A major energy transformation is around the corner. A shortage of hydrocarbons in light of the rapidly growing economies of developing countries, their continuing profligate use in developed countries and the growing threat of climate change ordain it.
By 2030, India will need three to four times as much energy as we currently use, if our economy is to grow at 8% to 9% a year. We face huge challenges here. We import nearly 80% of our oil consumption - which was 133 metric tonnes (Mt) in 2008-09 and is expected to be around 142 Mt in 2010-11. By 2030, we may need from 350 Mt to 500 Mt of oil a year, depending on our growth rate and the policies we follow. Our domestic production of crude is expected to be around 35 Mt and we will need to import the rest. Will we be able to access the oil we need?
While we have the resources to produce the coal we require, our ability to produce it as needed has been constrained by a number of hurdles. Environmental and other clearances form one such block - I am told Coal India needs 26 clearances before it can open a mine. The public sector monopoly and procedures that tie it up are another hurdle. Concern over climate change is a third.
Meanwhile, though total coal production in 2011-12 is expected to be around 570 Mt, from a long-term point of view, we are short of coal. Our known extractable reserves will not last beyond 2050 if our coal consumption continues to grow as it has been growing over the past 25 years. Meanwhile, the recently prescribed 'no-go' areas for coal mining, as laid down by the environment ministry, have also reduced extractable coal reserves and we may now run out of coal earlier than expected.
Thus, we face two main challenges: Where do we get our oil, and what to do when our coal runs out?
World oil production is currently at about 4,000 Mt and is expected to reach 5,200 Mt by 2030. Of course, depending on the price of crude oil, production could vary between 4,700 Mt to 6,000 Mt. India's import of 300 Mt to 450 Mt will constitute 6% to 9% of global production, up from less than 3% today. We could try to access oil by acquiring oil assets abroad. While this would help us face the market risk of high oil prices, it would not necessarily increase our access to oil. In times of global shortage, the government of our host country could forbid the export of its oil. Instances of such resource nationalism are already being seen.
We can diversify the risk of such nationalism by acquiring assets in many different countries - and by having strong trade relations with these countries, so that we could pose the counter threat of halting vital exports to these countries if they threatened to stop the export of oil. In other situations, how worthwhile it is to acquire assets abroad depends on the price we have to pay, the probability of finding oil and the projected price of crude oil in the future. It is largely a commercial decision. If other investments promise higher returns, then the foreign exchange earned could provide the same insurance against high oil prices as oil assets abroad would have done.
So how high can oil prices go? In the very short term, they could go quite high if countries fail to mobilise alternatives and restrict demand. However, in the long run, price rise will be restrained by the availability of alternatives. Among these are shale gas or tar oil and renewables such as ethanol and biodiesel. Sugarcane- and corn-based ethanol require land and water and are therefore not a serious option for us, since this would compete with food production. Cellulosic ethanol made from agricultural waste and byproducts could be a very large and very important source that would not compete with food production. We could produce 200 Mt to 300 Mt of cellulosic ethanol a year. The only catch is that the technology is not yet economically viable. Many countries are working on it and Denmark is even in the process of setting up a commercial plant. I therefore expect a major breakthrough in this technology over the next few years. Once that happens, oil prices will level out.
Shale gas production is increasing rapidly too, and this is one reason gas prices today are almost delinked from crude prices. Shale gas production will help moderate oil prices on the international market.
Natural gas could also be an important substitute, even for transport fuel, as we have seen in CNG buses, taxis and three-wheelers. Due to the increased availability of natural gas, most cities will be served by piped gas instead of LPG, with the latter provided to rural households as a clean cooking fuel. Most rural households cook with biomass-based fuels such as wood and dung, which cause much indoor air pollution and lead to respiratory diseases, eye infections and premature deaths - by some estimates, as many as half a million death a year.
The dual threat of high oil prices and climate change has stimulated action towards energy efficiency around the world. In fact, the younger generations, feeling the burden of climate change, will push even harder for energy efficiency and renewable energy.
So how do we replace coal? Alternatives that greatly reduce carbon emissions are nuclear and solar energy. Their carbon emissions come from the construction of the plant and equipment manufacture, but not from the plants themselves.
We are, unfortunately, short on nuclear fuel, with domestically available uranium enough to run over their lifetime only 10,000 MW of first-generation nuclear plants of the type we have today. To put that in perspective, our installed capacity in the country is currently about 170,000 MW and the projected requirement for 2030 is about 800,000 to 1 million MW. However, our strategy is to build fast breeder reactors that can run on the plutonium and depleted uranium produced by the first-generation plants as they generate electricity. The fast breeder reactor in turn generates more plutonium than is put in. Thus it breeds plutonium, as the name implies, and after eight to 10 years, there is enough plutonium to start a new breeder reactor. This way, when fully recycled with the domestically available uranium, we could set up and operate 500,000 MW of fast breeders. The catch is that this takes time and, over the next 20 years, based only on our own resources of uranium, we could set up no more than 50,000 MW of nuclear plants.
Of course with the agreement with the Nuclear Suppliers Group, we could import uranium as well as first-generation plants and nuclear capacity could be created earlier.
In the third stage, the fastbreeders are used to convert thorium to uranium 233, which is a fissile isotope, and then run nuclear plants on it. We have vast amount of thorium and the ultimate capacity could be as large as 5 million MW.
Given the timeline for developing a nuclear plant, solar energy becomes our most readily available energy resource. With just 10 million hectares of land covered with today's commercially available photovoltaic cells with an efficiency of 15%, we could collect all the projected energy requirements of 2035. The land could be desert land or other unproductive land and there would be no competition with food production. Unfortunately, the cost of this electricity is around Rs 13 per kilowatt hour (kWhr), compared to Rs 3 per kWhr for power generated by coal-based plants. With technical progress and mass production, the costs could be brought down. Thus the primary objective of our solar mission is to make the cost of solar energy comparable to the cost of coal-based energy by 2020. In order to do this, the first 20,000 MW would need to be subsidised in a way that encouraged innovation and cost reduction. I feel confident that we will make solar cost-competitive to coal by 2020 or soon after.
Once we have abundant power, we can think of using it to produce hydrogen, which can be used as a transport fuel. Also, if the technology could be developed to cheaply convert solar energy directly into hydrogen, one could even envision small power packs that could be mounted on the roof to supply electricity for lighting at night and hydrogen to run the car as well. This could be as revolutionary a game-changer as the cellphone. Such a development is feasible, but one cannot count on it to come about soon enough. Transforming Energy
Given the limited hydrocarbon resources of the country, even if there were no threat of climate change, it would be imperative that we develop solar technology for power and cellulosic ethanol for transport fuel. I am confident that we will see these get developed over the next decade or so, heralding a transformation of the country's energy sector.
(Kirit Parikh is the chairman of independent research institute Integrated Research and Action for Development (IRADe) and former member of the Planning Commission)
The views expressed by the author are personal