Energy

India: Towards Energy

Independence 2030

January 2014

Copyright 2014, by McKinsey & Company, Inc.

India: Towards Energy

Independence 2030

January 2014

India: Towards Energy Independence 2030

Introduction

India is the worlds fourth largest economy1 as well as the fourth largest energy consumer.
India imports a substantial portion of its energy 80 per cent of its oil, 18 per cent of its gas,
and now even 23 per cent of its coal. As the Indian economy continues to grow, so will its
energy consumption, especially as the growth of its manufacturing sector catches up with
services and agriculture. With domestic resource production facing various challenges, the
general expectation has been that Indian energy imports will continue to grow, and energy
security concerns will intensify.
The outlook and options for Indian energy independence therefore becomes an important
topic. A 2030 outlook is particularly relevant since it is difficult to significantly change energy
policy in 5 or 10 years, but almost any boundary conditions can be changed over a 15-year
period. Moreover, there have been few if any, in-depth perspectives on this topic for 2030.
This white paper builds off the 2030 Global Energy Perspective, McKinseys substantial
body of research on energy demand and supply, and our understanding of the evolution of the
global and Indian energy sectors. We have tried to address some of the basic questions that
arise about Indian energy in 2030:
Is Indias current energy trajectory sustainable, as is or with some adjustments?
To what extent can India aim to achieve energy independence by 2030? What
opportunities does India have to increase domestic energy supply and curb demand over
and above the current trajectory?
How can we make the most of the new global supply dynamics and technologies?
This paper is a thought starter, intended to offer one set of directional options, rather than a
singular prescription. We look forward to feedback, suggestions and dialogue.

Vipul Tuli Amit Khera

Director Partner
McKinsey & Company
McKinsey & Company

Adjusted for purchasing power parity.

India: Towards Energy Independence 2030

Is Indias energy trajectory

sustainable?
Indias energy demand, which was nearly 700mtoe (million tonnes of oil equivalent) in 2010,
is expected to cross 1500mtoe by 2030. Its dependence on imports is expected to increase
from 30 per cent to over 50 per cent, suggesting the need for a new way forward.

Doubling demand and continued fossil fuel focus in BAU

Exhibit 1 shows Indias primary energy demand by fuel type in 2010 and business as usual
(BAU) projections for 2030. Primary demand in 2010 stood at 691mtoe. Of this, about 41 per
cent was coal, 24 per cent was liquids, 23 per cent was non-commercial fuel, 8 per cent was
gas, and the remainder was a mix of hydro, renewables and nuclear power. Despite recent
strides in renewable and nuclear power, this is a predominantly fossil fuel based mix, with 73
per cent of primary energy coming from coal, oil and gas.
Exhibit 1

Indias primary energy demand by fuel type

MTOE

CAGR
Per cent
1,508
160

56
113

35
21

Non-commercial
Nuclear
Renewables
Hydro
Gas

373

Liquids

750

Coal

0
8.4
8.0
3.8
3.9
4.1

691
160

10

53
166

7
12

283
2010

2030 BAU

SOURCE: McKinsey Global Energy Perspective, IEA, McKinsey analysis

Our 2030 BAU case projects Indias primary energy demand in 2030 at 1508mtoe, based
on bottom up estimates of GDP growth, the composition of the Indian economy, and the
consequent demand growth from industry, buildings, transportation and other segments.
Power demand is assumed to grow at 5 per cent per annum through 2030. Energy efficiency
gains are also built in at 1 per cent per annum improvement through 2030, reducing energy
intensity from 0.56koe/USD in 2010 to 0.47koe/USD in 2030.

In the 2030 BAU scenario, 60 per cent of Indias power generation is assumed to come from
coal, taking coal demand up to 750mtoe. Liquids demand, primarily for transportation,
grows at 4 per cent per annum to 373mtoe. Gas demand grows to 113mtoe, constrained
by high LNG prices that compete with liquid alternatives. Hydro power reaches 21mtoe.
Renewable and nuclear power grow as per stated policy objectives and at similar growth rates
thereafter through 2030. The balance of primary energy will therefore need to come from noncommercial sources.

Import dependence rises to 51 per cent

In 2010, India imported 30 per cent of its primary energy requirements (38 per cent of its
primary commercial energy requirements). Exhibit 2 lays out the increase in fuel supply
from indigenous and imported sources that will be required to meet the 1508mtoe of
primary energy demand in 2030. Although BAU assumes substantial increases in domestic
production of coal, oil, gas, hydro, nuclear and renewables, these are far short of the
requirements to make up for declines in producing fields and mines, and meet demand. As a
result, import dependence would increase to 51 per cent of primary energy requirements.
Exhibit 2

Fuel supply required to meet 2030 demand

MTOE

Imports

222
573
313

691

140

207

11
11

79
50

28
28

Domestic production

44
44

29

202

772
(51%)

20

260

736
(49%)

484

2010

1,508

Production
decline

Coal

Liquids

Gas

Hydro

Nuclear

Renewables

2030

SOURCE: McKinsey analysis

At the estimated 51 per cent primary energy imports, India will be one of the most importdependent countries in the world, as shown in Exhibit 3. By comparison, the US and China
are expected to have import dependence of 1 per cent and 20 per cent by 2030. In the case
of China, this includes imports through long distance oil and gas pipelines from central Asia,
Indochina and Russia. Moreover, using 2010 numbers from the major energy consuming
economies as an indicative comparison, only Japan and Germany have higher import
dependence at 80 and 60 per cent respectively. But unlike India, these countries have greater
affordability and the International Energy Agency (IEA) emergency response measures as a
backup.

India: Towards Energy Independence 2030

Exhibit 3

India will be one of the most import-dependent large economies

Import share in energy consumption
Per cent, 2010

Indonesia
Russian Federation

2030, India

-89
-80

Korea
Brazil

China

10

US

Germany
Japan

Expected to
decrease to
1 per cent
by 2030

22

UK
India

Expected to
increase to
20 per cent
by 2030

-32

27
30

21 51
60
80

SOURCE: World bank, BP Energy Outlook 2030, McKinsey analysis

A new way forward is possible

Possible import dependence above 50 per cent of 1500mtoe and growing is a clear
indication that a different set of energy outcomes versus BAU will be required if India is
to keep its growing economy supplied with sufficient reliable and cost effective energy.
Domestic resources will need to be explored and exploited to target levels that have not been
traditionally considered in current long-term plans. This will require stable, viable market
mechanisms that attract sufficient investment across the value chains. All possible energy
sources will need attention, including coal, conventional and unconventional oil and gas,
renewables, nuclear power and energy efficiency.
There are six factors that give India the opportunity to address its energy security concerns:
With estimated coal reserves of 293 billion tonnes and minimal recent additional
exploration, India has ample opportunity to increase coal production, provided transparent
resource access and development regulations are put in place
The experience of North America has shown the potential of unconventional oil and gas.
It is clear that India has substantial unconventional hydrocarbon potential, even though
reserve estimates vary widely at this early stage
Conventional oil and gas still holds great potential in India, especially via the redevelopment
and intensive exploitation of existing mature basins, provided viable pricing and taxation
mechanisms are in place
India has had remarkable momentum in increasing renewable power capacity (both wind
and solar), and doing so while setting global cost benchmarks
With a vast proportion of Indias infrastructure yet to be built, India can leapfrog the
developed world in energy efficient buildings, long distance rail transportation, and an
optimal road-rail modal mix

10

India has a unique opportunity to create stronger and more secure supply partnerships
with oil and gas supplying countries in the Middle East and Africa, who will be seeking large
and stable markets to absorb imports displaced by the US.
As described in the next section, we believe that it is possible for India to achieve substantially
higher domestic energy supply, lower demand, and more secure imports than in the BAU
case.

11

India: Towards Energy Independence 2030

10 initiatives towards energy

independence by 2030
This section describes a set of 10 initiatives that can help India move closer towards energy
independence by 2030. These initiatives have the potential to help India reduce energy
imports from 51 per cent of demand by 2030 to 15 to 20 per cent, while increasing the
reliability of imported energy.
In this Energy Independence scenario, presented in Exhibit 4, the total primary energy
demand in 2030 is lower at 1387mtoe (versus 1508mtoe in BAU). The fuel mix shifts towards
renewables and gas, although fossil fuels remain dominant at 78 per cent of the mix (vs 83 per
cent in BAU). Underpinning the Energy Independence scenario is a strong supply response
and a focus on demand management. The implied supply response is represented in
Exhibit 5. This is higher than current plans, but not beyond reach given enabling market
conditions.
Exhibit 4

Indias primary energy demand 2030: Energy Independence scenario

MTOE

CAGR (2010 to 2030

Energy Independence)
Per cent

1,508
160

56

1,387
35

113

21

35
21

373

691
160

10

53
166

147

105
135

Noncommercial
Nuclear
Renewables
Hydro
Gas

-0.49
8.4
11.4
3.8
4.8

304

Liquids

3.1

640

Coal

4.2

7
12

750

283
2010

2030 BAU

2030 Energy
Independence

SOURCE: McKinsey Global Energy Perspective, IEA, McKinsey analysis

The 10 initiatives required are summarised in Exhibit 6, along with the impact in mtoe that they
have on imports relative to the BAU case.

12

Exhibit 5

Domestic supply implications

2030 Energy
2030 BAU Independence

Units

2010

Coal1

MTPA

484

775

1,220

Liquids

MTOE

34

39

80

Gas

MMSCMD

132

165

390

Hydro

GW (capacity)

37

70

70

Renewables2

GW (capacity)

20

80

145

Nuclear

GW (capacity)

4.5

23

23

Non-comm.

MTOE

160

160

147

1 Does not include coking coal

2 Includes Solar, Wind, Biomass, Small Hydro, Urban & Industrial Waste
SOURCE: McKinsey analysis

Exhibit 6

10 initiatives to help reduce Indias energy import dependence

Impact on energy
demand, MTOE

Initiative
2030 BAU imports

772
213

1 Achieve 1200 MTPA coal production

Increase
supply

Reduce
demand

Secure
imports

2 Unlock unconventional gas potential

33

3 Support oil and conventional gas production

90

4 Light-up 50,000 villages through solar

13

5 Add 100+ GW of grid connected solar and wind

31

6 Reduce industry & building power demand by 30 per cent

92

7 Change transport modal mix, introduce efficiency norms

29

8 Enable globalisation of energy companies

271

9 Create an India-Middle East energy corridor

10 Establish gas positions in North America and East Africa

SOURCE: McKinsey analysis

2030
Energy
Independence
imports

13

India: Towards Energy Independence 2030

The biggest shift in the Energy Independence scenario, however, is in the import dependence,
as shown in Exhibit 7, which reduces to 1520 per cent (vs 51 per cent in BAU). Coal imports
reduce to 9 per cent (vs 50 per cent in BAU), liquids imports reduce to 62 per cent (vs 90 per
cent in BAU), and gas imports reduce to existing LNG contracts (vs 53 per cent in BAU). While
liquid imports remain high in this scenario, there is considerably higher flexibility and tolerance
across the fossil fuel basket, to optimise between coal, liquid and gas import volumes.
Exhibit 7

Import dependence on energy would reduce to 1520 per cent

Proportion of demand met through imports
Per cent
2010
Coal

62

90

80

Gas
Hydro

50

23

Liquid

2030 Energy
Independence

2030 BAU

27

53

18
0

Renewable 0

Nuclear

30%

51%

Existing
LNG
contracts

16
1520%

SOURCE: McKinsey analysis

The remainder of this section describes each of the 10 initiatives for energy independence,
and the actions required to make them a reality.

1. Achieve 1200mtpa domestic coal production

Coal will remain the bedrock of Indias energy requirements for the foreseeable future.
Achieving 1200mtpa of coal production by 2030 will require incremental annual production of
950mtpa, to make up for existing mines that will decline over the next 15 years. This will require
India to:
Accelerate development of 180-odd Coal India projects which are at various stages of
approval and development
Fast-track 220 captive coal blocks which have already been allocated, with a production
potential of 850mtpa. 110 of these blocks are awaiting approvals or land acquisition, and
another 110 have seen no development
Allow private players to explore, develop and market coal. India has 7 per cent of the
worlds coal reserves and only 0.5 per cent of its exploration expenditure. Exploration and
development at scale will require market-based pricing and a robust coal market.

14

2. Unlock unconventional gas production (shale, CBM2, HP/HT3)

Several recent progressive steps have resolved many pending bottlenecks in upstream oil and
gas. To enable rapid development of 100mmscmd of unconventional gas, India must:
Expand the scope of its shale gas policy to include private and public sector players alike
Ensure sufficient fiscal and infrastructural incentives to attract investment in unconventional
supply chains and services
Allow full exploration and exploitation of all resources in NELP blocks
Allow market determined pricing for unconventional gas and the freedom to market gas.

3. Support conventional oil and gas production

To achieve 150mtoe of conventional oil and gas production in 2030, India will need to ensure
the viability of redeveloping its existing mature basins, e.g., western offshore, attract sufficient
investment into new licensing rounds, and remove the remaining bottlenecks to resource
development. In particular, it will require to:
Allow market pricing of crude oil from nomination blocks, to make the necessary high cost
investments in EOR4and the related technology developmentviable
Ensure market pricing for gas and the freedom to market gas produced under NELP or the
proposed open acreage policy
Streamline contract administration by enforcing time bound deemed approvals with
management committee accountability, codifying standard practices around grey zones in
product sharing contracts, defining policies for license extension, exploration in producing
blocks and extension of block areas, strengthening and empowering DGH5 and making it
a statutory body focused on approving and monitoring work programs, budgets and field
development plans.

4. Light up 50,000 villages through off grid solar

Traditional models are increasingly proving unviable to electrify and supply villages. Yet, the
demand surge and economic benefits in newly electrified villages are plain to see. Off grid solar
(and in places wind, bio mass and micro hydel) are better suited, scalable solutions to electrify
remote villages and supplement supply in partially electrified ones. To scale up off grid solar, India
will need to:
Fine-tune, scale up and roll out models that have been successfully piloted, such as the
revamped DDG6 scheme, while introducing new elements like competitive bidding and
viability gap funding to ensure competition and transparency
Introduce village level O&M capabilities and governance to manage distributed solar assets
Devise interventions/ incentives for rural micro-enterprises and other anchor loads (e.g.,
telecom towers) to shift to renewable solutions vs using diesel power
Channelise and attract funds from central and state budgetary allocations, corporate social
responsibility budgets, as well as private risk capital.
2
3
4
5
6

Coal Bed Methane.

High Pressure/High Temperature Gas.
Enhanched Oil Recovery.
Directorate General of Hydrocarbons.
Decentralized Distribution Generation.

India: Towards Energy Independence 2030

5. Add 100+ GW of grid connected solar and wind

India has demonstrated exceptional progress on the renewables front, more than doubling
installed capacity in the last 5 years, from 14.5 GW in 2008 to approximately 30 GW by
December 2013. This translates to more than 3 GW of installed capacity per year. Though
outstanding, India would need to, on average, double this rate over the next 15 years to
achieve the 100 GW aspirations. This would need India to:
Enforce Renewable Purchase Obligations (RPOs) unilaterally. Targets have been set for
each state, but only 7 out of 29 states have achieved them. Renewable Energy Certificates
(RECs) remain unsold, forcing REC prices to floor levels, significantly eroding developer
returns. Mandating states to meet RPO targets, and enforcing penalties for noncompliance would be required
Invest in low wind speed technology with focus on building domestic R&D and
manufacturing capabilities to add 40+ GW by 2030
Devise interventions and incentives for rural micro-enterprises and other anchor loads
(e.g., telecom towers) to shift to renewables vs using diesel
Introduce a peaking power policy to allow developers to invest in storage to make solar
viable for evening peaks.

6. Reduce industry and building power demand by 30 per cent

Indias overall energy intensity at 0.56koe/USD is high compared to even other developing
countries like Brazil at 0.25koe/USD or Malaysia at 0.4koe/USD, indicating significant
improvement potential, as shown in Exhibit 8. India has started positively on this journey,
achieving energy intensity reductions of 1 per cent per year. A substantial amount of demand
reduction is already assumed in the BAU case (equivalent to 344mtoe with energy intensity
dropping to 0.47koe/USD). An energy intensity of 0.4koe/USD by 2030 could be achieved by:
Reducing residential and commercial energy intensity. This would involve increasing
penetration of labelled appliances from 20 to 90 per cent, CFL/ LEDs from 15 to 90 per
cent, and stringent implementation of the ECBC norms for commercial buildings
Targeting energy reduction in power intensive industrial segments through year on year
targets, time of day tariffs and incentivising production of energy efficient industrial
equipment
Driving energy efficiency in agriculture, moving towards electric pumps (from diesel) and
mandating use of Bureau of Energy Efficiency (BEE) star labelled equipment
Reducing AT&C losses: Indias AT&C losses at about 2324 per cent are extremely high
compared to 5 to 7 per cent in best practice countries like Japan, Germany and Korea.
Even some developing countries, e.g., Malaysia have achieved sub-10 per cent loss
levels. India could achieve these levels through a mix of technology (e.g., smart grids) and
effective distribution ownership and management.

15

16

Exhibit 8

Indias energy intensity is high compared to even developing countries

Energy intensity vs GDP, 20002012
Koe/USD GDP
0.9
0.8
0.7
0.6

China

India

0.5

Indonesia

0.4

Malaysia

0.3

Brazil

0.2

Australia

0.1

UK

US
Germany

1,000

2,000

3,000

4,000

12,000

13,000

14,000

Real GDP, USD trillion, 2005

1 Improvement from 0.56 koe/USD in 2010 to ~0.47 koe/USD in 2030 already included in BAU case
2 Energy efficiency improvement in industry already considered in 2030 BAU energy demand projection
SOURCE: Global insights, IEA, McKinsey analysis

7. Change transport modal mix and introduce efficiency norms

India has a natural advantage of lower average size of cars, which translates to lower
emissions and higher fuel efficiency. Yet it lags the European Union in car fuel efficiency, and
has not yet enacted transport fuel efficiency norms. Efficiency of trucks is even further off from
the European standards, due to older technology and poor road infrastructure. To save an
additional 47mtoe per year relative to the BAU case (reducing transportation fuel demand from
184mtoe in 2030 to 137mtoe), India should:
Incentivise a shift in long-distance cargo from road to rail, increasing rail from 39 per cent of
ton-kms moved in 2012 to 54 per cent by 2030
Draft and implement a policy to promote higher tonnage commercial vehicles
Introduce fuel consumption norms at the earliest with built-in year on year improvements
Implement the national bio-ethanol policy to start blending 5 per cent bio-ethanol in petrol
and diesel
Incentivise faster adoption of electric vehicles to shift demand from liquids to power,
especially during off-peak hours.

8. Enable globalisation of Indian energy companies

Strong global energy companies are a necessary foundation for energy security. To enable its
energy companies to secure supplies and create sufficient surplus for investment, India will
need to:
Ensure financial strength of its energy companies, to enable them to invest in new capacity,
make acquisitions, take risks, and develop technology

17

India: Towards Energy Independence 2030

Allow its energy PSUs sufficient freedom to develop global talent pools that can seamlessly
operate in multiple markets, and transfer capabilities across borders
Enable energy companies to make cross border corporate acquisitions for capability,
presence and momentum, not merely assets, and establish material, deep presence in a
few relevant geographies
Strengthen energy company processes and organisations to allow effective governance,
capital and operating efficiency and monitoring.

9. Create an India-Middle East energy corridor

Shale oil production in the US is expected to rise to levels beyond the current US imports from
outside North and Central America. This will shift global crude oil flows (Exhibit 9). The Middle
East and Africa, from being exporters to the west, will seek stable, large markets in the east.
This shift gives India a unique opportunity to create an India-Middle East energy corridor to:
Enter into new contractual arrangements with oil and gas suppliers, and potentially
consider establishing an AsiaMiddle East Energy Agency, to share information and
facilitate emergency response agreements
Make joint complementary investments across upstream and downstream, including
Middle Eastern investments in Indian refining and petrochemicals, Indian upstream
investments in the Middle East, and feedstock and energy intensive production of urea,
aluminium, steel and petrochemicals in the Middle East
Create shared energy infrastructure between India and the Middle East, such as pipelines,
ports and storage, strategic storage and dedicated mega ships. Such infrastructure has
already been established between RussiaEU, RussiaChina, MyanmarChina, and
North AfricaSouthern Europe.
Exhibit 9

The direction of global oil flows will change as the US reduces its oil
imports
US crude oil imports by source
MTOE
Europe/Med
Arab Gulf

468
20
75

West Africa

80

Canada

115

Latin America

179

US domestic
crude oil
production
SOURCE: McKinsey analysis

279

2011

2025

279

702

Supply from
Middle East
and Africa
will seek
stable
markets in
the east

18

10. Establish gas positions in East Africa and North America

India is already helping catalyse a shift in the structure and conduct of the global LNG industry,
through its forays into Henry Hub indexed LNG exports from the US, and its upstream
investments in East Africa. To take full advantage of the shale gas revolution in North America,
and consolidate its natural advantage in the Indian Ocean rim, India should:
Continue to expand its presence in North America through upstream and midstream
positions in the US and Canada, serving to expand volumes, defray regulatory risk and
serve as a natural hedge against Henry Hub
Work towards a lead role in the sustainable development of East Africa as an integrated
gas supply hub, including exploration and production, local industry development, relevant
local manufacturing such as urea, and LNG liquefaction for export.

India: Towards Energy Independence 2030

Mobilising institutions and

markets
Changing Indias energy trajectory through the 10 initiatives outlined aboveor other
initiativeswill require close inter-ministry coordination, a strong technology ecosystem, and
catalysing industry participation, and a central energy fund.

Inter-ministry coordination

With 8 to 10 central ministries involved in energy decisions besides the states, a mechanism
for effective, continuous coordination would be needed to achieve the supply and demand
shifts required.
A cross-ministerial body on energy with representation from the key ministries at the minister
and secretary level could be a possible option. Such a body would help ease approvals
required at the state and central level, drive initiatives to shift demand from liquids to power
and renewables, and maintain the government-to-government interface required to help
international acquisitions.
In addition, a central minister-level appointment with a small secretariat to coordinate energy
issues and drive towards the aspiration of energy independence could provide a strong
impetus to an energy independence agenda.

A stronger technology ecosystem

India must focus on increasing technology depth across all parts of the value chain through:
Larger R&D investments, since Indian energy companies spend between half to one-fifth
of their global counterparts on R&D, on a per barrel basis
Greater R&D effectiveness through stronger R&D processes and approaches, dedicated
research cadres, closer monitoring of outcomes and a greater commercial orientation
Global and Indian collaborations, which could take the form of bilateral alliances, industry
forums, academic alliances or venture investments in technology firms
Incentivising and attracting local manufacturing in the energy value chain, including oil field
services, specialised materials and chemicals, and energy efficient storage and usage
technologies.

Catalysing industry participation and investment

While some of these have been mentioned earlier, the importance of reliable market
mechanisms in attracting private investment cannot be over emphasised, including:
Market-linked prices and marketing freedom for gas and coal
Moving subsidies to an arms length basis, directly to consumers as far as possible, to
avoid distortions in industry conduct and inappropriate incentives for consumption
Ensuring new policies are not enacted with retrospective effect.

19

20

A central energy fund

An ambitious agenda for energy independence would benefit from a source of funding to
be able to drive targeted investments and influence outcomes. An energy fund established
with contributions from large Indian energy players and the government, run on the lines of a
professional fund, could serve to:
Enable and catalyse consortia to bid for large international assets and corporate entities
(primarily across coal, gas and liquids), and
Share investment risk during development of unproven technologies and applications, and
incubate new technology ventures.

An agenda for energy independence for India by 2030 is ambitious but by no means
unachievable. The need for change is clear. Many efforts are already underway. Alignment
on a practical set of initiatives, backed up with strong institutional support and leadership
commitment are now required.

The authors wish to thank Suhail Sameer, Kshitij Sanghi, Karan Jain, and Nipun Gosain
for their contributions to this whitepaper.

Energy
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