Energy News Monitor | Volume XIII; Issue 22
A Wind-Mill
Non-Fossil Fuels News Commentary: October- November 2016
India
What will happen to India’s renewable energy targets now that a tectonic shift in climate policy is anticipated? Will they be trumped? These are the questions that ended a month filled with upbeat news from the renewable sector such as commitments for more dollars, more incentives and more support for solar power with some morsels thrown in for wind. Though there was uncertainty in these commitments materialising even before the tectonic shift, the level of uncertainty has increased since the election of a new President in the USA. India’s renewable energy targets for 2022 that were being described as aspirational or ambitious may now have to be described as fantasy.
In a recent report on renewables, the IEA has said that the share of renewables in India’s power generation would touch 19 percent in 2021 taking into account the 175 GW target for renewable capacity by 2022. The report revised its earlier estimates upward due to much higher capacity additions of solar PV which IEA expects to account for 50 percent of all new renewable capacity growth over the medium term. It expects onshore wind to expand by 25 GW over the medium term on account of ‘strong project pipeline, new supportive policies to encourage the repowering of old sites, and the announcement of wind auctions to develop 1 GW of capacity that should drive additional growth after 2018’. However the scaling back of accelerated depreciation benefit for wind from 80 percent to 40 percent, which will come into effect at the end of FY16 is expected to increase uncertainty in capacities materialising.
Hydropower capacity is expected to expand by over 10 GW driven by the government’s 5 GW small hydropower target by the end of the 12th Five-Year Plan in 2022. India’s agreement with Bhutan to co-develop over 2 GW of mostly large hydropower projects is also expected to contribute. The issue of targets for renewables depends on what is classified as renewables and in this context, the request from the MNRE to seek cabinet approval to reclassify large hydro power plants as renewable projects becomes important. This could potentially help India achieve clean power capacity of 230 GW by 2022 according to the Minister in charge of the MNRE. Until now only hydro projects that were less than 25 MW were classified as renewable.
According to a report by Bloomberg New Energy Finance, $10.5 billion was invested in renewables in India in FY16, which was 60 percent more than the investment last year. The investment required for meeting the target set for 2022 is estimated to be about $100 billion equivalent to almost 5 percent of all the goods and services produced annually by India according to Bloomberg.
India’s riparian challenges were in the news this month. The upper riparian narrative that India uses to appropriate the waters of the Indus for power generation under the Indus Water Treaty may be of little use to take on China as India is the lower riparian in the Brahmaputra basin. India was reported to be concerned by China blocking a tributary of Brahmaputra in Tibet to facilitate construction of what is descried as the ‘most expensive’ hydro-power project. India’s concern follows an announcement by China that it has completed the dam for a hydroelectricity project at Lalho on the Xiabuqu river, a tributary of the Brahmaputra in Tibet. Experts have commented that the Lalho project which is a run-of-the-river project, will not reduce water flow once it is complete as the dam only diverts water into a tunnel. However experts feel that it will impact the flow of silt, essential to the build-up of soil in the South Asian plains. Staying with China, it was also reported that the Chinese government was keen to sell the excess electricity to India. This is seen as one of the main reasons why China agreed to Indian requests for Brahmaputra flood season water flow data and expanded the agreement in October 2013. India has a data sharing arrangement under which China provides data during flood season on Brahmaputra and Sutlej. In 2015, China started generating electricity from the $1.5 billion Zam Hydropower Station, the largest in Tibet and built on the main stem of the Brahmaputra.
In the nuclear sector, the Russian Kudankulam Nuclear Power Plant continued to dominate. Unit 3 & 4 of the plant for which the Indian and Russian leaders laid the foundation through video-conferencing was reported this month. The units were expected to sell electricity at ₹3.90/kWh. The first two units were estimated to cost $3.3 billion while unit 3 & 4 are estimated to cost about $6 billion to build. Despite the increase in cost they are expected to sell electricity at the same price.
Rest of the World
Tesla was reported to be working with Panasonic Corp on production of photovoltaic cells and modules at a facility under construction by SolarCity in Buffalo, New York. The deal requires shareholders’ approval of Tesla’s planned acquisition of SolarCity. It is too early to say if this will help both Tesla and Panasonic to alleviate some of the challenges that they are facing.
The U.K. government had supposedly miscalculated the costs of renewable-energy support and is expected to overshoot its $9.2 billion annual budget by about a fifth in 2020 and 2021, according to auditors. The support mechanism, known as the levy control framework, was established by the U.K.’s Department of Energy & Climate Change, subsequently renamed by Prime Minister Theresa May’s government to the Department of Business, Energy & Industrial Strategy. It sets annual caps on costs for clean energy such as feed-in tariffs, renewable obligation certificates and contracts for difference. Apparently most of the allocated government funds have been spent and there is little left over to fund new projects between now and 2021.
On hydropower, the most interesting development on the global scene was the riparian conflict between Central Asian nations over hydro power projects. Tajikistan had reportedly diverted the flow of Vakhsh river to start building the world’s tallest dam and the main element of the Rogun hydroelectric power plant, a $3.9 billion project. Uzbekistan was reported to be concerned as a downstream nation and is said to be urging Tajikistan not to build Rogun.
Moving to the USA, an investment bank has said that nuclear power will come to an end in the country if the industry does not get more government support. Low power prices, fuelled by an abundance of natural gas from shale drilling and weakening demand, have reportedly squeezed profits of the nuclear industry just as its operating costs rose on account of an increase in regulatory costs. The cost of building a nuclear plant in the USA is estimated to be 5 times that of a gas-fired plant. In August, regulators cleared subsidies worth about $500 million a year as part of a clean energy plan to reduce greenhouse gas emissions in New York. This is being fought by competing power producers who say the measures are unlawful.
According to the World Nuclear Association China is set to overtake the USA in nuclear capacity over the next 10 to 15 years. China is expected to overtake France with the second-highest number of nuclear reactors by 2020. Out of 39 reactors of capacity 47.4 GW under construction in Asia 20 are in China. Four countries – China, Russia, India and South Korea are expected to account for 70 percent of reactors commissioned in the period to 2030. A research institute in China was reportedly developing the world’s smallest nuclear power plant, which could fit inside a shipping container and installed on an island in the disputed South China Sea within five years. The reactor is expected to generate 10 MW of heat which can potentially power 50,000 households.
NATIONAL: OIL
Decide in 2 months on extension of PSC with Cairn: HC to govt
November 7, 2016. Delhi High Court (HC) directed the government to positively take a decision within two months regarding extension of a production sharing contract (PSC) it has with Cairn India, a subsidiary of UK-based Vedanta group, to produce oil from a Rajasthan block till 2020. Justice Sanjeev Sachdeva directed the Centre to arrive at a decision by January 6, 2017, with regard to Cairn’s request for extending till 2030, the PSC that the company and Oil and Natural Gas Corp (ONGC) have with the government, and listed the matter for hearing on January 9, 2017. The court, however, made it clear that the decision has to be taken without linking it with the policy being contemplated by the government regarding PSCs with other companies which too are up for extension. The order came on the government’s application seeking three more months, till January 31, 2017, to come up with an uniform policy regarding extension of PSCs. Cairn has in its plea said that when none of the state-run companies could find oil in the block, it had invested around Rs 10,000 crore in exploration back in 1995 when the PSC was entered into. It claimed that the government has earned around Rs 80,000 crore from commercial production out of the area. In its plea, Cairn has said that estimated recoverable assets in the block are approx 1.2 billion barrels of oil equivalent, of which 466 million barrels are expected to be recovered beyond current PSC period until 2030. Currently, it is producing natural gas from the block and supplying it to government companies.
Source: Business Standard
OIL asks Assam govt to tackle frequent bandhs, disruptions
November 6, 2016. Oil India Ltd (OIL) has sought Assam government’s assistance to deal with frequent bandhs and local disruptions which are affecting its operations. In last two years the company has suffered losses to the tune of Rs 45 crore for frequent disruptions. Meanwhile, OIL has announced Rs 50 crore start-up fund to foster, nurture and incubate new ideas related to oil and gas sector. Utpal Bora, chairman and managing director of OIL, said disruption and bandhs in operational area causes long term damage to reservoir and disturbs the flow of oil and gas from the well. According to OIL, an organisation comes up with as many as 60 demands and these are mostly related to construction of roads, library and others. Bora said OIL is faced with falling production of the crude oil, oil production came down from 3.8 million metric tonnes per annum (mmtpa) in 2010-11 to 3.24 mmt in the last financial year. OIL has sought additional security and patrolling by the state police force in the operational areas for miscreants causes damage to oil property.
Source: The Economic Times
Petroleum dealers call off stir after talks with oil firms
November 5, 2016. Petroleum dealers, who were on a two-day nationwide no-purchase strike, said they were calling off their future agitation programmes as oil companies have promised to look into their demand for hiking commission before December 31. In the morning, the Consortium of Indian Petroleum Dealers (CIPD) said they would go on a full-fledged strike on November 15 to press for their demand to increase commission. Besides, the dealers had said petrol pumps will be selling fuel for limited hours from Saturday and will not operate on Sundays or Government holidays. However, they decided not to go ahead with these programmes after holding talks with representatives of oil companies in Mumbai. The CIPD has demanded implementation of the recommendations made by the Apoorva Chandra Committee in 2011. The committee recommended commissions of over Rs 4 for petrol and about Rs 3 for diesel per litre. The then UPA Government hiked the commission on petrol to Rs 2.15 and diesel to Rs 1.28 from Rs1 and Rs 0.70, respectively. The dealers had stopped purchase of fresh stocks of petrol and diesel at 54,000 fuel outlets across the country from oil companies.
Source: NDTV
Petrol gets costlier by 89 paise, diesel by 86 paise per litre
November 5, 2016. Petrol price was raised by 89 paise per litre, the sixth increase in rates since September, and diesel by 86 paise a litre, the third increase in a month. The price hike announced by Indian Oil Corp (IOC) is excluding local sales tax or VAT and will be effective from midnight tonight. After including VAT, petrol in Delhi will cost Rs 67.62 a litre from midnight tonight, up Rs 1.17 from Rs 66.45 per litre currently. Similarly, diesel will cost Rs 56.41 a litre after including VAT in Delhi, up Rs 1.03 as compared to Rs 55.38 at present. IOC said the movement of prices in the international oil market and INR-USD exchange rate shall continue to be monitored closely and developing trends of the market will be reflected in future price changes.
Source: India Today
Fishermen oppose laying of oil pipeline
November 5, 2016. Fishermen residing in North Chennai opposed the laying of a 17 km pipeline for transport of crude oil from the Chennai port to Chennai Petroleum Corp Ltd (CPCL), Manali. Fishermen are worried that the pipeline that will run through fishing hamlets could threaten their livelihood. Fishermen said they were already forced to fish on the Andhra coast as the resource has dwindled on the city coast. Old pipelines of CPCL, laid in 1966, were carrying about 25 lakh tonnes of crude oil shipped to Chennai from abroad. With crude oil demand rising to 105 lakh tonnes, CPCL has proposed the initiative.
Source: The Times of India
Abu Dhabi firm wins $141 mn project from ONGC
November 4, 2016. An Abu Dhabi-based company has won a $141 million contract from Oil and Natural Gas Corp (ONGC) to provide engineering, procurement and construction services for two of its projects. National Petroleum Construction Company (NPCC) will be involved in the replacement of 10 wellhead platform topsides at ONGC’s Mumbai High North and South fields, MHN and MHS, respectively. Out of these 10, four are on the MHN field while six are located on MHS. The decommissioning and removal of the existing topsides are part of the engineering, procurement and construction (EPC) contract. The project is scheduled to be completed on April 30, 2018.
Source: The Economic Times
ONGC, Cairn face Rs 7.3 bn service tax on royalty payments
November 3, 2016. In a setback to energy firms like Oil and Natural Gas Corp (ONGC) and Cairn India, the government will from this fiscal levy service tax of about Rs 730 crore on royalties they pay to the exchequer on oil and gas they produce. Companies currently pay 9.09 percent of the price they realise on oil and gas produced from onland or onshore fields and 16.67 percent on the same from offshore areas. As a rule, service tax is paid by the entity providing the service, but in certain cases it is the liability of the party that receives the service to remit the levy under a system called reverse charge. In the circular clarifying on service tax liability on use of wireless spectrum, Central Board of Excise and Customs (CBEC) stated that all periodic payments such as royalty on use of natural resources will attract 15 percent service tax. Following the clarification, the Service Tax department has sent letters to companies like ONGC, Cairn India Ltd and Reliance Industries Ltd (RIL) seeking information on royalty payments. CBEC in the circular stated that one-time payments for natural resources are exempt from service tax but not any periodic payments. Oil companies have to pay royalty on a monthly basis.
Source: The Hindu Business Line
PM checks out blueprint for 10 percent cut in oil imports
November 2, 2016. Prime Minister (PM) Narendra Modi reviewed the government’s blueprint for reducing oil imports 10% by 2021 in a bid to ensuring the country’s energy security. The PM said India needed to reduce oil imports by 10% over the next seven years through efficient use and speedier exploration and production from domestic fields to become self-sufficient in energy. India imports 77% of its oil requirement. It is the fourth largest oil importer in the world after US, China and Japan. In terms of consumption, it is the fifth largest after the US, China, Japan and Russia. Modi had said if imports were cut by 10% by 2022, the country could look at halving it by 2030.
Source: The Times of India
NATIONAL: GAS
Country’s first LNG-fuelled bus rolls out in Kerala
November 8, 2016. The country’s first liquefied natural gas (LNG)-fuelled bus was launched by Oil Minister Dharmendra Pradhan. Pradhan said it is a pilot project and the LNG-driven bus will run on trial-basis before being certified for commercial operation. The LNG-fuelled bus is being launched as part of a plan of the oil ministry to use LNG directly for mass transportation to reduce carbon emissions in the country and, at the same time, generating savings. Kerala State Transport Minister A.K. Saseendran said that studies have shown that as compared to diesel, there will be a saving of 40 percent in fuel costs if buses run on LNG. The Government of India has already announced that it is planning to use LNG, which is cheaper than diesel, as a fuel for the railways and long-haul transportation.
Source: Business Standard
ONGC seeks complete autonomy on pricing of natural gas to boost output
November 8, 2016. Oil and Natural Gas Corp (ONGC) is seeking total pricing freedom for natural gas produced in the country, arguing it would help boost local output and develop India into a vibrant gas market. With this ONGC has given a new thrust to the demand from Reliance Industries, BP Plc, and other private sector gas producers in the country to free up pricing. The government has kept a lid on prices through a formula worked out two years ago that aligns local with international rates, and a gas allocation policy that prioritises sectors for receiving local supply. The government has allowed pricing freedom to gas blocks that will be auctioned under new exploration and production policies. Domestic gas prices have halved to $2.5 per unit in two years, tracking global decline, dropping lower than ONGC’s average gas production cost of $3.5 per unit. ONGC loses Rs 4200 crore in revenue and Rs 2400 crore in profit annually for each dollar’s drop in local gas price.
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