The Future of Energy Markets in India: Structure and its Regulation Anoop Singh Dept. of Industrial and Management Engineering, Indian Institute of Technology.

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

RegulationRegulation

Anoop SinghAnoop SinghDept. of Industrial and Management Engineering,Dept. of Industrial and Management Engineering,

Indian Institute of Technology KanpurIndian Institute of Technology KanpurKanpur - 208 016Kanpur - 208 016

IITK REACH Symposium 2008IITK REACH Symposium 2008

Theme: Theme: Future of EnergyFuture of Energy

OutlineOutline

Energy and Economic GrowthEnergy and Economic GrowthInterdependence of Energy MarketsInterdependence of Energy MarketsReforms in Reforms in

Power SectorPower SectorNatural GasNatural GasCoalCoal

Case for a Multi-sector Energy RegulatorCase for a Multi-sector Energy Regulator

Energy IndicatorsEnergy Indicators

So: Report on Integrated Energy Policy

Energy Vs. GDPEnergy Vs. GDP

So: Report on Integrated Energy Policy

Energy and Economic GrowthEnergy and Economic Growth

Economic growth significantly depends on Economic growth significantly depends on availability of energy inputs at economical availability of energy inputs at economical prices.prices.

Energy mix is determined by Energy mix is determined by Resource AvailabilityResource AvailabilityTechnological OptionsTechnological OptionsEconomicsEconomicsEnvironmental ConsiderationsEnvironmental ConsiderationsEnergy SecurityEnergy Security

Interdependent Energy MarketsInterdependent Energy Markets

ElectricityElectricityNatural GasNatural GasCoalCoal

Interdependent Energy MarketsInterdependent Energy Markets

Policy and Regulatory Environment outline Policy and Regulatory Environment outline the evolution of the industry structure (towards the evolution of the industry structure (towards a competitive outcome).a competitive outcome).

The structure of energy markets determines the The structure of energy markets determines the outcome in terms of investment, supply, outcome in terms of investment, supply, technology choice, access and price.technology choice, access and price.

Interdependence of energy marketsInterdependence of energy markets further further highlight the need for greater scope for energy highlight the need for greater scope for energy sector reforms.sector reforms.

Power SectorPower Sector

Power Generation Capacity by Mode and Power Generation Capacity by Mode and Ownership (31Ownership (31stst March 2007; in MW) March 2007; in MW)

  Thermal

HydroRene-wable

Nuc-lear Total  Coal Gas Diesel

Central Sector 27760 5899 0 7562 0 3900 45121

State Sector 39120 3610 605 25786 976 0 70096

Pvt. Utilities 4241 4183 597 1306 6785 0 17113

Total 71121 13692 1202 34654 7761 3900 132329

Note: This excludes 14636 MW captive generating capacity (MW) connected to the grid.

CC C

G

D

T

Vertically Integrated (erstwhile) SEBsVertically Integrated (erstwhile) SEBs

} Vertically Integrated SEBs

Wholesale Competition - Post Electricity Act Wholesale Competition - Post Electricity Act 20032003

Traders

GIPPs

BST

CC C

RSD

Captive

Electricity (Amendment) Act

2007

Structure of Power SectorStructure of Power Sector Licensing Market Structure Status of

Competition Policy Regulation

Electricity - G

Delicensed About 90% Capcity owned by central and state government/ undertakings.

Emerging in Bulk Power; Enabled in Retail Supply

Ministry of Power, State’s Ministry/ Dept. concerning Power Sector

Yes

Electricity – T

Licensed (Natural Monopoly)

Publicly owned. Private investment initiated.

--- - do - - do -

Electricity – D

Licensed (Natural Monopoly)

Largely owned by SEB/distribution companies under govt. ownership except privatised discoms in Orissa and Delhi, and existing private licensees in urban areas.

Enabled (multiple licensee)

- do - Yes

Electricity – R

Licensed - do - Competing retail supply is expected.

Enabled - do - Yes

Why Fuel Sector Reforms are Why Fuel Sector Reforms are important?important?

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

1970-71

Cement3.5 (5%)

Railways, 15.6 (22%)

Power (Utilities)

13.2 (18%)

Steel & Coke Ovens

13.5 (19%)

Domestic (soft coke) 4.1 (6%)

Other Inds., 21.8 (30%)

Sector Wise Coal Consumption Sector Wise Coal Consumption (2004-05) (million tonnes)(2004-05) (million tonnes)

Significantly high share by Power Sector.

2004-05

Power (Utilities),

280.75 (74%)

Steel & Coke Ovens

29.06 (8%)

Other Inds. 28.31 (7%)

Cement, 14.84 (4%)

Fertilizer 2.51 (1%)

Power (Captive)

23.88 (6%)

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

1970-71

17.85, 24%

55.1, 76%

CIL TISCO/IISCO/DVC/Private/Captive Mines

Ownership Wise Coal Production Ownership Wise Coal Production (2004-05) (Total = 382.62 million tonnes)(2004-05) (Total = 382.62 million tonnes)

Significantly high share of Govt. Sector.

2004-05

323.58, 85%

35.3, 9%23.74, 6%

CILSCCL

TISCO/IISCO/DVC/Private/Captive Mines

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

Sector wise Demand Projection for Natural Gas (2007-08) (in MMscmd)

Fertilizer 40.82 (23%)

City gas 12.08 (7%)

Industrial 15 (8%)

Petch., Ref. & Int. Con.

25.37 (14%)

Sponge Iron, Steel 6 (3%) Power 80

(45%)

So: GOI (2007)

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

Sector wise Demand Projection for Natural Gas (2011-12) (in MMscmd)

Power 125 (44%)

Petch., Ref. & Int. Con.

33.25 (12%)

City gas15.83 (6%)

Fertilizer79.36 (28%)

Industrial 19.66 (7%)

Sponge Iron, Steel

7.86 (3%)

So: GOI (2007)

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

Supply Projection for Natural Gas (2007-08) (in MMscmd)

Private & Jt. Ventures23.26 (33%)

ONGC 47.28 (67%)

LNG, 30.45, 30%

So: GOI (2007)

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

Supply Projection for Natural Gas (2011-12) (in MMscmd)

RIL 40 (15%)

GSPC54 (20%)

LNG83.12 (29%)

Private/Jt. Ventures

57.22 (21%)

ONGC 41.08 (15%)

So: GOI (2007)

Power Sector Development Depends Power Sector Development Depends Significantly on Fuel Sector ReformsSignificantly on Fuel Sector Reforms

Power sector has been liberalised and is expected to Power sector has been liberalised and is expected to see greater share of private sector activitysee greater share of private sector activity

Coal sector remains largely within the domains of the Coal sector remains largely within the domains of the government.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 This influences Supply (Quantity), Price as well as

contractual design for fuel supply to power sector.contractual design for fuel supply to power sector. Fuel Supply Risk Management – Not feasible for Fuel Supply Risk Management – Not feasible for

power sector for a longer term.power sector for a longer term.

Energy Market Characteristics in IndiaEnergy Market Characteristics in India

Exploration / Exploration / LicensingLicensing

Mining Mining /Production //Production /GenerationGeneration

Marketing/Marketing/DistributionDistribution

PricingPricing

ElectricityElectricity ------ Delicensed*Delicensed* Licensed by Licensed by SERCs (Dist.)SERCs (Dist.)

CERC (Tran.)CERC (Tran.)

PPAs/CERC/ PPAs/CERC/ SERCs/PXSERCs/PX

CoalCoal Min. of CoalMin. of Coal Min. of CoalMin. of Coal Min. of CoalMin. of Coal Min. of CoalMin. of Coal

Natural GasNatural Gas DHG/NELPDHG/NELP DHG/NELPDHG/NELP PNGRBPNGRB NELP / to be NELP / to be approvedapproved

Pipelines – Pipelines – PNGRBPNGRB

Coal SectorCoal Sector

Largely UnreformedLargely UnreformedGradual Price decontrolGradual Price decontrolE-auctionE-auctionPiecemeal Private Sector InvestmentPiecemeal Private Sector InvestmentLack of competitionLack of competitionInfluence on Power SectorInfluence on Power Sector

Coal Sector – Policy DevelopmentsCoal Sector – Policy Developments

Coal Mines (Nationalization) Act 1973 - only Coal Mines (Nationalization) Act 1973 - only public sector companies can mine coal.public sector companies can mine coal.

Amendments in 1976 and subsequently in Amendments in 1976 and subsequently in 1993 - captive end-use for steel, power, 1993 - captive end-use for steel, power, cement allowed coal mining; and cement allowed coal mining; and

Permitted exploitation of isolated small Permitted exploitation of isolated small patches of agencies approved by the State patches of agencies approved by the State Governments. Governments.

Natural GasNatural Gas

Increasing Private ParticipationIncreasing Private ParticipationSetting up of P & NG Regulatory BoardSetting up of P & NG Regulatory BoardSector ‘Regulation’ yet to take shapeSector ‘Regulation’ yet to take shapeIssuesIssuesInfluence of Gas Allocation PolicyInfluence of Gas Allocation PolicyPrice ControlPrice ControlGas Pipeline network access and pricingGas Pipeline network access and pricingTransnational PipelinesTransnational Pipelines

Multiple Regulatory JurisdictionsMultiple Regulatory Jurisdictions

Sectoral RegulatorsSectoral RegulatorsPower – CERC and SERCs Power – CERC and SERCs Coal – Min. of CoalCoal – Min. of CoalNatural Gas – PNGRBNatural Gas – PNGRB

Competition Commission of IndiaCompetition Commission of IndiaForward Markets CommissionForward Markets Commission

Inter-linkages of Energy MarketsInter-linkages of Energy MarketsHigh and increasing dependence of power sector High and increasing dependence of power sector

on coal and natural gas.on coal and natural gas.Absence of a competitive coal market and entry Absence of a competitive coal market and entry

barriers hampers development of power projects.barriers hampers development of power projects.In spite of ample coal reserves, the power sector In spite of ample coal reserves, the power sector

faces a great challenge in securing coal linkages.faces a great challenge in securing coal linkages.The sector is witnessing a rent seeking behaviour The sector is witnessing a rent seeking behaviour

through ‘hoarding’ of coal mines.through ‘hoarding’ of coal mines.Cross sector merger and competition issues.Cross sector merger and competition issues.

Case for a Multi-Sector Energy Case for a Multi-Sector Energy RegulatorRegulator

The inter-linkages of energy sectors make it an The inter-linkages of energy sectors make it an appropriate time for a multi-sector Energy appropriate time for a multi-sector Energy Regulator encompassing “Electricity, Gas and Regulator encompassing “Electricity, Gas and Coal Sector”.Coal Sector”.

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

Energy Sector Energy Sector RegulatorsRegulators

Country Established Initial Stage Power Coal Gas

Germany 2006 1998 –Telecom and Posts; 2005 – Electricity and Gas 2006 - Railways

Y Y

Italy 2000 1996 – Electriicity 2000 - Gas

Y Y

Mexico 1995 (As a consultative body for Electriicty since 1993)

Y Y

USA 1977 (As Federal Power Commission since 1920)

Y Y

Japan 1995 Y Y

Philippines 2001 Y -

UK 2000 Ofgas since 1986; Offer since 1989

Y Y

Argentina 1992 Y ---

Argentina 1992 --- Y

Chile 1978 1978 Y Y Y

Sri Lanka 2007 2002 – Electricity and Water 2007 – Petroleum

Y

Proposal for a Multi-sector Energy Proposal for a Multi-sector Energy RegulatorRegulator

Why a Multi-sector Energy RegulatorWhy a Multi-sector Energy RegulatorScope of RegulationScope of RegulationAdvantagesAdvantagesInternational PracticeInternational PracticeWay ForwardWay Forward

Areas for CollaborationAreas for Collaboration

Aspects of energy sources including renewable Aspects of energy sources including renewable energy and technologiesenergy and technologies

PolicyPolicyRegulatoryRegulatoryEconomicsEconomicsFinancialFinancialEnvironmental Environmental

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