Can India Fuel Economic Growth With a Diversified Energy Policy?

This week, India is holding its annual energy conference—India Energy Week. The convergence of politicians, industry executives, and energy experts in Bengaluru presents an opportune time to examine the Asian country’s current and future energy needs.

I have written before about India’s growing demand for oil and its role as a driver of global oil demand (see here and here), but oil is not the only important fuel for India. Energy traders and international investors should understand India’s current energy mix and why its demand for oil and natural gas should continue to grow.

At 1.4 billion people, India is the second most populous country in the world and has experienced positive economic growth every year since 1980 (with the exception of the pandemic year 2020). Now, India is faced with a great dilemma—how to fuel this continued growth and provide more opportunities to all Indians while limiting pollution and emissions. The solution is to build a diversified plan with infrastructure to fuel this economy of the future from a variety of sources.

To meet the demands of its growing economy and ever-exploding population, India will need to expand its energy capacity to be equal to the entire European Union’s power system by 2040. But India can’t just copy energy policies that have worked in Europe or other countries. Those policies aren’t appropriate for a country as diverse as India and with India’s particular set of natural resources.

Traders and investors looking at India’s future energy consumption should not be hoodwinked into thinking that reports about rising demand for EVs in India imply that India’s oil consumption is ready to plateau. India has a long way to go before its oil demand might peak.

Coal Is Still King

Over the past three decades, India has increased its reliance on coal to power its economic growth. After all, coal is the most plentiful domestically produced option and one of the cheapest for India. In 1990, India sourced about one-third of its energy supply from coal, according to the International Energy Agency. By 2020, coal made up more than 43% of the country’s fuel.

But coal is universally accepted as the least desirable mainstream fuel because the resulting pollution and emissions are severe. Yet, India cannot give up coal because this would cut off millions of striving Indians from the opportunities that come with reliability. Cost and accessibility must be at the forefront of India’s energy diversification strategy.

Renewables Market Growing but Ultimately Limited

While it may seem tempting to embrace solar and wind generation capabilities, this alone is not a responsible plan for India. As leaders gather in Bengaluru, they should not push India to adopt this type of U.S. or Euro-centric energy policy.

Western climate-based energy policies that focus on replacing fossil fuels with renewables aren’t a good fit for India’s diverse environment, population, and economy. Powering India’s future cannot be accomplished with this one-size-fits-all energy policy. In many parts of India, citizens are still seeking access to reliable electricity, but wind and solar do not provide this without reliable baseloads and flexible fuels to accommodate the lack of sunlight or wind.

Nuclear and Natural Gas Provide Reliability & Cleanliness

A good first step for India would be building more nuclear power plants and natural gas power plants to provide a stable baseload of electricity to its citizens, especially those who have never had reliable electricity before. This plan would mean a major investment in nuclear power and perhaps in small modular nuclear reactors to electrify villages and smaller cities. Intermittent sources like wind and solar should be deployed in areas where they will be most effective in meeting additional power needs.

Data from the IEA show that in addition to coal, India’s growing energy demands have been met by burning biofuels and waste, also major pollutants.

Biofuels and waste (primarily wood and animal dung) are used by households that do not have any other source to heat their homes or cook food. But burning so much wood and dung is detrimental to India’s air quality, damages people’s lungs, hurts India’s natural environment, and causes the type of emissions that the world is trying to minimize.

India has launched successful campaigns to provide compressed natural gas for households to use instead of burning wood and dung, but it needs even more natural gas to continue to convert household fuel to this cleaner alternative.

The country can invest in more re-gasification terminals and natural gas pipelines to facilitate the easy importation of natural gas from the Middle East or even from the United States or Canada. This will facilitate the use of natural gas in power plants and for household use.

Targeted Electrification

One hallmark of contemporary western energy policy is the electrification of transportation and residential heating and cooking. While incentivizing electric vehicle adoption in Indian cities with reliable electricity from nuclear or natural gas plants will help reduce smog and gasoline consumption, EVs are a terrible policy to foist on other parts of India. For example, EVs won’t be helpful in areas that still struggle with intermittent electricity or for people who must regularly cross the deserts of Rajasthan, drive along the Himalayas, or pass through the jungles in the center of the country.

Benefits of a Diversified Energy Policy

A forward-looking energy policy for India must recognize the country’s unique diversity. It cannot just focus on powering Delhi, Bengaluru, Mumbai, and Kolkata with cleaner energy sources. The rest of India—the villages and towns and the remote spots—cannot be left behind.

The people in these places also deserve the opportunities that come with reliable electricity and power, even if it means building new infrastructure and importing energy from abroad.

To meet its growing energy needs and diversify its energy sources while keeping in mind costs and opportunities for its people, India cannot afford to cut out any source of energy. It will need to use a mix of more oil, natural gas, nuclear, and renewables if it is to meet its growing demand and offer more opportunities to its people.