India in dire need of $140b annual investments to meet burgeoning power demand

Energy demand has doubled since 2000.

India is set to contribute more than any other country to the rise in global energy demand over the next 25 years, underlining its ever-greater influence in Asia and on the world stage; even so, its energy demand per capita in 2040 would still be 40% below the world average. 

These are some key findings from a new special report, India Energy Outlook 2015, launched today by the International Energy Agency (IEA) as part of its flagship World Energy Outlook series of publications.

Although its energy demand has almost doubled since 2000, India today still faces some important energy and development challenges. Some 240 million people – one in five Indian citizens – lack access to electricity. To ensure that energy is a spur, rather than a hindrance, to India’s advancement, policy makers must redouble efforts to bring capital into the sector, particularly in more efficient and low-carbon technologies.

In the main scenario of the India Energy Outlook 2015, India needs more than INR 9 lakh crore ($140 billion) in energy investment per year to 2040, around INR 7 lakh crore ($110 billion) per year in energy supply – 75% of which is required to meet India’s burgeoning need for electricity – and a further INR 2 lakh crore ($30 billion) per year to improve energy efficiency.

“India’s energy transformation requires three things: investment, investment and investment,” said IEA Executive Director Fatih Birol. “A lot is being done already to overhaul the energy regulatory system and get the incentives in place; this is vital, as India will need to call upon a wider range of investors and sources of finance than it has in the past.”

A slew of recent policy initiatives aimed at improving the business environment and attracting investment point to a growing momentum that will need to be sustained. Rising incomes and population, increased access to electricity and clean cooking facilities, urbanisation and industrialisation are the key factors underpinning the rise in energy demand. Taking into account the achievement of universal electricity access and anticipated demographic trends that will make India the most populous country in the world, India has to make provision for nearly 600 million new electricity consumers by 2040.

Over the same period, some 315 million people, almost the population of the United States today, will be added to India’s urban population. This will accelerate the switch to modern fuels and the rise in appliance and vehicle ownership while pushing up demand for construction materials. The “Make in India” programme that aims to transform Indian into a manufacturing powerhouse can help modernise the economy and create jobs for the growing workforce, and also has major implications for energy use.

As a result, India becomes by far the largest source of worldwide coal demand growth, most of which is met by expanded domestic production. Oil demand also increases by more than in any other country, approaching 10 million barrels per day by 2040, but in this case is met by increased imports, particularly from the Middle East, that push India’s oil import dependence above 90%, requiring constant vigilance as to the implications for energy security.

Yet the growth in energy provision is not confined to fossil fuels. India also becomes the world’s second-largest market for solar PV, as the deployment of renewables gathers pace in the power sector. Over half of the new electricity generation capacity to 2040 is projected to come from non-fossil fuels, led by solar and wind power. The rise in low-carbon energy is spurred by ample domestic resources, falling costs and strong policy support, as expressed in India’s historic climate pledge in the run-up to the Paris climate summit and in its efforts to tackle local pollution and improve urban air quality.

“India's climate pledge is a beacon for the cleaner path that India intends to follow, highlighting to the world that economic growth and social transformation can be pursued with a regard for the wider environment,” said Dr. Birol.

Energy efficiency is also an increasingly important component of India’s energy picture; the coverage of India’s final consumption by mandatory efficiency measures has already increased from around 1% in 2005 to more than 15% today and is set to increase to more than 40% by 2040 as efficiency policies grow in scope and effectiveness. But the potential is far from exhausted.

A large share of India’s future industrial and transport infrastructure, as well as around three-quarters of its anticipated 2040 buildings stock, is yet to be built: stringent energy efficiency policies offer India a tremendous opportunity to ensure that future demand for energy services is met without undue strain on energy supply or the environment.