1. Roundtable on Economic Energy
India Energy Congress
Roundtable on Economic Energy
Anindya Chowdhury
Shell India Gas & Power
31st January 2007, New Delhi

2. Comment # 1: Need to reprioritise
Efficient Energy
Environment friendly Energy
Economic Energy
Are we missing Priority # 1?
Reliable Energy
Neither the rich nor the poor can do without it

3. Customer reaction to power cuts
A reality check
Privileged
Invest in inefficient captive generation
Use most expensive liquid fuel
Risk damage to equipment
Customer reaction to power cuts
Underprivileged
Suffer
Envy
Anger
Pradeep of Dhampur did a Sholay to achieve Swades
"Hum garibon ke paas izzat aur light hona bahut zaroori hai"
"Yeh meri light aur meri zindagi ki jung hai"
Times of India 27th Aug 2005

4. Comment #2 The investment mantra
Reliable supply comes from timely capital commitments
Commercial capital commitments are premised on risk vs return
Few takers for high risk low return business
A reality check on “competitive bidding” delivery
How long can the country wait for brand new energy delivery infrastructure at the lowest possible cost of service?

5. Power Capacity Additions Challenges aheadMW
Step change in investment philosophy
Business As Usual
Annual Capacity Additions

6. Comment # 3: Regulatory Priorities and Market Maturity
Energy prices
Monopoly
power
Super-profits
Security of supply
Managing
competition
Regulation
Mature
Sub-Mature
Market / Infrastructure
Infrastructure
development
Investment
Market penetration
Not a recommended route to take….the economic dogma zone!
Emerging
Basic
From a market regulation perspective, this can be seen in a range of changing priorities as the industry passes through its life-cycle
Primary activities revolve around infrastructure development and market penetration. Regulatory priorities are attracting investment (by creating the right climate) and ensuring that gas can compete effectively against other fuels.
As industries grow and mature, initial investments become depreciated and take on the characterisitics of a cash-cow. At this point, a regulator will seek to curb super-profits and curb monopoly power. Government pressure to reduce input energy prices (as a economic stimulus) will tend to put pressuer upon the regulator to introduce competition.
Once the desired degree of contestability is achieved, the regulatory priority shifts to ensuring that such competition is sustainable. The introduction of competition under strict regulation can be painful for companies, and overtly beneficial to consumers. If carried on too long, as now being seen, issues around security of supply and capacity start to emerge.
The regulation of the industry should become lighter-handed, as now being seen in the UK where OFGEM will allow rates of return of around 12% on new entry capacity, as opposed to nearer 5% elsewhere on the network. Article 22 of the 2nd Gas Directive represents a similar attempt to rein back regulatory control of key interconnector pipelines.
State
Monopoly
Private
Monopoly
Emerging
Competitive
Liberalised
Ownership / Regulation

7. World electricity generation 2004 and 2030
16,000
14,000
12,000
10,000
8,000
TWh
6,000
4,000
2,000
2004
2030
Coal
Oil
Gas
Nuclear
Hydro
Renewable
Source IEA World Energy Outlook 2006

8. Gas – most competitive and stable among hydrocarbons

9. Coal Pricing

10. Comment # 4 : Price volatility – cannot be wished away
Price volatility is a market phenomenon
Pricing arrangements in LNG aim to reduce impact of volatility
Taxation can play a role in softening impact
“Hey! They’re lighting their arrows!….Can they DO that?”

11. Thanks for your interest
Any questions?