Demand forecastingFrom Wikipedia, the free encyclopediaJump to: navigation, search

Demand forecasting is the activity of estimating the quantity of a product or service that consumers will purchase. Demand forecasting involves techniques including both informal methods, such as educated guesses, and quantitative methods, such as the use of historical sales data or current data from test markets. Demand forecasting may be used in making pricing decisions, in assessing future capacity requirements, or in making decisions on whether to enter a new market.

Contents

[hide] 1 Necessity for forecasting demand

o 1.1 Stock effects

o 1.2 Market response effect

2 Methods

o 2.1 Methods that rely on qualitative assessment

o 2.2 Methods that rely on quantitative data

3 Ex post studies of demand forecasts

4 See also

5 References

6 External links

[edit] Necessity for forecasting demand

Often forecasting demand is confused with forecasting sales. But, failing to forecast demand ignores two important phenomena.[1] There is a lot of debate in demand-planning literature about how to measure and represent historical demand, since the historical demand forms the basis of forecasting. The main question is whether we should use the history of outbound shipments or customer orders or a combination of the two as proxy for the demand.

[edit] Stock effects

The effects that inventory levels have on sales. In the extreme case of stock-outs, demand coming into your store is not converted to sales due to a lack of availability. Demand is also untapped when sales for an item are decreased due to a poor display location, or because the

desired sizes are no longer available. For example, when a consumer electronics retailer does not display a particular flat-screen TV, sales for that model are typically lower than the sales for models on display. And in fashion retailing, once the stock level of a particular sweater falls to the point where standard sizes are no longer available, sales of that item are diminished.

[edit] Market response effect

The effect of market events that are within and beyond a retailer’s control. Demand for an item will likely rise if a competitor increases the price or if you promote the item in your weekly circular. The resulting sales a change in demand as a result of consumers responding to stimuli that potentially drive additional sales. Regardless of the stimuli, these forces need to be factored into planning and managed within the demand forecast.

In this case demand forecasting uses techniques in causal modeling. Demand forecast modeling considers the size of the market and the dynamics of market share versus competitors and its effect on firm demand over a period of time. In the manufacturer to retailer model, promotional events are an important causal factor in influencing demand. These promotions can be modeled with intervention models or use a consensus to aggregate intelligence using internal collaboration with the Sales and Marketing functions.

[edit] Methods

No demand forecasting method is 100% accurate. Combined forecasts improve accuracy and reduce the likelihood of large errors. Reference class forecasting was developed to reduce error and increase accuracy in forecasting, including in demand forecasting.[2][3]

[edit] Methods that rely on qualitative assessment

Forecasting demand based on expert opinion. Some of the types in this method are,

Unaided judgment Prediction market

Delphi technique

Game theory

Judgmental bootstrapping

Simulated interaction

Intentions and expectations surveys

Conjoint analysis

[edit] Methods that rely on quantitative data

Discrete Event Simulation Extrapolation

Reference class forecasting

Quantitative analogies

Rule-based forecasting

Neural networks

Data mining

Causal models

Segmentation

[edit] Ex post studies of demand forecasts

Ex post studies compare actual with predicted outcomes of forecasts. Such studies generally find demand forecasts to be highly inaccurate. For instance, a statistically valid study of demand forecasts in 210 large public works projects, led by Oxford University professor Bent Flyvbjerg, found that for rail projects the average demand (passenger) forecast was overestimated by a full 106 percent. For roads, half of all demand (vehicle) forecasts were wrong by more than 20 percent; a fourth of forecasts were wrong by more than 40 percent.[4]

[edit] See also

Supply and demand Demand chain

Calculating demand forecast accuracy

inventory proportionality

Reference class forecasting

Demand ForecastingProvided by SME.com.ph

What is a demand forecast?

A demand forecast is the prediction of what will happen to your company's existing product sales. It would be best to determine the demand forecast using a multi-functional approach. The inputs from sales and marketing, finance, and production should be considered. The final demand forecast is the consensus of all participating managers. You may also want to put up a Sales and Operations Planning group composed of representatives from the different departments that will be tasked to prepare the demand forecast.

Determination of the demand forecasts is done through the following steps:

•  Determine the use of the forecast

•  Select the items to be forecast

•  Determine the time horizon of the forecast

•  Select the forecasting model(s)

•  Gather the data

•  Make the forecast

•  Validate and implement results

The time horizon of the forecast is classified as follows:

Description Forecast Horizon

Short-range Medium-range Long-range

Duration Usually less than 3 months, maximum of 1 year

3 months to 3 years More than 3 years

Applicability Job scheduling, worker assignments

Sales and production planning, budgeting

New product development, facilities planning

How is demand forecast determined?

There are two approaches to determine demand forecast – (1) the qualitative approach, (2) the quantitative approach. The comparison of these two approaches is shown below:

Description Qualitative ApproachQuantitative Approach

Applicability Used when situation is vague & little data exist (e.g., new products and technologies)

Used when situation is stable & historical data exist

(e.g. existing products, current technology)

Considerations Involves intuition and experience Involves mathematical techniques

TechniquesJury of executive opinion

Sales force composite

Delphi method

Consumer market survey

Time series models

Causal models

 

Qualitative Forecasting Methods

Your company may wish to try any of the qualitative forecasting methods below if you do not have historical data on your products' sales.

Qualitative Method Description

Jury of executive opinion

The opinions of a small group of high-level managers are pooled and together they estimate demand. The group uses their managerial experience, and in some cases, combines the results of statistical models.

Sales force composite Each salesperson (for example for a territorial coverage) is asked to project their sales. Since the salesperson is the one closest to the marketplace, he has the capacity to know what the customer wants. These projections are then combined at the municipal, provincial and regional levels.

Delphi method A panel of experts is identified where an expert could be a decision maker, an ordinary employee, or an industry expert. Each of them will be asked individually for their estimate of the demand. An iterative process is conducted until the experts have reached a consensus.

Consumer market survey

The customers are asked about their purchasing plans and their projected buying behavior. A large number of respondents is needed here to be able to generalize certain results.

Quantitative Forecasting Methods

There are two forecasting models here – (1) the time series model and (2) the causal model. A time series is a s et of evenly spaced numerical data and is o btained by observing responses at regular time periods. In the time series model , the forecast is based only on past values and assumes that factors that influence the past, the present and the future sales of your products will continue.

On the other hand, t he causal model uses a mathematical technique known as the regression analysis that relates a dependent variable (for example, demand) to an independent variable (for example, price, advertisement, etc.) in the form of a linear equation. The time series forecasting methods are described below:

Description

Time Series Forecasting

Method

Naïve ApproachAssumes that demand in the next period is the same as demand in most recent period; demand pattern may not always be that stable

For example:

If July sales were 50, then Augusts sales will also be 50

 

Time Series Forecasting

Method

Description

Moving Averages (MA)

MA is a series of arithmetic means and is used if little or no trend is present in the data; provides an overall impression of data over time

A simple moving average uses average demand for a fixed sequence of periods and is good for stable demand with no pronounced behavioral patterns.

Equation:

F 4 = [D 1 + D2 + D3] / 4

F – forecast, D – Demand, No. – Period

(see illustrative example – simple moving average)

A weighted moving average adjusts the moving average method to reflect fluctuations more closely by assigning weights to the most recent data, meaning, that the older data is usually less important. The weights are based on intuition and lie between 0 and 1 for a total of 1.0

Equation:

WMA 4 = (W) (D3) + (W) (D2) + (W) (D1)

WMA – Weighted moving average, W – Weight, D – Demand, No. – Period

(see illustrative example – weighted moving average)

Exponential Smoothing

The exponential smoothing is an averaging method that reacts more strongly to recent changes in demand by assigning a smoothing constant to the most recent data more strongly; useful if recent changes in data are the results of actual change (e.g., seasonal pattern) instead of just random fluctuations

F t + 1 = a D t + (1 - a ) F t

Where

F t + 1 = the forecast for the next period

D t = actual demand in the present period

F t = the previously determined forecast for the present period

•  = a weighting factor referred to as the smoothing constant

(see illustrative example – exponential smoothing)

Time Series Decomposition

The time series decomposition adjusts the seasonality by multiplying the normal forecast by a seasonal factor

(see illustrative example – time series decomposition)

IndiaLast Updated: August 2010

Background

India boasts a growing economy, and is increasingly a significant consumer of oil and natural gas.

With high economic growth rates and over 15 percent of the worlds population, India is a significant consumer of energy resources. In 2009, India was the fourth largest oil consumer in the world, after the United States, China, and Japan. Despite the global financial crisis, Indias energy demand continues to rise. In terms of end-use, energy demand in the transport sector is expected to be particularly high, as vehicle ownership, particularly of four-wheel vehicles, is forecast to increase rapidly in the years ahead.

India lacks sufficient domestic energy resources and imports much of its growing energy requirements. In addition to pursuing domestic oil and gas exploration and production projects, India is also stepping up its natural gas imports, particularly through imports of liquefied natural gas. According to the International Energy Agency (IEA), coal/peat account for nearly 40 percent of Indias total energy consumption, followed by nearly 27 percent for combustible renewables and waste. Oil accounts for nearly 24 percent of total energy consumption, natural gas six percent, hydroelectric power almost 2 percent, nuclear nearly 1 percent, and other renewables less than 0.5 percent. Although nuclear power comprises a very small percentage of total energy consumption at this time, it is expected to increase in light of international civil nuclear energy cooperation deals. According to the Indian government, nearly 30 percent of Indias total energy needs are met through imports.

IEA data for 2008 indicate that electrification rates for India were nearly 65 percent for the country as a whole. In urban areas, 93 percent had access to electricity compared to rural areas where electrification rates were approximately 50 percent. Roughly 400 million people do not have access to electricity in India. Oil

The Indian government continues to hold licensing rounds in an effort to promote exploration activities and boost domestic oil production.

According to Oil & Gas Journal (OGJ), India had approximately 5.6 billion barrels of proven oil reserves as of January 2010, the second-largest amount in the Asia-Pacific region after China. Indias crude oil reserves tend to be light and sweet, with specific gravity varying from 38° API in the offshore Mumbai High field to 32° API at other onshore basins. India produced roughly 880 thousand barrels per day (bbl/d) of total oil in 2009 from over 3,600 operating oil wells. Approximately 680 thousand bbl/d was crude oil, the remainder was other liquids and refinery gain. In 2009, India consumed nearly 3 million bbl/d, making it the fourth largest consumer of oil in the world. EIA expects approximately 100 thousand bbl/d annual consumption growth through 2011.

The combination of rising oil consumption and relatively flat production has left India increasingly dependent on imports to meet its petroleum demand. In 2009, India was the sixth largest net importer of oil in the world, importing nearly 2.1 million bbl/d, or about 70 percent, of its oil needs. The EIA expects India to become the fourth largest net importer of oil in the world by 2025, behind the United States, China, and Japan. Nearly 70 percent of Indias crude oil imports come from the Middle East, primarily from Saudi Arabia, followed by Iran. The Indian government expects this geographical dependence to rise in light of limited prospects for domestic production.

Sector OrganizationThough the government has taken steps in recent years to deregulate the hydrocarbons industry and encourage greater foreign involvement, Indias oil sector is dominated by state-owned enterprises. Indias state-owned Oil and Natural Gas Corporation (ONGC) is the largest oil company and dominates Indias upstream sector. State-owned Oil India Limited (OIL) is the next largest oil producer. Other major state-run players include the Indian Oil Corporation (IOC) and the Gas Authority of Indian Limited (GAIL). In addition, the private Indian firm, Reliance Industries Limited, is becoming a significant operator in the oil sector and is the largest private oil and gas company in the country. Cairn India, a branch of UK-based Cairn Energy, and BG Exploration are also important private sector operators in the industry. As a net importer of oil, the Indian government has policies aimed at increasing domestic exploration and production (E&P) activities. As part of an effort to attract oil majors with deepwater drilling experience and other technical expertise, the Ministry of Petroleum and Natural Gas created the New Exploration License Policy (NELP) in 2000, which for the first time permits foreign companies to hold 100 percent equity ownership in oil and natural gas projects. Despite this, international oil and gas companies currently operate a small number of fields. Indias downstream sector is also dominated by state-owned entities. The Indian Oil Corporation (IOC) is the largest state-owned company in the downstream sector, operating 10 of Indias 18 refineries and controlling about three-quarters of the domestic oil pipeline transportation network. Reliance Industries opened Indias first privately-owned refinery in 1999, and has gained a considerable market share in Indias oil sector. Exploration and Production

Most of Indias crude oil reserves are located offshore, in the west of the country, and onshore in the northeast. Substantial reserves, however, are located offshore in the Bay of Bengal and in Rajasthan state. Indias largest oil field is the offshore Mumbai High field, located north-west of Mumbai and operated by ONGC. Another of Indias large oil fields is the Krishna-Godavari basin, located in the Bay of Bengal. Block D6 in the Krishna-Godavari basin, operated by Reliance Industries, began oil production in September 2008. The primary mechanism through which the Indian government has promoted new E&P projects has been the NELP framework. The latest round of auctions, NELP VIII, was launched in April 2009 and attracted nearly $1.1 billion in investment. India currently plans to launch the NELP IX bidding round in the third quarter of 2010. Overseas E&PIn recent years, Indian national oil companies have increasingly looked to acquire equity stakes in E&P projects overseas. The most active company abroad is ONGC Videsh Ltd. (OVL), the overseas investment arm of ONGC. OVL conducts oil and natural gas operations in 13 countries, including Vietnam, Myanmar, Russia (Sakhalin Island), Iran, Iraq, Sudan, Brazil, and Columbia. One of OVLs most high profile investments is its share in the Greater Nile Petroleum Operating Company (GNPOC), which has engaged in E&P work in Sudan since 1997. OVL acquired a 25 percent equity stake in the company in 2003, with the balance held by the China National Petroleum Company (CNPC, 40 percent), Petronas (30 percent), and the Sudan National Oil Company (Sudapet, 5 percent). The GNPOC acreage in Sudan holds proved crude oil reserves of more than one billion barrels with current production levels at roughly 300,000 bbl/d from 10 fields. In addition to the upstream activities, the GNPOC companies operate a 935-mile crude oil pipeline that pumps oil to Port Sudan for export. OVL also holds a 20 percent stake in the ExxonMobil-led consortium that operates the Sakhalin-I project in Russia. According to company estimates, the oil fields associated with Sakhalin-I hold recoverable crude oil reserves of 2.3 billion barrels. In addition to ONGC, other Indian companies are also actively involved in E&P projects abroad. OIL, for example, is working on projects in Libya, Gabon, Nigeria, and Sudan. Downstream/RefiningAccording to OGJ, India had 2.8 million bbl/d of crude oil refining capacity at 18 facilities as of January 1, 2010. India has the fifth largest refinery capacity in the world. In 2009, privately-owned Reliance Industries added another refinery to its Jamnagar complex to raise the entire complexs refining capacity from 660,000 bbl/d to 1.24 million bbl/d. The Jamnagar complex is the largest oil refinery complex in the world. Other key upcoming refinery projects include Essar Oils Vadinar refinery expansion of 110,000 bbl/d in 2011, 120,000 bbl/d greenfield refinery in Bina in 2011 by a joint venture between Bharat Petroleum Corporation Limited and Oman Oil Company Limited, a 180,000 bbl/d grassroots refinery in Bhatinda in 2014 by Hindustan Petroleum Corporation Limited, and IOCs grassroots Paradeep refinery of 300,000 bbl/d in 2015. India is slated to add 840 thousand bbl/d of refining capacity through 2015 based on currently proposed projects. Due to expectations of higher demand for petroleum products in the region, further investment in the Indian refining sector is likely. As part of the countrys 11th Five Year Plan from 2007 to 2012, the government would like to promote India as a competitive

refining destination, and industry experts expect the country to be an exporter of refined products to Asia in the near future. Refined Fuel SubsidiesThe Market Determined Price Mechanism is notionally benchmarked to international oil prices, but the Indian government heavily subsidizes domestic prices of oil products such as diesel, gasoline, kerosene, and LPG. At the same time, taxes on crude and petroleum products imposed by different layers of Indian government often exceed the subsidies. According to industry analysts, though originally an attempt to protect economically disadvantaged Indian consumers, fuel subsidies distort Indias domestic market by forcing Indias state owned oil companies to accept under-recoveries (i.e. losses) and encouraging Indias private companies to orient their product sales internationally. With diesel prices significantly lower than other fuels, particularly gasoline, diesel consumption rose by nearly 20 percent from 2007 through 2009. The International Energy Agency reports that losses from fuel price subsidies for the 2010-11 fiscal year are expected to exceed $23 billion. Strategic Petroleum ReserveTo support Indias energy security, India is constructing a strategic petroleum reserve (SPR). The first storage facility at Visakhapatnam will hold approximately 9.8 million bbls of crude (1.33 million tons) and is scheduled for completion by the end of 2011. The second facility at Mangalore will have a capacity of nearly 11 million bbls (1.5 million tons) and is scheduled for completion by the end of 2012. The third facility of Padur, also scheduled to be completed by the end of 2012, will have a capacity of nearly 18.3 million bbls (2.5 million tons). The selection of coastal storage facilities was made so that the reserves could be easily transported to refineries during a supply disruption. The SPR project is being managed by the Indian Strategic Petroleum Reserves Limited (ISPRL), which is part of Oil Industry Development Board (OIDB), a state-controlled organization. India does not have any strategic crude oil stocks at this time. Natural Gas

Despite major new natural gas discoveries in recent years, India continues to plan on gas imports to meet its future needs.

According to Oil and Gas Journal, India had approximately 38 trillion cubic feet (Tcf) of proven natural gas reserves as of January 2010. The EIA estimates that India produced approximately 1.4 Tcf of natural gas in 2009, a 20 percent increase over 2008 production levels. The bulk of Indias natural gas production comes from the western offshore regions, especially the Mumbai High complex, though the Bay of Bengal and its Krishna-Godavari (KG) fields are proving quite productive. The onshore fields in Assam, Andhra Pradesh, and Gujarat states are also significant sources of natural gas production. In 2009, India consumed roughly 1.8 Tcf of natural gas, almost 300 billion cubic feet (Bcf) more than in 2008, according to EIA estimates. Natural gas demand is expected to grow considerably, largely driven by demand in the power sector. The power and fertilizer sectors account for nearly three-quarters of natural gas consumption in India. Natural gas is expected to be an increasingly important component of energy consumption as the country pursues energy resource diversification and overall energy security. Despite the steady increase in Indias natural gas production, demand has outstripped supply and the country has been a net importer of natural gas since 2004. Indias net imports reached an estimated 445 Bcf in 2009.

Sector OrganizationAs in the oil sector, Indias state-owned companies account for the bulk of natural gas production. State-run companies Oil and Natural Gas Corporation (ONGC) and Oil India Ltd. (OIL) are the main producers of natural gas in the country. According to government statistics, ONGC accounted for 69 percent of natural gas production in the country in 2007. In addition, some foreign companies participate in upstream developments in joint-ventures and production sharing contracts (PSCs). Privately-owned Reliance Industries will also have a greater role in the natural gas sector in the coming years, as a result of a large natural gas find in 2002 in the KG basin. Natural gas prices in India are regulated by the government. Administered Pricing Mechanism (APM) natural gas, gas produced from fields handed to ONGC and OIL by the Indian government, more than doubled in price in May 2010; from $1.8/million (MM)Btu to $4.2/MMbtu. This price adjustment brings APM gas, formerly the cheapest gas in India, to parity with the KG-D6 natural gas (see below). Gas produced from fields acquired through the National Export Licensing Policy (see oil section), production

sharing agreements, and imported LNG is not priced using the APM, although its price is also regulated. The Gas Authority of India Ltd. (GAIL) holds an effective monopoly on natural gas transmission and distribution activities. In December 2006, the Minister of Petroleum and Natural Gas issued a new policy that allows foreign investors, private domestic companies, and national oil companies to hold 100 percent equity stakes in pipeline projects. While GAILs monopoly in natural gas transmission and distribution is not guaranteed by statute, it is the de facto leading player in the sector because of its existing natural gas infrastructure. GAILs current natural gas trunk pipeline network extends roughly 4,100 miles, according to the company, and its transmission capacity is approximately 5.2 Bcf/d. GAIL plans to build close to 3,800 additional miles of pipelines by 2012, bringing its total transmission capacity to 10.6 Bcf/d. Exploration and ProductionThe outlook for Indias upstream natural gas sector is more positive than its upstream oil sector, although the IEA forecasts Indian natural gas peak production between 2020 and 2030. There have been several large natural gas finds in India over the last several years, predominantly offshore in the Bay of Bengal. ONGC announced a find in late 2006 in the Mahanadi basin off the coast of Orissa state, with an estimated 3 to 4 Tcf of reserves in place. In December 2006, ONGC announced a find of an estimated 21 to 22 Tcf of natural gas in place at the KG-DOWN-98/2 block off the coast of Andhra Pradesh in the KG basin. In addition, state-owned Gujarat State Petroleum Corporation (GSPC) holds an estimated 1.8 Tcf of natural gas reserves at the KG-OSN-2001/3 block in the KG area. Reliance Industries KG-D6 block holds estimated reserves of 11.5 Tcf and came online in April 2009. Of the nearly 1.4 Bcf/d of initial production, nearly half went to gas based power plants, the rest to fertilizer, LPG plants, and city gas distribution entities. After reaching a production peak of 2.8 Bcf/d in December 2009, Reliance decided in July 2010 to cap production of KG-D6 at 2.1 Bcf/d pending resolution of infrastructure and field maintenance issues. The power sector continues to receive the lions share of production allotments. Production from the KG basin is expected to double the countrys current natural gas output in coming years. Natural Gas ImportsIndias natural gas import demand is expected to increase in the coming years. To help meet this growing demand, a number of import schemes including both LNG and pipeline projects have either been implemented or considered. Iran-Pakistan-India PipelineIndia has considered various proposals for international pipeline connections with other countries. One such scheme is the Iran-Pakistan-India (IPI) Pipeline, which has been under discussion since 1994. The plan calls for a roughly 1,700-mile, 5.4-Bcf/d pipeline to run from the South Pars fields in Iran to the Indian state of Gujarat. While Iran is keen to export its abundant natural gas resources and India is in search of projects to meet its growing domestic demand, a variety of economic and political issues have delayed a project agreement. Indian officials have made it clear that any import pipeline crossing Pakistan would need to be accompanied by a security guarantee from officials in Islamabad. Due to the uncertainties involving this pipeline, the Indian governments 11th

Five Year Plan does not project any gas supply from this route or the following two discussed pipelines. Turkmenistan-Afghanistan-Pakistan-India PipelineIndia has worked to join the Turkmenistan-Afghanistan-Pakistan Pipeline (TAP or Trans-Afghan Pipeline). With the inclusion of India, the project consists of a planned 1,050-mile pipeline originating in Turkmenistans Dauletabad natural gas fields and transporting the fuel to markets in Afghanistan, Pakistan, and India. In 2008, all parties agreed to induct India as a full member into the project, thereby renaming the pipeline TAPI. TAPI is envisioned to have a capacity of 3.2 Bcf/d, but work has not yet begun on the project. Concerns about the project have included the security of the route, which would traverse unstable regions in Afghanistan and Pakistan. Furthermore, a review of the TAPI project raised doubts as to whether Turkmen natural gas supplies are adequate to meet proposed export commitments. Imports from MyanmarA third international pipeline proposal envisions India importing natural gas from Myanmar. In March 2006, the governments of India and Myanmar signed a natural gas supply deal. Initially, the two countries planned to build a pipeline crossing Bangladesh. After indecision from Bangladeshi authorities over the plans, India and Myanmar studied the possibility of building a pipeline that would terminate in the eastern Indian state of Tripura and not cross Bangladeshi soil. In March 2009, Myanmar signed a natural gas supply deal with China sourced from a field invested in by GAIL and ONGC, putting any India-Myanmar pipeline deal in question. Liquefied Natural GasIndia began importing liquefied natural gas (LNG) in 2004. In 2008, India imported 372 Bcf of LNG, nearly 75 percent of it from Qatar, making it the sixth largest importer of LNG in the world. India imports LNG through both long-term contracts and spot shipments. Currently, India has two operational LNG import terminals, Dahej and Hazira. India received its first LNG shipments in January 2004 with the start-up of the Dahej terminal in Gujarat state. Petronet LNG, a consortium of state-owned Indian companies and international investors, owns and operates the Dahej LNG facility with a capacity of 5 million tons per year (mtpa) (975 Bcf/y). Indias second terminal, Hazira LNG, started operations in April 2005, and is owned by a joint venture of Shell and Total. The facility has a capacity of 2.5 mtpa (488 Bcf/y), which may be expanded to 5 mtpa (975 Bcf/y) in the future. The 5 mtpa (975 Bcf/y) LNG processing plant in Dabhol continues to face delays. Currently operating as a power plant, the LNG receiving terminal may be operational in 2011 after dredging operations are complete so that a breakwater can be built. In addition, Petronet LNG has begun construction of a 2.5 mtpa (488 Bcf/y) LNG import facility at Kochi. The facility is expected to be completed in the first quarter of 2012 and has secured a 1.5 mtpa (293 Bcf/y) supply from Australias Gorgon LNG project. In order to secure supply of natural gas to India and meet growing demand, India is currently looking to invest in liquefaction projects abroad. For example, ONGC and the UK-based Hinduja Group are considering service contracts in Iran to supply 5 mtpa (975 Bcf/y) of LNG to India. The country is also exploring the possibility of investing more in the Sakhalin I LNG project.

Long-term growth in demand for LNG remains unclear however, as price is an issue of contention in India and increasing domestic natural gas production is expected from eastern offshore fields. Industry analysts note that Indian companies appear unwilling to commit to long-term LNG supply contracts at international prices. While negotiations are currently underway for several long-term LNG supply deals, whether or not Indias bids will be accepted is questionable in light of the low prices that India has offered to pay. Instead, India is becoming an important destination for spot LNG cargoes. Electricity

India currently suffers from a major shortage of electric generating capacity.

In 2007, India had approximately 159 gigawatts (GW) of installed electric capacity and generated 761 billion kilowatt hours. Nearly all electric power in India is generated with coal, oil, or gas. Conventional thermal sources produced over 80 percent of electricity in 2007. Hydroelectricity, a seasonally dependent power source in India, accounted for nearly 16 percent of power generated in 2007. Finally, nuclear energy produced roughly 2 percent of electricity during the same year, while geothermal and other renewable sources accounted for approximately 2 percent. In July of 2010, India and Bangladesh signed a 35 year power import deal whereby India will import up to 500 megawatts beginning in late 2012. India also imports some electricity from Bhutan and Nepal. However, these electricity imports are not likely to prove sufficient to make up for Indias lack of electric generation capacity.

Electricity Shortages

India suffers from a severe shortage of electricity generation capacity. According to the World Bank, roughly 40 percent of residences in India are without electricity. In addition, blackouts are a common occurrence throughout the countrys main cities. Further compounding the situation is that total demand for electricity in the country continues to rise and is outpacing increases in capacity. Additional capacity has failed to materialize in India in light of market regulations, insufficient investment in the sector, and difficulty in obtaining environmental approval and funding for hydropower projects. In addition, coal shortages are further straining power generation capabilities. In order to address this shortfall, the Indian government continues to work towards adding capacity. Indias 11th Plan set an ambitious goal of adding nearly 79,000 MW by 2012. The country also grapples with electricity efficiency issues. In order to improve efficiency standards, the Energy Conservation Act was passed in 2002, which established the Bureau of Energy Efficiency and has sought to promote efficient use of energy and labeling of energy-intensive products. Conventional Thermal Power Generation

Conventional thermal-generated power accounted for 80 percent of electricity in India in 2007. Of these sources, coal is by far the most important fuel source for power

generation, with roughly 70 percent of electricity generated in coal-fired power plants. India is both the third-largest consumer and third-largest producer of coal in the world, and though the country supplies the bulk of its needs domestically, it is currently a net coal importer. In spite of the electric sectors heavy reliance on coal, natural gas is becoming increasingly important due to environmental considerations, quality concerns pertaining to the steel industry, and supply constraints surrounding coal. The Hazira plant in Gujaret was converted to natural gas in 2002, and the Dabhol plant will run on natural gas once fully completed. The outcome of Reliance Powers (R-Power) plan to build the worlds largest natural gas-fired power plant at Dadri in Uttar-Pradesh, expected to have a capacity of 8 gigawatts, is currently uncertain as per the recent legal proceedings amongst the members of the Reliance family. Nuclear Power Generation

The Indian government continues to focus on the development of nuclear power to meet its power generation targets. Though controversy has historically surrounded Indias nuclear program in light of the countrys refusal to sign the Nuclear Nonproliferation Treaty (NPT) and its 1974 nuclear weapons test, India has recently established a civil nuclear cooperation deal with the United States. The U.S.- India civil nuclear energy cooperation deal signed in July 2005, also known as the 123 Agreement, allows for civil nuclear trade between the U.S. and India with the goal of increasing Indias installed nuclear power generation capacity. In light of the deal, the Indian government has set its nuclear generation target at 40,000 MW by 2020. India currently has 14 nuclear reactors in commercial operation with more planned. Recently, India bought six nuclear reactors from Areva of France and four from Rosatom of Russia. They are slated for the Maharashtra and Tamil Nadu nuclear projects. Combined, the ten new reactors will add 11,000 MW of electric capacity to the country. Hydropower and Other Renewables

As part of Indias goal of diversifying its sources of electric power generation and increasing the countrys capacity, increased use of hydroelectric power is also included in the governments plans. International organizations such as the World Bank are providing funding for a variety of hydroelectric projects around the country. However, lack of reliability and environmental and community concerns surrounding construction may make it difficult to fully capitalize upon this domestic energy resource. Geothermal, solar, and wind power hold little importance in electric power generation in the country. However, the government would like the share of renewables in electricity production to increase.

Profile

Energy OverviewProven Oil Reserves (January 1, 2010)

5.6 billion barrels

Oil Production (2009) 879,000 barrels per day, of which 77% was crude oil.Oil Consumption (2009)

3.0 million barrels per day

Proven Natural Gas Reserves (January 1, 2010)

38 trillion cubic feet

Natural Gas Production 1,365 billion cubic feet

(2009)Natural Gas Consumption (2009)

1,810 billion cubic feet

Recoverable Coal Reserves (2005)

62,300 million short tons

Coal Production (2009) 613.4 million short tonsCoal Consumption (2009)

680.9 million short tons

Electricity Installed Capacity (2007)

159 gigawatts

Electricity Generation (2007)

761 billion kilowatt hours

Electricity Consumption (2007)

568 billion kilowatt hours

Total Energy Production (2007)

13.05 quadrillion Btus*

Total Energy Consumption (2007)

19.1 quadrillion Btus*, of which Coal (53%), Oil (31%), Natural Gas (8%), Hydroelectricity (6%), Nuclear (1%), Other Renewables (1%)

Total Per Capita Energy Consumption (2007)

17.0 million Btus

Energy Intensity (2007) 6,500 Btu per $2000-PPP**

Environmental OverviewEnergy-Related Carbon Dioxide Emissions (2008)

1,494 million metric tons

Per-Capita, Energy-Related Carbon Dioxide Emissions (2008)

1.31 metric tons

Carbon Dioxide Intensity (2008)

0.48 Metric tons per $1,000-PPP**

Oil and Gas IndustryOrganization Petroleum: Oil and Natural Gas Corporation (ONGC); Oil India Ltd. (OIL); Indian

Oil Corporation (IOC); Reliance Industries (private). Natural Gas: Gas Authority of India Ltd (GAIL)

Major Oil/Gas Ports Oil - Bombay, Cochin, Haldia, Kandla, Madras, Vizag; LNG Hazira, DahejForeign Company Involvement

BG International, BP, Cairn Energy, Marubeni, Niko Resources, Petronas, Shell

Major Refineries (capacity, bbl/d)

Reliance Petroleum: Jamnagar (1,240,000). IOC: Koyali (185,100), Mathura (156,000), Panipat (120,000). Mangalore Refinery and Petrochemicals Ltd: Mangalore (180,000). Hindustan Petroleum Corporation: Vishakapatnam (164,250), Mahul (132,000). Kochi Refineries Ltd: Ambalamugal (152,000). Chennai Petroleum Corporation: Madras (130,660). Bharat Petroleum Company Ltd: Mahul (120,000).

* The total energy consumption statistic includes petroleum, dry natural gas, coal, net hydro, nuclear, geothermal, solar, wind, wood and waste electric power.**GDP figures from Global Insight estimates based on purchasing power parity (PPP) exchange rates. Links

EIA LinksEIA - Country Information on IndiaU.S. GovernmentCIA World Factbook - IndiaU.S. State Department Background Notes on IndiaU.S. Embassy in IndiaForeign Government AgenciesIndias Ministry of Petroleum and Natural GasIndias Department of CommerceIndias Ministry of External AffairsOil and Natural GasGas Authority of India Ltd (GAIL)Indian Oil Corporation (IOC)Oil and Natural Gas Corporation (ONGC)ONGC VideshOil India Ltd (OIL)Reliance Industries Ltd

Electricity sector in IndiaFrom Wikipedia, the free encyclopediaJump to: navigation, search

The electricity sector in India supplies the world's 5th largest energy consumer, accounting for 4.0% of global energy consumption by more than 17% of global population. the Energy policy of India is predominantly controlled by the Government of India's, Ministry of Power, Ministry of

Coal and Ministry of New Renewable Energy and administered locally by Public Sector Undertakings (PSUs).

Ramagundam Thermal Power Station, Andhra Pradesh

About 65.34%[1] of the electricity consumed in India is generated by thermal power plants, 21.53%[2] by hydroelectric power plants, 2.70% by nuclear power plants.[3] and 10.42% by Renewable Energy Sources. More than 50% of India's commercial energy demand is met through the country's vast coal reserves.[4] The country has also invested heavily in recent years in renewable energy utilization, especially wind energy.[5] In 2010, India's installed wind generated electric capacity was 14,550 MW.[6] Additionally, India has committed massive amount of funds for the construction of various nuclear reactors which would generate at least 30,000 MW.[7] In July 2009, India unveiled a $19 billion plan to produce 20,000 MW of solar power by 2022.[8]

Rapid economic growth has created a growing need for dependable and reliable supplies of electricity, gas and petroleum products.[9] Due to the fast-paced growth of India's economy, the country's energy demand has grown an average of 3.6% per annum over the past 30 years.[4] In July 2011, the installed power generation capacity of India stood at 181,000 MW [10] and per capita energy consumption stood at 704 kWh in 2008-09.[11] The country's annual energy production increased from about 190 billion kWh in 1986 to more than 837 billion kWh in 2010.[12] The Indian government has set a modest target to add approximately 78,000 MW of installed generation capacity by 2012 which it is likely to miss.[13][14] The total demand for electricity in India is expected to cross 950,000 MW by 2030.[15] Four major economic and social drivers characterize the energy policy of India: a rapidly growing economy, increasing household incomes, limited domestic reserves of fossil fuels and the adverse impact on the environment of rapid development in urban and regional areas.[16]

According to a research report published by Citigroup Global Markets, India is expected to add up to 113 GW of installed capacity by 2017. Further, renewable capacity might increase from 15.5 GW to 36.0 GW. In the private sector, major capacity additions are planned in Reliance Power (35 GW) and CESC (7 GW).[17]

Contents

[hide] 1 Administration

o 1.1 Technical

o 1.2 Funding

2 Demand

3 Generation

o 3.1 Thermal Power

o 3.2 Hydro Power

o 3.3 Nuclear Power

4 Renewable Energy

5 Solar power

6 Wind Power

7 Biomass Power

o 7.1 Geothermal Energy

o 7.2 Tidal Wave Energy

o 7.3 Strategies

o 7.4 Rural Electrification

7.4.1 Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY)

8 See also

9 Notes

[edit] Administration

The Ministry of Power is the apex body responsible for coordination administration of the electrical energy sector in India. This ministry started functioning independently from 2 July 1992; earlier, it was known as the Ministry of Energy. The Union Minister of Power at present is Sushil Kumar Shinde of the Congress Party who took charge of the ministry on 28 May 2010.

[edit] Technical

Major PSUs involved in the generation of electricity include National Thermal Power Corporation (NTPC), Damodar Valley Corporation (DVC), National Hydroelectric Power Corporation (NHPC) and Nuclear Power Corporation of India (NPCI). Besides PSUs, several state-level corporations, such as Andhra Pradesh Power Generation Corporation (APGENCO) in Andhra Pradesh, Tamil Nadu Electricity Board(TNEB) in Tamil Nadu, Maharashtra State Electricity Board(MSEB)in Maharashtra, Kerala State Electricity Board(KSEB) in Kerala, in Gujarat (MGVCL, PGVCL, DGVCL, UGVCL four distribution Companies and one controlling body GUVNL, and one generation company GSECL and one transmission company GETCO), are also involved in the generation and intrastate distribution of electricity. The PowerGrid Corporation of India is responsible for the inter-state transmission of electricity and the development of national grid.

[edit] Funding

The Ministry of Power provides funding to national schemes for power projects via Rural Electrification Corporation Limited (REC Ltd) and Power Finance Corporation Limited (PFC Ltd) These Central Public Sector Enterprises provide loans for both public sector and private sector companies/ projects involved in building power infrastructure.

[edit] Demand

During the year 2010-11, the energy requirement registered a growth of 3.7% during the year against the projected growth of 5.6% and Peak demand registered a growth of 2.6% against the projected growth of 6.5%., though the total ex-bus energy availability increased by 5.6% over the previous year and the peak met increased by 6.0%, the shortage conditions prevailed in the Country both in terms of energy and peaking availability. Base load requirement was 861,591 (MU) against availability of 788,355 MU which is a shortage is 73,236 MU i.e. 8.5% deficit. During peak load the demand was for 122,287 MW against availability of 110,256 MW which is a shortage of 12,031 MW i.e. 9.8%.

Electricity losses in India during transmission and distribution are extremely high and vary between 30 to 45%.[18] In 2004-05, electricity demand outstripped supply by 7-11%.[19] Due to shortage of electricity, power cuts are common throughout India and this has adversely effected the country's economic growth.[20][21] Theft of electricity, common in most parts of urban India, amounts to 1.5% of India's GDP.[22][23] Despite an ambitious rural electrification program,[24] some 400 million Indians lose electricity access during blackouts.[25] While 80 percent of Indian villages have at least an electricity line, just 52.5% of rural households have access to electricity. In urban areas, the access to electricity is 93.1% in 2008. The overall electrification rate in India is 64.5% while 35.5% of the population still live without access to electricity.[26] According to a sample of 97,882 households in 2002, electricity was the main source of lighting for 53% of rural households compared to 36% in 1993.[27] Multi Commodity Exchange has sought permission to offer electricity future markets.[28]

[edit] Generation

Total Installed Capacity (as on 30-06-2011) is 1,76,990.40 MW[29].[30]

[edit] Thermal Power

Main article: National Thermal Power Corporation

Current installed capacity of Thermal Power as of June 30, 2011 is 115649.48 MW which is 65.34%[31]of total installed capacity.

Current installed base of Coal Based Thermal Power is 96,743.38 MW which comes to 54.66% of total installed base.

Current installed base of Gas Based Thermal Power is 17,706.35 MW which is 10.00% of total installed capacity.

Current installed base of Oil Based Thermal Power is 1,199.75 MW which is 0.67% of total installed capacity.

The state of Maharashtra is the largest producer of thermal power in the country.

Indira Sagar Dam partially completed in 2008File:Energy map of India.jpg Energy map of India

[edit] Hydro Power

Main article: Hydroelectric power in India

In this system of power generation, the potential of the water falling under gravitational force is utilized to rotate a turbine which again is coupled to a Generator, leading to generation of electricity. India is one of the pioneering countries in establishing hydro-electric power plants. The power plants at Darjeeling and Shimsha (Shivanasamudra) were established in 1898 and 1902 respectively and are among the first in Asia.

India is endowed with economically exploitable and viable hydro potential assessed to be about 84,000 MW at 60% load factor. In addition, 6780 MW in terms of installed capacity from Small, Mini, and Micro Hydel schemes have been assessed. Also, 56 sites for pumped storage schemes with an aggregate installed capacity of 94,000 MW have been identified. It is the most widely used form of renewable energy. India is blessed with immense amount of hydro-electric potential and ranks 5th in terms of exploitable hydro-potential on global scenario. The present installed capacity as on 30-06-2011 is approximately 37,367.4 MW which is 21.53% of total Electricity Generation in India.[32] The public sector has a predominant share of 97% in this sector.[33]

National Hydroelectric Power Corporation (NHPC), Northeast Electric Power Company (NEEPCO), Satluj jal vidyut nigam (SJVNL), Tehri Hydro Development Corporation, NTPC-Hydro are a few public sector companies engaged in development of Hydroelectric Power in India.

[edit] Nuclear Power

Main article: Nuclear power in India

Currently, twenty nuclear power reactors produce 4,780 MW which is about 2.7% of total generation[34]

Wind turbiness in Tamil Nadu

[edit] Renewable Energy

Main article: Renewable energy in India

Renewable energy in India is a sector that is still in its infancy. Even though India was the first country in the world to set up a ministry of non-conventional energy resources, in early 1980s. Its success has been very spotty. It still lags behind many developed nations in terms of the use of renewable energy (RE). As on 30-06-2011 about 18,454.52 MW of Energy is being generated through renewable means. This forms about 10.42% of total Electricity Generation in India. Renewable energy in India comes under the purview of the Ministry of New and Renewable Energy.

[edit] Solar power

Main article: Solar power in India

Solar energy is tapped using both solar thermal and Photovoltaic cell. In Solar thermal the solar energy is used to produce steam which is subsequently used to drive a turbo-generator to produce electricity. But in case of a Photovoltaic cell semiconducting materials are used to produce positive and negative charges under the influence of light i.e. Energy from sun light. Solar

energy can alternatively, also be used for water heating, Air Conditioning and Cooking. India is endowed with rich solar energy resource. India receives the highest global solar radiation on a horizontal surface. The average intensity of solar radiation received on India is 200 MW/km square (megawatt per kilometre square). With a geographical area of 3.287 million km square, this amounts to 657.4 million MW. However, 87.5% of the land is used for agriculture, forests, fallow lands, etc., 6.7% for housing, industry, etc., and 5.8% is either barren, snow bound, or generally inhabitable. Thus, only 12.5% of the land area amounting to 0.413 million km square can, in theory, be used for solar energy installations. Even if 10% of this area can be used, the available solar energy would be 8 million MW, which is equivalent to 5909 million ton oil equivalent per year. The desert areas in India have the solar radiation required for CSP production. A 60 km x 60 km area can produce 1,00,000 MW of power. India has a desert area of 2,08,110 sq kilometres in Rajasthan and Gujarat. Even if India uses only 15,000 sq. kilometres of the desert, it can produce 3,00,000 MW of power.

The first Indian solar thermal power project (2X50MW) is in progress in Phalodi (Rajasthan), and is constructed by CORPORATE ISPAT ALLOY LTD. The solar thermal power plant has cost 4 times as much as the coal based steam thermal power plant, CIAL carried this 2x850 crore solar thermal project. It is the "pioneering of solar energy" in India. India is densely populated and has high solar insolation, an ideal combination for using solar power in India. Much of the country does not have an electrical grid, so one of the first applications of solar power has been for water pumping, to begin replacing India's four to five million diesel powered water pumps, each consuming about 3.5 kilowatts, and off-grid lighting. Some large projects have been proposed, and a 35,000 km² area of the Thar Desert has been set aside for solar power projects, sufficient to generate 700 to 2,100 gigawatts.

The Indian Solar Loan Programme, supported by the United Nations Environment Programme has won the prestigious Energy Globe World award for Sustainability for helping to establish a consumer financing program for solar home power systems. Over the span of three years more than 16,000 solar home systems have been financed through 2,000 bank branches, particularly in rural areas of South India where the electricity grid does not yet extend.[35][36]

Launched in 2003, the Indian Solar Loan Programme was a four-year partnership between UNEP, the UNEP Risoe Centre, and two of India's largest banks, the Canara Bank and Syndicate Bank.[36]

Announced in November 2009, the Government of India proposed to launch its Jawaharlal Nehru National Solar Mission under the National Action Plan on Climate Change with plans to generate 1,000 MW of power by 2013 and up to 20,000 MW grid-based solar power, 2,000 MW of off-grid solar power and cover 20 million square metres with collectors by the end of the final phase of the mission in 2020.[37]

[edit] Wind Power

Main article: Wind power in India

In this system the velocity of the wind is used to rotate large fans attached to turbines. The turbines then rotate the Generator to produce electricity. The short gestation periods for installing wind turbines, and the increasing reliability and performance of wind energy machines has made wind power a favored choice for capacity addition in India. The development of wind power in India began in the 1990s, and has significantly increased in the last few years. Although a relative newcomer to the wind industry compared with Denmark or the US, a combination of domestic policy support for wind power and the rise of Suzlon (a leading global wind turbine manufacturer) have led India to become the country with the fifth largest installed wind power capacity in the world.[38]

As of June 2010 the installed capacity of wind power in India was 12009.14 MW, mainly spread across Tamil Nadu (4132.72 MW), Maharashtra (1837.85 MW), Karnataka (1184.45 MW), Rajasthan (670.97 MW), Gujarat (1432.71 MW), Andhra Pradesh (122.45 MW), Madhya Pradesh (187.69 MW), Kerala (23.00 MW), West Bengal (1.10 MW), other states (3.20 MW)[39] It is estimated that 6,000 MW of additional wind power capacity will be installed in India by 2012.[40] Wind power accounts for 6% of India's total installed power capacity, and it generates 1.6% of the country's power.[41]

[edit] Biomass Power

In this system Bagasse, Forestry and agro residue & Agricultural based industrial wastes are burnt to produce steam which is used to produce electricity. Waste to energy remains mostly unrealized while there is a massive potential for generating Biomass electricity from agri residues like rice husk etc. In present day scenario, Biomass utilization for generation of energy has gained momentum because of limited availability of the conventional energy resources as well as environmental concern due to GHG emissions. Technological developments relating to the conversion, crop production, etc. promise the application of biomass at lower cost and with higher conversion efficiency than was possible previously. When produced by sustainable means, biomass emits roughly the same amount of carbon during conversion as is taken up during plant growth. The use of biomass therefore does not contribute to a build up of CO2 in the atmosphere. India is very rich in biomass and has a potential of 16,881MW (agro-residues and plantations), 5000MW (bagasse cogeneration) and 2700MW (energy recovery from waste). Biomass power generation in India is an industry that attracts investments of over INR 600 crores every year, generating more than 5000 million units of electricity and yearly employment of more than 10 million man-days in the rural areas.

[edit] Geothermal Energy

In this system the geothermal energy is utilized to produce steam for generation of electricity. Geothermal energy is earth’s natural heat available inside the earth. This thermal energy contained in the rock and fluid that filled up fractures and pores in the earth’s crust can profitably be used for various purposes. This energy is accessed by drilling water or steam wells in a process similar to drilling for oil. Geothermal energy is an enormous, underused heat and power resource that is clean (emits little or no greenhouse gases), reliable (average system availability

of 95%), and home grown (making us less dependent on foreign oil). India has reasonably good potential for geothermal; the potential geothermal provinces can produce 10,600 MW of power. Rocks covered on the surface of India ranging in age from more than 4500 million years to the present day and distributed in different geographical units. The rocks comprise of Archean, Proterozoic, the marine and continental Palaeozoic, Mesozoic, Teritary, Quaternary etc., More than 300 hot spring locations have been identified by Geological survey of India (Thussu, 2000). But yet geothermal power projects has not been exploited at all, owing to a variety of reasons, the chief being the availability of plentiful coal at cheap costs. However, with increasing environmental problems with coal based projects, India will need to start depending on clean and eco-friendly energy sources in future; one of which could be geothermal. India occupies 15th position in geothermal power use by country.

[edit] Tidal Wave Energy

The high energy of sea tides is used to rotate turbines which drive generators to produce electricity. The identified economic tidal power potential in India is of the order of 8000-9000 MW with about 7000 MW in the Gulf of Cambay about 1200 MW in the Gulf of Kutch and less than 100 MW in Sundarbans.

[edit] Strategies

Power Generation Strategy with focus on low cost generation, optimization of capacity utilization, controlling the input cost, optimisation of fuel mix, Technology upgradation and utilization of Non Conventional energy sources

Transmission Strategy with focus on development of National Grid including Interstate connections, Technology upgradation & optimization of transmission cost.

Distribution strategy to achieve Distribution Reforms with focus on System upgradation, loss reduction, theft control, consumer service orientation, quality power supply commercialization, Decentralized distributed generation and supply for rural areas.

Regulation Strategy aimed at protecting Consumer interests and making the sector commercially viable.

Financing Strategy to generate resources for required growth of the power sector.

Conservation Strategy to optimise the utilization of electricity with focus on Demand Side management, Load management and Technology upgradation to provide energy efficient equipment / gadgets.

Communication Strategy for political consensus with media support to enhance the general public awareness.,

[edit] Rural Electrification

Jharkhand, Uttar Pradesh, Orissa and Madhya Pradesh are some of the states where significant number (more than 10%) of villages are yet to be electrified.

Number of Villages (1991 Census) - 593,732 Villages Electrified (30 May 2006) - 488,173

Village level Electrification % - 82.2%

[edit] Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY)

Main article: Rural Electrification Corporation Limited

Ministry of Power launched Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) as one of its flagship programme in March 2005 with the objective of electrifying over one lakh un-electrified villages and to provide free electricity connections to 2.34 Crore rural BPL households. This programme has been brought under the ambit of Bharat Nirman, Under RGGVY, electricity distribution infrastructure is envisaged to establish Rural Electricity Distribution Backbone (REDB) with at least a 33/11KV sub-station in a block, Village Electrification Infrastructure (VEI) with at least a Distribution Transformer in a village or hamlet, and standalone grids with generation where grid supply is not feasible. Subsidy towards capital expenditure to the tune of 90% is being provided, through Rural Electrification Corporation Limited (REC), which is a nodal agency for implementation of the scheme. Electrification of un-electrified Below Poverty Line (BPL) households is being financed with 100% capital subsidy @ Rs.2200/- per connection in all rural habitations. Rural Electrification Corporation is the nodal agency for implementation of the scheme. The services of Central Public Sector Undertakings (CPSU) are available to the States for assisting them in the execution of Rural Electrification projects. The Management of Rural Distribution is mandated through franchisees. So far, Ministry of Power has sanctioned 576 projects for 546 districts to electrify 1,10,321 villages and to provide free electricity connections to 2.30 Crore BPL rural households. As on 30 June, 2011, works in 97,940 villages have been completed and 165.79 lakh free electricity connections have been released to BPL households. The revised Bharat Nirman target for RGGVY is to electrify 1 lakh villages and to provide free electricity connections to 175 lakh BPL households by March 2012.

Home > Overview

 

Indian energy sector: an overview  

Energy has been universally recognized as one of the most important inputs for economic growth and human development. There is a strong two-way relationship between economic development and energy consumption. On one hand, growth of an economy, with its global competitiveness, hinges on the availability of cost-effective and environmentally benign energy sources, and on the other hand, the level of economic development has been observed to be reliant on the energy demand. Energy intensity (Table E.1g) is an indicator to show how efficiently energy is used in the economy. The energy intensity of India is over twice that of the matured economies, which are represented by the OECD (Organization of Economic Co-operation and Development) member countries. India’s energy intensity is also much higher than the emerging economies—the Asian countries, which include the ASEAN member countries as well as China. However, since 1999, India’s energy intensity has been decreasing and is expected to continue to decrease. The indicator of energy–GDP (gross domestic product) elasticity, that is, the ratio of growth rate of energy to the growth rate GDP, captures both the structure of the economy as well as the efficiency. The energy–GDP elasticity during 1953–2001 has been above unity. However, the elasticity for primary commercial energy consumption for 1991–2000 was less than unity (Planning Commission 2002). This could be attributed to several factors, some of them being demographic shifts from rural to urban areas, structural economic changes towards lesser energy industry, impressive growth of services, improvement in efficiency of energy use, and inter-fuel substitution. The energy sector in India has been receiving high priority in the planning process. The total outlay on energy in the Tenth Five-year Plan has been projected to be 4.03 trillion rupees at 2001/02 prices, which is 26.7% of the total outlay. An increase of 84.2% is projected over the Ninth Five-year Plan in terms of the total plan outlay on energy sector. The Government of India in the mid-term review of the Tenth Plan recognized the fact that under-performance of the energy sector can be a major constraint in delivering a growth rate of 8% GDP during the plan period. It has, therefore, called for acceleration of the reforms process and adoption of an integrated energy policy. In the recent years, the government has rightly recognized the energy security concerns of the nation and more importance is being placed on energy independence. On the eve of the 59th Independence Day (on 14 August 2005), the President of India emphasized that energy independence has to be the nation’s first and highest priority, and India must be determined to achieve this within the next 25 years.

Demand and supply scenarioIn the recent years, India’s energy consumption has been increasing at one of the fastest rates in the world due to

population growth and economic development. Primary commercial energy demand grew at the rate of six per cent between 1981 and 2001 (Planning Commission 2002). India ranks fifth in the world in terms of primary energy consumption (Table E.1), accounting for about 3.5% of the world commercial energy demand in the year 2003. Despite the overall increase in energy demand, per capita energy consumption (Table E.1c) in India is still very low compared to other developing countries.

India is well-endowed with both exhaustible and renewable energy resources. Coal, oil, and natural gas are the three primary commercial energy sources. India’s energy policy, till the end of the 1980s, was mainly based on availability of indigenous resources. Coal was by far the largest source of energy. However, India’s primary energy mix has been changing over a period of time.

Despite increasing dependency on commercial fuels, a sizeable quantum of energy requirements (40% of total energy requirement), especially in the rural household sector, is met by non-commercial energy sources, which include fuelwood, crop residue, and animal waste, including human and draught animal power. However, other forms of commercial energy of a much higher quality and efficiency are steadily replacing the traditional energy resources being consumed in the rural sector.Resource augmentation and growth in energy supply has not kept pace with increasing demand and, therefore, India continues to face serious energy shortages. This has led to increased reliance on imports to meet the energy demand.

Coal India now ranks third amongst the coal producing countries in the world. Being the most abundant fossil fuel in India till date, it continues to be one of the most important sources for meeting the domestic energy needs. It accounts for 55% of the country’s total energy supplies. Through sustained increase in investment, production of coal increased from about 70 MT (million tonnes) (MoC 2005) in early 1970s to 382 MT in 2004/05. Most of the coal production in India comes from open pit mines contributing to over 81% of the total production while underground mining accounts for rest of the national output (MoC 2005). Despite this increase in production, the existing demand exceeds the supply. India currently faces coal shortage of 23.96 MT. This shortage is likely to be met through imports mainly by steel, power, and cement sector (MoC 2005). India exports insignificant quantity of coal to the neighbouring countries. The traditional buyers of Indian coal are Bangladesh, Bhutan, and Nepal. The development of core infrastructure sectors like power, steel, and cement are dependent on coal. About 75% of the coal in the country is consumed in the power sector (MoC 2005).

PowerAccess to affordable and reliable electricity is critical to a country’s growth and prosperity. The country has made significant progress towards the augmentation of its power infrastructure. In absolute terms, the installed power capacity has increased from only 1713 MW (megawatts) as on 31 December 1950 to 118 419 MW as on March 2005 (CEA 2005). The all India gross electricity generation, excluding that from the captive generating plants, was 5107 GWh (gigawatt-hours) in 1950 and increased to 565 102 GWh in 2003/04 (CEA 2005).Energy requirement increased from 390 BkWh (billion kilowatt-hours) during 1995/96 to 591 BkWh (energy) by the year 2004/05, and peak demand increased from 61 GW (gigawatts) to 88 GW over the same time period. The country experienced energy shortage of 7.3% and peak shortage of 11.7% during 2003/04. Though, the growth in electricity consumption over the past decade has been slower than the GDP’s growth, this increase could be due to high growth of the service sector and efficient use of electricity. Per capita electricity consumption rose from merely 15.6 kWh (kilowatt-hours) in 1950 to 592 kWh in 2003/04 (CEA 2005). However, it is a matter of concern that per capita consumption of electricity is among the lowest in the world. Moreover, poor quality of power supply and frequent power cuts and shortages impose a heavy burden on India’s fast-growing trade and industry.

Oil and natural gasThe latest estimates indicate that India has around 0.4% of the world’s proven reserves of crude oil. The production of crude oil in the country has increased from 6.82 MT in 1970/71 to 33.38 MT in 2003/04 (MoPNG 2004b). The production of natural gas increased from 1.4 BCM (billion cubic metres) to 31.96 BCM during the same period. The quantity of crude oil imported increased from 11.66 MT during 1970/71 to 81 MT by 2003/04. Besides, imports of other petroleum products increased from 1 MT to 7.3 MT during the same period. The exports of petroleum products went up from around 0.5 MT during 1970/71 to 14 MT by 2003/04. The refining capacity, as on 1 April 2004, was 125.97 MTPA (million tonnes per annum). The production of petroleum products increased from 5.7 MT

during 1970/71 to 110 MT in 2003/04.India’s consumption of natural gas has risen faster than any other fuel in the recent years. Natural gas demand has been growing at the rate of about 6.5% during the last 10 years. Industries such as power generation, fertilizer, and petrochemical production are shifting towards natural gas. India’s natural gas consumption has been met entirely through domestic production in the past. However, in the last 4/5 years, there has been a huge unmet demand of natural gas in the country, mainly required for the core sectors of the economy. To bridge this gap, apart from encouraging domestic production, the import of LNG (liquefied natural gas) is being considered as one of the possible solutions for India’s expected gas shortages. Several LNG terminals have been planned in the country. Two LNG terminals have already been commissioned: (1) Petronet LNG Terminal of 5 MTPA (million tonnes per annum) at Dahej, and (2) LNG import terminal at Hazira. In addition, an in-principle agreement has been reached with Iran for import of 5 MTPA of LNG.

Renewable energy sourcesRenewable energy sources offer viable option to address the energy security concerns of a country. Today, India has one of the highest potentials for the effective use of renewable energy. India is the world’s fifth largest producer of wind power after Denmark, Germany, Spain, and the USA. There is a significant potential in India for generation of power from renewable energy sources—, small hydro, biomass, and solar energy. The country has an estimated SHP (small-hydro power) potential of about 15 000 MW. Installed combined electricity generation capacity of hydro and wind has increased from 19 194 MW in 1991/92 to 31 995 MW in 2003/04, with a compound growth rate of 4.35% during this period (MoF 2005). Other renewable energy technologies, including solar photovoltaic, solar thermal, small hydro, and biomass power are also spreading. Greater reliance on renewable energy sources offers enormous economic, social, and environmental benefits.The potential for power production from captive and field-based biomass resources, using technologies for distributed power generation, is currently assessed at 19 500 MW including 3500 MW of exportable surplus power from bagasse-based cogeneration in sugar mills (MNES 2005).

Future scenarioIncreasing pressure of population and increasing use of energy in different sectors of the economy is an area of concern for India. With a targeted GDP growth rate of 8% during the Tenth Five-year Plan, the energy demand is expected to grow at 5.2%. Driven by the rising population, expanding economy, and a quest for improved quality of life, the total primary energy consumption is expected to about 412 MTOE (million tonnes oil equivalent) and 554 MTOE in the terminal years of the Tenth and Eleventh Plans, respectively (Planning Commission 1999). The International Energy Outlook 2005 (EIA 2005b) projects India’s gas consumption to grow at an average annual rate of 5.1%, thereby reaching 2.8 trillion cubic feet by 2025 with the share of electric power sector being of 71% by that time. Coal consumption is expected to increase to 315 MT over the forecast period. In India, slightly less than 60% of the projected growth in coal consumption is attributed to the increased demand of coal in the electricity sector while the industrial sector accounts for most of the remaining increase. The use of coal for electricity generation in India is expected to increase by 2.2% per annum during 2002–25, thus requiring an additional 59 000 MW of coal-fired capacity. Oil demand in India is expected to increase by 3.5% per annum during the same time.

It is quite apparent that coal will continue to be the predominant form of energy in future. However, imports of petroleum and gas would continue to increase substantially in absolute terms, involving a large energy import bill. There is, therefore, an urgent need to conserve energy and reduce energy requirements by demand-side management and by adopting more efficient technologies in all sectors.