India Energy
Outlook 2021

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Foreword

The International Energy Agency (IEA) last released a World Energy Outlook special report on
India in 2015. Six years later, it is remarkable to consider the changes that have taken place.
The global energy sector has shifted a great deal over that period, particularly in terms ofefforts to strengthen policies to tackle the threat of climate change. The growing number ofnet‐zero emissions pledges by countries and companies reflects the increasing sense ofurgency and accelerating momentum around clean energy transitions.
Most recently, the Covid‐19 pandemic brought unprecedented disruptions to our societies
and economies, with major consequences across the energy world. The damage to lives andlivelihoods – and to many parts of the energy sector – will last for years to come.
Focusing on India’s energy system in particular, I would like to highlight two extremely
positive developments that stand out to me. The first is India’s success in bringing electricity
connections to hundreds of millions of its citizens in recent years. This is a monumental
achievement that has improved the material well‐being of a huge number of people, and I
heartily congratulate the Government of India for it.
The second greatly encouraging development is the way in which India has grasped thetransformative potential of renewables, and solar in particular. As this report shows, thegrowth of India’s renewable energy sector has been highly impressive – and India is set tolead the world in areas like solar power and batteries in the coming decades.
This has also been an exciting period for India‐IEA relations. Less than four years after joining
the IEA family as an Association country, India recently agreed with IEA members to enter
into a Strategic Partnership. Marked by a signing ceremony involving dignitaries from India
and IEA members, this was a major milestone that could eventually lead to full membershipfor India, which would be a game‐changing moment for global energy governance.
I hope that the depth and insight of the analysis in this new special report bears testament
to the close working relationships and understanding that we have built over these years
between India and the IEA.

What this report makes clear is the tremendous opportunity for India to develop andsuccessfully meet the aspirations of its citizens without following the high‐carbon pathwaythat other economies have pursued in the past. Seizing this opportunity is critically importantfor India, and critically important for the world.

Foreword

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IEA. All rights reserved.

As our new report makes clear, many challenges remain for India – in terms of energy
security, access, affordability, emissions and more. But India’s decision makers have shownon many occasions the value of well‐designed policies. A compelling example is the roll‐outof efficient LED lighting to millions of households all across the country, making electricity
more affordable and sustainable at the same time.

In its endeavour to bring affordable, clean and reliable energy to all its citizens, theGovernment of India can count on the enduring support and partnership of the IEA. We
sincerely hope this report will be of use to decision makers across the Indian energy sector
as they seek to build a brighter future for a country that will remain at the heart of global
energy trends for decades to come.
I would like to commend the dedicated team behind this report – from across the Agency –for their hard work under the excellent leadership of Tim Gould, with outstanding support
from Peter Zeniewski in Paris and Siddharth Singh in Delhi. And I would like to thank theGovernment of India for its support – and all the experts and friends of the IEA in India andworldwide who contributed their time and insights.

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Dr Fatih Birol
Executive Director
International Energy Agency

Acknowledgements
This study was prepared by the World Energy Outlook (WEO) team in the Directorate of
Sustainability, Technology and Outlooks (STO) in co‐operation with other directorates of theInternational Energy Agency (IEA). The study was designed and directed by Tim Gould, Headof Division for Energy Supply and Investment Outlooks. Peter Zeniewski and Siddharth Singhco‐ordinated the work and were the lead authors.
Other principal authors of the report were Simon Bennett (innovation, clean energy); Arthur
Contejean (access); Davide D’Ambrosio (power); Szilvia Doczi (flexibility); Insa Handschuch(air quality); Zoe Hungerford (flexibility); Inchan Hwang (investment and finance);
Christophe McGlade (carbon emissions); Sarbojit Pal (transport); Ryszard Pospiech (supply);
Lucila Arboleya Sarazola (investment and finance); Michael Waldron (lead on investment
and finance); Molly Walton (water) and Brent Wanner (power). Thomas Spencer from The
Energy and Resources Institute (TERI) was the lead on demand and industry. The report reliedon the modelling and analysis of the entire WEO team and the guidance of Laura Cozzi, the
IEA’s Chief Energy Modeller.
Other key contributors were Yasmine Arsalane (macro‐economy), Aayushi Awasthy(affordability, gender); Stéphanie Bouckaert (end‐use modelling); Amrita Dasgupta(gender); Tomás de Oliveira Bredariol (water); Timothy Goodson (buildings and efficiency);
Astha Gupta (bioenergy, affordability); Paul Hugues (bioenergy); Peter Janoska (air quality);
Tae‐Yoon Kim (fuels); Toru Muta (overview); Pawel Olejarnik (supply modelling);
Apostolos Petropoulos (transport); Sree Sanyal (gender); Andreas Schroeder (industry);
Rebecca Schulz (coal); Ashish Sethi (gas, captive power); and Daniel Wetzel (jobs).
Laszlo Varro, the IEA Chief Economist, and Nicole ThomasThomas, India programme manager,
provided valuable guidance and support. Eleni Tsoukala, Teresa Coon and Marie Fournier‐
S’Niehotta provided essential support.
Edmund Hosker carried editorial responsibility. Erin Crum was the copy‐editor.

Acknowledgements

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The study also benefited from input provided by numerous IEA colleagues, in particular
Carlos Fernández Alvarez, Heymi Bahar, Adam Baylin‐Stern, Sylvia Beyer, Piotr Bojek,
Daniel Crow, Eric Fabozzi, Peter Fraser, Paolo Frankl, Timur Gül, Pablo Gonzalez, Craig Hart,
Maxine Jordan, Lilly Lee, Peter Levi, Akos Losz, Laura Maiolo, Ariane Millot, Brian Motherway,
Michael Oppermann, Céline Rouquette, Keisuke Sadamori, Disha Sharma, Melanie Slade,
Masatoshi Sugiura, Vida Rozite, and Kartik Veerakumar. Mechthild Wörsdörfer, Director for
STO, provided support and guidance throughout. Air quality data was provided by theInternational Institute for Applied Systems Analysis. The water analysis was conducted inpartnership with the Council on Energy, Environment and Water (CEEW), led by Vaibhav
Chaturvedi, Kangkanika Neog and Surabhi Singh. Varun Sivaram, Center on Global Energy
Policy at Columbia University, provided valuable insights on energy investment andtechnology.

Thanks go to the IEA Communications and Digital Office (CDO) for their help in producing thereport and website materials, particularly to Jad Mouawad, Head of CDO, andAstrid Dumond, Tanya Dyhin, Merve Erdem, Grace Gordon, Christopher Gully, Jethro Mullen,
Robert Stone and Therese Walsh. The IEA’s Office of the Legal Counsel, Office ofManagement and Administration, and Energy Data Centre provided assistance throughout
the preparation of the report.
We would like to thank the Government of India for the co‐operation during the preparationof this report, and numerous Indian interlocutors in research organisations and companies
who kindly provided their time and assistance in answering our queries and sharing theirinsights.
Data from a number of Indian sources were essential to bring this study to completion.
Among the Indian institutions that submit energy data to the IEA we are particularly gratefulto NITI Aayog, the Bureau of Energy Efficiency, the Ministry of Power, the Ministry of Coal,
the Ministry of New and Renewable Energy, the Ministry of Petroleum and Natural Gas, andthe Ministry of Statistics and Programme Implementation.
The work could not have been achieved without the support and co‐operation provided bymany government bodies, organisations and companies worldwide, notably: Ministry of
Economy, Trade and Industry, Japan; and the IEA Clean Energy Technologies Programme,
particularly through the contributions of the United Kingdom and of the European Union via
the Horizon 2020 research and innovation programme under grant agreement No 952363.

Prasoon Agarwal

International Renewable Energy Agency (IRENA)

K.V.S. Baba

Power System Operation Corporation Limited(POSOCO)Abhay Bakre

Bureau of Energy Efficiency

Manjushree Banerjee

Independent consultant

Paul Baruya

IEA Clean Coal Centre

Samuel Beatty

US Department of Energy

Shikha Bhasin

CEEW

Nick Butler

King’s College London

Russell Conklin

US Department of Energy

Anne‐Sophie Corbeau

BP

Rita Roy Choudhury

Federation of Indian Commerce and Industries (FICCI)

Ganesh Das

Tata Power Delhi Distribution Limited

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Various experts, research institutes, companies, government bodies and international
stakeholders provided input at various stages and reviewed preliminary drafts of the report.
Their comments and suggestions were of great value. They include:

ENEL

Kaushik Deb

King Abdullah Petroleum Studies and Research Center(KAPSARC)

Pamli Deka

World Resources InstituteVivek Kumar Dewangan

Ministry of Power

Swati D’Souza

National Foundation for India

Navroz Dubash

Centre for Policy Research

Ashwin Gambhir

Prayas Energy Group

Arunabha Ghosh

CEEW

Abhishek Goel

Global Infrastructure Partners India

Akash Goenka

Alliance for an Energy Efficient Economy (AEEE)

Abhinav Goyal

World Bank

Kavita Jadhav

UK Department for Business, Energy and Industrial
Strategy (BEIS)

Dinesh Dayanand Jagdale

Ministry of New and Renewable Energy

Amit Jain

World Bank

Anil Jain

Ministry of Coal

Neelima Jain

Center for Strategic and International Studies (CSIS)

Gauri Jauhar

IHS Markit

Madhura Joshi

Natural Resources Defense Council (NRDC)

Premanand Jothy

Ministry of External Affairs

Satish Kumar

AEEE

Marc LaFrance

US Department of Energy

Jennifer Li

US Department of Energy

Sangeeta Mathew

AEEE

Ajay Mathur

The Energy and Resources Institute (TERI)

Rohit Mittal

World Bank

Mitheel Mody

Tata Cleantech

Swetha RaviKumar Bhagwat

Florence School of Regulation Global (FSR)

Rajnath Ram

NITI Aayog

Bijoy Samanta

Ministry of Coal

Rakesh Sarwal

NITI Aayog

Chandana Sasidharan

AEEE

Gurdeep Singh

NTPC

Kartikeya Singh

CSIS

Acknowledgements

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Enrique De Las Morenas Moneo

Raina SinghNational Institute of Urban Affairs (NIUA)

Sumant Sinha

ReNEW Power

Scott Smouse

US Department of Energy

Glenn Sondak

Shell

Jim Spaeth

US Department of Energy

Elena Thomas‐Kerr

US Department of Energy

Rahul Tongia

Centre for Social and Economic Progress (CSEP)

Nikos Tsafos

CSIS

Tomoko Uesawa

Mitsubishi

Manoj Kumar Upadhyay

NITI Aayog

Miles Weinstein

UK COP26 TeamThe individuals and organisations that contributed to this study are not responsible for any
opinions or judgements it contains. All errors and omissions are solely the responsibility of
the IEA.
This document and any map included herein are without prejudice to the status of orsovereignty over any territory, to the delimitation of international frontiers and boundaries
and to the name of any territory, city or area.

Comments and questions are welcome and should be addressed to:
Tim Gould
Directorate of Sustainability, Technology and Outlooks
International Energy Agency
9, rue de la Fédération
75739 Paris Cedex 15
France8

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E-mail : weo@iea.org

Table of Contents
Foreword........................................................................................................................... 3
Acknowledgements ........................................................................................................... 5
Executive summary ......................................................................................................... 11
1

Energy in India today

17

1.1 Introducing the India special focus ................................................................ 19
1.2 Mapping India’s energy system ..................................................................... 22
1.3 Energy and India’s development path ........................................................... 40
1.4 Which way from here? .................................................................................. 58

2

Urbanisation and industrialisation in India

69

2.1 Overview of energy demand ......................................................................... 71
2.2 The forces and uncertainties shaping energy demand.................................. 76
2.3 The built environment and mobility .............................................................. 82
2.4 Industrial transformations ............................................................................. 97

3

Fuels and electricity in India

109

3.1 Overview of energy supply .......................................................................... 111
3.2 What’s next for India’s power sector? ........................................................ 115
3.3 Exploring prospects for a gas‐based economy ............................................ 133
3.4 Transforming traditional fuels: Coal and bioenergy .................................... 152

4

Implications for India and the world169

4.1 Overview of energy sustainability and security ........................................... 171
4.2 India and the Sustainable Development Goals............................................ 174
4.3 Clean energy investment and finance ......................................................... 190

Annexes219

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4.4 India in global energy .................................................................................. 207

IEA. All rights reserved.

Executive Summary
India’s future prosperity will hinge on affordable, clean and reliable energy…
India has seen extraordinary successes in its recent energy development, but many
challenges remain, and the Covid‐19 pandemic has been a major disruption. In recent years,
India has brought electricity connections to hundreds of millions of its citizens; promoted theadoption of highly‐efficient LED lighting by most households; and prompted a massive
expansion in renewable sources of energy, led by solar power. The gains for Indian citizens
and their quality of life have been tangible. However, the Covid‐19 crisis has complicatedefforts to resolve other pressing problems. These include a lack of reliable electricity supply
for many consumers; a continued reliance on solid biomass, mainly firewood, as a cooking
fuel for some 660 million people; financially ailing electricity distribution companies, and air
quality that has made Indian cities among the most polluted in the world.

…and the scope for further growth in energy demand and infrastructure is huge
India is the world’s third‐largest energy consuming country, thanks to rising incomes andimproving standards of living. Energy use has doubled since 2000, with 80% of demand still
being met by coal, oil and solid biomass. On a per capita basis, India’s energy use andemissions are less than half the world average, as are other key indicators such as vehicle
ownership, steel and cement output. As India recovers from a Covid‐induced slump in 2020,
it is re‐entering a very dynamic period in its energy development. Over the coming years,
millions of Indian households are set to buy new appliances, air conditioning units andvehicles. India will soon become the world’s most populous country, adding the equivalentof a city the size of Los Angeles to its urban population each year. To meet growth inelectricity demand over the next twenty years, India will need to add a power system thesize of the European Union to what it has now.

India has a wide range of possible energy futures before it

The Stated Policies Scenario (STEPS) provides a balanced assessment of the direction inwhich India’s energy system is heading, based on today’s policy settings and constraints
and an assumption that the spread of Covid‐19 is largely brought under control in 2021.

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This special report maps out possible energy futures for India, the levers and decisions thatbring them about, and the interactions that arise across a complex energy system. The
increasing urgency driving the global response to climate change is a pivotal theme. India has
so far contributed relatively little to the world’s cumulative greenhouse gas emissions, but
the country is already feeling their effects. This report’s analysis is based on a detailed review
of existing or announced energy reforms and targets. These include the aims of quadrupling
renewable electricity capacity by 2030, more than doubling the share of natural gas in theenergy mix, enhancing energy efficiency and transport infrastructure, increasing domestic
coal output, and reducing reliance on imports. Progress towards these policy goals varies
across our report’s different scenarios, none of which is a forecast. Our aim is rather toprovide a coherent framework in which to consider India’s choices and their implications.



The India Vision Case is based on a rapid resolution of today’s public health crisis and amore complete realisation of India’s stated energy policy objectives, accompanied by afaster pace of economic growth than in the STEPS.

The Delayed Recovery Scenario analyses potential downside risks to India’s energy andeconomic development in the event that the pandemic is more prolonged.



The Sustainable Development Scenario explores how India could mobilise an additional
surge in clean energy investment to produce an early peak and rapid subsequent decline
in emissions, consistent with a longer‐term drive to net zero, while accelerating progress
towards a range of other sustainable development goals.

Covid‐19 will leave lasting scars
Prior to the global pandemic, India’s energy demand was projected to increase by almost
50% between 2019 and 2030, but growth over this period is now closer to 35% in the STEPS,
and 25% in the Delayed Recovery Scenario. The latter would put some of India’s hard‐won
gains in the fight against energy poverty at risk, as lower‐income households are forced tofall back on more polluting and inefficient sources of energy. It would also extend the slump
in energy investment, which we estimate to have fallen by some 15% in India in 2020. Even
though the pandemic and its aftermath could temporarily suppress emissions, as coal and oilbear the brunt of the reduction in demand, it does not move India any closer to its long‐termsustainable development goals.

India’s size and dynamism will keep it at the heart of the global energy system
An expanding economy, population, urbanisation and industrialisation mean that India
sees the largest increase in energy demand of any country, across all of our scenarios to2040. India’s economic growth has historically been driven mainly by the services sector
rather than the more energy‐intensive industrial sector, and the rate at which India has
urbanised has also been slower than in other comparable countries. But even at a relatively
modest assumed urbanisation rate, India’s sheer size means that 270 million people are still
set to be added to India’s urban population over the next two decades. This leads to rapid
growth in the building stock and other infrastructure. The resulting surge in demand for arange of construction materials, notably steel and cement, highlights the pivot in global
manufacturing towards India. In the STEPS, as India develops and modernises, its rate ofenergy demand growth is three times the global average.

Solar power is set for explosive growth in India, matching coal’s share in the Indian power
generation mix within two decades in the STEPS – or even sooner in the Sustainable
Development Scenario. As things stand, solar accounts for less than 4% of India’s electricity
generation, and coal close to 70%. By 2040, they converge in the low 30%s in the STEPS, andthis switch is even more rapid in other scenarios. This dramatic turnaround is driven by
India’s policy ambitions, notably the target to reach 450 GW of renewable capacity by 2030,
and the extraordinary cost‐competitiveness of solar, which out‐competes existing coal‐fired
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The Indian electricity sector is on the cusp of a solar‐powered revolution…

power by 2030 even when paired with battery storage. The rise of utility‐scale renewableprojects is underpinned by some innovative regulatory approaches that encourage pairing
solar with other generation technologies, and with storage, to offer “round the clock” supply.
Keeping up momentum behind investments in renewables also means tackling risks relating
to delayed payments to generators, land acquisition, and regulatory and contract
uncertainty. However, the projections in the STEPS do not come close to exhausting thescope for solar to meet India’s energy needs, especially for other applications such as rooftop
solar, solar thermal heating, and water pumps.

...while rising demand for air‐conditioning pushes up the peak in power demandIndia’s electricity demand is set to increase much more rapidly than its overall energy
demand. But a defining feature of the outlook is a sharp rise in variability – both in electricity
output, from solar PV and wind, and in daily consumption. On the supply side, output fromrenewables in some Indian states is set to exceed demand on a regular basis (typically aroundthe middle of the day) before 2030. On the demand side, the key contributor to variability
comes from rapid growth in ownership of air‐conditioning units. Energy efficiency measurestargeting both cooling appliances and buildings avoid around a quarter of the potential
growth in consumption in the STEPS, but electricity demand for cooling still increases six‐foldby 2040, creating a major early evening peak in electricity use.

India requires a massive increase in power system flexibility
The pace of change in the electricity sector puts a huge premium on robust grids and othersources of flexibility, with India becoming a global leader in battery storage. India has ahigher requirement for flexibility in its power system operation than almost any othercountry in the world. In the near term, India’s large grid and its coal‐fired power fleet meet
the bulk of India’s flexibility needs, supported by hydropower and gas‐fired capacity. Goingforward, new power lines and demand‐side options – such as improving the efficiency of air
conditioners or shifting the operation of agricultural pumps to different parts of the day –will need to play a much greater role. But battery storage is particularly well suited to theshort‐run flexibility that India needs to align its solar‐led generation peak in the middle of the
day with the country’s early evening peak in demand. By 2040, India has 140 GW of battery
capacity in the STEPS, the largest of any country, and close to 200 GW in the Sustainable
Development Scenario.

Coal’s hold over India’s power sector is loosening, with industry accounting for most of theincrease in coal demand to 2040 in the STEPS. Once the coal‐fired power plants currently
under construction are completed over the next few years, there is no net growth at all in
India’s coal fleet. Coal‐fired generation was most exposed to the dip in electricity
consumption in 2020. It picks up slightly in the STEPS as demand recovers, since renewables
do not cover all of the projected increase in electricity demand. However, coal suppliers
looking for growth increasingly have to turn to India’s industrial consumers rather than the

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As solar takes power, the focus for coal switches to industry …

power sector. The share of coal in the overall energy mix steadily declines in the STEPS, from
44% in 2019 to 34% in 2040, and more rapidly in other scenarios.

…while oil continues to dominate a fast‐growing transport sector in the STEPSEnergy demand for road transport in the STEPS is projected to more than double over the
next two decades, although this growth is cut dramatically in the Sustainable Development
Scenario. Over half of the growth in the STEPS is fuelled by diesel‐based freight transport. An
extra 25 million trucks are travelling on India’s roads by 2040 as road freight activity triples,and a total of 300 million vehicles of all types are added to India’s fleet between now andthen. Transport has been the fastest‐growing end‐use sector in recent years, and India is set
for a huge expansion of transportation infrastructure – from highways, railways and metro
lines to airports and ports. Today’s policy settings are sufficient to prevent runaway growthin transport energy demand. And some parts of the system shift rapidly to less energy‐
intensive options, with one example being a strong increase in the use of two‐or‐three‐wheeled vehicles for road transport. Nonetheless, in the STEPS, India’s oil demand rises byalmost 4 million barrels per day (mb/d) to reach 8.7 mb/d in 2040, the largest increase of any
country. In the Sustainable Development Scenario, by contrast, a much stronger push forelectrification, efficiency and fuel switching limits growth in oil demand to less than 1 mb/d.

India’s building spree will shape its energy use for years to comeIndia is set to more than double its building space over the next two decades, with 70% of
new construction happening in urban areas. The model of urbanisation that India follows
and the extent to which new construction follows energy‐efficient building codes will shapepatterns of energy use far into the future. The shift towards urban living accelerates
transitions in residential energy use away from solid biomass and towards electricity andmodern fuels. Buoyed by rising appliance ownership and demand for cooling, the share ofelectricity in residential energy use nearly triples. Nonetheless, in the STEPS, firewood andother traditional fuels are still widely used for cooking by 2030. It would take an additional
push – as in the India Vision Case and the Sustainable Development Scenario – to move allhouseholds to LPG, improved cook stoves, gas or electricity.

In the STEPS, India exceeds the goals set out in its Nationally Determined Contribution(NDC) under the Paris Agreement. The emissions intensity of India’s economy improves by
40% from 2005 to 2030, above the 33‐35% set out in its existing NDC. And the share of non‐fossil fuels in electricity generation capacity reaches almost 60%, well above the 40% thatIndia pledged. India’s leadership in the deployment of clean energy technologies expands its
market for solar PV, wind turbine and lithium‐ion battery equipment to over $40 billion peryear in the STEPS by 2040. As a result, 1 in every 7 dollars spent worldwide on these three
types of equipment in 2040 is in India, compared with 1 in 20 today. India’s clean energy
workforce grows by 1 million over the next ten years. If the approach embodied in today’s
policies can be realised in full, as in the India Vision Case, higher economic growth than in
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Today’s clean energy momentum enables India to outperform its Paris pledges

the STEPS need not mean higher energy demand and emissions. In this Case, and especiallyin the Sustainable Development Scenario where the equipment market for solar, wind,batteries and water electrolysers rises to $80 billion per year, the industrial and commercial
opportunities from clean energy are even larger.

The path to a “gas‐based economy” is not fully mapped out
The market for natural gas is growing fast in India, but its role varies by sector, by scenario
and over time. The 6% share of natural gas in India’s current energy mix is among the lowest
in the world. It almost doubles in the STEPS as gas use rises in the industrial sector and in city
gas distribution. In the India Vision Case, natural gas also helps to displace coal in power
generation, bringing India’s aspiration of a “gas‐based economy” closer still. However,affordability is a sensitive issue for consumers, especially given the complex patchwork ofadditional charges and tariffs that, on average, doubled the cost of wholesale gas by the time
it reached end‐users in 2019. As India builds out its gas infrastructure, natural gas can findmultiple uses in India’s energy system, including to help meet air quality and near‐termemissions goals if supply chains are managed responsibly. But the Sustainable Development
Scenario also underlines that a long‐term vision for gas needs to incorporate a growing rolefor biogases and low‐carbon hydrogen, for which India has large potential.

India’s faces energy security hazards ahead
India’s combined import bill for fossil fuels triples over the next two decades in the STEPS,
with oil by far the largest component, pointing to continued risks to India’s energy security.
Domestic production of oil and gas continues to fall behind consumption trends and net
dependence on imported oil rises above 90% by 2040, up from 75% today. This continued
reliance on imported fuels creates vulnerabilities to price cycles and volatility as well as
possible disruptions to supply. Energy security hazards could arise in India’s domestic market
as well, notably in the electricity sector if the necessary flexibility in power system operation
does not materialise. An additional systemic threat to the reliability of electricity supply
comes from the poor financial health of many electricity distribution companies. Improving
the cost‐reflectiveness of tariffs, the efficiency of billing and collection and reducing technicaland commercial losses are key to reforming this sector.

A 50% rise in India’s CO2 emissions to 2040 is the largest of any country in the STEPS, eventhough India’s per capita CO2 emissions remain well below the global average. The increasein India’s emissions is enough to offset entirely the projected fall in emissions in Europe overthe same period. The remarkable rise of renewables arrests the growth in India’s power
sector emissions in the STEPS, although this still leaves the coal‐fired fleet – the fifth‐largest
single category of emissions worldwide today – as a major emitter of CO2. Alongside theoption of early retirement in some cases, this puts a strong premium on policy approaches
that can retool this fleet for more limited and flexible operation and/or on technologies suchas carbon capture, utilisation and storage (CCUS). But the main reasons for the increase in
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Booming industry and transport push up CO2 emissions and harm air quality

India’s CO2 emissions in the STEPS lie outside the power sector, in industry and transport(especially from trucks). These two sectors are also responsible for a much larger share of air
pollutant emissions than the power sector in the STEPS, and a rising urban population meansthat more people are exposed to air pollution and suffer its ill effects. Water stress is likewise
an increasingly important factor for India’s energy sector and its technology choices.

All roads to successful global clean energy transitions go via India…
As the world seeks ways to accelerate the pace of transformation in the energy sector,
India is in a unique position to pioneer a new model for low‐carbon, inclusive growth. Many
aspects of such a model are already evident in India’s policy vision, and many more arehighlighted in the Sustainable Development Scenario that points the way for India towards
net‐zero emissions. If this can be done, it will show the way for a whole group of energy‐
hungry developing economies, by demonstrating that robust economic expansion is fullycompatible with an increasing pace of emissions reductions and the achievement of otherdevelopment goals. India is already a global leader in solar power – and solar combined withbatteries will play a massive part in India’s energy future. But India will need a whole host oftechnologies and policies to chart this new path. As new industrial sectors emerge and clean
energy jobs grow, India will also need to ensure that no one is left behind, including in thoseregions that are heavily dependent on coal today.

…and India’s energy destiny will be forged by government policies

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More than that of any other major economy, India’s energy future depends on buildings
and factories yet to be built, and vehicles and appliances yet to be bought. Within 20 years,
the majority of India’s emissions in the STEPS come from power plants, industrial facilities,buildings and vehicles that do not exist today. This represents a huge opening for policies tosteer India onto a more secure and sustainable course. India’s ambitious renewables targets
are already acting as a catalyst for the transformation of its power sector. A crucial – andeven more challenging – task ahead is to put the industrial sector on a similarly new paththrough more widespread electrification, material and energy efficiency, technologies such
as CCUS, and a switch to progressively lower‐carbon fuels. Electrification, efficiency and fuelswitching are also the main tools for the transport sector, alongside a determined move tobuild more sustainable transport infrastructure and shift more freight onto India’s soon‐to‐be‐electrified railways. These transformations require innovation, partnerships and capital.
The additional capital required for clean energy technologies to 2040 in the Sustainable
Development Scenario is $1.4 trillion above the level in the STEPS. But the benefits are huge,
including savings of the same magnitude on oil import bills. Government policies toaccelerate India’s clean energy transition can lay the foundation for lasting prosperity andgreater energy security. The stakes could not be higher, for India and for the world.

Chapter 1
Energy in India today
Is 2020 a turning point?
S U M M A R Y
 India is a major force in the global energy economy. Energy consumption has morethan doubled since 2000, propelled upwards by a growing population – soon to be
the world’s largest – and a period of rapid economic growth. Near‐universal
household access to electricity was achieved in 2019, meaning that over 900 million
citizens have gained an electrical connection in less than two decades.

 India’s continued industrialisation and urbanisation will make huge demands of its
energy sector and its policy makers. Energy use on a per capita basis is well under half
the global average, and there are widespread differences in energy use and the qualityof service across states and between rural and urban areas. The affordability andreliability of energy supply are key concerns for India’s consumers.

 The Covid‐19 pandemic has disrupted India’s energy use; our updated assessmentshows an estimated fall of about 5% in the country’s energy demand in 2020 due tolockdowns and related restrictions, with coal and oil use suffering the biggest falls.
The pandemic has also hit investment in the energy sector, which fell by an estimated
15% in 2020, exacerbating financial strains across the board, in particular among
India’s electricity distribution companies. How long the impacts last will depend on
how quickly the spread of the virus is brought under control, and on the policy
responses and recovery strategies that are put in place.
Figure 1.1 ⊳1 500

Selected indicators for India, 2000, 2010 and 2019

Population(Million)

5GDP(Trillion $2019, MER)

1 000

1 200

4

800

900

3

600

600

2

400

300

1

200

Energy demand(Mtoe)
Other
renewables
Traditional
biomass
Nuclear
Oil
Gas
Coal

2000 2010 20192000 2010 20192000 2010 2019

Rising population and incomes since 2000 have underpinned a doubling of energy use

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in India, but per capita energy use is still less than 40% of the world average.

 Over 80% of India’s energy needs are met by three fuels: coal, oil and solid biomass.
Coal has underpinned the expansion of electricity generation and industry, andremains the largest single fuel in the energy mix. Oil consumption and imports havegrown rapidly on account of rising vehicle ownership and road transport use. Biomass,
primarily fuelwood, makes up a declining share of the energy mix, but is still widelyused as a cooking fuel. Despite recent success in expanding coverage of LPG in rural
areas, 660 million Indians have not fully switched to modern, clean cooking fuels or
technologies.

 Natural gas and modern renewable sources of energy have started to gain ground,
and were least affected by the effects of the Covid‐19 pandemic in 2020. The rise ofsolar PV in particular has been spectacular; the resource potential is huge, ambitions
are high, and policy support and technology cost reductions have quickly made it thecheapest option for new power generation.

 India is the third‐largest global emitter of CO2, despite low per capita CO2 emissions.
The carbon intensity of its power sector in particular is well above the global average.
Additionally, particulate matter emissions are a major factor in air pollution, which
has emerged as one of India’s most sensitive social and environmental issues: in 2019,
there were well over one million premature deaths related to ambient and household
air pollution.

 India has a wide range of policies in place that aim to bring about a secure andsustainable energy future. This Outlook does not have a single view on how India’senergy future might look. Instead, based on a detailed examination of today’s energy
markets, technologies and policies, our scenarios explore the implications of different
circumstances and choices, and the linkages between them.

 The Stated Policies Scenario (STEPS) assumes that the pandemic is gradually brought
under control in 2021. Against that backdrop, it assesses the direction in which today’s
policy settings and targets seem likely to take the energy sector in India, taking into
account a range of real‐life constraints that might affect their realisation in practice.

 The India Vision Case (IVC) takes a more optimistic stance on the speed of economic
recovery and long‐term growth, and also on the prospects for a fuller implementationof India’s stated energy policy ambitions.

 The Delayed Recovery Scenario (DRS), by contrast, examines the implications of amore prolonged pandemic with deeper and longer‐lasting impacts on a range of
economic, social and energy indicators than is the case in the STEPS.

 The Sustainable Development Scenario (SDS) takes a different approach, working

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backwards from specific international climate, clean air and energy access goals,
including the Paris Agreement, and examining what combination of actions would benecessary to achieve them.

1.1

Introducing the India special focus

It has been six years since the International Energy Agency (IEA) last completed a special
focus on India in its World Energy Outlook series. This new report updates and expands theanalysis of India, and it does so from the exceptional starting point of 2020. Many things havechanged in India and in global energy since the last India Energy Outlook was published, but
the Covid‐19 pandemic has caused more disruption to the energy sector than any other eventin recent history. The impacts will continue to be felt, in India and around the world, for years
to come.

1

However, while the pandemic affects the new Outlook in numerous ways, it does not alter
the fundamental considerations underpinning this special focus on India. The potential for
growth in energy demand and energy infrastructure in India remains enormous. How theseneeds are met will have a crucial impact on the aspirations of what will soon become theworld’s most populous country. It will also have a huge influence on global trends, including
the prospects for a successful global response to climate change.
As a result of the country’s own efforts and the falling global costs of some key clean energy
technologies, there is scope for India to chart a course for its energy development that issignificantly less emissions‐intensive than those followed by other countries in the past. In
India, there are signs – especially in the power sector – that such a clean energy transition isunder way. But there is still a wide range of possible ways in which it could play out, withmuch depending on near‐term uncertainties over the pandemic and the shape of theeconomic recovery, as well as on the policy choices that India makes. The next decade willbe critical to India’s energy future, since many of the policy actions taken today – including
short‐term actions to manage the effects of the pandemic – are likely to have long‐lasting
consequences.

After this introductory chapter, which sets the scene, the remainder of this Outlook contains
deep dives into topics that will define India’s energy landscape in the coming years. Chapter
2 explores the key factors that will drive energy demand in India, including urbanisation,buildings, transport and industries. Chapter 3 looks at aspects of energy supply, includingtransformations in the power sector, the potential for natural gas in India’s economy, andthe role of bioenergy and coal in a rapidly changing energy system. The final chapter explores
the implications of developments in energy on the United Nations (UN) Sustainable
Development Goals (SDGs), including energy access, air quality and greenhouse gas (GHG)
emissions; the implications for energy investments and finance; and the emerging role ofIndia in the energy world.

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Our aim in this new India Energy Outlook is not to prescribe these choices or to forecast the
future, but rather to provide a coherent framework in which India’s options can be assessed.
And, while very different, there is one thing on which all our scenarios agree: whichever way
the global energy economy evolves from here, India will be firmly at its centre.

1.1.1

The context

India has a major presence on the world stage. It is currently the world’s second‐mostpopulous country after the People’s Republic of China (hereafter, “China”), and is set tobecome the most populous in the 2020s. India has been one of the world’s fastest‐growing
economies in recent years, and has become the fifth‐largest in nominal terms, behind theUnited States, China, Japan and Germany. Expressed in terms of purchasing power parity(PPP), which adjusts for Indian buying power relative to other countries, India is the third‐
largest economy behind China and the United States. However, India continues to be a low‐income economy, with a PPP per capita income that is less than half of the world average.
With half of India’s population under the age of 25, India’s economy has the potential togrow very rapidly.
Since 2000, India has been responsible for more than 10% of the increase in global energy
demand. On a per capita basis, energy demand in India has grown by more than 60% since
2000, although there are widespread differences across different parts of the country as wellas across socio‐economic groups. On a range of economic and energy‐related indicators,
India has been catching up with the rest of the world in recent years (Figure 1.2). Coal
demand per capita increased from 25% of the world average in 1990 to 60% in 2019 and,mainly for this reason, carbon dioxide (CO2) emissions per capita increased from a little over
15% of the world average to a little under 40% over this period.
Figure 1.2 ⊳Key indicators in India as a percentage of global averages

60%
50%
40%
30%
20%
10%
GDP per
capitaEnergy Oil demand Coal
Residential Steel andCar
CO₂demand per capita demand energy use cement ownership emissions
per capita
per capita
use
per capita
2000

2019

Key energy and economy indicators of India are well below the global average,
although they have been steadily rising.

There is huge potential for further growth in energy service demand in India due to an
expanding economy and the forces of urbanisation and industrialisation. There are, however,critical questions about how demand growth will be met. With the notable exceptions of
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Note: GDP = gross domestic product.

solar, coal and wind, India is generally resource‐constrained. India is also very densely
populated, with relatively high levels of water stress and land‐use constraints, and structural
poverty and other socio‐economic factors mean that the affordability of energy is a major
issue.

1

India is characterised by the co‐existence of shortage and abundance in several parts of its
energy system. India possesses the world’s fifth‐largest coal reserves, but nonetheless is oneof the world’s major coal importers. India is a major centre for global oil refining, but relies
overwhelmingly on imported crude. Many consumers face unreliable electricity supply, andthere are significant commercial and technical losses at the distribution level, but inaggregate there is currently a surplus of generation capacity over demand. There issignificant potential consumer demand for liquefied natural gas (LNG), but this cannot always
be met because of infrastructure bottlenecks and pricing constraints.
The choice of per capita or absolute values for India makes a big difference in the way India
looks in energy terms. The absolute values are large and growing, while per capita values
remain low by international standards. Despite India being one of the world’s largest energy
users, Indians on average still consume significantly less than their counterparts elsewherein the world, and much less than in advanced economies. India’s annual CO2 emissions are
now the third‐highest in the world, but barely make the top 100 as measured by emissions
per capita, and are lower still if historical emissions per capita are considered.

1.1.2

The impact of Covid‐19

The pandemic is not over, and its full implications are not yet visible. In the coming decade,India might see some durable, structural changes alongside temporary adjustments andbreaks in trend. As we survey India’s energy landscape, we explore how the outlook forvarious sectors might be affected by the shock caused by Covid‐19. This new Outlook has
been conducted during a period of extraordinary disruption, felt across all parts of Indiansociety. Its scenarios consider and incorporate the impact of this in different ways, includingin the form of reduced GDP growth rates, reduced demand, a slightly lower turnover ofcapital stock, and a lower rate of investment across different parts of the energy sector.
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A lot has changed in India’s energy sector since the last in‐depth India Energy Outlook was
published in 2015 (Box 1.1). While there has been progress on many fronts over these years,
the extraordinary disruption caused by the Covid‐19 pandemic in 2020 has cast a cloud overthe future. To avoid the spread of the virus, the Indian government put in place a series oflockdowns starting in late March 2020, with varying levels of stringency, with the latest
estimates showing a contraction in GDP of about 8% in 2020 (IMF, 2021). There wasinevitably a considerable impact on energy demand. Full‐year estimates see India’s primaryenergy demand falling 5% from 2019 levels, with coal and oil expected to take the largest hit
due to far‐reaching restrictions on mobility and a reduction in economic activity. Natural gas
demand has been resilient, as low prices have offset some of the forces driving down
demand. Renewables have also fared relatively well, with generation from wind and solar
growing by 15%.

Drivers

GDP
Material demand
Car sales

EnergydemandPercentage annual change in key indicators for India in 2020

Electricity
Coal
Oil
Gas
Renewables and other

Impacts

Figure 1.3 ⊳CO₂ emissions
Energy investment
Air pollutants
‐25%

‐20%

‐15%

‐10%

‐5%

0%

5%

10%

Annual average (2015‐19)
Covid-19 has caused a significant break in India’s development trajectory; a key
uncertainty is the extent to which changes lead to structural shifts or temporary disruption.
Sources: IEA analysis and IEA (2020b); IEA (2020c); IEA (2021); IEA (2021b); IMF (2021); POSOCO (2021).

Box 1.1 ⊳What has changed since the 2015 India Energy Outlook?

In the six years since the last India Energy Outlook was published, India’s GDP has grownat an annual average rate of 6.7%. Among a range of economic reforms, one of particularimportance was the introduction of the Goods and Services Tax (GST), which has createda uniform tax code for most economic activity in India, with the notable exception of
petroleum products, natural gas and electricity.
Electricity access has been achieved much more quickly than projected in the 2015
Outlook, reflecting a major additional policy push on this issue. Over the last decade,India has provided electricity to nearly 50 million new users every year, equal to theentire population of Spain. This is one of the most significant achievements in global
energy in recent years. However, issues of reliability remain.

India has also made some significant progress on energy efficiency policy. The
commercial building Energy Conservation Building Code was revised and strengthened in2017, and Eco‐Niwas Samhita, the energy conservation code for residential buildings, waslaunched in 2018. The existing industrial efficiency programme was expanded to include
additional consumers and targets, and new appliances were added under the standards
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Progress on renewables deployment has been immense since 2015, especially for solar:
in 2019, India added nearly five times as much solar capacity as it did in 2015. A key driverof this has been the global decline in costs. The actual deployment of solar photovoltaic(PV) has been nearly identical to what was projected in the India Energy Outlook 2015
under the Indian Vision Case scenario, helped by ambitious policy targets and auctions.

and labelling programme. Despite the growing deployment of renewables, air pollution
has taken on much greater significance. India is home to some of the most polluted cities
in the world. Visibly improved air quality from the nationwide lockdown in 2020
illustrated the impact of air pollution very clearly.

1

Despite a new policy for hydrocarbons exploration and production, domestic productionof natural gas has been lower than projected in 2015, while demand growth has been
marginally higher. India is emerging as a bigger player in global gas markets, with theindustry expecting India to absorb a large part of LNG supply growth.
Globally, crude oil prices have fallen since 2015 and have remained at a much lower
average level than before then. The previously high price levels had increased India’s
petrol and diesel subsidy burden, which has since been slashed to zero on the backs ofsubsidy reform and low crude prices. The focus of subsidies has now shifted to liquefied
petroleum gas (LPG) to meet clean cooking access objectives.
The share of coal in the energy mix has not really changed since 2015. The tremendous
growth in renewables has tempered growth in coal capacity, but not prevented it. The
rise in installed coal‐fired capacity was in fact higher than that of solar and wind over the
2015‐19 period (58 gigawatts [GW] coal thermal capacity installed versus 49 GW solar
and wind), although renewables have outpaced coal‐fired capacity additions since 2017,
and there have also been a number of cancellations in the pipeline of approved coalprojects.
Oil consumption has increased in lockstep with urbanisation and GDP growth. There aresigns of growth in the use of alternative fuels for transport, but increasing levels of petroland diesel vehicle ownership (and the growing popularity of sports utility vehicles [SUVs]
in particular) means emissions trends continue upwards. There has also been some
growth in urban light rail, although cities in general lack modern mass transit options.
Electricity distribution companies continue to remain in poor financial health despite
policies and reforms to address a range of issues.

1.2

Mapping India’s energy system

Traditional biomass – primarily fuelwood but also animal waste and charcoal – was thelargest energy source in India in 2000 after coal, constituting about one‐fourth of the primary
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India’s energy needs are largely met by three fuels – coal, oil and biomass. These sources
have, in aggregate, consistently met over 80% of India’s total energy demand since 1990.
Coal has strengthened its role as the dominant energy source, maintaining its strong positionin power generation as well as being the fuel of choice for many industries (especially heavy
industries such as iron and steel). Coal demand nearly tripled between 2000 and 2019,accounting for half of primary energy demand growth. Today, coal meets 44% of India’s
primary energy demand, up from 33% in 2000. Coal has played a significant role in India’s
economic development while also contributing to air pollution and growing GHG emissions.

energy mix. Overall energy demand has doubled since then, but the share of traditional
biomass in the energy mix has been decreasing: it fell to 12% in 2019, largely as a result ofefforts to improve access to modern cooking fuels, in particular LPG.
Total primary energy demand in India

100%

1 000

80%

800

60%

600

40%

400

20%

200

Mtoe

Figure 1.4 ⊳OtherModernrenewables
Traditional
biomass
Natural gas
Oil
Coal
Total demand(right axis)

2000

2010

2019

2020

India’s energy demand has tripled over the last three decades: the share of traditional
biomass has fallen, leaving coal and oil dominant.
Note: Mtoe = million tonnes of oil equivalent.

Oil demand has more than doubled since 2000 as a result of growing vehicle ownership androad transport use. LPG has also contributed to the growth of oil demand, in part because its
use in cooking applications has been subsidised and promoted by the government. A lack of
domestic resources means that India’s dependence on imports of crude oil has been steadilyrising, reaching around 75% in 2019.

Electricity consumption has nearly tripled over the past two decades – growing faster than
total energy demand – as urbanisation and rising incomes push up the use of household
appliances. Industry has also contributed to the increase in electricity demand through its
increasing use of electrical motors and other machinery. On the supply side, coal remains the
predominant force in the power sector, contributing over 70% of total generation in 2019.
Solar PV and wind accounted for 18% of the capacity mix in 2019, but their combined shareof generation was less than 10%.
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Among end‐use sectors, India’s industry sector has been the main source of energy demand
growth since 2000, around half of which was met by coal. Transport energy demand grew
3.5 times, while demand in buildings has grown by 40% since 2000, largely as a result of
growing appliance ownership and increased access to modern cooking fuels. The declining
share of agriculture in India’s economic output, and the continued use of traditional farming
methods, mean that the agriculture sector has seen the smallest amount of growth in energyuse.

Change in energy demand by fuel in selected end-use sectors,

Figure 1.5 ⊳Mtoe

2000-19
150

1

Other
Bioenergy
Electricity

100

Oil
Coal

50

Industry

Transport

Buildings

Agriculture

Among end-use sectors, the growth in energy demand has been larger in industries than intransport and buildings, and this growth has largely been fuelled by coal.

Figure 1.6 ⊳Final energy consumption per capita by state, 2018

1.2

GujaratOther

toe/capita

1.0
Delhi

0.8

Coal
Natural gas

0.6
0.4

Traditional
biomass
Electricity

Bihar

0.2

Oil
0

100

200

300

400
500
600
Total final consumption (Mtoe)

The traditional use of biomass dominates in states with lower per capita energy use; stateswith an energy-intensive industrial base account for the bulk of direct coal use.

Within India, there is considerable variation in overall energy use across states, resulting
from differences in economic and demographic trends, resource availability and industrial
profiles. While India’s total final energy consumption per capita is a third of the global
average, a detailed review of the available state‐by‐state data shows that the range between
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Note: toe = tonnes of oil equivalent.

the lowest‐consuming and highest‐consuming states varies by a factor of five (Figure 1.6 andTable 1.1). Average citizens in Delhi consume about half of the global average, while theircounterparts in Bihar consume less than 20% of the global average. In states with lower per
capita incomes, traditional fuels for cooking dominate. In states with higher per capita
incomes, the share of electricity and oil products – which include transport fuel and also LPG– is higher, and it rises with increasing energy use.
Table 1.1 ⊳Energy and economic indicators in selected states in India, 2018
Urban
population

Rural
population

GDP per capita(PPP)

Total final
consumption
per capita

Electricity
demand per
capita(million)(million)

($)

(toe)

(kWh)

Higher income

192.7

Delhi
Haryana

233.8

12 159

0.6

1 615

16.4

0.4

19 970

0.6

1 548

8.8

16.5

12 9000.8

2 082

Telangana

13.6

21.4

11 1700.5

1 896

Karnataka

23.6

37.5

11 5200.6

1 396

Kerala15.9

17.5

11 1500.5

757

Gujarat

25.7

34.7

10 7901.1

2 378

Uttarakhand

3.0

7.0

10 8600.5

1 467

Maharashtra

50.8

61.6

10 4800.5

1 424

Tamil Nadu

34.9

37.2

10 5900.5

1 866

Middle income

84

220.6

6 540

0.5

1 129

Punjab

10.4

17.3

8 470

0.6

2 046

Andhra Pradesh

14.6

35

8 260

0.5

1 480

Rajasthan

17

51.5

6 040

0.5

1 282

West Bengal

29.1

62.2

5 980

0.4

703

Chhattisgarh

5.9

19.6

5 290

1.0

1 961

7

35

5 200

1.0

1 628

Lower income

88.7

352.1

3 930

0.3

647

Madhya Pradesh

20.1

52.6

4 970

0.4

1 084

Assam

4.4

26.8

4 490

0.3

341

Jharkhand

7.9

25.1

4 150

0.6

938

Uttar Pradesh

44.5

155.3

3 640

0.3

606

Bihar

11.8

92.3

2 400

0.2

311

Odisha26

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Notes: kWh = kilowatt‐hours. Delhi is a union territory rather than a state but is included here as the capitalof India.
Source: IEA analysis, MoSPI (2020)

1.2.1

Key issues for energy demand

Electricity and modern life1

In 2019, India achieved a historic landmark of reaching near‐universal household connectivity
to electricity, meaning that over 900 million citizens have gained an electric connection totheir households since 2000 – a remarkable achievement. There are still challenges inproviding reliable, affordable and sustainable access to all potential consumers, but
electricity consumption in buildings has nearly doubled over the past decade, outpacing
electricity consumption in the wider economy. This has been driven by growing applianceuse, even though electricity use in Indian households is largely limited to powering light‐
emitting diode (LED) bulbs, ceiling fans and televisions.
Appliance use in Indian households differs starkly between urban and rural areas, with the
exception of lighting and ceiling fans, which are very widely owned (Figure 1.7), and of
televisions (TVs) and smartphones, which have ownership levels of over 60% in rural areas.
Rural areas have relatively low adoption rates of other energy‐consuming appliances, withfewer than one in five households owning a refrigerator, electric water heater or washingmachine. Urban households are nearly four times as likely as rural households to own arefrigerator, seven times as likely to own a washing machine, and nearly nine times as likely
to own an air‐conditioning unit (AC) (Agarwal, et al., 2020).
Percentage of households using appliances, 2019

Figure 1.7 ⊳Lighting
FanTV
Refrigerator
Washing machine
Water heater
Air conditioner
20%
Urban

40%
Rural

60%
80%
100%
Share of efficient appliances

Most Indian homes own lighting, ceiling fans and TVs, while the ownership of otherappliances is concentrated in urban areas.
Source: IEA based on Agarwal et al (2020)

India has seen a strong emphasis in recent years on the deployment of energy‐efficient
appliances, a policy push that has led to considerable energy savings. With the exception ofChapter 1 | Energy in India today

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Note: Efficient appliances are those with 4 or 5 stars on India's standards and labelling programme, except forlighting where it refers to LEDs.

three Indian states, LEDs are now used in over 80% of households thanks to a major effort tomove away from more inefficient bulbs. The government’s flagship Unnat Jyoti by Affordable
LEDs for All (UJALA) scheme, launched in 2015, has led to the deployment of 366 million LEDs
(Ministry of Power, 2020), while the LED Street Lighting National Programme has led to theinstallation of over 10 million LED smart streetlights by the Energy Efficiency Services Limited,a government‐owned energy services company. The government estimates that energy
savings of about 54 terawatt‐hours (TWh) per year have been achieved through thesemeasures (PIB, 2020).
India’s standards and labelling programme is meanwhile influencing consumer choices andthe deployment of efficient appliances. This programme, introduced in 2006, is operated andmanaged by the Bureau of Energy Efficiency. As of 2020, over one‐third of TVs, refrigerators
and air conditioners and over one‐quarter of washing machines and water heaters in use
were classed as efficient, with 4 or 5 stars on India's standards and labelling programme.
While the number of air conditioners in India is still low, sales are expected to grow sharply
in the coming years. In anticipation, the government launched the India Cooling Action Plan
in 2019. This aims to reduce cooling energy demand through a range of energy efficiency
measures targeted at appliances and at building design and construction, while
acknowledging the principle of “thermal comfort for all”.

Access to clean cooking
Having electrified nearly every household in the country, one of the next big energy sector
challenges for India is to achieve a full transition to clean cooking. Some 660 million Indiansremain without access1 to modern, clean cooking fuels or technologies. Access to clean
cooking goes beyond technical availability: it also extends to issues of adequacy, reliability,
convenience, safety and affordability.
While the government has broadened availability to LPG through different schemes to reachmost Indian dwellings, nearly half of all households in 2019 continued to rely on traditional
uses of biomass for cooking, mostly in rural areas. The premature deaths of around
800 000 Indians every year are attributable to household air pollution, much of which is
caused by the traditional use of biomass for cooking (Health Effects Institute, 2020). The
damaging health effects are felt disproportionately by women and children, and the timeand effort involved in collecting biomass impose an additional cost that is again
overwhelmingly borne by women.

1
A full description of the World Energy Outlook energy access methodology can be found at
www.iea.org/articles/defining‐energy‐access‐2020‐methodology.

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Affordability is the key factor that has made biomass hard to dislodge as a cooking fuel. In
rural India, biomass and other traditional fuels are practically free or are available at a very
low cost, compared with a significantly more expensive cylinder of LPG. To overcome thisaffordability barrier, the government has put in place two subsidy schemes to increase theuptake and regular use of LPG in rural areas: Pradhan Mantri Ujjwala Yojana (PMUY) andPratyaksh Hanstantrit Labh (PAHAL). As a result of the push towards clean cooking over thepast decade, more than 200 000 premature deaths are estimated to have been prevented
between 2010 and 2019 (Health Effects Institute, 2020).

1

The PMUY scheme provides LPG connections to households living below the poverty line. It
was originally launched in 2016 with the objective of providing 50 million LPG connections
by 2019. This target was later increased to 80 million connections by 2020, and was achieved
ahead of schedule. Under the PMUY scheme, the beneficiaries have access to an interest‐
free loan facility for the cost of stove and first refill.
Once a household has an LPG connection, it continues to receive a subsidy through the Direct
Benefit Transfer of LPG scheme, also known as PAHAL. Every residential consumer in India iseligible for this subsidy. PAHAL was launched in stages in 2013 and was scaled up to anationwide scheme in 2015. Under PAHAL, a customer purchases an LPG cylinder at market
price, and the subsidy is subsequently transferred to their bank account. In parallel, thegovernment launched the “Give It Up” campaign to persuade high‐income households to opt
out, which led to at least 10 million households forgoing this subsidy.
Figure 1.8 ⊳Access to electricity and clean cooking in India

Million people

Clean cooking

Electricity

1 200

800

400

2001

2005

2010

2015

2019

No access

2001

2005

2010

2015

2019

AccessIndia connected almost half a billion people to the electricity grid during the last decade;attaining universal access to clean cooking is the next big challenge.

Despite these schemes, household surveys reveal continued reliance on biomass for cooking,due in part to the burden of upfront payments. Even with the LPG subsidy, biomass isabundantly available at no or very little monetary cost for a significant number ofhouseholds, particularly in rural India. Households may also choose to use biomass alongside
LPG depending on their cooking preferences. This practice of using multiple fuels for similar
purposes as the household income level increases is known as fuel stacking. Survey data
indicate that fuel stacking appears to be common among users of the PMUY, who often
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Note: A full description of the World Energy Outlook energy access methodology can be found at
www.iea.org/articles/defining‐energy‐access‐2020‐methodology.

procure LPG well below their allocations (CAG, 2019). Barriers to access, including the long
distances sometimes involved in LPG supply, further contribute to continued reliance on
biomass.
Additional measures to promote LPG uptake such as the provision of cheaper 5 kilogramme(kg) cylinders (compared with standard cylinders that weigh 14.2 kg) have so far not beenvery successful. These cylinders accounted for only 0.2% of the cylinders sold by the end of
2019, and significant increases in sales are likely to require active promotion and awarenessbuilding. The Covid‐19 crisis added another dimension to the access challenge, with reverse
flows of migrant labour back to rural areas and unemployment further reducing theaffordability of LPG cylinders. To address this, the government announced that it will arrange
for the distribution of three free full‐sized cylinders to all 80 million PMUY beneficiaries.
The total cost to the government of subsidising LPG depends on oil prices and rates of uptake.
In 2019, it amounted to 23 000 crore Indian rupees (INR) ($3 billion).
Alongside the increasing use of LPG in rural areas, there has also been growth in the use ofpipeline natural gas (PNG) in urban areas. In April 2019, there were 5 million domestic PNG
connections, over 90% of which were concentrated in four Indian states. The government
now has plans to expand this city gas distribution network to cover 70% of all households by
2030. There is also potential for an accelerated uptake of induction and other electric cooking
appliances, especially in urban areas, even though they accounted for less than 1% of cooking
energy demand in 2019.

Employment

The resulting construction activity has led to rising demand for steel, cement, aluminium,
plastics and chemicals. India has also emerged as a manufacturing hub for vehicles,
electronics and pharmaceuticals. The Perform, Achieve and Trade (PAT) scheme has set
energy saving targets for each industrial subsector and enables the trading of energy
efficiency certificates, and this has helped to improve technical efficiencies. As energy
demand from industry has tripled over the past three decades, its share in final consumption
has risen to 36% today, higher than industry’s nearly 30% share of GDP. The services sector’sshare of final consumption is also higher than its share of GDP: it accounts for 54% of GDP
and 59% of energy use. By contrast, agriculture makes up 17% of GDP but only 5% of final
energy consumption.
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India has a large and diverse workforce employed in activities that can be broadly grouped
into three sectors: industry, including manufacturing; services, including transport, utilities,
information technology and retail; and agriculture. The share of the labour force in the
agricultural sector has declined from about 70% in 1990 to less than about 40% today(meaning that the headcount of workers in agriculture declined by around 58 million even as
India’s overall labour force increased by over 110 million). There has been a corresponding
rise in labour demand from the industry and services sectors, in which employment has morethan doubled in the past three decades (MoSPI, 2019). This has gone hand in hand withgrowing urbanisation, with the share of the urban population increasing from 26% in 1990
to 34% in 2019, and many cities experiencing rapid growth.

Figure 1.9 ⊳India's sectoral shares in employment, GDP and energy
consumption

1
1990

Employment
GDP
Energy consumption

2019

Employment
GDP
Energy consumption

20%
Agriculture

40%
Industry

60%

80%

100%

Services

The sectoral composition of employment and GDP has shifted away from agriculture overrecent decades, but agriculture remains a big source of employment in rural areas.
Source: IEA analysis based on MoSPI (2019); NSSO (2018).

India has long pursued a structural economic shift towards manufacturing, and thegovernment announced the landmark Make in India initiative in 2014 with the intention ofturning India into a global manufacturing hub. This programme had a stated goal of raising
the share of manufacturing in GDP to 25% by 2022 and creating 100 million jobs. However,despite reform measures attracting some foreign direct investment, the total number ofmanufacturing jobs – around 65 million – has remained broadly static since 2014, and theshare of GDP attributable to manufacturing has remained around 17%. The sector has seen
an annual average growth rate of 7%, outpacing agriculture but growing more slowly than
the services sector (RBI, 2020). A higher share of industries in GDP and the material intensityof future economic growth would have profound implications on the outlook for the energy
sector.

Mobility and transport

Vehicle ownership per capita has grown five‐fold since 2000, with particularly significant
growth in the fleet of two‐ and three‐wheelers (Figure 1.10). Today, with a stock of just over
200 million, there are five times more of these vehicles than passenger cars. Three‐wheelers
in India are widely used in shared mobility and public transport, complementing a relatively
low stock of 2 million buses that serve mass and public transport needs. Freight activity also
quadrupled between 2000 and 2019, alongside a fivefold increase in the stock of lightcommercial vehicles, and a thirteen‐fold increase in the stock of heavy freight trucks.
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With a growing economy, Indians are now travelling farther than ever before. On average,
Indians travel nearly 5 000 kilometres (km) each year, a threefold increase since 2000.

The rapid growth of mobility has been enabled by the expanding road network in India, which
increased from 3.3 million km in 2000 to 5.9 million km in 2016 (MoRTH, 2019). India’s totalroad network is now the second‐largest in the world, behind the United States.
Indians are also travelling on rail twice the distance they did in 2000. India’s per capita
distance travelled on rail increased from 430 km in 2000 to nearly 860 km in 2019 (Figure1.11). With over 8 billion trips annually, rail continues to be one of India’s most preferredways to travel (Ministry of Railways, 2019). Freight activity similarly more than doubled on
India’s vast railway network, reaching 740 billion tonne kilometres (tkm) in 2018, although
the share of freight that moves on railways has been falling.
Figure 1.10 ⊳ Two- and three-wheelers in Indian road transport, 2019
Road stock(million)

Fuel consumption(Mtoe)

2051
2‐3 wheelers
Other
204

77

Two- and three-wheelers dominate India’s road transport fleet, but account for a relatively
small proportion of total energy demand in the transport sector.

As Indians travel more and transport freight in larger volumes, the transport sector has
become the fastest‐growing energy end‐use sector in the country. Energy use in India’stransport sector has increased fivefold over the past three decades, reaching more than
100 Mtoe in 2019. While other sectors are fuelled by relatively diverse sources of energy,transport is heavily reliant on oil, with 95% of demand being met by petroleum products. Just
under half of India’s oil demand is accounted for by transport.
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While air travel remains out of reach for most Indians, there has been a steady growth inIndia’s aviation industry over the past decade. The per capita distance flown in India was
110 km in 2019, which is three times as much as 10 years ago. Domestic passenger numbers,
too, have nearly tripled in the last decade to over 140 million, up from around 50 million in2010 (DGCA, 2019). There has been an increase in short‐distance flights in recent years,
enabled by policies that have supported the development of small airports and made flying
more affordable. India has added 50 domestic airports in the past five years, taking the total
to about 150 airports with commercial operations.

The Covid‐19‐related lockdowns and economic recession had a significant impact ontransport demand in 2020. Overall road transport activity fell by 12% compared with 2019.
While energy demand fell across all transport modes, it was most pronounced in domestic
aviation and rail, falling about 20% in both these sectors. In time, however, the trends thathave led to growing demand for transport are set to return, together with a range ofchallenges arising from this growth. Key among these challenges are road congestion, urban
air pollution and growing dependence on imported oil. In India, about 75 000 vehicles of all
types are sold daily, and there are now at least 42 cities and towns in India that have overa million vehicles each (MORTH, 2019). This large stock of vehicles has in turn contributed toan air quality crisis in urban areas.

1

5 000

100

4 000

80

3 000

60

2 000

40

1 000

20

2000
Road

Rail

Flightkgoe

kilometres

Figure 1.11 ⊳ Annual distance travelled per capita

2010
2019
Per capita transport energy consumption (right axis)

Indians have been travelling farther every year, resulting in growing energy demand fromtransport.
Note: kgoe = kilogrammes of oil equivalent.

India has responded to these challenges by instituting a range of policies to improve fuelquality and energy efficiency and to diversify the energy use of the sector. In April 2017, India
put in place corporate average fuel consumption (CAFE) fuel efficiency norms for passenger
cars, and these will become more stringent from 2022. The government mandated theleapfrogging of vehicle fuel standards from Bharat Stage‐IV to Bharat Stage‐VI for all new
vehicles sold starting April 2020. This standard is in line with Euro‐6. The Ethanol Blended
Petrol (EBP) programme was launched in 2003 with an ambition to blend an average of 5%ethanol into petrol, but it eventually fell short of this target owing to supply chain andprocurement difficulties and a lack of attractive pricing. A more comprehensive National
Policy on Biofuels (NBP) was approved in 2018 that envisages a target of 20% blending of
ethanol in petrol and 5% blending of biodiesel in diesel by 2030 (MoPNG, 2018).
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Sources: IEA based on DGCA (2019); Indian Railways (2019).

India’s push for compressed natural gas (CNG) in transport over the past decade has resulted
in the doubling of CNG use in transport since 2010. There are now over 3 million CNG‐fuelledvehicles registered in the country, 92% of which are concentrated in four Indian states. Thesevehicles are largely three‐wheelers, buses and cars, most of which are used for sharedmobility, for example as taxis, or for public transport.
While India has a range of policies that support the increased adoption of a wide variety ofelectric vehicles (EVs) (section 2.3.2), electrification in road transport so far has largely comefrom two‐and three‐wheelers. The number of electrified two‐and three‐wheelers has grownby more than 60% each year on average since 2015, and there were 1.8 million such vehicles
in 2019. Despite this rapid rise, they still constituted only 3% of overall two‐and three‐wheeler sales that year. The electrification of transport has accelerated in other modes oftransport too. India’s railway network now has a target of 100% electrification of its tracks
by 2022, up from 51% of the railway network (in route kilometres) in 2019. There has also
been a rapid increase in urban light rail in cities. In 2020, over 650 km of metro rail was
operational in 18 cities (MOHUA, 2020).

1.2.2

Key issues for energy production and trade

Coal
Coal remains the bedrock of India’s energy economy, commanding a 44% share of the
primary energy mix, the third‐highest among Group of 20 (G20) countries. India is the world’s
second‐largest coal market, with plentiful domestic reserves. Indian mines produce over
700 million tonnes (Mt) of coal per year, mostly in the eastern part of the country in Odisha,
Chhattisgarh, Jharkhand and Madhya Pradesh. The vast majority of production comes fromopen pit mining. Since the 1970s, government‐owned Coal India Limited (CIL) has been thedominant coal producer and today it is the world’s largest coal mining company, supplying
over 80% of the country’s domestically produced coal.

India has the world’s fifth‐largest proven coal reserves, but domestic production has been
unable to keep pace with demand. This has resulted in a steady rise in imports in recent years(Figure 1.12), although the growth of import dependence on thermal coal has slowed since
the mid‐2010s as a result of increased domestic production and lower demand growth. Partof the import requirement arises from the steel industry’s need for coking coal, which is far
less abundant domestically than thermal coal. In addition, around 18 GW of coal‐fired power
plants (8% of the total fleet) are located in coastal areas and are designed to use imported
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Since the 1990s, the government has also made provision for “captive mining”, whichenables end users to mine their own coal, as CIL could not keep up with growing coaldemand. At the outset it simply allocated captive mining rights, but since 2015 it has
auctioned them through a competitive bidding process. However, this has not translated intomeaningful growth in production from captive mining. To encourage further private
investment, the government permitted commercial mining of coal in March 2020 and
opened the sector to foreign investment.

coal rather than lower‐quality domestic grades. Domestically produced coal also has high ash
content and a low calorific value, raising operational, transport and maintenance costs.
Despite these challenges, the government has a target to eliminate imports by 2025 byencouraging domestic coal production.

1

The supply of coal is regulated by the government to ensure that coal reaches priority sectors
while keeping transport and logistics costs down. Most domestically mined coal in the eastends up having to travel considerable distances by rail to reach consumption centres in thenorth and west. As a result, coal uses up almost half of all railway capacity for bulk commodity
transport, and freight costs make up a considerable amount of the delivered cost of coal,particularly as they are used to cross‐subsidise passenger rail fares.
Coal is largely supplied at prices notified in fuel supply agreements (FSAs) by public‐sector
companies. These prices are set at a level intended to maintain average profitability across
supplier companies rather than being dynamically linked to production costs or market
forces. Notified coal prices are lower for “priority” customers such as power plants.
Additionally, there are e‐auctions where flexible quantities of coal can be supplied at apremium price, although only a small proportion of coal is traded this way. Coal mining also
attracts a lower GST rate than other mining, but on the other hand it is subject to an added
coal levy of INR 400/tonne (about $5.5/tonne) which acts as a de facto green tax. When thislevy was first introduced in 2010, the revenues collected were directed to a National Clean
Energy and Environment Fund (NCEEF). Upon the introduction of the GST in 2017, however,
the original levy (the “coal cess”) and NCEEF were abolished and replaced with a GST
Compensation Cess on coal to make up for the shortfall in overall tax revenues.
Figure 1.12 ⊳ India production and trade of coal, crude oil and natural gas
Coal(Mtce)

Oil(mb/d)

Gas
(bcm)

75%

60

75%

400

50%

4

50%

40

50%

200

25%

2

25%

20

25%

Production

2000
Imports

2019

6

2010

75%

2000

600

2019

100%

2010

80

2019

100%

2010

100% 82000

800

Import dependence (right axis)

leading to a rapid rise in import dependence over the past two decades.
Note: Mtce = million tones of coal equivalent; mb/d = million barrels per day; bcm = billion cubic metres.

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India’s domestic production of fossil fuels has not been able to keep pace with demand,

Oil
Unlike coal, India has limited domestic resources of oil, largely relying on imported crude tomeet its needs. India has become the second‐largest net oil importer after China. Crude oil
is brought in by tanker from the Middle East, Latin America and Africa to Indian refineries
along the western coast. India’s dependence on imported crude oil has been rising, andcurrently stands at around 75%.
To address the risks that could arise from growing import dependence, the government has
expanded its strategic petroleum reserve (SPR). As of mid‐2020, India held around 40 million
barrels of oil in its SPR, equivalent to about 10 days of the country’s net oil imports. India has
a long‐standing ambition to reduce oil import dependence, and the government announced
in 2015 an ambition to reduce this dependence by 10 percentage points by 2022. This wasto be achieved through a variety of policies, including policies to expand the use ofalternative transport fuels such as bioethanol, biodiesel and CNG, and through the expansionof domestic oil production. To encourage domestic exploration and production, thegovernment adopted the Hydrocarbon Exploration and Licensing Policy (HELP) in 2016 toprovide a level playing field for the exploration of all types of hydrocarbons under a revenue
sharing model.
These policies have not so far succeeded in reducing India’s oil import dependence, which
has continued to rise, broadly tracking the increase in demand, while domestic oil production
has remained broadly flat since 2015, as it has for the past three decades. Over these
decades, however, India has proactively expanded its refining capacity, making it a net
exporter of refined products. India’s refining capacity stands at 250 Mt per year, making it
the fourth‐largest in the world. While production is largely in the hands of publicly owned
companies, India’s largest refineries are privately owned, notably the Reliance‐owned
Jamnagar refinery on the western coast of Gujarat, which is the world’s largest.
The prices of transport fuels, gasoline and diesel are determined by fuel retailers based onprevailing market conditions. The government has removed regulated prices and subsidies,and has progressively increased excise duties on these fuels during periods of lower crude oil
prices.

While the share of natural gas in India’s primary energy mix has largely remained flat inrecent years at around 6%, overall energy demand has risen rapidly, and there have beensignificant shifts in demand for natural gas in specific sectors of the economy. The use ofnatural gas as a fuel in industry has increased about tenfold since 2010, against thebackground of an overall 50% increase in energy use in the sector. This has increased theshare of natural gas in industry from less than 2% to nearly 10%. Similarly, natural gas use inbuildings has tripled over the past decade, albeit from a low base. These increases have,
however, been partly offset by a fall in the use of natural gas for power generation. The
pressures that have led to this fall remain: nearly 60% India’s natural gas‐based power
generation capacity is facing extreme financial pressure and operating on very low capacities
on account of lack of affordable gas.
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Natural gas

India has a stated ambition to increase the share of natural gas in its primary energy mix to
15% by 2030, up from 6% in 2019. The government has been taking a range of measures insupport of this ambition in order to expand domestic production, facilitate imports andencourage demand. To expand production, HELP allows for pricing and marketing freedom
for gas produced from deepwater, ultra‐deepwater and other complex reservoirs. The gas
price from all other fields is determined on a half‐yearly basis by a formula linked to hub
prices in other countries, including the United States, Canada, the United Kingdom and theRussian Federation. In 2020 the government also launched the Indian Gas Exchange (IGX), a
trading platform for natural gas. The relatively low level of gas prices over the past few years
has, however, acted as a disincentive for significant investments in domestic production.

1

Growth in India’s gas demand has outpaced domestic production, leading to risingdependence on imported LNG. Imports of natural gas have risen from 20% of India’s totalgas demand in 2010 to 50% today. To facilitate these imports, India has six LNG terminals.
Although there are some infrastructure bottlenecks, India already has a 17 000 km networkof pipelines to transport gas to centres of consumption, and it has ambitions to expand thisgrid significantly. India’s downstream regulator, the Petroleum and Natural Gas Regulatory
Board, is in charge of overseeing this expansion as well as of regulating tariffs for users of
this infrastructure. In addition to this long‐distance pipeline network, India has ambitious
plans for city gas distribution (CGD) networks to cater to households, commercial
establishments and factories within cities. There are currently 18 states with CGD networks,
and successive bid rounds have awarded CGD licences with the aim of reaching 70% of allhouseholds by 2030.

Solar and wind

In 2015, the Indian government announced a target of 175 GW of renewables by 2022
(excluding large hydro), which included 100 GW of solar and 60 GW of wind capacity.
Published a year after India had set these aggressive targets, the 2015 India Energy Outlook
projected that India’s solar capacity would reach 28 GW in 2020 under the prevailing policy
framework in the New Policies Scenario (the forerunner of today’s Stated Policies Scenario[STEPS]), but that it could reach 48 GW under a more aggressive Indian Vision Case. The
Outlook identified several challenges that would need to be overcome to scale up
renewables in India, including difficulties in acquiring land, the financial difficulties faced by
distribution companies, and the long‐term nature of existing contracts with conventional
producers. Partly owing to the effective management of these risks, India’s solar capacity
reached 38 GW by 2019 (mostly utility scale), with wind adding a further 38 GW of capacity.

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The most remarkable story in India’s power sector in recent years has been the growth ofsolar PV and wind, which have rapidly increased their share of the overall energy mix inrecent years as coal and hydropower capacity growth has slowed (Figure 1.13). Over the past
five years, solar PV capacity has grown at an average growth rate of around 60% and windcapacity of around 10%, outpacing the 7% growth in overall installed capacity. This rapid
growth reflects government policy support and falling equipment costs.

Together, they now constitute nearly 20% of India’s installed capacity. In 2019, India
announced a new target of 450 GW of renewable electricity capacity by 2030.

GW

Figure 1.13 ⊳ Annual power sector capacity additions
35

35%

30

30%

25

25%

20

20%

15

15%

10

10%

5

5%

0
‐5

2010
Other
Gas

2011

2012
Solar PV
Coal

2013

2014

2015

2016

2017

2018

2019

Wind
Hydro electricity
Share of wind and solar in total capacity (right axis)

With coal capacity growth slowing down and solar PV and wind ramping up, the share ofvariable renewables in installed capacity has doubled since 2014.

The policy actions that have facilitated the growth of grid‐connected renewables include
reverse auctions resulting in progressively falling prices, lower corporate tax rates fordevelopers, renewable purchase obligations mandating utilities to procure a certain
minimum purchase of renewable power (in 2019‐20, the guideline set by the central
government was 17.5%, although state regulators have their own targets), investment intransmission infrastructure, and support for solar parks that help reduce project
development and land acquisition risks.

However, there are still important structural, regulatory and institutional challenges that
could hamper further growth, and progress has been uneven across different renewable
technologies. The challenges include the poor financial position of many state distribution
companies, difficulties in obtaining access to finance and in acquiring land, grid congestion,and uncertainties over grid infrastructure development. The expansion of rooftop solar has
lagged behind the growth in utility‐scale projects, constrained by higher costs and the lack of
attractive financial models for consumers. Rooftop solar had a share of 40 GW in the 100 GW
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The rise of renewables in India’s power sector has been a major success story; wind and solar
PV now account for 7% of total generation, twice their share in 2014. In renewable‐rich
Indian states, wind and solar contribute as much as 15% of power generation. In some states,
they contribute nearly 50% of power generation during those parts of the year when windspeeds are at their strongest. Solar PV and wind have been relatively resilient during the crisis
in 2020; even though overall electricity demand was down sharply in the second quarter,
coal accounted for most of the reductions in generation.

solar target for 2022, but deployment remains at well under 10 GW. This sector is now afocus area for the government as 2022 gets closer.2 Similarly, despite an identified potentialof 10 GW to 20 GW, offshore wind has not yet taken off in India owing to the high cost ofcapital and to supply chain and infrastructure bottlenecks.

1

Other technologies and fuels
Growth in the share of wind and solar PV in the Indian power system needs to beaccompanied by a strengthening of grid infrastructure. To address this, the government has
been focusing on flexibility in operations, technologies and infrastructure. The Green Energy
Corridors initiative is one attempt to boost flexibility; it aims to expand and improvetransmission infrastructure, facilitate the integration of renewable energy management
centres and energy storage options, and enhance the flexibility offered by India’s thermal
power fleet.
Storage technologies are also set to be vital to India’s electricity security. Of the country’s
4.8 GW of installed pumped storage hydro capacity, 3.3 GW is operational; total pumped
storage hydro potential has been estimated at 90 GW (CEA, 2019). Battery storage will also
have an important part to play. The government estimates that India will require 27 GW ofgrid‐connected battery storage by 2030 (CEA, 2019), and has established a National Mission
on Transformative Mobility and Battery Storage in 2019 with the aim of becoming acompetitive battery manufacturer. In May 2020, the government also announced the resultof the first ever “round the clock” renewable energy auction, which will lead to thedevelopment of 400 MW of generation capacity that will supply power through the day
through a combination of solar and other generation and storage technologies. India alsoannounced in November 2020 a production‐linked incentive (PLI) scheme for the domestic
production of high‐efficiency solar PV modules and advanced chemistry cell storage
batteries.
India has significant potential to expand its modern bioenergy sector, which can be doneusing the vast quantities of organic waste generated by the agricultural sector as well as a
growing amount of municipal solid waste, used cooking oil and wastewater. There are anumber of supporting policies, some of which have been strengthened in recent years,
notably new biofuel blending targets and plans to expand India’s bio‐compressed natural gas
infrastructure.

2
Solar PV has also grown in off‐grid applications, notably to power street lighting and water pumps in rural
areas. With policy support, over 3 million solar‐powered streetlights had been installed by the start of 2019.
There is also a government programme in place for solar‐powered irrigation pumps and decentralised ground‐mounted grid‐connected renewable power plants with a combined target of 31 GW by 2022.

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India has also made initial steps towards exploring the potential of hydrogen as a source ofenergy. The first roadmap for the fuel was produced in 2006 by the Ministry of New andRenewable Energy, and the government has since been investing in research anddevelopment via various public sector institutions.

1.3

Energy and India’s development path

India’s energy choices are inextricably linked to wider socio‐economic developmental goals.
The use of energy, development of energy markets and deployment of technologies are notends in themselves, but means for the country to reach wider objectives including economic
growth and improvements in the quality of life and the environment. This section explores
the linkages between the energy sector and wider economic, social and environmental
issues.

1.3.1

Energy and the economy

The year 1991 was a seminal one in India’s economic history. India took important steps inthat year to liberalise its economy, initiating a change towards a more market‐ and services‐
based economy. This altered the trajectory of its development, expanding per capita
incomes, attracting higher levels of private and foreign investment, stimulating competition,and leading to new manufacturing capacity, new service‐sector firms, productivity gains anda falling poverty rate. Along with greater economic activity came increasing competition forland resources and growing levels of emissions and pollutants, presenting new challenges forsociety at large.
In the period between 1991 and 2019, India’s GDP grew at an annual average rate of 6.8%,
outpacing the average annual growth of 4.2% in the two decades before that. India was oneof the world’s fastest‐growing large economies in this period, second only to China(Figure 1.14). With GDP having nearly doubled over the past 10 years, India has become theworld’s third‐largest economy in PPP terms and the fifth‐largest in nominal terms.
India’s per capita annual income has quadrupled since 1991 and reached $8 100 (PPP) in
2019. Although this remains well below the world average of $18 500 (PPP), the rapid rise in
per capita incomes has led to a significant fall in India’s poverty rate. India’s Poverty
Headcount Ratio3 fell from 48% in 1993 to 13% in 2015 (World Bank, 2020). This has beenaccompanied by a rise in standards of living and development indicators. India’s Human
Development Index value has increased from 0.43 in 1990 to 0.65 in 2018, representing a
growth in life expectancy, education access and incomes (UNDP, 2019).

3

The percentage of the population living on less than $1.90 a day at 2011 prices.

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Growth in the economy has fuelled the demand for energy, and the growing supply of energy
has fuelled India’s economic growth. Indians on an average now use nearly twice as muchenergy as they did three decades ago, as a result of rising vehicle ownership, demand forconstruction material and a rise in appliance ownership. However, India’s energy intensity of
GDP has improved at an average rate of 3% per year during these three decades, meaning it
has required less energy over time to produce an additional unit of economic output. Thishas happened as a result of the growth in the Indian services sector, energy efficiency
improvements and a transition away from inefficient biomass towards modern fuels.

GDP per capita ($2019, PPP)

Figure 1.14 ⊳ GDP and GDP per capita for selected countries, 1990 and 2019
25 000
20 000
15 000

1

1990
South
AfricaChina
Brazil2019

Indonesia

10 000
India
5 000

0

5

10

15

20

25

30

GDP ($2019 trillion, PPP)
While India is now the world’s third-largest economy in PPP terms,
it lags behind other emerging economies in terms of per capita incomes.
Note: Bubble size indicates GDP ($2019).

India’s economy had been witnessing a slowdown even prior to the pandemic. Its annualised
economic growth had fallen to 4.7% in the final quarter of 2019, the lowest in five years.
Other economic indicators such as growth of private consumption, capital investments,
exports and industrial activity also indicated a slowdown. In particular, capital investments,
exports and the Index of Industrial Production registered negative growth in the second halfof 2019. The year also saw a decline in vehicle sales and a slowdown in the growth of steel
consumption and in sales of fast‐moving consumer goods. The government had alreadyintroduced measures in 2018 aimed at simplifying and streamlining aspects of economic life,
such as the GST. The post‐pandemic recovery will not only have to address the disruption
caused by Covid‐19 but also to build on these measures and tackle structural obstacles toeconomic growth that existed prior to the crisis.
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The Covid‐19 pandemic has given India an abrupt economic shock, with April‐June quarterly
GDP falling by 23.9% and an estimated contraction of about 8% for the whole of 2020. This
contraction, which has had a significant impact on energy demand across fuels and sectors,
was caused by the disruption of the global economy due to the pandemic, and by the
lockdown measures taken by India to address the spread of the virus. To counter its impact
on the economy, the Indian government in May 2020 announced an economic recovery
package with the overarching theme of Atmanirbhar Bharat (“Self‐Reliant India”). This
included welfare transfers to farmers, free LPG cylinders for the least well off, concessionalloans for the medium and small industrial sector, the injection of liquidity into power
distribution companies, and tax changes. The government also included measures topromote manufacturing in India and government procurement from domestic companies.

Investment and financeOver the past decade, investment across the whole of India’s economy has surged, with grossfixed capital formation doubling to $770 billion in 2019 from 2010 levels. Most of this hascome from domestic sources: foreign direct investment inflows amounted to $50 billion in
2019. Public finances have also improved considerably in recent years. The fiscal deficit has
stayed slightly above 3% (as a share of GDP) and the government debt‐to‐GDP ratio has
declined since the early 2000s. In addition, foreign reserves held by the Reserve Bank of India(RBI) have increased by 1.5 times since the early 2010s, and tenfold since the early 2000s,
providing an additional buffer during periods of financial stress.
Key economy‐wide investment indicators weakened in 2020 due to the crisis. Rising debt andequity market risk premiums have more than offset a reduction in base lending rates by the
RBI, increasing the economy‐wide cost of capital by around 30 basis points, while bank credit
growth across all sectors has stalled. Faced with economic uncertainty and strained balance
sheets, corporations responded by reducing investments. In September, new non‐financial
capital projects declined to their lowest level since 2007, while the number of projects
outstanding dipped to a four‐year low. Fiscal pressures have pushed down central
government capital expenditures by 12% through September for fiscal year 2020‐21compared to the same period in 2019‐20. In the energy sector, we estimate that investment
is set to decline by almost 15% to around $70 billion in 2020 compared to 2019 following five
years of stable spending at around $80 billion, with larger falls in grid networks (Figure 1.15).
Figure 1.15 ⊳ Investment trends in energy, 5-year annual averages (2000-19)

Billion dollars (2019)and 2020
100

Other:
End use
Efficiency

80

Power:
Grids and battery storage
Renewables
Nuclear
Fossil fuels

60
40

Fuel supply:
Biofuels and biogases
Coal

20

Oil and gas supply
2000‐04

2005‐09

2010‐142015‐19

2020

Investment in renewables exceeded fossil fuel power investment for the fifth year in a row in

Notes: Efficiency and other end use investment estimates are not available prior to 2014. Other end use
includes carbon capture, utilisation and storage (CCUS) in industry, spending to meet the incremental cost ofEVs, and investment in private EV charging infrastructure.

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2020, while investment in networks has been falling recently in absolute and relative terms.

India’s energy investment trends vary across different parts of its energy economy, reflecting
differences in market conditions, policies, capital allocation and costs. Investment in oil andgas supply was hit hard by lower demand, prices and revenues in 2020, and fell by 20% to$12 billion compared to 2019. In recent years, reforms brought about through the HELP
programme, putting all hydrocarbons under a single exploration and production policy, haveunderpinned stronger spending.

1

Coal supply investment reached an average of around $10 billion in 2017‐19, although it isestimated to have fallen by nearly 15% in 2020. Ongoing reforms aim at increasing
investment, in particular through the opening of the coal sector to commercial mining by
domestic and international companies. However, challenges remain, including the pressure
from international investors, which restricts financing options.
The power sector accounts for over half of energy investment in India. Capital investment
amounted to almost $50 billion in 2019, a 4% decline from 2018, and a further drop of over
15% is expected in 2020. Investments in renewable power surpassed those in coal power
plants for the fifth year in a row in 2020. Spending on coal power has moderated in recent
years, though it remains above $10 billion a year, with up to 60 GW of coal‐fired capacity
designated as being under construction. However, a stark decline in final investment
decisions for new plants since 2016, as well as more constrained bank lending, points tomuch lower investment levels in the years ahead.

The financial and operational performance of state distribution companies – key developersof grids, purchasers of power and integrators of new technologies – continues to constrain
capital availability, despite efforts such as the Ujwal DISCOM Assurance Yojana (UDAY)
initiative. This initiative involved writing off debt and restructuring loans against acommitment to improve performance. However, investors and developers continue to beconcerned about the risks involved in power purchase projects. An $18 billion backlog of
payments to generators emerged in 2020, and further reforms are required to enabledistribution companies to return to profitability, including measures to achieve cost‐reflective pricing.
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Recent momentum in the power sector has been driven by investment in renewables, whichgrew by 60% over 2015‐19 to $18 billion. Utility‐scale solar PV and wind have led this growth,underpinned by supportive policies, competitive auctions, improved economics and amaturing industry. Although investment in these technologies is set to decline in 2020,
interest has remained high, and the capacity awarded through auctions between Januaryand June 2020 rose for the third consecutive year. The pandemic has nevertheless added
uncertainty over India’s ability to attract a diverse pool of private finance to meet ambitious
deployment targets in the years ahead (see Chapter 4). Moreover, progress in othertechnologies such as distributed solar PV and bioenergy remains slow, with new financing
challenges emerging. New hydropower investments have also been slow to materialise,
although recently announced measures could help facilitate fresh investment. These include
the creation of a hydro purchase obligation (HPO) to encourage hydropower purchases, andbudgetary support for flood control and hydro energy storage projects.

Investment in grids has trended downwards in recent years from more than half of power
investment in 2015 to around one‐third in 2020, reflecting the challenging financial situationof distribution companies, while spending on battery storage is at an early stage and remains
low. The government is, however, working to expand inter‐ and intra‐state transmission
capacity, which is key to the successful integration of a rising share of renewables. The firstGreen Energy Corridor project – a 1 800 km high‐voltage transmission line – began
construction in 2017, with the aim of transporting power from resource‐rich states to otherstates more effectively than at present; the project will cost more than $5 billion(Ministry of Power, 2020). The government is also looking at new ways to procure flexible
resources, for example by integrating batteries in utility‐scale renewable tenders.
Spending on energy efficiency, electric mobility and the direct use of renewables accounts
for just over 10% of energy investment. Over 40% of efficiency investment has occurred inindustrial sectors, supported by the PAT scheme, while investment in more efficient
appliances and buildings accounts for another quarter. Sales of EVs and EV charging
installations are low, but are set to grow rapidly. Investment in solar thermal heaters has
expanded rapidly to nearly $1 billion in 2019, supported by government grants and risinginterest among industrial users.

1.3.2

Energy and society

Growth in average per capita income and a fall in poverty means that increasing numbers ofIndians are able to afford private modes of transport, clean cooking technologies, modern
appliances and larger homes. However, income growth has been characterised by various
kinds of inequities that are reflected in energy consumption levels, in particular in terms ofinterstate variances, poverty, the rural‐urban divide, gender and caste. The provision ofaccess to energy and opportunities to use it needs dedicated interventions that focus ongender, caste and class (Patnaik & Jha, 2020).
The 12 wealthiest states in India, including Goa, Haryana, Maharashtra, Kerala and Tamil
Nadu, have an average per capita income that is at least twice as high as the bottom 8 states,
including Bihar, Uttar Pradesh, Jharkhand and Madhya Pradesh. With an urban population of
44%, the wealthiest states are also twice as urbanised as the lower‐income ones. These twogroups of states have similar population sizes.

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In terms of energy, the total final consumption of these higher income states is 40% higher
than those with low per capita incomes. This trend holds true on a per capita energy use
basis too (Figure 1.16). There are a few notable outliers, including Jharkhand, Chhattisgarhand Odisha, which combine relatively low per capita incomes with high energy use owing to
the size of energy‐intensive industries such as steel and cement in those states. Nearly 40%
of Indians reside in states with both low per capita incomes and low per capita energy use.

Figure 1.16 ⊳ Population size, GDP per capita and energy use per capita by

thousand USD 2019 per capita (PPP)

state and union territories in India, 201820

1

Population
size

Delhi

15
Haryana

Maharashtra
Uttarakhand
Karnataka
KeralaHP
Telangana
Tamil Nadu
Union territories
AP Punjab
West Bengal

105

N.E. states
Bihar

0.1

0.2

Rajasthan

0.3

0.4

0.5

0.6

0.7

50 million

Chhattisgarh

Jharkhand

OdishaMP

UP

Gujarat

0.8

0.9

1.0

1.1
1.2
toe per capita

There is considerable variation in energy consumption across the states of India. The
biggest coal-producing states challenge the normal relationship between economic
output and energy use.
Notes: UP = Uttar Pradesh, AP = Andhra Pradesh, MP = Madhya Pradesh, HP = Himachal Pradesh. Delhi isshown separately from the remaining union territories, as the capital of India.

The state‐by‐state differences are overlaid by a pervasive rural‐urban divide in energy use,
as well as by major gender differences (see Spotlight). The rural‐urban divide is linked to arange of factors, including income and appliance ownership levels, which feed through into
electricity consumption (Figure 1.17). In 2014, the bottom 60% of households in rural India
consumed less than 50 kWh of electricity per month, compared with an average of 100 kWhin urban areas. This rural‐urban divide extends to access to clean cooking and the materials
used in the construction of houses. In 1990, only 30% of rural homes were built using modernbuilding materials, compared with 75% of homes in urban areas; the rest were built using
traditional materials such as unburnt mud, cow dung and other organic materials. This gap
in terms of housing is narrowing, however: by 2018, 79% of rural and 97% of urban houses
were being constructed using modern materials.

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Another dimension to inequity that is unique to India is the caste system. Historically,
marginalised caste groups categorised as Scheduled Castes and Scheduled Tribes have hadless access to electricity and clean cooking after controlling for factors such as income andeducation. These groups make up about 16% of India’s population (Saxena & Bhattacharya,2017).

Figure 1.17 ⊳ Household electricity consumption per month in urban and rural
India

India
overall

Urban

Rural

0‐30 kWh

20%

40%

60%

31‐50 kWh

51‐100 kWh

101‐300 kWh80%
301‐500 kWh100%>500 kWh

Rural households consume considerably less electricity than urban households.
Source: Data from 2014, based on Prayas (2016).

S P O T L I G H T
A long way to go: Women’s participation in India’s energy sector
The issue of women’s access to and participation in the energy sector is a key aspect ofinequity in India. Economic progress in recent decades has not been matched by progress
towards women’s equal economic participation. The World Economic Forum’s Global
Gender Gap Index 2020 ranks India 112th out of 153 countries in offering equal
opportunities to women and men, and women often lack the same access to health careand education as their male counterparts.

Globally, women hold only around 22% of jobs in the energy sector as a whole, and 32%
in renewables (IRENA, 2019). In India, the percentage of women with jobs in the energy
sector is even lower, at less than 10%, and many of these jobs are non‐technical(IEA‐CEEW, 2019). In the rooftop solar sector, women account for an estimated 11% of
the workforce.
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Between 1990 and 2019, the female participation rate in the workforce fell from 30% to
15% while the male participation rate remained largely constant at around 55%. India’s
declining female labour force participation has been particularly pronounced in rural
India, with rural women leaving India’s workforce at a faster rate than urban women(WEF, 2020). This low and falling participation rate among women has significant impacts
on energy inequity in several ways: it leads to low workforce participation in the energy
sector, lower demand for appliances, lower access to safe mobility, and lower clean
cooking access and affordability.

India’s low labour force participation rate for women is due in part to the gender wage
gap, a lack of safety policies and flexible work arrangements, and cultural norms
regarding women’s work. Indian women are often required by their families to prioritise
domestic work. A social stigma continues against women working outside the house,
especially for those who can afford not to work. These trends risk being further
aggravated by Covid‐19, as the sectors most impacted by the pandemic are those withhigher shares of female labour participation.

1

Poor access to safe and affordable transport for women imposes further constraints on
their access to health care, education, and other social facilities and services, thereby
effectively limiting their opportunities to participate in the country’s workforce to thesame extent as their male counterparts. Globally, it is estimated that safety concerns andlimited access to transport reduce the probability of women participating in the labour
market by 16.5% (ILO, 2018). Understanding and responding to women's mobility needs,
which are different from those of men, is essential to enable more equitable participationin the energy sector and economy more widely.
Energy transitions can have important implications for gender gaps and equality inemployment and remuneration. India has a high share of female graduates inengineering, and the renewable energy sector tends to attract a relatively highproportion of women. Accelerating the deployment of renewables could therefore meanan acceleration of employment in this sector for women. Codifying policies to provide asafe place for women to work, including accommodation, sanitation facilities andtransport, would help to make this happen. Equal opportunities also implies protection
from discrimination and access to maternity and parental leave allowances.
Achieving universal access to clean cooking options would also provide an important
improvement in health for women together with major time savings and increased
employment opportunities. Women are disproportionately exposed to household air
pollution from the burning of traditional biomass, leading to a higher prevalence ofasthma, pulmonary diseases and lung cancer among households that use biomass forcooking (Kankaria, Nongkynrih and Gupta, 2014). Women in these households also spend
significant amounts of time collecting fuel. The PMUY scheme issues LPG connections
specifically to women in poor households, and in some states women play a key decision‐
making role in processes that aim to accelerate the transition away from the traditionaluse of biomass.

Reliability and affordability

Satisfaction with electricity services is highly correlated with the hours of electricity thathouseholds enjoy (Alkin et al., 2016). Urban households receive about 22 hours of electricity
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Reliability and affordability are key concerns for Indian consumers, and they are closelyintertwined. Affordability is also a key consideration for clean cooking fuels (seesection 1.2.1).

a day on average, and rural households receive about 20 hours. Lack of reliability is an
important issue. In rural areas 53% of households experience multiple power cuts in a daycompared with 30% of their urban counterparts.
Unreliable power is a major barrier to economic and social development, and imposes
additional financial burdens on consumers, not least in terms of the expense of maintaining
backup sources of power (Box 1.2). The use of such backups is widespread. In 2017, even as
electricity access was improving, many rural households continued to use kerosene forlighting (Jain, 2018). In urban areas, diesel generators are common, especially in modern
high‐rises, while individual households often have rechargeable batteries to help them copewith power cuts. Similarly, about 35% of rural enterprises appear to be dependent on
non‐grid electricity sources such as solar home systems, rechargeable batteries, mini‐grids,
and diesel generators. These additional sources of power or lighting increase the financial
burden on already low‐ and middle‐income households (Smart Power India and ISEP, 2019).
Affordability is a key component of energy access, and tariffs for the Indian residential sector
are much higher in PPP terms than in other developing countries (see Chapter 3). These
relatively high tariffs, coupled with low per capita incomes, mean that energy costs accountfor a significant share of household expenditure. To address this issue of affordability, state
governments have been cross‐subsidising consumers by providing inexpensive electricity tohouseholds with low consumption. Electricity tariffs also tend to be fixed, and are often
below cost price, leading to financial losses in distribution companies which in turn lead tofrequent bailouts. The state governments in charge of such bailouts often struggle to maketimely and complete payments, and this has prompted the central government to step inwith loans and policy reforms (see Chapter 4.3).
Figure 1.18 ⊳ Share of electrified households affected by power outages, 2019India
overall

Rural

Urban

Don’t know
Few times a week

40%

60%

No power cuts
Once a day

80%

100%

Few times a month
Few times a day

Most Indian households report multiple daily power cuts.
Source: Agarwal et al. (2020).

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20%

In addition to subsidised prices, distribution companies suffer from high aggregate technicaland commercial losses, and from difficulties in billing and revenue collection. Theirconsequent financial difficulties lead to a vicious circle of under‐investment in infrastructure
and poor quality of service (Figure 1.18). In line with its objective to provide reliable andcontinuous power, the government is deploying a range of policies to address these linked
reliability and affordability barriers, while encouraging efforts by the utilities to improve theefficiency of their billing and revenue collection and to reduce aggregate technical andcommercial losses.

1

One important government initiative is to replace 250 million analogue meters with smart
meters across India over the next three years to improve metering and consumption
transparency, and avoid the errors and costs that come with manual billing. Energy Efficiency
Services Limited, a government‐owned energy services company, has already installed
1 million smart meters in Uttar Pradesh, Haryana, Bihar and New Delhi(Economic Times, 2020). In 2020, the government also announced that it was considering a
new tariff policy penalising unscheduled power cuts to incentivise investment in power
infrastructure.
Box 1.2 ⊳Electricity security and the role of captive power

Captive power plants provide a localised source of power to an energy user. They play a
crucial role in India’s electricity generation, accounting for 75 GW of installed capacity
and around 15% of total generation in 2018 (Figure 1.19). This is higher than the global
average of around 7% and much higher than the advanced economies average of 4%.
These facilities serve a wide variety of consumers from households and small businesses
to large industrial plants, but the motivation is the same in all cases: to provide a hedge
against unreliable supply from the grid, and – especially for large consumers – to benefit
at times from cheaper power than that supplied by the grid.

The true extent of diesel generator use across India is unclear, as official data only includeunits of more than 1 MW; studies based on manufacturer data indicate that total capacity
may be as much as 90 GW (The Indian Express, 2014). The many smaller units implied by

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As in the broader electricity mix, coal is the most common fuel source for captive plants,
accounting for nearly 90% of captive generation (the bubble size in Figure 1.19 represents
captive generation). Natural gas, with 10% of total captive generation, is the second‐largest fuel source and is mainly used by petrochemical and fertiliser industries, which
also use gas as feedstock for their production processes. The cost‐effectiveness of these
captive plants is helped by the structure of electricity tariffs, under which industrial andcommercial users effectively cross‐subsidise residential and agricultural customers (theprice of grid electricity for industry is on average 70% higher than for residential users).
Many of these industrial captive units are relatively old assets that have been fully
depreciated.

this data are relatively expensive to operate and are also a source of local pollution, even
if used only sparingly.
Figure 1.19 ⊳ Captive power as a share of total generation and capacity

Share of generation

by fuel, and total captive generation by fuel, 2018100%

DieselCaptive plants moreproductive than utilities

80%
60%
40%

Gas

20%

Coal

Captive plants lessproductive than utilities

Renewables
0%

20%

40%

Bubble size: Total generation (10 TWh)

60%

80%

100%

Share of capacity

Almost all diesel-based generation in India takes the form of captive power for small
businesses and households; coal-fired plants play a significant role for large industries.
Source: IEA analysis based on MoSPI (2020).

Rooftop solar is another potential source of captive power that is being increasingly taken
up by both residential and commercial users, although adoption has fallen short of official
targets. As rooftop solar schemes gain momentum and the cost of integrated
solar‐plus‐battery offers falls further (and as government schemes make it easier for
people to sell excess power back to grid), small‐scale renewables are likely to go a long
way towards replacing diesel backup. As gas networks expand within cities, gas‐based
generation could also become viable for larger users.

1.3.3

Energy and the environment

Air pollution has emerged as one of India’s gravest environmental problems in recent years,
and energy use is at the heart of it. In 2019, there were well over one million premature
deaths related to ambient and household air pollution; only China has a higher toll of
premature deaths. The Central Pollution Control Board (CPCB) and National Green Tribunal
has identified 124 cities across 24 of India’s 36 states and union territories as“non‐attainment cities” for exceeding pollutant levels set under the National Ambient Air
Quality Standards (NAAQS) in 2009 (CEA, 2019). Although already a substantial number, the50World Energy Outlook 2021 | Special Report

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Air quality

total of 124 cities may be an underestimate because not all of India’s nearly 500 cities haveair quality monitoring stations.

1

Figure 1.20 ⊳ Number of clean air days in India, 2019

Nearly half of India’s population lives in regions with fewer than 200 clean air days a year.
Notes: Clean air days are defined as days where the 24‐hour average of fine particulate matter (PM2.5) was
lower than the CPCB safe limit of 60 microgrammes per cubic metre. This map is without prejudice to thestatus of or sovereignty over any territory, to the delimitation of international frontiers and boundaries andto the name of any territory, city or area.

While air pollution in India is perennial and affects all parts of the country, northern states
suffer with particular acuteness in winter, and this contributes to making northern India oneof the world’s most polluted regions (Figure 1.20). The high levels of air pollution in northern
India in the winter have much to do with the region’s geographical and meteorological
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Source: Blue Sky Analytics (2020).

conditions, but the source of this pollution is anthropogenic, and stems primarily from theuse of energy. From 70 to 90% of the particulate matter emissions in India’s five largest urban
agglomerations are a result of energy use (Figure 1.21).
Figure 1.21 ⊳ Sectoral origin of PM2.5 emissions in selected urban
agglomerations
Kolkata
MumbaiChennaiBangalore
Delhi NCR
20%
Transport
Open waste burning

40%

Residential
Diesel generators

60%

80%

100%

Industrial
Dust
Agricultural residue burning

Energy consumption accounts for the majority of air pollutants in India’s largest cities.
Notes: NCR = National Capital Region. Industrial emissions includes power generation; data for Bangalore andChennai are from 2015, while the data of Kolkata, Mumbai and Delhi NCR are from 2018; the NCR includes thecities of Delhi, Noida, Ghaziabad, Gurgaon, Faridabad and other districts that are a part of the geographic
entity of NCR; all urban agglomerations considered include some non‐urban areas that are a part of thesurrounding areas.
Source: IEA analysis based on UrbanEmissions.info (2020) and TERI (2018).

The sources of pollutants vary depending on the region and time of the year. The largest
contributors across regions tend to be transport, industry, power generation, and biomass
or waste burning. One key trigger of rapidly deteriorating air quality in northern India every
year is agricultural residue burning in October and November, although transport, industry
and other energy sector sources continue to account for a large share of emissions even at
this time of the year.

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The contribution of human activity to air quality was illustrated during India’s Covid‐19
related lockdowns, which brought a halt to almost all economic activity. During the six‐week
lockdown that started in late March, PM2.5 levels were 58% lower in Delhi, 45% lower in
Bangalore and 30% lower in Chennai than in the same period in the previous year. Similar
steep drops were observed in various Indian cities and for all key air pollutants including
sulphur dioxide, nitrous oxides and carbon monoxide (Navinya, Patidar, & Phuleria, 2020).
These improvements were short‐lived, however, and air quality deteriorated quickly as
restrictions linked to the pandemic were eased.

While the focus of research, monitoring and action has largely been on urban areas, air
quality levels are also very poor in rural India, where ambient air pollution is compoundedby poor household air quality due to the traditional use of biomass for cooking. The overall
result is that air pollution has emerged as one of India's deadliest killers and therefore amajor public health issue.

1

The Government of India responded by launching the National Clean Air Programme (NCAP)
in 2019, with a target to reduce PM2.5 and coarse particulate matter (PM10) concentrations
by 20‐30% by 2024 from 2017 levels. While such a reduction will not necessarily ensure thatcities meet the standards under NAAQS, this is the first time that an air quality improvementtarget has been linked to a specific date for delivery.
Meeting the target by the date set in the NCAP is likely to be challenging, not least because
it will depend on changes in sectors that are not within the remit of the Ministry ofEnvironment, Forests and Climate Change, which is the ministry with responsibility for the
NCAP. The changes required are likely to need to include electrification and modal shifts intransport, the universal adoption of clean cooking fuels, a more consistent and stable supplyof electricity along with higher levels of renewables generation, and action on industrial
emissions through greater energy efficiency and the use of alternative sources of energy to
reduce pollution. In northern India, where agricultural residue burning is a key contributor
to air pollution in the winter, there is an opportunity to expand the use of agriculturalresidues in the (currently small‐scale) production of bio‐based fuels and electricity.

Land

There are other obstacles too. In some states, there are land ceiling limits which restrict theamount of land that individual owners can acquire. The high population density in most partsof the country, and the tendency of land holdings to be fragmented, compound the
difficulties. The average farmland holding was 1 hectare in 2015 (Business Standard, 2018).
With the Solar Energy Corporation of India (SECI) stating a minimum land requirement of
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Historically, the primary land challenges relating to energy in India arose from hydropower
projects. Despite much of this hydropower capacity being added many years ago, a numberof difficult legacy issues remain, including the resettlement and rehabilitation of populations
that were displaced during the construction of dams. More recently, India’s push for utility‐
scale solar has also thrown up challenges around land procurement and use. The National
Institute of Solar Energy has estimated that 750 GW of solar PV would need only 3% of India’s
wasteland areas (TERI, 2017). However, wasteland areas have declined over the past few
decades, and such wasteland may not always be ideally located for solar projects. In thosecases where agricultural land is to be procured for solar projects, the approval of such land
for non‐agricultural uses can be a time‐consuming and contentious process. Land is a state‐level responsibility in India, meaning that approvals are needed from the relevant
departments of state governments, and from village‐level administrations. Improperly
maintained land records can lead to patches of land being claimed by multiple entities, andthis can slow down land acquisition or lead to litigation.

1.5 hectares per megawatt, this implies that developers have to deal with multiple
landowners.
Measures have been introduced to overcome these problems and facilitate the acquisitionof land for the development of solar capacity. The SECI has been developing solar parks withstate governments, and in these cases the issue of land acquisition is handled by thegovernment. Single‐window clearances have also been set up in a few states to expedite
approvals. Nonetheless, the lack of a transparent and uniform land acquisition policy,
combined with the multiplicity of approvals required, means that land acquisition continues
to be a problematic issue for many developers.

Carbon dioxide emissions
Per capita emissions in India remain low by international standards, but 14% of global
energy‐sector emissions growth since 1990 has nonetheless come from India. India’s energy‐
sector related CO2 emissions have more than quadrupled since 1990, with the major sourcesof emissions growth being power generation, industry and transport.
Emissions growth from power generation over this period has been nearly twice total
emissions from all sectors in 1990. Coal meets 45% of India’s primary energy demand, but is
responsible for 70% of India’s energy sector CO2 emissions. The carbon intensity of India’s
power sector is 725 grammes of CO2 per kilowatt‐hour (g CO2/kWh), compared with a global
average of 510 g CO2/kWh, underlining the predominant role of inefficient coal‐fired
generation (Figure 1.22).
Figure 1.22 ⊳ CO2 emissions per capita and emissions intensity of electricity
generation by region, 2020
gCO₂ per kWh
250

500

750

AfricaIndia
C & S America
Southeast Asia
World
EuropeMiddle East
China
Eurasia
North America

Per capita
emissions(bottom axis)
Electricity
generation(top axis)

4

8

12
tCO₂ per capita

intensity of its electricity generation is among the highest of any country.
Notes: tCO2 = tonnes of carbon dioxide; C&S America = Central and South America.

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India’s per capita CO2 emissions are 60% lower than the global average, but the emissions

After power generation, the next highest emitting sector is industry (Figure 1.23). India
provides just over 6% of steel production globally, and the iron and steel sector is the largest
industrial subsector in terms of emissions: it is responsible for around 30% of India’s
industrial energy consumption. Coal provides around 85% of the energy used for iron andsteel, and the sector makes relatively little use of recycled scrap. This means that India’s steel
industry is more emissions‐intensive than its counterparts in many other countries.

1

India provides around 8% of global cement production, and this is the second‐largest
emitting industrial subsector. Although coal and oil are the main fuels used to provide heat
for its cement industry, a number of energy efficiency measures have been introduced at
Indian cement plants, and total emissions (including indirect emissions from the use ofelectricity) per tonne of production are nearly 15% lower in India than in China.
Figure 1.23 ⊳ CO2 emissions from the Indian energy sector, 2019
Power

Coal‐fired plants

Industry

Iron and steel
CementTransport

Trucks2‐3 wheelers
Cars

Buildings

Residential
Services

Other energy andagriculture

Other
300

600

900

1 200
Mt CO₂

India’s power sector is the largest contributor to its CO2 emissions, and coal-fired power
plants are responsible for the great majority of power sector emissions.
Note: Other includes other energy sector and agriculture

Emissions from passenger road transport in India have also quadrupled since 2000. India has
a high share of two‐ and three‐wheelers in its vehicle fleet (four‐fold of passenger cars), andthis helps to explain why passenger cars in India accounts for only 18% of its overall transport
emissions (merely 36% even if two‐ and three‐wheelers is added). This is much lower thanmany other countries; in the United States, for example, passenger cars account for 57% of
total transport emissions.
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Oil demand for road freight transport in India has tripled since 2000, highest after China.
More than 45% of emissions from road transport in India come from trucks. India’s heavy‐freight trucks have a relatively high level of fuel consumption per tonne kilometre comparedwith other countries, but the implementation of new engine standards in 2020 should help
to reduce the emissions intensity of activity in the future.

The direct use of fossil fuels in the buildings sector resulted in just over 160 Mt of CO2
emissions in 2019, with a further 460 Mt of indirect emissions coming from the use ofelectricity. India has been seeking to improve the energy efficiency of its buildings throughmandatory building energy codes and voluntary rating schemes, as well as throughprogrammes to improve the efficiency of appliances and equipment.

Water
With just 4% of the world’s water resources but 18% of its population, India counts as one of
the world’s most water‐stressed countries. Around 45% of its population faces acute water
shortages. Groundwater, which provides 85% of the country’s rural drinking water and about
60% of its irrigation water, is being rapidly depleted (Kim, 2018). A third of India’s
groundwater reserves are currently overexploited, meaning more is pumped out than isnaturally recharged by rainfall. Moreover, almost 70% of India’s water is contaminated(NITI Aayog, 2018). India also suffers frequently from natural disasters: between 1996 and2015, 19 million people a year in India were impacted by flooding and 17.5 million people ayear were affected by drought (UN Water, 2019).
Agriculture accounts for 80% of India’s water demand. Water‐intensive rice, sugar, maize andcotton are the most prevalent crops grown, and their export means that India is effectively
the world’s biggest water exporter. Agriculture in India is significantly dependent on
irrigation, with over 30% of its agriculture relying on it. A legal framework allowing farmers
to extract as much water as they want from underneath their land has contributed to therapid decline of India’s groundwater resources. To improve agricultural productivity andboost incomes, India has undertaken an aggressive campaign to deploy almost 3 million solar
pumps. Up to 2018, roughly 180 000 had been deployed. This initiative does not, however,help to tackle the problem of declining groundwater resources, and may exacerbate it.
The problems have been made worse by inefficient irrigation practices, such as flood
irrigation. On average, targeted irrigation is deployed on just 10% of irrigated areas acrossstates. The upshot is that water use efficiency on farms in India is among the lowest in theworld: three to five times more water is used than on farms in China or the United States to
produce the same amount of crops (NITI Aayog, 2018). Switching from low‐ to high‐water‐saving irrigation practices could save up to 47% of irrigation water by 2030 (Vaibhav, 2020).

India’s thermal power plants are already being impacted by water stress: droughts and water
shortages caused India to lose 14 TWh of thermal power generation in 2016 (Luo, Krishnan,& Sen, 2018). Recognising the risks posed by potential future water shortages, thegovernment introduced a requirement for new and existing thermal power plants to switch
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Today, the energy sector withdraws roughly 30 bcm of water (the volume of water removed
from a source) and consumes almost 6 bcm (the amount withdrawn but not returned to asource) (Figure 1.24). Coal‐fired power generation accounts for 80% of the water
withdrawals made by the energy sector, with the water being used mainly for cooling andash disposal. The energy sector accounts for less than 5% of India’s total water withdrawals
and less than 2% of consumption, but water availability is nonetheless essential for India’senergy security.

to cooling towers (which withdraw less water than once‐through systems) and to comply
with water consumption limits per megawatt‐hour. Compliance is self‐reported, however,
and a recent study found that only half of thermal plants for which data could be obtained
were compliant with the rules (Manthan Adhyayan Kendra, 2019).

1

Figure 1.24 ⊳ Water use in India’s energy sector by fuel and power generation

Billion cubic metres

type, 201935

Primary energy:
Biofuels

30

Fossil fuels

25Power:
Other

20

Coal

15
10
5
Withdrawals

Consumption

Coal-fired power generation accounts for 80% of India’s energy sector water withdrawals.

India has made significant progress towards providing access to clean drinking water andsanitation for all (UN SDG 6). Over 90% of the population now has access to a basic water
service.4 However, more work remains to be done: nearly 200 000 Indians die each year froma lack of access to safe drinking water, 60% of India’s wastewater is released untreated, and
40% of the water supply is lost to leaks or theft (Kim, 2018; NITI Aayog, 2018), while 40% of
India’s population does not have an improved drinking water source available.
For those who do not have access to water, its collection is often done by women, who obtainit from tankers in urban areas or by walking on average 5 km to 20 km a day to a source ofwater in rural areas (Chandran, 2018). For those who do have access to water, the quality
can be poor and intermittent. In many cities, supply is available for just two to three hours a
day on average (Chattopadhyay, S., 2020). The government has pledged to provide access tosafe and adequate drinking water to all by 2022 and a piped water connection to eachhousehold by 2024 via the Jal Jeevan Mission.
Increasing water demand, declining per capita water availability, problems with water
quality, lack of storage options, and changing patterns of use all mean that water will remain
A basic water service is access to an improved drinking water source that can be collected in 30 minutes orless round trip. Safely managed drinking water services, the set target under SDG 6.1, are defined as use of an
improved drinking water source which is accessible on premises, available when needed and free fromcontamination.

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4

a challenge for India in the years to come. On current trends, it is estimated that half ofIndia’s water demand will be unmet by 2030 (NITI Aayog, 2018). The government of India
established the Ministry of Jal Shakti in May 2019, which seeks to prioritise water needs andco‐ordinate policies and actions affecting water and water‐related activities. Given theimportance of water for its energy future, it will be necessary to assess the existing andpotential future water needs of the energy sector in order to avoid potential choke points
and to identify synergies where they exist.
Several synergies emerge when the SDGs are viewed through an integrated lens, especiallybetween SDG 6 (water and sanitation for all) and SDG 7 (energy for all). For example,
technologies being deployed to provide access to electricity can also help with the provisionof clean drinking water through the use of pumps and filtration systems. Approaching waterand electricity access in an integrated way may shift the emphasis from off‐grid solutions
towards mini‐grid or grid‐connected solutions, especially if productive uses are considered,for example the use of water and electricity in agriculture. Managing the energy‐water‐foodnexus is going to be essential in the effort to reach development and climate goals.

1.4

Which way from here?

The Stated Policies Scenario (STEPS) assumes that significant risks to public health arebrought under control gradually over the course of 2021, allowing for a steady recovery
in economic activity. This scenario incorporates our assessment of all the policy
ambitions and targets that have been legislated for or announced by the Indian
government and by other governments around the world. These include nationallydetermined contributions (NDCs) under the Paris Agreement. An overview of the policy
aims incorporated into the STEPS is included in the next section. It is important to note,
especially in the light of the IVC, that broad energy and environmental policy objectives
are not automatically assumed to be met in the STEPS. They are implemented to theextent that, in our assessment, they are backed up by specific measures and funding.
This is not a judgement of the feasibility of the government’s ambitions or its
commitment to them, but a reflection of our view of the real‐life constraints – including
regulatory, financial and administrative barriers – that have to be faced.



The India Vision Case (IVC) takes a more optimistic view of the prospects for full
implementation of India’s stated policy aims (Box 1.3). On the economic front, the IVC
implies not just a rapid resolution to the public health crisis caused by Covid‐19, but also
successful structural reforms that raise the long‐term growth potential of India’s

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The projections in this Outlook, described in detail in the chapters that follow, describe
possible pathways for the future of Indian and global energy systems. They largely follow theoverall scenario structure in the IEA World Energy Outlook 2020, but there is also an
additional case that is specific to this report. The main variable that differentiates the various
pathways is the way that government policy preferences and implementation evolve overthe coming decades, but our analysis also allows us to explore the implications of a rapid
recovery from the Covid‐19 crisis, as well as a pathway in which a prolonged pandemic has
longer‐lasting effects on India’s economic development.

economy, meaning that the assumed rate of economic growth is higher than in the
STEPS. In the energy sector, it assumes that key targets are met to the extent possible.
One important finding from this analysis is that it is not possible to hit every target; forinstance, the government’s volumetric target to expand domestic coal production is not
met in the IVC partly because of the expansion of renewables and improvements inefficiency in line with other government targets. The IVC in this year’s edition follows asimilar case included in the 2015 India Energy Outlook, allowing us to explore how
India’s vision has evolved over the last five years.


By contrast, the Delayed Recovery Scenario (DRS) examines downside risks to economic
and social development, linked to the possibility that the Covid‐19 pandemic turns out
to be more prolonged than assumed in other scenarios. The overarching policy
assumptions are similar to those in the STEPS, but the assumed rate of economic growth
is lower. The global outcomes in this scenario are explored in full in World Energy
Outlook 2020; insights into the implications for India are introduced at various points inthe chapters that follow.



The Sustainable Development Scenario (SDS) takes a different approach from the otherscenarios and cases in this Outlook. Whereas the others take a set of initial assumptions
and see where they lead, the SDS works back from the achievement of specific outcomes
and assesses what combination of actions would be required to get there. The key
outcomes that this scenario delivers are drawn from the UN SDGs: effective action tocombat climate change by holding the rise in global average temperature to “well below
2°C … and pursuing efforts to limit [it] to 1.5°C”, as set out in the Paris Agreement;
universal access to affordable, reliable and modern energy services by 2030; and asubstantial reduction in air pollution. In the SDS, India is on track to reach net zero
emissions beyond the modelling horizon – in the mid‐2060s.

1

None of these scenarios is a forecast of what will happen over the coming years; the IEA does
not have a single view of how the future will look. With myriad near‐term uncertainties, ouraim is more modest and, we hope, more useful: to highlight the range of possible futures,and the actions and circumstances that might bring them about.

India faces the need to pursue multiple policy objectives in parallel in order to support a
growing population and economy, including energy access, energy security andsustainability. In order to do so effectively, there is a need to approach energy policy making
and planning with a view to the system‐wide impacts of different policy choices. For example,
road or rail transport policies formulated by the respective ministries in India have potential
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The projections in each of these scenarios are generated by the IEA World Energy Model, anenergy systems model that has been developed over many years to provide insights into
energy and environmental trends. A key asset of this integrated modelling is that it allows us
to investigate the interconnections among different parts of the system, both within India
and between India and the rest of the energy world. This generates insights into thetrade‐offs and co‐benefits that exist between different policy objectives and courses ofaction.

implications not only for transport demand, but also for power generation capacity, refinery
configurations, natural gas supply infrastructure, GHG emissions and air quality. And India’s
choices also have significant impacts for global trends. The scenarios and analysis in this
Outlook allow us to highlight these interlinkages.
Box 1.3 ⊳How is the India Vision Case different?

The IVC reflects the energy, environment and economic targets of the Indian
government. It goes beyond stated policies and tests the following aspirations against
the outcomes of WEO modelling:

Achievement of 450 GW of non‐hydro renewable capacity by 2030. A greater degreeof financial de‐risking, underpinned by a favourable regulatory environment, allows
public and private actors to scale up investment in clean energy technologies.
Compared with the STEPS, there is much greater uptake of rooftop solar and windenergy.



A substantial increase in the share of natural gas in India’s primary energy mix by
2030. There is a much greater use of gas for electricity generation than in the STEPS,
and gas is used in particular as a source of flexibility. Gas also displaces fuels
including diesel in the captive power sector.



An acceleration in the uptake of alternative fuels in the transport sector. The shareof EVs in total road vehicle sales reaches 38% by 2030 (25% of sales in the case ofpassenger cars), and bioenergy, including both bioethanol/biodiesel as well as
bio‐CNG, start to be used.

A rapid and widespread implementation of efficiency measures across the energy
economy, especially in buildings but also in industry.



Achievement of India’s energy access goals in full by 2030, meaning that traditional
uses of biomass are entirely phased out by this date.

A longer‐term focus on deep decarbonisation of the industrial sector, whichtranslates into a ramp‐up of carbon capture and storage technologies, together withearly efforts to explore hydrogen pathways that yield some initial production from
low‐carbon sources.

1.4.1

India’s energy policies

India’s NDC under the Paris Agreement is an important reference point for energy andclimate policy. In the NDC, India has committed to improve the emissions intensity of its
economy by 33‐35% by 2030, compared with 2005 levels, and to achieve a 40% share of60

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India’s energy policies and ambitions are often disparate and sector‐specific because theyemanate from different ministries and agencies (Box 1.4). However, these policies andambitions all relate to the overall goal of providing affordable, reliable and sustainableenergy services.

non‐fossil fuels in electricity generation capacity by 2030. The prime minister of India has
also articulated seven focus areas for its energy economy, including a move towards a “gas‐based economy”, cleaner use of fossil fuels, greater use of biofuels, rapid scaling up of
renewables, a focus on electric mobility, a shift towards emerging fuels including hydrogen,and digital innovation across energy systems.

1

There are specific targets to be achieved by 2030, including 450 GW of renewable power
capacity, a 15% share of natural gas in the primary energy mix, a 30% share of passenger car
sales for EVs and a 20% blending of biofuels in petrol. There are also targets for increased
energy efficiency across sectors, affordable housing for all, the electrification of railways, thereduction of crude oil imports, and the ending of coal imports in the 2020s. While they allcome under the overarching framework described above, many of these targets were
decided independently of one another.
In addition to central government targets, there are subnational targets announced by state
governments, especially in the case of electricity, EVs and energy efficiency. For instance, thestate of Gujarat announced in 2019 that it will no longer invest in new coal‐fired power
capacity. Some states also have targets and policies on rooftop solar and electric mobility intheir respective jurisdictions.
Box 1.4 ⊳India’s energy governance and institutional arrangements

India’s energy sector is subject to the central and state governments in different ways.
Under India’s constitution, the petroleum, natural gas, aviation and railways sectors
come within the legislative ambit of the central government, whereas electricity comes
within the legislative ambit of both the central and state governments. As a result, India’senergy sector is governed by multiple ministries and agencies at both the central andstate levels.

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In the central government, various ministries and agencies have energy‐related
responsibilities under the overall purview of the Prime Minister’s Office (PMO). Each ofthese in turn has under it a range of specialist agencies and regulatory bodies, as well as
public sector undertakings (PSUs), which are publicly owned companies (Figure 1.25).
There are also agencies under the 28 state governments with responsibilities related toelectricity, road transport, buildings and energy efficiency; these include State Electricity
Regulatory Commissions (SERCs) in charge of managing intra‐state transmission,
distribution, trade and other aspects of electricity supply. There is also a Forum ofRegulators (FOR) to facilitate co‐ordination among the multiple state regulatory agencies
and the central regulator.

Figure 1.25 ⊳ Governance of the energy sector by the central government
Prime Minister’s
OfficeDepartment ofAtomic Energy

PSUs

Agencies

Ministries

NITI Aayog

Ministry of New
and Renewable
EnergyMinistry ofPetroleum andNatural Gas

Central Electricity
Regulatory
Commission(CERC), Central
Electricity
Authority (CEA),
Bureau of Energy
Efficiency (BEE)

National Instituteof Solar Energy(NISE), National
Institute of Wind
Energy (NIWE),
Indian Renewable
EnergyDevelopment
Agency (IREDA)

Directorate
General of
Hydrocarbons(DGH), Petroleum
and Natural Gas
Regulatory Board(PNGRB),
Petroleum
Planning &Analysis Cell
(PPAC)

Coal Controller
Organisation(CCO)

Power System
Operation
Corporation, Power
Finance
Corporation , REC,NTPC,
POWERGRID,
Energy Efficiency
Services Ltd

Southern ElectricCompany

Oil and Natural
Gas Corporation,
Indian Oil
Corporation, Oil
India Ltd., Bharat
Petroleum,
Hindustan
Petroleum , GAIL
India Limited,
Petronet LNG

Coal India Ltd

Ministry of Power

Ministry of Coal

Other ministries that deal with or influence the energy sector:
Ministry of Environment, Forests and Climate Change; Ministry of Statistics and Programme
Implementation; Ministry of Finance; Ministry of External Affairs; Ministry of Railways;
Ministry of Science and Technology; Ministry of Commerce and Industry; Ministry of Road
Transport and Highways; Ministry of Civil Aviation; Ministry of Housing and Urban Affairs;
Ministry of Heavy Industries and Public Enterprises; Ministry of Steel; Ministry of Chemicals
and Fertilizers.
India has multiple bodies in central government with a range of energy-related

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competencies and functions.

1.4.2

Economic and population growth

Alongside energy policies, the other principal determinants of energy demand growth in our
scenarios are the rates at which economic activity and population are assumed to grow.
These indicators are naturally subject to a wide level of uncertainty, which has been
exacerbated – particularly for the economy – by the effects of the Covid‐19 pandemic. With
this in mind, this India Energy Outlook considers multiple possible trajectories for future
growth in India’s GDP.

1

After an unprecedented drop of around 8% in economic output in 2020, uncertainties over
employment and strains to balance sheets and household finances are feeding through into
constrained investment, despite government attempts to stimulate activity and limit theeconomic damage (see section 1.3.1). Against this backdrop, the near‐term shape of theeconomic recovery is closely tied to success in tackling the spread of the virus. However, thelonger‐term outlook also depends on building out India’s physical and social infrastructure(a major focus for India’s stimulus spending), as well as on progress in tackling structural
challenges affecting investment such as complicated permitting processes, tax arrangements
and land acquisition processes.
Table 1.2 ⊳Real GDP average growth assumptions by scenario
STEPS

IVC

DRS

2010‐192019‐252025‐40

2019‐40

2019‐40

2019‐40

India

6.6%

4.5%

5.7%

5.4%

6.0%

4.9%

World

3.4%

2.7%

3.1%

3.0%

3.1%

2.6%

Note: Calculated based on GDP expressed in year‐2019 US dollars in PPP terms.
Sources: IEA analysis based on IMF (2020b); IMF (2020c); Oxford Economics (2020).

In the IVC, a swift and effective recovery from the effects of Covid‐19 is accompanied by arange of structural reforms that allow India to recover the lost ground in full and raise its
long‐term growth potential. In this case, India becomes a $5 trillion economy before the endof the decade, somewhat later than targeted by the Indian government. Conversely, the DRS
illustrates the risks arising from a prolonged pandemic. In this scenario, unemployment andfragile finances hit demand and investment across the entire economy, and rising debts limit
the scope and effectiveness of government action.

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Our baseline assumption in the STEPS and in the SDS is that the pandemic is gradually
brought under control in the course of 2021, allowing for a steady but far from V‐shaped
recovery in economic activity. In these scenarios, the supply side effects of the pandemic are
significant, but are limited by the relatively short duration of the crisis together with effective
policy responses, and the trend rate for growth in Indian GDP post‐2022 moves back towards
the level assumed before the crisis. The Indian economy is nonetheless smaller in 2040 thanit was in the same scenarios in the WEO 2019.

To put these growth trajectories in historical context, we looked at macroeconomic data
since 1950 to see how other countries fared from the moment that they achieved a similarlevel of economic development to today’s India, and compared the subsequent economic
performance of those countries with the assumptions in our scenarios. Despite the shock of
Covid‐19, the assumed rates of growth in all our India scenarios are in the upper part of thehistorical range (Figure 1.26). The IVC is in the top 10% of the sample, and the only countries
that have performed better than India does in the IVC are East Asian exporters such as Korea
that saw sustained rates of rapid growth. In the STEPS and SDS, India’s projected growthwould come in slightly ahead of the post‐1993 record of Thailand (a period that includes theeffects of the Asian financial crisis).

Growth in GDP per capita

Figure 1.26 ⊳ India’s economic outlook by scenario in a historical context

8%

6%

Thailand (1993‐2013)
India
(DRS)

India
(STEPS)

Korea (1984‐2004)
India
(IVC)

4%

2%

The GDP growth rate outlook considered in the IVC is in the top 10% of the sample ofcountries with similar levels of per capita income in the past.
Notes: Figure shows the average change in GDP per capita over a 20‐year period for a sample of countries,
starting when GDP per capita was comparable to India today. Data since 1950, excludes major hydrocarbon
exporters.

Our population assumptions for India are derived from the median variant of the United
Nations projections (UNDESA, 2019). According to these estimates, India’s population rises
from 1.37 billion in 2019 to 1.59 billion in 2040, meaning that it becomes the most populous
country in the world by the mid‐2020s. India’s total fertility rate in 2017 fell to 2.2, implyingthat every woman was giving birth to 2.2 children. Since then it is likely to have fallen close
to the “replacement level” mark of 2.1 — and will continue to fall in the next two decades —thereby moderating the population growth to 2040. The share of India’s population living inurban areas is currently around 34%, but this is assumed to rise to 46% by 2040, meaningthat India’s urban population is projected to rise by some 270 million people over the coming
two decades. This is the equivalent of adding a new city the size of Los Angeles every year.
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Source: IEA analysis based on data from Penn World Tables (2020).

1.4.3

Energy prices5

The equilibrium prices for our scenarios (where comparable scenarios exist) have beenrevised down as a result of the pandemic, because of the effect of the crisis on global demandand because of changes to producer strategies and cost structures on the supply side.
However, although the price trajectories are smooth, the possibility of price spikes andvolatility cannot of course be discounted, and may indeed have increased as a result of very
sharp cuts to investment and strains on producer finances.

1

In the case of oil, prices rise in the STEPS in order to stimulate a rebound in investment, after
which they settle in a range between $75/barrel to $85/barrel, a level at which global supply– including from US shale – is quite elastic. Natural gas prices rise gradually as the current
global surplus erodes: India’s imports are increasingly assumed to be priced off indices thatreflect Indian market dynamics rather than the cost of competing fuels. International coalprices remain subdued, reflecting lower global consumption as well as the ambition in India
to satisfy a larger share of demand from domestic supply.
Table 1.3 ⊳India fossil fuel prices by scenario

Real terms ($2019)
Crude oil ($/barrel)

2010 2019

STEPS

IVC

SDS

DRS

2025 2040

2025 2040

2025 2040

2025 2040

91

63

71

85

71

85

57

53

59

72

Natural gas ($/MBtu)

9

11

10

9

9

9

5

6

9

9

Steam coal ($/tonne)

71

68

65

63

62

60

58

51

61

59

Notes: MBtu = million British thermal units. The crude oil price is a weighted average import price among IEA
member countries. Natural gas prices are averages for imported gas, expressed on a gross calorific value basis.
Steam coal prices are weighted averages adjusted to 6 000 kilocalories per kilogramme. The steam coal priceis solely for imports. India prices for natural gas and steam coal are both wholesale prices.

Prices in the IVC are assumed to be broadly similar to those in the STEPS, as the changes inIndian demand are not in themselves large enough to affect global equilibrium prices.
Natural gas could have been an exception to this, but the upward pressure on global prices
created by extra Indian LNG imports in this scenario is assumed to be offset by the creationof a deeper and better functioning gas market, which in itself is sufficient to bring forward
additional investments in supply.

5

See the World Energy Outlook 2020 for additional details on the global price trajectories

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Prices in the DRS are lower for each fuel than in the STEPS because demand is lower and it
takes longer to work off the existing overhang in supply capacity. In the SDS, fuel prices
stabilise at still lower levels because of considerably lower demand for fossil fuels, removing
the need to develop higher‐cost resources.

1.4.4

Technology innovation, deployment and costs

A wide range of technologies are deployed to meet energy demand in our scenarios, and thecost of each of these is influenced in the World Energy Model by a continuous process oftechnology improvement and learning. This applies across the board to appliances andmotors purchased by end users; infrastructure for transporting energy products, including
smart grids; and technologies for electricity generation, energy extraction andtransformation.
A crucial dynamic for the India outlook is the way that key renewable electricity production
and storage technologies – including solar PV, wind and batteries – are expected to continue
getting cheaper quickly through a combination of research, economies of scale andimprovements in manufacturing and installation processes (Figure 1.27). The pace of change
varies by scenario according to levels of deployment, linked in turn to the policies that are inplace. However, with revenue support mechanisms in place that bring down financing costs
in countries including India, new solar PV projects are now estimated to have levelised costof electricity (LCOE) of $20 per megawatt‐hour (MWh) to $40/MWh in India, entirely below
the range of LCOE for new coal‐fired power plants and approaching parity with the operating
costs of some existing coal‐fired plants. Coal‐fired plants may be able to capture some
additional market value because of their ability to match system needs, indicating a closer
competition than one based solely on costs alone. But it remains the case that utility‐scalesolar PV is already very well placed as a preferred technology for new generation, and there
are innovative ways in which solar is being bundled together with other technologies toincrease its value (see section 3.2).
Figure 1.27 ⊳ Utility-scale solar PV LCOE under revenue support mechanisms,
2020 final investment decision$/MWhSolar PV with revenue support

Fossil fuels

160
120
80
40

India

China

UnitedStatesEuropeGas
Coal
CCGT supercriticaldue to technology gains and revenue support mechanisms.
Note: CCGT = combined‐cycle gas turbine.

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Utility-scale solar PV is now consistently cheaper than new gas- or coal-fired power plants

Oil and gas costs around the world are structurally lower than in previous WEOs, although inmany cases resources gradually become more expensive to extract over time (as continued
upstream innovation and technology improvements are offset by the effects of depletion on
costs). As a result, these fuels face increasingly stern competition in a growing number ofapplications from low‐carbon energy supplies.

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Chapter 2
Urbanisation and industrialisation in India
Building an energy future
S U M M A R Y
 The Covid‐19 pandemic has introduced major new uncertainties into the outlook for
India’s energy sector, but it has not altered the key underlying drivers. Chief among
them are urbanisation and industrialisation. Up until now, India’s economic growthhas been driven mainly by the services sector, rather than the more energy‐intensive
industry sector, and the rate at which India has urbanised has been somewhat slower
than in other emerging countries. How fast India urbanises and industrialises over the
coming decades, and which policies govern these processes, will be of crucial
significance for its energy future and for global trends.

 Over the period to 2040, an estimated 270 million people are likely to be added to
India’s urban population, the equivalent of adding a new city the size of Los Angeles
every year. Even with such rapid urbanisation on a very large scale, the share of India’s
population living in urban areas in 2040 is still expected to be less than 50%.
Total primary energy demand in India by fuel and scenario

1 000

2019
Mtoe

Mtoe

Figure 2.1 ⊳

800

800

Change 2019 to 2040

600
400

600
200
400

0

200

‐ 200
‐ 400

Coal

Oil

Gas

Nuclear

STEPS
DRS
IVC
SDS
Renewables
Traditional use of biomass

India leads global energy demand growth in every WEO scenario, although the way thisdemand is met depends on the interaction of policies, technologies and market forces.

underpins a massive increase in total residential floor space from less than 20 billion
square metres today to more than 50 billion in two decades’ time. This prompts huge
growth in demand for energy‐intensive building materials. In the STEPS, demand for
cement more than doubles to 2040, and demand for steel nearly triples.

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 Most of the buildings that will exist in India in 2040 have yet to be built. Urbanisation

 Urbanisation is also a spur for a transition in household energy use away from solid
biomass and towards electricity. Rising ownership of appliances and demand for air
conditioners mean that the share of energy demand taken by electricity in India’sbuildings sector rises from a quarter today to around half by 2040 in the STEPS. Thereis considerable scope for India to expand the application of its Energy Conservation
Building Codes and further tighten appliance standards to limit future strains on its
energy system.

 Transport is currently the fastest‐growing end‐use sector in terms of energy demand,and urbanisation will foster further growth. In many Indian cities, increasing demand
for transport has so far led to much congestion and poor air quality. This has
prompted a range of policy initiatives on fuel efficiency and quality, mass transit, andthe electrification of transport. However, today’s policy settings are not yet enoughto avoid a large projected increase in oil demand for road transport, which doubles in
the STEPS by 2040.

 Industry is the end‐use sector that currently uses most energy, and its share in total
final consumption rises from 36% today to 41% by 2040 in the STEPS. As coal use forpower generation flattens out, industry accounts for almost two‐thirds of the growth
in India’s coal demand and becomes the major source of growth in emissions.
Moreover, since the majority of goods transported in India move by road, industrial
expansion translates into rapid growth in diesel use for road freight, despite initiatives
to shift more of the freight market onto the railways.

 Efforts to promote energy efficiency and material efficiency, and greater use ofnatural gas and electricity, in particular for lighter manufacturing, all mitigate the risein industrial energy use in the STEPS, but there is considerable potential for further
efficiency gains. These gains are seen to some extent in the IVC and morecomprehensively in the SDS.

 Different scenarios inevitably produce different outcomes. In the DRS, energy
demand and emissions are suppressed by a lower level of economic activity. Positiveenvironmental outcomes therefore come at a very high cost. By contrast, the IVC
delivers both higher economic growth and lower emissions than the STEPS as a resultof policy actions which increase efficiency and achieve a faster transition to clean
electricity and natural gas.

 The SDS goes further in the direction of improving efficiency and the use of low‐

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carbon technologies. Alongside improved air quality and enhanced energy access,India sees an early peak in energy‐related CO2 emissions and a rapid subsequentdecline, putting the country on track for net zero emissions by the mid‐2060s.

2.1

Overview of energy demandIndia, in common with much of the rest of the world, has been severely affected by the Covid‐
19 pandemic, in terms of both the immediate toll on human life and the broader impact on
livelihoods due to lockdowns and other restrictions. There are multiple possible pathways
that India could follow as it emerges from today’s crisis (Figure 2.2).
Figure 2.2 ⊳2Growth in India GDP and energy demand to 2040 by scenario

Annual GDP growth, 2019‐40

Energy demand

6%

200

5%

180

4%

160

3%

140

2%

120

1%

100
Pre‐crisis STEPS
and SDS

DRS

IVC

80
2019

Pre‐crisis
STEPS
IVC
DRS

SDS

2025

2030

2035

2040

Differences between scenarios to 2030 are explained by duration of the pandemic (in DRS)
and a faster pace of structural changes in energy production and use (in IVC and SDS).
Note: Pre‐crisis shows the WEO 2019 STEPS projections.

One key near‐term uncertainty is the effectiveness of measures to limit the spread of thevirus, including how quickly vaccines are made available and distributed. The DRS examines
the effects of a prolonged pandemic and a slow economic recovery.
Another key uncertainty is the policy response from the Indian government and others totoday’s challenges. This includes the extent to which they incorporate energy andsustainability into their recovery strategies, and the extent to which they address structuralissues that characterised the economy even before the Covid‐19 pandemic. Different
assumptions about these policy responses underpin the differences in energy and economic
outcomes between the STEPS, the IVC and the SDS.

The dominance of coal in India’s energy system continues to recede. Coal is the slowest‐
growing energy source in the STEPS, meaning its share in the energy mix falls from 44% in
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The electrification of the Indian energy economy continues apace in all scenarios. The shareof electricity in total final consumption grows in all sectors, and particularly in the buildings
sector, where there is a continued pivot away from traditional biomass and a steady uptakeof appliances. In the STEPS, the share of demand met by electricity rises from around 17%
today to nearly a quarter by 2040, displacing 60 Mtoe of oil, coal and biomass.

2019 to 34% by 2040. As the incumbent fuel in the power sector, coal faces strong
competition from renewables in general and from solar PV in particular. However, greater
electricity demand and a near‐doubling in the use of coal in industry means that the overall
demand for coal still rises by over 30% from 2019 to 2040, reaching 770 Mtce.
Oil demand, by contrast, sees a relatively swift comeback from Covid‐induced disruption.
There is a doubling in oil demand in road transport by 2040 in the STEPS, largely as a resultof the addition of 170 million passenger cars and 25 million trucks to the vehicle stock
between 2019 and 2040. Oil consumption is also lifted by a tripling of feedstock demand in
the petrochemical industry.
Natural gas is the fastest‐growing fossil fuel in the STEPS, and the roll‐out of gas
infrastructure makes the fuel accessible to a growing share of India’s industrial base as wellas to residential consumers. The share of industrial energy demand accounted for by gas
doubles to reach 20% by 2040. Policy support for gas use in transport, both as conventional
CNG and bio‐CNG, results in a threefold increase in CNG demand.
The energy mix in India becomes much more diverse. Today coal, oil and traditional biomass
meet more than 80% of demand. In 2040 modern bioenergy and renewables including solar,
wind and hydropower meet nearly a quarter of India’s total energy demand in the STEPS.
Primary energy use per unit of GDP falls by half as the link between economic growth andenergy consumption weakens further.
In the STEPS, total CO2 emissions in 2040 are 45% higher than in 2019, and emissions per
capita also rise, but emissions intensity goes down significantly. India’s NDC under the Paris
Agreement include a reduction by 2030 in the emissions intensity of GDP by 33‐35%
compared with 2005 levels. The energy sector achieves this target under the STEPS, with a
CO2 emissions intensity reduction of over 40% by 2030.

The SDS sees a far more profound transformation of India’s energy sector. Demand in 2040
is nearly 30% below the level in the STEPS, as the move away from traditional biomass iscomplemented by concerted efforts to improve energy efficiency across a wide range of end
uses. There is a decisive shift away from coal, and solar PV eclipses coal’s share of electricity
generation a full decade ahead of the STEPS. Oil demand reaches a plateau by the end of the2020s as the share of alternative fuels in road transport – electricity, gas and bioenergy –rises: together these alternative fuels meet 35% of road transport demand by 2040. Fossil
fuels account for less than 60% of primary energy demand by 2040, compared with 72% in
the STEPS, while the traditional use of biomass falls to zero by 2030, as clean cooking goals
are fully achieved. In the SDS, India sees an early peak in energy‐related CO2 emissions and a
rapid subsequent decline, putting the country on track for net zero emissions by the mid‐
2060s.
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In the IVC, key Indian policy objectives are met in full, and this delivers higher economic
output together with lower energy demand and lower emissions than in the STEPS. India
moves more quickly towards a gas‐ and renewables‐based economy, and the use of
traditional biomass in particular fades rapidly as modern cooking fuels gain ground.

Table 2.1 ⊳Energy demand by scenario
STEPS

SDS

IVC

2000

2019

2030

2040

2030

2040

2030

2040

Primary energy demand (Mtoe)

441

929

1 237

1 573

994

1 147

1 153

1 526

Total final consumption (Mtoe)

315

621

853

1 123

703

843

783

1 075

Electricity demand (TWh)

369

1 207

1 959

3 146

1 922

2 980

2 087

3 433

CO2 emissions (Gt)

0.9

2.5

3.2

3.8

2.4

1.8

3.0

3.4

Coal demand (Mtce)

208

590

712

772

454

298

660

712

Power generation

147

397

453

444

232

60

371

362

Industry

37

141

198

255

169

185

193

240

Natural gas demand (bcm)

28

63

131

201

144

210

159

260

Power generation

11

17

25

33

49

61

62

95

Industry

4.3

24

61

106

50

84

60

107

Buildings

0.3

3.9

7.3

11

5.2

7.0

9.0

15

0.1

4.1

9.2

12.1

9.6

11.9

10.9

15.6

Low‐carbon gases (bcm)Transport

0.0

0.0

6.4

21

20

47

10

31

Oil demand (mb/d)

2.3

5.0

7.1

8.7

6.2

5.8

7.0

8.3

Road transport

0.6

1.9

2.9

3.8

2.4

2.1

3.0

3.8

Aviation and shipping

0.1

0.2

0.4

0.6

0.3

0.4

0.4

0.6

Industry and petrochemicals

0.6

0.9

1.5

1.8

1.2

1.3

1.4

1.7

Buildings

0.4

1.0

1.3

1.4

1.4

1.1

1.4

1.5

Biofuels (Mboe/d)

0.0

0.0

0.1

0.2

0.2

0.2

0.1

0.2

2

Notes: Gt = gigatonnes; Mboe/d = million barrels of oil equivalent per day.

The diagrams in Figure 2.3 provide a visual representation of the flows of energy in India’senergy system, and show how they change from 2019 to 2040 in the different scenarios. The
diagrams include the various transformation processes used for electricity and for fuels(e.g. refining), and also illustrate the substantial conversion losses that occur in the processof electricity generation. These losses are dramatically reduced in the SDS because of theshift towards non‐combustion renewable sources of power.

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The flows do not, however, capture the efficiency with which different energy carriers
provide useful energy services to consumers. The IVC, for example, leads to a marginallysmaller overall energy system than the STEPS in 2040, but supports a larger economy. The
SDS is even more efficient, as well as being much less carbon‐intensive. This partly stems
from its high degree of reliance on electricity. Given that electricity delivers useful energy
services with better efficiency than other fuels, the role of electricity is greater in practicethan its share in final consumption would suggest.

Figure 2.3 ⊳Evolution of India’s energy system by scenario (Mtoe)

2019
GDP $2.9 trillion1

Coal, oil and biomass meet over 80% of India’s energy demand today.

STEPS 2040
GDP $8.6 trillion

1

All GDP values in this figure are $2019 at market exchange rates.

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By 2040, India’s energy consumption nearly doubles in the STEPS.

IVC 2040
GDP $9.8 trillion

2

Despite producing a smaller energy system than the STEPS in 2040
the IVC supports a larger economy.

SDS 2040
GDP $8.6 trillion

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In 2040, the SDS is more efficient and less carbon-intensive than the STEPS and the IVC.

2.2

The forces and uncertainties shaping energy demand

Despite brisk economic growth in recent decades, India is still a lower‐middle‐income
country. Even measured at PPP, its GDP per capita is almost 85% lower than that of advanced
economies. Against this background, India’s government wants to see substantial economic
growth to raise living standards and reduce poverty. Over the projection period of this
Outlook, 2019 to 2040, India’s GDP is set to grow substantially. This will undoubtedly meansignificant growth in demand for energy services. How this demand is met, which fuels andtechnologies are available and at what price, is a crucial issue for the aspirations andlivelihoods of India’s citizens. India’s choices will in turn have a huge influence on global
trends, against a backdrop of accelerating global action on climate change and commitments
to reach net zero emissions. The objective of this section is to understand the macroscale
drivers and uncertainties of demand growth in this new context. It starts with a brief review
of historical energy demand growth before turning to the outlook period.

2.2.1

GDP and energy intensity

Between 1990 and 2019, India’s GDP increased more than sixfold, while total final
consumption increased only by a factor of 2.5. In other words, GDP grew more than twice as
fast as energy consumption. Three main factors contributed to this rapid improvement in the
final energy intensity of GDP.
The first was the structural transition away from traditional biomass as a fuel in theresidential sector. Although India still consumes a large amount of traditional biomass, theshare of total final consumption accounted for by biomass fell from 42% in 1990 to 18% in
2019, as widespread electrification took place, oil consumption in transport grew and thebuildings sector transitioned towards modern fuels. This transition in the buildings sector
entailed a shift from traditional sources of biomass with very low conversion efficiencies (inthe order of 5‐10%) towards higher efficiency fuels such as LPG and electricity. The efficiency
gains from fuel switching helped to enable substantial growth in economic activity without
commensurate growth in energy consumption: the decline in traditional biomass was
responsible for nearly 60% of the decline in energy intensity between 1990 and 2019.2
The second driver of this dramatic improvement in energy intensity was the structure ofIndia’s economic growth model. Unlike East Asian or some Southeast Asian countries, suchas Korea, China and Viet Nam, India’s economic growth has historically been driven by theservices sectors, not the more energy‐intensive industry sectors. This is illustrated in
Figure 2.4, which shows that nearly 90% of total value‐added growth in the period 1990‐2017
came from sectors in the lowest energy intensity category. These include large retail service
This may seem like a windfall that should not be recorded as an improvement in energy intensity per se.
However, given the real economic costs of traditional biomass use, notably the time required to collect it andthe health costs of indoor pollution, the transition away from traditional use of biomass is a driver of greater
economic efficiency and thus rightfully recorded in indicators such as falling energy intensity of GDP.

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2

sectors such as trade as well as very productive “low footprint” sectors such as business andfinancial services. India’s service‐oriented model of international trade has further
embedded these less energy‐intensive sectors in the domestic economy.
Figure 2.4 ⊳Share in value-added growth by sector and level of energy
intensity, 1990-2017

2

100%

Services
Industry

80%

Agriculture

60%
40%
20%

Low
energy intensity

Mediumenergy intensity

Highenergy intensity

The vast majority of value-added growth in the Indian GDP since 1990 has come fromlow-energy-intensity sectors.
Note: Energy intensity is calculated as the ratio of the value of energy inputs to the value of gross output inthousand rupees, with a range of 0‐100 classified as low, 100‐200 as medium, and >200 as high.
Source: IEA analysis based on RBI (2020).

The third driver of the improvement in energy intensity has been the technical efficiency of
production and consumption processes. Low levels of energy use per unit of physical output
have been driven by relatively high energy prices, price sensitivity among consumers, a young
capital stock, and a robust policy framework in a number of sectors. For example, the averageon‐road fuel efficiency of a new passenger car purchased in India is around 5.7 litres/100 km,
comparable with cars purchased in the European Union. The thermal energy intensity ofclinker production in India is 20% lower than in the European Union.

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Looking at India’s recent energy demand growth, the picture that emerges is one of a
relatively frugal energy system. Rapid improvements in energy intensity have been driven bya transition to more efficient fuels, a structure of economic growth dominated by services,and high technical efficiencies in many sectors. The extent to which these trends continue
will be crucial in determining the future growth of Indian energy demand.

2.2.2

Outlook for GDP growth and economic structure in the STEPS

Between 2019 and 2040, Indian GDP is projected in the STEPS to triple in size, growing 5.4%
annually, while India’s economic structure changes in ways broadly consistent with thehistorical trajectory charted by other countries. Agriculture continues to decrease as a shareof GDP, albeit more slowly than in the past. By 2040, it accounts for about 11% of GDP.
Consistent with India’s services‐driven development model, the share of industry in total
GDP is projected to remain broadly stable over the outlook period, rising slightly from 30%
in 2019 to 31% in 2040. The share of services in GDP continues to increase, rising from 54%
in 2019 to 57% in 2040, with accompanying growth in service sector energy demand (seesection 2.3).
The tripling in GDP in the STEPS is accompanied by less than a doubling of total final energy
consumption, which rises from 620 Mtoe in 2019 to just over 1 100 Mtoe in 2040. As in thepast, a reduction in energy intensity is anticipated to play a substantial role in reducing
energy demand growth relative to GDP growth. This is evident from a decomposition ofdifferent factors affecting demand growth (Figure 2.5).
Figure 2.5 ⊳Drivers of total final energy consumption growth in India in the

Mtoe

STEPS, 2019-40
1 500

Economic
structure Efficiency
in industry

1 200
900

EfficiencyLessin othersectors traditional
biomass

600
GDP
growth300

2019

Macroeconomic

Energy intensity improvement

2040

The transition away from traditional biomass and an economy-wide improvement in energy
efficiency reduce consumption growth by almost 50% over the period to 2040.

As Figure 2.5 shows, GDP growth without any improvement in energy intensity would
increase final energy consumption in India to more than 1 500 Mtoe by 2040, and a slightly
expanded share of industry in the economy would add a little to this. However, this increase
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Notes: TFC = total final consumption. Economic structure represents the impacts of the change in the share ofindustry value‐added in GDP. Energy intensity improvements include gains from energy efficiency as well astransitions to more conversion‐efficient energy sources, such as electricity. Less traditional biomass represents
the efficiency gains from switching away from traditional use of biomass towards modern fuels.

is in practice moderated by improvements in industrial energy intensity, which avoid around
140 Mtoe (explored further in section 2.4). The transition away from traditional use of
biomass continues, as its share in final consumption contracts from 18% in 2019 to 6% in
2040, thereby avoiding a further 160 Mtoe. Finally, energy intensity improvements in allother end‐use sectors and fuels bring about an additional reduction of 150 Mtoe. Together,
these three factors drive a cumulative reduction in the growth of total final consumption ofover 440 Mtoe, an amount equivalent to Japan’s total energy demand today.

2.2.3

2

Similar destinations, different pathways: Exploring the IVC and DRS

The disruption from Covid‐19 has caused an unprecedented level of uncertainty about the
future of the global economy. India has suffered a significant economic contraction as aresult of the pandemic and the ensuing lockdowns, and its economic output is expected tohave fallen by around 8% in 2020 (IMF, 2021). In the STEPS, India’s GDP returns to an annual
average growth rate of around 5.4% per year between 2019 and 2040. However, substantial
uncertainty remains about the depth and duration of the downturn induced by Covid‐19, andthe speed of the subsequent recovery in GDP growth rates. For this reason, two alternative
scenarios have been used in this report alongside the STEPS and the SDS, namely the DRS
and the IVC.

The IVC sees an annual average GDP growth rate of 6% in the period 2019‐40, compared withan annual average growth of 5% in the DRS. As a result, the size of the economy in 2040 is
14% bigger in the IVC than in the STEPS, whereas it is 9% smaller in the DRS. On the face ofit, one would expect that these differences in 2040 would drive substantial differences inenergy demand and CO2 emissions. However, this is not the case. In the IVC, total final
consumption of energy is actually lower than in the STEPS, and similar to that in the DRS.
Stronger improvements in energy efficiency and faster moves towards more efficient fuels,
notably electricity and gas, reduce the rate of final consumption growth in the IVC,
notwithstanding its higher GDP. The similarly low level of demand in the DRS, by contrast, isa result of slower GDP growth and more prolonged economic challenges, which reduce therate of improvement in energy efficiency and delay the transition towards more efficientfuels.
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In the IVC, GDP growth is higher across the outlook period, reflecting a scenario in which
substantial structural reforms boost the long‐term growth potential of the economy, despite
the short‐term shock of Covid‐19. This scenario also assumes the achievement of ambitious
government policy objectives related to energy efficiency, deployment of renewable energy,
and the provision of modern fuels to households. The DRS, on the other hand, reflects a
scenario in which the shock of Covid‐19 continues to weigh on the subsequent economic
recovery: precautionary household saving, high corporate debt levels and a strained fiscal
deficit result in a slower rate of economic growth. Consequently, the structural transition in
the energy system is also delayed, with fewer improvements in energy efficiency, slower
deployment of renewables and natural gas, and a slower transition away from traditional
biomass.

Overall, energy‐related CO2 emissions are around 12% lower in both the IVC and the DRS
relative to the STEPS in 2040, but the reasons for these similar‐sized reductions are very
different (Figure 2.6). In the IVC, emissions growth is lower as a result of faster energy
efficiency improvements compensating for rapid economic growth; modern renewables
partially compensating for the accelerated transition away from the traditional use of
biomass; and the shift within the fossil mix towards natural gas. In the DRS, by contrast,
emissions reductions come from low GDP growth, and from the persistence of traditional
biomass in the energy mix, which reduces the carbon intensity of total primary energy
demand relative to the STEPS but also means higher levels of air pollution and a greaternumber of premature deaths. Given the imperative of achieving economic growth, poverty
reduction and the transition to welfare‐enhancing modern fuels, these CO2 reductions areachieved at a very high social and economic cost.
Figure 2.6 ⊳Relative differences in key energy system indicators in the IVC
and DRS, compared with the STEPS, 2040

20%

IVC

15%

DRS

10%
5%
0%
‐5%
‐10%
‐15%

GDP

Primary energy
demandCO2
CO2 emissions

Carbon intensity

Similar changes in energy demand and CO2 emissions are seen in the IVC and DRS relative
to the STEPS, but for very different reasons.

2.2.4

Urbanisation

At the same time, the process of urbanisation is energy‐ and material‐intensive. It generates
much of the global demand for steel, cement and plastics, and hence is closely linked toenergy demand. Because urbanisation facilitates higher average household incomes, it also
drives higher average household energy consumption, as city dwellers spend a share of extra
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Throughout history, the urban share of the population has increased as countries havebecome richer. Urbanisation is one of the most consequential elements of the process of
economic development. It facilitates larger markets for goods, services and labour, allowing
the economy to increase its productivity. It also enables the growth of the more productive
service and industry sectors that drive high incomes.

income on purchasing more energy services. Finally, a country’s urbanisation model locks invery long‐lived patterns of energy demand; for example, sprawling urbanisation with little
public transport demand can lock in higher transport energy consumption.
How fast India urbanises, and with what urbanisation model, is therefore of material
significance for its energy future. Exploring the long‐term relationship between GDP per
capita and the urbanisation rate offers some clues, comparing India with the East Asian late‐industrialising countries, Japan, Korea and China (Figure 2.7). Across the historical period
assessed, the speed of India’s urbanisation process, as its GDP per capita has grown, has beenslower than in these other countries. India is projected to continue this historical trend andremain a relatively rural country in our scenarios, even as its GDP per capita grows. By 2040,
India’s urbanisation rate is projected to be just 46%, which is some 15‐30 percentage points
lower than in the comparison countries at similar levels of GDP per capita.

2

Despite this relatively low urbanisation rate, India’s huge population means that there is stilla massive absolute growth in the total urban population, from about 470 million in 2019 tonearly 740 million in 2040. This increase in urban population is the equivalent of adding 13
cities the size of Mumbai to India by 2040. By contrast, India’s rural population is expected
to fall by 40 million in this period.
Figure 2.7 ⊳Relationship between GDP per capita and the urbanisation rate

Urbanisation rate

in selected economies
100%
80%
60%
40%

Japan

1950‐2015

Korea

2019‐40
STEPS

China
India

20%

1 000

10 000100 000
GDP per capita ($2011 PPP, log scale)India has not so far urbanised as fast as other countries have done historically.

India thus looks set to buck the global trend between GDP per capita and urbanisation. This
raises a number of important questions for India’s energy future. First, given the strong
relationship between development and urbanisation seen in economic history, will India beable to sustain a high level of GDP growth while retaining a high rural share of the
population? Second, if India does retain a high share of rural population in the coming
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Sources: IEA analysis based on data from UN DESA (2018); Maddison Project Database (2018).

decades, what are the implications for India’s energy future, given the observed differences
between rural and urban households in terms of energy services demand and ownership ofenergy‐consuming equipment?
There is some uncertainty about whether the rather stringent definition of urbanisation thatIndia applies belies the country’s actual level of urbanisation. Indeed, India’s definition ofurbanisation has long been subject to debate. Indian states have an incentive to label areas
as rural because this enables them to receive subsidies and exemptions that they would nototherwise be entitled to. Alternative definitions exist, based on population density persquare kilometre, or the percentage of the population employed outside of agriculture.
Other metrics, increasingly based on remote sensing, continue to provide mixed signals
about India’s “true” level of urbanisation.
However, while there is debate about the stringency of India’s definition of urban areas, it isclear that the definition is meaningfully reflected in energy indicators such as household
appliance ownership. Persistent divergences have been evident in rural versus urbanhousehold appliance ownership for a long time, particularly for large, expensive energy‐
intensive equipment such as cars or air conditioners. The extent to which there will be
convergence in the pattern of energy service demand between rural and urban households
is a question of great importance for India’s future energy demand, given the large projectedrural population share in 2040. The extent and physical model of India’s urbanisation process– compact versus sprawling, high‐rise versus low‐rise, formal versus informal – will likewise
be crucial in determining demand for energy‐intensive materials such as steel and cement,
as well as transport demand.

2.3

The built environment and mobility

Two‐thirds of the buildings that exist in 2040 in the STEPS have not yet been constructed.
India is also facing a huge expansion of transportation networks – from highways, railways,
and metro lines to airports and ports – to move an ever‐increasing number of people andgoods across the country. In the STEPS, around 300 million vehicles are added to India’s roads
by 2040, and there is a threefold increase in freight activity. How the built environment andIndia’s transport systems interact is a crucial question for India’s energy future.

2.3.1

The built environment

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There are three trends that underpin buildings energy demand in India. First, newconstruction activity is increasingly being concentrated in urban areas, making urbanisationa key driver for material demand; second, informal settlements and traditional built
structures are being replaced by new buildings that use modern and energy‐intensive
materials such as bricks, cement and steel; third, there has been a steady growth in applianceuse, with air conditioners emerging as the single most significant source of electricity
demand in the buildings sector.

Material demand in the buildings sector
In the STEPS, urban floor space more than triples by 2040; this far outpaces projected growthof floor space in rural areas (Figure 2.8). This predominance of urban growth is a result ofcontinued migration towards urban areas, rising incomes in urban areas that drive homeownership and investments in real estate, and a reduction in the number of people perhousehold which reflects falling fertility rates and the splitting of larger families into multiple
households.

Million m²

Figure 2.8 ⊳2Residential floor space in India in the STEPS

60 00060%

50 00050%

40 00040%

30 00030%

20 00020%

10 000

10%
1990

2000
Urban

2010
Rural

2019

2030

2040

Urban share (right axis)

Historically, most built spaces in India were in rural areas, but urban demand for floor
spaces is set to outpace rural demand over the next 20 years.
Note: m2 = square metres.
Source: IEA analysis based on NSSO (2018).

India’s construction boom has also been fuelled by a renewed focus on public housing. Morethan 150 million Indians live in unorganised informal settlements that lack basic
infrastructure and services, and are often built as non‐permanent structures on land that
does not belong to the residents. These settlements have been targeted for replacement
through public housing programmes that stretch back several decades. The government’s
various efforts in this direction were merged into the Pradhan Mantri Awaas Yojana (PMAY)
scheme in 2015 with the overarching goal of “housing for all” by 2022. This public housing
scheme aims to provide a house built with modern building materials for all those who arehomeless and all those living in dwellings made using traditional building materials.
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Indian cities have emerged as hubs for construction activity. India now has over 53 cities withmore than a million residents, and a further 8 000 urban agglomerations, defined as areas
with over 5 000 residents with a majority share of non‐agricultural employment. The
prevalence of multi‐dwelling and multi‐storey apartment buildings has steadily increased,with over half of all households in India’s eight largest cities (each with a population of over
5 million) located in buildings of this kind in 2018, up from a third in 2002 (Sai, 2020).

This focus on public housing has had significant impacts on building energy demand: in thesix years leading to March 2020, more than 15 million houses were constructed, and a further
7 million are now under construction in urban areas. The government reported that 60 Mt
of cement and 14 Mt of steel were used for the urban component of the construction(MOHUA, 2020). Moreover, as a part of PMAY, some informal settlements have beentransformed into high‐rise neighbourhoods, contributing to the growth in urban India's per
capita floor space.
Figure 2.9 ⊳Share of households in India using modern building materials
Urban households

100%

Rural households

80%

Urban informal
settlements

60%
40%
20%

1990

1995

2000

2005

2010

2015

2019

There has been a steady increase in the share of new buildings constructed using modern,energy-intensive building materials such as cement, bricks and steel.
Source: IEA analysis based on NSSO (2018).

In the past, there were clear differences in the way in which rural and urban houses werebuilt. In 1990, only 30% of rural homes were built using modern building materials, comparedwith 75% homes in urban areas. The rest were built using traditional materials such as
unburnt mud, cow dung and other organic materials. That has been changing rapidly. By
2018, 80% of rural and 97% of urban houses were being constructed using modern materials(Figure 2.9). Overall, steel and cement production in India in the STEPS nearly triples by 2040
as a result of growth in the stock of housing and of a further closing of the gap between urban
and rural areas in terms of their use of modern building materials.

Cooking, heating, cooling and appliances are the four pillars of energy demand in buildings.
In the STEPS, clean cooking (cooking that uses LPG, electricity, natural gas), appliances andcooling are responsible for the overwhelming majority of energy demand growth until 2040.
The use of traditional cooking fuels and heating using biomass halves by 2040, and is replacedby cleaner alternatives including LPG and electric space heaters (Figure 2.10). The share of84

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Cooking and appliance ownershipbuildings in final energy consumption falls on account of falling biomass use, but thewidespread uptake of cooling and appliances means the share of buildings in total electricity
consumption rises from 41% in 2019 to 48% in 2040. Under the IVC, households move away
completely from traditional bioenergy by 2030 as they adopt clean cooking technologies.
Figure 2.10 ⊳ Change in energy demand in residential buildings in India in the

2

Mtoe

STEPS, 2019-2040
120
100
80
60
40
20
Lighting

Water
heating

Clean
Other
Coolingcooking appliances

Net
Space Traditionalchangeheatinguse ofbiomass 2019‐40

Clean cooking, cooling and appliances are responsible for the overwhelming majority ofenergy demand growth in buildings to 2040, while there is a fall in traditional biomass use.

Unit per household

Figure 2.11 ⊳ Appliance ownership in Indian households in the STEPS
1.6

Historical

Projections

Air conditioning

1.2
Television
Refrigerator

0.8

Personal computer
Washing machine

0.4

Dishwasher
Dryer
1990

2000

2010

2019

2030

2040

AC units see faster growth than any other household appliance

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over the period to 2040 in the STEPS.

Appliance ownership in India has been growing and diversifying. In 1990, the only appliancethat most households had was a ceiling fan. By 2019, televisions had also become quite
commonplace, and the number of refrigerators was steadily increasing. By 2040, airconditioners, personal computers and washing machines are expected in the STEPS to
become much more common, particularly in urban areas. Air‐conditioning (AC) units see
faster growth than any other household appliance over the period to 2040, and become thelargest single driver of energy demand growth in buildings (Figure 2.11).

Focus on coolingAC ownership is driven by the frequently hot and humid weather conditions in large parts ofIndia. These conditions are being made more acute by rising temperatures stemming fromglobal climate change and the “heat island effect” that affects urban areas in particular: asvegetation on land surfaces and water bodies have been replaced with impermeable andhigh‐emissivity surfaces as part of the built environment, there has been an increase intemperatures in urban areas. With rising urban temperatures and per capita incomes, thegrowth in ownership of ACs is likely to become more broad‐based, and it is expected to be
led over the coming decades by mid‐ and low‐income households in urban India (Kachhawa,
Kumar, & Singh, 2019).
In the STEPS, air conditioner stock reaches 670 million in 2040, up from 30 million today. As
a result, India’s consumption of electricity for cooling grows sixfold to reach 650 TWh by
2040, which is more than the total electricity consumption of Germany today, and accounts
for around half of all electricity consumption in buildings. Around two‐thirds of this demandcomes from the residential sector, with the remainder stemming from a steady rise in officebuildings, retail, education, hotels and hospitals. Given that cooling demand peaks at certain
times of the day and year for both residential and commercial buildings, this could put aconsiderable strain on India’s ability to balance its grid and maintain reliable supply (seeSection 3.2).

A range of policies and measures that could lower cooling demand and the resulting energy
use is already in place. The Energy Conservation Building Codes for commercial buildings andthe Eco‐Niwas Samhita for residential buildings already set energy performance standards
for new buildings that have a minimum energy consumption threshold or floor area, while
the standards and labelling programme covers 10 appliance categories including air
conditioners. Under the STEPS, nearly a quarter of electricity demand growth for residential
space cooling is avoided by efficiency measures by 2040, broadly in line with the target set
out under ICAP. In the IVC, a more robust implementation of energy efficiency policies means
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The growth in cooling demand could be mitigated by energy efficiency improvements in ACs,
as well as thermally efficient building design, cool roofs and the adoption of other more
efficient cooling appliances including desert air coolers. Government action has the potential
to underpin mitigation efforts, and the India Cooling Action Plan (ICAP), which was launchedin 2019, sets the scene for the future: it adopts the principle of “thermal comfort for all”
including low‐income groups, alongside a target to reduce cooling energy requirements by
25‐40% by 2037‐38, although the precise nature of this commitment is not clearly defined.

that the electricity demand arising from an additional 130 million air conditioners is almost
entirely offset by efficiency gains (Figure 2.12).
Figure 2.12 ⊳ The impact of efficiency measures on electricity demand fromTWh

residential space cooling, 2019-2040
700

2

600
500
400
300
200
100
2019

Activity

Efficiency

STEPS
2040

Activity

Efficiency

IVC
2040

Electricity demand in 2040 from cooling alone will be more than the total electricity
consumption in Germany today; energy efficiency measures can moderate this growth.

Building energy demand in the India Vision CaseIn the IVC, higher GDP growth means that ownership of appliances rises at a faster rate thanin the STEPS, while greater disposable incomes means higher per capita consumption ofenergy services. These factors serve to push up energy demand, but there are countervailingforces that moderate the overall growth in consumption. First, there is an accelerated moveaway from traditional biomass towards modern fuels, as well as a parallel increase inappliance ownership, which raises the share of electricity in total energy use in buildings;
both factors are instrumental in increasing the overall efficiency of energy use by India’sbuilding stock. Second, there are additional efforts to enhance India’s efficiency policies, forexample through more robust labelling and performance standards, as well as throughstricter implementation of building codes covering insulation, shading and glazing, and otherpassive cooling solutions. As a result of these countervailing forces, energy demand frombuildings grows in the IVC by only 12% over 2019 levels by 2040, less than half the level ofgrowth seen in the STEPS.
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In the STEPS, India’s energy demand from buildings in 2040 is 30% higher than in 2019. Thisnet growth figure would be much higher still without the drop in energy demand that comesfrom the displacement of inefficient biomass by efficient clean cooking fuels such as LPG and
PNG. If cooking energy demand were excluded, energy demand from buildings would double
in the STEPS in this period, due to increased uptake of electric appliances including water
heaters, refrigerators, ACs, TVs and lights.

The stronger push on policy and implementation in the IVC results in important co‐benefits
for India’s built environment. To take one important example, indoor air quality improves
drastically on the back of a rapid fall in traditional biomass use, resulting in fewer premature
deaths in the IVC than in the STEPS. These gains far outlast the clean cooking transition(which is complete before 2030), with energy demand in 2040 remaining 14% lower in the
IVC than in the STEPS (Figure 2.13).
Figure 2.13 ⊳ Energy demand in buildings in the STEPS and the IVC, 2040
Mtoe

350

300
Appliances250

Traditional
cooking andheating

200

150

Clean
cooking

STEPS
2040

IVC
2040

In the IVC, energy demand from buildings in 2040 is lower than in the STEPS because
policies in the IVC bring to an end the traditional use of biomass for cooking and heating.
Note: Appliances includes cooling, lighting and all other electrical appliances.

2.3.2

Mobility

The last three decades have transformed mobility in India. The economic reforms of the early
1990s laid the groundwork for a huge expansion in transport and communication activities.
The rapid growth in almost all types of transport infrastructure since then has fuelled
economic growth, which in turn has led to a continual increase in demand for mobility forboth passengers and goods. These changes have led to both energy use and emissions in thetransport sector increasing fivefold over the last three decades.

Around 270 million people are expected to be added to India’s urban population in the next
two decades. Unless carefully planned, urban transport infrastructure could become apotential bottleneck to India’s growth and development. The Indian cities with more than
1 million inhabitants already account for nearly 30% of total registered vehicles in India(MoRTH, 2019), and the level of vehicle ownership in urban households is higher than in rural
households: in 2019, the motorcycle ownership rate was 1.4 times higher in urban areas andthe passenger car ownership rate was twice as high. With growing disposable incomes and88

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Outlook for passenger mobility

rapidly increasing motorised vehicle ownership, cities across India face the dual challengesof traffic congestion and poor air quality; Indian cities are consistently ranked high on the listof the most congested and the most polluted cities globally.
Following the National Urban Transport Policy (NUTP) of 2006, the last decade has seen the
launch of programmes such as the Jawaharlal Nehru National Urban Renewal Mission, 100
Smart Cities Mission, and the Atal Mission for Rejuvenation and Urban Transformation tobuild and upgrade urban transport infrastructure, with a focus on public transport. These
initiatives underpin a planned expansion of metro railways, rapid transit systems and bus
services across dozens of cities.

2

While the focus of transport policies has been on passenger vehicles and mass transit, asignificant share of mobility needs in India continue to be met by three‐wheeled auto
rickshaws, private motorised two‐wheelers and non‐motorised modes of transport such as
cycle rickshaws and bicycles, as well as by walking (Box 2.1).
Box 2.1 ⊳The role of non-motorised transport in urban India

Non‐motorised transport plays a major role in mobility in India (Figure 2.14). In urban
areas, nearly 40% of trips are 5 km or less. People usually walk or cycle in these cases. Ina typical week, over 60% of urban Indians walk or cycle on trips that average 2.5 km. As
the average length of journey increases, however, they become more likely to switch totwo‐/three‐wheelers, public transport and personal cars (CEEW, 2019). People using
non‐motorised transport generally do so because they cannot afford motorised transport.
Without an appropriate focus on non‐motorised transport infrastructure, these
individuals could transition to two‐/three‐wheelers or passenger cars as their per capita
incomes increase.

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There is a significant opportunity to avoid energy use in transport by ensuring adequate
and safe pedestrian and cycling infrastructure in cities. Currently, Indian cities and towns
rarely have extensive networks of walkable sidewalks or dedicated cycle lanes, and thisforces non‐motorised commuters to use roads meant for vehicular traffic instead, leading
to a high number of fatalities from accidents. While the NUTP, launched in 2006, has an
objective of “moving people and not vehicles”, this has not yet led to sustained investment
in safe infrastructure for non‐motorised commuters.

Figure 2.14 ⊳ How urban Indians travel, 2019
Commute distance

Share of commuters* and average distance by means

3

6

9

km
12

Personal car
Corporate taxi

20 ‐ 50km
9%15 ‐ 20km
8%

Above 50km
3%

10 ‐ 15km
10%

Public transport

0 ‐ 5km39%

Motor‐cycle
5 ‐ 10km
31%

Non‐motorised
20%
Share of commuters

40%

60%

80%

Average commute distance (top axis)

Most commutes in urban areas in India are short, and most short trips are
non-motorised.
Notes: *Share of commuters using a particular mode of transport in any given week. Public transport
includes bus, metro, taxi and 3‐wheelers.
Source: IEA analysis based on CEEW (2019).

In the STEPS, the fleet of buses in India doubles by 2040 to reach a stock of 4.4 million. Efforts
are being made to ensure that new bus fleets operate on fuels such as natural gas andelectricity to reduce their impacts on local air quality. With about 6 200 buses, Delhi is home
to one of the largest fleets of natural gas‐powered buses in the world. However, public buses
represent only 8% of India’s total bus fleet (MoRTH, 2020). Efforts to transform bus
operations therefore also require appropriate regulations and incentives to help private bus
fleets move towards more efficient and cleaner fuel types.

Passenger cars are the third‐fastest‐growing vehicle category in India, with annual average
growth of around 10% over the last decade. Increasing disposable incomes and a growing
range of available models mean that demand for cars is set to rise over the coming decades.
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While efforts are under way to develop more organised forms of public transport, the growthin the motorisation of mobility in India is largely being driven by increases in numbers oftwo‐/three‐wheelers. More than 80% of vehicles in India are two‐/three‐wheelers, and thisvehicle category has grown faster than any other in the last decade (MoRTH, 2019).
Three‐wheeled auto‐rickshaws help meet last and first mile mobility demands and, likebuses, act as shared modes of transport operating on specific routes in both urban and rural
settings. In some cities, they also operate as a metered service, like taxis. They operate on awide range of fuels, including gasoline, diesel, LPG, natural gas and, in some recent cases,
electricity. In the STEPS, the number of two‐/three‐wheelers on the road increases by over
55% by 2040.

Passenger cars are now subject to a CAFE energy efficiency standard with an upper limit of
5.49 litres/100 km, and this standard will become more stringent from 2022. Together with
the Bharat Stage VI fuel quality standards and incentives for purchase of EVs, this should help
to reduce the level of energy demand growth. At the same time the increasing use of sharedapp‐based ride‐hailing passenger services has the potential to make more efficient use of thestock of passenger cars and to reduce road congestion and local air pollution. In the STEPS,
the stock of passenger cars nevertheless still grows fivefold between 2019 and 2040 to reach
200 million, outpacing the growth of all other vehicle categories.

2

In the SDS, there is a concerted effort to move towards more efficient forms oftransportation. As a consequence, the stock of buses and two‐/three‐wheelers is about 7%
higher in 2040 than in the STEPS, while the stock of passenger cars is about 6% lower. In the
IVC, buses and two‐/three‐wheelers grow at much the same rate as in the STEPS, but there
are nearly 10% more passenger cars in 2040 than in the STEPS owing to the greaterpurchasing power of Indians.

The electrification of road transport
Road transport has historically been dominated by gasoline and diesel vehicles, but this isstarting to change as a result of a range of policy initiatives and technology trends. India’svision for vehicle electrification was first outlined in the National Electric Mobility Mission
Plan launched in 2012, which foresaw rapid growth in both the manufacturing and use of EVs
in India.

To ensure the development of EV charging infrastructure, the Bureau of Energy Efficiency
has laid out targets for the installation of at least one publicly accessible charger within a gridof 3 km by 3 km in cities, and one charging station every 25 km on both sides of highways.
There is an additional target of one fast‐charging station every 100 km on highways. The
government has also complemented its measures to promote the use of EVs and associatedinfrastructure by announcing a production‐linked incentive for the manufacture of advanced
chemistry batteries for EVs, renewable energy and other applications.

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To increase the uptake of EVs, a subsidy programme called the Faster Adoption and
Manufacturing of Electric Vehicles (FAME) was introduced in 2015. The second phase of thepolicy, FAME‐II, was approved in 2019 with a budget of $1.4 billion for a three‐year period.
This includes policy incentives for the purchase of electric and hybrid vehicles as well as forthe deployment of charging stations. FAME‐II aims to increase the number of electric buses,
two‐/three‐wheelers and cars. Subsidies are available only for vehicles with advanced
battery chemistries, rather than lead‐acid variants that make up the majority of electric two‐
/three‐wheelers sold today. In addition to these policies, Energy Efficiency Services Limited,
India’s largest energy services company, has a bulk procurement programme in place toacquire 10 000 EVs for government use, although to date around 15‐20% have beenacquired. State and city governments have also introduced policies to incentivise the uptakeof EVs.

As many of these incentives are relatively recent, much of the growth in electric passenger
car numbers lies ahead. Fewer than 4 000 electric cars were sold in India in 2019. However,supportive policies, a growing global market for EVs and falling battery costs should soon put
more EVs within reach of India’s increasingly affluent middle classes. In the STEPS, there arenearly 7 million electric cars on the road by 2030, and 27 million by 2040.
A more significant opportunity for electrification exists in the form of two‐/three‐wheelers.
In 2019, India had a stock of 1.8 million electric two‐/three‐wheelers on the road, andbattery‐powered electric three‐wheelers (also called e‐rickshaws) are already serving thedemands of over 60 million people per day, mostly in urban areas (Singh, 2019). Sales aremodest in terms of the size of the overall market – around 740 000 electric
two‐/three‐wheelers were sold in 2019, accounting for about 3% of total sales – but are set
to rise rapidly in the future. In the STEPS, there are 55 million electric two‐/three‐wheelerson the road in 2030, and they make up 19% of the total stock. This increases to 160 million
in 2040, by which time they account for over half the stock of such vehicles.

100%

40

75%

30

50%

20

25%

10

Million vehicles

Figure 2.15 ⊳ Passenger car sales by scenario, 2019 and 2040
Petroleum ICE
CNG
HybridElectric
Sales (right axis)

2019

STEPS

IVC
2040

SDS

Two- and three-wheelers see rapid electrification, but the speed at which the car fleet
switches away from petroleum-based fuels varies widely by scenario.

There were very few electric buses on the road in 2019, but there have been recent efforts
by the central government jointly with states and municipal corporations to roll out
5 600 electric buses across 64 cities (for both urban and intercity movement) over the next
few years (DHI, 2020). The number of electric buses grows to over 500 000 by 2040 under
the STEPS, though they still account for only 12% of the stock. Overall, annual sales of EVs
rise steadily in the STEPS (Figure 2.15). In all, the EV fleet – including two‐ and three‐wheelers, cars, vans, buses, and trucks – represents 34% of the entire road stock by 2040,
with two‐/three‐wheelers accounting for the vast majority of the total.

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Note: ICE = internal combustion engine.

Things look different in other scenarios. In the IVC, more aggressive implementation ofelectrification targets results in 25% of the passenger cars sold and nearly half of thetwo‐/three‐wheelers sold being electric by 2030. By 2040, nearly 70% of all vehicles sold areelectric. In the SDS, there is a much stronger policy push towards sustainable forms ofmobility, together with a set of measures that support the domestic production of batteries,
a rapid roll‐out of charging infrastructure, and the implementation of building codes thatencourage private charging. In the SDS, EVs constitute nearly half of all vehicle sales by 2030,
and 86% by 2040. By 2040, 90% of the passenger cars sold are electric, up from 48% in 2030,
and nearly 60% of the total vehicle stock is electric.

2

The future of road freight
India’s steadily growing and more interconnected economy has led to a rapid rise in freighttransport in recent years. Over 60% of goods transported in India travel by road
(MoRTH, 2020). In the past decade, freight road activity and the number of commercial
freight vehicles have both doubled, and they are projected to more than triple from current
levels under the STEPS, with the stock of commercial freight vehicles reaching 35 million in
2040. Almost 45% of the growth in freight activity between 2019 and 2040 comes fromheavy‐duty freight trucks, which tend to serve long‐distance routes, with a further 38%
coming from the use of light commercial trucks, which largely serve urban centres within city
limits (Figure 2.16). The growth in freight demand in the STEPS is mainly met by vehicles using
diesel, with only small increases in the use of alternative fuels such as CNG. The increasinguse of railways to transport freight does, however, avoid some growth in road freight activity(Box 2.2).

Billion vkm

Figure 2.16 ⊳ Growth of road freight activity in India in the STEPS, 2019-2040
600
500
400
300
200
100
2019
Light commercial vehicles

2030
Medium freight trucks

2040
Heavy freight trucks

trucks and intra-city light commercial vehicles contributing most of the growth.
Note: vkm = vehicle kilometres.

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Road freight activity in India more than triples by 2040 in the STEPS, with long-distanceWhile the level of freight activity in the SDS is similar to that in the STEPS, much more of it istransported by hybrid, electric, hydrogen and natural gas freight vehicles, with around halfof the 30 million trucks in 2040 in the SDS being powered by technologies other than diesel
ICEs. In the STEPS, by contrast, these alternative technologies account for only 6% of energy
demand from India’s trucks.
Box 2.2 ⊳The transformation of India’s railways

Railways in India have a long pedigree, dating back more than 160 years to thepre‐independence era. By the time India gained independence in 1947, its railway network
extended for more than 50 000 km. It has since grown to around 67 000 km, making it the
fourth‐largest railway network in the world. India’s railway network was for a long timelargely fuelled by coal and diesel. However, the share of electrified tracks has increased inrecent decades, rising from 24% in 2000 to just over 50% in 2019. The share of electricity
in total energy use by Indian railways has seen a corresponding increase, albeit at a more
moderate pace (Figure 2.17).
In recent years, there has been a renewed focus on transforming railways to make thema desirable option for long‐distance transport as well as urban public mobility. IndianRailways has an ambition to fully electrify its tracks by 2023, which will entail theelectrification of over 30 000 km of track within four years. In parallel, there is anaspiration for rail transport to become “net zero” emissions by 2030 by drawing its entire
electrical load from renewable energy.

kmFigure 2.17 ⊳ Electrification of railway routes and operations
80 00040%

60 00030%

40 00020%

20 00010%Electrified routeNon electrified route

1990

2000

2010

Share of electricity
in total energy used by
the Indian railways(right axis)

2018

Indian railways are rapidly electrifying, with a goal of 100% electrification by 2023.

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Source: Ministry of Railways (2019).

There is also an interest in developing high‐speed rail in India, with the first line being
developed between the cities of Mumbai and Ahmedabad. Further lines are also being
explored which could run between Mumbai and Delhi, between Delhi and northern Indian
cities such as Amritsar and Varanasi, and between Mumbai and cities in the south. Despitehigh capital costs, high‐speed rail has the potential to displace air traffic, leading to energy
savings and emissions reductions.

2

Railway operators are seeking to double the average speed of freight trains by 2023, andto increase their share of freight movement from 30% in 2019 to 45% by 2032. The
Dedicated Freight Corridor (DFC) between India’s four largest cities of Delhi, Mumbai,
Chennai and Kolkata aims to create over 10 000 km of railway track that would be usedsolely by freight traffic on a route that accounts for nearly 58% of the revenue‐earning
traffic on the railways. The DFC is currently under construction, with some sections of it
opening to traffic in 2020, and further sections targeted to open in 2022. As well as
improving freight rail transport, the DFC will free up other lines for passenger use, whichshould lead to an improvement in average speeds across the railways.
In addition, urban metro rail is expected to double in length: there are 650 km of lines in
18 cities today, and a further 900 km of lines are now under construction across 20 cities.
The most extensive metro network is in New Delhi, but there are growing networks inother cities. More than 4.5 million passengers use the metro in Delhi every day, while themetros in Mumbai and Bangalore each have daily ridership of more than 450 000 people.
As lines and stations expand, urban rail networks could potentially carry millions ofadditional daily commuters. This should reduce personal car travel and so prevent
additional emissions and road congestion.
Together, these efforts could help shift some road and flight transport activity to rail,
which is among the most efficient modes of transport. The energy used per passenger
kilometre in rail is roughly one‐tenth that of passenger cars and planes, and one‐third thatof buses (IEA, 2020).

The outlook for transport energy demand and emissions

Railway energy demand grows by over 80% through to 2040 in the STEPS, with electricity
providing only half of the energy used by railways in India in 2040. In the IVC, however, thetarget of complete electrification is achieved. Energy demand from domestic aviation triples
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Energy demand for road transport in the STEPS more than doubles by 2040 to reach
220 Mtoe (Figure 2.18). Freight transport constitutes half of the overall increase, most ofwhich is fuelled by diesel: in 2019, around 80% of freight transport relied on the use of diesel,a share that remains largely unchanged to 2040. Energy use in passenger cars quadruples
over the 2019‐40 period. Despite rapid growth in EV sales, especially for two‐/three‐wheelers, electricity consumption growth constitutes only 7% of the overall growth in roadtransport energy demand to 2040 under the STEPS. Under the IVC, this rises to nearly 15%of the overall growth in transport energy demand.

under both the STEPS and the IVC (although it is 10% higher in the IVC); it constitutes lessthan 1% of energy demand under both scenarios.
Figure 2.18 ⊳ Changes in road transport energy demand by fuel/technology

Mtoe

and scenario, 2019-2040
250
200
150
100
50

2019
Gasoline

2030
STEPS
Diesel2040
STEPS
Natural gas

2040
SDS
Biofuels

Electricity

Diesel-based freight transport underpins demand growth in the STEPS to 2040. Greater
efficiency and an uptake in electric mobility is key to avoiding demand growth in the SDS.

The result of these developments is that road transport emissions in the SDS begin to decline
in the 2030s despite rising vehicle ownership and activity levels, and end up 42% below thelevel in the STEPS by 2040. This is primarily due to efficiency gains and an increasing share ofpassenger cars and road freight vehicles running on alternative fuels such as biofuels, CNG
and electricity (Figure 2.19); two‐/three‐wheelers are already increasingly electrified in the
STEPS.
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As a result of these demand increases, CO2 emissions from road transport double between
2019 and 2040 in the STEPS, with around 65% of this increase coming from freight vehicles;
road transport continues to account for nearly 90% of overall emissions in the transport
sector. The scale of activity growth in the transport sector means that CO2 emissions also
grow in the SDS in the period to 2040, largely as a result of a doubling in emissions fromheavy‐duty trucks. However, a number of developments in the SDS help to improve thesustainability of transport. EVs account for a far larger share of new vehicle sales in the SDS
than they do in the STEPS; this means that electricity (which is increasingly supplied from
low‐carbon sources) accounts for nearly one‐third of the growth in road transport energy
consumption to 2040. More robust efficiency targets also help to lower energy demand andemissions, while the use of biofuels helps to lower the emissions intensity of liquid fueldemand. Alternative fuels including biofuels, electricity and natural gas together meet 30%of road transport sector energy demand in 2040 in the SDS, which is over twice the share in
the STEPS.

Figure 2.19 ⊳ CO2 emissions reductions from road transport between the STEPS
and the SDS
Mt CO₂600

STEPS

Buses and2‐3 wheelers

500

Freight

400

Passenger
cars

SDS

2

300
200
100

2015

2020

2025

2030

2035

2040

While two-/three-wheelers form a large majority of the stock of vehicles, the biggest
opportunity to reduce CO2 emissions comes from passenger cars and freight transport.

2.4

Industrial transformations

The share of the industry sector in total final energy consumption increased from 28% to 36%
between 1990 and 2019, making it the largest end‐use sector today, and a vitally importantsector for India’s energy future.
Figure 2.20 ⊳ Indices of industrial activity and energy consumption in the
STEPS, compared with WEO 2019

Index (2018=1)

Industrial
value‐added (real)Steelproduction

Industry
final consumption

5
4
3
2
1
2040
Historical2020
WEO 2019 STEPS

2040

2020

2040

WEO 2020 STEPSThe pandemic leaves a lasting gap for key industrial indices that is not closed in the STEPS.

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2020

The Covid‐19 pandemic and the nationwide lockdown sharply reduced India’s industrial
activity. On an annualised basis, in the months from January to August 2020, cumulative
production of steel fell by around 20% (OEA DPIIT, 2020). Tentative signs of economic
recovery were visible in the second half of 2020, with monthly production of heavy industrial
commodities returning towards their pre‐crisis levels. However, in the absence of a burst ofindustrial activity at higher rates than those prior to the crisis, there is likely to be a prolonged
reduction in activity relative to pre‐crisis projections. For example, compared with the WEO
2019, the growth in real industrial value in the period to 2030 in the STEPS has been adjusted
down by around 20%, with steel production down by a similar rate. Despite a pickup of
economic growth rates after 2020, these industrial indicators remain lower in the STEPS thanin WEO 2019 projections for the whole scenario period through to 2040 (Figure 2.20).
India’s industrial energy consumption in 2040 in the STEPS is over 100 Mtoe (or 18%) lower
than projected in the WEO 2019. This downward adjustment does not, however, affect all
fuels equally. The downward revision falls hardest on coal, which is 34 Mtoe lower in 2030
and 73 Mtoe lower in 2040 than projected in the WEO 2019. Electricity consumption is down
21 Mtoe in 2040 and natural gas consumption is down 11 Mtoe (Figure 2.21).
Figure 2.21 ⊳ Industrial final consumption by fuel in the STEPS, WEO 2019 versus
WEO 2020
Mtoe

600
Bioenergy
400Electricity
Gas

200

Oil
Coal
WEO 2019

0

Change relative to
WEO 2019

‐ 200

2010

2019

2030

2040

Covid-19 has dampened the projected rise in industrial energy consumption
in India; by 2040, demand is 18% lower than in pre-crisis projections.

2.4.1

Industrial energy demand in the STEPSIn the STEPS, industrial energy consumption doubles to reach 465 Mtoe by 2040. This
represents almost half of the total growth in final energy consumption over this period.
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Despite the short‐term revisions as a result of Covid‐19, the long‐term outlook for India’s
industrial energy consumption is one of substantial growth.

Consequently, industry’s share in total final consumption increases from 36% in 2019 to 41%
by 2040. In addition to final consumption of energy, the industry sector is responsible for the
non‐energy use of fossil fuels as industrial feedstocks, for example in petrochemical andfertiliser production. Total feedstock consumption in the STEPS grows from 22 Mtoe in 2019
to 55 Mtoe by 2040, of which oil makes up 40 Mtoe and gas 13 Mtoe (the remainder beinghydrogen and biomass feedstocks).

2

Over the past three decades, almost three‐quarters of the growth in coal demand went topower generation. In the STEPS, this dwindles to one‐quarter, and instead almost two‐thirdsof the growth in coal demand comes from industry. As a result, the industry sector accounts
for the majority of CO2 emissions as well as the majority of total demand growth in India
between 2019 and 2040 (Figure 2.22).
Figure 2.22 ⊳ Industry share in total final consumption, coal demand and CO2
emissions growth in India in the STEPS

60%

40%

20%

Total final consumption

Primary coal demand
1990‐2019

CO₂ emissions

2019‐40

In the STEPS, the dominance of renewables in power means coal pivots from power toindustry, making industry responsible for the majority of growth in CO2 emissions to 2040.

Between 1990 and 2019, the energy intensity of India’s industrial value‐added (i.e. theamount of energy required to produce an additional unit of industrial output) decreased bymore than 50%. This was due, in part, to the general wave of economic efficiency
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In the STEPS, real industrial value‐added grows more than threefold from 2019 to 2040,
driven by materials‐intensive investments in infrastructure, urban housing, factories andproductive equipment. The urban population is projected to grow from 470 million in 2019
to 740 million by 2040, and total residential floor space from 19 billion m2 to over
50 billion m2. This massive urban transition underpins rapid growth in energy‐intensive
materials such as steel and cement. As a consequence of this robust growth in the industrial
sector, India becomes increasingly central to global industrial energy demand (seeChapter 4).

improvements that occurred after liberalisation in the early 1990s; it was also a consequenceof relatively high energy prices, as well as specific policies such as the PAT scheme. Theenergy intensity of India’s industrial value‐added is now relatively low by international
standards: in 2019, it was below the G20 average (measured at PPP).

Index (2019=1)

Figure 2.23 ⊳ Drivers of India’s industrial energy consumption in the STEPSReal industrial
value‐added
Steel production
Floor space

3

Chemicals
production

2

Urban population
1

2015

2020

2025

2030

2035

2040

Improvements in material efficiency and energy efficiency keep the rise in industrial
energy consumption below the growth in industrial production and value-added.

India’s economic growth and the increasingly industrialised structure of India’s GDP are key
drivers of the projected increase in industrial energy demand to 2040.3 Over the period to2040, industrial value‐added increases faster than the production of physical outputs suchas steel and cement (Figure 2.23). Total final energy consumption of the industry sector
increases more slowly than either as a result of improvements in efficiency. These are partly
the result of natural economic processes, as the economy becomes more efficient at
extracting value from the factors of production, including materials and energy. They are also
partly driven by policies aiming to improve material efficiency, for example through recycling
and material reuse. In the STEPS, material efficiency avoids about 25 Mtoe of industrial
energy demand growth over the period to 2040, while reductions in the energy intensity ofthe physical production of steel, chemicals, cement, paper, and aluminium avoid a further
150 Mtoe (Figure 2.24).

3
In the STEPS, the share of industrial value‐added in overall GDP increases slightly, meaning there is a modest
rise in industrial energy demand attributable to structural economic changes.

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Within the heavy industrial sectors, the largest potential for material and energy intensity
improvements lies in the steel sector, which contributes more than half of the total energy
savings from these sectors. Although much smaller individually, substantial energy savings
from energy intensity improvements also come from India’s light industry base. Energy

savings from a range of less energy‐intensive sectors, such as manufacturing, textiles andfood processing, amount to a further 65 Mtoe in 2040 in the STEPS. These sectors include
many small and medium‐sized firms, underlining the importance of policies to tap the energy
savings potential in India’s large and often informal micro, small and medium‐sized industrial
sector (MSME). In total, energy savings from this segment avoid one‐third of the projected
growth in total industrial energy consumption (Box 2.3).

2

Figure 2.24 ⊳ Breakdown of the key drivers of industry energy consumption inIndia in the STEPS, and reductions in energy use from efficiency

Mtoe

Industry energy consumption

Energy savings
60

600
Economic Material
structure efficiency

Heavy
Other

Energyefficiency

400

Aluminium
Paper
Cement40

Chemicals
Steel

200

20
GDP
growth2019

2040

Material

EnergyImprovements in the efficiency of material and energy use help to moderate the growth inIndian industrial energy consumption in the STEPS, but it still more than doubles to 2040.
Note: Economic structure represents the impacts of the change in the share of industry value‐added in GDP.

Box 2.3 ⊳Energy efficiency in India’s small- and medium-sized industries

Across India’s manufacturing sector, there are many facilities that have relatively little
market share but that are substantially more energy‐intensive than the best‐performing
facilities (Figure 2.25). In five of the six manufacturing sectors analysed, there is a clear
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India’s industry sector, like its economy more broadly, is characterised by a large numberof small production facilities as well as a small number of large production facilities. The
Sixth Economic Census recorded more than 10 million establishments in the
manufacturing sector, including the informal sector, employing over 30 million people.
This gives a sense of the huge scale of India’s informal sector: the average establishment
size in terms of employment was just three people. Although comprehensive energy
consumption data is not gathered for the informal manufacturing sector, the Annual
Survey of Industries provides data on the formal industry sector, and this data can beused to provide a sense of the scope for unlocking energy efficiency in the widelydispersed and fragmented landscape of small industrial installations.

inverse relationship between market share and energy intensity (based on the electricity
intensity of gross sales). Achieving the energy efficiency potential in the MSME sector will
require a combination of technical capacity building, regulations and incentives, andaccess to capital for the necessary investments.
Figure 2.25 ⊳ Electricity intensity of selected manufacturing facilities inIndia by quartile of sectoral market share, 2017
MWh/gross sales (in million INR)

25

1st
2nd

20

3rd
15

4th

10
5

Synthetic
fibresPrimary
plastics

CementClinkerPrimary steel

Spongeiron

Energy-intensive companies with the highest market share generally benefit from
economies of scale and use less energy per unit of value-added than others.
Note: Facilities are divided into quartiles according to their market share across each sector. The 4th
quartile includes the smallest facilities up to 25% of the total market, and the 1st quartile includes thelargest facilities within the top 25% of the total market.
Source: IEA analysis based on MoSPI (2019).

2.4.2

Pathways to a low‐emissions industry sector

There are emerging opportunities to bend the industrial emissions curve in India by making
further improvements in industrial efficiency, and some of these are reflected in the IVC. As
a result, industrial value‐added in the IVC is 15% higher than in the STEPS in 2040, eventhough industrial energy use is 3% below the level reached in the STEPS.

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In the STEPS, the industry sector is the largest driver of coal demand and CO2 emissions inIndia over the period to 2040. Total direct emissions from the industry sector nearly double,
reaching just over 1 Gt CO2 in 2040. Although coal’s market share drops from 44% in 2019 to
38% by 2040, its consumption rises in tandem with India’s increasing industrialisation, and it
almost doubles from today’s levels to reach 180 Mtoe by 2040. Coal remains a mainstay ofseveral industries where there are few technically feasible alternatives for high‐temperatureprocess heat.

An even bigger transformation of India’s industry sector is seen in the SDS, with material
efficiency playing an important role in reducing industrial emissions (Figure 2.26). For
example, steel production in the SDS is 14% lower than in the STEPS in 2040, thanks to thelightweighting of products, longer product life cycles, and structural changes such as a shift
to public and shared transport, which allows the same transport service demands to be met
with fewer vehicles and hence fewer materials (IEA, 2019b). The share of energy‐intensive
clinker in cement drops in the SDS to 62% by 2040, compared with 68% in the STEPS, while
the share of energy‐saving secondary steel and secondary aluminium production increasesby 3‐5 percentage points. As well as demand reduction, material efficiency includes a host ofprocess adjustments across multiple industry subsectors that collectively contribute almosta fifth of the additional industry emissions reductions seen in the SDS in 2040.

2

Figure 2.26 ⊳ Emissions reductions in the industry sector by abatement option

Mt CO₂

between the STEPS and the SDS
1 200

CCUS

1 000

Fuel switching incl.
electrification
Direct renewables

800

Energy efficiency
600
Material efficiency
400

Historical emissions

200

STEPS
SDS

2000

2010

2020

2030

2040

Multiple technologies and policy approaches are deployed in the SDS to bring down
India’s industrial CO2 emissions.

Relatively few emissions reductions are achieved through the direct deployment of
renewable energy in the industry sector, such as biomass and solar thermal for low‐grade
heat. More substantial emissions reductions are achieved by fuel switching, which covers
moving from coal to gas, as well as moving to fuels with no direct emissions or to electricity.
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Another 25% of the emissions reductions, more than 100 Mt CO2 in 2040, are achieved
through improvements in energy efficiency. Many of these savings in the SDS are frontloaded
because they can be delivered faster than savings from other options which rely on the
deployment of novel technologies or on lengthy investment projects. Slightly less than a thirdof the total savings come from large industrial sectors such as iron and steel, cement,
aluminium, chemicals, and pulp and paper. Two‐thirds come from India’s light industries,
underscoring again the importance of extending energy savings policies and incentives tosmaller energy‐consuming sectors.

Almost a third of the difference between emissions reductions in the STEPS and the SDS
comes from the deployment of CCUS in the SDS. By 2040, 125 Mt CO2 are captured in theindustry sector, largely in the iron and steel, cement, and chemical sectors. Deploying CCUS
on this scale would require timely investments in pipeline infrastructure, as well as
substantial financial incentives, for example in the form of a carbon price or tax incentive
combined with upfront capital support.
A key conclusion emerging from this analysis is the importance of near‐term measures to put
India’s industrial sector onto a sustainable pathway. India’s stock of production capacity isrelatively young, and is set to experience rapid growth in the coming decade to meet growing
demand. Early deployment of best available technologies is the best way to reduce energy
consumption and to enable the retrofitting of abatement technologies (IEA, 2020e). The ironand steel sector illustrates this point clearly (see below).

Focus on transition pathways in the iron and steel sector
The iron and steel sector is crucial to the transition of the overall industry sector in the SDS.4
In 2019, energy consumption in the sector accounted for 13% of total energy‐related CO2
emissions. In the STEPS, this rises to 17% by 2040 as iron and steel production grows and asother sectors, notably power generation, reduce their emissions footprint. The outcome in
the SDS, however, is very different: indeed the iron and steel sector accounts for 10% of thedifference in emissions reductions between the SDS and the STEPS in 2040 (and almost halfof the reductions achieved within the industry sector). However, achieving the level ofemissions reductions in the SDS requires a comprehensive portfolio of measures.
Currently, India is the world’s second‐largest producer of sponge iron, and the great majorityof this iron depends on coal‐based direct reduced iron (DRI) production. The sponge iron
output of the coal‐based DRI sector is refined into crude steel in electric arc furnaces andinduction furnace sectors. Electric furnace production accounts for about 55% (60 Mt) of
India’s crude steel production; the other 50 Mt of crude steel production comes from blast
furnace‐basic oxygen furnaces (BF‐BOF). In 2019, coal accounted for 88% of final energy
consumption in the iron and steel sector, reflecting the sector’s high degree of reliance on
coal‐based DRI and the low penetration of natural gas DRI. Electricity accounted for 10% of
final consumption, with gas and oil products accounting for the remaining 2%.

4

The IEA recently released a detailed study of transition pathways in the global iron and steel sector, including

a focus on India (IEA, 2020c)

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As in the broader industrial sector discussed above, material efficiency plays a crucial role in
reducing the total demand for steel through measures such as vehicle lightweighting,building design optimisation, and design‐driven extensions in product and building lifetimes.
The 2019 National Resource Efficiency Policy signals government support for moving in thisdirection. In 2040, material efficiency contributes 36% of the difference in emissions
reductions between the STEPS and the SDS in the iron and steel sector.

Reducing the carbon intensity of fossil energy consumption, mostly through the deploymentof CCUS, delivers a further 37% of the difference in emissions reductions between the STEPs
and the SDS. By 2040, 63 Mt of CO2 are being captured from the iron and steel sector, which
is 11% of the total CO2 emissions from the iron and steel sector in the STEPS scenario.
Reducing the energy intensity of steel production contributes another 20% of the differencein emissions reductions achieved between the STEPS and the SDS, or a total of 40 Mt CO2. In
the SDS, the energy intensity of steel production is 8% lower than in the STEPS by 2040.
Increased uptake of best available technologies, such as coke dry quenching for coke ovens
and top‐pressure recovery turbines for blast furnaces, is the key here, supported by regular
updating of efficiency targets under the PAT scheme against global standards andbenchmarks.

2

Fuel switching away from fossil fuels, largely towards electricity, contributes an additional
12 Mt CO2 of emissions reductions, or around 6% of the difference between the STEPS andthe SDS in terms of emissions. The potential for this is affected by the strong growth of Indiansteel demand; this limits the scope for scrap‐based secondary steel production, which is atpresent the only production method where the use of electricity is feasible. It does not,however, prevent all growth in the production of secondary steel: as a result the use ofelectricity increases in the SDS, and it accounts for 19% of energy consumption in the ironand steel sector by 2040.
In the longer term, the deployment of alternative steel production routes is expected to playa stronger role in emissions reductions in the iron and steel sector. This includes hydrogen‐based direct reduced iron (H2‐DRI), which is deployed from the early 2030s onwards(Box 2.4). H2‐DRI has the potential in time to provide a significant share of total steel
production in India (IEA, 2020c).
Box 2.4 ⊳Hydrogen and other low-carbon fuels for India’s industrial
transformation

In the STEPS, bioenergy demand in India’s industrial sector rises by 80% between 2019and 2040. Solid biofuels can substitute for coal in many industrial heating applications,and low‐carbon gases have the potential to meet demand for high‐temperature heat andchemical feedstocks. India’s biomethane consumption increases rapidly in the STEPS,
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Energy efficiency, material efficiency and electrification are essential strategies for
reducing emissions from industrial processes, but the technical requirements of theseprocesses and the long lifetimes of existing industrial assets indicate that chemical fuels
will continue to play a major role in India for some time to come, especially given thecurrent fuel mix in industry: more than 60% of India’s industrial energy demand today is
met by the direct use of fossil fuels, more than half in the form of coal. Against thisbackground, there is growing interest in fuel switching to bioenergy or other low‐carbon
fuels so as to allow the continued use of infrastructure and expertise that have beendeveloped for fossil fuel use.

rising above the level in both Europe and the United States by the early 2030s. In the SDS
it rises further, displacing 30 Mtoe of potential natural gas demand in the process. We
estimate that almost two‐thirds of natural gas demand in India in the SDS could be met
by biomethane for industrial and transport applications (IEA, 2020d).
Low‐carbon hydrogen has particular potential in the context of India’s industry sector,
since it can be used in place of natural gas, coking coal or oil products. This means thatsteel, ammonia‐based fertilisers and methanol – among other products – could all be
produced with low CO2 emissions.
Low‐carbon hydrogen can be produced by electrolysing water with low‐carbon
electricity, by reforming natural gas in combination with CCUS or, potentially, bymethane pyrolysis. Given that India has relatively high natural gas prices, can produce
low‐cost renewable electricity and faces a high degree of uncertainty about its CO2
storage potential, water electrolysis is likely to be the favoured option. Where CCUS is
not available, the lowest hydrogen production costs are expected to come from pairing
dedicated renewable power plants with electrolysers and local hydrogen storage tosmooth the daily supply (TERI, 2020). India’s existing industrial sites are well located forthe use of local solar and wind resources, especially in Gujarat, Maharashtra and West
Bengal.

In 2020, several governments announced plans to incentivise demand for hydrogen andelectrolyser factories as part of their economic recovery spending, and this should benefit
technology importers by lowering global prices and demonstrating effectiveness. For
steel, in particular, further refinement of hydrogen‐based production processes isneeded before decisions are made about deployment. If planned projects receive therequired funding, then iron reduction with 100% hydrogen could be demonstrated
between 2025 and 2030. Among other things, this would provide insights into the
optimal balance between oversizing renewable electricity capacity and installing on‐sitehydrogen tanks for round‐the‐clock operations, which is a key issue for India. The
availability of low‐carbon hydrogen at competitive costs could also pave the way for its
use in ammonia for fertilisers, depending on the availability of non‐fossil carbon for its
conversion to urea and the market response to any resulting changes in urea prices. In
time, low‐carbon hydrogen has the potential to be cost‐competitive with natural gas,
displace imports and attract investment in the value chain. In the short term, funding for
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In the best locations, the cost of steady supplies of hydrogen from local renewableelectricity could fall to between $20/MBtu and $30/MBtu by 2030 and decline further by
2050, even with the costs of on‐site hydrogen storage included. However, such an
outcome is subject to many uncertainties. Future cost reductions depend on cumulative
deployment across a range of sectors nationally and internationally, and policies tosupport investment are not yet widely in place. In India, however, the policy outlook
brightened in late 2020 with the announcement that a National Hydrogen Energy Mission
is to be launched.

research that develops relevant skills as well as opportunities for entrepreneurs would
help hydrogen’s prospects. Looking further ahead, India has significant potential to
become an international hub for hydrogen technologies if it develops the value chains to
support this and offers opportunities for investment (see Chapter 4). This could give India
a competitive edge in attracting gas‐based and electricity‐based industries in the future.

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2

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Chapter 3
Fuels and electricity in India
Out with the old, in with the new?
S U M M A R Y
 The Covid‐19 crisis has exacerbated many of the challenges facing fuel suppliers andelectricity generators. To some degree this has worked to India’s advantage, as lower
prices ease its fuel import bills. But strained balance sheets and uncertainties overdemand also affect the prospects for domestic energy investment and supply.

 The longer‐term effects of the pandemic are likely to vary significantly by fuel andtechnology. In the STEPS, India’s gas supply (production plus trade) in 2030 is only
slightly below the levels projected in WEO 2019, but oil supply is down by 5%, andcoal is down by one‐quarter. The pandemic takes more than 500 TWh off electricity
generation in 2030 in the STEPS, compared with pre‐crisis projections, with the bruntof the reduction being borne by coal‐fired generation.

 Despite the shock from Covid‐19, India’s electricity demand is still projected to growby almost 5% per year to 2040 in the STEPS, which is nearly double the rate of energy
demand as a whole. India adds capacity the size of that of the European Union to its
installed base over the next two decades, with solar PV and wind accounting for morethan three‐quarters of the capacity additions as their costs fall. By 2030, new solar PV,
whether alone or paired with battery storage, becomes competitive with existingcoal‐fired power.

 The rise in demand for electricity brings with it much greater variability in both supply
and demand. On the supply side, this reflects the growth in solar PV and wind. On the
demand side it is related in large part to a six‐fold increase in peak daily electricity
consumption for air conditioning to 2040; higher efficiency standards for thisequipment could remove the need for $9 billion to $15 billion of investment inpeaking plant capacity.

 India’s requirement for power system flexibility rises faster than anywhere else in theworld in the STEPS, and it is higher still in the IVC and SDS. The achievement of
ambitious renewable energy targets which call for 450 GW of non‐hydro capacity by
2030 has to be accompanied by a transformation of the power system in order toaccommodate this growth, and this requires flexible operation of the coal‐fired fleet,robust grids, and battery storage and demand‐side response.
international supply. However, price remains a very sensitive issue for Indian
consumers, especially given the complex patchwork of additional charges and tariffs
that turn an average wholesale cost of gas in 2019 of $6/MBtu into an estimatedaverage end‐user price of $12/MBtu. If all proposed gas infrastructure were to bebuilt, some 70% of India’s population would have access to gas, up from around 3%
today, but there remain a host of permitting and financing challenges.
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 India’s ambition to become a “gas‐based economy” comes at a time of ample

Figure 3.1 ⊳Change in fuel supply and installed electricity capacity by
scenario, 2019-2040

The outlook for fuels in India varies strongly by scenario,
but the expansion of the power system is rapid in all cases.

 In the STEPS, growth in gas consumption is concentrated in the industrial sector andin city gas distribution; in the IVC and in SDS, gas consumption also displaces
significant amounts of coal in the power sector. The projections in the IVC and SDS
underline that India’s vision for gas cannot be limited to natural gas of fossil origin if
the country is to meet its environmental and sustainability objectives; it needs toincorporate an expanding role for low‐carbon gases, biomethane and hydrogen,where India has major potential as well.

 India's ambitions to reduce import dependence for oil and coal rest in part on
expanding domestic supply. Despite ongoing efforts to improve the investment
framework, this is challenging in the oil sector because of the complexity and therelatively limited size of the domestic resource base. In the case of coal, the domestic
resource base is large enough to support increased production, but today’s steep coalproduction targets are difficult to reconcile with India’s evolving energy needs andenvironmental priorities.

 Adapting India’s coal industry to these evolving needs and priorities requires

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concerted efforts to improve operational efficiency. It also requires the incorporationof new technologies to relieve environmental impacts, including CCUS, as well as
alternative approaches to cooling at coal‐fired plants: more than 80% of coal plants
today are cooled by freshwater sources, and over half of these are in areas
experiencing high water stress.

3.1

Overview of energy supply

3.1.1

Pathways out of today’s crisis

Energy supply in India has been affected in multiple ways by the Covid‐19 pandemic. The
economic effects of the pandemic have exerted strong downward pressure on internationalenergy prices, and a period of well‐supplied markets is set to ease India’s import bills forsome time to come. Given its heavy reliance on imports, this is good news for India. However,the strains on international suppliers are matched in many respects by pressures on domestic
producers and investors. In the power sector, the effects have varied strongly by fuel: as inother parts of the world, thermal generation bore the brunt of the downward pressure onelectricity demand in 2020, while renewable output was more resilient.

3

Pathways out of today’s crisis are highly dependent on the broader macroeconomic context,
linked in turn to the duration and severity of the pandemic. But they also depend on the
responses of policy makers and companies. Alongside wider efforts to stimulate theeconomy, India instituted three important energy market reform steps in mid‐2020, whichhave led to the creation of real‐time power markets (RTM), the Green Term‐Ahead Market,
and the India Gas Exchange (IGX). India is also taking steps to stimulate domestic production
as part of a drive to reduce reliance on imports, especially of oil and coal. These efforts may
bear fruit in the case of coal, but crude oil and condensate production is projected to fall
below 650 thousand barrels per day (kb/d) in the late 2020s in the STEPS, with a slow but
steady decline thereafter.
Natural gas is one area where international market conditions and India’s aspirations are wellaligned. India’s ambition to become a “gas‐based economy” fits well with the interest among
many exporting countries and companies in gaining a foothold in India’s market, even though
there are uncertainties around the business model for financing new projects. Efforts to
expand India’s LNG regasification capacity and its domestic gas grid are well under way
although, as examined in detail in section 3.3 below, there is still much scope to rationalisea complex regulatory and tariff landscape for gas. Natural gas production, which has seen asignificant drop in 2020, is set to rebound relatively quickly as new offshore developments
come online.

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In the power sector, much will depend on the pace of recovery in industrial and commercial
power demand. Approvals of new utility‐scale solar have remained robust through the
downturn, and a gradual recovery may well lead to much of the growth being taken by acontinued flow of new renewable projects. A sharper rebound in demand, if the pandemic
can be brought under control quickly, would offer greater near‐term upside for conventional
generation. In the projections in the STEPS, the pandemic takes more than 500 TWh off
electricity generation in 2030, compared with the projections in WEO 2019, with coal‐fired
generation taking most of the hit.

3.1.2

Perspectives to 2040

The effects of the pandemic leave India in the STEPS with an economy that is nearly 20%
smaller by 2040 than projected in WEO 2019, which means a drop in average annual energy
demand growth from 3.2% to 2.5% compared with WEO 2019. However, the impact of thisdownward adjustment is not felt equally across fuels. By 2030, natural gas demand is backto the level projected in the WEO 2019, and oil demand is only slightly lower. By contrast,
there is a significant downward revision for coal, which is a third lower in 2040 than in
pre‐crisis projections.
Ambitious efforts to raise the production of coal bear some fruit, meaning domestic output
grows by 150 Mtce between 2019 and 2040. However, this is well below the previous levelof growth recorded between 2000 and 2019, which saw a doubling in production. India
manages to reverse the trend towards an increasing share of imports, keeping the share ofimports below 30% through to 2040; the quality of domestic coal and the pivot towards agreater share of coking coal in India’s coal balance effectively create a floor for imports.
In the STEPS, India continues to transition away from the traditional use of solid biomass,
primarily through the use of imported LPG. Demand for LPG doubles between 2019 and
2040. Most of the rest of oil product demand is met by India’s refinery sector, where capacityswells to nearly 8 mb/d by 2040. India’s oil production continues to see a moderate decline,
as new developments are unable to keep pace with declines from existing fields. By 2040,
India’s oil import dependence exceeds 90%.

In the IVC, total energy demand is slightly lower in 2040 than in the STEPS, even though GDP
growth is higher as a consequence of greater energy productivity, particularly as India moves
away from the use of traditional biomass. There is much greater progress towards thetargeted 15% share of gas in the energy mix, a development that is accompanied by higher
domestic gas production. Oil production remains at around the same levels as in STEPS,
however, and growth in coal production is muted by an accelerated pace of renewables
deployment that further erodes coal’s share in power generation.

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The shift away from traditional biomass occurs in parallel with a rise in the use of modern
solid biomass for power generation and industry. At the same time, transport biofuels
increasingly make their mark on liquid fuel demand, while biomethane use in the transport
sector rises to almost 10 bcm by 2040. Together, these two bioenergy sources reduce oil
import requirements by nearly 20 Mtoe (an amount equivalent to a fifth of oil consumption
in the road transport sector today). Natural gas is poised for significant growth, backed byambitious government targets to raise its share in the energy mix. Some offshore deepwater
developments in the Krishna Godavari basin support near‐term production growth, andthere is then a slow but steady rise in coalbed methane production from the 2030s. The levelof growth in domestic gas production is, however, insufficient to meet rising demand, and
LNG imports satisfy nearly 70% of demand growth, making India a major importer, and an
important presence in global gas markets.

Table 3.1 ⊳Fuel supply and production by scenario
STEPS

SDS

2000

2019

2030

2040

2030

Coal production (Mtce)

187

409

519

560

Steam coal

163

369

474

512

Coking coal

16

25

23

24

23

IVC

2040

2030

2040

304

161

472

515

270

133

428

470

23

23

24

Lignite and peat

7.9

14

22

23

11

5.2

21

21

Coal trade (Mtce)

‐20

‐196

‐193

‐212

‐151

‐137

‐188

‐197

Natural gas production (bcm)

28

32

55

78

52

66

65

101

Conventional gas

28

30

47

53

47

55

48

62

Coalbed methane

0.0

1.3

5.7

12

4.7

11

5.9

16

Other production

0.0

0.3

2.0

13

0.4

0.2

12

22

LNG imports (bcm)

0.0

30

76

124

92

144

93

159

Oil production (Mb/d)

0.8

0.8

0.6

0.6

0.5

0.4

0.7

0.6

Conventional crude oil

0.6

0.6

0.5

0.4

0.4

0.2

0.5

0.4

Natural gas liquids and other

0.2

0.2

0.2

0.2

0.1

0.2

0.2

0.3

Refining capacity (Mb/d)

0.0

5.2

6.4

7.7

5.8

5.7

6.4

7.7

Refinery runs

0.0

5.1

5.9

7.2

5.0

4.6

5.8

6.8

113

113

85

63

0

0

0

0

Modern solid biomass

35

67

93

112

95

117

98

116

Biofuels

0.1

1

5

10

9

14

5

10

0

0

6

19

18

48

10

31

3

Other fuels (Mtoe)
Traditional use of solid biomass

Biogas, biomethane, low‐carbonhydrogenNotes: Nuclear fuels not included. Other natural gas production includes shale and tight gas.

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The outlook for fossil fuels is much more subdued in the SDS (Table 3.1). Low‐carbon energy
sources capture nearly two‐thirds of total demand growth to 2030, and by 2040 fossil fuels
are largely absent from the new pipeline of projects. The most dramatic change occurs in the
power sector, where unabated coal is virtually eliminated by 2040. Oil consumption peaks inthe 2030s before entering a decline, creating a host of challenges for India’s refining sector:
up to 430 kb/d of refinery capacity is “at risk” through the 2030s, remaining largely unutilisedin the SDS. Gas demand, by contrast, is relatively robust, as gas is used as a substitute fuelfor both coal and oil to a much greater extent than in the STEPS and IVC. As a result, total gas
demand reaches around 210 bcm by 2040, which is even higher than the level reached in the
STEPS.

Electricity demand, generation and capacity by scenario
STEPS

SDS

IVC

2000

2019

2030

2040

2030

2040

2030

2040

369

1 207

1 959

3 146

1 922

2 980

2 087

3 433

Transport

8.2

18

59

153

93

302

90

228

Buildings

117

489

857

1 512

852

1 345

920

1 688

Industry

158

480

710

1 075

689

991

683

1 011

Agriculture

85

214

324

394

279

313

384

491

562

1 583

2 461

3 887

2 365

3 601

2 599

4 225

Coal

390

1 135

1 343

1 334

708

181

1 099

1 076

Natural gas

56

71

108

157

240

337

309

509

Nuclear

17

40

109

222

107

247

109

222

Renewables

77

332

893

2 169

1 302

2 832

1 074

2 413

Hydro

74

175

226

307

258

361

226

307

Solar PV

0.0

48

392

1 221

584

1 368

517

1 307

Wind

1.7

66

195

520

343

782

251

677

Other renewables

1.3

42

81

121

118

320

81

121

114

414

792

1552

997

1 835

931

1 747

Coal

67

235

269

260

221

144

252

231

Natural gas

11

28

30

46

72

134

64

95

Nuclear

2.8

7

16

31

17

36

16

31

Renewables

27

137

436

1 066

641

1 334

542

1 189

Hydro

26

49

76

101

86

117

76

101

Solar PV

0.0

38

248

724

367

806

330

783

Wind

0.9

38

96

217

163

334

121

281

Other renewables

0.2

12

16

25

24

76

16

25

0.0

0.0

34

144

40

183

49

195

817

725

537

336

319

59

449

285

Electricity demand (TWh)Electricity generation (TWh)Capacity (GW)

Batteries
CO₂ intensity of generation(g CO₂/kWh)Electricity demand grows much faster than overall energy demand in all of the scenarios
examined, putting electricity at the centre of India’s modernisation (Table 3.2). The
transformation of India’s electricity sector also gains ground. In the STEPS, variable
renewable energy sources make up a larger share of total electricity generation than coal by
2040. Installed solar capacity exceeds 700 GW by 2040, enough to meet nearly a third ofIndia’s power demand. This rate of growth is supported by the wide‐scale deployment ofbatteries.

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Table 3.2 ⊳3.2What’s next for India’s power sector?

The last decade has been remarkable for India’s power sector. Synchronisation of the grid
was achieved in 2013, making it one of the world’s largest. A large‐scale electrification
programme has achieved near‐universal household access to electricity, and more than$200 billion has been spent on transmission and distribution networks over the last ten
years.
As a consequence, India has become the fourth‐largest electricity market in the world, after
the United States, China and the European Union. Electricity has enabled a burgeoning
middle class to own modern appliances and sustain an increasingly digitalised lifestyle.
Electricity demand growth is now widely used as a key barometer of India’s overall economic
performance. On the supply side, the explosive growth of utility‐scale PV, supported bycompetitive auctions, has made India a global leader in the solar market. Six Indian states
now source 10‐30% of their electricity from variable renewable sources.

3

There are, however, several challenges ahead. As described in detail in Chapter 4 (section4.3), a key issue is the fragile financial health of state‐owned electricity distribution
companies (“discoms”). This fragility has significant knock‐on effects on the rest of India’s
power sector, affecting the finances of power generators and their investment risks, the levelof technical and commercial losses in electricity distribution, and ultimately the quality ofelectricity supply to millions of Indian households and businesses.

Index (2010 = 100)

Figure 3.2 ⊳250

Electricity indicators in India, 2010-2020
Growth in key indicators

200

0%

150

‐10%

100
2010
2013
AccessGeneration capacity

Annual change

10%

‐20%
2016
2019
Demand per capita
Grid length

Investment
2020

DemandCapacity

2015‐19 (average)

India has seen remarkable growth in capacity additions and achieved universal access to

Another key question is how much the pandemic might set back the transformation of thesector (Figure 3.2). So far, renewables have weathered the shock from Covid‐19 relatively
well; as of September 2020, around 8 GW of new solar capacity had been auctioned during
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electricity, but Covid-19 has aggravated a pre-existing slump in demand and investment.

2020, with tariffs around 4% lower on average than in 2019 (IEA, 2020b). However, there isgreater uncertainty around the longer‐term outlook for solar PV, with the Covid‐19 pandemic
sharpening several existing structural challenges. A drop in industrial and commercial
demand has left discoms with a customer base that includes a greater share of residential
households and agricultural consumers paying tariffs that often lie below the cost of
production, while perceived credit risks are growing as several existing projects experience
delays and cancellations. The challenges are not restricted to solar: wind capacity additionsin 2020 are expected to drop to their lowest level in a decade. The hard‐won gains of near‐
universal household access are also at risk as the economic downturn translates into fewer
customers able to afford a basic bundle of electricity services.
Both the opportunities and the challenges that lie ahead are enormous. Auctions haverevealed how cost‐competitive solar power has become, and long‐term renewabledeployment targets are well within reach. In the STEPS, India is second only to China in termsof new installed renewable capacity to 2040. However, this rise will have huge implications
for the operational flexibility required across India’s power sector. Reconciling the desire fora cost‐reflective and efficient power system with the imperative to provide affordable,
equitable supply of electricity is going to require a skilful balancing act.

3.2.1

India’s evolving power system

Electricity demand
In the STEPS, India’s electricity demand grows by 4.7% each year, nearly double the rate ofenergy demand as a whole. The widespread uptake of household appliances means that theshare of electricity in total energy demand in buildings rises from 20% today to almost 50%
by 2040. Further electrification of India’s energy system also drives significant demand
growth; there is a much greater use of power in certain industrial applications requiring low‐temperature heat supply, and a rise in the use of electricity as an input to steelmaking. Higher
uptake of EVs, particularly two‐ and three‐wheelers, enables electricity also to make inroads
into the transport sector.

Cooling systems are a major driver of the increased variability of demand. By 2040, thedifference between the lowest and highest air‐conditioning load over the course of a dayreaches over 200 GW, compared with less than 40 GW today. This increase in the use of
space cooling systems translates into an average annual increase of almost 10% in electricity
demand for cooling over the projection period, and into new demand peaks. Commercial
cooling systems see their consumption peak around midday, while household air
conditioners see a peak in the early evening.
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In the STEPS, significant additional electricity demand is accompanied by changes in daily,
monthly and seasonal load profiles. Currently, the average hourly variation in demand overthe course of the year averages around 17 GW. This increases to 100 GW in the STEPS by
2040. Peak daily demand rises nearly threefold, although the downward revision tomacroeconomic growth means this rise is 15% lower by 2040 than in pre‐crisis projections(Figure 3.3).

GW

Figure 3.3 ⊳Daily electricity demand in India in 2019 and 2040 in the STEPS
2019

700

2040

600
500
400
300
200

3

100
0h

12h
Industry
Services24h0hAgriculture
Residential

12h

24h

Transport
Pre‐crisis projectionMore than half a billion air conditioners and fans are purchased by 2040 in the STEPS,
significantly raising the evening peak, although not as high as in pre-crisis projections.

In addition to cooling, there are several uncertainties about the shape of electricity demandin other parts of the energy sector. For example, government programmes supporting
charging infrastructure in cities or places of work could lead to a greater proportion ofelectricity demand from transport taking place during working hours, providing a good matchwith solar PV availability. There are other emerging opportunities for shifting peak load todifferent times of day to help balance supply and demand, such as off‐peak charging or
shifting the timing of the operation of agricultural pumps. India could provide a vital testing
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The size of the impact of increased use of cooling systems on the daily peak of electricity
demand is subject to several uncertainties. One important factor is how purchases of air
conditioners divide between higher‐ and lower‐income households, as higher‐income
households are more likely to run air conditioning more frequently, with less regard to cost.
The efficiency of air conditioners purchased in the coming years will also have a significant
impact on the daily peak, and efforts are under way to strengthen minimum performancestandards. If measures are implemented that restrict sales of the least efficient models, this
could reduce peak demand considerably. However, the timing of such measures is critical, as
every year in which standards are not tightened means a progressively larger annual increasein peak demand. If measures are implemented in 2021, more efficient appliances could
decrease the contribution of residential cooling to peak daily electricity demand in 2030 bya third, or around 25 GW. This would obviate the need for around $9 billion to $15 billion of
investment in peaking plant capacity. It would also be possible to lower peak demand byhaving ACs operate more flexibly, as part of a demand response programme; improvementsin the efficiency of building envelopes or a bigger roll‐out of more passive or mixed‐mode
cooling systems could also contribute to a reduced peak.

ground for the larger‐scale adoption of such demand‐side response (DRS) systems, although
there are numerous technological prerequisites, such as advanced load prediction andcontrol tools, real‐time metering of electricity, and time‐of‐use tariffs.

Electricity supply
The task of managing the daily variability of demand, and in particular coping with the levelat which demand peaks, is a crucial part of electricity system operation and planning. Thistask is made more challenging by the scale of growth in variable renewables over the next
decade. In the STEPS, India adds nearly 900 GW of wind and solar capacity over the period
to 2040. Solar PV leads the charge (Figure 3.4). The vast majority of capacity additions arefrom large, utility‐scale projects; the share of distributed solar PV in the STEPS remains low
because of its relatively high cost compared with large‐scale solar projects and the logisticaland regulatory challenges which have slowed capacity growth to date (Box 3.1).
Figure 3.4 ⊳Changes in coal and solar capacity and share of power
generation in India in the STEPS, 2000-2040
Share of power generation

Change in installed capacity100%
2010‐1575%

2015‐20
2020‐2550%
2025‐3025%

2030‐35
2035‐40
‐ 100

0
Coal

100
Solar

200

300
GW

2000

2010

2020

Coal

Solar

2030

2040

Other

India’s power sector is on the cusp of a solar-powered transformation which will
challenge the long-established position of coal as “king” of India’s power sector.

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Despite being seen as something of a junior partner to solar, wind is the second‐largest
source of capacity growth in the STEPS, with an additional 200 GW underpinned by ambitious
targets to exploit India’s significant potential for both onshore and offshore wind. Althoughwind power is also a variable resource, it can complement solar effectively in India; themonsoon season from June to September, which is a period of relatively lower solar resource
availability, brings higher output from offshore wind projects than the rest of the year
(IEA, 2019).

Box 3.1 ⊳A new dawn for rooftop solar?

India has ambitious targets to reach 40 GW of rooftop solar by 2022. However, rooftop
PV deployment has been slow, with around 3 GW of capacity installed since 2015
compared with 30 GW for utility‐scale solar. This is due in part to the challenge ofreconciling different commercial incentives under the current regulatory regime: a large
number of residential consumers pay low, cross‐subsidised electricity tariffs, reducing or
in some cases eliminating the savings possible from self‐consumption. Many consumers
are also unable to afford the upfront costs of installation, and find it challenging to accessfinance, despite options to spread low‐interest payments over a longer‐term loan period.
Those consumers that pay higher tariffs have greater incentives to install rooftop solar,
especially as net‐metering regulations would allow them to benefit from selling surplus
solar back to the grid. If they were to move to rooftop solar, however, this would further
erode the revenues of financially weak discoms, which lack commercial incentives toexpand into rooftop solar.

3

Some organisations are well‐placed to push ahead with distributed solar – these include
those with commercial installations on government buildings and entities taking part inthe central public sector undertakings scheme. There are several incentives in place,including tax relief, subsidies, grants and credit guarantees for MSMEs. Rooftop PV
projects are also eligible for housing improvement loans at preferential rates. There arein addition multiple opportunities for aggregation and economies of scale which have thepotential to reduce the cost of supply for self‐consumption, and increase the availabilityof financing. Raising consumer awareness and easing the administrative burdens
associated with rooftop PV for households and undertakings, whilst ensuring that
discoms share in the benefits of rooftop solar, could also unlock greater growth.

There are also capacity additions in the STEPS from other low‐carbon generation sources,
notably nuclear and hydropower. India has a total of six nuclear reactors under construction,and these will add more than 4 GW to the 7 GW fleet by the late 2020s. In the STEPS, India
continues to expand its fleet of nuclear reactors to complement the rapid growth ofrenewables. As modern large‐scale reactor designs move past first‐of‐a‐kind projects,
construction periods and costs are set to fall, enabling India to add more than 25 GW ofnuclear power capacity between 2019 and 2040. Hydropower also expands, with total
capacity doubling over the next two decades to about 100 GW in 2040. The vast majority ofthis growth is in the form of large hydro projects, which manage to overcome significant
hurdles such as land access and permitting challenges. Government initiatives to improve
project viability, including HPOs and financial support for enabling infrastructure, enable
these new projects to tap a significant share of the remaining hydro potential in India.
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In the STEPS, the vast majority of new solar added from 2019‐40 is utility‐scale, but amore hospitable regulatory regime ensures a gradual increase in the rate of additions ofsolar PV in buildings, with total installed capacity reaching 150 GW by 2040.

This supply picture means that variable renewable sources make up three‐quarters of new
capacity additions over the next two decades. With this immense growth, the question
arises: to what extent is there a need for new thermal capacity? Over the next 10 years, thestrong growth of renewables is not sufficient in the STEPS to keep up with the projected paceof electricity demand growth, and coal‐fired power generation makes up the difference,increasing by over 200 TWh from 2019 to 2030. Much of this increase comes from more
intensive utilisation of existing capacity, but new coal‐fired capacity of over 20 GW in thenext decade is also required in the STEPS to provide additional generation and extra
flexibility, with capacity under construction making up for upcoming retirements. As of
September 2020, up to 60 GW of coal‐fired capacity were designated as being underconstruction (CEA, 2020), but only half of these are completed by 2030 in the STEPS.
The need for additional fossil‐fuelled capacity in India wanes after 2030 in the STEPS. Withmature technologies and supply chains, renewables meet about 90% of demand growth in
the 2030s in the STEPS. With the additional contribution of nuclear power, there is no needfor additional fossil‐fuelled generation, and coal‐fired capacity begins to decline in the 2030s
in the STEPS, with closures outweighing another 16 GW of capacity additions, bringing to an
end the consistent growth of the industry over the past 60 years. Gas‐fired capacity increases
in part to offset reductions in coal, but principally to help meet rising power system flexibility
needs.

3.2.2

Unlocking India’s system flexibility over the next decade

In the STEPS, by 2030 wind and solar PV reach a share of more than 40% in total installedcapacity and around a quarter of total generation. The hour‐to‐hour variation in wind andsolar output places increasingly large demands on the rest of the power system to balance
supply and demand. WEO’s detailed power model shows that hourly variations in theserenewable sources in the STEPS increase more than threefold by 2030 (Figure 3.5). This puts
India ahead of all other countries in its total requirement for flexibility.

Flexibility can be provided by a range of resources with varying levels of maturity. Potential
sources include conventional thermal and hydro generation, battery storage, demand
response (in areas such as cooling or smart charging of EVs), and – if properly managed –120

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Flexibility requirements are determined by the load shape of demand and the electricity
generation mix and capacity that can meet this. The integration of variable renewable energy
sources (VRE) into electricity systems can be categorised into six distinct phases, which canhelp to identify relevant challenges and integration measures (IEA, 2018). The first phase isa situation where VRE has no noticeable impact on the power system, while the sixth phasecalls for transformative technologies – such as seasonal power storage – to manage a large‐
scale surplus or deficit of VRE supply. By 2030, with VRE providing around 25% of India’s total
power generation (and with some states even further along the curve), advanced
technologies and robust grids are necessary to ensure reliable operation of the powersystem.

variable renewable energy itself. There are a number of regulatory mechanisms that India iseither implementing or actively exploring which would encourage greater uptake of suchflexibility resources. An innovative round‐the‐clock auction was held in 2020, marking a step
forward in ensuring that future renewable power projects are able to deliver power reliably
when required. There are also continuing efforts to liberalise markets and, concurrently, toensure that technical attributes such as ramping capacity are adequately valued.
Figure 3.5 ⊳Hourly change in generation from variable renewables in India
as percentage of average annual demand in the STEPS

2020

3

2030

20%
10%
0%

Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec

‐20%

Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec

‐10%

India faces a huge need for power system flexibility
as much more solar and wind are added to the mix.

Coal as a source of system flexibility

For many coal‐fired power plants in India, power purchase agreements (PPAs) are based ona principle of fixed cost recovery based on declared availability, not actual generation. For
these plants, lower output as a result of higher VRE will not lead to financial distress, as fixed
costs can be recovered. Nonetheless, lower output and more frequent and faster ramping
may lead to increased variable costs, and potentially to some need for investment intechnical upgrades, as well as increased wear and tear of equipment. These additional costs
will need to be recovered from consumers. Regulatory commissions could address thisconcern through targeted programmes for upgrades and tariff premiums for flexible
operations, and measures of this kind are already being implemented in some states. For

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In the wake of Covid‐19, coal has been acting as the main source of flexibility in India’s powersystem. Changes to regulations have reduced the minimum technical load factors of coalplants run by the central government from 70% to 55% since 2010. Though this entails added
costs, particularly for older plants, it improves their ability to support the integration of VRE
into the power system.

coal‐fired power plants without long‐term PPAs, lower output and higher costs could create
more serious financial challenges.
Appropriately remunerating the provision of flexibility services by coal‐fired power plants isessential to ensure the wide availability of flexibility that will be critical for operations by theend of the decade. In the STEPS, for example, the load factor across the entire coal fleet in
2030 drops below 25% for parts of the year. Achieving the degree of flexibility needed will
require all coal plants to be technically ready, have the appropriate incentives, and be
dispatched in a co‐ordinated fashion in terms of time and location. Alongside coal‐fired
power plants, solar PV plus batteries will be an important source of flexibility and its
prospects are improving rapidly (Box 3.2).
Box 3.2 ⊳Solar PV plus batteries: More competitive than coal?

Solar PV projects are now the cheapest source of new power generation in India, and areamong the lowest cost in the world. However, an evaluation of the competitiveness of
solar PV in India requires looking beyond the technology costs alone. Taking into accountboth costs and system value for available options is crucial for effective system planning.
To differentiate sources of power generation not just according to their technology costs,
but to their energy, flexibility and capacity value, the World Energy Outlook team hasdeveloped a metric called the value‐adjusted levelised cost of electricity (VALCOE)(IEA, 2018). This metric enables comparisons to be made between VRE and dispatchable
thermal plants by simulating the behaviour of future power systems using a detailed
hourly power model. The VALCOE does not, however, incorporate grid‐related
integration costs or environmental benefits such as reductions in air pollution that are
not priced in markets; these costs and benefits may well be sizeable, and require separate
consideration by policy makers.

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In recent years, new solar PV has become more competitive in India than new coal‐fired
power plants, and the VALCOE of solar PV is currently about 25% lower than that of newcoal capacity. That gap is slightly narrower than the traditional LCOE would suggest:compared with coal, solar PV has a lower system value, principally because it makes
smaller contributions to system adequacy and flexibility. Pairing short‐duration battery
storage with solar PV increases both the costs and the system value, making this option
near competitive with coal‐fired power (Figure 3.6). Although there is a wide variation in
the costs of coal generation, solar PV is already competitive against some existing coal‐
fired power plants with high variable costs or low thermal efficiencies. The fleet‐wideaverage variable cost, however, remains lower than new solar PV, and so displacing
existing coal‐fired power with new solar PV would in most cases not yet lower total
electricity production costs or electricity prices to consumers.

Figure 3.6 ⊳Value-adjusted levelised cost of coal and new solar, with orwithout batteries, in India in the STEPS, 2020 and 2030

New coal
2020

Existing coal
New solar
New solar + batteries
New coal

3

2030

Existing coal
New solar
New solar + batteries
‐10
LCOE

Value/cost:

Energy010Capacity

20
Flexibility

30

40

50

60
$/MWh
Value‐adjusted levelised cost

The decline in the costs of solar make it competitive against coal, even taking into
account smaller contributions to system value linked to the variability of solar.

In the STEPS, continuous reductions in the cost of solar PV mean it becomes cost‐competitive against most existing coal capacity in India by 2030, even after taking into
account the fact that the energy value of solar PV reduces a little as its share of annual
electricity generation rises from 3% in 2019 to 16%. Moreover, pairing solar with utility‐
scale battery storage offsets the reduction in value related to the variability of solar PV:
by 2030, the VALCOE of solar PV plus battery storage is 30% below that of new coal‐fired
power. In other words, the VALCOE of solar PV is lower than existing coal‐fired power by
2030, alone or paired with battery storage. This creates an important opportunity for the
deployment of solar PV to make electricity more affordable in India.

Other sources of supply‐ and demand‐side flexibility

Additional hydropower capacity will play an important part in expanding India’s powersystem flexibility. Installed hydro capacity increases by about 50% to 2030 in the STEPS, andhydropower remains the second‐largest flexibility source in India (Figure 3.7), but somechallenges remain. Depending on the time of the year, hydropower becomes more or less
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Hydropower is the second‐largest source of flexibility in India today with a total capacity ofnearly 50 GW, mostly located at large reservoirs. Its ability to ramp up and down quickly was
highlighted on 5 April 2020 when hydropower provided the majority of supply‐side flexibility
to accommodate the 10‐minute Lights Out event in solidarity in the fight against Covid‐19.
There are also close to 5 GW of pumped hydro storage facilities in India, with significant
potential for more that remains largely untapped to date due to regulatory andenvironmental constraints and to economic factors.

important due to changing hydro flows. The highest hydro flows are in the monsoon season,
while the lowest are generally in the winter. Both seasons can present operationaldifficulties, with excess and effectively must‐run generation in monsoon months, and low
generation in winter months. This seasonality can also have an impact on thecomplementarity of hydro with other renewable energy sources. For example, wind poweris also at a maximum during the monsoon season, limiting the quality of the match withhydro in India.
Figure 3.7 ⊳India hourly generation mix and annual share of flexibility by

GWhsource in the STEPS
2030

2020

400
300
200
100

0h 12h 0hDemandCoal
Bioenergy
Other

12h

0h

12h

Gas
Hydro
Storage

0h

0h

12h

0h

Oil
Wind
Demand response

12h

0h 12h 0h
Hour of day
Nuclear
Solar
Interconnectors

2020
2030
20%

40%

60%

80%

100%

Coal remains the main source of flexibility in India, but rising flexibility needs

Battery storage systems and DSR also look set to be essential parts of the flexibility portfolio.
Battery storage systems are well‐suited to the emerging need to shift solar PV output by
several hours, from the middle of the day to evening peak demand, in order to better meetdemand. By 2030, the STEPS sees nearly 35 GW of battery capacity. DSR, including theshifting of agricultural pumping and cooling loads, can likewise provide flexibility withoutcompromising energy services to consumers by moving demand to times of the day withplentiful supply. Adapting regulation to permit the aggregation of loads could significantly
expand DSR availability by enabling residential, agricultural, and smaller commercial andindustrial customers to bring their DSR resources to a wide range of potential markets(IEA, 2018), especially since such smaller loads in buildings and agriculture represent the124

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are met by a more diverse set of sources, including battery storage and DSR.

lion’s share of DSR potential in India. Tariff design could also facilitate DSR uptake among
electricity users; switching to time‐of‐use pricing, or perhaps even real‐time pricing, would
provide the necessary price signals to consumers to expand DSR from periodic load sheddingin times of system stress to more regular load shifting (IEA, 2019).
Figure 3.8 ⊳Average investment spending on electricity generation andBillion dollars (2019)

networks in India in the STEPS, 2010-2030
60

Networks:

3

Storage

50

Transmission anddistribution
Generation:

40
30

Other

20

Renewables

10

2010‐15

2015‐192019‐252025‐30

Capital expenditure on India’s electricity networks is set to overtake that of generation,with around 15% of spending on networks in 2030 used to connect new renewables.

In the STEPS, spending on networks quickly overtakes spending on capacity growth, andinvestments in batteries start to take hold by the end of the decade, reflecting the way inwhich the current policy focus on achieving ambitious renewable energy targets isincreasingly being complemented by a focus on the transformation of the power system(Figure 3.8).

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The transmission system has a crucial part to play in the efficient use of flexible resources
over the next 10 years. The system integration of solar PV will require investment in storage
and distribution networks to cope with the solar‐driven “duck curve” in the morning andevening hours, while transmission and balancing capacity is required to manage wind
power’s strong seasonality. Better regional interconnections across India’s regions are also
critical, optimising power flows between states with differing demand and generation
profiles. For example, northern parts of India have significant flexibility from hydropower but
need to draw on imports during the early evening peak. Thermal plants in the eastern region,by contrast, provide flexibility for demand centres to the south and west, which have highindustrial and agricultural loads and may call on imports during periods of low renewables
availability.

S P O T L I G H T
Insights from the state-level integration of renewables
The share of solar and wind in India’s 10 renewable‐rich states is significantly higher than
the national average, and these states are already redefining how their power systems
are operated. The most significant renewables integration challenges are in Karnataka(where solar and wind meet around 30% of annual electricity demand), Tamil Nadu (19%)
and Gujarat (13%) (Figure 3.9). These states are in Phase 3 of the IEA renewables
integration framework, described above, and with ambitious targets they will move toPhase 4, putting them ahead of most countries.
Solar and wind generation by state, as a share of annual

Figure 3.9 ⊳Generation

generation and capacity, 201935%

Karnataka

30%
25%

RajasthanAndhra Pradesh

20%

Telangana

15%

Maharashtra

10%
5%

Tamil Nadu

PunjabGujarat
Madhya Pradesh

Kerala0%

10%Phase 120%
Phase 230%

40%

Phase 350%
Capacity

Several Indian states are leading the way in increasing the share of VRE in electricity
demand, providing useful case studies for integration challenges.
Note: Bubble size corresponds to percentage of electricity generated by VRE in each state relative to total
electricity generation in India.

Gujarat’s 2030 targets include over 44 GW of solar and wind capacity to satisfy the state’s
power requirements, along with an additional 20 GW to be contracted to other states.
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The state of Gujarat is among the most advanced in its power market development, withsignificant renewables potential and robust deployment targets, financially stablediscoms, and a statewide commitment to stop the commissioning of new coal projects
from 2021. Gujarat is likely to face renewable integration challenges sooner than otherstates, and we have explored these challenges through a detailed Gujarat power systemmodel. The model includes separate nodes for each of the discom areas as well as out‐of‐state trade, and contrasts system operation today with the way it might look in 2030
based on state government targets.

These ambitions would increase the annual share of solar and wind generation to almost
40% of total generation, from around 13% today. On an hourly basis, it is expected that
solar and wind will meet up to 77% of demand at certain times of the day by 2022; by2030, output exceeds total demand in many hours of the year, posing significant systemchallenges and dramatically increasing the likelihood of curtailment (Figure 3.10).
Figure 3.10 ⊳ Hourly share of available solar and wind generation as
percentage of demand in Gujarat versus India as a whole

Demand (GW)

350

30

300

25

250

20

200

15

150

10

100

5

50
0

50

3

India

Gujarat
35

100

150

2019
2030

0

50
100
150
VRE share of demand (%)

Renewables-rich states such as Gujarat are already coping with higher hourly sharesthan the rest of India, and are now facing future integration challenges.



DSR: agricultural pumping accounts for more than 20% of the state’s electricity
demand, and shifting this load to the daytime would go some way towards aligningpeak demand with solar output. This is achievable in Gujarat because it has adedicated agricultural feeder system that allows the interruption of agricultural
supply without impacting other consumers; this system is already used to manage
the timing of agricultural supply today. Adjusting today’s predominantly night‐timescheduling to the day would reduce the baseline level of curtailment down to 3%,
reduce the start‐up needs from thermal generation sources by around 40%, and cut
operating costs by around 10%.



Thermal plant flexibility: coal power plants could be operated more flexibly iftechnical minimum plant load factors were to be reduced from 75% to 55% for older

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Today Gujarat still has negligible levels of solar and wind curtailment. However, without
an increase in flexibility, 44 GW of solar and wind by 2030 would lead to annual
curtailment of around 7% of solar and wind generation in 2030 – a significant level of lost
output. Avoiding high levels of curtailment, and the additional system costs this may
entail, will require action on a broad number of fronts. The results of our modelling
exercise show that Gujarat is well‐placed to develop three key flexibility resources:

units and to 40% for newer units. The next decade will see a significant change tothe operating practices of coal and gas plants: relatively minor changes in capacity
factors will lead to much larger changes in the operating patterns of coal generators,
which look set to spend more time at very high or very low output in 2030 relative
to today. More flexible operation of coal would allow the power system to cope withhigher levels of renewables generation, but depends on the value of increased
thermal plant flexibility being recognised and adequately compensated.


Investment in batteries: a four‐hour duration battery storage addition of 4 GW
would allow high solar output during the day to be stored for later use to meetevening demand. As dispatchable thermal capacity declines relative to peakdemand, battery storage would also help reduce short‐term energy purchases andreduce import dependency.

Operational and market design challenges
As India adds a greater share of wind and solar to its energy mix and as its demand profile
becomes more variable, it will face new kinds of operational and market‐related challenges.
This section explores the wider, structural features of India’s power system and looks atwhere reforms could help India meet these challenges.

India currently has 40 GW to 50 GW of generation capacity that is financially unviable. Thisis largely the result of a mismatch in demand and supply which has arisen because the paceof capacity additions has far exceeded demand growth. There is also a mismatch in incentives
between generators which develop government‐ or state‐auctioned capacity under
attractive payment guarantees, and the discoms that are the primary off‐takers for this new
capacity. Both face difficulties in fulfilling their roles. Discoms struggle to collect revenue
from consumers and face low regulated tariffs (often below the cost of metering), while
generators have been unable to sell excess power to the relatively small wholesale market.
The result of all this is renewable energy curtailment, asset underperformance, a generalmismatch between the costs of producing electricity and the available returns, and a highlevel of technical and commercial losses, which average around 20% (compared with a global
average of 7%).

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India has one of the world’s largest synchronous power grids, with most of the schedulingand unit commitment carried out at the intra‐state level by discoms. Long‐term bilateral
PPAs are the main way of buying and selling electricity in India, covering 90% of generationin 2019. The remainder is either bilateral trading or transactions on India’s power exchange.
This means that generators, for the most part, are scheduled by discoms within a limited
contractual pool. Hopes are high that India’s power exchange will organise more efficient
trades in the future, but liquidity is currently fragmented across different products andtrading platforms, and the wholesale market currently accounts for less than 5% of all powertransactions.

The Indian power system also has a history of outages, resulting in part from the difficulties
faced by the discoms discussed above, which have constrained investment in infrastructure
and contributed to the current high level of technical losses. This history has led many
consumers to install diesel‐fired back‐up power, and encouraged larger‐scale industrial users
to opt out of buying higher‐priced grid electricity.
These are well‐recognised issues, and the Indian government is pursuing a number ofreforms. A key objective is a centralised market for day‐ahead scheduling and real‐timedispatch with gate closure. There were several developments in 2020: in June, the real‐time
power market was launched, filling an important gap by providing real‐time corrections forintermittent and variable generation such as solar and wind, as well as for demand. This wasfollowed by the launch of the Green Term‐Ahead Market, allowing renewable electricity to
be traded at a premium (compared with the regular day‐ahead market) for buyers looking tofulfil their renewables purchase obligations (RPOs).

3

Further regional and, eventually, countrywide integration of the power system is crucial tomanaging the growing share of renewables. Co‐ordination between a strong federal
structure and supporting states is a central component of system integration, especially since
India’s power system has a diversified ownership structure, which means that reconciling
different interests is a key part of effective regulation and governance. Greater integrationand co‐ordination are key objectives in the roll‐out of renewable management centres and“green energy corridors” across eight renewable‐rich states in order to facilitate thetransmission of solar and wind to high demand centres.
However, there are several aspects that require further development. The necessary
network upgrades rely on the ability of consumers to pay fixed charges and on gridcompanies to pay for bottleneck management services. Market liberalisation is hindered bya general unwillingness by generators to cancel or renegotiate existing contracts and submit
to market‐based pricing. Moreover, the business model for utility‐scale battery storage inIndia remains uncertain, in the absence of efficient price signals that would enable batteries
to arbitrage between periods of scarce and abundant supply. Far‐reaching electricity sector
reform would be needed to accommodate the scale of battery deployment required in WEO
scenarios.

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Sensitivity cases were run to explore the implications of slower progress on market reforms
and rates of deployment of flexibility resources. In the first sensitivity, India is prevented
from fully leveraging its thermal plant flexibility: in this case, there is a continued restriction
on older coal plants to maintain a minimum stable operating level of 75% instead of 55%,
while new coal plants operate at a minimum of 50%, rather than at 45%. Sensitivities werealso run on batteries and DSR, assuming that no further investments would be made in thesesources of flexibility after 2020.

Figure 3.11 ⊳ Impacts of limiting flexibility options in India in the STEPS in 2030

Batteries

Thermal flexibility

Demand response

1%

2%

3%

Renewables curtailment

4%

5%

6%

Additional operating costs

Reduced flexibility from batteries, thermal power plants or demand response
in 2030 would lead to increased renewables curtailment and additional operating costs.

A lack of development in any of these three flexibility options would result in increased
renewables curtailment and in increased operating costs relative to STEPS; this is particularly
the case for batteries, which play a strong role in integrating the increasing share of solar
generation (Figure 3.11). However, further cost‐benefit analysis would be required todetermine whether the value of curtailed renewable energy would exceed the investments
required to reduce their curtailment.
Box 3.3 ⊳How cheap is India’s electricity?

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Electricity prices in India in nominal terms are lower than the average among member
countries of the Organisation for Economic Co‐operation and Development (OECD).
However, after adjusting for purchasing power, so as to reflect spending on electricity asa share of Indian household income, prices are higher than the OECD average. This is
despite the fact that India – like some other emerging and developing economies – hashigher end‐user prices for more energy‐intensive industrial consumers in order to cross‐subsidise the lower tariffs paid by vulnerable users in the household and agriculturalsegment. Prices also vary not just among end users, but also between states, where acomplex patchwork of different taxes and subsidy regimes can leave consumers in somestates paying five times more for their electricity than their counterparts in neighbouring
states (Figure 3.12).

Figure 3.12 ⊳ Comparison of electricity prices paid by different end users in$/kWhIndia, 20180.3

End‐user electricity price

End‐user price by sector and state

0.2

3

0.1

Households
India

OECD

Industry
Adjusted (PPP)

Agriculture

Households

Industry

Commercial

Households’ electricity tariffs in India are higher than the OECD average, adjusted forpurchasing power, despite being subsidised by commercial and industrial consumers.
Note: End‐user prices (stacked by state) calculate each state’s discom revenue per megawatt‐hour foreach category of consumer.

The degree to which electricity becomes affordable is primarily a consequence ofmacroeconomic conditions, particularly the purchasing power of wages and the level ofwage growth, but there are also issues endemic to the power sector that create
additional challenges, such as high levels of technical and commercial losses and poor
billing practices and collection rates. Tariffs sometimes end up four times higher than thepurchase cost of power, and some low‐income households pay a significant portion of
their monthly income to meet electricity bills.
Looking ahead, the rise of renewables is likely to add to the complexity of electricity
tariffs because it is likely to lead to billing based on the time of use becoming a more
important part of cost‐effective system balancing. There is already a case for ensuringthat the complex and varied tariffs in place do not disadvantage low‐income households,
and this further projected increase in the variation in tariffs adds to it.

The power system in the India Vision Case andSustainable Development Scenario: Charging ahead

The IVC shows a smarter transformation of the electricity sector that more fully exploits theflexibility from thermal power plants, as well as storage, DSR and cross‐sector integration, inorder to accommodate rising shares of renewable energy. There is also a notable shift to an
India‐wide, cost‐reflective dispatch of generation assets. Timely implementation of market
reforms underpins a significant scaling up of investment, as electricity demand is nearly 10%
higher in 2030 compared with the STEPS.
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3.2.3

The power system of the IVC makes the transition to renewables and away from coal at afaster pace than in the STEPS. By 2030, renewables make up around 60% of total generation
capacity and provide 450 GW of non‐hydro renewable capacity. Utility‐scale solar PV passes
the 60 GW mark in 2022, while close to 30 GW of agricultural load is met by solar in the next
five years. By 2030, solar PV alone is responsible for meeting 75% of India’s 2030 renewabletarget, and is on track to provide almost 800 GW in 2040. Offshore wind deployment also
accelerates in the IVC, with the industry gaining a foothold in the 2020s and capacity
eventually expanding to 30 GW in 2040 (Figure 3.13).
Figure 3.13 ⊳ Power capacity in India by source in the SDS and IVC, 2000-2040

GW

Historical

SDS

IVC

800

Solar PV

600

400

200

2000

2010

2020

2030

2040 2020

2030

Wind
Coal
Battery storage
Hydro
Natural gas
Other
Nuclear2040

The ramp-up in renewable capacity in the IVC is almost as rapid as in the SDS.

On the thermal side, captive coal generation capacity is gradually replaced by gas‐fired and(to a lesser extent) renewables capacity. Coal‐fired capacity peaks in the mid‐2020s and then132

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The development of battery storage systems in India also picks up in the IVC, with greater
deployment and deeper cost reductions: at $120/kWh, the cost of a four‐hour storage
system is 40% lower than in the STEPS in 2040. Batteries are an essential means to integrate
additional solar and wind capacity in this case, and reach almost 200 GW of capacity in 2040,
36% higher than in the STEPS. The expansion of battery capacity also serves to limit theamount of coal‐fired capacity needed to ensure power system adequacy. The IVC sees in
addition a lifting of many of the barriers to DSR: aggregation of loads and access to wholesale
and balancing markets for demand‐side resources allows DSR to mitigate the increase in peakdemand in the IVC, and to facilitate the integration of higher shares of solar PV. Agricultural
pumping sees a major transition to solar PV powered pumping solutions, and remaining grid‐connected pumping is aligned with power‐system needs in the IVC thanks to tariff design andsmart controls. Meanwhile more of India’s rapidly growing fleet of air conditioners areequipped with smart controls in the IVC, allowing for modulation of electricity demand inline with system flexibility needs.

declines steadily. This leads to improvements in air quality in cities in India, while also cuttingenergy‐related CO2 emissions. The emphasis on gas‐fired power also gives a boost to theoverall use of natural gas in India.
Overall, the IVC gets India’s power system much closer to the trajectory required in the SDS,
where renewable capacity additions reach 1 330 GW by 2040 (compared with 1 200 GW in
the IVC). However, emissions outcomes remain far apart: in the SDS, total power sector
emissions fall by 80% compared with 2019 levels by 2040, and are on course to reach net
zero by 2050, whereas in the IVC they remain largely unchanged. This difference is primarily
a consequence of existing coal‐fired capacity continuing to play a relatively prominent rolein India’s power system in the IVC, where the rapid growth in renewables avoids new
emissions from rising electricity demand but does not displace existing coal‐fired capacity. In
the SDS, by contrast, a wide range of technologies and measures are deployed to reduce
emissions from existing coal assets that would otherwise continue to operate, as in the IVC.
They include, for example, measures to reduce the amount of output from existing coal‐fired
power plants by repurposing them to focus on providing flexibility, by equipping existing
plants with CCUS or co‐firing with biomass, or by retiring them early if these options are notviable (section 3.4.2).

3.3

3

Exploring prospects for a gas‐based economy

India has long‐standing plans to expand the use of gas in its energy mix, and the level ofcurrent ambition is high: the government is targeting a 15% share of gas in the energy mix
by 2030, up from 6% today and 8% in 2010. Achieving this ambition would still leave theshare of gas below today’s global average of 23%, but this shift would nonetheless be a
momentous one for the Indian energy economy. It would require significant investment andpolicy support all the way along the value chain to incentivise new upstream activity and gas
import capacity, to underpin the construction of new transmission and distribution pipelines,
and to install new end‐user equipment.

Nonetheless, significant challenges lie ahead. India’s gas market today is a complex
patchwork of different pricing mechanisms, gas allocation schemes and types of gas(Box 3.4), and there are some distressed gas‐fired assets in the power sector as well as someunderperforming and underutilised infrastructure. This complexity represents one challenge.
It will also not be easy to encourage growth in a market that is likely to be based, in largepart, on imported gas, or to find ways of overcoming the persistent competitiveness gap at
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There are reasons to believe that the gas market can grow rapidly, provided that current
policies promoting its use are effectively implemented. International gas market conditions
are propitious for India: ample supply at low prices helped to avoid a reduction in gas demandin 2020 despite the effects of the Covid‐19 pandemic, and is now giving price‐sensitive Indianbuyers incentives to contract new volumes. Efforts are also under way to enact market
reforms that encourage gas trading, and to rationalise the taxes and tariffs applied todifferent end users across the states of India.

the end‐use level between gas and cheaper local energy sources such as coal andrenewables. Ultimately, concerted policy efforts, backed by robust implementation, are key
to creating the incentives necessary for gas in India to grow.
Box 3.4 ⊳A gas by any other name

Gas has multiple identities in India, with different terms used to distinguish its origin or
end use. Pipeline natural gas, or PNG, mostly consists of domestically produced naturalgas. Imported gas is known as r‐LNG, or regasified liquefied natural gas. CNG, orcompressed natural gas, is natural gas that is bottled and sold at filling stations as atransport fuel. Biomethane, which is biogas upgraded to reach pipeline quality
specifications, is a relatively new addition to the gas lexicon, and is being marketed inIndia as a sustainable variant of CNG, called either CBG or bio‐CNG.
All of the above gases are ultimately methane, the primary constituent of natural gas.
The exception is biogas, which also consists of CO2 and other gases such as nitrogen, andwhen not upgraded to biomethane is used primarily as a source of local heat and powerand clean cooking in rural areas. Although often assumed to be in the same category as
these gases, liquefied petroleum gas – LPG – is a natural gas liquid and in IEA accounting
is classified as a liquid fuel.
The prospect of increased Indian reliance on natural gas provokes a range of views as to theimplications for India’s economy, its environmental performance and its energy security. Our
intention in this section is to untangle these various strands and explore in more detail whata gas‐based economy could mean for India, and the extent to which it might meet India’s
designated policy objectives – notably to diversify the fuel mix towards cleaner alternatives,
tackle poor urban air quality and reduce dependence on oil.1

3.3.1

Can India afford gas?

1
The idea of a “gas‐based economy” is often understood to refer to fossil natural gas, but this is not necessarily
the case, and we examine also the prospects for low‐carbon gases such as biogas, biomethane and hydrogen.

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The prospects for gas in India hinge on its affordability, and whether there is a way toadequately remunerate gas producers and suppliers while still having a delivered productthat is consistently and affordably priced for Indian consumers. There are parts of India,
notably in Gujarat, that have been relatively successful in finding this balance, but the overall
record – despite numerous reforms and administrative solutions – has been mixed. There isalso a very wide variation across different Indian states in terms of today’s gas infrastructure
and consumption (Table 3.3), although there are ambitious plans to expand pipeline
connections and CNG filling stations almost everywhere.

Table 3.3 ⊳Indicators of gas supply, consumption and infrastructure inselected states and union territories of India, 2019

GujaratUttar Pradesh
Maharashtra
Madhya Pradesh
Assam
Delhi
Haryana
KeralaRajasthanRest of India
Total

Prod.
(bcm)

TFC
(bcm)

1.4
‐
‐
‐
3.3
‐
‐
‐
1.5
3.8
10

14.9
10.4
8.5
2.1
2.0
1.9
1.9
1.9
1.7
5.2
50

Gas‐fired LNG regasification
PNG
power
capacity
connections
CNG stations(GW)(bcm/y)(thousands)
Existing Existing Planned Existing Planned Existing Planned
7.6
37.4
13.6
2 065
1 018
548
236
1.5
‐
‐
159
2 037
128
845
3.2
6.8
17.7
1 457
1 590
313
303
‐
‐
‐
56
2 009
43
361
0.6
‐
‐
34
416
‐
72
2.2
‐
‐
1 097
‐
482
‐
0.4
‐
‐
100
1 185
66
327
0.5
6.8
‐
1
3 394
4
826
1
‐
‐
2.2
4 246
5
603
7.6
6.8
25.8
109.1 26 513
141
4612
25
58
57
5 100 42 400
1 730
8 190

3

Note: Prod. = Production (onshore only), TFC = total final consumption.
Sources: IEA analysis based on Cedigaz (2020); GAIL (2020); MPNG (2020); PNGRB (2020); PPAC (2020).

Wholesale gas pricing
On the wholesale side, pricing is split between domestically produced gas and more costly
LNG imports (Figure 3.14). Since 2014, the price of domestically produced gas has been set
by a formula linked to a basket of international reference prices. This means it is notnecessarily reflective of the cost to producers of domestic extraction, nor the affordability –or willingness to pay – of gas to different consumer categories in India. In 2019, thisadministered price averaged $3.2/MBtu,2 while the weighted average wholesale price of all
sources of gas in India in 2019 was around $6/MBtu once more expensive imports werefactored in.

2

A higher ceiling price averaging $8/MBtu has been set for gas developed in more challenging deepwater orultra‐deepwater zones. To encourage foreign direct investment, the Indian government has also offeredpricing and marketing freedom for so‐called “non‐regulated” fields as part of HELP.

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Around half of India’s gas supply is imported and, with around 30 bcm of LNG imports in
2019, India is already the world’s fourth‐largest importer of LNG. The majority of LNG
delivered in 2019 was priced either via oil‐linked formulas, typically at a premium of 11‐15%
to crude oil markers, such as Brent or the Japanese Crude Cocktail (JCC), or as hub‐indexed
spot US LNG delivered under long‐term contracts. The remainder was purchased on the spot
market, where prices are often determined on the basis of gas‐to‐gas competition. In recent
years, these spot prices have been well below the cost of oil‐indexed gas supply, resulting inpressure from the main Indian buyers of LNG – Petronet and GAIL – to renegotiate the termsof these long‐term supply contracts. In parallel, the practice of tendering for spot LNG
cargoes has strengthened price discovery, which has been bolstered by the creation of the
IGX, India’s nascent gas market hub. This allows buyers and sellers to trade in both spot andforward contracts across three physical hubs (Box 3.5).

Cost ($/MBtu)

Figure 3.14 ⊳ Weighted average cost of natural gas in India by source, 201910

Domestic production
Offshore deepwater

8

Offshore shallow water
Onshore conventional

6

Onshore unconventional

LNG imports
Atlantic

4

Persian Gulf

2

Pacific
0

10

20

30

40

50

60
bcm

A significant cost gap exists between domestically produced gas, which has been unable
to keep pace with demand, and imported LNG, the price of which is mostly linked to oil.
Notes: Domestic costs refer to the break‐even costs of developing resources. LNG imports refer to landed
costs.

Box 3.5 ⊳India’s emerging gas exchange

India took an important step in its gas market evolution in June 2020 with the opening of
the IGX. This is a digital trading platform linking three physical LNG‐importing “hubs”:
Dahej and Hazira in Gujarat, and Kakinada in Andhra Pradesh. For the moment, only
regasified LNG is tradeable, but over time this platform could become a way to introduce
more transparent, cost‐reflective and uniform pricing arrangements across the entire
Indian gas market.

These conditions are not yet met in India. As in many other emerging gas markets, there
is only a limited set of gas supply sources in India, while infrastructure (including storage)
is still insufficient, and domestic supply is dominated by long‐term bilateral contracts,
often with strict conditions about delivery and resale. Unbundling the gas value chain,
ensuring transparent third‐party access and bringing greater competitive pressures tobear on the Indian gas market (thereby curbing the market power of incumbents) is a
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To become a successful reference point for price, a trading hub requires a number ofenabling conditions, notably an unbundled gas value chain with third‐party access to
infrastructure and the presence of several buyers and sellers of wholesale gas. It also
needs a certain amount of liquidity, meaning that gas might be bought and sold multiple
times before being physically delivered and consumed. It must also have depth, meaningthat gas has to be available on spot terms, e.g. on a day‐ahead basis, and as a futures
product, e.g. deliveries agreed for the next month, season or year. Market participants
can use these traded products to undertake risk management, for example by hedging
their future production or consumption.

process that is likely to take time. The most well‐known gas hubs in the United States(Henry Hub) and in Europe (the National Balancing Point [NBP] in the United Kingdom
and the Title Transfer Facility [TTF] in the Netherlands) all took several years after their
inception to reach maturity. The Indian power sector provides a further useful point ofcomparison: an exchange was created in 2008, and has since seen significant growth in
the number of transactions, but the current traded volume still represents only 5% of
total power supplied in the country.

End‐user prices

3

There are a multitude of gas prices in India, which vary depending on the origin of the gas,
the distance it travels and the taxes applicable in the state in which it is consumed. An
important factor determining the end‐use price of natural gas is the mix between domesticgas and imported LNG. A government‐administered allocation policy reserves the cheaper
domestically produced volumes of gas for specific consumer categories (Figure 3.15). The
order of allocation has undergone frequent revisions over the past several years; power
plants, until recently a high priority, have now been removed from the list altogether.
Fertiliser plants were also initially given preferential access to reduce the need for more
expensive urea imports. However, later revisions gave city gas distribution (CGD) top billingto free up LPG for use in rural areas in place of more polluting fuels, while fertiliser plants
transitioned to a “pooled pricing” system to help them to manage the transition to greater
imports.
Figure 3.15 ⊳ Split of domestically produced gas and LNG consumed by
sector, 2019
Fertiliser
PowerCity gas
Refinery
Other
Petrochemicals
5
Domestic

LNG

10

15

20
bcm

The power sector has received the highest share of cheaper domestically produced gas inNotes: IEA analysis based on PPAC (2020).

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recent years, although the most recent rule changes now prioritise CGD.

Commentary about the affordability of gas on India’s gas market typically focuses on thesensitivity of consumption to landed LNG costs; a recurring narrative is that LNG prices lying
above a $5/MBtu to $6/MBtu range preclude the large‐scale adoption of gas in the face ofcompeting fuels. However, pipeline tariffs and taxes are very important elements in the final
cost to consumers, and they vary widely in a complex patchwork across the country,
depending on the category of consumer and the state in which they reside.3 In the case ofIndia, tariff reform and a streamlining of applicable taxes are important policy levers that
could potentially reduce the prices charged to end consumers and therefore make higher
imported gas prices more tolerable.
For this report, we conducted a bottom‐up analysis of prices actually paid by different end
users, using facility and state‐level data in key gas‐consuming industries and states. This has
yielded a first‐of‐a‐kind estimate of the range of prices paid in different states and sectors inIndia, making possible a more detailed assessment of the competitiveness of gas comparedwith competing fuels (Figure 3.16).
Figure 3.16 ⊳ Range of natural gas prices paid in selected end-use sectors in$/MBtuIndia and average price of the main competing fuels, 2019
Steel

Fertilisers andpetrochemicals

0

10 000Refinery

35

Power generation
Residential
Commercial
Other
Transport
Industry

30
25
20
15
10
5
20 000Oil

30 00040 00050 000Coal

60 000
Mm3

There is an affordability gap between natural gas and competing fuels in several sectors,
although a small subset of consumers benefit from access to lower-cost domestic gas.
Notes: Mm3 = million cubic metres. Energy sector own use not included. Many industries are not viable forcompetitive fuel switching, e.g. a relatively small amount of gas is used as process heat in the petrochemicals
sector, while 90% of fertiliser production already comes from natural gas. Competing fuels are naphtha and,potentially, coal gasification.
Sources: IEA estimates based on data from GAIL (2020); MPGN (2020); MoSPI (2018); PPAC (2020).
In Ahmedabad, for example, residential consumers pay about 40% less than commercial and industrial
consumers for an equivalent amount of natural gas. However, the tax rate in Ahmedabad is double that of
Bangalore. The government is now planning to include gas into the GST, which would mean that gas is taxed
at a standard rate across India; the implications for the competitiveness of gas would vary, depending on thepresent arrangements in each state.

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3

As noted above, the weighted average price of domestic and imported gas in India in 2019
was around $6/MBtu. With the additions of different state taxes, transport tariffs andcorporate margins, the final cost to consumers is usually considerably higher, however, andthe weighted average end user price in 2019 was $12/MBtu. The range is very large, withmost gas consumers paying somewhere between $6/MBtu and $18/MBtu. This iscomparable in absolute terms to prices paid in Europe, but is much higher after adjusting for
relative purchasing power in India. A further difference between end‐user prices in India andelsewhere is that most large‐scale users of gas in India, such as industrial facilities, pay higher
prices than smaller‐scale consumers.

3

As things stand, the main sector where gas is clearly competitive is transport; CNG prices arearound 40‐50% lower than petrol and diesel prices, which also have a high tax component.
Natural gas is also well placed to compete in smaller‐scale industries that require consistentlevels of adjustable process heat but must, suboptimally, resort to using coal, biomass or
furnace oil today. However, in many other parts of the Indian economy – including some key
industrial sectors – the case for gas on straight cost grounds is much less compelling. With
today’s regulatory framework, economics alone do not make the case for gas in India.

3.3.2

Gas demand in the STEPS

Figure 3.17 ⊳ Natural gas and biomethane demand by sector in India in the

bcm

STEPS
250

Natural gas

200

20

150

15

100

10

50

5

2000

2019

Biomethane

25

2040

Industry and non‐energy use

Power

2000
Buildings

2019
Transport

2040
Other

Industry is the key driver of natural gas demand growth, while transport demand underpins

Overcoming affordability challenges for natural gas requires a range of supportive policies.
The Indian government, as well as some states, has put in place a number of policies
promoting gas use, including a wide‐scale roll‐out of CNG and bio‐CNG, and the expansion ofgas infrastructure including LNG terminals, long‐distance transmission pipelines and CGD
networks. These policy ambitions translate into rapid growth of gas demand in the STEPS
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the growth of biomethane, which reaches a 10% share of total gas demand by 2040.

over the next decade (Figure 3.17). On average, gas grows nearly 7% each year to 2030, morethan double the rate of overall energy demand growth. The share of gas in India’s energy mix(both natural gas and biomethane) doubles from 6% to 12% by 2040, largely at the expenseof coal and traditional solid biomass. However, this share remains the lowest among thecountries and regions modelled in the WEO.

Gas use in industry
In the STEPS, industrial gas demand – including the use of gas as a feedstock forpetrochemical and fertiliser production – is the primary source of demand growth(Figure 3.18), and the share of gas in total industry energy demand nearly doubles to reach
20% by 2040. Most of the growth comes from lighter industrial sectors and small‐ andmedium‐scale industrial customers, who gain gas connections as transmission anddistribution infrastructure is rolled out. This means that the share in industrial gas demandof energy‐intensive industries such as refineries, fertiliser plants and some gas‐based steel
producers declines from around 40% today to around a fifth in 2040.
Figure 3.18 ⊳ Drivers of industrial gas demand in India in the STEPS, 2000-2040

bcm

Historical

STEPS

140
120
100
80
60
40
20
2000

Activity:

Light industry

2019
Heavy industry

2020
Switching:

2040
Solid fuels

Other

Industrial gas demand is poised to rise rapidly, with infrastructure supportingGas, where it is available, is well suited to the needs of lighter industrial sectors such as
textiles, manufacturing, and food and beverages. These tend to be located in or close to large
population centres, where air quality becomes an increasingly important consideration;
providing policy incentives for such clusters of MSMEs to switch to gas‐burning equipment istherefore key to unlocking further growth. For many such industries, the convenience ofbeing able to adjust process heat temperatures and the opportunity to make efficiency gains
are added advantages of using gas instead of liquid or solid fuels, although electricity
provides competition for some lower‐heat applications. For some industries currently using
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market growth and encouraging existing end users to switch away from other fuels.

liquid fuels, switching to gas can be commercially attractive, particularly in cases where fuelcosts are relatively low in terms of total added value, or where there is a relatively shortpayback period associated with the upfront investment costs to switch to gas‐burning
equipment.
Policies will play a critical role in determining the speed and scope of growth in natural gas.
Most of the 30 bcm of demand growth attributable to fuel switching in the STEPS is driven
by policy‐led efforts to reduce the level of coal and oil use in industries which are locatednear urban areas and contribute to poor air quality. To take one example, the possibility ofusing CNG in place of coal in India’s massive brick industry is attracting interest in somejurisdictions.

3

Gas use in power
Natural gas has been facing a perfect storm in India’s power sector in recent years. A waveof new power plants was commissioned in the late 2000s in anticipation of a large increasein supply from India’s offshore gas resources. However, production from the much‐awaited
KG‐D6 field in the Krishna Godavari Basin off India’s east coast did not match expectations
and fell away quickly. Gas‐fired power plants were left short of gas or became reliant on
more expensive LNG. The situation was compounded by revisions to the gas allocation policy,
which left power plants lower on the priority list. Lower‐than‐anticipated electricity demand,
along with ample thermal coal capacity, has meanwhile left very little space for gas tocontribute to marginal power generation. In 2018, 60% of gas‐fired power plants weredeemed by the government to have become stranded assets (Ministry of Power, 2018).

With plant economics likely to remain challenging, the outlook for gas in India’s power sector– as elsewhere – is highly contingent on policy, and on the implications of policy for coal‐
fired power. Ideas that have been explored to revive stranded gas plants include thepossibility of pooling tariffs from gas‐based power plants with those of renewable facilities
in order to enhance their affordability for consumers. Reforms in the midstream, such asallowing power plants to contract pipeline capacity on a more flexible basis, could reduce
operational costs. Using natural gas plants to provide flexibility, and then remunerating their
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Recent market developments have seen mixed fortunes for gas; LNG spot prices in summer
2020 hit record lows of around $2/MBtu, causing an uptick in gas used for power generation.
However, a tighter Asian market caused spot prices in December 2020 to surge to multi‐year
highs, dampening the economics of gas plants. Moreover, supply‐side economics are only
one determinant of a plant’s operations; actual scheduling depends foremost on the level ofelectricity demand, while the electricity tariffs received by gas are fixed by long‐term PPAs,
with dispatch determined within a limited contractual pool of generators. Even if this wereto change, less than a third of capacity would be competitive at tariffs below $30/MWh(Figure 3.19), given the level of gas import prices reached in WEO scenarios ($7/MBtu to$9/MBtu). With cheap solar providing the main competition for the incumbent coal‐fired
generators, natural gas is looking at a range of walk‐on parts in India’s power scene rather
than a central role.

ancillary services to the electricity grid, is another possible option. However, for the moment,
most of the tariffs do not reflect the additional costs of meeting peak demand and operating
only when renewable energy generation is at seasonal or diurnal lows, and some cash‐poor
discoms have been reluctant to dispatch relatively expensive gas even when it is required forsystem reliability.
Figure 3.19 ⊳ Gas-fired power generation economics under different deliveredgas costs and power tariffs, and generating costs in mid-2020
Gas fleet economics

Position of gas in generation cost curve

$/MWh

GW

30

120

20

80

10

40

3

5

$/MWh:

20

730

9$/MBtu
40

50

0

50

100
Gas

150

200

250
GW

Other

Even with a supportive tariff rate and low delivered gas prices, gas-fired power plants
struggle to compete in the Indian power sector.
Notes: Right‐hand chart is IEA analysis based on Ministry of Power (2020), covering the period March‐August
2020, during which spot gas prices were at record lows. Other refers to generation sources covered by Ministryof Power reporting, primarily thermal coal plants. The delivered cost of gas in the left‐hand chart includes theenergy component (50‐60%) and taxes, tariffs and corporate margins (40‐50%).

As a result of the difficult environment it faces in the fast‐growing power generation sector,
only around 10% of additional gas demand to 2040 comes from that sector in the STEPS.
Most of that increase over the next decade is due to a revival of existing gas power plants
rather than investment in new plant capacity (Figure 3.20). Despite the increase, moreover,the contribution of gas to overall power generation remains static, at around 4%, as solar
and wind make up the majority of new generation.
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As discussed in the deep dive on the power sector above, India has an increasing need forflexibility, and this creates some opportunities for natural gas in the future. However, mostof India’s flexibility needs are relatively short term, even intraday, and these are areas where
gas faces some fierce competition from other technology options. Recent auctions for round‐the‐clock power have primarily been won by renewables linked to utility‐scale batteries. In
the STEPS, coal plants are the major source of flexibility to balance the growing share of VRE
to 2030. In later years gas is used alongside a broad range of other flexibility options,
including greater interconnections, battery storage and DSR.

Figure 3.20 ⊳ Gas-fired capacity and average utilisation rate in India in the

GW

STEPS, 2005-2040
50

100%

40

80%

30

60%

20

40%

10

20%

Capacity
Utilisation rate (%):
India
Global average

32005 2010 2015 2019 2025 2030 2035 2040
India’s gas-based power assets slowly recover from today’s low utilisation rates; capacity
growth after 2030 is underpinned by flexibility rather than baseload requirements.

One opportunity for new gas‐fired power generation is in the captive power sector, i.e. withcompanies that choose to generate their own power or use diesel as back‐up generators.
This is a significant element in the Indian power mix, accounting for around 40% of industrial
power needs. At present, more than half of India’s 75 GW of installed captive capacity is coal‐
fired, followed by diesel generators with a 20% share. Gas has a 10% share of the captive
power sector, and around a quarter of gas‐fired generation in 2019 was from captive power
units, with petrochemical and fertiliser plants the main users. The scope for growth is linked
to two main variables: the roll‐out of gas infrastructure and the reliability and affordabilityof electricity from the centralised grid. We estimate that 1.5 bcm to 4.5 bcm of additionalgas demand could arise in the captive power segment, with the upper range depending on
industries with existing captive capacity deciding to switch their generation to gas.

City gas distribution

In the transport sector, India is one of the largest CNG markets in the world, with nearly 3
million CNG vehicles and half a million CNG buses on the roads. There are ambitious plans to
expand the use of biomethane in transport, with targets to add bio‐CNG cylinders to the
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CGD is a category encompassing a number of different uses – gas for residential cooking andhot water, CNG for transport, and a wide variety of commercial and small‐scale industrialuses. The rise in gas use in urban households over the last decade has largely been policy‐
driven, underpinned by efforts to free up LPG for use in rural areas. As of September 2018,18 states and union territories (covering 96 cities, towns and districts) in India had city gas
networks, with the majority of residential gas demand consumed in the urban
agglomerations of Delhi, Mumbai and Ahmedabad.

product line of 5 000 CNG stations by 2025. There are also emerging plans to develop LNG asa heavy‐duty transport fuel. This degree of policy ambition translates into an average growthrate of nearly 6% in the STEPS; by 2040, around 5% of total gas demand is used in roadtransport, more than double the global average.
The uptake of gas by more urban consumers depends on the development of gas
infrastructure, especially distribution pipelines and CNG stations. A total of 10 bidding
rounds have taken place that awarded tenders to build gas distribution networks, but thescale of the 9th (in 2018) and 10th (in 2019) bidding rounds underlined India’s ambitions toextend the gas grid. If all the proposed infrastructure were to be built, this would givepotential coverage to 70% of India’s population, compared with 2% who are connected today(around 5 million households). GAIL, the main transmission system operator in India, isexpanding its gas transmission network by around 80% over the next three years to develop
a backbone for this roll‐out of distribution infrastructure (PNGRB, 2020). The main trunk line
under construction is the Jagdishpur‐Haldia‐Bokaro‐Dhamra Pipeline, nearly 4 000 km in
length, to bring gas to the eastern and northeastern parts of the country. There are also plans
to develop small‐scale LNG supply chains, loading them onto specialised containers fortransport through road, rail and barge networks, prior to developing pipeline infrastructure.
A host of permitting and financing challenges remain before these plans can be realised.
Moreover, the ambition to scale up urban gas consumption is significantly greater than the
projected rise in domestic output, so although the CGD sector as a whole stands to benefit
from priority access to cheaper domestic gas resources, it also faces the prospect ofincreased reliance on imported sources of gas. As the balance of domestic and LNG
consumed in CGD tilts towards the latter, prices are likely to increase. The extent to which
this might be matched by rising household incomes and industry margins is a key uncertainty.
The affordability of gas also hinges on efforts to reform gas transport tariffs in order toprevent consumers farther away from gas sources from being penalised (while avoiding
problems with CGD utilities’ cost recovery of the kind experienced by electricity distribution
companies in the electricity sector). Unbundling supply from transport and ensuring third‐
party access are crucial prerequisites for the cost‐effective utilisation of the grid. The
Petroleum and Natural Gas Regulatory Board has recently enacted a series of supportive
regulatory actions aimed at rolling out a uniform transmission tariff, standardising gas
purchase agreements and launching an electronic bulletin board.

Aggregate demand in the CGD sector is likely to be far lower than in the power generationand industrial sectors, where bulk quantities are contracted by power plants and large‐scaleindustrial users, many of which are directly connected to the high‐volume transmission
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In the absence of significant winter heating loads, the quantity of gas demanded by CGD
consumers does not vary much over the course of the year; seasonal variation is of the orderof 10%, compared with over 250% in Northwest Europe. This limits the need to oversize partsof the system, including storage, meaning the marginal investment costs per household
connection are relatively lower.

network. As a result, the business model underpinning the expansion of gas distribution
networks relies less on securing a few big anchor customers than on building pipelines in
conjunction with CNG stations, which are currently the most profitable end users.

3.3.3

Gas supply and security in the STEPS

A key uncertainty in India’s movement towards a “gas‐based economy” is whether it can takeplace without a vibrant upstream gas sector. Gas production has fallen since reaching a highpoint in 2010, and has flattened out at around 32 bcm in recent years. Lower‐than‐expected
domestic production has had several knock‐on effects on India’s energy sector as a whole,leaving distressed assets in the power sector, increasing the cost of fertiliser subsidies, andreshaping the market distortions that stem from the complex allocation regime of cheap
domestic gas. The government wants to revitalise investment in India’s own gas resources,
but the pandemic and its aftermath weigh heavily on prospects for a durable recovery inregional gas prices, particularly as the LNG market appears well‐supplied over the next five
years; while this is good news for Indian importers, it does not bode well for thegovernment’s ambitions for domestic gas production.

3

Estimates of India’s recoverable gas resources stand at around 8 trillion cubic metres (tcm),
the majority of which are situated in India’s eastern offshore block, Krishna Godavari. The
Indian government has taken steps to incentivise development of technically challenging
natural gas fields, including deepwater resources, by reforming licensing requirements andallowing companies to market the resulting production at higher prices. This has spurred
some new offshore developments by ONGC and Reliance, as well as some spending on
smaller fields onshore. The government is also looking to encourage production of coalbed
methane, where resources are estimated at some 1.2 tcm and current production is around
1.3 bcm per year. India also has some potential for shale gas, although challenges related toland and water access make large‐scale production unlikely.

An additional, sometimes overlooked, source of domestic gas supply for India is biomethane.
India has ample supplies of sustainable feedstock for biogas and biomethane production,
mainly from sugar cane, rice and wheat crop residues. Increased urbanisation andimprovements in waste management and collection also create significant potential for gas
production from municipal solid waste. In an environment where most natural gas isimported, and long‐distance pipelines face difficulties with permitting and financing, these
local sources of domestic supply represent a potentially attractive option from both a
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The major dilemma facing the Indian upstream is the flip side of the “affordability” issue
discussed above: prices on the domestic market are at present not adequate to trigger larger
investment, especially at a time when company finances are under strain from the pandemic
and when there is ample supply of international LNG. In the STEPS, however, the market
begins to rebalance in the mid‐2020s; domestic natural gas production gradually picks up as
prices rise and a hospitable regulatory framework supports additional investment in newoffshore fields, and overall output more than doubles to reach 78 bcm by 2040 (Figure 3.21).

commercial and an environmental perspective. Biomethane production, primarily for use in
the transport sector, reaches nearly 20 bcm by 2040 in the STEPS (see section 3.4.2).

bcm

Figure 3.21 ⊳ Domestic gas production in India in the STEPS, 2010-2040
120

60%

Biomethane

100

50%

Unconventional

80

40%

60

30%

40

20%

20

10%

Conventional ‐ onshore

2010

2015

2019

2025

2030

2035

Conventional ‐ offshore
Import dependence (%)

2040

A revival in offshore gas fields over the next decade helps bring production back to its
historic 2010 peak; unconventional gas and biomethane lead growth in the 2030s.

The growing gap between India’s domestic output and its projected demand means anincreasing reliance on imports. In the STEPS, these are met entirely by LNG; we do notassume any new pipeline connections over the period to 2040. Although the economics
could work, the practical and political challenges of bringing gas to India overland from Iranor from Turkmenistan weigh heavily against these options, especially in an environment
where LNG is readily available for direct delivery to Indian ports.4
As noted above, India is already a major LNG importer and has several long‐term gas
contracts in place for around 35 bcm per year of deliveries. The largest source of LNG for the
Indian market is Qatar, although its share of the total has declined in recent years as Indianbuyers have contracted shipments from a more diverse set of exporters. In 2019, theseincluded African exporters (Nigeria and Angola), other Middle Eastern countries (United ArabEmirates and Oman), the United States and Australia. The range of potential sources of LNG
and the increasing flexibility of contractual terms provide some comfort in terms of gas
security, although India does face the prospect of a rising bill over time for imported gas.

4This represents a change from the previous India Energy Outlook (IEA, 2015), in which LNG represented thebulk of India’s imports but pipeline imports in the corresponding scenario began in the late 2020s.

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In the STEPS, India sees a quadrupling of LNG imports from around 30 bcm in 2019 to morethan 120 bcm in 2040, and continues to source LNG from a range of international suppliers(Figure 3.22). The annual cost of imported gas rises from $12 billion to $43 billion over thisperiod, though this remains relatively small compared with the cost of imported oil($250 billion in 2040).

bcm

Figure 3.22 ⊳ Indian LNG imports by exporting region in the STEPS, 2019-2040
140
120
Middle East
100

3

80
Australia

60

Africa40

North America

20

Russia2019

2040

India is a primary market for LNG, accounting for nearly 30% of global growth to 2040 in the
STEPS, and is well positioned geographically to develop a balanced portfolio of supply.

Rising LNG imports in the STEPS means that the gap between already‐contracted LNG supply
and projected LNG demand widens to around 40 bcm by 2030. We assume that this is filledwith a mixed portfolio of fixed‐term contracts and spot volumes. This does not, as issometimes assumed, imply a choice between long‐term, inflexible, oil‐indexed supply andmarket‐responsive spot purchases. While it is true that long‐term contracts have “take‐or‐pay” clauses that oblige buyers to import a minimum contracted quantity of gas, there areseveral provisions allowing for flexibility. For example, in 2018 GAIL exercised its right toresell US LNG volumes that were uncompetitive in the Indian market by agreeing “swapcontracts” with Shell. Moreover, volumes agreed in long‐term contracts need not necessarilybe oil‐indexed, and in recent years sellers have accepted a variety of pricing terms, agreeing
to reduced “slopes” dictating the strength of the oil‐gas price link, netback to Henry Hub
prices or linkages to emerging Asian spot benchmarks. Contracting a spot cargo, by contrast,
is by definition “take‐or‐pay”, and short‐term contracts underpinning spot deliveries can still
be indexed to oil. India’s need for reliable baseload supplies of LNG implies that long‐term
contracts will remain part of the mix, even as the country seeks to benefit from the growing
commoditisation of LNG.

Realising the India vision for gas in 2030

The outcomes in the STEPS move India towards the government’s aim of becoming a much
more gas‐based economy, but do not meet its aspirations in full. We explore the additional
upside potential for gas in the IVC, in which gas achieves an 11% share in the overall energy
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3.3.4

mix by 2030 (compared with 9% by the same year in the STEPS). In the IVC, gas use grows at
an average annual rate of 8% to 2030, or around eight times the average rate of growth overthe last decade. All sectors share in this additional growth, with around 40% coming fromindustry, especially manufacturing, steel and petrochemicals, and half from the power
sector. CNG is also more widely used as a transport fuel (Figure 3.23).
Figure 3.23 ⊳ Growth in key indicators for gas in India in the STEPS comparedwith the IVC, 2019-2030
Supply(bcm)

Demand
(bcm)

200

40

150

30

100

20

50

10

2019

STEPS

IVC

2019

Power

Industry

Other

Biomethane

STEPS
LNG

IVC
Domestic

Investment(billion dollars, 2019)

2019

STEPS

Downstream

IVC
Upstream

The IVC sees a more than doubling of gas demand in the next decade,sustained by market reforms and policy support.

The IVC is based on higher economic growth than the STEPS, so some of the additional gas
demand is due to higher activity levels. But in order to increase substantially its share ofoverall energy demand, gas needs to replace other sources of energy to a much greater
extent than is seen in the STEPS. Given its dominance in India’s energy system, coal is themain target for substitution, and around 40 Mtoe is displaced in the IVC (or around 10% of
total coal demand in 2019) (Figure 3.24).

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Part of the switching in the IVC also takes place in the industry sector, where gas displaces
some oil, as well as some biomass which is used in traditional industrial furnaces. However,
the main change in relation to the STEPS comes in power generation. In the STEPS, installed
gas‐fired capacity remains roughly level through to 2030 (albeit with a steady rise inutilisation rates); in the IVC, 35 GW of gas‐fired capacity is added over this period.

Figure 3.24 ⊳ Change in gas demand in the IVC due to fuel switching from

Mtoe

coal, oil and biomass, 2019-2030
40

Coal

Oil

Biomass
Biomethane
Natural gas

20

Change in sectoral
fuel demand:
Transport and other

03

Buildings
Industry
‐ 20

Power

‐ 40
To achieve a gas-based economy in the IVC, gas must displace other fuels
to a much greater extent than in the STEPS, especially in power.

Non‐fossil gases also grow more strongly in the IVC. Some 4 Mtoe of biomethane is deployed
as bio‐CNG by 2030, decreasing the size of the projected fleet of petrol and diesel vehicles
by around 4%, and helping to reduce oil import dependence and import bills. The wider
penetration of gas in urban areas in the IVC meanwhile reduces demand in urban areas for
LPG; this facilitates greater uptake of LPG in rural areas, aiding in the total displacement ofaround 50 Mtoe of biomass by 2030.
There is no visible trade‐off in the IVC between stronger growth of natural gas and the riseof renewables. Both enjoy robust growth at the expense of incumbent fuels, and theincreased share of solar PV in power generation is complemented by the flexibility thatnatural gas provides.



Accelerated pace of infrastructure growth. In the IVC, annual investment in gas
infrastructure doubles compared with historical average rates, reaching $5 billion peryear on average from 2019‐30, or a quarter more than in the STEPS. As a result, thenumber of CNG stations expands further, resulting in more comprehensive coverage andreduced congestion at stations; LNG terminals, which currently have limited
connectivity with potential consumers, are better connected to an expanded grid. The
flexibility and reliability of the gas grid is enhanced by more efficient use of capacity,with an independent transmission system operator supporting the roll‐out of flexible
pipeline nomination schedules, and a balancing code which allows a secondary market
for spare pipeline and LNG capacity.

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In order to support the significant level of gas demand growth in the IVC, a number ofchanges are needed that go beyond those assumed in the STEPS. They can be grouped into
four broad categories:

Faster transition to a competitive and transparent gas market. The IVC implies a rapidtransition that involves consistent implementation of market‐based reforms, arationalisation of applicable taxes and more robust implementation of existing policies,
such as those related to unbundling. This is key to rationalising end‐user prices andthereby widening the consumer base.

More favourable investment climate for domestic producers of various gases. In the
IVC, annual upstream spending is 60% higher than in the STEPS, and it reaches over
$5 billion by 2030, as continued regulatory and licensing reforms generate greaterinterest in a faster‐growing gas market. This spending includes greater investment in
waste‐to‐gas and other biomethane projects, as well as investments that accelerate
progress with low‐carbon hydrogen (via electrolysis). Higher incomes in the IVC help to
support affordability.

Stronger policy recognition of positive externalities. Gases produced and transported
in a responsible way can bring environmental benefits when replacing more polluting
fuels. The IVC would reduce the carbon intensity of the economy considerably comparedwith the STEPS. An economy that is 14% larger than in the STEPS in 2040 would be
associated with emissions that are 12% lower (see also next section). In addition, more
rapid development of biomethane would bring rural co‐benefits, reducing stubble
burning and methane emissions and underpinning rural business development.

In the IVC, India imports around 90 bcm of gas from international markets by 2030. It takes
advantage of today’s gas glut, but it also underpins new upstream and midstream
developments. India’s import requirements in the IVC mean that it becomes a linchpin in the
global LNG balance; those requirements open up a global supply gap in the mid‐2020s thatcall for an additional 10 bcm of new projects.
As LNG requirements grow in the IVC, India’s importers are able to play a more active role ininternational gas markets, building a portfolio of supply, shipping and regasification
stretching beyond India’s own territory. This increases their purchasing power and ability to
optimise supply and demand, bringing greater contractual flexibility on volumes as well as
the ability to hedge using a diverse set of pricing mechanisms. Regasification capacity reaches
170 bcm by 2030, nearly a quarter more than in the STEPS.

3.3.5

The environmental implications of gas use in India

The IVC and the SDS highlight these dynamics in different ways. Gas demand is higher in bothcases than in the STEPS, but the effect of that additional gas use is to bring down emissions
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The contribution of natural gas to reaching environmental goals varies widely acrossdifferent countries, between sectors and over time. Where it replaces more polluting fuels,
it reduces both air pollution and CO2 emissions. But natural gas is not in itself a solution toclimate change: it is a source of emissions in its own right, and new gas infrastructure canlock in these emissions for the future. Our analysis examines these divergent opportunities
and risks.

further than in the STEPS because of the substitution of gas for coal and oil (Figure 3.25). In
the IVC, there is a net increase in emissions of around 60 Mt CO2 by 2040 over 2019 levels
from the additional use of gas, compared with a net increase of around 100 Mt CO2 in the
STEPS. So net gas‐related emissions still rise from today’s levels in the IVC but by less than in
the STEPS.
Figure 3.25 ⊳ Effect of gas demand growth in India on CO2 emissions by
scenario, 2019-2040
IVC

SDS
300

200

200

100

100

0

0

‐100

‐100

‐200

‐200

‐300

‐300

Gas demand3

Mt CO₂

bcm

STEPS
300

Market growth
SwitchingLower‐carbon gases
Efficiency
Net change in CO₂ emissions (right axis)

Gas demand growth in the SDS and IVC causes fewer emissions than in the STEPS, owing togreater use of low-carbon gases, and to the use of gas in place of coal and oil.
Note: Lower‐carbon gases refer to biomethane and gas‐based CCUS in industry, power generation and forhydrogen production. Demand growth includes natural gas and biomethane. Switching includes the netchange in emissions from switching to gas (primarily from oil and coal) and switching from gas (primarily torenewables).

Given a relatively carbon‐intensive starting point and the policy imperative to expand
industry and infrastructure, the SDS shows that a carefully managed expansion in the role ofChapter 3 | Fuels and electricity in India

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In the SDS, India is the only major country worldwide in which natural gas use to 2040 ishigher than in the STEPS. The overall expansion of gas demand is associated with a net
decrease in emissions of around 50 Mt CO2 compared with 2019. This is because, in the SDS,
natural gas is used to a great extent as a replacement for oil and coal rather than as a meansof capturing incremental growth in energy demand (which is covered primarily by
renewables and other low‐carbon sources of energy). This role as a substitute for morepolluting fuels, allied to improvements in end‐use efficiency, gives natural gas a place inIndia’s transition to a low‐carbon economy in the SDS. Emissions reductions in the SDS alsocome from much greater deployment of low‐carbon gases, as well as investment in carbon
capture technologies; at the same time, additional emissions arising from economic growth
are reduced in the SDS by more extensive use of gas for non‐energy purposes than now (i.e.
as feedstock use in industries).

various gases in India (including low‐carbon gases, notably biomethane and hydrogen) could
bring significant environmental gains, alongside the rapid growth of renewables. These gains
do, however, depend on effective action to minimise leaks all along India's gas value chain,
which could quickly negate the climate benefits of natural gas. Moreover, the business model
for investing in long‐lived natural gas infrastructure would require careful consideration, as
the SDS would see India approaching net zero emissions in the mid‐2060s.

3.4Transforming traditional fuels: Coal and bioenergy

Traditional solid fuels such as coal and biomass account for almost 60% of India’s energy mix,
but both of these fuels face significant uncertainties as India modernises its energy system.
This section uses the WEO scenarios to explore how the outlook for coal and for bioenergy
could change in response to the evolving demands of India’s energy markets and the growing
policy focus on sustainable development.

3.4.1

Coal supply

Coal has been a central part of India’s energy system for decades (Figure 3.26). Despite heavy
reliance on oil in the transport sector, and growth in demand for other fuels, coal’s share in
India’s energy mix rose from 40% in 2010 to 44% in 2019, and coal continues to be the single
largest fuel in this mix. Coal accounts for half of the energy produced in India today, and coalsupply and end use attract a third of total annual energy investment.
Figure 3.26 ⊳ The share of coal in key energy-related indicators in India, 2019
Coal

Air pollutants

Other
CO₂ emissions
Share in2010

Industry energy demand
Electricity generation
Energy investment
Energy production
20%

40%

60%

80%

100%

Coal has maintained a major share in several parts of India’s energy sector

The majority of coal in India is used for power generation, where its share has remained
constant in a rapidly growing market (India’s electricity demand increased by two‐thirds
between 2010 and 2019). The additional 60 GW of capacity under development could further
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over the period since 2010 even as energy demand has grown by a third.

entrench coal’s dominant position in the power generation mix (see section 3.2). Coal also
plays a significant role in India’s industrial base because it is the main fuel underpinning a
sizeable steel manufacturing capability and a growing cement industry.
Domestic production of coal expanded by 100 Mtce over the last decade, reaching nearly
410 Mtce in 2019. Investment in coal supply nearly doubled from 2010‐19, spurred by thegovernment’s ambition to reduce and eventually eliminate coal imports. However, the goalof raising production to 1.5 billion tonnes (about 800 Mtce), originally set for 2020 (with
1 billion tonnes targeted from CIL), has recently been pushed back.
This push back is partly a consequence of supply‐side economic challenges, with the majority
of investments made by domestic companies which are increasingly capital‐constrained as aresult of significant overcapacity in parts of the coal value chain. However, India's production
targets are also becoming more difficult to reconcile with the country’s evolving energy
demands and policy priorities in other areas, particularly in terms of local air pollution andCO2 emissions: the coal inputs to the Indian power sector are the fifth‐largest single categoryof energy sector CO2 emissions globally.

3

There is a sizeable 100 GW pipeline of approved coal‐fired power projects (including thoseunder construction), but it is difficult to see many of these being built, given the challenges
faced by coal alongside the lower‐than‐expected electricity demand growth seen in recent
years. Fierce competition from renewables, especially solar power, is exacerbating thealready low utilisation of existing coal assets caused by the shortfall in expected demand
growth, and this is putting several producers under financial strain (see section 3.2.2).
The challenges faced by coal predated the emergence of Covid‐19, but the pandemic has
served to amplify them. Coal‐fired power plants have borne the brunt of the decline inelectricity demand in 2020, with solar PV and other renewable sources retaining priority
access to the grid, and gas‐fired power generation experiencing an uptick on the back ofrecord low LNG prices in the Spring and Summer of 2020. The utilisation of coal‐fired power
plants fell from over 70% in 2010 to 55% in 2019, and the pandemic caused a further fall tobelow 55% (with increased cycling testing technical minimum load factors). Annual
investment in coal in the power sector has fallen from a peak of $28 billion in 2010 down to$11 billion in 2019, and is projected to fall a further 10% in 2020. The pandemic has led toeven greater uncertainty around the outlook for Indian coal demand (Box 3.6).

The effects of the pandemic, in the form of reduced macroeconomic growth and a moresubdued outlook for electricity demand, are one factor in a major revision of coalconsumption projections in the STEPS. A relatively slow recovery from the pandemic sets thetone for the following years, and demand ends up one‐third lower in 2040 than projected in
WEO 2019. An accelerated rate of growth in renewables also starts to push coal out of themix: solar eventually usurps coal’s title as the king of India’s generation fleet. The power
sector is responsible for nearly 60% of the downward revision in total coal demand in the
STEPS to 2040. Net capacity growth is 25 GW, or 10% of India’s current installed coal capacity.
Meanwhile, solar capacity grows 18‐fold, adding 690 GW by 2040.
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The coal supply balance in STEPSBox 3.6 ⊳Hard numbers for coal as India’s energy policy ambitions evolve

The WEO 2015 special focus on India projected that coal use would grow at an averageannual rate of 3.5% in the New Policies Scenario (the forerunner to the STEPS),
underpinned by a large planned expansion of coal‐fired power capacity. However,demand in this scenario has been revised down in successive editions of the World Energy
Outlook. Average annual growth in the STEPS over the period 2019‐40 is now just 1.3%,
with demand by 2040 ending up more than 40% below what was projected in WEO 2015.
Part of the downward revision is attributable to the effects of Covid‐19, as a comparisonof pre‐ and post‐crisis WEO projections makes clear (Figure 3.27). As India’s mainincumbent fuel, coal’s prospects are significantly affected by downward adjustments tothe country’s macroeconomic growth assumptions, which are a key driver of total energy
demand.

Mtce

Figure 3.27 ⊳ Coal demand projections in selected World Energy Outlooks
1 500

WEO 2015
WEO 2020

1 200

WEO 2019

900
600
300

2015

2019

2025

2030

2040

The prospects for coal have worsened markedly since WEO 2015, due to Covid-19 as
well as efforts to improve air quality, reduce emissions and diversify the energy mix.

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However, this is only part of the story. Most of the downward adjustments have comealong gradually in the intervening years since 2015, as a result of improved visibility on
India’s energy policy priorities and targets. Efforts to improve air quality, enhance energy
efficiency and diversify the energy mix – notably by increasing the use of natural gas –have all played a role. India’s NDC under the Paris Agreement, committing to a reductionin the emissions intensity of the country’s energy supply, has also affected coal’s longer‐term prospects, as have downward adjustments to India’s anticipated future power
needs, and the increased competitiveness of solar.

The coal industry now has to find a way to marry government ambitions to increase
production with the uncertain demand outlook from coal‐fired power plants and industrial
users. The task is further complicated by the fact that the type, quality and associated costof coal produced in India are not a perfect match for the country’s evolving demand profile.
In particular, the quality of coal produced in India is relatively low, with average calorific value
in the range of 4 000 kilocalories/kg; this average has been decreasing over time.
Due to production and quality constraints, as well as the significant distance between coaldeposits and demand centres, India has been increasing its level of thermal coal imports.
There are around 18 GW of coal power plants located on the coast that are designed tooperate using lower‐ash imported coal. In recent years, some of these plants have gained acompetitive edge over plants relying on domestic coal, as the latter have faced highprocessing and transportation costs within India. The trend of rising thermal imports has,
however, slowed in recent years as a result of lower demand growth and a ramp‐up indomestic production. This continues in the STEPS, where the share of imports in India’s
thermal coal balance drops below 20% by 2040 (Figure 3.28).

3

Figure 3.28 ⊳ India thermal and metallurgical coal demand by sector and theshare of imports in the STEPS, 2015-2040
Mtce

Thermal coal

Metallurgical coal

750

50%

150

100%

600

40%

120

80%

450

30%

90

60%

300

20%

60

40%

150

10%

30

20%

2015

2019

Iron and steel

2030

2040
Power

2015
Other

2019

2030

2040

Share of imports (right axis)

A slower pace of demand growth and rising domestic production provide some scope for
reducing imports of thermal coal, though this is offset by a rise in coking coal imports.

Coal does not fare much better in the IVC than it does in the STEPS, reflecting the difficultyof reconciling government ambitions on coal production with other energy policy goals. On
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India’s steel industry imports around 80% of its coking coal, in the absence of cost‐competitive domestic coal of sufficient quality. It also utilises around 46 Mtce of thermal coalin the production of sponge iron through the direct reduction of iron ore. Nearly 85% of
thermal coal used in the sector is bought in from South Africa for cost and quality reasons.
In the STEPS, metallurgical coal imports outpace domestic production, reaching 80% by 2040.

the demand side, the policy targets in the IVC to increase the share of gas and renewables
have a negative effect on the outlook for coal use. Despite higher economic growth that
boosts overall energy demand, and some modest upside from progress towards ambitious
coal gasification targets, coal demand growth is limited in the IVC to 85 Mtce by 2040. Coal’s
overall share in the energy mix drops to around 33%.

What are the options to transform the coal industry?
Where does India’s coal industry go from here? It is facing major pressures as a result of achanging market and policy context, as well as near‐term challenges related to Covid‐19. In
the face of these pressures, coal needs to switch to a much leaner, more cost‐efficient modelfor operation and investment. In the remainder of this section, we cover three key aspectsof this transition: efficiency and operational performance; the push to attract private
investment; and ways to adapt to increased demands for environmental sustainability.

i. Improving efficiency and operational performance
There are several efficiency improvements that can be made across the coal value chain. On
the mining side, there is a stark contrast between the labour productivity of large‐scalesurface mines and small‐scale underground mines. Only 10% of underground coal mines inIndia are mechanised, and the average annual output per miner was less than 1 000 tonnes
in 2019. CIL has begun introducing both mechanical and logistical improvements to improvelabour and transport margins. As a result, labour productivity has doubled in recent years,
though it remains well short of labour productivity global averages. In the STEPS, productivity
doubles again by 2040, but this is primarily due to fewer underground mines being required
to satisfy production growth, which is mostly captured by more productive open cast surface
mines.

Coal washing is a distinctive additional step in the value chain of India’s low‐quality domestic
coal base (Figure 3.29). Higher‐ash coal increases transport costs per unit of energy
delivered, decreases boiler efficiency and can also increase emissions if technical equipment
to capture particulate emissions is not used when the coal is burned. Rule changes in 2020
removed limitations on the use of high‐ash coal, allowing power plants to use coal
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There are also numerous efficiency gains possible for coal logistics. Currently, around 60% ofcoal is transported by rail, providing 40% of revenue for Indian Railways. Coal freight tariffs
are among the highest in the world (IEA, 2020), adding up to $10 additional per tonne, as
they are designed to help subsidise the cost of passenger rail. Rail transport costs are lower
for new coastal plants, given the shorter travel distances from port to plant. As coal demand
centres to the west are increasingly supplied from renewables, the revenues fromtransporting coal from eastern basins will likewise fall. There is little scope to raise tariffs onremaining producers to compensate for these declining volumes, implying that the current
revenue models for railways are likely to require reform. An expansion of rail capacity could
ease some of the burdens of cross‐subsidisation, and a more effective coal allocation policy
could make transportation more efficient.

irrespective of its ash content, and removed the stipulation that high‐ash coal could not betransported more than 500 km from the pithead. These changes may reduce reliance on
thermal coal imports and may generally be a cost‐effective way of utilising domestic
resources, but any gains are likely to come at the cost of increased emissions from higher ash
content, reduced plant efficiencies and increased transport requirements.

100%

1 000

80%

800

Low quality

Coal production (right axis)

3

600

60%
40%

Mtce

Figure 3.29 ⊳ Share of coal production by quality of coal in India, 2010-2018

400

Medium quality

200

20%

High quality
2010

2012

2014

2016

2018

The decline in the quality of India’s domestically produced coalhas given rise to a number of logistical and cost-related challenges.

On the demand side, three‐quarters of India’s existing coal power plants are subcritical units
which use low‐efficiency technology. As a result of new government requirements, around
80% of the coal capacity under construction is in the form of supercritical plants with higher
efficiencies, operating with an efficiency of around 36‐40%, together with a small number ofultra‐supercritical plants. This marginally increases the overall efficiency of the fleet in the
STEPS, with the result that around 20 Mtce less coal‐fired generation is needed in 2030 thanwould have been required if the same amount of generation had to be produced at today’s
efficiency levels. However, there are several countervailing forces in the STEPS that could
also reduce plant efficiencies: for example, efforts to move away from imports would allow
greater scope for inefficient domestic subcritical coal units to generate power. Moreover,coal plants tend to operate less efficiently when running under lower rates of utilisation or
subjected to more frequent ramping, and this is how they have to operate in the STEPS inorder to accommodate a growing share of variable renewables.

CIL, the world’s largest coal producer by tonnage, supplies over 80% of the domestic market
for coal in India and employs around two‐thirds of the 500 000 workers directly employed by
the coal sector (CIL, 2020). Most of CIL’s production is sold via long‐term fuel supply
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ii. The push for private investment in coal productionagreements, with another 10‐20% sold via e‐auctions, enabling buyers to procure additional
quantities of coal on a flexible basis. The remaining supply is mostly produced by smaller,
primarily state‐owned companies, although a minority of supply (less than 3%) comes fromfully private companies. A model by which private companies can be subcontracted as mining
developer operators has begun to take root, while the gradual opening of the coal mining
and distribution market has encouraged both large public‐sector undertakings and smaller
private firms, including those owning captive coal power plants, to capture more of the coalvalue chain.

Mtce

Figure 3.30 ⊳ India coal production by investment type in the STEPS
600
500
400
300

New mines: greenfield investment

Existing mines: brownfield expansion

200
100

2019

Existing mines
2030

2040

Government ambitions to increase domestic coal production and stem theincrease in imports imply significant investment in existing and new mines.

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India recently introduced commercial coal mining, which is the most significant reform
undertaken in the coal sector since it was nationalised in the 1970s. The marketing monopolyof CIL has ceased, meaning private companies can develop new mines based on government
auctions of unallocated coal mines or blocks, and can sell coal in the market without price orend‐user restrictions. To ease the financial burden on new players, the government has
reduced upfront payments, relaxed payment schedules and introduced pricing off a newnational coal index. In 2020, India announced the public auction of 41 coal blocks toencourage private investment and spur increased efficiencies. So far, only 19 blocks havebeen awarded, covering 50 Mt of new supply. The prospects are highly uncertain (ashighlighted by the variation in coal supply across our scenarios), but in the STEPS there are
new investments in mining projects that compensate for the decline in mature coal‐producing basins. Around 40% of coal production by 2040 in India comes from greenfield
investments in the STEPS (Figure 3.30), compared with 20% globally.

iii. Adapt to growing demands for environmental sustainability
India has to deal with several environmental challenges linked to the production and use ofcoal, including air pollution, water stress and GHG emissions. Most mines are large‐scalesurface mines which lead to intense land‐use change, necessitating a robust reclamation
policy to avoid harmful long‐term effects. Coal‐fired power plants are significant sources of
air pollution, and are also responsible for around 45% of total energy‐related CO2 emissions
in India.
Addressing these environmental effects requires action on a broad number of fronts. In 2015,
the Indian government introduced stricter pollutant emissions norms for thermal plants,
moving beyond an earlier focus on particulate matter to include restrictions on sulphur
dioxide, nitrous oxide, water and mercury pollutants. However, an ambitious deadline has
passed with compliance levels remaining low, and an extension of the target date forcompliance to 2022 may still fall short as plants have been slow in conducting feasibility
studies and tendering for the necessary air pollution control upgrades. This is due, in largepart, to a reluctance to incur investment costs to achieve compliance. In the STEPS it isprojected that all coal plants will eventually be fully aligned with these rules, meaning sulphur
dioxide emissions from coal plants are 90% below today’s levels by 2040 (see section 4.2).

3

Reducing CO2 emissions from existing coal plants is the single most important way of bending
the emissions curve for India. If run at today’s levels of utilisation, assuming average technicallifetimes of around 50 years, existing and under‐construction plants would emit 25 Gt CO2
cumulatively between 2019 and 2040, equivalent to 50% of India’s total cumulativeemissions in the SDS over this period. Avoiding this “locked‐in” stock of emissions is bothfinancially and logistically challenging, especially since the average coal plant in India is onlyaround 15 years old, with an efficiency of around 35%, compared with a global average of
42%.

Such measures ultimately lead to a reduction in Indian coal demand in the SDS, with demandfalling below 300 Mtce by 2040 (Figure 3.31). The SDS also sees more gains than the STEPS
from the use of coal‐consuming industrial facilities and plants fitted with CCUS, which
provides a route to emissions reductions for sectors consuming both thermal andmetallurgical coal.
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Several routes to transforming the role played by coal‐fired power plants appear in the SDS,
and they principally involve retrofitting, repurposing or retiring existing coal assets,
particularly less‐efficient subcritical units. WEO analysis has assessed the least‐cost pathway
to reducing emissions in the coal industry in India along these lines (IEA, 2019). Running coalfacilities to focus on providing power system adequacy and flexibility, thereby reducing
baseload operations, saves 6 200 Mt CO2 in the SDS, compared with the STEPS, from 2019 to
2040. A further 3 100 Mt CO2 is also avoided in the SDS by retiring coal plants early, startingwith the oldest, lowest‐efficiency and least system‐relevant plants. These measures alone
would close around 75% of the emissions gap that exists between the STEPS and SDS in the
period from 2019 to 2040.

Figure 3.31 ⊳ Difference in coal demand between STEPS and SDS, by sector

Mtce

and technology, 2015-2040
800
Power:
Subcritical

STEPS
600

Supercritical
USC
SDS

400

Non‐power:
Industry
Other

200

2015

2020

2025

2030

2035

2040

A reduced role for coal-fired power, especially subcritical plants, plays animportant part in bringing about change in India’s coal demand in the SDS.
Note: USC = ultra‐supercritical.

Box 3.7 ⊳Is India fresh out of coal water?

More than 80% of coal plants today are cooled by freshwater sources. Over 50% of these
are in areas experiencing high water stress (Figure 3.32). Almost all fossil fuel capacity
under construction is coal‐fired, but the share of that capacity being built with dry andnon‐freshwater cooling is significantly higher than in the past (17% dry and 20%
non‐freshwater, compared with 2% dry and 6% non‐freshwater for existing capacity). As
a result, the share of coal capacity that is freshwater‐cooled in plants that are underconstruction is just over 60%.

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There are several alternatives to the use of fresh water. India’s third‐largest coal power
plant, Mundra Ultra Mega Power Project, was built in a drought‐prone area and uses
desalinated seawater for cooling and other end‐use applications to avoid aggravatingwater stress. The use of wastewater for cooling is another alternative, and thegovernment has mandated coal plants to use sewage water if they are located in close
proximity to municipal treatment plants. Shifting to dry cooling or air‐cooled condenser
technology would eliminate the need for water entirely, but this involves significantly
more investment and carries a penalty in the form of reduced efficiency, and very few
coal plants in India employ these alternative cooling methods. Although low water use
approaches are technically viable, a significant shift towards water‐saving interventionsin Indian power plants is likely to require financial support.

Figure 3.32 ⊳ Location of existing coal plants and baseline level of water
stress in India

3

More than 50% of freshwater-cooled capacity lies in areasof high or very high water stress.
Notes: Water stress data are from WRI (2020). “Freshwater‐cooled” includes once‐through, tower andfreshwater pond cooling technologies.

Bioenergy

Bioenergy has a dual identity in India’s energy system. A full 12% of India’s energy needs
today are met through traditional uses of biomass: fuelwood, straw, dung, charcoal burnt inthree‐stone fire or inefficient cook stoves. These sources are particularly prevalent in rural
areas where they are used for cooking and a variety of other household purposes. Bioenergy
in India is often thought of in terms of such traditional sources, which have been a focus for
reduction on account of their harmful effects on human health. Each year, the air pollutants
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3.4.2

emitted from combusting traditional biomass indoors cause around 600 000 premature
deaths.
There is another side to the bioenergy story in India, and this is focused on modern
technologies and supply chains that can put India’s substantial level of organic feedstock andwaste to productive use. These produce bioenergy that can power vehicles, provide energy
services for households, generate local heat and power, and help meet the energy needs ofa wide variety of industries. Scaling up the technologies and supply chains that convert
organic products into useful energy can help India address core sustainable development
goals: ensuring affordable access to modern energy supplies, combating climate change and,if carefully managed, improving air quality as well. The development of local bioenergy
supply chains can also address a range of other policy priorities, from reducing the need forimported crude oil to fostering more efficient waste management practices.

Status of bioenergy todayModern solid biomass. Over the past decade, India has built 11 GW of biomass powerand co‐generation plants, primarily for the provision of local heat and power, which in2019 generated around 40 TWh, roughly the same as solar PV. The government has, inparticular, incentivised the use of the bagasse as a fuel for co‐generation, leading to thecommissioning of almost 8 GW of capacity (Ministry of New and Renewable Energy,2020).



Biofuels. The government has set targets for transport biofuels as a means to reduce
the need for imported crude oil. In 2019, India produced around 28 thousand barrels ofoil equivalent per day (kboe/d), enough to support a 4% blending rate in gasoline, whichdisplaced less than 1% of crude oil imports. Bioethanol production has varied over theyears due to changes in feedstock availability, oil prices and government incentives (arecent example being the removal of excise duty exemptions for bioethanol). India’s
new biofuels policy, announced in 2018, targets bioethanol blending in gasoline of up to
10% in 2022 and 20% in 2030 and plans for the construction of 12 biorefineries.
Negligible quantities of biodiesel are produced today, although there are also targets toachieve blending rates in diesel of 5% by 2030. Efforts are now under way to develop
the supply chains necessary to produce biodiesel, especially from used cooking oil.



Biogas. India has long‐standing programmes providing support for household‐scale
bio‐digesters as a clean cooking solution in rural areas where LPG access is limited, andfor larger‐scale projects providing local heat and power generation. Around 5 million
household‐scale biogas units are currently in operation today. Biogas production also
yields “digestate” as a by‐product, which can be used as a fertiliser.

5

Co‐generation refers to the combined production of heat and power.

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India’s bioenergy potential has long been recognised by the government, and several support
schemes have been put in place for the development of biogas and biomethane plants,
biomass co‐generation plants,5 and industrial and waste‐to‐energy plants. Different types ofbioenergy sources have received different levels of support and attention:



Biomethane. A form of biogas that is upgraded to higher quality specifications,biomethane is being targeted for use in the transport sector as a sustainable fuel, forgas‐based vehicles. Under the Sustainable Alternative Towards Affordable
Transportation (SATAT) scheme, the government has a production target of 15 Mt of
bio‐CNG by 2023. It has taken action in support of this target, for example by providing
off‐take guarantees and long‐term pricing agreements, and by including bio‐CNG
facilities in the Reserve Bank of India’s priority sector lending.

Many of the existing bioenergy supply chains in India rely on dedicated energy crops – which
may compete with food for agricultural land and have adverse sustainability impacts(e.g. CO2 emissions and other land‐use impacts that can be associated with land clearing andcultivation) – or on the collected biomass that is burned in its original place for traditionaluse in households. These avenues do not do justice to the positive and sustainable role thatbioenergy could play in India’s energy mix. We consider below the overall potential forbioenergy sources derived only from feedstock which can be considered sustainable, before
assessing the outlook in the STEPS.

3

Assessing the potential of sustainable bioenergy feedstock
Due to the size and scale of its agricultural sector, India has vast quantities of organic wastethat can be used as feedstock in modern bioenergy supply chains. Currently, only a small
fraction of this sustainable potential is utilised.
Around 600 Mt of agricultural waste in India are generated each year, the majority of which
are agricultural residues left over after the harvest. This includes around 40 Mt of rice crop
residue, known as paddy straw, which is burned annually in Haryana, Punjab, Rajasthan andUttar Pradesh. The burning of this residue typically occurs over a time frame of six weeks in
October and November, and is one of the primary causes of the air pollution crisis every year
in northern India, with as much as half of the particulate pollutants in a city like Delhi
attributable to this burning. As the world’s second‐largest producer of sugar cane, India also
produces huge quantities of bagasse, an energy‐rich by‐product of sugarcane processing.

Organic waste is another source of potential feedstock. It constitutes 40‐50% of the 60 Mt of
total municipal solid waste generated in urban areas in India each year, and it is likely to totalaround 100 million tonnes a year by 2040, as cities continue to grow: it can be used in waste‐
to‐energy plants and for the production of various bioenergy sources.
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A range of agricultural feedstocks can be used for the production of transport biofuels. A
distinction is often made between conventional biofuels, which rely on energy crops andoften compete with food supply, and advanced biofuels, which can be derived from organic
waste and non‐food materials. Bioethanol in India is currently mostly produced frommolasses, but some is derived from surplus food grains such as corn and cassava. The new
biofuels policy released in 2018 has expanded the list of allowable feedstock sources, which
now includes crop residues and industrial and municipal wastes, including used cooking oils.
Livestock manure is another amply available feedstock, and is particularly well‐suited to the
production of biogas.

Forest industries also provide potential bioenergy feedstock: residues from wood processing(e.g. produced in sawmills) are relatively cheap and accessible, but residues from logging
activities are mostly left on site and would require additional support to be collected.
Along with other forms of organic waste such as wastewater sludge, all of the above sources
can be processed with existing technologies. Taking account of the energy content of thevarious feedstocks, we assess that up to 130 Mtoe of useful energy could be derived fromthese sustainable organic waste streams (Figure 3.33). There are multiple co‐benefits toemploying waste in this way, including reduced air pollution, avoided emissions, and ruraland agricultural development. Using organic waste also ensures that the nascent bioenergy
industry develops in partnership with food production, instead of as a competitor to it.

Mtoe

Figure 3.33 ⊳ Bioenergy potential from organic waste in India, 2019-2040
200
Forest industries
residues

150

Municipal andindustrial wastes
Agriculturalresidues

100

50

2019

2040

Organic waste could produce 130 Mtoe of useful energy today,
equivalent to 15% of India’s total energy demand.

Supply chain uncertainties. Agricultural waste sources are dispersed around thecountry, sometimes across multiple small landholdings. They differ greatly in terms of
their quality and composition, and hence also in their suitability for different conversion
technologies. There is also significant uncertainty about the level of availability or
reliability of different waste streams. These challenges are compounded by a lack ofawareness of the potential uses and technologies.

High upfront costs and financing challenges. Local banks often serve as a first port ofcall for raising the capital necessary for bioenergy projects, since the loan requirements
are too large for individual investors (e.g. farmers) to fund themselves. There is limited
knowledge among financial institutions about how to assess the viability of projects, andthis adds to the difficulty of securing funding.

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There are, however, numerous challenges facing those seeking to scale up modern bioenergy
supply chains. These vary depending on the type of bioenergy produced, but there are somecommon elements:Competing uses of biomass for non‐energy purposes. The biomass or organic wastewith significant potential to be used as modern bioenergy often tends to havecompeting alternative uses, for example as fodder for animals, manure for fields, or fuelfor direct burning in household cooking and industrial processes.



A lack of guaranteed off‐takers of bioenergy. Finding reliable outlets can be hard, since
procurement prices often do not reflect the co‐benefits of employing waste for energy,
such as efficient waste management, reduced air pollution and enhanced access tolocally produced energy.

3

The outlook for bioenergy in the STEPSIn the STEPS, a determined policy push brings about a drastic reduction of traditional uses ofbiomass by 2040. This leads to 270 million people, a population four times the size of France,
shifting away from traditional uses, and to a 40% decrease in demand. The changes that takeplace are the result of greater use of LPG – the main route to clean cooking – and also of
biogas and electricity, together with the development and adoption of improved biomass
cook stoves.
Figure 3.34 ⊳ Renewable energy use for electricity, heat and transport in India
in the STEPS, 2019-2040

Heat

Transport

100

100%

80

80%

1 500

60

60%

1 000

40

40%

500

20

20%

Mtoe

TWh

Electricity
2 500
2 000

2019

2040

Bioenergy
Solar2019 2040
Hydro
GeothermalWind
Indirect

2019

2040

Share in total demand(right axis)

Bioenergy plays a significant role as a renewable heat source for industry and buildings.
Biofuels use rises six-fold by 2040, capturing a larger share of overall transport demand.

Modern bioenergy use goes in the opposite direction, doubling from 2019 to 2040 to reach140 Mtoe in 2040. Industrial uses, especially in agro industries, account for almost 40% ofmodern bioenergy growth. Much of the rest of the growth comes from power andcommercial heat generation, for which ambitious targets have been set by both the
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Note: Heat includes industry, residential and commercial.

government and some private players.6 India’s biofuel policies also support significant
growth in transport demand, and dominate the growth of renewable energy use in the heatsector (Figure 3.34).
There is also growing interest in biomethane as a local and often cheaper alternative toimported natural gas. India is home to 8% of global biomethane production potential, andusing all of it would be sufficient to meet India’s entire current gas demand (Figure 3.35).
Around 2 bcm of biomethane could be developed at a cost below the weighted average gas
price in India, making it competitive against conventional CNG for use in the transport sector,
and there are already ambitious efforts, through the SATAT scheme, to bring about greateruse of gas in the transport sector. In the STEPS, least‐cost technologies – landfill gas recovery
and agricultural digesters – supply almost 20 bcm of biomethane in 2040 to compete with
imported gas. Most of this continues to be used in the transport sector: more than 10% ofcars and half of the bus fleet run on gas in 2040 in the STEPS.
Figure 3.35 ⊳ Assessment of biomethane potential in India and quantities

bcm

developed in the STEPS
100>12 USD/Mbtu
9‐12 USD/Mbtu

80

6‐9 USD/Mbtu
3‐6 USD/Mbtu

60

STEPS
40
20

2019

2030

2040

Biomethane use grows strongly in the STEPS, reaching 20 bcm by 2040,
but this is only a small fraction of the total potential.

6

For example, NTPC (the largest thermal power generation corporation in India), has decided to co‐fire withcoal 6 Mt of pellets from crop residues in its power plants in 2020.

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The key challenge to wider deployment of biomethane relates to costs. Currently, more thanhalf of the biomethane potential would be competitive only with a natural gas price above$9/MBtu, exceeding the gas import prices reached in STEPS in the mid‐2020s. There are anumber of options to narrow this cost gap, such as crediting both the carbon and methane
emissions savings from biomethane, providing tax exemptions in the final sale price, or giving
biomethane preferential access to gas infrastructure. For example, a CO2 price of $25/tonne

would double the volume of cost‐competitive biomethane that could be developed in India
by 2040; crediting avoided methane emissions would reduce the CO2 price required by 20%,
taking it down to around $20/tonne. Some biomethane facilities might be able to avoid gas
transmission tariffs altogether if they are built close to demand centres, such as CNG facilities
or CGD projects. However, scaling up biomethane supply to a significant level would
ultimately require a co‐ordinated approach involving feedstock‐rich states and both local
distribution and national transmission gas grids.

The role of bioenergy in the IVC and the SDS

3

In the IVC, an alignment of agricultural, energy and environmental interests ensures thatbioenergy occupies a more prominent place among government policy priorities than in the
STEPS (Figure 3.36). At the country level, universal use of clean cooking is achieved by 2030
(see section 4.2). As a consequence, traditional uses of biomass are phased out as nearly
700 million people gain access to clean cooking between 2019 and 2040. Modern bioenergy
demand reaches 160 Mtoe as clean cooking policies boost the use of improved biomass cook
stoves and biodigesters for household needs, and as the take‐up of modern bioenergy in theindustry and transport sector rises significantly.
Figure 3.36 ⊳ Change in bioenergy use by source in the IVC, 2019-2040

Traditional solid biomass
Modern solid biomass
Biofuels
Biogas and biomethane‐ 120
Buildings‐ 80
Power and heat

‐ 40
Transport

0

40
Mtoe

Industry

Other

Nationwide access to clean cooking eliminates the need for the traditional use of biomass;

The enhanced co‐ordination of incentives among central and state governments plays animportant role in the IVC in accelerating the implementation of bioenergy production
processes, with support schemes tailored to both small‐ and large‐scale producers. Effective
regulatory support and wider uptake of the most cost‐effective technologies also help to lay
the groundwork for growth. India pursues multiple pathways to developing bioenergy, withlocal, on‐site development projects as well as initiatives to collect and transport multiple
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the growth of modern bioenergy technologies brings multiple benefits.

sources of waste to centralised, larger‐scale plants. The majority of the $60 billion cumulative
investment from 2019 to 2040 in bioenergy bolsters domestic supply chains and creates local
jobs, especially in rural areas.
Supporting policies also lead to a wider development of biomethane plants. In 2040,
biomethane use is 40% higher in the IVC than in the STEPS. Most of the increase occurs in
the transport sector, with biomethane accounting for 5% of total transport energy demandin 2040 in the IVC, which comes on top of the 5% of demand that is met by liquid biofuels.

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In the SDS, the use of modern forms of bioenergy grows much more strongly, and there isalso a major increase in the use of alternative feedstocks that minimise or avoid potential
sustainability concerns. India manages to exploit more fully its waste crop oils, animal fats,
agricultural and forestry residues, and municipal wastes. These feedstocks sustain a morethan doubling of modern bioenergy consumption between 2019 and 2040, underpinned by
rapid growth in advanced biofuels, biogas and biomethane.

Chapter 4
Implications for India and the world
India’s change is global change
S U M M A R Y
 India’s energy choices matter. They have direct and far‐reaching effects on the livesof a growing population, and major indirect effects on the rest of the world throughtheir impact on energy markets, emissions, and flows of technology and capital.

 In the STEPS, India accounts for nearly one‐quarter of global energy demand growthfrom 2019‐40, which is more than any other country. Already a heavyweight in solar
PV, India becomes a world leader in battery storage. By 2040, India’s power system
eclipses the European Union’s and becomes the world’s third‐largest, and it is thesecond‐largest growth market for renewable energy after China.

 India’s growing strength in the global industrial economy has important implications
for coal and gas markets. India leads global oil demand growth in the STEPS on theback of a fivefold increase in per capita car ownership, and also becomes the fastest‐
growing market for natural gas. India is in addition one of the very few sources ofgrowth for coal in this scenario, largely for industrial use.

GDP Population

Energy
Coal
Oil
Gas
CO₂
Solar PV Batteries
demand demand demand demand emissions capacity capacity

2000
2019
2040

India’s share of selected global indicators in the STEPS

2000
2019
2040

Figure 4.1 ⊳

30%
25%
20%
15%
10%

2000
2019
2040

2000
2019
2040

2000
2019
2040

2000
2019
2040

2000
2019
2040

2000
2019
2040

2000
2019
2040

5%

India’s influence is felt across all fuels and technologies, as well as in global emissions.

 India already imports around 40% of its primary energy and overall reliance on The rapidly rising requirement for flexibility in the operation of its power system is apotential hazard for electricity security in India. One additional systemic risk comes
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imports remains at this level to 2040 in the STEPS. However, India’s combined importbill for fossil fuels triples over this period, with oil by far the largest component. The
SDS sees an oil import bill which is $1.4 trillion smaller over the period 2019‐40 thanin the STEPS: these savings offset entirely the additional costs of clean energy
investments required in the SDS.

from the poor financial health of discoms. Improving billing and collection efficiency
and reducing technical and commercial losses are key to reforming the sector.
Stepping up investment in renewables also means tackling risks relating to delayed
payments to generators, land acquisition, and regulatory and contract certainty.

 In the STEPS, the combined markets in India for solar PV modules, wind turbines,
lithium‐ion batteries and water electrolysers grow to over $40 billion per year by
2040; in the SDS they grow to twice this size. With a 10‐35% market share for someof these products, India has the opportunity to capture more of the value from these
supply chains by positioning itself as a hub for innovation and research expertise. In
order to support this transformation, India’s clean energy workforce grows by
1 million from 2020 to 2030 in the STEPS, and by 1.6 million in the SDS.

 Policies to improve air quality and expand access to clean cooking in the STEPS help
to limit pollutant emissions, but a rising urban population means that more people
are exposed to air pollution and suffer its ill effects. The IVC and especially the SDS
see a lasting reduction in premature deaths from poor air quality, with several relatedco‐benefits for energy security and trade.

 Growth in India’s annual CO2 emissions slows steadily over time in the STEPS, largely
because power sector emissions plateau after 2030 due to the rising share of
renewables in electricity generation. A cleaner power mix also strengthens the casefor the electrification of transport; at present, the carbon intensity of electricity inIndia means that there is no CO2 benefit from switching to an electric car.

 Despite a steady slowing in their overall rate of growth, India’s total emissions in the
STEPS are around 50% higher in 2040 than in 2019, though per capita CO2 emissions
remain low by international standards. Enhanced efforts to cut coal use in power
generation and to improve the efficiency and carbon intensity of industrial output
bring about lower emissions in the IVC, together with higher GDP. The SDS sees evenmore far‐reaching improvements in efficiency and in the penetration of low‐carbon
technologies, cutting emissions much further.

 The SDS demonstrates that robust economic expansion is fully compatible with anincreasing pace of emissions reductions and the achievement of other sustainable
development goals. India’s energy‐related CO2 emissions flatten out in this scenario
in the 2020s and go into steady decline by the 2030s, on track to reach net‐zero by
the mid‐2060s. This decisive break with historical trends requires tackling emissions
from existing infrastructure while also avoiding new sources of emissions wherever
possible. In the STEPS, by the late 2030s most of India’s annual emissions come fromfactories, vehicles, buildings and power plants that do not yet exist.
water demands. Thermal power plants are already vulnerable to water stress; without
careful planning, some low‐carbon energy options – most notably nuclear, bioenergy
and concentrating solar power – could be limited by water availability in the future.
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 India’s technology choices have to take into account water availability and competing4.1

Overview of energy sustainability and security

4.1.1

Perspectives to 2040

The Covid‐19 pandemic has cast a shadow over India’s development trajectory. Much
uncertainty remains over the duration of the crisis, the shape of the recovery and the natureof further energy‐related stimulus measures that may be enacted by the government.
Throughout this report, we highlight the range of potential outcomes, distinguishing
between temporary dislocations and more durable structural changes. In this chapter, we
focus on the implications of those outcomes for energy security and for sustainable
development.
In the STEPS, the pandemic is gradually brought under control over the course of 2021. An
economic rebound lays the foundation for a return to robust GDP growth for the remainderof the decade, and India is the main source of global growth in energy consumption over the
Outlook period, making it a pivotal country for market trends across all fuels andtechnologies. Although India’s per capita CO2 emissions remain well below the global
average, total emissions in the STEPS end up 50% higher by 2040, rising almost in tandemwith demand growth. The increase in India’s emissions offsets the projected decline inemissions in Europe over this period, and makes India the second‐largest source of global
CO2 emissions by 2040 (Figure 4.2). India’s energy access goals are meanwhile met only inpart; around 500 million Indians remain without access to clean cooking in 2030.
Figure 4.2 ⊳4Average energy supply investments in India by scenario andglobal CO2 emissions by region in the STEPS and the SDS, 2019-40

Indian energy supply investments
Gt CO2Global CO₂ emissions

2015‐19
STEPS
2019‐40

40
30
20

IVC
2019‐40

10

SDS
2019‐40

Coal
Renewables

100
Billion dollars (2019)
Oil
Natural gas
Power grids

2019

50

India

2040
STEPS

2019

Rest of world

Europe

2040
SDS
US

China

India’s emissions outlook is shaped by the pace at which it scales up renewables, and the

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infrastructure necessary to integrate them, while transitioning away from coal.

India is one of the few major countries globally that sees a rise in coal demand in the STEPS.
This additional coal is primarily for industrial use, and means that its share of global coaldemand grows from around 10% in 2019 to more than 15% in 2040. India is already an
important market for internationally traded oil and gas, and its requirements increase in the
STEPS: its oil import bill rises to over $250 billion by 2040, almost three times higher than in
2019, while imports of LNG cover nearly 70% of gas demand growth, with supplies comingfrom a diverse set of exporters including Australia, Mozambique, Qatar, the RussianFederation (hereafter, “Russia”), and the United States.
Near‐term risks to sustainable development would be heightened in the event of a prolonged
pandemic. The DRS sees the initial resilience of clean energy investment eroded over timeby weakening government and corporate balance sheets, slowing the pace of structuralchange in the energy sector. Emissions of CO2 and of air pollutants are suppressed to someextent in this scenario as a result of diminished economic prospects and lower energy
demand, but these emissions reductions come at a very high cost in terms of India’s
economic and social development. Progress towards a range of sustainable development
objectives is set back: improvements in access to clean cooking, for example, slow to lessthan a third of historical levels, meaning 600 million people remain dependent on traditionaluse of solid biomass in 2030.
A much more upbeat picture emerges in the IVC, in which muted growth in emissions(400 Mt CO2 lower than in STEPS in 2040) is associated with substantial progress onrenewable energy goals and greater strides towards energy efficiency. Access goals areachieved by 2030, with substantial air quality improvements made as the country moves
away from traditional biomass and meets transport efficiency and electrification goals. India
becomes a world leader in battery storage and is one of the fastest‐growing markets forrenewable energy globally. India also remains central to global energy trade, although
imports of coal and oil are lower than in the STEPS, and imports of gas higher.

There is a huge reallocation of capital in the SDS in favour of low‐carbon fuels andtechnologies, with solar and wind alone attracting an average of $35 billion investment
spending per year in the period 2030‐40, an almost threefold increase on today’s levels.
Renewable integration challenges also call for far more spending on electricity networks. The
additional investment needed is, however, offset by reduced spending on oil due to transport
electrification and tighter efficiency standards: this translates into a 15% fall in India’s oil
imports, and a consequent saving between 2019 and 2040 of $1.4 trillion compared with the
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As in the IVC, India in the SDS meets in full its targets to reduce air pollution while ensuring
universal energy access to clean cooking. However, energy‐related CO2 emissions follow avery different trajectory. In the SDS, India charts a pathway out of the crisis which focuses oninvestment in clean energy technologies; whereas in the IVC around 90% of primary energy
demand growth is met by fossil fuels over the next decade, in the SDS this falls to around athird and there is significant substitution away from more polluting to less polluting fuels. As
a result, emissions peak in the SDS in the mid‐2020s, and end up more than a third below
2019 levels by 2040, even though energy demand grows by more than 20%.

STEPS. Even though LNG demand is higher than in the STEPS the total import bill for gas islower, as the greater surplus of global gas supply has a dampening effect on prices.
Table 4.1 ⊳Key energy sustainability and security indicators for India by
scenario
SDS

STEPS

2040

2030

IVC

2000 2019

2030

2040

Energy demand (Mtoe)

441

929

994 1 147

Share of India in global energy demand

4%

6%

7%

9%

8%

9%

7%

9%

Energy intensity (toe/capita)

0.42

0.68

0.66

0.70

0.82

0.99

0.77

0.96

Energy use per capita versus global
average

25%

36%

42%

51%

44%

53%

42%

51%

1 237 1 573

2030

2040

1 153 1 526

4

SDG 7: Access (million people)
Population without access to electricity
Population without access to clean
cooking
Share of global total

602

5.5

0

0

0

0

0

0

823

656

0

0

501

375

0

0

28%

25%

‐

‐

21%

20%

‐

‐

SDG 13: Energy‐related GHG emissions
CO2 emissions (Gt)

0.9

2.3

2.1

1.5

2.9

3.4

2.7

3.0

CO2 captured through CCUS (Mt)

0

0

19

208

0

0

19

138

India share of global CO2 emissions

4%

7%

9%

10%

9%

10%

8%

9%

Methane (Mt)

1.6

1.7

0.5

0.6

1.4

1.3

0.5

0.6

‐

0.6

0.6

0.5

0.7

0.9

0.6

0.5

‐

0.6

0.1

0.1

0.6

0.5

0.1

0.1

Oil

64%

76%

91%

92%

90%

92%

90%

91%

Natural gas

0%

50%

64%

69%

58%

61%

59%

61%

Thermal coal

5%

27%

24%

34%

19%

17%

19%

15%

Import bill

23

123

153

156

228

326

232

325

Oil

22

89

118

106

181

255

180

243

Natural gas

0

12

19

33

26

43

32

56

Coal

1

21

16

18

20

27

20

26

Energy investment

27

84

239

327

176

220

194

241

Fuel supply

7

25

19

15

27

23

28

27

Power

19

49

128

165

101

127

117

143

‐

9

92

147

49

71

67

101

SDG 3: Air pollution (million people)
Premature deaths from energy‐related
ambient air pollution
Premature deaths from energy‐
related household air pollution
Import dependence

Efficiency and end use

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Trade and investment (billion dollars)

4.2

India and the Sustainable Development Goals

India has made considerable progress in recent years towards achieving the UN SDGs. Thissection examines recent progress towards the energy‐related SDGs, and looks at what
policies or measures could help to accelerate action. Progress on the energy‐related SDGs
offers the prospect of faster progress towards the achievement of other SDGs as well,including those related to health, education, water and sanitation that are often hampered
by a lack of reliable electricity access and poor air quality.

4.2.1

Access to affordable, reliable and modern energy services

The UN SDG 7.1 calls for ensuring universal access to affordable, reliable and modern energy
services.

Electricity accessIndia has made great progress on electricity access in recent years through the Saubhagya
Scheme, and government data indicate that more than 99% of households were connected
to electricity in 2019. There are, however, continuing problems with the quality and reliabilityof electricity access for connected households, and with access for non‐household
customers: studies found that less than 80% of institutional customers, 65% of small
businesses and 50% of agricultural customers had been connected to the grid in 2018
(Bali, Vermani, & Mishra, 2020; Dayal, 2019).
There is a risk that the Covid‐19 pandemic and its economic effects could reverse recent gains
and push some connected households back into energy poverty. In India, up to 40 million
people with electricity connections could lose the ability to pay for an extended bundle ofelectricity services (IEA, 2020).1 Some low‐income households are facing the need to maketrade‐offs between their energy needs and other demands, and this could propel them backto traditional and inefficient fuels.

1This extended bundle includes a mobile phone charger, four light bulbs operating four hours per day, a fan
six hours per day, a television four hours per day, and a refrigerator, equating to 1 250 kWh per household peryear with standard appliances. See part 3.2.1 of the World Energy Outlook 2020 for more details.

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In the STEPS, near‐universal access to electricity is maintained, despite India’s population
increasing by 130 million people over the next 10 years. Around $35 billion is spent on
average each year over the 2021‐30 period on the construction and refurbishment oftransmission and distribution lines – a substantial increase on today’s levels – and subsidy
schemes support increased electricity use by poor households. Residential electricity
consumption increases from around 1 000 kWh per household in 2019 to 1 500 kWh in 2030
as a result of increased household revenues and improved central grid reliability. This
nonetheless remains far below electricity consumption in advanced economies (6 000 kWh
per household in 2030), and there are still some reliability and affordability issues, with many
households not able to maintain uninterrupted access to electricity.

On‐grid electrification remains the most economic option for the majority of Indian
consumers gaining access to modern energy services, especially with rising household
consumption from growing appliance ownership, and it accounts for around 99% of theconnections realised within the Saubhagya Scheme. However, in certain cases – especially inremote rural locations – standalone systems and mini‐grids offer a viable alternative for
ensuring reliable access to electricity services to complement the main grid. Diesel
generators are one well‐established option, but renewables are expected to play a growingrole as the costs of solar PV fall and as solutions emerge which allow electricity to be stored
for use in the evenings. India has various policies in place backing solar home systems, solar
pumps and mini‐grids, such as the Off‐Grid and Decentralised Solar PV Programme and theKusum scheme to replace existing diesel pumps with solar PV pumps. Such measurestranslate into steady increases in deployment, providing increased access to farmers andother rural consumers.

4

Both the IVC and the SDS see additional policies and measures to boost the affordability,
reliability and use of electricity by households and other customers. Support is also provided
for poor households to purchase more efficient appliances, allowing them to increase theiraccess to services without compromising electricity affordability. At the same time, efficiency
improvements facilitate improvements to electricity security by reducing the growth inelectricity demand, including peak demand. Regulations and incentives further boost the
deployment of decentralised systems.

Access to clean cooking
Progress on clean cooking access has been slower than progress on electricity access,hampered in part by affordability and supply issues. As noted in Chapter 1, the government
has made huge efforts to expand access to LPG through the PMUY scheme. Even though
97.5% of households today have the ability to access LPG (Indian Ministry of Petroleum &Natural Gas, 2020), we estimate that around 650 million people, just under half of India’s
population, continue to rely primarily on traditional uses of biomass in households (and soare counted as not having access).2 This is an issue in rural areas in particular: more than 90%of those without access live in rural areas.

2
A full description of the World Energy Outlook energy access definition and methodology can be found at
www.iea.org/articles/defining‐energy‐access‐2020‐methodology.

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Where LPG connections have been made, they have not always unlocked sustained use due
to concerns about supply, as well as cultural factors. A primary difficulty is the need topurchase quantities of LPG in bulk: even with government subsidies, other fuels are often
available more cheaply, or in smaller quantities, and are therefore a better fit with theincome structure of poor households. In addition, the LPG bottling and distribution
infrastructure is not yet ready to sustain the use of LPG by all households, even if they havea connection. Efforts to create new private distributors in rural areas are often hampered bya lack of adequate financial returns (Josey, Sreenivas & Dabadge, 2019).

Figure 4.3 ⊳Share of population relying on different fuels for cooking in the
STEPS and the IVC, 2030
India Vision Case

Stated Policies Scenario
2%

Traditional uses ofbiomass

5%
6%
33%

8%
7%

LPG
9%
Natural gas

54%

76%
Improved biomass
cook stoves
Other clean

In the STEPS, traditional uses of biomass continue to be used by 500 million people as themain way of cooking in 2030; in the IVC, this is replaced by a wide range of alternatives.
Note: Fuel shares in the SDS are similar to the IVC.

In the STEPS, more than 170 million people move from the traditional uses of biomass toalternative clean cooking options over the period to 2030. However, taking into accountpopulation growth, this leaves around 500 million people without access. As a result, there
are still nearly 0.6 million premature deaths due to indoor air pollution in 2030.
In the IVC and the SDS, full access to and full reliance on clean cooking is achieved by 2030,
meaning that close to 670 million people gain access to clean cooking over the next 10 years.
LPG is the mainstay of clean cooking access efforts; three‐quarters of India’s population rely
primarily on LPG for cooking by 2030, and LPG demand increases by 50% between 2019 and
2030. Investments and incentives are deployed to expand infrastructure for LPG bottling anddistribution and for the repair and replacement of broken stoves. Innovative subsidy
schemes play a key role in supporting the sustained use of LPG and eliminate stacking oftraditional fuels.3

3Fuel stacking is when a household uses a number of different fuels for different uses, using a mixture ofmodern and traditional fuels. For example, a household may have access to LPG, but only use it to boil water,
and continue with the traditional use of biomass for other cooking needs.

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The use of improved biomass cook stoves and biogas also makes an important contribution,
providing clean cooking to around 180 million people in 2030. They are especially importantin locations where there is more resistance to replacing traditional solutions, or wherereliable LPG delivery is more difficult to ensure, and in locations with a ready supply of biogas
feedstock. In urban areas, natural gas meets an increasing share of cooking needs in the IVC
and the SDS through the development of gas distribution infrastructure in major cities. This

helps to displace LPG in urban areas and allow its increased use in rural areas where thedevelopment of gas distribution infrastructure is more challenging. There is also a role forelectricity in providing clean cooking access, especially in urban areas, where 6 million people
gain access through electric cook stoves by 2030.

4.2.2

Energy and air pollution

Improvements in air quality are crucial for the achievement of multiple SDGs. Ensuring accessto clean energy (SDG 7.1) would reduce household air pollution; increasing the share of
renewable energy (SDG 7.2) would permanently reduce power sector air pollution;
improving energy efficiency (SDG 7.3) would likewise tackle air pollutant concentrations
across the energy economy; enhancing access to sustainable transport (SDG 11.2) would
improve the overall air quality in cities (SDG 11.6). Air pollution policies also offer directco‐benefits for GHG emissions reductions (SDG 13).

4

As described in Chapter 1, air pollution has emerged as one of India’s most pressing
environmental challenges, and the energy sector is the largest source of three of the major
air pollutants: nitrogen oxides (NOX), sulphur dioxide (SO2) and PM2.5. PM2.5 is the air pollutant
of most concern as concentrations exceed the NAAQS in many monitored locations. NOX
emissions are increasingly problematic in urban areas, while SO2 concentrations are aparticular issue in areas with many thermal power or industrial plants.

Mt

Figure 4.4 ⊳Sectoral contributions to air pollution levels in the STEPS and SDS
SO₂

NOₓ

PM2.5

2015 2019 STEPS SDS
2040

2015 2019 STEPS SDS
2040

2015 2019 STEPS SDS
2040

8
6
4
2

Agriculture

Buildings

Industrial combustion

Industrial processes

Power

Transport

Other

Air pollutant emissions fall in the power and transport sectors through to 2040 in the STEPS,

Combustion‐related emissions of PM2.5 made up more than two‐thirds of total household air
pollution in 2019. Pollution largely results from the incomplete burning of traditional
biomass, such as fuelwood or agricultural residues, used for cooking and heating activities.
Policy efforts to promote access to clean cooking led to a 16% decline in emissions between
2015 and 2019 to 4.7 Mt.
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but only SO2 emissions fall significantly in overall terms, and industrial emissions grow.

The power sector was responsible for half of the 8.5 Mt of total SO2 emissions in 2019, withindustrial activities contributing an additional one‐third. Even though India’s coal contains
relatively little sulphur, coal combustion was the main source of SO2 emissions. Air pollution
control technologies for thermal power plants, such as flue gas desulphurisation, are rarely
deployed. The government has recently taken initial steps to rectify this by passing theEnvironmental Protection Amendment Rules (EPAR) Act.
NOX emissions have grown slowly in recent years to just over 8 Mt in 2019. About 40% of
these emissions stem from road transport, with nearly a further 30% from the power sector.
Road transport activity increases with population density, and vehicle tailpipe emissions
occur close to the ground, making urban NOX pollution particularly damaging to health.
In the STEPS, existing policies to curb air pollution are implemented over time, and theselimit the level of air pollution despite the rapid rate of population and economic growth overthe period to 2040 (Figure 4.4). Increases in urban populations, however, mean that more
people are exposed to higher concentration levels of air pollution and so annual premature
deaths increase by 0.2 million to nearly 1.4 million in 2040, of which 60% are related toambient air pollution (Figure 4.5). In the SDS, there is a much more substantial reduction in
all air pollutants, meaning that the number of premature deaths in 2040 is more than 50%
lower than in the STEPS.
Figure 4.5 ⊳Premature deaths related to air pollution globally and in India
India

Millions

By region
8

1.6

6

1.2

4

0.8

2

0.4

2015

2019

STEPS
SDS
2040

India
Sub‐Saharan Africa

China
Other

2015

2019

STEPS
SDS
2040

Ambient air pollution
Household air pollution

There were nearly 1.2 million premature deaths from air pollution in India in 2019. This
number rises by 0.2 million to 2040 in the STEPS but falls by around 0.5 million in the SDS.

SO2 emissions fall by 44% between 2019 and 2040 in the STEPS. A 90% reduction in emissions
from the power sector reflects full implementation of the EPAR, which means that the178

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There are divergent trends between sectors in air pollution emissions in the STEPS,
depending on the stringency of existing and planned regulations.

majority of coal‐fired capacity is fitted with advanced desulphurisation control technology
by 2030. However, neither current nor planned policies adequately monitor and regulate air
pollutant emissions from the industry sector, particularly from small and medium
enterprises. As a result, emissions of SO2 from industrial processes, which are only partiallycovered by existing or planned policies, increase by more than 80% over the 2019‐40 period,
offsetting a quarter of the reductions in the power sector. NOX emissions in the STEPS fall by
15% between 2019 and 2040. Conventional vehicles sold after April 2020 are required tomeet Bharat Stage VI emission standards, and the number of EVs increases, leading to a fallin road transport NOX emissions of 60% to 2040. However, NOX emissions from the industry
sector grow by 90% over the same period.
PM2.5 emissions in the STEPS increase by 4% through to 2040. Progress in access to clean
cooking and heating technologies leads to a 40% reduction in PM2.5 emissions from theresidential sector, but PM2.5 emissions from industrial facilities double over the period to2040, more than offsetting the reductions elsewhere. While some industrial facilities do use
PM2.5 air pollution control technologies, there is a lack of effective regulation, and manyothers do not.

4

In the SDS, air pollution policies are expanded to all sectors, including the combustion offossil fuels in industry and industrial processes via advanced control technologies. There isalso a rapid expansion of low‐carbon energy technologies and a sharp reduction in coal‐fired
power generation. As a result, power sector air pollutant emissions are almost entirely
eliminated, and there is a much larger overall reduction in SO2 and NOX than in the STEPS.
Universal access to clean cooking and heating technologies in the SDS lowers residential
PM2.5 pollution to a negligible level from 2030.

4.2.3

CO2 emissions

India’s large and growing population, its low (but increasing) levels of energy consumption
per capita and its high level of projected economic growth could all result in significant levelsof future emissions, despite its relatively low per capita emissions today (see Chapter 1). In
the STEPS, CO2 emissions in India rebound quickly from the drop in 2020, and they exceed
2019 levels by 2022. There is a steady slowdown in the pace of growth over the period to2040: emissions grow by 70 Mt per year between 2019 and 2030, by 60 Mt per year in thefirst half of the 2030s, and by 45 Mt per year in the second half. Total emissions in 2040 arearound 50% greater than 2019 levels, although per capita CO2 emissions in 2040 (2.4 t CO2
per capita) are still 40% lower than the global average at that time (4 t CO2 per capita).

The power sector sees an especially large divergence from past CO2 emissions trends in the
STEPS (Figure 4.6). Between 2019 and 2040, electricity demand increases by nearly 150%
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As part of the Paris Agreement, India included in its NDC a target to improve the emissions
intensity of its GDP by 33‐35% by 2030 compared with 2005 levels and to achieve a 40% shareof non‐fossil fuels in electricity generation capacity by 2030. Both of these high‐level targets
are met in the STEPS: the emissions intensity of GDP in 2030 is 40% lower than in 2005, andnearly 60% of India’s electricity capacity in 2030 is non‐fossil fuel.

while emissions increase by 15%. The share of coal generation drops from just over 70% in2019 to less than 35% in 2040, while the share of renewables rises from 20% in 2019 to morethan 55% in 2040. Power sector emissions grow slightly over the period to 2030 but thenremain on a plateau thereafter.

Index (2019 = 1)

Figure 4.6 ⊳Changes in demand and CO2 emissions by sector in the STEPSPower and buildings

4

4

3

3

2

2

1

1

2000
Power

2020
Buildings

2040
Industry

Industry and transport

2000

2020

Transport

Emissions

2040
DemandIn the STEPS, activity and emissions diverge significantly in the power sector and thebuildings sector to 2040; breaking these links is harder in industry and transport.
Note: Activity variables: Power = electricity demand; buildings = residential floor space; industry = gross value
added; transport = vehicle kilometres.

There is less of a decoupling between activity and emissions in the industry sector. Cement
production grows by 150% between 2019 and 2040, and emissions rise by 100%. A similar
trend occurs in steelmaking. An increase in the use of natural gas helps keep emissions lower
than they would otherwise be by displacing coal: the share of industry energy demand taken
by natural gas more than doubles to 20% in 2040. Nevertheless, total CO2 emissions fromindustry grow by more than 90% over the 2019‐40 period.
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The buildings sector also sees a loosening of the links between emissions and activity in the
STEPS. Residential floor space almost triples between 2019 and 2040. There is also a big
increase in electricity use in buildings, which expands by a factor of three between 2019 and
2040. Electricity’s share of total fuel use in buildings reaches nearly 50%, up from less than
20% today, reflecting an increasing level of appliance ownership. Ownership of air
conditioners grows particularly rapidly. Despite this, emissions from residential buildings
increase by less than 50%, and a similar pattern is observed in commercial and publicbuildings. New buildings are built to increasingly efficient designs, and major efforts are
made to develop passive cooling systems. Policies that mandate minimum efficiency
performance standards for air conditioners also help to curb some the increase in electricity
demand that this would otherwise imply, while part of the growth in electricity demandcomes at the expense of less efficient traditional biomass.

The growth in emissions from transport in the STEPS also remains closely linked to increases
in activity. Total emissions from heavy‐duty trucks nearly triple over this period as a result of
increases in freight activity, although they are somewhat lower than they would otherwise
be thanks to the average fuel consumption of heavy‐duty trucks on the road in 2040 being
almost 20% lower than in 2019. There is also a substantial increase in emissions frompassenger cars as ownership increases by a factor of five between 2019 and 2040. This ispartly offset by a 30% improvement in the average fuel efficiency of passenger cars using
internal combustion engines over the period to 2040, and by increasing sales of electric cars.
In 2040, around 10% of the passenger cars and more than 50% of two‐ and three‐wheelerson the road are electric. Nonetheless, the growth in emissions from passenger cars accounts
for around 40% of the total increase in transport sector emissions.
Box 4.1 ⊳How do changes in emissions in India compare with other4

countries?

Comparisons between the changes in CO2 emissions in India and in other countries need
to be treated with caution. India is at a very different stage of development from manyother economies, and it is set to experience rapid population and economic growth formany years to come. India’s emissions per capita rank among the lowest in the world
today, and it accounts for only about 3% of historic energy sector and industrial process
CO2 emissions since 1850 (compared with around 30% for Europe, 25% the United States
and around 15% for China).

An increasing number of countries and jurisdictions have announced targets or goals toachieve net‐zero CO2 or GHG emissions. For example, the European Parliament and theEuropean Council have endorsed a target to achieve net‐zero GHG emissions in theEuropean Union by 2050, and the Chinese government has announced a target to achieve
net‐zero CO2 emissions by 2060. These targets are achieved in full in the SDS. Thesetargets help to spur innovation and provide incentives for consumers and private actors
to reduce emissions. They also provide a number of incentives to emissions reductions inIndia through lower costs for clean energy technologies and a much larger market forlow‐emissions products and services. In the SDS, India is on track to achieve net‐zeroemissions around the mid‐2060s.

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In the STEPS, CO2 emissions in India follow a different trajectory from that in mostadvanced economies, rising by 50% compared to 2019, to around 3.7 Gt CO2 over theperiod to 2040 (Figure 4.7). By 2040, India is the world’s second‐largest emitting country
behind China, although China’s emissions (more than 10 Gt CO2 in 2040) are markedly
higher. Nonetheless, India’s per capita emissions in 2040 (2.4 t CO2 per capita) remain far
smaller than in most other countries, including the United States (9.5 t CO2 per capita),
China (7.3 t CO2 per capita), and European countries (3.7 t CO2 per capita). In the IVC,
emissions in India are slightly lower than in the STEPS, despite a higher level of economic
growth. In the SDS, emissions in India fall by around 30% over the 2019‐40 period.

Energy-related CO2 emissions and GDP per capita by region

Figure 4.7 ⊳kt CO₂in the STEPS
6 000
Europe5 000

1990
United States

20192040 STEPS

4 000

2040 SDS

India

3 000
2 000
1 000

Southeast Asia0

20 000Japan
40 00060 00080 000GDP per capita (thousand $, PPP)As with other emerging and developing market economies, there are major differences
between the emissions trajectories for India in the STEPS and in the SDS.
Note: kt = kilotonnes.

Emissions in the IVC rise to a lesser extent than in the STEPS (Figure 4.8). In 2040, CO2
emissions are around 450 Mt lower in the IVC than in the STEPS, despite stronger economic
growth in the IVC and the achievement of universal access to energy. The biggest differenceis seen in the industry sector, where CO2 emissions are around 260 Mt lower in 2040 in the
IVC than in the STEPS. This stems mainly from a greater push for the use of more efficienttechnologies, which slows the increase in coal use, especially in the iron and steel sector.
Emissions from the power sector in the IVC in 2040 are also around 100 Mt lower than in the
STEPS; much of this is due to the greater growth in the IVC of the use of natural gas in placeof coal‐fired power, which peaks in the mid‐2020s.

In the power sector, emissions from coal‐fired power plants fall by 90% between 2019 and
2040 in the SDS. Renewables provide nearly 80% of electricity generation in 2040: generation
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The SDS charts a very different course for emissions than the STEPS (Figure 4.8). CO2
emissions rebound slightly in 2021, but they never return to 2019 levels at any point in theoutlook period. By 2030, emissions are around 5% lower than 2019 levels, and in 2040 they
are nearly 30% lower. As a result, emissions in India in 2040 are around 1.1 t CO2 per capita,
similar to levels in the mid‐2000s. At a sectoral level, the largest differences between the
STEPS and the SDS are in the power sector and industry, but there are also much stronger
efforts to improve the efficiency of buildings and appliances in the SDS. Nearly 500 million
people gain access to clean cooking solutions by 2040 in the SDS through the use of LPG,
which leads to a small increase in CO2 emissions, though this would be more than offset by
reductions in other GHGs (methane and nitrous oxide).

from solar PV increases by more than 60 TWh every year on average to 2040, while wind
generation grows by more than 35 TWh each year. In the SDS, around 40 GW of new solar
PV is installed in India on average each year by 2040. To put it in another way, more capacity
is added in a single year than was installed up to 2019. Around 15 GW of coal‐ and gas‐fired
power plants are also equipped with CCUS in 2040.

Mt CO₂

Figure 4.8 ⊳Changes in CO2 emissions in India by scenario, 2019-2040
STEPS

4 000

IVC

SDS

3 000

4

2 000
1 000

2019
Power

2040

2019
Industry

2040
Transport

2019

2040

Buildings

Other

In the STEPS, the industry and transport sectors lead emissions increases; in the SDS, theseincreases are more muted and there is a marked decline in power sector emissions.

In the industry sector, coal use grows slightly to 2040 in the SDS, but at a much slower pacethan in the STEPS. A number of industrial processes are fitted with CCUS to reduce emissions
in the SDS, but enhanced efficiency measures play the most important part in curtailing the
growth in industrial emissions. In the SDS, fuel use in industry is nearly 25% lower than in the
STEPS, despite an identical level of economic output from the industry sector. Electricity also
accounts for around one‐quarter of total energy use in the industry in 2040, compared with
20% in the STEPS.

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In transport, there is much more rapid growth in EVs in the SDS than in the STEPS: by 2040,
60% of passenger cars and 40% of trucks on the road are electric. The use of sustainablebiofuels and low‐carbon gas and hydrogen‐based fuels helps further to reduce the use of
petroleum products in trucks, as well as in aviation and maritime shipping. Internal
combustion engines are also around 40% more efficient in 2040 than today, reducing
emissions from cars and trucks that continue to use them. Transport emissions nonethelessedge up marginally over the period to 2040.

Mt CO₂

Figure 4.9 ⊳Energy sector CO2 emissions and reduction levers in the SDS

4 000

Other
STEPS

CCUS

3 000

Nuclear
Fuel switching
SDS

2 000

Renewables
Efficiency

1 000

2010

2020

2030

2040

The enhanced deployment of renewables and efficiency causes CO2 emissions to peak in
India in the SDS by 2030 and to decline steadily thereafter.

4.2.4Managing potential trade‐offs and synergies between the SDGs

Charting a course towards achieving all of the SDGs in India in parallel is an immensely
challenging undertaking. The relevant policies align in many respects, and there are a numberof areas where synergies mean that progress towards one SDG can boost or support othergoals. However, there remains a risk that progress in one area could hamper efforts
elsewhere; energy transitions could for example have wider social impacts (Box 4.2). The
course described in the SDS seeks to avoid or minimise trade‐offs to the extent possible.

One example of potential trade‐offs between policy goals comes in the transport sector.
Electrification of road transport substantially reduces air pollution from this sector: aconventional car can emit more than 10 times the NOX produced by an electric car. However,
if coal power plants without any pollution controls are used to generate the electricity forthese vehicles, this would increase emissions of SO2. In this case, generating electricity for anelectric car using coal would add about 18 times more SO2 emissions than using a
conventional car (Figure 4.10). Implementation of the EPAR measures to reduce SO2
emissions from power plants would help ensure that transport electrification leads to a
reduction in all air pollutants. Conventional cars also produce CO2, and the emissions
intensity of electricity needs to be less than 700 g CO2/kWh to 750 g CO2/kWh for new
electric cars to result in fewer emissions than existing conventional passenger cars in India.
The average emissions intensity of electricity in India is around this level today. In the STEPS,
it falls to around 340 g CO2/kWh in 2040: if all EVs in 2040 were to be powered using
electricity with this emissions intensity, this would lead to power sector emissions of around
45 Mt CO2.
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Minimising potential trade‐offs between the SDGs

The oil displaced by EVs in the STEPS would avoid around 80 Mt CO2, meaning that there
would be an overall reduction of around 35 Mt CO2 from the deployment of EVs. The exact
level of savings would, however, depend on the precise time of vehicle charging as theemissions intensity of electricity in 2040 in the STEPS varies considerably throughout the day.
It would be lowest during the daytime, when there is a large level of generation from solar
PV, and highest at night‐time, when coal power dominates the generation mix (seeChapter 3). Recharging electric cars during the daytime would therefore reduce the level ofemissions coming from the power sector, and so further increase the overall level of savings.
In the SDS, the average emissions intensity of electricity drops to around 60 g CO2/kWh in
2040. Electric cars would therefore be significantly less emissions‐intensive thanconventional cars: powering all EVs in 2040 in the SDS with 60 g CO2/kWh electricity would
lead to a net reduction of more than 150 Mt CO2. Again, savings could be even larger if
vehicles were to be charged during the daytime.

4

Figure 4.10 ⊳ Emissions of CO2, NOX and SO2 from EVs in 2040
500

150

250

0

0

‐ 150

‐ 250

‐ 300

STEPS
Transport

SO₂

NOₓ
kt

Mt

CO₂
300

SDS
Power

‐ 500

STEPS

SDS

STEPS

Avoided from power sector transformation

SDS

Net impact

Road transport electrification reduces CO2 and NOX emissions, but parallel changes in
power generation are essential to eliminate potential rises in SO2 emissions.

Turning to another part of the energy sector, India has a target to convert around 100 Mt ofcoal to natural gas using coal gasification by 2030, which points to another potential trade‐
off between air pollution and CO2 emissions. The use of natural gas in cities would reduce
emissions of SOX and PM2.5, but coal gasification is a very CO2‐emissions intensive way of
producing natural gas. Achieving the government’s target would lead to an additional
150 Mt CO2 emissions by 2030, compared with a case where the natural gas was produced
from conventional reservoirs. CCUS offers a possible way of avoiding these additionalemissions.
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Notes: For CO2, analysis assumes EVs are powered with the average annual emissions intensity of electricity
generation. For SO2, there are measures implemented in the SDS that reduce the sulphur content of gasoline
and diesel to very low levels, so EVs displace slightly smaller quantities of SO2 than in the STEPS.

Finally, the energy transition envisaged in the SDS requires an increase in investment
expenditure compared with the STEPS: a cumulative increase of $1.4 trillion of investments
in a wide range of clean energy technologies would be needed over the period 2019‐40. To
the extent that this relies on direct government expenditure, it would require increases intaxes, possibly including energy taxes, which could in turn increase end‐user prices and risk
damaging progress on energy access. This could be avoided by mobilising spending fromprivate sources to ensure adequate investment for secure and sustainable energy
transitions. As discussed in the next section, such mobilisation depends on improving
effective regulatory procedures, reforming energy taxes and reducing risks for private
investment.
Box 4.2 ⊳The employment impacts of energy transitions

A transformation of India’s energy sector will inevitably have implications for
employment as opportunities in cleaner energy and related sectors increase and jobs intraditional parts of the energy economy become scarcer. The changes involved will havea major impact on the lives of many people and communities, and they call for a strategic
approach to secure a just transition with a strong focus on training and retraining.
Figure 4.11 ⊳ New full-time jobs added in India by 2030 by scenario andMillions of jobs

investment segment
2.0

Innovative technologies
End‐use renewables andmodern biomass cook stoves
Efficiency
Bioenergy production

1.5

1.0

Electric and hybrid vehicles
0.5Power generation
Grids
STEPS

IVC

SDS

Clean energy employment grows in all scenarios, especially in the SDS; the scale of theAcross all scenarios, employment ramps up rapidly in grids and clean power generation,
EV manufacturing, end‐use efficiency and renewables, including in appliancemanufacturing and the deployment of modern cook stoves (Figure 4.11). In the SDS,
employment in these sectors grows notably higher than in the other scenarios, reaching
1.6 million full‐time equivalent jobs, largely due to substantial increases in employment
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growth underlines the need for training and retraining.

in EV manufacturing and in efficiency. In the SDS, strategic decisions taken early to limit
growth in conventional manufacturing segments minimise the need for retraining andlater retooling of manufacturing lines. The IVC relies heavily on renewable generation
and batteries, and employment levels in those areas are comparable to those in SDS.
The location of these jobs is an important factor for managing transitions, especiallywhen directing programmes and funding. Jobs in construction and delivery of retrofits
have a relatively even geographic distribution: retrofits can be performed wherever there
are buildings. Manufacturing and mining jobs, however, are geographically specific, andare often vitally important to the local area. For example, coal is mostly produced in thepoorer states of India today, and coal extraction is the main economic activity in several
regions. In the SDS, there is an 85% reduction in coal‐fired power generation and a 60%
reduction in domestic coal mining between 2019 and 2040. This would inevitably
entail large job losses among the roughly 500 000 official workers who depend on theindustry, and more among informal workers. Unless carefully managed, this could have
major social and economic implications in local economies and communities.

4

There is much that could be done to support those who would be affected. For example,
regions where jobs are lost due to the energy transition could be focal regions forinvestments in emerging sectors, such as battery production, and funding could be
provided for environmental restoration in mining regions, which could provide near‐term
employment for those approaching retirement as others are retrained. A comprehensive
communication strategy, together with well‐resourced reskilling and regional
revitalisation programmes, would be essential to enable workers in incumbent industries
to find alternative livelihoods (IEA, 2020b). Retraining programmes should be informed
by a process of mapping skills between displaced and growing occupational segments
requiring similar skill sets (ILO, 2011).

Identifying and maximising synergies

Reducing the traditional use of bioenergy for cooking would also reduce GHG emissions. The
majority of people gaining access to clean cooking achieve this through the use of LPG. While
the achievement of clean cooking for all would lead to an increase in CO2 emissions, thiswould be more than offset in terms of overall GHG emissions by a reduction in methane andnitrous oxide emissions arising from the traditional uses of biomass (Figure 4.12). More clean
cooking with LPG could also reduce deforestation and other environmental and water
stresses that are often associated with the collection of biomass and charcoal.

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There is a great deal of potential for synergies between improving energy access andreducing air pollution. In 2019, there were around 600 000 premature deaths associatedwith household air pollution in India, most of which were associated with traditional uses ofbiomass for cooking. Achieving full access to clean cooking solutions by 2030, as in both the
IVC and the SDS, reduces this to fewer than 100 000 deaths in 2030.

There is also a great deal of scope for synergies between reducing GHG emissions andachieving other sustainability objectives. For example, greater use of renewables would
reduce emissions, and would at the same time reduce water stress (Box 4.3).
Figure 4.12 ⊳ Changes in GHG emissions from providing clean cooking by
scenario, 2019-2040

Stated Policies Scenario

Indian Vision Case

Mt CO₂‐eq

40
30
20
10
0
‐ 10
LPG

Traditional uses of biomass

Net change

Higher CO2 emissions from increased LPG consumption for access in the IVC are more thanoffset by a reduction in other GHGs, notably methane, from the traditional use of biomass.
Note: CO2‐eq = carbon dioxide equivalent.

Box 4.3 ⊳Reducing water needs in the power sector

India’s power sector withdrew over 20 bcm of water and consumed more than 3 bcm in2019, almost all of it used for cooling and washing in coal power plants.4 Yet almost 35%
of India’s coal power plant capacity that uses freshwater cooling is located in areas thatare categorised as extremely water stressed, and a further 16% is in areas experiencing
high water stress.5
India has put in place a number of measures to reduce levels of water withdrawal. Allexisting and new thermal power plants are required to switch to tower coolingtechnologies and to cap their water consumption, and plants located within a 50 km
radius of municipal sewage treatment plants are required to use treated sewage water.
Nevertheless, just 8% of all coal plants in India have access to treated wastewater and5

Baseline water stress is taken from the World Resources Institute’s Aqueduct database. Stress levels are
based on the ratio of water withdrawals to available renewable ground and surface water supplies. For highstress the ratio is 40‐80%, and for extremely high it is greater than 80%.

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4
Water consumption is the volume withdrawn from a source that is not returned (i.e. is evaporated ortransported to another location) and is no longer available for other users. Water withdrawals are the volume
of water removed from a source and are always greater than or equal to water consumption.

are able to use it completely or partially to meet their cooling water needs; there are also
water quality challenges and competition from other uses, such as irrigation.
To alleviate water stress further, operators could improve power plant efficiency, deploy
dry cooling plants, retrofit existing plants to use dry cooling, and make better use ofnon‐fresh water and water recycling.
A number of low‐carbon energy options – most notably nuclear, bioenergy andconcentrating solar power – also require access to water and could be limited by water
availability in the future. Decisions about plant locations and cooling technology options
therefore need to take into account water availability and competing water demands.
The STEPS sees a significant decrease in water withdrawals to 8 bcm in 2040 as a resultof increases in the share of electricity coming from use of renewables and regulations onwater use in thermal power plants (Figure 4.13). However, water consumption grows by
65% to 2040 as a result of India’s policy for all thermal power plants to use tower cooling.

4

The SDS sees water withdrawals fall to less than 3 bcm in 2040, reflecting a major
reduction in coal‐fired power generation. The decline in coal‐fired generation also meansthat water consumption falls by around 40% to 2040, although this is offset slightly byincreases in consumption from modern forms of biomass, nuclear and concentrating
solar power.

Billion cubic metres

Figure 4.13 ⊳ Power sector freshwater withdrawals and consumption
30

Consumption

25

Withdrawal

20
15
10
5

2019

2040
STEPS

2040
SDS

Water consumption from coal-fired power generation falls by 90% in the SDS; this is

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offset to a very limited extent by an uptick from water-intensive low-carbon sources.

4.3

Clean energy investment and financeIndia currently devotes nearly 3% of its GDP to energy investment, and an increasing shareof this investment is going into clean energy.6 This clearly represents an investment
opportunity, but it is one that comes at a time of increased economic uncertainty and newrisks. The pandemic has disrupted supply chains, weakened state discoms, and undermined
access to finance, adding new challenges to persistent underlying structural issues. Despite
this, interest in investing in India’s clean energy transition remains high, as evidenced by arecord level of awards of solar PV tenders and by the response of policies, such as Delhi’s
new EV scheme.
India’s investment response to the pandemic has so far focused on short‐term measures toease liquidity and support project development. Efforts to navigate a rapidly changing
market situation while addressing longer‐term issues will determine how the outlook evolves
over the next decade. Mobilising investments will depend on improving the availability offinance from a diverse range of actors and instruments, and that in turn will depend in parton appropriate long‐term policy design.

4.3.1

Investment needs under different energy pathways

Under any energy pathway, India’s energy system would require a significant amount ofinvestment and a shift towards clean energy and grids. At nearly $160 billion, annual
spending in STEPS reaches double the level of the past five years by 2030. Half of this growthcomes from power, led by grids, renewables and battery storage. Spending continues forfossil fuel‐based power, supported by plants under construction, but the level of expenditure
steps down to much lower levels by 2030. Investment in fuel supply grows modestly for oil
and gas and biofuels in STEPS, and declines for coal by 2030. There is also a significant rise insupport for purchases of EVs, whose sales top 8 million in 2030, as well as for investment inefficiency and renewable heating applications.
The SDS sees a level of investment by 2030 that is 35% higher than in the STEPS, and threetimes greater than that during 2015 to 2020 (Figure 4.14). Over 90% of the annual$200 billion in the SDS from 2025‐30 goes to clean energy and electricity networks, up from
60% over the past five years. Renewables‐based power investment, led by solar PV and wind,
triples to almost $50 billion a year, supported by a doubling of spending on electricity grids.
System flexibility and emissions reductions are further supported by higher levels ofinvestment in battery storage, as well as by increases in gas‐fired power, hydropower andnuclear power.

6
Clean energy investment includes low‐carbon fuels, renewable power, nuclear power, battery storage,
renewables for end use, energy efficiency, EVs and chargers, and CCUS.

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Investment in the direct use of renewables in buildings, industry and transport, especiallybioenergy and biofuels, also rises in the SDS, reaching over $10 billion annually. Spending
increases to over $10 billion by 2030 on the electrification of the vehicle fleet too, bringing

about an acceleration of EV sales to 12 million annually on average from 2025 to 2030, 70%of which are two‐ and three‐wheeled vehicles, as well as a rapid roll‐out of charging
infrastructure. This is all enabled by more stringent consumption measures and investment
in energy management systems, more efficient appliances and new industrial motors.
Overall energy productivity increases by 55% in the SDS, led by improvements in the energy
intensity of commercial buildings and of key industrial sectors such as cement and steel. By
2030, investment in CCUS starts to support emissions reductions in heavy industry and coal
power, while investment in new unabated coal power dips to near zero by mid‐decade.
Figure 4.14 ⊳ Annual average clean energy-related investment and activity

Grid, battery, EV
charging investment

80
60
40

16
12
8
4

20
2015‐ 2025‐
20
30

Biofuels + direct use
Hydro + other RE power
Solar PV + wind

Energyproductivity

EV salesBillion dollars GDP/Mtoe

Renewables
investment

Million units

Billion dollars (2019)indicators by sector in the SDS

4

20
15
10
5

2015‐ 2025‐20
30

2015‐ 2025‐20
30

2015‐ 2025‐
20
30

EV charging
Battery storage
NetworkOther
2‐3 wheelers

EnergyProductivity

To meet sustainability goals, more than 90% of India’s energy investment in the SDS goes toclean energy and grids, with sizeable allocations of capital for renewables and efficiency.
Notes: RE = renewable energy. Energy efficiency is shown as gains in energy productivity (economic output
per unit of consumption). The 2025‐30 time period is used as an indicative post‐recovery benchmark.

The role of investment frameworks and the industry and financial landscape

The investment outlook also depends on the type of companies developing projects and theway they manage risks and capital budgets. PSUs are the main financiers of electricity grids
and are subject to price regulation risk (tariffs revised periodically by the regulator), while
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Mobilising capital will depend first on strengthening the enabling frameworks for investment
and addressing cross‐cutting factors, notably those pertaining to country risks (themacroeconomic situation, particularly currency volatility) and policy and regulatory risks(investors point to issues over “contract certainty” – the combination of contract sanctityand policy certainty – as a key challenge). Other cross‐cutting risks include burdensome andslow administrative processes for obtaining project permits, rigid labour regulations,difficulties associated with land acquisition and the relatively low level of availability of long‐term, fixed‐rate debt (Table 4.2).

investors in utility‐scale renewables obtain a price for electricity that is agreed up front and
set in a long‐term contract. However, India’s electricity discoms are subject to cash flow andperformance risks that have knock‐on effects for the rest of the system, includingtransmission companies and privately owned generators who remain dependent on reliabledispatching, balancing and payments. Timely investment in any part of the energy system is
to a large extent dependent on all parts of the energy system performing at an adequatelevel.
Table 4.2 ⊳Key factors affecting risks and returns and common types ofdevelopers for clean energy-related investments in India

Selected subsector

Key factors affecting risks and returns

Biofuels and biogases

 Sustainable feedstock supply chainsand domestic fuel pricing
 Land acquisition
 Power purchase and dispatch Contract certainty
 Land acquisition
 Retail tariffs and cross‐subsidies
 Enabling infrastructure Regulatory risk (access, ownership) Regulatory risk (tariff setting) Volume risk (e.g. line utilisation)
 Uncertain business model (storage)
 Retail tariffs and cross‐subsidies
 Establishing reliable baseline andmeasurement/verification of savings
 Creditworthiness of small developers
 Enabling infrastructure (e.g. pace ofelectric charger deployment)
 Retail tariffs and cross‐subsidies
 Performance issues
 Retail tariffs and cross‐subsidies
 Creditworthiness of small developers

Utility‐scale
renewable power
Distributed
renewable power
Electric grids andbattery storage
Energy efficiency

Electric mobility

Renewable heatapplications

Most common developer type
 PSUs and MSMEs

 Listed and unlisted (i.e. privatelyheld) companies, mainly large,
domestic companies Corporate consumers, PSUs andhouseholds
 PSUs, some listed (e.g. Power
Grid) and other large companies(inter‐state transmission) Large domestic companies,
MSMEs, ESCOs, households

 State‐owned and privatetransport companies Corporate consumers andhouseholds
 Large domestic companies,
MSMEs, ESCOs, households

Note: PSUs = public sector undertakings, state‐owned enterprises, majority‐owned by the central or state
governments. MSMEs = micro, small and medium‐sized enterprises, ESCOs = energy service companies.

PSUs are likely to play a continued important role over the next decade, accounting foraround 30% of the ownership of new energy capital over 2025‐2030 in the SDS. While 2020
energy investment declined by around 15%, the government is pressing PSUs to meet initial
capital budgeting targets in order to sustain employment. Spending is set to decline in the
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At nearly $85 billion in 2019 (see Chapter 1), energy accounts for around 10% of investment
in India. Large, domestically listed energy supply companies play an important role in funding
the sector: they account for nearly half of energy investment (Figure 4.15). The other half ofenergy investment comes from unlisted state‐owned companies (e.g. discoms) and private
actors, such as MSMEs, individual households and, to a lesser extent, international
companies.

fossil fuel sectors where they are most prominent, but PSUs also account for over 80% ofinvestment in electricity grids over the period. Many PSUs face increased financial strain asa result of the crisis, however, and this is affecting their ability to invest and serve as
creditworthy purchasers from private players. Some PSUs are making efforts todiversify: NTPC has signalled a shift towards investing in solar PV to increase its renewable
power generation capacity up to 25% by 2032, and Indian Railways – a major consumer – hasannounced a net‐zero emissions target by 2030.
Figure 4.15 ⊳ Energy investment by major company in 2019 (left) andownership of energy capital in the SDS (2025-2030) (right)
Energy investment in 2019by SOEs/PSUs and private actors
State discoms
ONGC
PrivateactorsOther SOEs/PSUs

Indian Oil

Investment by ownership in the SDS

4

Low‐carbon
power
Grids andstorage
Buildings

Power Grid
Industry
NTPC
Hindustan Petrol.
Transport
Bharat Petrol.
GAIL India
Coal India
NLC India

20% 40% 60% 80% 100%
PublicPrivateAround 70% of clean energy-related investment will be met by private sources; publicfinance and policy design are critical to mobilise capital to meet diverse financing needs.
Notes: Petrol. = petroleum; ONGC = Oil and Natural Gas Corporation Limited. The ownership projections are
based on estimates of the share of investment that is carried out by state‐owned enterprises and government
sponsors (public sources) compared with that led by private actors.

We estimate that 70% of investment over the next decade in sectors critical to meeting the
SDS would need to come from privately‐owned projects, which are set to play an importantpart in scaling up renewables, efficiency and new technologies. In recent years, clean energy
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Some large private actors have also increased their clean energy ambitions. RelianceIndustries has announced a 2035 net‐zero target, and other energy supply companies(e.g. Tata Group, Adani Transmission, Suzlon and Essar Oil and Gas) have committed to set
emissions reduction goals under the Declaration of the Private Sector on Climate Change,
though implementation details are not yet available. Automotive companies in India plan tospend around $500 million in support of EV deployment in the next few years. An increased
emphasis on environmental, social and governance (ESG) factors is also starting to influence
disclosure and strategies. Among the top listed companies, over half report ESG data, though
only around 5% disclose details on how capital expenditure aligns with sustainability goals.

investments have been carried out more by newer and less well capitalised companies,
raising questions over their ability to fund the transition. In some sectors, the industry has
become more mature: in utility‐scale solar PV and wind, there has been a shift towards fewer
large developers with greater risk‐taking capacity, which has helped projects to access lower
cost funding (IEA/CEEW, 2020). However, clean energy sectors generally still lack scale anddiversified access to financing. Some investments in efficiency are carried out by large,
established companies, but others are made by MSMEs and smaller ESCOs. Much of theinvestment in clean energy is also likely to come through unlisted companies that facebarriers in raising funding from capital markets. Foreign direct investment and enhancementof domestic sources are both key to meeting financing needs.
Viewed from this perspective, India’s financial system development lags behind that in manyother emerging market and developing economies, and doubts about the availability offinance puts a question mark against future investment plans (Figure 4.16). In 2020, both
debt and equity market risk premiums increased in the first half of the year, reflecting capitaloutflows amid the pandemic, and offsetting some of the moderating effect from more
expansive monetary policy and central bank liquidity support. As a result, the economy‐wide
cost of capital in India remains high, with risks to the upside in the event of potential further
economic fallout.
Figure 4.16 ⊳ India’s financial system development (left) and clean energy
investment in the SDS by financing instrument, 2025-2030 (right)

Private credit and stock market(share of GDP)
Singapore
United StatesJapan
Thailand
Malaysia
Korea
China
Viet Nam
India
Philippines
Indonesia

India investment by instrument
Low‐carbon
power
Grids andstorage
Buildings
Industry
Transport

60% 120% 180% 240%

20% 40% 60% 80% 100%
EquityDebt

A diverse range of equity and debt instruments is needed to fund clean energy-related
investment in the SDS, and access to finance represents a potential barrier to meeting

Notes: Instruments estimates are based on current observed capital structures by sector, derived fromfinancing data on companies and consumers (for balance sheet financing) and assets (for project finance),
applied to SDS investment projections; equity includes grants.

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sustainability goals.

On the equity side, economy‐wide required rates of return are generally high, at around 15%,reflecting cross‐cutting risks to investing but also the underdevelopment of capital markets.
Stock market capitalisation as a share of GDP stands at nearly 65%, compared with the global
weighted average of over 100%. India is effective at bringing new companies to market interms of initial public offerings (IPOs), though relatively few equity market listings have beenin the energy sector. Since 2015, industrial sectors have accounted for around 45% of IPOs,
and consumer firms such as automotive, retail and textile companies for a further 30%; lessthan 10% of IPOs were for energy‐related companies (mostly renewables companies).
Debt financing largely comes from a mixture of domestic banks and non‐banking financial
companies, such as the Power Finance Corporation (Figure 4.17). The average of private
credit and stock market capitalisation as a share of GDP stands around 60%, compared witha global average of around 100%. While long‐tenure debt is generally available for renewable
power, regulatory rules on sector lending mean that renewables compete for the same poolof bank capital as thermal power, where an increase in stressed assets has put pressure onbank lending (see below). Debt is more constrained on the consumer side: only around 15%
of MSMEs have formal access to credit, and many rely instead on the more expensive andless transparent informal market for lending. While MSMEs are recognised as a priority
lending sector, there are no sectoral lending requirements for efficiency.

4

Figure 4.17 ⊳ Sustainable debt issuance and types of issuers in India
By type of issuers

Billion dollars

By type of debt instruments
8
6
1%
4

4%

2

9%

Utilities
50%
Corporate
86%
Energy35%

2015 2016 2017 2018 2019 2020
Jan‐Nov
Green Bond

Green Loan

Other 1%
Commercial finance

Governments

Project

India is one of the largest emerging market issuers of sustainable debt. Although issuancehas not grown in recent years, it remained resilient in 2020.

Meeting India’s clean energy investment needs over the next decade will require a financial
system that can better match the capital needs of energy companies and assets. The closer
that India moves towards an SDS pathway, the more investment needs will increase, and themore important the availability of debt finance will become. A shift from investment in fuels
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Sources: IEA analysis based on data from Bloomberg (2020) and BNEF (2020).

to investment in the electricity sector will increase investment requirements; additional
investment will also be needed in end‐use sectors. Debt shares within these sectors in India
are lower than in advanced economies, however, pointing to a need to develop domestic
credit markets to support lower‐cost financing.
Attracting greater shares of debt depends on addressing the sector‐level issues described
below, as well as reforming sectoral lending rules, deepening corporate bond markets andfostering markets for new instruments. Better availability of default protection and risk‐
transfer mechanisms would help enhance corporate borrowing (CPI, 2020). Sustainable debt
issuance has surged globally, and India is one of the largest emerging market issuer of green
bonds, except for China. Despite the Covid‐19 pandemic, sustainable debt issuance in India
remained resilient in 2020, supported mostly by energy companies and utilities. Over 90% ofproceeds went to renewable power, with a smaller share to low‐carbon transport. If it is toscale up, the market is likely to require more integrated frameworks for measurement,
verification and reporting, and more diversity in issuers. The creation of a sustainable financetaxonomy, based on a list of green economic activities, could support this. There is also scope
for warehousing projects into securities, such as infrastructure and real estate investment
trusts (INVITs and REITs), which spread risks and transaction costs.

4.3.2

Key issues and success factors for financing clean energy transitions

Whichever way India’s energy sector evolves from here, the scale of the country’s energy
investment needs is huge, especially in the power and end‐use sectors. In the second part ofthis section, we zoom in on four issues that are critical to the prospects for a more sustainable
and secure energy sector:

the financial performance of the state electricity discoms

the question of how to scale up investment in utility‐scale renewable projectsthe different approaches required to finance efficiency improvements, transport
electrification and smaller‐scale clean energy projectsthe linkages with existing, often poorly performing investments in other parts of India’senergy sector.

State electricity discoms represent the biggest financial uncertainty in the value chain ofIndia’s power sector investment. These utilities suffer from persistent revenue shortfalls, inlarge part due to poor operational performance in billing of power, difficulties in collectionof sales from consumers, and high levels of aggregate technical and commercial (AT&C)
losses. Performance varies widely by state but overall, outstanding dues to generationcompanies climbed from nearly $4 billion in September 2017 to over $18 billion in
September 2020 (PFC Consulting, 2020). The situation affects the ability of utilities to invest
in the expansion and modernisation of grids, honour contracts with renewable and thermal
generators, and integrate clean energy technologies, such as distributed resources, that may
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Improving the financial performance of state distribution companiesaffect their top‐line revenues. As described above, uncertainty over power purchase remains
a critical risk for project developers, challenging efforts to manage the cost of energy
transitions.
In 2015, the government launched the UDAY initiative in an effort to improve discom
finances. This involved state governments writing off up to 75% of their debt andrestructuring the remaining loans with a concessional interest rate of only 10 basis points
over the central bank’s base rate. While UDAY has reduced debt burdens, it has nottranslated into dramatic improvements in key performance indicators that would denote
improved profitability. Recent annual data show the average cost of electricity supply
remaining 8% higher than revenues, an imbalance that has only modestly improved over the
past three years. The pandemic has not helped: discoms experienced a 15% reduction indemand during March‐June compared with the same period in 2019, mostly due to corporate
and industrial power users, and this has translated into $3 billion to $4 billion in lost
revenues. In March 2020, the central government announced a liquidity scheme of$13 billion to help reduce outstanding dues to generators.

4

Figure 4.18 ⊳ State discom income and impact of enhanced performance inbilling, collections and reduction of losses, 2020

USD/MWh

2020 performance
63%

Performance Improvements
75%
80%

100
80

+9.58

+5.01

‐5.91

60
40
20
IncomeExpensePower sales/purchases

IncomeSubsidy

ExpenseInterest

IncomeOthersLoss

ExpenseProfitRevenue shortfalls for state discoms have led to significant arrears to generators; better
performance on key indicators would help enhance profitability.
Notes: Performance is calculated based on billing, collecting and AC&T losses rates. Current value is estimatedat 63% (85% billing rate, 93% collection rate and 21% AC&T losses). Improvements in key performanceindicators are assumed to benefit each consumer category (domestic, commercial, agricultural, industrial andothers) pro rata with its sales.

Narrowing the cost‐revenue gap is critical to enhancing financial performance and clearing
the backlog of overdue payments. Three‐quarters of discom income stems from sales to
consumers, 15% from tariff subsidies and 3% from revenue grants under UDAY. Around 80%
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Sources: IEA analysis based on Power Finance Corporation (2020) and POSOCO (2020).

of their expenses come from the cost of power purchase and generation, with the remainderfrom administrative, labour and financing costs. Power costs are determined by the mix ofgeneration, fuel costs and provisions under long‐term PPAs, and revenues are influenced bytariff structures and demand.
While larger energy market and policy developments will inevitably have a big impact on thecost‐revenue gap, utilities can make important strides towards profitability by focusing
efforts on improving billing efficiency, collection efficiency, and reducing AT&C losses. We
estimate that discoms were able to monetise only 63% of the electricity they distributed in2020 due to difficulties in these areas. Raising this to 75% or more would bring them back to
profitability (Figure 4.18).
Such improvements may require increased investment and operational measures geared
towards metering, billing and collection systems as well as the upgrade and monitoring of
distribution grids to reduce losses. However, while distribution companies could improvebusiness profitability by taking such measures, their efforts would be enhanced by better
governance and by structural reforms. Such reforms might include government action to
improve the cost‐reflectiveness of tariffs, increase the share of low‐cost renewables, andaddress the financial implications of existing thermal power assets (see below). They mightalso extend to opening the distribution segment up to competition, in line with government
plans to privatise utilities in union territories.

Mobilising investment for utility‐scale renewables projects
Investment in renewable power grew by almost 55% between 2014 and 2019, and interest
in investing remains strong, as evidenced by the high level of solar PV bids (15 GW) in thefirst half of 2020, even if no wind capacity was awarded in the first half of 2020. While thissolar PV tendering was influenced by the exercise of a large (8 GW) option awarded under aprevious manufacturing‐linked tender, the rest of the capacity awarded during the first halfof 2020 topped that from the first half of 2019, and was 75% higher than in the first half of2018.

At the same time, financing terms for projects, and the risk and return proposition facing
developers, have begun to shift, as illustrated in analysis from IEA and CEEW on tenderresults over 2019 to mid‐2020 (IEA/CEEW, 2020). On the project debt side, availability andpricing have remained stable, with differences mainly due to off‐taker risks. Long tenors(16‐18 years) and high debt ratios (around 75%) remain the norm. On the equity side, the198World Energy Outlook 2021 | Special Report

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The impacts of the economic crisis nonetheless add additional layers of risk to the massive
scaling‐up of investment that would be needed in the IVC or SDS. Meeting the ambitious
2030 target for renewable electricity would require adding more than 30 GW of renewablecapacity each year between 2020 and 2030, and this has a much better chance of happening
if action is taken to address persistent risks around power purchase, land acquisition andavailability of transmission, as well as policy and regulatory uncertainties, such as thoserelated to potential new trade measures for solar PV.

estimated equity internal rate of return (EIRR; i.e. the minimum return required by equity
holders) for solar PV projects stood at around 15% on a weighted average basis (by awarded
capacity) over the course of 2019 and the first half of 2020, with differences depending on
off‐taker risks and type of site.
For example, while expectations of returns for projects with central off‐takers and Gujarat
distribution companies were similar, they were 80‐200 basis points higher where the stateutility off‐taker presented higher credit risk. Competition in tenders has also been an
important determinant of return expectations. In the first half of 2019, bids far outpaced
tendered capacity, helping keep EIRRs down around 14%. However, from the second half ofthe year through mid‐2020, returns rose to 16‐17% (Figure 4.19), in the face of new policy
and market uncertainty—such as potential renegotiation of contracts or the imposition andextension of duties on solar PV imports. The increased interest in the first half of 2020 may
have been due to greater innovation in tenders or measures such as granting letters of credit.

4

Figure 4.19 ⊳ Equity expected returns by level of tender competition for utility-

2019

6

2020

5

25%

EIRR

Capacity (GW)

scale solar PV, 2019-H1 2020

20%

4

15%

3
10%

2

5%

1
Feb

Mar

May

Tendered capacity

June

Aug
Received bids

Oct

Feb Mar Apr Jun
EIRR

EIRR expectations for solar PV projects stood at around 15% over the course of 2019 and thefirst half of 2020, with differences depending on off-taker risks and type of site.

In a survey of key investors, financiers and analysts, the key differences identified related torisks around power purchase (delays in payment by off‐takers); contract renegotiation (off‐takers seeking to renegotiate PPAs); land acquisition (concerns around availability, pricing,
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While developments over the past few years point to the ongoing maturity and improved
competitiveness of the Indian renewables industry, the scaling‐up of investment would bematerially assisted by efforts to address persistent risks so as to bring generation costs morein line with global best case benchmarks. In the first half of 2020, the average price oftendered solar PV (weighted by capacity) was twice that of the best levels achieved inEurope.

permitting and ownership); finance (limited availability of long‐term, fixed‐rate debt, andhigh cost); and regulatory uncertainty (lack of clarity in some laws and regulations, and fearof changes). Power purchase and renegotiation risks – both part of the off‐taker risk category– are most prominent when the counterparty is a state discom with a weak financial andoperational performance. The availability of grid connections and equipment supply chainsare also important factors (Figure 4.20).
Figure 4.20 ⊳ Awarded prices in new utility-scale solar PV tenders in India
versus benchmark by risks (left) and financial measures (right)
With risk management$/MWhAwarded price40

Debt solutions
Guarantees
Currency hedging

Other
30

Policy and regulation
Finance

Other

Off‐taker
20Land andtransmission
infrastructure

10

Best case(2020)

India(2020)

India(2020)

Financial Policy +financialmeasures financial…
measures

Off-taker risks are the most significant perceived risks for solar PV projects in India today;
policy reforms, debt solutions and guarantees could help address these risks.
Note: Awarded prices in India correspond to the average price discovered in solar PV tenders in the first halfof 2020 (weighted by capacity). The best case corresponds to average prices discovered in solar PV tenders in
Portugal and Spain over the period. Guarantees refer to financial guarantees provided by third parties.

New business models and progress in other renewable segments may also improve risk‐
return propositions, but this too depends on ongoing reforms. Although around 90% of
today’s power supply is delivered through bilateral long‐term contracts (IEA, 2020c), Indianauthorities are discussing ways of expanding a wholesale market for trading power acrossIndia, including least‐cost dispatch of electricity, which could lead to projects taking on ahigher degree of merchant risk. Globally, a number of corporations contract power directly
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Policy efforts are now being made to address issues around grid integration, land acquisition
and the promotion of domestic manufacturing. Reaching the 450 GW target by 2030 will
require a much more flexible system, with increased investments in grids and storage, astronger focus on demand‐side measures, and tenders that provide appropriatecompensation for flexibility services provided to the system. Around 60% of the projects
awarded in the first half of 2020 incorporate new arrangements, for example by allowing
hybrid wind and solar PV, or projects bundled with domestic solar PV manufacturing
capacity. SECI, a central government counterparty, has also introduced tenders with storage.

from renewable generators, as a way of meeting green purchasing goals and locking in low‐
cost power supply. Solar PV based on corporate PPAs have, however, reduced considerably
in India in 2020 – despite considerable growth in previous years. Reforms could lead togreater utilisation of forward contracts to increase the options for hedging, which are
currently not available in India.
Overall, scaling up investment for utility‐scale renewable projects will require policy reforms,
as well as an expansion of the availability of low‐cost financing. Policy and regulatory
certainty that allows investors and financiers to price risks effectively remains a key
condition. Targeted financial measures, especially those aimed at debt structuring, credit
enhancement and guarantees, could further help to address off‐taker and finance‐relatedrisks. Madhya Pradesh has adopted a three‐tier payment security mechanism to address
purchase risks, for example, and this kind of mechanism could be adopted more widely. The
ability to access loans for longer periods and on more flexible repayment terms that better
match project cash flows will become more critical as tenders become more complex. In allthese areas, development finance institutions have the potential to play a key financing role,
but long lead times and stringent conditions can blunt their effectiveness. Expanding thesuite of off‐takers through better frameworks for corporate PPAs could also be helpful.

4

Financing energy efficiency, electrification of transport and small‐scale clean energy
Over the next decade, the energy intensity of commercial buildings declines by over one‐
third in the SDS while the fuel economy of passenger cars improves by 40% compared withthe previous five years. These goals are supported by investments in more efficient lighting,cooling and appliances, as well as uptake of EVs and in charging infrastructure. Investment
in distributed renewables, including solar PV and solar thermal, tops $14 billion by 2030
compared with $2 billion in 2020.

Investment in distributed generation, including rooftop solar PV and mini‐grids, could help
improve electricity services while taking some financial pressure off discoms. Integrating
distributed applications with agriculture or other uses could similarly help to relieve subsidy
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Much of the investment in the SDS would be for smaller‐scale resources, and investment
models for such resources differ considerably from those for bulk power assets. They rely tosome extent on the balance sheets of consumers, MSMEs, real estate developers and ESCOs,
and are often not able to adopt long‐term contracts. Remuneration frequently depends onenergy savings against retail tariffs, which differ considerably among consumer classes. They
also depend to a large extent on equity. Over half of buildings‐related investment, and nearly
70% of transport investments, will be financed with equity over 2025‐30; investments inutility‐scale power and in more developed markets will make more use of debt. Mobilising
investment depends on improving returns and financing costs, but changing energy prices
and higher market risk premiums are currently extending payback periods and reducing
profitability for key efficiency investments. Efforts to improve financing could help (Figure4.20), but increasing the pipeline of bankable efficiency projects depends on stronger policy
frameworks and greater standardisation of financial models with projections of energy
savings and monitoring and verification protocols.

burdens and lower technical losses. The current tariff system does not, however, provide
sufficient incentive for utilities to adopt supportive frameworks, in part due to fear thatproviding such incentives would risk their losing revenues from more profitable industrial
consumers. Industry sources point to consumer‐owned installations as more common thanthose leased or made on a PPA basis with third parties, although some investment has been
supported by auctions for government off‐takers. Captive power users and MSMEs represent
a large potential market, but often face credit constraints and lack suitable collateral.
Domestic lending capacity has been reinforced by development financing, with preferential
lines of credit earmarked by the World Bank and Asian Development Bank in collaboration
with local banks, but an acceleration in investment has yet to be seen.
Figure 4.21 ⊳ Changes in NPV for key efficiency improvements with changes
in energy prices and cost of capital in 2020, compared with 2019
6%
3%
0%
‐3%
‐6%
‐9%

Electric
2‐/3‐wheeler

Electriccar

Airconditioner

Electric
industrial motor

Effects of the crisis from lower energy prices and higher cost of capital
Offsetting effect of an indicative 75 bps reduction in cost of capital
Changing energy prices and a higher cost of capital have reduced profit expectations for
efficiency measures; better access to finance would improve the investment case.

For buildings efficiency and distributed generation, bundling assets to achieve scale is one
route to securing investment. Construction of green buildings has emerged as another fast‐
growing mechanism for obtaining investment: in 2020, nearly 1 billion m2 was certified as
green, which is equivalent to 5% of total residential floor space. Efficiency upgrades canincrease building valuations, but the benefits are not easy to monetise without independent
ratings systems to verify and communicate performance to stakeholders (including current
and future owners and tenants). The capital structure of real estate developers mostly relies
on relatively costly equity. Access to finance remains a constraint for these developers,
particularly those at the smaller end of the scale, and no dedicated finance facility for thesector exists (World Bank, 2018). Incentives to integrate smart energy management systems,
government procurement of efficient equipment and appliances, and reduced
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Notes: NPV = net present value; bps = basis points. Changes in cost of capital in 2020 reflect movements in theeconomy‐wide risk‐free rate and equity‐ and debt‐market risk premiums, weighted by capital structure. Equity
share assumptions = air conditioner, 100%; industrial motor, 75%; electric car and two‐/three‐wheeler, 70%.

administrative hurdles for code‐compliant investments would all help support the businesscase for efficiency.
Targeted financial solutions, such as credit enhancement, could better encourage
investment in projects serving MSMEs. One study has assessed that the provision of credit
guarantees to local banks to support lending to developers could increase private investment
in rooftop solar PV by up to 14 times (CPI, 2018). In recent years, domestic lending capacity
has been reinforced by development financing, including preferential lines of credit toencourage lower‐risk on‐lending to distributed sectors. The pooling of real estate assets into
marketable securities – through REITs or INVITS – can also support reinvestment by
developers and reduce reliance on banks, but action is needed to address regulatory andtaxation uncertainties.
In transport, improving financial options for drivers will be critical. Two‐thirds of the increasein EV sales in the SDS comes from two‐ and three‐wheelers. Most three‐wheeler (auto‐
rickshaw) operators lease their vehicle, paying the owners daily from their earnings. Owning
an electric auto‐rickshaw outright might well make more economic sense for such operators,
but it is often hard for them to gain access to finance because of a track record of high default
rates on loans for such rickshaws (in part due to the initially unreliable performance of lead‐acid batteries), the small size of the loans that are sought and a lack of collateral on the partof the operators (EVreporter, 2020). Incomes for drivers have suffered during the pandemic,
making lenders even more cautious about extending finance. Dedicated loan products andbuy‐back schemes for existing vehicles could help to support investment.
Box 4.4 ⊳4

Mobilising investment through service models and securitisation

The government is also trying to cultivate a market for energy services supported by thestate‐owned “super ESCO”, Energy Efficiency Services Limited (EESL), which has used its
balance sheet and development bank funding to become the largest developer of small‐scale clean energy, investing nearly $0.2 billion annually over 2017 and 2018 in areas suchas lighting, smart meters and buildings. It seeks to increase its spending to over$0.8 billion annually, partly in support of setting up EV charging stations. EESL also aims
to bolster bulk procurement programmes, such as the successful UJALA LED initiative, tosupport lower‐cost appliance purchases by consumers.
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The provision of energy as a service is growing, and this is helping to boost investment in
distributed resources and efficiency in India. Some 150 private ESCOs are now accreditedby the Bureau of Energy Efficiency, and their numbers have tripled over the past decade.
They play particularly important roles in industrial sectors, where their use of
performance contracting helps to attract credit from banks. Around 90% of thearrangements made by private ESCOs in industry involve energy performance contracts(EPC) based on shared savings; the remainder take the form of EPCs with guaranteedsavings (IEA, 2018). These contracts are reinforced by a Partial Risk Guarantee Fundestablished by the Bureau of Energy Efficiency, which has mobilised private capital at a
rate of over three times the level of public commitment.

Figure 4.22 ⊳ India registered ESCOs by type and organisational capability(left) and size of total securitisation market by country (right)
ESCOs by company typeand organisational capability
Privatesubsidiary or Independent
public 18% (good to veryhigh) 26%

Annual issuance of ABS and MBS
UnitedStatesChina
Japan
Australia

Independent(average to below
average) 56%

India
200

400
600
Billion dollars

Despite rapid growth, India’s energy service market faces organisational and financial
constraints, while progress on asset aggregation and securitisation remains limited.
Notes: ABS = asset‐backed securities; MBS = mortgage‐backed securities. Organisational capability
corresponds to ESCO grades assessed by the Bureau of Energy Efficiency.
Sources: IEA analysis based on Bureau of Energy Efficiency (2020) and VKC (2019).

Infusions of both equity and debt are needed in the sector. New business models focusedon providing system and end‐user services beyond efficiency could help attract risk
capital (AEEE, 2017). The promotion of warehousing and securitisation, which aggregateloans, receivables or projects and issue them as listed securities, could support lower‐
cost refinancing and free up balance sheets for reinvestment. This practice has
accelerated globally with the issuance of green MBS and Property Assessed Clean Energyloans in the United States, but the securitisation market has yet to take off properly in
India. Better certification, more credit enhancement options for projects and theestablishment of a state‐backed pooling intermediary could help enhance such a market.

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Despite rapid growth, only 5% of the Bureau of Energy Efficiency assessed efficiency
market has been tapped by ESCOs. This is due in part to insufficient policy signals andlack of standardisation around savings and contractual frameworks, and in part toconstraints in balance sheets, which have deteriorated during the economic crisis. Whilesome ESCOs are part of larger private companies or public entities, most are independent
players with limited organisational capability and access to finance (Figure 4.22). Credit‐
worthy clients have been reluctant to engage, and large industries have yet to show
strong interest in performance contracting and energy service models. Banks havenonetheless been willing to lend to projects that are viable, even without the support ofguarantee funds (BEE, 2018).

The emissions reductions seen in the SDS compared with the STEPS in industry – including insteel, cement, chemical and manufacturing – require a reduction in energy intensity byaround a quarter over the next decade. The investments that would be necessary to makethis happen mostly focus on efficiency, but they also include funding for the direct use ofrenewables, such as bioenergy and solar thermal (the market for which has rapidly expanded
to around $1 billion in 2019), as well as for gas and electricity to substitute for coal. These
goals come at a time when the government is prioritising domestic manufacturing. Three‐quarters of industry investment depends on equity, and there is potential to diversify funding
sources and attract more debt to reduce the cost of capital.
The PAT scheme – a market‐based mechanism with efficiency targets and tradeable energy
savings certificates – provides the main incentive to invest. PAT Cycle 1 resulted ininvestments of around $4 billion, mostly from large companies, and its targets were met inall sectors except for thermal power. Incentives remain volatile, however, with energy
savings certificate pricing varying considerably in recent years, in part owing to an excess of
supply. Moreover, the PAT scheme to date has largely excluded the MSME sector. The
Atmanirbhar Bharat Scheme is now making available collateral‐free debt ($42 billion) andsubordinated debt ($6 billion) to businesses and stressed MSMEs. Improving funding options
could be enhanced through better domestic corporate bond markets, as well as
performance‐based financing instruments for use by energy‐intensive companies.

4

Links with the financial performance of other parts of the energy sector
The financial health of other parts of the energy and industrial sectors has an impact onfinancing conditions for clean energy investments because there are limits to the capacity ofbanks to mobilise debt for investments. Industry, infrastructure and power remain thelargest recipients of bank credit in absolute terms, but lending has stagnated over the past
five years, with most growth occurring in the personal and services sectors. Moreover, while
overall bank credit has grown by 40% since the start of 2016, it has stalled with the start ofthe pandemic.

The high level of stressed assets represents an important risk for India’s energy transition
because it dampens liquidity in the economy and crowds out funds for utility‐scale
renewables and large‐scale investments. While a decline in final investment decisions forthermal power plants in recent years stems from the shifting role of coal and the rise ofChapter 4 | Implications for India and the world

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One reason for the stagnation in recent years is that the RBI has prescribed sector limits toguard against concentration of credit risks, and these limit bank loan portfolios forinfrastructure, including power, to 20‐25%. Another reason is the high level of stressed assets
now in the financial system, which is creating headwinds for overall lending. Nearly 15% ofbank portfolios in industry and power remain stressed, and the stressed assets include over
50 GW of existing coal power plants due to a lack of availability of PPAs and coal supply
contracts, as well as declining fleet utilisation rates. Exposure to gross non‐performing assets
in the electricity sector alone stood at over $10 billion in early 2020, with a further $8 billion
in metals, $4 billion in construction and $1 billion in mining.

renewables in India’s energy system, it also reflects increased risk aversion by banks. This risk
aversion also affects the financing of gas power capacity, which would need to step up in the
SDS, and of retrofits and refurbishments of power and industrial plants. For example, banks
appear reluctant to fund investment in emissions control equipment of $7 billion for 120 GW
of coal power seeking to comply with more stringent environmental rules.
Figure 4.23 ⊳ Growth in bank credit deployed by sector (left), share of stressed

Jan 2016 = 100

assets in bank portfolios (middle) and thermal power FIDs (right)
200

Bank credit deployed

Share of stressed assets
30%

Services
Personal

150

100

50
2016

2018

Thermal power FIDs

2020

20%

Agriculture

10%

Industry,
infrastructure,
power

Sep
18

Mar
19

Sep
19

Mar
20

2016
2017
2018
2019
2020 (1H)
2025‐30 (SDS)

Coal power3
Gas power

69GW

After easing conditions in the past two years, the pandemic and a high level of energyrelated stressed assets in the financial system are creating new headwinds for lending.
Notes: FID = final investment decision; 1H = first half. Stressed assets are defined by the RBI as those withdelays in the payment of their interest and/or principal by the stipulated date in the loan repayment schedule.

Improving the situation requires a multifaceted approach. In addition to efforts to improve
the performance of the distribution sector, and coal supply, enhancements to market design
and interconnection to facilitate the more flexible use of the thermal generation fleet could
unlock additional value in financially stressed assets and the power system, while theexpedited retirement of the oldest, lowest‐efficiency and least system‐relevant coal power
plants could help ease financial strain on newer plants. From a financial standpoint, greater
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Source: IEA analysis based on Reserve Bank of India (2020) and McCoy Power Reports (2020).

flexibility in the rules and regulations around stressed assets would help matters, as would
separate treatment of renewables and other clean energy projects within sectoral lending
limits. Greater use of new financial mechanisms, such as off‐balance‐sheet refinancing
through the capital markets, could also help with the management of economic burdens
caused by unprofitable assets (IEA, 2020d).

4.4

India in global energy

India already has a seat at the top table of international energy affairs, and its role is set toincrease in importance in the years ahead. In this section, we consider different aspects of
the interactions between India and the global energy economy, ranging from the impacts of
Covid‐19, market balances and energy security through to clean technology development
and emissions.

4.4.1

4

India in global energy markets, trade and security

India is the fourth‐largest global energy consumer today, after China, the United States andthe European Union, and in the STEPS it overtakes the European Union by 2030 to move up
to third position. This is underpinned by a rate of GDP growth that adds the equivalent ofanother Japan to the world economy by 2040.
Figure 4.24 ⊳ Change in total primary energy demand and electricity
generation in selected regions in the STEPS, 2019-2040
Electricity generation

TWh

Mtoe

Total primary energy demand
1 200

9 000

800

6 000

400

3 000

0

0

‐ 400

‐3 000

‐ 800

India

Coal

Oil

China

Other Asia

Gas

‐6 000

Middle East

Solar PV

Advanced economies

Other
Renewables
Rest of world

India sees demand grow across the energy sector through to 2040, and its increasing

India accounts for nearly one‐quarter of global energy demand growth from 2019‐40 in the
STEPS, the largest of any country. As such, its influence in global energy affairs is felt acrossall fuels and technologies (Figure 4.24). India’s share in the growth in renewable energy in
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requirements for coal and oil partially offset reductions in advanced economies.

the STEPS is the second‐largest in the world, after China. Already a heavyweight in solar PV,
India takes on a similar role in battery storage, attracting more than a third of global
investment between 2019 and 2040. By 2040, India’s power system is bigger than that of theEuropean Union, and is the world’s third‐largest in terms of electricity generation; it also has
30% more installed renewables capacity than the United States.
India likewise plays an extremely important role in global fuel markets. It leads oil demand
growth, which rises over the period on the back of a fivefold increase in per capita car
ownership. The country also becomes the fastest‐growing market for natural gas, withdemand more than tripling to 2040. India is one of the very few growth markets for coal in
the STEPS, offsetting just over a quarter of the decrease in coal consumption in advanced
economies.
India’s continued industrialisation becomes a major driving force for the global energy
economy. Over the last three decades, India accounted for about 10% of world growth inindustrial value‐added (in PPP terms). In the STEPS to 2040, India is set to account for almost
20% of global growth in industrial value‐added, and to lead global growth in industrial final
energy consumption, especially in steelmaking; India accounts for nearly one‐third of global
industrial energy demand growth to 2040 (Figure 4.25). This pivot in the global industrial
economy towards India has important implications for world energy markets, for example
for coking coal and natural gas, but also for global efforts to mitigate CO2 in the industry
sector.
Figure 4.25 ⊳ India’s share in the growth of global industrial output and energy
consumption by time period in the STEPS, 1990-2040
50%

1990‐20192019‐2040

40%
30%
20%
10%

Industrial value‐added

Energy consumption

Steel production

In the STEPS, India becomes a global industrial heavyweight, and by 2040 it is producing

The picture is similar in the IVC, although India’s development model is based more heavily
on renewables, efficiency and natural gas. India remains the largest source of global energy
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almost 15% of the world’s steel.

demand growth in the DRS as well, although an extended pandemic would be extremely
damaging to India’s development prospects (see Chapter 2).
There is a sharp distinction to be made in the STEPS in terms of India’s position in global
energy trade between oil and gas, where the volumes and share of imported fuels risesteadily, and coal, where demand for imports is tempered by stagnant demand and relatively
strong domestic output. India currently sources around 40% of its primary energy fromabroad (360 Mtoe of imports out of a total of 935 Mtoe in 2019), a share that remains
roughly constant in the STEPS.
India’s net dependence on oil imports – taking into account both the import of crude oil andthe export of oil products – is around 75% today; this increases to more than 90% by 2040 in
the STEPS, as domestic consumption rises much more than production. Natural gas importdependency increased from 20% in 2010 to almost 50% in 2019, and is set to grow further
to more than 60% in 2040 in STEPS. The dynamics look quite different for coal, where India’s
demand for imported coal barely gets back to pre‐crisis levels over the next decade in the
STEPS, and this has outsize implications for global trade. India currently accounts for 16% of
global coal trade, and many global coal suppliers were counting on growth in India tounderpin planned export‐oriented mining investments. These expectations are now runningup against India’s determination to boost domestic production (see section 3.4), leaving
relative certainty only over India’s requirement to import coking coal for its rising steel
production, together with steam coal for those coastal power generation plants that havebeen designed to receive imported grades.

4

The combined import bill for fossil fuels triples in India over the next two decades in the
STEPS, with oil making up by far the largest component of the total (Figure 4.26). As of 2019,energy accounts for almost one‐third of India’s total imports by value, and this exposure to
global energy prices and market volatility increases in the STEPS. This implies significant
vulnerabilities for India, both in terms of import bills and the potential for disruption to
supplies.

However, the shock of lower prices for major hydrocarbon exporters arguably increases thesecond of these vulnerabilities, the risks of disruptions to supply and market volatility. We
estimate that net income from oil and gas in the Middle East, for example, fell by more thanhalf in 2020, and year‐on‐year declines in net income for African producers on average arelikely to be closer to 75%. These have exacerbated the fiscal strains facing many of these
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The first of these vulnerabilities, while significant, has been mitigated to a degree by lower
price trajectories in this year’s outlook, which have reduced India’s cumulative import bill to2040 by 20% compared with the WEO 2019. Lower prices and import bills have alreadyprovided a boost to India in 2020, providing much‐needed economic relief (and allowing theIndian government to raise duties on transport fuels at the same time). Lower oil and gas
prices could also help to accelerate fuel switching from coal to natural gas or from traditional
biomass to LPG, although equally they could undermine investment in domestic resources
and reduce incentives to improve efficiency, or to switch away from fossil fuels altogether.

producer economies, leaving them with difficult choices on how to allocate scarce financial
resources. Investment in new oil and gas supply around the world is expected to fall byaround one‐third in 2020, much more than the expected 9% drop in global oil demand and
3% fall in gas consumption, and this raises the possibility of new price cycles in the future.
Given that India relies heavily on Middle Eastern and African producers to meet its crude oiland natural gas requirements, possible disruption to supplies in these regions could be felt
much more in India than in other economies. The risk of a shortfall in investment appears tobe higher for oil than for natural gas, which saw record approvals of new LNG export facilities
in 2019. This vulnerability is mitigated by a large stock‐holding capacity at publicly owned
refineries, as well as by the continued build‐up of the Indian Strategic Petroleum Reserve,
which currently has a capacity of 40 million barrels, roughly equivalent to 10 days’ oilconsumption.
Figure 4.26 ⊳ Value of domestic production and import bills for fossil fuels in
India by scenario

Billion dollars (2019)

STEPS

SDS

200

0

‐ 200

‐ 400
2010

2019

2030

Net import
Domestic production

2040 2010
Coal
Coal

2019

Natural gas
Natural gas

2030

2040

Oil
Oil

The growing import bill for fossil fuels in India implies significant vulnerability
to global energy prices and market volatility.

Changing global energy dynamics and pathways for India point strongly towards the need fora broader concept of energy security that encompasses new and evolving risks to energy
supply. To take one example, changes in India’s electricity sector are dramatically increasing
the need for flexibility in power system operation, as described in detail in Chapter 3: hour‐
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There is a much more profound change in the SDS, in which efficiency and fuel switching
reduce the 2040 import bill by more than 50% compared with the STEPS. However, there
would still be a need for continued vigilance on traditional aspects of fuel security in this
scenario as well, not least because most imports would come from a handful of major low‐
cost producers whose hydrocarbon‐dependent economies would come under immense
strain as the global energy economy shifted away from fossil fuels.

to‐hour ramping requirements are set to more than double in India over the next decade in
the STEPS, and the pace of transformation would be even more rapid in the SDS. Like othercountries, India needs to ensure that institutional and regulatory changes in the power sector
keep pace with the speed of technological change if it is to safeguard the security of its
electricity supply.
Another example concerns clean energy technologies. As described in more detail in the next
section, India is set to become a major market for these technologies, and the government
aims to capture a greater share of this demand through local production, using the leveragethat India has as a leader in the deployment of battery storage and other clean energy
technologies and as a country with a large and growing domestic market (Box 4.5). But thisambition raises questions about the adequacy of supplies of critical minerals. Managing therisks and geopolitical hazards associated with these increasingly important value chains will
be an important task for India’s policy makers and one where – as with other aspects ofenergy security – international collaboration can play a vitally important role.
Box 4.5 ⊳4India’s oil refining sector: leveraging the large domestic market

India’s natural capital is as diverse as it is vast, but it still relies on imports for some key
elements of the energy system. At present, its imports include oil products for transport
and industrial applications, and natural gas.
However, limited raw materials do not necessarily lead to a reliance on imports for final
product, a point that is exemplified by India’s refining industry. With the exception of one
refinery processing Assam crude, India’s oil product demand was met by imports until
the 1950s (Tang, 1994). India then chose to develop a national refining sector and toimport crude oil rather than refined oil products, encouraging partnerships between
Indian and foreign companies to establish coastal refineries (initially designed to process
Iranian crude). In the 25 years to 1982, refining capacity in India grew from around80 kb/d to more than 750 kb/d.

Even without large crude oil resources, India has today developed a mature refining anddownstream petroleum industry. In the STEPS, it overtakes Russia in the early 2030s to
become the world’s third‐largest refining centre. The example of oil refining indicates
how countries can move up the value chain where there is a strong strategic andChapter 4 | Implications for India and the world

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An initial consequence of this policy was the capture of more value in the supply chain
by Indian companies (mostly PSUs). Following the opening of the Jamnagar refinery in1999 by the private Indian company Reliance Industries, India then became an exporterof oil products and almost eliminated imports of gasoline, diesel and kerosene(Figure 4.27). By 2019, India’s oil product exports generated around $3 billion dollars(UN, 2020). In recent years, Indian refineries have been expanding further down the value
chain towards petrochemicals to capture additional value. India’s ethylene production
has almost doubled to 6.6 Mt since 2015 and is set to grow further by two‐thirds throughto 2030 in the STEPS.

economic rationale, especially where – as in this case – it is underpinned by a large andgrowing domestic market.
Figure 4.27 ⊳ India’s trade in crude oil and oil products, 1973-2018
Mtoe

250
200

Imports:
Fuel oil, petcoke
and LPG

150

Gasoline, diesel
and kerosene
Crude oil

100
Exports:
Oil products

50

1973

1980

1990

2000

2010

2018

Investments in refining have increased imports of crude oil, reduced imports of oil
products and moved India up the oil value chain, leading to exports of oil products.

4.4.2

India in global clean energy transitions

These trends are accelerated in the SDS, with the combined size of the markets in India
almost doubling to around $80 billion in 2040 compared with the STEPS. However, as thefaster deployment yields faster cost declines that stem from economies of scale,manufacturing improvements and other innovations, the growth in installed capacity is evenlarger. This is particularly notable in the case of solar PV: 12% more capacity is added from2020 to 2040 in the SDS than in the STEPS, but the cost of this is just 6% higher. Faster
deployment triggers a virtuous circle of investment, innovation, cost reductions and market
growth that lowers the costs of energy transitions based on mass‐produced technologies as
they proceed.

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India will soon become one of the world’s largest markets for a range of clean energy
technologies, making it a major target for technology developers looking for sales growth. In
the STEPS, the Indian markets for solar PV modules, wind turbines, lithium‐ion batteries andwater electrolysers together grow to around $40 billion per year by 2040. Lithium‐ion
batteries alone account for nearly a third of this total, with annual demand in 2040 equal tothe output of more than 20 times the capacity of today’s largest gigafactory. For eachproduct, India represents a sizeable share of the global market – around 10% for lithium‐ion
batteries, 15% for wind turbines, and 30% for solar PV (Figure 4.28). In the STEPS, 1 in every
7 dollars spent on these three types of equipment in 2040 is in India, compared with 1 in 20
today.

Currently, India is a net importer of products such as solar PV and batteries, with around$3 billion of trade per year. India’s manufacturing facilities for solar PV cells and modules
have so far struggled to operate with high‐capacity factors and compete with imports,
especially those from China. Local production could potentially meet a greater share ofdemand in line with the government’s policy goal of expanding domestic manufacturing.
Some action has already been taken in pursuit of this goal. For example, contracts for 8 GW
of solar PV were signed in 2020 under manufacturing‐linked tenders that require the winnerto undertake both project development and the setting up of new PV manufacturing
facilities. In addition, India’s first plant producing lithium‐ion battery anodes wascommissioned in Karnataka in mid‐2020, while NITI Aayog’s Advanced Chemistry Cell andBattery Gigafactory plan proposes incentives for developers of battery cell factories.
Figure 4.28 ⊳ India’s market size and global share in clean energy

4

Share of global market ($ basis)

technologies today and in the STEPS, 2040

PV 204030%

20%Wind 2040
10%Batteries 2040

PV 2019
Wind 2019

Batteries
2019
0

5

10

15

20
25
Size of market (billion $ 2019)

India’s markets for clean energy technologies grow rapidly in the STEPS, led by lithium-ion
batteries. India’s solar PV market accounts for around 25% of the global total in 2040.
Note: Includes PV modules, wind turbines and battery packs only. Batteries includes both stationary andvehicle markets.

Innovation offers a way to increase the added value of clean technology markets. With
15‐30% of the global markets for some of these products, India could position itself as a hub
for research expertise and a home for the associated intellectual property. Investments in
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Capturing value in these supply chains will be challenging. The most efficient manufacturers
from around the world are likely to increase their focus on India as it takes a higher share of
global markets. In addition, clean energy technology markets can be expected to remain
highly dynamic and reliant on thin margins. PV cell and module production has been an
extremely competitive business in recent years, for example, with many companies goingbankrupt after failing to continually innovate or upgrade their assets.

research and development (R&D) and licensing of technologies could not only contribute toeconomic growth but also ensure that technologies are adapted to local contexts, taking
account of climate, geography, grid requirements and the built environment.
The value of innovation increases dramatically for countries and companies that target net‐
zero GHG emissions, regardless of the time horizon. IEA analysis shows that around 35% of
the cumulative CO2 emissions reductions needed to shift to a sustainable path come fromtechnologies currently at the prototype or demonstration phase (IEA, 2020e). In addition,
many clean energy technologies that are already established in parts of the marketplaceneed further adaptations to keep reducing costs and expand into new end uses. As a result,
there is a great deal of scope for enhanced innovation efforts in areas that are expected to
grow rapidly, such as solar PV and battery systems; areas that tap into India’s skills, such as
digital know‐how; and areas critical to tackling future emissions challenges that currently
lack solutions (Spotlight). For each area there are opportunities in different parts of the value
chain from raw materials processing to component design and installation. Hydrogen is agood example of a technology area where a wide variety of skills will be needed beyond
manufacturing, including some that share characteristics with petrochemicals production.

S P O T L I G H T
India’s net-zero challenge: addressing emissions, old and new
In the SDS, India is on course to reach net‐zero emissions in the mid‐2060s. In order todo so, India, like other emerging market and developing economies, faces the twin
challenge of avoiding emissions from its existing infrastructure, while limiting as much as
possible the carbon footprint of new capital stock. These twin challenges call for the
deployment of a wide range of different technologies and policy approaches.
Two‐thirds of India’s total emissions over the period to 2040 in the STEPS come frompower plants, factories, vehicles and buildings that exist today. By far the largest shareof this comes from India’s young and relatively inefficient coal‐fired power fleet(Figure 4.29). Emissions will also be strongly influenced in this scenario by industrial
facilities commissioned as recently as the 2010s.

In the case of industrial facilities, adapting cement plants to enable CO2 capture is one
example of technological efforts to reduce emissions from existing infrastructure, andreplacing fossil fuels in steel production and refining with low‐carbon hydrogen isanother. In both cases, there is huge scope to develop new technologies and skills that

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If these existing plants and factories operate as planned, then the SDS is out of reach.
This highlights the vital role for technologies that can help existing assets run more
flexibly and efficiently, switch fuel inputs or capture their emissions. In the SDS, forexample, the existing coal‐fired fleet is either repurposed to provide system flexibility,
co‐fired with low‐carbon fuels (mainly biomass), retrofitted with carbon capture andstorage technology, or retired early.

are fit for Indian plants, and this has inspired a proposal to install one of the world’s
largest CO2 capture systems at a cement plant in Tamil Nadu.
Figure 4.29 ⊳ CO2 emissions from existing and new infrastructure in India in
the STEPS, 2019-2040

Mt CO₂Power

Industry

Transport

Buildings

1 400
1 200
1 000
800
600

4

400

Existing and under construction

2040

2040
2019

2040
2019

2040
2019

2019

200

New

India faces the need to invest in a range of technologies capable of addressing both
existing and new sources of CO2 emissions.
Source: IEA (2020) and IEA (2020e).

A redoubled effort to promote clean energy innovation in India can play an importantrole in reaching SDS goals. India is currently drafting a new Science, Technology andInnovation Policy, which will be its first since 2013. Among the stated aims are to double
the number of researchers and the level of public and private expenditure on R&D every
five years, with energy as a priority topic (DST, 2020). A Science, Technology andInnovation Development Bank is proposed to direct strategic long‐term investments,
which could help catalyse progress in clean energy technology areas that reflect India’s
circumstances and needs.
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However, much more so than in advanced economies, India’s future emissions profile
depends heavily on infrastructure that has yet to be built or bought – especially inindustry and transport. Because of India’s dynamic growth and the twin forces ofurbanisation and industrialisation discussed in Chapter 2, already by the late 2030s
India’s emissions in the STEPS from new factories, vehicles and other equipment overtake
those from sources existing today. In the SDS, India keeps these emissions from newsources to a minimum, avoiding higher‐carbon infrastructure via early action to prioritise
investment in efficient, low‐emissions technologies across all parts of the energy sector,
alongside a strong focus on sustainable urban design and transport. In doing so, India
pioneers a new, low‐carbon model of development, with major co‐benefits for air quality,
reduced energy import bills and increased clean energy jobs and industrial opportunities.



Lithium‐ion batteries. India becomes the world’s largest market for batteries in the
STEPS, IVC and SDS. Supply chains for lithium and cobalt are concentrated outside
India, but battery recycling and reuse could be a major opportunity in India, which
updated its battery waste management rules in 2020 in recognition of this issue(IEA, 2020b).



CCUS. India’s CO2 storage potential has not yet been properly mapped. Given theimportant role likely to be played by CCUS in a variety of sectors in India, if CO2 canbe securely stored, there is a strong case for defining the potential andunderstanding how its geographic distribution might influence future investments
in industry and power.



Hydrogen. India has the potential to close the cost gap between hydrogen fromelectrolysis and natural gas more quickly than many other countries due to its
relatively high gas prices and low‐cost solar PV potential, but flexible electrolysis andcost‐effective hydrogen storage will be essential to integrate hydrogen with variable
renewables. Electrolysers share technical attributes with batteries and fuel cells,
creating opportunities to co‐locate research hubs and exploit synergies.



Material efficiency. Action to minimise the material demands of an expanding stockof vehicles and buildings, including through lightweighting and recycling, has thepotential to make a major contribution to India’s energy future if it is integrated intoplanning and design.



Digital innovation. India’s information and communications technologies sector is asignificant global player and has impressive strengths in digital technologies, which
could do much to improve efficiency in energy systems (for example through shaping
logistics to reduce diesel demand for freight transport) and to make energy systems
smarter, helping to lower bills and integrate variable renewables.

Bioenergy. India’s agricultural sector contributes 17% of GDP and around 40% of
overall employment. Its biomass resource is large and includes a considerable
amount of agricultural waste. There is scope for India to build on its existing
leadership in biotechnologies and the demonstration of advanced biofuel
technologies, and potential for low‐cost biomethane to meet two‐thirds of gas
demand in India by 2040.

The size of the potential market and the scope for innovation means that what happens inIndia on clean energy technology will affect the world. India is not currently a major global
player in energy R&D. Public spending on energy R&D has increased since India joined theMission Innovation initiative, rising to around $670 million in 2019, but this remains low as ashare of GDP compared with other major economies. Private sector R&D spending is also
216

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Building on the insights in this report, several clean energy technology areas can be
identified as pivotal for reaching net‐zero emissions, all of which present opportunities
in the near term:relatively low, with government funding often favouring public institutions and enterprises.
India’s innovation and market potential mean that it has nonetheless become a destination
for inward investment by multinational energy companies in R&D facilities.
A strategic approach to clean energy innovation in India, aligned with energy and industry
objectives, would increase the chances of successful innovation. Where India sits in the value
chain for key technologies will determine its trading partners and influence its trade patterns,
which will in turn affect the location of its industrial investments. Many governments sought
to boost their energy innovation systems in 2020 through the use of economic pandemic
recovery plans that seek to improve future competitiveness. India has a range of options
available in this context (IEA, 2020c). To take one example, the National Hydrogen Energy
Mission proposed by the prime minister in November 2020 represents a near‐term
opportunity to take a strategic approach to an emerging international technology.

4

An important step for India will be to review best practice in prioritising technologies andstimulating public and private innovation in the types of technologies needed for energy
transitions.7 Doing this in the context of emerging markets with limited budgets and withouta long legacy of energy technology innovation will fill a critical knowledge gap. International
co‐operation through multilateral initiatives and partnerships with overseas expertise thatbuild local competences are likely to be helpful, while creating new linkages between
industry and higher education could improve the exchange of ideas. Finance will also be
important, and there is scope to explore how international finance institutions might
accommodate pre‐commercial energy technology development.
Smaller companies can be more agile than large incumbents when it comes to exploiting
emerging market opportunities. However, the level of risk capital required for new energy
technologies is often out of the reach of start‐ups in the absence of government support.
The Clean Energy International Incubation Centre, co‐founded by the government as part ofits work within Mission Innovation, is relevant in this context: it builds on the existing
networks of incubators and investors in India, and also encourages researchers and start‐ups
to partner with international researchers and incumbent companies to help access costly
infrastructure and early‐stage customers.

7

This builds on five key recommendations of the IEA Special Report on Clean Energy Innovation (IEA, 2020f).

Chapter 4 | Implications for India and the world

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If India were to become more successful at moving clean energy technologies from lab tomarket, the payback would be economic as well as environmental. In the IVC, for example,
more batteries are installed and the industry sector invests in more CO2 capture because theeconomy is more dynamic and the technologies are cheaper. By 2040, the IVC is closer to the
SDS than STEPS for deployment of these technologies.

Tables for scenario projections
General note to the tables
This annex includes historical and projected data for the Stated Policies and Sustainable
Development scenarios and India Vision Case for energy demand, gross electricity
generation and electrical capacity, and CO2 emissions from fossil fuel combustion for India.
Both in the text of this book and in the tables, rounding may lead to minor differences
between totals and the sum of their individual components. Growth rates are calculated on
a compound average annual basis and are marked “n.a.” when the base year is zero or thevalue exceeds 200%. Nil values are marked “‐”.

Data sources
The World Energy Model (WEM) is a very data‐intensive model covering the whole global
energy system. Detailed references on databases and publications used in the modelling
and analysis may be found in Annex E of the World Energy Outlook 2020.
The formal base year for the projections is 2018, as this is the last year for which acomplete picture of energy demand and production is in place. However, we have used
more recent data wherever available, and we include our 2019 estimates in this annex.
Estimates for the year 2019 are based on updates of the IEA’s Global Energy Review reports
which are derived from a number of sources, including the latest monthly data submissions
to the IEA’s Energy Data Centre, other statistical releases from national administrations,and recent market data from the IEA Market Report Series that cover coal, oil, natural gas,
renewables and power. Investment estimates include the year 2019, based on the IEA’s
World Energy Investment 2020 report.
Historical data for gross electrical capacity are drawn from the S&P Global Market
Intelligence World Electric Power Plants Database (March 2020 version) and theInternational Atomic Energy Agency PRIS database.

Total primary energy demand (TPED) is equivalent to power generation plus “other energy
sector” excluding electricity and heat, plus total final consumption (TFC) excluding
electricity and heat. TPED does not include ambient heat from heat pumps or electricity
trade. Other renewables in TPED include geothermal, solar photovoltaics (PV),concentrating solar power (CSP), wind and marine (tide and wave) energy for electricity
and heat generation. Sectors comprising TFC include industry, transport, buildings(residential, services and non‐specified other) and other (agriculture and non‐energy use).
While not itemised separately, hydrogen is included in total final consumption and “otherenergy sector”. Projected gross electrical capacity is the sum of existing capacity andadditions, less retirements. While not itemised separately, other sources are included in
total electricity generation, and battery storage in total power generation capacity.
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Definitional noteAnnex A
Total CO2 includes carbon dioxide emissions from “other energy sector” in addition to thepower and final consumption sectors shown in the tables. Total and power sector CO2
emissions also account for captured emissions from bioenergy with carbon capture,utilisation and storage (BECCS). CO2 emissions do not include emissions from industrial
waste and non‐renewable municipal waste.

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Abbreviations used: Mtoe = million tonnes of oil equivalent; CAAGR = compound averageannual growth rate; Petrochem. feedstock = petrochemical feedstock.

Energy demand: India
Stated Policies Scenario
Shares (%)

Energy demand (Mtoe)

220

2019

2025

2030

2035

2040

2019

2030

2040

2019‐30

2019‐40

700
279
162
54
7
11
185
2
237
177
7
25
7
11
8
2
69
22
478
87
138
19
62
‐
172
0
151
75
17
2
28
‐
29
0
65
62
1
0
1
209
12
30
1
22
‐
143
136
0
54
24

929
413
242
55
10
15
182
11
355
278
3
15
10
15
24
10
89
32
621
111
216
35
103
‐
154
1
224
99
31
21
41
‐
33
0
108
102
2
1
4
218
13
38
3
42
‐
120
113
1
71
22

1 057
441
288
86
17
15
183
26
395
285
4
19
17
15
31
24
101
36
723
129
260
57
127
‐
148
2
277
119
34
37
48
‐
40
0
139
127
2
3
6
218
10
42
5
54
‐
105
96
2
89
33

1 237
498
335
113
28
19
188
54
475
317
3
22
28
19
34
51
120
44
853
148
306
78
168
‐
150
3
337
139
37
53
61
‐
47
1
177
157
5
7
8
234
9
47
6
74
‐
95
85
2
105
41

1 412
522
381
143
44
23
197
102
548
315
3
27
44
23
38
98
141
53
992
168
349
99
216
‐
155
5
401
159
39
71
77
‐
54
2
217
187
9
12
9
257
8
51
8
99
‐
87
74
3
118
48

1 573
541
411
173
58
26
204
160
621
311
2
28
58
26
42
154
162
64
1 123
185
379
125
270
‐
157
6
465
178
40
92
92
‐
60
2
248
206
13
17
11
283
7
54
10
130
‐
79
63
4
128
55

100
44
26
6
1
2
20
1
100
78
1
4
3
4
7
3
100
36
100
18
35
6
17
‐
25
0
100
44
14
9
18
‐
15
0
100
94
1
1
3
100
6
17
2
19
‐
55
52
1
100
31

100
40
27
9
2
2
15
4
100
67
1
5
6
4
7
11
100
36
100
17
36
9
20
‐
18
0
100
41
11
16
18
‐
14
0
100
89
3
4
5
100
4
20
3
31
‐
41
36
1
100
39

100
34
26
11
4
2
13
10
100
50
0
5
9
4
7
25
100
40
100
16
34
11
24
‐
14
1
100
38
9
20
20
‐
13
0
100
83
5
7
4
100
2
19
3
46
‐
28
22
1
100
43

2.6
1.7
3.0
6.8
9.6
2.3
0.3
15.6
2.7
1.2
2.8
3.4
9.6
2.3
3.3
16.2
2.8
2.7
2.9
2.6
3.2
7.5
4.5
n.a.
‐0.2
9.3
3.8
3.2
1.6
8.8
3.6
n.a.
3.4
23.6
4.5
4.0
11.1
15.4
7.8
0.7
‐3.1
2.0
5.8
5.2
n.a.
‐2.1
‐2.6
6.7
3.6
5.8

2.5
1.3
2.5
5.6
8.5
2.7
0.5
13.6
2.7
0.5
‐0.2
3.1
8.5
2.7
2.8
14.0
2.9
3.3
2.9
2.4
2.7
6.3
4.7
n.a.
0.1
8.1
3.5
2.9
1.3
7.3
3.9
n.a.
2.9
16.7
4.0
3.4
10.6
12.5
5.5
1.3
‐3.0
1.7
5.1
5.5
n.a.
‐2.0
‐2.7
6.1
2.9
4.5

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Total primary demand
Coal
Oil
Natural gas
Nuclear
Hydro
Bioenergy
Other renewables
Power sector
Coal
Oil
Natural gas
Nuclear
Hydro
Bioenergy
Other renewables
Other energy sector
Electricity
Total final consumption
Coal
Oil
Natural gas
Electricity
Heat
Bioenergy
Other renewables
Industry
Coal
OilNatural gas
Electricity
Heat
Bioenergy
Other renewables
Transport
Oil
Electricity
Bioenergy
Other fuels
Buildings
Coal
Oil
Natural gas
Electricity
Heat
Bioenergy
Traditional biomass
Other renewables
Other
Petrochem. Feedstock

CAAGR (%)

2010

Energy demand: India
India Vision Case

Total primary demand
Coal
Oil
Natural gas
Nuclear
Hydro
Bioenergy
Other renewables
Power sector
Coal
Oil
Natural gas
Nuclear
Hydro
Bioenergy
Other renewables
Other energy sector
Electricity
Total final consumption
Coal
Oil
Natural gas
Electricity
Heat
Bioenergy
Other renewables
Industry
Coal
OilNatural gas
Electricity
Heat
Bioenergy
Other renewables
Transport
Oil
Electricity
Bioenergy
Other fuels
Buildings
Coal
Oil
Natural gas
Electricity
Heat
Bioenergy
Traditional biomass
Other renewables
Other
Petrochem. Feedstock

CAAGR (%)

Energy demand (Mtoe) Shares (%)

CAAGR (%)

2030

2040

2040

2019‐40

2030

2040

2040

2019‐40

994
318
292
124
28
22
120
90
385
162
3
42
28
22
43
84
109
39
703
125
266
67
164
0
73
6
290
118
28
43
59
‐
39
3
161
129
8
15
10
155
7
50
5
73
0
17
‐
4
96
39

1 147
209
268
181
64
31
169
225
475
42
2
52
64
31
72
212
138
56
843
130
246
103
254
0
93
13
361
130
24
72
85
‐
43
7
183
115
26
26
15
190
1
42
6
116
0
19
‐
6
110
49

100
18
23
16
6
3
15
20
100
9
0
11
14
7
15
45
100
40
100
15
29
12
30
0
11
2
100
36
7
20
24
‐
12
2
100
63
14
14
8
100
1
22
3
61
0
10
‐
3
100
45

1.0
‐3.2
0.5
5.9
9.1
3.5
‐0.4
15.4
1.4
‐8.6
‐0.5
6.2
9.1
3.5
5.4
15.7
2.1
2.6
1.5
0.8
0.6
5.3
4.4
n.a.
‐2.4
12.2
2.3
1.3
‐1.1
6.1
3.5
n.a.
1.3
22.9
2.5
0.6
14.3
14.8
7.2
‐0.6
‐11.6
0.5
2.8
4.9
n.a.
‐8.4
n.a.
8.6
2.1
3.9

1 152
463
325
129
28
19
116
72
466
261
3
53
28
19
34
67
128
45
782
154
297
69
179
‐
77
5
328
135
34
51
59
‐
47
3
179
151
8
12
8
170
9
54
8
79
‐
18
‐
3
104
41

1 522
497
379
215
58
26
158
188
641
252
2
82
58
26
42
177
176
70
1 071
186
350
116
296
‐
112
11
450
168
35
92
87
‐
62
7
250
192
22
27
10
244
6
55
13
145
‐
21
‐
4
126
57

100
33
25
14
4
2
10
12
100
39
0
13
9
4
7
28
100
40
100
17
33
11
28
‐
10
1
100
37
8
20
19
‐
14
1
100
77
9
11
4
100
3
23
5
59
‐
8
‐
2
100
45

2.4
0.9
2.2
6.7
8.5
2.7
‐0.7
14.5
2.9
‐0.5
‐0.2
8.5
8.5
2.7
2.8
14.7
3.3
3.7
2.6
2.5
2.3
5.9
5.1
n.a.
‐1.5
11.1
3.4
2.6
0.6
7.3
3.6
n.a.
3.1
22.9
4.1
3.1
13.3
14.9
5.0
0.6
‐3.3
1.8
6.5
6.1
n.a.
‐8.0
n.a.
6.6
2.8
4.6

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Sustainable Development Scenario
Energy demand (Mtoe) Shares (%)

AElectricity and CO₂ emissions: India
Stated Policies Scenario
Electricity generation (TWh)Total generation
Coal
Oil
Natural gas
NuclearRenewables
Hydro
BioenergyWind
Geothermal
Solar PV
CSP
MarineShares (%)

CAAGR (%)

2010

2019

2025

2030

2035

2040

2019

2030 2040 2019‐30 2019‐40

975
658
18
113
26
160
125
15
20
‐
0
‐
‐

1 583
1 135
5
71
40
332
175
42
66
‐
48
‐
‐

1 896
1 206
7
94
66
523
177
67
105
‐
174
1
‐

2 461
1 343
7
108
109
893
226
77
195
0
392
3
0

3 139
1 344
6
143
168
1 477
268
91
374
1
736
7
0

3 887
1 334
6
157
222
2 169
307
106
520
1
1 221
13
1

100
72
0
4
3
21
11
3
4
‐
3
‐
‐

100
55
0
4
4
36
9
3
8
0
16
0
0

100
34
0
4
6
56
8
3
13
0
31
0
0

4.1
1.5
4.0
3.9
9.6
9.4
2.3
5.7
10.3
n.a.
20.9
n.a.
n.a.

4.4
0.8
0.6
3.8
8.5
9.3
2.7
4.5
10.3
n.a.
16.6
n.a.
n.a.

Stated Policies Scenario
Electrical capacity (GW)
Total capacity
Coal
Oil
Natural gas
NuclearRenewables
Hydro
BioenergyWind
Geothermal
Solar PV
CSP
MarineShares (%)

CAAGR (%)

2010

2019

2025

2030

2035

2040

2019 2030

2040 2019‐30 2019‐40

197
106
8
22
5
57
40
4
13
‐
0
‐
‐

414
235
8
28
7
137
49
12
38
‐
38
0
‐

573
269
8
30
9
247
60
13
57
‐
117
0
‐

792
269
8
30
16
436
76
15
96
0
248
1
0

1 132
265
6
39
25
722
89
17
167
0
447
2
0

1 552
260
5
46
31
1 066
101
20
217
0
724
4
0

100
57
2
7
2
33
12
3
9
‐
9
0
‐

100
17
0
3
2
69
6
1
14
0
47
0
0

100
34
1
4
2
55
10
2
12
0
31
0
0

6.1
1.2
0.0
0.5
8.2
11.1
4.0
2.1
8.9
n.a.
18.7
13.8
n.a.

6.5
0.5
‐1.6
2.3
7.6
10.3
3.4
2.5
8.7
n.a.
15.1
15.1
n.a.

Stated Policies Scenario

Total CO2CoalOilNatural gas
Power sector
Coal
Oil
Natural gas
Final consumption
Coal
Oil
Transport
Natural gas

222

Shares (%)

CAAGR (%)

2019

2025

2030

2035

2040

2019 2030 2040 2019‐30 2019‐40

1 572
1 089
408
75
785
704
23
58
752
383
358
190
12

2 319
1 622
612
84
1 147
1 104
8
35
1 110
514
564
309
32

2 576
1 732
720
125
1 189
1 133
11
45
1 316
595
669
386
52

2 948
1 951
842
156
1 321
1 259
11
51
1 544
686
787
475
70

3 188
2 041
956
191
1 326
1 253
9
64
1 768
782
899
568
87

3 359
2 108
1 030
220
1 308
1 234
8
66
1 949
868
972
627
109

100
70
26
4
100
96
1
3
100
46
51
28
3

100
66
29
5
100
95
1
4
100
44
51
31
5

100
63
31
7
100
94
1
5
100
45
50
32
6

2.2
1.7
2.9
5.7
1.3
1.2
2.8
3.4
3.0
2.7
3.1
4.0
7.4

1.8
1.3
2.5
4.7
0.6
0.5
‐0.2
3.1
2.7
2.5
2.6
3.4
6.0

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CO2 emissions (Mt)2010

Electricity and CO₂ emissions: India
India Vision Case

Sustainable Development Scenario

Electricity generation (TWh) Shares (%) CAAGR (%) Electricity generation (TWh) Shares (%) CAAGR (%)
2030

2040

2040

2019‐40

2030

2040

2040

2019‐40

2 365
708
7
240
107
1 302
258
105
343
2
584
11
0

3 601
181
5
337
247
2 832
361
210
782
5
1 368
104
1

100
5
0
9
7
79
10
6
22
0
38
3
0

4.0
‐8.4
0.1
7.7
9.1
10.7
3.5
7.9
12.5
n.a.
17.2
n.a.
n.a.

2 603
1 104
7
309
109
1 074
226
77
251
0
517
3
0

4 254
1 073
6
509
222
2 445
307
106
695
1
1 322
13
1

100
25
0
12
5
57
7
2
16
0
31
0
0

4.8
‐0.3
0.7
9.8
8.5
10.0
2.7
4.5
11.8
n.a.
17.0
n.a.
n.a.

India Vision Case

Sustainable Development Scenario
Electrical capacity (GW)
Total capacity
Coal
Oil
Natural gas
NuclearRenewables
Hydro
BioenergyWind
Geothermal
Solar PV
CSP
MarineShares (%) CAAGR (%)

Electrical capacity (GW)

2040

2040

2019‐40

2030

2040

2040

2019‐40

997
221
7
72
17
641
86
20
163
0
367
4
0

1 835
144
5
134
36
1 334
117
39
334
1
806
36
0

100
8
0
7
2
73
6
2
18
0
44
2
0

7.3
‐2.3
‐1.9
7.6
8.2
11.5
4.2
5.8
11.0
n.a.
15.7
27.1
n.a.

931
252
8
64
16
542
76
15
121
0
330
1
0

1 764
231
5
95
31
1 206
101
20
289
0
792
4
0

100
13
0
5
2
68
6
1
16
0
45
0
0

7.1
‐0.1
‐1.6
5.9
7.6
10.9
3.5
2.5
10.2
n.a.
15.6
15.1
n.a.

India Vision Case

Sustainable Development Scenario
CO2 emissions (Mt)
Total CO2CoalOilNatural gas
Power sector
Coal
Oil
Natural gas
Final consumption
Coal
Oil
Transport
Natural gas

Shares (%) CAAGR (%)

2030

Shares (%) CAAGR (%)

CO2 emissions (Mt)

Shares (%) CAAGR (%)

2030

2040

2040

2019‐40

2030

2040

2040

2019‐40

2 126
1 226
706
194
754
645
10
98
1 298
576
660
391
63

1 460
637
594
253
214
114
7
113
1 173
519
560
350
94

100
44
41
17
100
53
3
53
100
44
48
30
8

‐2.2
‐4.4
‐0.1
5.4
‐7.7
‐10.3
‐0.5
5.8
0.3
0.0
‐0.0
0.6
5.2

2 733
1 698
803
233
1 172
1 036
11
125
1 481
657
751
459
73

2 960
1 710
898
356
1 202
1 001
8
193
1 670
703
853
582
114

100
58
30
12
100
83
1
16
100
42
51
35
7

1.2
0.3
1.8
7.1
0.2
‐0.5
‐0.2
8.5
2.0
1.5
2.0
3.1
6.2

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Total generation
Coal
Oil
Natural gas
NuclearRenewables
Hydro
BioenergyWind
Geothermal
Solar PV
CSP
MarineA

IEA. All rights reserved.

Annex B
Definitions
This annex provides general information on terminology used throughout the WEO‐2020
including: units and general conversion factors; definitions of fuels, processes and sectors;
regional and country groupings; and abbreviations and acronyms.

Area

m2

square metre

Coal

Mtce

million tonnes of coal equivalent (equals 0.7 Mtoe)

Distancekm

kilometre

Emissionsg CO2/kWhgrammes of carbon dioxide per kilowatt‐hour

Energy

Mtoe
MBtu
kWh
MWh
TWh

million tonnes of oil equivalentmillion British thermal units
kilowatt‐hour
megawatt‐hour
terawatt‐hour

Gas

bcm
tcm

billion cubic metres
trillion cubic metres

Mass

kg
Mt
Gt

kilogramme (1 000 kg = 1 tonne)
million tonnes (1 tonne x 106)
gigatonnes (1 tonne x 109)

Monetary$ million$ billion$ trillion

1 US dollar x 106
1 US dollar x 109
1 US dollar x 1012

Oil

kb/d
mb/d

thousand barrels per day
million barrels per day

Power

GW

gigawatt (1 watt x 109)

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Units

General conversion factors for energy
Convert to:
From:

TJ

Gcal

Mtoe

MBtu

GWh

multiply by:

TJ

1

238.8

2.388 x 10‐5947.8

0.2778Gcal

4.1868 x 10‐3

1

10‐7

3.968

1.163 x 10‐3

Mtoe

4.1868 x 104

107

1

3.968 x 107

11 630MBtu

1.0551 x 10‐3

0.252

2.52 x 10‐812.931 x 10‐4

GWh

3.6

860

8.6 x 10‐5

3 412

1

Note: There is no generally accepted definition of boe; typically the conversion factors used vary from
7.15 to 7.40 boe per toe.

Currency conversions
Exchange rates (2019 annual average)
British Pound
Chinese Yuan Renminbi
Euro
Indian Rupee
Indonesian Rupiah
Japanese Yen
Russian Ruble
South African Rand

1 US Dollar equals:
0.78
6.91
0.89
70.42
14 147.67
109.0164.74
14.45

Source: OECD National Accounts Statistics: purchasing power parities and exchange rates dataset, July 2020.

Definitions
Advanced biofuels: Sustainable fuels produced from non‐food crop feedstocks, which arecapable of delivering significant lifecycle greenhouse gas emissions savings compared withfossil fuel alternatives, and which do not directly compete with food and feed crops for
agricultural land or cause adverse sustainability impacts. This definition differs from theone used for “advanced biofuels” in the US legislation, which is based on a minimum 50%
lifecycle greenhouse gas reduction and which, therefore, includes sugar cane ethanol.
Agriculture: Includes all energy used on farms, in forestry and for fishing.

Back‐up generation capacity: Households and businesses connected to the main power
grid may also have some form of “back‐up” power generation capacity that can, in theevent of disruption, provide electricity. Back‐up generators are typically fuelled with diesel
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Aviation: This transport mode includes both domestic and international flights and theiruse of aviation fuels. Domestic aviation covers flights that depart and land in the same
country; flights for military purposes are also included. International aviation includes
flights that land in a country other than the departure location.

or gasoline and capacity can be as little as a few kilowatts. Such capacity is distinct frommini‐grid and off‐grid systems that are not connected to the main power grid.
Biodiesel: Diesel‐equivalent, processed fuel made from the transesterification (a chemical
process that converts triglycerides in oils) of vegetable oils and animal fats.
Bioenergy: Energy content in solid, liquid and gaseous products derived from biomass
feedstocks and biogas. It includes solid biomass, biofuels and biogases.
Biofuels: Liquid fuels derived from biomass or waste feedstocks and include ethanol andbiodiesel. They can be classified as conventional and advanced biofuels according to thetechnologies used to produce them and their respective maturity. Unless otherwise stated,biofuels are expressed in energy‐equivalent volumes of gasoline and diesel.
Biogas: A mixture of methane, CO₂ and small quantities of other gases produced byanaerobic digestion of organic matter in an oxygen‐free environment.
Biogases: Includes both biogas and biomethane.
Biomethane: Biomethane is a near‐pure source of methane produced either by“upgrading” biogas (a process that removes any CO2 and other contaminants present in the
biogas) or through the gasification of solid biomass followed by methanation. It is also
known as renewable natural gas.
Buildings: The buildings sector includes energy used in residential, commercial andinstitutional buildings and non‐specified other. Building energy use includes space heating
and cooling, water heating, lighting, appliances and cooking equipment.
Bunkers: Includes both international marine bunkers and international aviation bunkers.
Capacity credit: Proportion of the capacity that can be reliably expected to generate
electricity during times of peak demand in the grid to which it is connected.
Clean cooking facilities: Cooking facilities that are considered safer, more efficient andmore environmentally sustainable than the traditional facilities that make use of solid
biomass (such as a three‐stone fire). This refers primarily to improved solid biomass
cookstoves, biogas systems, liquefied petroleum gas stoves, ethanol and solar stoves.
Coal: Includes both primary coal (including lignite, coking and steam coal) and derived fuels(including patent fuel, brown‐coal briquettes, coke‐oven coke, gas coke, gas‐works gas,coke‐oven gas, blast furnace gas and oxygen steel furnace gas). Peat is also included.
Coalbed methane (CBM): Category of unconventional natural gas, which refers to methanefound in coal seams.

Coal‐to‐liquids (CTL): Transformation of coal into liquid hydrocarbons. It can be achieved
through either coal gasification into syngas (a mixture of hydrogen and carbon monoxide),
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Coal‐to‐gas (CTG): Process in which mined coal is first turned into syngas (a mixture ofhydrogen and carbon monoxide) and then into “synthetic” methane.

Bcombined using the Fischer‐Tropsch or methanol‐to‐gasoline synthesis process to produce
liquid fuels, or through the less developed direct‐coal liquefaction technologies in whichcoal is directly reacted with hydrogen.
Coking coal: Type of coal that can be used for steel making (as a chemical reductant andsource heat), where it produces coke capable of supporting a blast furnace charge. Coal ofthis quality is also commonly known as metallurgical coal.
Conventional biofuels: Fuels produced from food crop feedstocks. These biofuels arecommonly referred to as first generation and include sugar cane ethanol, starch‐based
ethanol, fatty acid methyl esther (FAME) and straight vegetable oil (SVO).
Decomposition analysis: Statistical approach that decomposes an aggregate indicator toquantify the relative contribution of a set of pre‐defined factors leading to a change in theaggregate indicator. The World Energy Outlook uses an additive index decomposition of thetype Logarithmic Mean Divisia Index (LMDI).
Demand‐side integration (DSI): Consists of two types of measures: actions that influenceload shape such as energy efficiency and electrification; and actions that manage load suchas demand‐side response.
Demand‐side response (DSR): Describes actions which can influence the load profile suchas shifting the load curve in time without affecting the total electricity demand, or load
shedding such as interrupting demand for short duration or adjusting the intensity ofdemand for a certain amount of time.
Dispatchable: Dispatchable generation refers to technologies whose power output can bereadily controlled ‐ increased to maximum rated capacity or decreased to zero ‐ in order tomatch supply with demand.
Electricity demand: Defined as total gross electricity generation less own use generation,plus net trade (imports less exports), less transmissions and distribution losses.
Electricity generation: Defined as the total amount of electricity generated by power onlyor combined heat and power plants including generation required for own use. This is also
referred to as gross generation.
Energy sector CO2 emissions: Carbon dioxide emissions from fuel combustion (excluding
non‐renewable waste). Note that this does not include fugitive emissions from fuels, CO2from transport, storage emissions or industrial process emissions.
Energy sector GHG emissions: CO2 emissions from fuel combustion plus fugitive and vented
methane, and nitrous dioxide (N2O) emissions from the energy and industry sectors.

Ethanol: Refers to bio‐ethanol only. Ethanol is produced from fermenting any biomass highin carbohydrates. Today, ethanol is made from starches and sugars, but second‐generation
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Energy services: See useful energy.

technologies will allow it to be made from cellulose and hemicellulose, the fibrous material
that makes up the bulk of most plant matter.
Gas‐to‐liquids (GTL): Process featuring reaction of methane with oxygen or steam toproduce syngas (a mixture of hydrogen and carbon monoxide) followed by synthesis ofliquid products (such as diesel and naphtha) from the syngas using Fischer‐Tropsch catalytic
synthesis. The process is similar to those used in coal‐to‐liquids.
Heat (end‐use): Can be obtained from the combustion of fossil or renewable fuels, direct
geothermal or solar heat systems, exothermic chemical processes and electricity (throughresistance heating or heat pumps which can extract it from ambient air and liquids). This
category refers to the wide range of end‐uses, including space and water heating, andcooking in buildings, desalination and process applications in industry. It does not include
cooling applications.
Heat (supply): Obtained from the combustion of fuels, nuclear reactors, geothermal
resources and the capture of sunlight. It may be used for heating or cooling, or converted
into mechanical energy for transport or electricity generation. Commercial heat sold isreported under total final consumption with the fuel inputs allocated under power
generation.
Hydrogen: Hydrogen is an energy carrier that can be burnt or used in fuel cells to generate
electricity and heat. Main production pathways are natural gas reforming and electrolysis
of water. It is called low‐carbon if hydrogen is produced via CCUS‐equipped reformers orelectrolysers running on low‐carbon electricity.
Hydropower: The energy content of the electricity produced in hydropower plants,
assuming 100% efficiency. It excludes output from pumped storage and marine (tide andwave) plants.
Industry: The sector includes fuel used within the manufacturing and constructionindustries. Key industry branches include iron and steel, chemical and petrochemical,
cement, and pulp and paper. Use by industries for the transformation of energy intoanother form or for the production of fuels is excluded and reported separately underother energy sector. Consumption of fuels for the transport of goods is reported as part of
the transport sector, while consumption by off‐road vehicles is reported under industry.

International marine bunkers: Covers those quantities delivered to ships of all flags thatare engaged in international navigation. The international navigation may take place at sea,
on inland lakes and waterways, and in coastal waters. Consumption by ships engaged indomestic navigation is excluded. The domestic/international split is determined on thebasis of port of departure and port of arrival, and not by the flag or nationality of the ship.
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International aviation bunkers: Includes the deliveries of aviation fuels to aircraft forinternational aviation. Fuels used by airlines for their road vehicles are excluded. The
domestic/international split is determined on the basis of departure and landing locations
and not by the nationality of the airline. For many countries this incorrectly excludes fuels
used by domestically owned carriers for their international departures.

BConsumption by fishing vessels and by military forces is also excluded and included inresidential, services and agriculture.
Investment: All investment data and projections reflect spending across the lifecycle of a
project, i.e. the capital spent is assigned to the year when it is incurred. Investments for oil,gas and coal include production, transformation and transportation; those for the power
sector include refurbishments, uprates, new builds and replacements for all fuels andtechnologies for on‐grid, mini‐grid and off‐grid generation, as well as investment intransmission and distribution, and battery storage. Investment data are presented in realterms in year‐2019 US dollars unless otherwise stated.
Lignite: Type of coal that is used in the power sector mostly in regions near lignite mines
due to its low energy content and typically high moisture levels, which generally makes
long‐distance transport uneconomic. Data on lignite in the World Energy Outlook includes
peat, a solid formed from the partial decomposition of dead vegetation under conditions ofhigh humidity and limited air access.
Liquids: Refers to the combined use of oil and biofuels (expressed in energy‐equivalent
volumes of gasoline and diesel).
Lower heating value: Heat liberated by the complete combustion of a unit of fuel when thewater produced is assumed to remain as a vapour and the heat is not recovered.
Middle distillates: Include jet fuel, diesel and heating oil.
Mini‐grids: Small grid systems linking a number of households or other consumers.
Modern energy access: Includes household access to a minimum level of electricity;
household access to safer and more sustainable cooking and heating fuels, and stoves;access that enables productive economic activity; and access for public services.
Modern renewables: Includes all uses of renewable energy with the exception of
traditional use of solid biomass.

Natural gas: Comprises gases occurring in deposits, whether liquefied or gaseous,consisting mainly of methane. It includes both “non‐associated” gas originating from fields
producing hydrocarbons only in gaseous form, and “associated” gas produced inassociation with crude oil as well as methane recovered from coal mines (colliery gas).
Natural gas liquids (NGLs), manufactured gas (produced from municipal or industrial waste,or sewage) and quantities vented or flared are not included. Gas data in cubic metres are
expressed on a “gross” calorific value basis and are measured at 15 °C and at 760 mm Hg(“Standard Conditions”). Gas data expressed in tonnes of oil equivalent, mainly forcomparison reasons with other fuels, are on a “net” calorific basis. The difference between
the net and the gross calorific value is the latent heat of vaporisation of the water vapour

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Modern use of solid biomass: Refers to the use of solid biomass in improved cookstovesand modern technologies using processed biomass such as pellets.

produced during combustion of the fuel (for gas the net calorific value is 10% lower than
the gross calorific value).
Natural gas liquids (NGLs): Liquid or liquefied hydrocarbons produced in the manufacture,
purification and stabilisation of natural gas. These are those portions of natural gas which
are recovered as liquids in separators, field facilities or gas processing plants. NGLs include
but are not limited to ethane (when it is removed from the natural gas stream), propane,butane, pentane, natural gasoline and condensates.
Non‐energy use: Fuels used for chemical feedstocks and non‐energy products. Examples ofnon‐energy products include lubricants, paraffin waxes, asphalt, bitumen, coal tars and oils
as timber preservatives.
Nuclear: Refers to the primary energy equivalent of the electricity produced by a nuclear
plant, assuming an average conversion efficiency of 33%.
Off‐grid systems: Stand‐alone systems for individual households or groups of consumers.
Offshore wind: Refers to electricity produced by wind turbines that are installed in open
water, usually in the ocean.
Oil: Oil production includes both conventional and unconventional oil. Petroleum products
include refinery gas, ethane, liquid petroleum gas, aviation gasoline, motor gasoline, jet
fuels, kerosene, gas/diesel oil, heavy fuel oil, naphtha, white spirit, lubricants, bitumen,paraffin, waxes and petroleum coke.
Other energy sector: Covers the use of energy by transformation industries and the energy
losses in converting primary energy into a form that can be used in the final consuming
sectors. It includes losses by gas works, petroleum refineries, blast furnaces, coke ovens,
coal and gas transformation and liquefaction. It also includes energy own use in coal mines,
in oil and gas extraction and in electricity and heat production. Transfers and statisticaldifferences are also included in this category.
Peri‐urban: Peri‐urban areas are zones of transition from rural to urban which often form
the urban‐rural interface and may evolve into being fully urban.
Power generation: Refers to fuel use in electricity plants, heat plants and combined heatand power (CHP) plants. Both main activity producer plants and small plants that produce
fuel for their own use (auto‐producers) are included.

Renewables: Includes bioenergy, geothermal, hydropower, solar photovoltaic (PV),concentrating solar power (CSP), wind and marine (tide and wave) energy for electricity
and heat generation.

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Productive uses: Energy used towards an economic purpose: agriculture, industry, services
and non‐energy use. Some energy demand from the transport sector (e.g. freight) could
also be considered as productive, but is treated separately.

BResidential: Energy used by households including space heating and cooling, water heating,lighting, appliances, electronic devices and cooking equipment.
Self‐sufficiency: Corresponds to indigenous production divided by total primary energy
demand.
Services: Energy used in commercial (e.g. hotels, offices, catering, shops) and institutionalbuildings (e.g. schools, hospitals, offices). Services energy use includes space heating andcooling, water heating, lighting, equipment, appliances and cooking equipment.
Shale gas: Natural gas contained within a commonly occurring rock classified as shale.
Shale formations are characterised by low permeability, with more limited ability of gas toflow through the rock than is the case with a conventional reservoir. Shale gas is generally
produced using hydraulic fracturing.
Shipping/navigation: This transport sub‐sector includes both domestic and internationalnavigation and their use of marine fuels. Domestic navigation covers the transport of goods
or persons on inland waterways and for national sea voyages (starts and ends in the same
country without any intermediate foreign port).International navigation includes quantities
of fuels delivered to merchant ships (including passenger ships) of any nationality for
consumption during international voyages transporting goods or passengers..
Solid biomass: Includes charcoal, fuelwood, dung, agricultural residues, wood waste andother solid wastes.
Steam coal: Type of coal that is mainly used for heat production or steam‐raising in power
plants and, to a lesser extent, in industry. Typically, steam coal is not of sufficient quality forsteel making. Coal of this quality is also commonly known as thermal coal.
Tight oil: Oil produced from shales or other very low permeability formations, using
hydraulic fracturing. This is also sometimes referred to as light tight oil. Tight oil includes
tight crude oil and condensate production except for the United States, which includes
tight crude oil only (US tight condensate volumes are included in natural gas liquids).

Total final energy consumption (TFEC): Is a variable defined primarily for tracking progress
towards target 7.2 of the Sustainable Development Goals. It incorporates total final
consumption (TFC) by end‐use sectors but excludes non‐energy use. It excludes
international marine and aviation bunkers, except at world level. Typically this is used in
the context of calculating the renewable energy share in total final energy consumption(Indicator 7.2.1 of the Sustainable Development Goals), where TFEC is the denominator.

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Total final consumption (TFC): Is the sum of consumption by the various end‐use sectors.
TFC is broken down into energy demand in the following sectors: industry (including
manufacturing and mining), transport, buildings (including residential and services) andother (including agriculture and non‐energy use). It excludes international marine andaviation bunkers, except at world level where it is included in the transport sector.

Total primary energy demand (TPED): Represents domestic demand only and is broken
down into power generation, other energy sector and total final consumption.
Traditional use of solid biomass: Refers to the use of solid biomass with basic technologies,
such as a three‐stone fire, often with no or poorly operating chimneys.
Transport: Fuels and electricity used in the transport of goods or persons within thenational territory irrespective of the economic sector within which the activity occurs. This
includes fuel and electricity delivered to vehicles using public roads or for use in rail
vehicles; fuel delivered to vessels for domestic navigation; fuel delivered to aircraft fordomestic aviation; and energy consumed in the delivery of fuels through pipelines. Fueldelivered to international marine and aviation bunkers is presented only at the world level
and is excluded from the transport sector at a domestic level.
Useful energy: Refers to the energy that is available to end‐users to satisfy their needs. Thisis also referred to as energy services demand. As result of transformation losses at the
point of use, the amount of useful energy is lower than the corresponding final energy
demand for most technologies. Equipment using electricity often has higher conversion
efficiency than equipment using other fuels, meaning that for a unit of energy consumed
electricity can provide more energy services.
Variable renewable energy (VRE): Refers to technologies whose maximum output at any
time depends on the availability of fluctuating renewable energy resources. VRE includes abroad array of technologies such as wind power, solar PV, run‐of‐river hydro, concentrating
solar power (where no thermal storage is included) and marine (tidal and wave).

Regional and country groupings
Advanced economies: OECD regional grouping and Bulgaria, Croatia, Cyprus1,2, Malta andRomania.
Africa: North Africa and sub‐Saharan Africa regional groupings.
Asia Pacific: Southeast Asia regional grouping and Australia, Bangladesh, China, India,
Japan, Korea, Democratic People’s Republic of Korea, Mongolia, Nepal, New Zealand,
Pakistan, Sri Lanka, Chinese Taipei, and other Asia Pacific countries and territories.3
Caspian: Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan
and Uzbekistan.

China: Includes the (People's Republic of) China and Hong Kong, China.

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Central and South America: Argentina, Plurinational State of Bolivia (Bolivia), Brazil, Chile,
Colombia, Costa Rica, Cuba, Curaçao, Dominican Republic, Ecuador, El Salvador, Guatemala,Haiti, Honduras, Jamaica, Nicaragua, Panama, Paraguay, Peru, Suriname, Trinidad andTobago, Uruguay, Bolivarian Republic of Venezuela (Venezuela), and other Central andSouth American countries and territories.4

B

Developing Asia: Asia Pacific regional grouping excluding Australia, Japan, Korea and
New Zealand.
Emerging market and developing economies: All other countries not included in theadvanced economies regional grouping.
Eurasia: Caspian regional grouping and the Russian Federation (Russia).
Europe: European Union regional grouping and Albania, Belarus, Bosnia and Herzegovina,
North Macedonia, Gibraltar, Iceland, Israel5, Kosovo, Montenegro, Norway, Serbia,
Switzerland, Republic of Moldova, Turkey, Ukraine and United Kingdom.
European Union: Austria, Belgium, Bulgaria, Croatia, Cyprus1,2, Czech Republic, Denmark,Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania,
Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovak Republic, Slovenia,
Spain and Sweden.
IEA (International Energy Agency): OECD regional grouping excluding Chile, Iceland, Israel,
Latvia, Lithuania and Slovenia.
Latin America: Central and South America regional grouping and Mexico.
Middle East: Bahrain, Islamic Republic of Iran (Iran), Iraq, Jordan, Kuwait, Lebanon, Oman,
Qatar, Saudi Arabia, Syrian Arab Republic (Syria), United Arab Emirates and Yemen.
Non‐OECD: All other countries not included in the OECD regional grouping.
Non‐OPEC: All other countries not included in the OPEC regional grouping.
North Africa: Algeria, Egypt, Libya, Morocco and Tunisia.
North America: Canada, Mexico and United States.
OECD (Organisation for Economic Co‐operation and Development): Australia, Austria,
Belgium, Canada, Chile, Czech Republic, Denmark, Estonia, Finland, France, Germany,
Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea, Latvia, Lithuania, Luxembourg,
Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Slovenia,
Spain, Sweden, Switzerland, Turkey, United Kingdom and United States. Colombia becamea member of the OECD in April 2020, and its membership is not yet reflected in WEO
projections for the OECD.

Southeast Asia: Brunei Darussalam, Cambodia, Indonesia, Lao People’s Democratic
Republic (Lao PDR), Malaysia, Myanmar, Philippines, Singapore, Thailand and Viet Nam.
These countries are all members of the Association of Southeast Asian Nations (ASEAN).

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OPEC (Organisation of the Petroleum Exporting Countries): Algeria, Angola, Republic of theCongo (Congo), Equatorial Guinea, Gabon, the Islamic Republic of Iran (Iran), Iraq, Kuwait,
Libya, Nigeria, Saudi Arabia, United Arab Emirates and Bolivarian Republic of Venezuela(Venezuela), based on membership status as of October 2020.

Sub‐Saharan Africa: Angola, Benin, Botswana, Cameroon, Republic of the Congo (Congo),
Côte d’Ivoire, Democratic Republic of the Congo, Eritrea, Ethiopia, Gabon, Ghana, Kenya,
Mauritius, Mozambique, Namibia, Niger, Nigeria, Senegal, South Africa, South Sudan,
Sudan, United Republic of Tanzania (Tanzania), Togo, Zambia, Zimbabwe and other Africancountries and territories.6

Country notes
1

Note by Turkey: The information in this document with reference to “Cyprus” relates to the southern partof the island. There is no single authority representing both Turkish and Greek Cypriot people on the island.
Turkey recognises the Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution isfound within the context of the United Nations, Turkey shall preserve its position concerning the “Cyprus
issue”.

2
Note by all the European Union Member States of the OECD and the European Union: The Republic of
Cyprus is recognised by all members of the United Nations with the exception of Turkey. The information inthis document relates to the area under the effective control of the Government of the Republic of Cyprus.
3

Individual data are not available and are estimated in aggregate for: Afghanistan, Bhutan, Cook Islands, Fiji,
French Polynesia, Kiribati, Macau (China), Maldives, New Caledonia, Palau, Papua New Guinea, Samoa,
Solomon Islands, Timor‐Leste and Tonga and Vanuatu.

4

Individual data are not available and are estimated in aggregate for: Anguilla, Antigua and Barbuda, Aruba,
Bahamas, Barbados, Belize, Bermuda, Bonaire, British Virgin Islands, Cayman Islands, Dominica, Falkland
Islands (Malvinas), French Guiana, Grenada, Guadeloupe, Guyana, Martinique, Montserrat, Saba, Saint
Eustatius, Saint Kitts and Nevis, Saint Lucia, Saint Pierre and Miquelon, Saint Vincent and Grenadines, Saint
Maarten, Turks and Caicos Islands.

5
The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities.
The use of such data by the OECD and/or the IEA is without prejudice to the status of the Golan Heights, East
Jerusalem and Israeli settlements in the West Bank under the terms of international law.

Annex C | Definitions

235

IEA. All rights reserved.

6
Individual data are not available and are estimated in aggregate for: Burkina Faso, Burundi, Cabo Verde,Central African Republic, Chad, Comoros, Djibouti, Kingdom of Eswatini, Gambia, Guinea, Guinea‐Bissau,
Lesotho, Liberia, Madagascar, Malawi, Mali, Mauritania, Réunion, Rwanda, Sao Tome and Principe,
Seychelles, Sierra Leone, Somalia and Uganda.

B

AC
AT&C
CCUS
CGD
CIL
CNG
CO2
CPCB
DFC
discom
DRI
DRS
DSR
EESL
EIRR
EPAR
EPC
ESCO
ESG
EU
EV
FAME
G20
GDP
GHG
GST
H2‐DRI
HELP
HPO
ICAP
ICE
IEA
IGX
IMF
INVIT
IPO
IVC
LCOE
LED
236

air‐conditioning (unit); air conditioner
aggregate technical and commercial
carbon capture, utilisation and storage
city gas distribution
Coal India Limited
compressed natural gas
carbon dioxide
Central Pollution Control Board
Dedicated Freight Corridor
electricity distribution company
direct reduced iron
Delayed Recovery Scenario
demand‐side response
Energy Efficiency Services Limited
equity internal rate of return
Environmental Protection Amendment Rules (Act)energy performance contractenergy service company
environmental, social and governanceEuropean Union
electric vehicle
Faster Adoption and Manufacturing of Electric Vehicles
Group of 20
gross domestic productgreenhouse gas
Goods and Services Taxhydrogen‐based direct reduced ironHydrocarbon Exploration and Licensing Policyhydro purchase obligation
India Cooling Action Planinternal combustion engine
International Energy Agency
Indian Gas ExchangeInternational Monetary Fundinfrastructure investment trust
initial public offering
Indian Vision Caselevelised cost of electricity
light‐emitting diodeWorld Energy Outlook 2021 | Annexes

IEA. All rights reserved.

Abbreviations and Acronyms

liquefied natural gas
liquefied petroleum gas
mortgage‐backed securities
micro, small and medium‐sized enterprises
National Ambient Air Quality Standards
National Clean Air Programme
National Clean Energy and Environment Fundnationally determined contribution
nitrogen oxides
National Urban Transport Policy
Organisation for Economic Co‐operation and Development
Oil and Natural Gas Corporation Limited
Pratyaksh Hanstantrit Labh
Perform, Achieve and Trade
production‐linked incentive
Pradhan Mantri Awaas Yojana
Pradhan Mantri Ujjwala Yojana
pipeline natural gas
power purchase agreement
purchasing power parity
public sector undertaking
photovoltaics
research and development
Reserve Bank of India
real estate investment trust
real‐time power market
Sustainable Alternative Towards Affordable Transportation
Sustainable Development Goal (United Nations)Sustainable Development Scenario
Solar Energy Corporation of India
sulphur dioxide
strategic petroleum reserve
Stated Policies Scenario
total final consumption
television
Ujwal DISCOM Assurance Yojana
Unnat Jyoti by Affordable LEDs for All
United Nations
value‐adjusted levelised cost of electricity
variable renewable energy
World Energy Outlook

Annex C | Definitions

237

IEA. All rights reserved.

LNG
LPG
MBS
MSME
NAAQS
NCAP
NCEEF
NDC
NOX
NUTP
OECD
ONGC
PAHAL
PAT
PLI
PMAY
PMUY
PNG
PPA
PPP
PSU
PV
R&D
RBI
REIT
RTM
SATAT
SDG
SDS
SECI
SO2
SPR
STEPS
TFC
TV
UDAY
UJALA
UN
VALCOE
VRE
WEO

B

IEA. All rights reserved.

Annex C
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WRI. (2020). Aqueductwww.wri.org/aqueduct/CThis publication reﬂects the views of the IEA Secretariat but does not necessarily reﬂect
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India Energy Outlook 2021
World Energy Outlook Special Report
The India Energy Outlook 2021 is a new special report fromthe International Energy Agency’s World Energy Outlook
series. The report explores the opportunities and challenges
ahead for India as it seeks to ensure reliable, affordable
and sustainable energy to a growing population. The
report examines pathways out of the crisis that emerged
from the Covid-19 pandemic, as well as longer-term trends,
exploring how India’s energy sector might evolve to 2040
under a range of scenarios. The report is presented as aseries of ‘deep dives’ exploring cross-cutting issues,
including:•

The effects of economic growth, urbanisation andindustrialisation on India’s fuel and sector-level demand
trends.

•

The evolution of mobility, including electrification, inthe context of growing urbanisation.

•

The prospects for expanding energy access, especiallyin rural areas.

•

Flexibility requirements in the power sector under
ambitious renewable capacity targets and a significant
rise in electricity demand – especially from air
conditioners.

•

Challenges and opportunities for clean energy finance,
including investments in solar energy and batteries•

The supply and infrastructure required for an expanded
role for natural gas, along with a sector-levelassessment of its potential.

•

Impacts of India’s energy policy choices on energy
access, air pollution and carbon emissions.

•India’s growing importance in global energy issues,and the implications of its development trajectory on
international energy supply, trade and investment.

For more information, and the free download of this report,
please visit: iea.li/india-outlook2021