Category: Energy

ACs, Subsidised Tariff are Driving Delhi Power Binge

New Delhi: Ever since power distribution was privatised in Delhi in 2002, peak power demand has more than doubled from around 3,000 MW to around 6,000 MW. The surge, helped by a steady rise in the city’s population, the increasing affluence of its residents – who now command the highest average per capita income in the country – and the lack of awareness about economising on consumption, has meant that Delhi has become a power guzzler. The average Delhiite  now consumes nearly 70 per cent more than the average Indian citizen.

What worries planners is that the increased use of air-conditioners (and room heaters in the winter) is putting a huge of burden on the system. “It is not only in the summer that you find demand going up sharply. Even in peak winter, people switch on their heaters, which even the poor afford and that consume almost as much power as an air-conditioner, leading to frequent tripping of the overloaded system,” said a distribution company official.

From local faults to collapse of the grids, the power scenario remains grim despite the introduction of several new technologies, like SCADA (supervisory control and data acquisition), for real time monitoring and assessment.

Subsidised power has also meant more expendable income in the hands of the consumers – especially those lower down the economic strata who would rather than not forgo the comfort that electricity use brings even if it means exceeding the 400 unit per month limit necessary to qualify for the subsidy.

In its recent report on power consumption in Delhi, environment watchdog Centre for Science and Environment has also flagged the issue of how ACs and the power subsidy have come to impact Delhi’s power demand.

It observed that “the UN slogan of `Consume with Care’ for this World Environment Day sounds hollow in the face of untamed electricity guzzling in Delhi”. Further, it claimed that the Delhi Government was “indifferent to consumptive use of subsidised electricity to meet the gluttonous appetite for energy-intensive air conditioned comfort and pollution”. It also pointed out that the domestic power tariff in Delhi was among the lowest in all metros:

“The AAP government gives power subsidy of 50 per cent for monthly consumption up to 400 KWh. Delhi’s average consumption is only about 181 Kwh, and nearly two-fifths of the households consume less than 100 KWh per month. The subsidy, thus, allows comfortable use of a number of appliances like air-conditioners etc and cushions substantial household energy costs.”

With the night consumption of power now almost as high as daytime, the CSE concluded that “it is the air conditioners in homes that skew the demand at night.” Air conditioning accounts for about 28% of the total monthly electricity consumption, it said. According to the Bureau of Energy Efficiency, ACs contribute to almost 60% of Delhi’s peak electricity demand.

This is hardly surprising given the 68th Nation Sample Survey of Household Consumption of Various Goods and Services in India, which found that 412 out of every 1,000 households in urban Delhi own an air conditioner or air cooler as compared to the national average of 77.

The CSE has also called for making buildings more energy efficient so that they do no trap summer heat. Thanks to inappropriate architectural designs and materials – like glass-dominant structures, the predominant use of concrete, and use of large windows and flat concrete roofs without shading – Delhi buildings trap a lot of heat, and thus require active cooling.

It also noted that operating ACs at low temperatures means higher consumption. “With every degree reduction in thermostat setting, there is increased energy consumption of three to 10 per cent.” It said the National Building Code of India (NBC) states that the thermal comfort of an average person lies between temperature values of 25°C and 30°C, with  27.5°C the optimum temperature.

A power department official said that over the years several attempts have been made to address the demand but to little avail. “From trying to make buildings more power efficient, to replacing bulbs with CFLs and now LEDs, to encouraging low power consumption by putting a ceiling on the number of subsidised units of power allowed per household per month, various schemes have been tried to cap the demand.”

For its part, the Bureau of Energy Efficiency (BEE) had in 2009 joined hands with the Delhi State Industrial and Infrastructure Development Corporation for identification and development of buildings to make them energy efficient. The BEE had targeted saving nearly 3.3 billion units of power or about 20 per cent of the total consumption of Delhi.

Of this, 1500 million units were to be saved from commercial buildings, 1,430 from domestic, 200 from industries, 96 from municipalities and 11 million from or agriculture. Though some government buildings like Rashtrapati Bhavan, the Prime Minister’s Office and Delhi Airport have already been covered, the programme is still a long way from realising its potential.

The Delhi Electricity Regulatory Commission, which the city’s power regulator, has also been trying to enforce demand side management. An official said, “We have all along tried to create awareness by telling people how to reduce their bills; but somehow few pay heed.” He said simple solutions are also given on the DERC website.

Tapping solar energy may be one way forward and the roof-top solar net metering projects launched earlier this week have the potential of not only cutting down power consumption but also reducing the power bills of the consumers by allowing them the opportunity to set up their solar plants and sell excess power.

A spokesperson of distribution company BSES said: “We have energised six net metering projects, totalling 86 KW of solar power. On average, consumers can save between 360 units and 3600 units per month, which translates into monthly savings of between Rs 3,000 and Rs 32,000. Around 500 queries and more than 50 applications, amounting to nearly 2400 KW (2.4 MW) of load, have been received and we have started organising power conclaves to educate the customers.”

It remains to be seen if this project would take off in a significant manner and ease Delhi’s power woes or it too would remain largely confined to the files.

IMF’s “Shocking” Estimate of Fossil Fuel Costs: There’s More to the Story

The hidden costs of fossil fuel use, together with their subsidies, easily overshadow the health budgets of governments worldwide

Recently, when an International Monetary Fund research paper revealed that the actual cost of fossil fuel usage for 2015 was a staggering US$ 5.3 trillion (approx. 340 lakh crore rupees), it made headlines worldwide, though it went largely unreported in India.

What accounts for the bulk of this figure are the hidden costs of fossil fuel use – referred to as ‘externalities‘ in economics – calculated in monetary value. Most of it consists of damages inflicted by fossil fuel use on public health (for eg. deaths from air pollution) and the environment (global warming).

Referring to the findings as “shocking”, the IMF calculates that the amount equals 6.5% of world GDP, and “likely greater” than the health budget of governments worldwide for the year. The IMF labels the entire amount as ‘energy subsidies’, though actual government subsidies for fossil fuels form only a fraction of it, at US$333 billion.

According to the IMF paper, China outweighs other nations with a $2.3tn contribution to fossil fuel costs. At $277bn, India is ranked fourth, after the United States ($700bn) and Russia ($335bn), and is followed by Japan ($157bn) and the European Union ($330bn).

The paper highlights some important trends. For example, health costs associated with local pollution still accounts for the biggest share, even more than global warming. A related trend shows that coal – by far the most polluting of fossil fuels – gets the least in terms of government subsidies, but accounts for the largest share of hidden costs.

Underlining the significance of these findings, Dr. Bhamy V. Shenoy, oil industry veteran and former senior advisor to the Center for Energy Economics, University of Texas, says, “These numbers show us that if actual costs are counted, fossil fuels will be far more expensive than renewables – and that is the biggest argument against their continued use.”

The IMF paper calls for governments to remove fossil fuel subsidies altogether, and also raise prices to cover some of the hidden costs.

A closer look at the IMF’s numbers

However, a closer look reveal several problems with the paper’s methodology. For example, calculating fossil fuel costs nation-wise in a global economy doesn’t make much sense. So, while we learn that China accounts for most hidden costs, the fact that it also produces half the world’s steel and cement, apart from consumer goods, is not mentioned.

In response to a query, IMF staffer and co-author of the paper Baoping Shang justified this, saying they have provided national figures because energy prices are set by individual governments. He also points out that the bulk of the costs – for eg. Air pollution is the biggest – are local. But invariably, such technicalities tend to get ignored in the media frenzy to apportion blame.

Likewise, the same costs calculated per capita would give a more accurate picture; still more so if calculated separately for different income groups. Shang admits that “it would be useful to present some results in per capita terms,” but justifies the analysis saying that the intention was to present “the magnitude of the energy subsidies.”

Also, the larger question of historical costs, whether in terms of official subsidies or hidden costs, is not mentioned at all. The fact is that accounting for these factors would make for a much more accurate (and very different picture) of who is responsible for fossil fuel costs.

What the experts say

Experts this reporter spoke to called attention to other aspects of the issue. For Sagar Dhara of Hyderabad-based energy and environment think-tank Cerana Foundation, the main issue was the timing. “For at least two decades, environmentalists have been urging agencies like the IMF to factor in the true costs of economic decisions to cover environmental and social impacts. If the IMF has woken up only now, there’s a reason to it,” he says.

Dhara elaborates, “We are about to witness a breakthrough for renewables, with wind power almost matching fossil fuels in price, and solar PV fast catching up. Many governments, including India, are actively promoting renewable energy. The IMF, which has funded coal power for many decades, has sensed which way the wind is blowing, and my guess is that they are signalling a shift in their funding pattern with this report.”

Mihir Mathur, an Associate Fellow at TERI’s Earth Science and Climate Change Division, is skeptical about a key claim in the paper – that removing subsidies lead to large fiscal gains for governments. “This tells only half the story: under/un-employment due to slowing down of the economy could create other economic losses which can easily offset this,” he says.

Mathur also points to a larger problem with the IMF’s analysis, “It doesn’t acknowledge non linear feedback loops between environment, resources and economic and social systems, which can often produce counterintuitive results.” This, he says, underlines the difficulty involved in modeling complex systems like the global economy and environment, adding, “At best we can have a qualitative sense of the dynamics and hope like hell that we are right.”

Dr. Shenoy, who has consistently advocated against fuel subsidies in India, finds the IMF’s use of the term ‘subsidy’ to denote both ‘true costs’ and consumer subsidies for fossil fuels misleading. “It makes people think that these huge sums are going to the fossil fuel industry as profits, when that’s far from the case,” he says, adding, “They have also downplayed the fact that ultimately it is citizens who must pay, including for remedial measures for climate change and pollution-related health.”

The IMF and subsidies: a checkered past

According to IMF’s Shang, they used the term ‘subsidy’ since  true costs of fossil fuel consumption are “not borne by consumers of energy but instead by the society”, and therefore society is “subsidizing” it. But this unusual usage of the term ‘subsidy’ is not merely a matter of terminology.

The IMF-World Bank-WTO triad have always advocated for removing subsidies in even essentials like food and fuel in developing nations. Be it in Asia, Africa, or the Middle East, it has a history of using pressure tactics and questionable statistics to persuade governments to implement this agenda. In 2014, the IMF put pressure on Pakistan to change from subsidized but relatively clean gas in favour of polluting, imported coal for its power generation.

The IMF, which virtually arm-twisted India into opening up its markets in 1991, has consistently argued against fuel subsidies here too, and successfully so. In 2013, the UPA-2 deregulated petrol prices and introduced the cash transfer scheme for LPG users in place of subsidized gas. In October 2014, the new Modi government, buoyed by the slump in crude oil prices, deregulated diesel.

Not surprisingly, the IMF paper singles India out for praise, its direct cash transfer scheme to replace subsidized LPG – one of the largest in the world – earning a special mention. This, despite the fact that the scheme remains controversial; with some critics even accusing it of being a stealth tactic to reduce subsidy values by leaving them at the mercy of inflation.

Viewing the IMF’s skewed analysis of fossil fuel costs against its history of aggressive advocacy against consumer energy subsidies, it is not unreasonable think of its latest findings as a new, if tangential attempt to further an old agenda.

A dogma in search of data?

In a recent article, Richard Heinberg of US-based energy think tank Post Carbon Institute identifies the key problem with the IMF’s estimate of fossil fuel costs. “Eliminating the local pollution and global climate impacts of our current energy regime will require policy makers to do the very thing they least want to do: curtail and reverse economic growth,” he writes.

Heinberg is pointing to the core dilemma faced by the IMF as an institution, as well as others who share its policy agenda: How to keep promoting a highly resource and energy-intensive economic model that thrives on perpetual growth, in the face of growing evidence of its pervasive negative effects?

The latest findings by the IMF indicate a planetary environmental and health crisis that calls for urgent collective action. But the agency neglects to mention that the startling evidence it has collected implicates above all the very economic agenda it has championed for decades. Instead, it has chosen to use the shock value of that evidence to advance that agenda.

Though dire, the IMF’s diagnosis is hardly new, and its prescription suspect. Given the track record of this particular physician, it’s best to take a second opinion.