Energy Costs for the Indian Economy
India is the world’s third largest producer and consumer of electricity. The developing economy’s energy consumption is expected to grow 4.5 percent annually to 2035 as more middle class families upgrade their lifestyle and energy spending habits. The energy policy of India is largely defined by the country’s expanding energy deficit with heavy imports of crude oil, natural gas (and LNG), and coal. Total annual investment in energy sector by India was $75 billion (4.1% of global annual investment of $1.85 trillion)
Average electricity rates have steadily increased over the past decade from 3.4 rupees per kWh to 6.09 rupees per kWh in 2019 (~80% increase over 10 years). Rates are often subsidized and artificially low, resulting in heavy liabilities and insolvencies of the local distribution companies (discoms). It is further exacerbated with high technical and non-technical losses (around 28%) and cost recovery from tariffs is only around 80%. The industrial tariffs cross subsidize household and farmers.
At an annual consumption of 1,291 TWh, the total electricity cost is around $105 billion (3.7% of GDP). This represents a higher share of GDP that developed economies like the US which spends ~1.5% of its GDP on its electricity use. This is likely because spending habits of people in rich countries evolves from essential sectors like electricity to luxury sectors like services as well as increased spending on sectors like healthcare.
The government of India has lofty goals for its power sector: a target of 175 GW from renewable energy (RE) by 2022, and 40% of capacity from RE by 2030. With the sharply declining RE costs, Indian power sector is poised to shift from a thermal-based system to a renewable-based system. Large investments in new interstate transmission network would be necessary to prevent large scale curtailment and instead send the excess power to regions with low RE capacity. The private sector is increasingly owning more generation capacity (currently ~48%) compared to the traditional model of central and state owned generation.
