Taking a lesson from the recent the energy crisis experienced by Europe, the Economic Survey has suggested diversifying energy sources while keeping fossil fuels as “an important part” of the supply mix. As per the COP26 announcements in November 2021, the country has set a target to install 500 giga-watt (GW) of renewable energy (RE) capacity by 2030.

While highlighting the importance of fossil-fuel-based energy sources, the Survey pointed out that focus should be laid on building storage to accommodate RE sources such as solar and wind to address the issue of intermittency associated with the environmentally benign technologies.

The recent surge in prices of natural gas in Europe amid higher energy demand and slower winds to run wind turbines had resulted in lower electricity output in the continent. “The energy crisis being experienced by Europe brings to the fore the need for having a diversified mix of sources of energy of which fossil fuels are an important part,” the Survey said.

The share of non-fossil fuel-based electricity generation sources (including hydroelectric power) in the overall installed capacity is around 38%, but their contribution to total supply is less than 23%. It is mainly because the intermittency of generation from renewable sources which can only produce power when the sun shines and the wind blows. “Focus should be laid on building storage for intermittent electricity generation from solar photovoltaic and wind farms to ensure on-demand energy supply,” the Survey added. It cited the draft national energy policy of Niti Aayog which has projected that despite the push for renewables, the demand for coal is expected to remain in the range of 1.3-1.5 billion tonne by 2030 (from 1.1 billion tonne in FY21).

Cautioning about the worrying trend of rising crude oil prices, the Survey said that “although the high wholesale price index (WPI) inflation is partly due to base effects that will even out, India does need to be wary of imported inflation, especially from elevated global energy prices”. Wholesale inflation based on WPI increased to 12.5% April-December FY22, which was attributable to the pick-up in economic activity, sharp increase in international prices of crude oil, and high freight costs. Crude oil imports increased 108% year-on-year to $82.4 billion in April-December, 2021, while the volume of the imports have increased only 9.1% to 156.4 million tonne in the same period.

The survey said that inflation in ‘fuel and light’ and ‘transport and communication’ was mostly driven by high international crude oil, petroleum product prices, and higher taxes that were levied as revenues from other sources dried up due to disruption of economic activity.