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 IITK REACH Symposium 2008 Theme: Future of Energy

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

Energy Indicators So: Report on Integrated Energy Policy

Energy Vs. GDP So: Report on Integrated Energy Policy

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

Interdependent Energy Markets Electricity Electricity Natural Gas Natural Gas Coal Coal

Interdependent Energy Markets Policy and Regulatory Environment outline the evolution of the industry structure (towards a competitive outcome). 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. 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. Interdependence of energy markets further highlight the need for greater scope for energy sector reforms.

Power Sector

Power Generation Capacity by Mode and Ownership (31 st March 2007; in MW) Thermal Hydro Rene- wable Nuc- learTotal CoalGasDiesel Central Sector State Sector Pvt. Utilities Total Note: This excludes MW captive generating capacity (MW) connected to the grid.

CCC G D T Vertically Integrated (erstwhile) SEBs } Vertically Integrated SEBs

Wholesale Competition - Post Electricity Act 2003 Traders G IPPs BST CCC RSD Captive Electricity (Amendment) Act 2007

Structure of Power Sector

Why Fuel Sector Reforms are important?

Sector Wise Coal Consumption ( ) (million tonnes)

Sector Wise Coal Consumption ( ) (million tonnes) Significantly high share by Power Sector.

Ownership Wise Coal Production ( ) (Total = million tonnes)

Ownership Wise Coal Production ( ) (Total = million tonnes) Significantly high share of Govt. Sector.

Sector Wise Demand Projection for Natural Gas ( )

Sector Wise Demand Projection for Natural Gas ( )

Supply Projection for Natural Gas ( )

Supply Projection for Natural Gas ( )

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 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. Coal sector remains largely within the domains of the government. Slow Pace of reforms in the coal sector. Slow Pace of reforms in the coal sector. Natural Gas market regulator has limited scope. Natural Gas market regulator has limited scope. This influences Supply (Quantity), Price as well as contractual design for fuel supply to power sector. 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. Fuel Supply Risk Management – Not feasible for power sector for a longer term.

Energy Market Characteristics in India Exploration / Licensing Mining /Production /Generation Marketing/D istribution Pricing Electricity---Delicensed* Licensed by SERCs (Dist.) CERC (Tran.) PPAs/CERC/ SERCs/PX Coal Min. of Coal Natural Gas DHG/NELPDHG/NELPPNGRB NELP / to be approved Pipelines – PNGRB

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

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

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

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

Inter-linkages of Energy Markets High and increasing dependence of power sector on coal and natural gas. 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. 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. 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. The sector is witnessing a rent seeking behaviour through ‘hoarding’ of coal mines. Cross sector merger and competition issues. Cross sector merger and competition issues.

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”. 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. International experience suggest that a single energy regulator brings in regulatory harmonization and is able to address bottlenecks.

Energy Sector Regulators

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

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

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