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Decimal Digest
29 Jun 2016

How can India ensure long term energy security?

Current situation :

  • The share of imports in our primary energy requirements is set to rise to 51% by 20301.
  • For every $1 increase in crude oil, WPI inflation rises by 30 bps2. Transport by trucks due to lack of capacity in railway freight is a major contributor to inflation. Higher inflation necessitates tight monetary policy which dampens investment.
  • 2/3rd of India’s oil supplies come from the Middle-East hence increases India’s exposure to geopolitical risks as crude oil is required in continuous supply and disruption in supply can bring the economy to a standstill and oil reserves that India has are low.
  • Oil imports decreases multiplier effect in the economy by acting as a leakage and also create problems of current account deficits.

Along with renewables for utility level electricity generation push for electric cars is needed :

  • Increase in demand for electricity for electric cars will provide renewables and storage solutions economies of scale to lower overall cost of electricity and lead to cost savings on oil related fuels and also increase economic stability.
  • For every percentage decline in use of fossil fuels we decrease pricing power of oil exporters and create upper bound for price of oil as higher prices will lead to substitution to electric cars.
  • Tesla has already announced that upon expansion to India it will set up super charging stations pan India.
  • The current storage solutions in electric cars is lithium ion solutions. On increasing usage, we will not be replacing the oil import trap with a lithium import trap because according to US geological survey there are 39.5 million tons of lithium resources dispersed in the world3.
  • Newer and cheaper storage solutions are already being developed and we can change the battery chemistry to other compounds unlike oil.
  • Import disruption of lithium will also have less effects as we will be dependent on lithium for making new cars and not for everyday use. The other aspect is that lithium can be recycled efficiently, allowing for reuse and reducing need for imports after a certain stage.
  • Electric cars are safer than conventional cars and due to no emissions it will lower pollution and thus health related fatalities in the cities which is a growing concern.

Piyush Goyal the minister for energy, coal and renewables had announced that India can become a 100% electric vehicle nation by 20304. He had stated that his ministry is contemplating innovative financing schemes to monetize the savings on petroleum products and also provide cheap electricity and thereby make electric cars an attractive proposition. The government has also offered Tesla land near major port cities to facilitate export of their cars to South East Asian countries. The automobile penetration rate in India is low and will pick up along with economic growth, so it is an opportune moment to introduce electric cars in India. So electric cars are not a thing of the distant future for India but a need of the near future.

2 RBI report (2005)


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