Energy and Natural Resources

Remarks, as prepared for delivery, at ENRich

New Delhi, November 28, 2017

Good morning and a very warm welcome to all of you.

Honorable Minister, distinguished guests, dignitaries, friends, and members of the audience, on behalf of my partners and colleagues of KPMG India, I am delighted to welcome you to the eighth edition of ENRich, KPMG India’s Annual Energy Conclave.

The term ENRich, as you know, is a clever take-off on Energy and Natural Resources, ENR, and the conference aims to be a source of rich knowledge and conversation on the topic. I am proud to note that ENRich has become a well-respected event in the energy space in India.

Today, we are honored to have Shri Dharmendra Pradhan, Union Minister of Petroleum and Natural Gas with us. Your presence here speaks to the importance you assign to new ideas and knowledge in the way you approach their responsibilities.

At KPMG, we recognize that infrastructure is paramount to India’s growth and development, and we look at it as having three critical components – energy, transportation and urbanization. We are engaged in a number of projects across the country and indeed around the world working with governments and the private sector on infrastructure.

Energy is the most critical of the three aspects of infrastructure; we cannot have aviation, railways or road transportation without plentiful energy, and our cities are dependent on energy for their functioning.

India currently consumes only 6% of the world’s primary energy and we still have people without access to electricity. The Government is keenly focused on these challenges and we have seen major progress over the last three years.

  • There has been a record increase in power generation with over 75 Gigawatts of thermal capacity added.
  • Renewables came into the grid at an exponential rate backed by government policy and a supporting environment. Today, clean and sustainable energy dominates the energy narrative in India.
  • The Government intends to reduce dependence on imports of hydrocarbons by 10%. The Ministry is working to create a gas based economy, and introducing and encouraging bio fuels in the system as well.
  • The Government of India’s focus on attaining ‘power for all’ driven by policies that promote competitive intensity across the value chain will lead both to the social good of universal power and the economic good of increased productivity.
  • Of course the increase in power generation and lower tariffs have not come without problems. Much thermal capacity is under stress, stretching players’ balance sheets and the banking system.
  • While there have been impressive advances in power generation, today we need to see a corresponding transformation in distribution. Along these lines we have seen distribution reforms in Ujwal DISCOM Assurance Yojana (UDAY).

Looking forward, the energy sector will see significant changes globally, and India is no different.

With the advent of digitisation, decarbonisation, and customer focus, the utilities of tomorrow are bound to be very different from those we know today.

  • India, as a proud signatory to the Conference of Parties COP 21, is committed to decarbonizaton goals and thus to a growing role for low-carbon sources of energy, led by solar and wind power.
  • The Government is committed to produce 40% of power from non-fossil fuel sources by 2030.
  • Natural gas is a good fit for decarbonizing India’s energy system. In parallel, the Government of India has indicated plans to supplement conventional vehicles with Electric vehicles in the near future, which is expected to have significant implications on energy and allied sectors.
  • Current energy sector reforms are converging to create game changing disruptions.
  • With digital disruption underway, technologies such as the Internet of Things (IoT), Artificial Intelligence and Blockchain are increasingly finding application across key areas both on the grid as well as beyond it.
  • Digitization has been a dominant policy narrative, with several key interventions being introduced across sectors. However, digitization in the energy sector is still at a nascent stage with minimal use cases such as smart meters visible in the market. Hence, there is a need for creating an enabling regulatory and policy framework that will shape the future of the use of digitization in India’s energy sector.
  • In the years to come, the customer will take the center stage of the energy system seeking low carbon choices, always-on connections, higher transparency and opportunities for learning.
  • The evolution to smarter, more decentralized, yet more connected electricity systems could increase reliability, security, environmental sustainability, asset utilization and open new opportunities for services and business.
  • The Indian power sector has an investment potential of Rs 15 trillion (US$ 225 billion) in the next 4–5 years, in power generation, distribution, transmission, and equipment.

With that backdrop, let me share some views that we at KPMG have developed.

  1. While we are moving forward, critical policy and government initiatives are still needed to make the journey successful and less challenging for the sector as a whole.
    A vision for the future will need to comprehend the changing paradigms caused by high renewable generation, the emergence of electric vehicles, smart metering and smart grids to name a few. Such a vision must embrace comprehensive planning, sector re-organisation, policies and regulations, as well as preparedness. Utilities will need to be more flexible and agile in planning and operations, responding to customer behavior, ecosystem and technology trends.
  1. We believe that structural changes such as carriage and content segregation need to be actively evaluated. We expect that these and several other considerations are being envisaged under the Electricity Amendment Bill 2014.
  2. Renewable energy may not only put pressure on the viability of new generation capacity (with higher fixed costs), but may also marginalize the operations of old plants (with higher variable costs). As the pattern of usage changes, a fresh look may have to be taken at evaluating alternative contract structures to ensure a win-win situation for both buyers and investors.  
  3. Other critical decisions can be around retirement of old assets, getting costly diesel generation based capacity out of the system.
  4. Flexible tariffs will be also need to be an area of focus, given the shift towards renewable energy and transition to areas such as integrated energy storage.
  5. In order to increase the share of gas in the country’s energy basket to 15 per cent from the current level of 6.5 per cent, transparency and competitiveness will be key.
  6. Innovative models to connect rural loads will be required.
  7. As technology adoption increases, it is of utmost importance to understand the risk of cyber exposure, as the number of digital transactions and processes increases significantly. Concepts of cyber governance and customer privacy will need to be embedded in the core organisational processes. Needless to say, this will also demand adequate skilling and continuous awareness.

The energy landscape of the future comes with challenges and rewards, most of all the reward of energy access for all Indians.

Our energy conclave today intends to discuss all this and more.

Once again, thank you all for being with us.