India’s Energy Surge: Managing a 9% Annual Growth in Demand

India's energy sector is experiencing a remarkable transformation, driven by a 9% annual increase in electricity demand. With GDP soaring from $1.95 trillion to $3.2 trillion in less than a decade, the country is now the third-largest energy consumer in the world. ?? This economic growth, combined with peak power demand reaching 243 GW in 2024, highlights the nation's rising energy needs. While significant strides have been made, particularly in renewable energy, deep-seated challenges within generation, distribution, and financing systems need addressing for a sustainable future.

The Power Struggle: ?6.77 Lakh Crore in Losses Threatens DISCOM Stability.

India's decentralized power sector continues to face serious hurdles, with DISCOMs bearing cumulative losses of ?6.77 lakh crore (approximately €74.4 billion) by FY 2022-2023. Despite reforms introduced by the Electricity Act of 2003 and subsequent unbundling of State Electricity Boards (SEBs), financial instability, inefficient infrastructure, and T&D losses persist.

?? The ongoing reliance on subsidized electricity, costing ?1.32 trillion (around €14.5 billion) annually, further burdens the sector, and significant tariff increases of up to 40% are anticipated without these subsidies.

Coal's Dominance Continues

Despite substantial government investments in renewable energy, coal continues to dominate India's energy mix, supplying 44% of primary energy demand. As of August 2024, renewables account for 44% of total installed capacity, but with coal-fired capacity expected to outpace renewables in the next few years, the journey to clean energy is complicated. To meet its ambitious target of 50% non-fossil fuel power capacity by 2030, India must add 270 GW of renewable energy sources over the next six years.

Government support, such as ?10,000 crore (around €1.1 billion) for solar initiatives, is crucial, but delays in project implementation and ongoing coal expansion cast doubt on India's position as a renewable energy leader.

Mounting Financial Strains on DISCOMs: A Looming Crisis

India’s DISCOMs have consistently faced financial collapse, with losses reaching ?6.77 lakh crore (€74.4 billion) by 2022-23, necessitating multiple bailouts.

The introduction of the Green Energy Open Access Rules (2022) allows large consumers to bypass DISCOMs, further weakening their financial base. The erosion of revenue calls for tariff reforms to maintain services for smaller, dependent consumers, emphasizing the need for innovation in this sector.

Reshaping the DISCOM Landscape: Toward Market-Based Solutions

To address these challenges, DISCOMs must shift from sole suppliers to dynamic network managers, embracing market-based contracting and renewable energy integration. The Electricity (Amendment) Bill (2022) aims to facilitate this by enabling multiple DISCOMs to operate in the same region, promoting competition and improving service quality. However, challenges around shared long-term Power Purchase Agreements (PPAs) and infrastructure investment remain critical issues.

Leveraging e-RUPI for Targeted Subsidy Reforms

The digital payment platform e-RUPI presents a transformative opportunity for subsidy reform in India’s power sector. Through smart meters and Aadhaar-based direct benefit transfers, subsidies can be directly linked to consumption patterns, improving efficiency and transparency. This method not only reduces the fiscal burden on DISCOMs but also ensures that benefits reach those most in need, particularly farmers and low-income households.

The Path Forward: Powering a $7 Trillion Economy by 2030

India's path to becoming a $7 trillion economy by 2030 hinges on comprehensive energy policy reform. The current reliance on financial aid for DISCOMs must shift toward sustainable solutions while expanding competition among power distributors to improve consumer choice and efficiency. ?? The Electricity (Amendment) Bill (2022) offers a promising start, but real progress will require collaborative governance between central and state authorities to ensure energy security, environmental sustainability, and economic growth.

For an in-depth analysis of these critical issues, read my full policy brief: Ifri - Institut fran?ais des relations internationales October 15, 2024 - "India's Broken Power Economics: Addressing DISCOM Challenges." Available at: India's Broken Power Economics: Addressing DISCOM Challenges.