India's shift to natural gas

A Today in Energy (EIA) article (5/8/2020) correctly identifies a challenge India faces in order to expand the role of natural gas in its economy: the ability to build a pipeline network that can avail gas to power plants, industries and, importantly, cities inland from the LNG import terminals. There are many obstacles, mostly administrative and regulatory, that influence the pricing of natural gas to different consumers, siting of facilities, and availability of construction resources to name a few. All of these impediments and others exist for all kinds of new energy infrastructure projects, albeit with their individual peculiarities. Ultimately, the Indian authorities are trying to fit natural gas pricing into a complex web of politically-driven subsidies to various petroleum products (LPG, kerosene), coal, wind and solar. At the macro level, these difficulties arise from a well-known problem in development economics: the competency and efficacy of the institutional capacity in a country are critical to economic performance. There is a wide literature on this area. I recommend starting with Prof. Daron Acemoglu.

However, let us focus on energy numbers in this post. Often underappreciated in today's energy transition discussions are the importance of scale of capacity/investment (e.g., how many MWs with what level of output) and time required to eliminate energy poverty. It is also important to note that energy access is not the same as eliminating energy poverty (more on this in future posts).

There is no other fuel or technology that can provide the energy India needs to lift millions out of poverty as quickly as possible while cleaning its power generation and cities. The nuclear power is a possible exception but it has its own challenges and lacks the versatility of natural gas (e.g., feedstock for the fertilizer industry, fuel for transportation in the form of CNG).

For example, per capita electricity consumption in India was about 930 kWh in 2018 as compared to 4,600 kWh in China, 6,000 kWh in the European Union or 13,000 kWh in North America. If India wanted to increase per capita electricity consumption to the world average of about 3,700 kWh, it would have to build nearly 920 GW of new generation capacity at its historical power plant mix and capacity utilization of about 42%. This is an investment of about $1.4 trillion (assuming $1.5 million per MW as average CAPEX), or nearly half of India's 2018 GDP. If India builds only CCGTs and utilization can average 65%, about 660 GW at a cost of about $800 billion might suffice.

Unfortunately, this hypothetical exercise has no chance of being realized given the institutional and financial obstacles. However, it is possible to compare alternatives within this parallel universe where politics, human nature, and capital and resource constraints do not hamper rational analysis. In the following table, I offer total capital investment requirements for India to reach 3,700 kWh per person (global average in 2018). CCGT is the lowest cost option.

Clearly, these are guesstimates of CAPEX and utilization rates but they are reflective of global averages. For example, it is not possible to generate the same amount of electricity from wind and solar with the same installed capacity of CCGTs or nuclear because they are intermittent and variable (reflected in lower capacity utilization rates). To close the gap, a system needs excess installed capacity, sufficient dispatchable backup generation, storage (pumped hydro, batteries, CAES) and/or new transmission lines to connect dispersed facilities from best locations with varying resource profiles (e.g., wind blows at different times).

Even if we assume lower per-MW CAPEX for wind and solar farms as a CCGT plant, the cost of everything else will increase the total bill. Depending on location, these additional costs can be significant. For example, offshore wind will certainly require large investments in new transmission lines, a portion of which has to be underwater. By the same token, CCGTs need new natural gas transmission pipelines unless they are located near LNG import terminals, in which case new electricity wires may be needed to ship their generation into the larger grid.

I am researching all of these costs across the world and hope to publish a series of posts on key countries and the world at large. I am focusing on capital costs rather than LCOE because the scale of energy poverty, its cost to societies, and investment needed to address it are underappreciated. Not only LCOE ignores system integration costs, it also diverts attention away from the capital investment requirements. On LCOE, you can see my Net Social Cost of Electricity report and references therein (in particular, Ueckerdt et al. 2013). Increasingly, the focus is shifting to value-adjusted LCOE: https://www.iea.org/commentaries/is-exponential-growth-of-solar-pv-the-obvious-conclusion. Stay tuned.

Photo source: https://indianexpress.com/article/india/india-news-india/electricity-in-india-villages-problems-still-no-light-poverty-3030107/.