Sector Development Depends Significantly on Fuel Sector Reforms • Power sector has been liberalised and is expected to see greater share of private sector activity • Coal sector remains largely within the domains of the government. • Slow Pace of reforms in the coal sector. • Natural Gas market regulator has limited scope. • This influences Supply (Quantity), Price as well as contractual design for fuel supply to power sector. • Fuel Supply Risk Management – Not feasible for power sector for a longer term.

23. Energy Market Characteristics in India

24. Coal Sector • Largely Unreformed • Gradual Price decontrol • E-auction • Piecemeal Private Sector Investment • Lack of competition • Influence on Power Sector

25. Coal Sector – Policy Developments • Coal Mines (Nationalization) Act 1973 - only public sector companies can mine coal. • Amendments in 1976 and subsequently in 1993 - captive end-use for steel, power, cement allowed coal mining; and • Permitted exploitation of isolated small patches of agencies approved by the State Governments.

26. Natural Gas • Increasing Private Participation • Setting up of P & NG Regulatory Board • Sector ‘Regulation’ yet to take shape Issues • Influence of Gas Allocation Policy • Price Control • Gas Pipeline network access and pricing • Transnational Pipelines

27. Multiple Regulatory Jurisdictions • Sectoral Regulators • Power – CERC and SERCs • Coal – Min. of Coal • Natural Gas – PNGRB • Competition Commission of India • Forward Markets Commission

28. Inter-linkages of Energy Markets • High and increasing dependence of power sector on coal and natural gas. • Absence of a competitive coal market and entry barriers hampers development of power projects. • In spite of ample coal reserves, the power sector faces a great challenge in securing coal linkages. • The sector is witnessing a rent seeking behaviour through ‘hoarding’ of coal mines. • Cross sector merger and competition issues.

29. Case for a Multi-Sector Energy Regulator • The inter-linkages of energy sectors make it an appropriate time for a multi-sector Energy Regulator encompassing “Electricity, Gas and Coal Sector”. • International experience suggest that a single energy regulator brings in regulatory harmonization and is able to address bottlenecks.

30. Energy Sector Regulators

31. Proposal for a Multi-sector Energy Regulator • Why a Multi-sector Energy Regulator • Scope of Regulation • Advantages • International Practice • Way Forward

32. Areas for Collaboration Aspects of energy sources including renewable energy and technologies • Policy • Regulatory • Economics • Financial • Environmental

33. References • “Power Sector Reform in India: Current Issues and Prospects”, Energy Policy, Elsevier, Vol. 34 No. 16, 2006. • “A Market for Renewable Energy Credits in the Indian Power Sector”, Renewable and Sustainable Energy Review*, Elsevier. • “Economic Policy and Regulatory Initiatives to Address Technical Challenges in the Indian Power Sector”, Directions‘06. • “Economics of Iran-Pakistan-India Natural Gas Pipeline: Implications for Energy Security in India”, Submitted to EPW. • “Policy Environment and Regulatory Reforms for Private and Foreign Investment in Developing Countries: A Case of the Indian Power Sector”, 2007, DP No. 64, ADB Institute, Tokyo. • “Rural Electrification in India: Economic and Institutional Aspects of Renewables”, with J. Cust and K. Neuhoff, Submitted to EPRG WP series, University of Cambridge. • Report of the Working Group on Power for the 11th Five-Year Plan (2007-12), 2007, Sub-group on Policy and Regulatory Issues , Planning Commission.