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Volume 3 • Issue 2 • July 2008

C O N T E N T S Energy Collaborations to further energysecurity

In the global energy field, there are just two main collaborative agreementsstretching across a number of countries that have stood the test of time and haveestablished their usefulness. The first is the emergency oil stock holding by the26 members of the IEA (International Energy Agency), mainly comprisingcountries on both sides of the Atlantic, but also Japan and Korea. Established in1974, the member countries agreed to maintain emergency oil stocks equivalentto at least 90 days of net oil imports, to participate in oil allocation if supplieswere severely disrupted, and to have a programme to restrict demand to7%–10% of national oil consumption. The last time this scheme was activatedwas when Hurricane Katrina hit the Gulf coast of the US in 2005, severelydisrupting oil production, imports, and refinery operations.

The second is the Energy Charter Treaty, which was started as a regionaleffort by European countries in the 1990s. Apart from facilitating investmentsand trade in energy between countries and addressing transit issues, it providesfor a dispute settlement mechanism between parties to the treaties and betweeninvestors and host governments. There are over 50 signatories to the treaty. In thecontext of the Iran–Pakistan–India gas pipeline, Iran and Pakistan have observerstatus but India, so far, has not applied.

When Shri Mani Shankar Aiyar was India’s petroleum minister, he had initiateda dialogue between the main oil producers in OPEC (Organization of PetroleumExporting Countries) and consuming countries in Asia.But there has been no follow-up since. Efforts are underway to create an EastAsian community for regional cooperation between China, Japan, and SouthKorea. However, regional cooperation between the ASEAN (Association of SouthEast Asian Nations) countries including other regional countries such as India andAustralia has not made much headway. Although, there is scope for considerablehydropower trade between Bhutan, Nepal, India, Bangladesh, and Myanmar, it isonly in the case of Bhutan and India that this has been successful, though thequantities are small. There is now a Maoist-led government in Nepal and itsapproach to economic cooperation with India is awaited. In this issue of EnergySecurity Insights some of the above topics have been addressed, which expressguarded optimism for the future. Also included are articles on energycollaboration on nuclear fusion, India–US renewable energy collaboration, and aconcept paper on joint strategic oil stocks in Asia on the lines of the IEA.

R K BatraTERI, New Delhi

EditorDevika Sharma

Commentary 1

Energy security through regionalcollaboration: the case of North EastAsia– Brigid Gavin and Sangsoo Lee 2

Cross-border power trading in SouthAsia: emerging new paradigms–Mahendra K Lama 7

US–India renewable energycollaboration: the road ahead–Neha Misra 13

Joint strategic oil stocks in Asia: ananalysis–Saptarshi Mukherjee 18

Energy collaborations in nuclear fusion–William A Gracias 23

Engery Sec Insights july_08.p65 29/09/2008, 12:30 PM1

2 Energy Security Insights

Energy security through regional collaboration: thecase of North East AsiaBrigid Gavin and Sangsoo Lee*

Today’s energy challenge is global in nature andtranscends the capacity of nation-states to actalone. Global energy demand is projected to riseby more than half over the next 25 years while theconditions of global energy supply becomeincreasingly uncertain. The international priceof oil closed at $142 a barrel on 27 June 2008.Prices have almost doubled in the past year, partlyon concern that world oil production will fail tokeep pace with surging demand in countries suchas China and India. Oil will remain the mostheavily traded fossil fuel but trade in natural gas isexpected to grow faster. The largest share of worldoil supply comes from West Asia, which is one ofthe most politically unstable regions of the world.The big increases in natural gas will come fromRussia, West Asia, and North Africa, all of whichare regions of risk. The current climate of soaringoil prices and hardening global competition forenergy resources poses major questions for globalenergy security—how to increase production andalso get the oil and gas safely over long distancesfrom producing to consuming countries. Massiveinvestment will be needed to ensure explorationand development, transport, and distribution,all of which requires collaboration betweenproducing, consuming, and transit countries.

But no global framework for governing tradeand investment in energy exists today and theglobal multilateral process has stalled in otherareas, notably in the WTO (World TradeOrganization). By contrast, regional organizationshave made more progress in matters of generaleconomic interest, which includes regional energycooperation. The EU (European Union) was builton energy collaboration with the creation of the

ECSC (European Coal and Steel Community) inthe 1950s as a means of overcoming nationalrivalries that were rooted in ‘resource nationalism’.The ECT (Energy Charter Treaty) was created inEurope in the 1990s as a means of overcominghistorical antagonisms that had divided the Eastand West by emphasizing shared values andinterests. That vision is more valid today than everbefore. It is this vision that has an important roleto play in building a solid multilateral frameworkfor energy security.

NEA (North East Asia) is the most dynamiceconomic region in the world today but it also hasserious tensions over access to energy resources,especially between China and Japan. On the otherhand, NEA is currently engaged in a process ofregional integration and cooperation that aims tocreate an EAC (East Asian Community) that looksto Europe as both inspiration and model (Gavinand Lee 2007). Within this process of emergingregionalism in East Asia, what is the role of energycooperation? How is energy security understood ina collaborative way? What are the mechanismsavailable for such collaboration? Those are theissues to be addressed in this paper but first a briefreview of projected energy demand for the NEAregion is given.

Projected energy demand in NEANEA includes three of the world’s major energyimporters – China, Japan, and South Korea – ashigh economic growth has led to a rapid increasein energy demand. According to the IEA(International Energy Agency), the energyconsumption of NEA will continue to displayrapid growth and will exceed that of North

*The views expressed in this paper reflect the personal views of the authors and not of the institution they belong to. Dr Brigid Gavin is

a Research Fellow at the UNU-CRIS (United Nations University- Comparative Regional Integration Studies) centre in Bruges,

Belgium. Dr Sangsoo Lee is a Research Fellow at the Institute for Security and Development, Asia Program, Stockholm, Sweden.


3Energy Security Insights

America by the 2020s (Kensuke 2005). China’s oilconsumption exceeded that of Japan in 2003 andwill overtake the US to become the world’s largestenergy consumer soon after 2010 if it can afford tocontinue its present consumption pattern (IEA2007). China’s primary energy demand isprojected to more than double from 2005 to2030—an average annual growth rate of 3.2%.While China’s coal is available in great amounts,it cannot be used for modern forms oftransportation and is also harmful for theenvironment.

Japan is the fourth-largest oil consumer inthe world behind the US, the EU, and China,the second-largest net importer of oil and gasand is almost completely dependent on imports.However, in the long-term, future energydemand in Japan will moderately level off,because its economy has reached a maturedstage as its energy technology has improved andas its population starts to decrease in the nextfew years. Similarly, South Korea’s energy needssuch as oil and natural gas are almostcompletely dependent on imports from overseas.It now ranks among the major oil importers inthe world and 70% of its imported oil comesfrom West Asia (IEA 2006). Meanwhile, SouthKorea’s total primary energy demand ispredicted to rise by 37% between 2006 and2020, equivalent to an average annual rate of2.3% if oil is available in sufficient amounts andat an affordable price.

In sum, growing energy import dependenceis a source of increasing insecurity and poses aserious risk of disruption to the region’seconomies. Moreover, if the current upward trendof oil prices continues, the present tendencytowards a recession in NEA could become muchdeeper than many predict today.

Considering energy security in a collaborative wayEnergy security in NEA is understood today as theprovision of reliable supplies of energy that areavailable at a reasonable cost and in a sustainablemanner. Thus, the three pillars of energy securityare security of supply, economic efficiency, andenvironmental protection. Following the first oilshocks of the 1970s, NEA governments treatedenergy security as a key part of national security,

keeping it firmly in the domain of nationalsovereignty.

The two traditional mechanisms used by theNEA governments to achieve energy security fallinto two categories: political and economic. Thepolitical approach puts primary emphasis onmaintaining the flow of energy supplies byenhancing strategic links with energy-producingcountries, promoting foreign investment ofdomestic companies in those countries, andincreasing control over supplies though state-owned companies. The protection of safe passageof oil supplies via oil tankers to the importingcountries was backed by military power. China hasbeen the major exponent of this strategicapproach.

The economic approach aims to achieve energysecurity by improving the efficiency of energymarkets. The goal is to reduce dependence onimports by improving the efficiency of energy use.This requires de-regulation of domestic energymarkets and the promotion of investment in newtechnologies that will reduce or replace fossil fuels.Information technology can also contribute to thedevelopment of new and renewable energies. Inthe long term, the market approach aims toachieve a better balance between demand andsupply. Since the 1970s, Japan has become themost energy-efficient country in the world.

The boundary between those two approaches isnot always clear-cut, given the fact that bothapproaches are needed to achieve a satisfactorylevel of energy security. Market measures and theprivate sector can contribute significantly togreater energy efficiency but government actionsare needed, for example, to ensure strategicstockpiling of oil reserves.

Emerging processes of regional collaboration inNEATraditional national mechanisms are giving way toincreasing regional cooperation and integration inEast Asia today, albeit very slowly.Notwithstanding obvious obstacles to futureregional integration, such as the diversity in levelsof economic development, levels of affluence, sizeof population, and different political systems, EastAsia is undeniably moving towards a morecollaborative stance across a wide policy spectrum,



including energy and environment. It was theAsian Financial Crisis of 1997 that provided thecatalytic shock that triggered this new process.Recognition of the absence of any regionalmechanisms to deal with the crisis led to thecreation of the ASEAN (Association of South EastAsian Nations)+3 framework for cooperation thatcovers some 20 policy areas today.1 Since itsestablishment in 1998, ASEAN+3 Summitmeetings occur on an annual basis, and it is nowrecognized as the main vehicle to achieve the goalof an EAC based on deepening integrationbetween all countries of the region. Regionalcollaboration has been further extended in theASEAN+6 framework, which includes India aswell as Australia and New Zealand.

Regional collaboration for economic efficiency

Energy collaboration in East Asia will build uponthe successful process of market-led regionalintegration that has taken place over the past20 years. Led by Japanese multinationalcompanies, this bottom-up process of transfer ofcapital and technology to the less-developedeconomies of the region has created asophisticated system of regional productionnetworks based on vertical specialization ofindustry in an increasing number ofmanufacturing sectors. This broad basis providesthe platform for launching extensive energycollaboration, which will be once again led byJapan, given the fact that it is the most energy-efficient country in the region.

Indeed, this process has already been initiatedat the highest political level. When Fukuda Yasuo,the Prime Minister of Japan visited China inDecember 2007, both leaders agreed on thepromotion of cooperation in the field ofenvironment and energy, which will disseminateJapanese technology on a business basis, as well asprovide training for 10 000 people in Japan forthree years. The most promising technologiesinclude CCT (clean coal technology), gas co-generation, operation of nuclear plants, and high-voltage transmission. Also, they reached anagreement about how to deal with the difficult

issue of the long-standing dispute over territorialboundaries and resources of gas and oil in the EastChina Sea.

Regional collaboration for environmental protection

The consequences of climate change could poseserious challenges for the national and regionalsecurity of East Asia in the near future. NEA isthe biggest SO2 (sulphur dioxide) emitter in theworld. The CO2 emission (carbon-equivalent) isprojected to increase from 1400 MT (milliontonnes) in 2000 to 1880 MT in 2010 and2540 MT in 2020, causing massive transnationalproblems of acid rain. China is now the world’slargest CO2 emitter. Despite the progressachieved during the past few decades, pollution,especially from the use of coal, remains a seriousthreat to the environment, and emission levelswill have negative long-term effects. It ispredicted that China will be responsible for 37%of global emissions by 2030. Although relianceon coal is much less when compared to China,it has nonetheless caused South Korea to be amajor producer of CO2 emissions. South Korea’semissions have been forecasted to treblebetween 2000 and 2030.

However, regional collaboration on climatechange, energy, and environment is now takingplace within the framework of ASEAN+3 in amanner that may overcome the bitter North–South divide that has permeated globaldiscussions on this topic. The East AsianSummit of 2007 emphasized that developedcountries should continue to play a leading role,but the ‘principle of common but differentiatedresponsibilities’ must also be accepted.By implication, developing countries in EastAsia should accept appropriate responsibilitiesin proportion to their level of economicdevelopment. Furthermore, their activeparticipation in the process of developing aneffective, comprehensive, and equitable post-Kyoto international climate change arrangementunder the UNFCCC (United NationsFramework Convention on Climate Change)was called for.

1 ASEAN (Association of South East Asian Nations) includes 10 countries of South East Asia. However, the process is driven by the

three economically powerful countries of NEA (North East Asia).



Regional collaboration for security of supply

Measures to ensure the security of supply aremore closely linked with national security, andtherefore, slower progress on regionalcollaboration will take place due to the historicallegacy of mistrust between countries of the region.Nevertheless, the establishment of the state-ledASEAN+3 institutional framework may beexpected to provide momentum over the mediumto longer term. One key area of importance herewould be joint stockpiling of reserves into aregional pool to enhance regional energy security.The current situation in which Japan and SouthKorea hold oil reserves for a 90-day period whileChina only has reserves for a 30-day period mayrequire the provision of technical assistance toChina in order to achieve greater convergence.Another issue of strategic importance is the safetransportation of oil tankers to the Far East andespecially through the Malaccan Strait, a regionprone to piracy and possibly terrorism. However,this touches on sensitive military issues that willrequire more effort towards regional collaboration.

A common regional position towards energy-producing countries

East Asia’s lack of a common regional positionvis-à-vis energy-producing countries reduces itsbargaining power in the multilateral context.The ECT (Energy Charter Treaty) is the mostimportant multilateral framework for promotinglong-term energy cooperation by fosteringeconomic and political cooperation betweencountries. The ECT started as a regional effort inEurope in the 1990s, but it now includes someNEA countries—Japan and Mongolia aresignatories while China and South Korea haveobserver status. Full adherence on the part ofNEA countries could give new politicalmomentum to the ECT to play its role in full and,in particular, help to establish a new equilibriumbetween the oil-importing countries in Europe andNorth Asia vis-à-vis one of the most importantsuppliers, namely Russia.

Russia holds the world’s largest natural gasreserves, the second-largest coal reserves, and theeighth-largest oil reserves (EIA 2007).Russia is also the world’s largest exporter ofnatural gas, and the second-largest oil exporter. It

should be stressed, however, that those are officialRussian figures and must be considered withcaution. Much of the resources in Russia,especially natural gas, are located in East Siberiaand the Far East and could serve as supply forChina and the two Koreas, as well as Japan in thefuture. Indeed, given Russian Far East’s relativeclose proximity to NEA, its energy resourcespresent an opportunity for the NEA countries todiversify energy supplies as well as decreasereliance on West Asia. However, competition fromEurope is hard regarding Siberian gas resources.There is opposition in the Duma against selling toAsia. The first step in preparing for the large-scaleutilization of East Siberian oil fields has been tobuild a pipeline back to Russia to safeguard thesupplies for already existing contracts withEuropean and Russian consumers. Russia providesabout 25% of total EU energy needs and 30% inthe case of Germany.

Although Russia has signed the ECT, itsrepeated refusal to ratify the treaty has createdincreasing political tensions with Europe andwill also be problematic for East Asia in thefuture. The most important provisions of theECT concern the protection of foreigninvestment by oil companies in producingcountries, the free movement of energy productsacross borders, the facilitation of energy transitvia cross-border pipelines, and the settlement ofdisputes through internationally recognizedmeans of legal arbitration. It is based on theprinciples of openness, transparency, and non-discrimination in energy markets. While Russiareportedly fears that the ECT would open upRussian oil and gas fields to foreign competition,the Russian state-owned gas monopoly has beenaccorded free entry into European markets.Calls for reciprocity are now becoming louder inthis context. Furthermore, Russia seeks thesupport of the EU for its accession to the WTO,which governs global trade on multilateralprinciples similar to those of the ECT.

The ECT could play an important role inpromoting regional energy collaboration in NEA.It could provide a platform for discussionsbetween energy consumers and producers on themost politically sensitive issues such as theconstruction of pipelines, the transit of oil across



borders, and the resolution of disputes overinvestment though internationally accepted legalmechanisms. It could also facilitate more cross-border trade and technology collaboration leadingto more open and competitive markets andcontribute to improving energy efficiency andsustainable development. But equally, if not moreimportant, it could enhance its bargaining powerby facilitating inter-regional collaboration withEurope within the multilateral framework of theECT.

ConclusionThe energy demands of NEA countries willcontinue to increase in line with their higheconomic growth. It will become more and moredifficult to satisfy that demand at an affordablecost. At the same time, China, Japan, and SouthKorea will grow more dependent on oil from WestAsia, but will continue to seek to diversify supply,especially through Russia’s Far East.

Against this background, we observe emergingregional energy cooperation under the frameworkof ASEAN+3. True to East Asian tradition, thiscooperation is most advanced in the economicfield. China, with vast energy resources and acheap labour force, is rapidly becoming one of theworld’s largest energy markets. Japan has acompetitive advantage with its cutting-edgetechnology on energy efficiency, renewable energy,and capital holdings. South Korea has risen to theglobal stage with its vitality, dynamic humanresources, and technological capabilities. Theabove constitutes great potential for energycooperation and growth in the region and it hasalready started though transfer of technology forenergy efficiency and renewable energytechnologies.

Environment, long the ugly duckling of EastAsian economic development, has not yet turnedinto the legendary beautiful white swan. Butenvironment is moving up the regional agenda anda common regional position for the post-Kyotoarrangement, currently under negotiation, couldcontribute to a major breakthrough at the globallevel.

Russia’s abundant supply of energy resources,which could provide an invaluable asset for theregion, now requires full adherence of all NEAcountries to the ECT. As the most appropriatemultilateral framework governing the crucial areasof international trade and investment in energy, itis crucially important to incorporate Russia—agoal that could best be achieved by inter-regionalcollaboration between NEA and Europe.

ReferencesEIA (Energy Information Administration). 2007Country Analysis Briefs RussiaDetails available at <http://www.eia.doe.gov/cabs/Russia/Background.html>, last accessed in July 2008

Gavin B and Lee S. 2007Regional Energy cooperation in North East Asia: lessonsfrom the European experienceAsia Europe Journal 5(3): 401–415 pp

IEA (International Energy Agency). 2006Energy Policies of IEA Countries: the Republic of Korea2006 ReviewParis: IEA

IEA (International Energy Agency). 2007World Energy Outlook 2007: China and India insightsParis: IEA

Kensuke K. 2005Energy Outlook of China and Northeast Asia and JapanesePerception toward Regional Energy PartnershipJapan: Institute of Energy Economic.Details available at <http://eneken.ieej.or.jp/en/data/pdf/302.pdf>,last accessed in October 2005



* Prof. Lama is the Vice Chancellor of the Central University of Sikkim, Gangtok, Sikkim.

E-mail [email protected]

Cross-border power trading in South Asia: emergingnew paradigmsMahendra K Lama*

In South Asia, access to electricity is at a nascentstage. This is because countries in South Asia arepredominantly dependent on external sources fortheir energy supplies. Supply and price risks couldlead to socio-economic instability and economichardships by increasing economic vulnerabilities.South Asian countries are steadily moving into thisvortex of insecurity, given the fact that they havelargely remained energy importers and increasinglyface a serious energy shortfall. Energy is a crucialfactor in the economic, foreign, and security policyof these countries. Yet, there is very littleinterconnection among these issues in the politicaldiscourse in the region. Except in the case ofBhutan, foreign policies of the South Asiancountries within the region never tend to getintegrated with energy issues.

In South Asia, the very nature and direction ofthe sources of energy supplies, demand,consumption, and distribution, and the relatedgeopolitics call for a regional approach to energysecurity. No individual nation in South Asia canensure it alone. Therefore, from the sustainabledevelopment perspective as well as the security-militaristic aspect, the rational management ofnatural resources in South Asia is important foroptimizing socio-economic benefits andminimizing security-militaristic instabilities.This directly implies that choice is singularlylimited to cooperation and integration bothbecause of the very structures of the market andthe distributions of factors of production as well asnatural resources in the region. The cost of non-cooperation translates into political instability,primarily triggered by an uneven developmentprocess across the countries in South Asia, andfast-growing aspirations of the masses.

New paradigm of energy securityThe South Asian region needs a new paradigmof energy cooperation—one that is based onexclusive commercial harnessing of naturalresources. The instrument chosen here is ‘cross-border power trading’, which has beena major success in many other regionalgroupings including in Europe (UTCE [Unionfor the Coordination of Transmission ofElectricity] and Nord Pool) and Africa (SAPP[Southern African Power Pool] created in 1995).This instrument is now being operationalized inthe ASEAN (Association of South East AsianNations) region as well. Therefore, economicgains based on regional cooperation in theenergy sector have become a firmly establishedpractice across several regional groupings. Manydeveloping countries, because of their lowincome and resultant small market size, areunable to independently capture the inherenteconomies of scale in major infrastructuralprojects. Cross-border exchanges and powertrading will foreground energy cooperation inSouth Asia.

This new energy security paradigm aims atdepoliticizing the harnessing of energy-relatednatural resources. It takes advantage of thepositive aspects of the geopolitics in the region.It not only promotes effective utilization ofnatural resources but also consolidates marketintegration processes. It increases the thresholdof energy security through reliability of powersupply and large-scale transformation in thesectors contributing to economic growth. Itdemonstrates how durable infrastructures anddiverse stakeholders created by sucharrangements help in building confidence and



strengthening the geopolitical dynamics at theregional level. It tries to drive and direct theentire discourse onto a much wider, sustainable,and beneficial system of exchange (mainly ofelectricity) on the basis of rational–commercialprinciples.

A number of organizations in the region andoutside have been consistently working towardsfostering cooperation in South Asia’s energysector. SAARC has set up an Energy Centre atIslamabad and BIMSTEC (The Bay of BengalInitiative for MultiSectoral Technical andEconomic Cooperation) has now decided toestablish a BIMSTEC Centre for Energy forfacilitating energy studies and exchange ofexpertise. Cross-border power trade on abilateral basis already takes place widelybetween India and Bhutan, and to a certainextent between India and Nepal.

Power trading potential in South AsiaThere are revealing variations in the installedcapacities of power utilities in South Asia.These variations reflect the potentialities based onthe natural endowments of the countries in theregion. Hydropower has been the most vital sourceof total installed capacity in Bhutan (100%),Nepal (90%), and Sri Lanka (65%), whereas,thermal power dominates in Bangladesh (95% isgas based), India (72 are mainly steam based), andPakistan (71%). In some countries of South Asia,the composition of installed capacity has beenchanging. Share of hydro sources has gone downvery steadily in India and Pakistan.

South Asian countries are largely energyimporters. Most of these countries haveincreasingly faced a serious power shortfallbecause of the excess of industrial andresidential demand. For the South Asian regionas a whole, it is estimated that on an average thedemand for power has increased at an annualrate of 9%—doubling its magnitude every eightyears, whereas, the supply side has recordedboth a smaller as well as an erratic growthpattern. This has increasingly led to power cutsand rationing. A major chunk of the energydemand could come from the rural areas, as thepredominantly rural population in the region isgradually demanding more and more power.

The seasonality factor in both power generationand demand is evident in South Asia. This hastherefore generated a lot of interest in cross-borderpower trading. Two distinct trends are discernibleas far as pattern in power demand is concerned inBangladesh. First, demand goes down duringDecember–February, while from March to May,load shedding becomes a common feature. Eventhe day peak of the system cannot be maintainedin this season. As a result, industrial, commercial,and agricultural activities suffer. Second, thedemand for electricity increases sharply in theevening mainly because of an evening shoppingculture. This is a critical problem in the powersystem operation. A sizeable generation capacity tothe tune of at least 1200 MW (megawatt) remainsunutilized during off-peak hours and in effectremains shut. If possible, this available capacitycan be a ready source for regional cooperation forthe import–export of electricity from neighbouringcountries. In India, there exists clear seasonality inpower generation, particularly in hydel powergeneration. The peak months for hydropowergeneration are August–September, while the leanmonths are from January to June. In Nepal, thepeak demand of the integrated power system isusually during December–January. This is theperiod when generation from the hydro powerplants is low. Although, February to April is thedriest period, the demand in these months isrelatively lower. Since it is an integrated singlesystem, the region-wise seasonality characteristicloses its identity, as the interconnections transferpower from the surplus region to the deficitregion.

In SAARC, the hope and conviction lies inthe fact that member countries have mentionedcross-border power trading in the context of theoperationalization of reforms in the powersector. This is backed by the reality that thisregion offers a rich potential in harnessingregional hydel power generation out of whichonly a very small proportion has been exploited(hardly 10%–15%) so far.

Interconnection between power systemsof contiguously located countries and theircoordinated operation provides immense technicaland economic benefits. This is feasible in theSouth Asian region given the fact that already a



sizeable network of interconnections exists amongthe South Asian countries. The India–Bhutanpower exchange, widely regarded as a majorsuccess story, is a case in point. The increasingpossibility of accessing the Chinese, Myanmarese,and Afghan markets makes power trading moreattractive and robust.

The West Seti Project of Nepal is another typeof bilateral power exchange that can evenbe extended to Bangladesh. The re-opening of theNathu la trade route offers great potential forexporting power to South West China. Pakistan’sinformal offer to India in 1998 for selling surpluspower matched the demand in the northern andthe western regions of India. Pakistan’stransmission system, from Jomshoro in the southto Tarbela and Peshawar in the north, runs close tothe adjoining borders of India. This may notrequire complex transmission extensions to theIndian borders. A Joint Study Group of Indian andSri Lankan government (2003) strongly proposeda regional power pool between the two countries.Afghanistan is already laying a transmission line toPakistan and Uzbekistan.

Bilateral power trading: existing arrangementsAs options for power trading in the broader ambitof regional cooperation in South Asia, thefollowing three mechanisms can be cited: bilateralpower trade, pool-based approach, and wheelingfacilities.

Bilateral power trading

India–Nepal Power Exchange

The systematic power exchange between India andNepal has been underway since the last threedecades. An agreement between the Governmentof Nepal and India exists for exchanging power upto 50 MW as and when required by the bordertowns. The power exchange at present is on agoodwill basis and up to 60 MW of power isimported by Nepal in its time of need. Thisexchange quantum has recently been increased to150 MW. There is another 132-kV (kilovoltage)interconnection in the Far Western Region, whichproposes to import power from India by Nepalunder the Mahakali Treaty.

Though there are a number of potentialprojects that could be developed as export-

oriented projects, in Nepal there is increasingscepticism about the relative tariff as compared toIndian projects. However, a World Bank studyshows that even with the ‘notoriously unavailable’cost of Indian projects, the cost of Nepaleseprojects is likely to be competitive (World Bank1999). Peak shortage in the Indian power systemis another major problem that would make theimport of power from Nepal rather attractive.

Nepal and India signed an Electric PowerTrade Agreement in 1997. This allows any party inNepal or India to enter into an agreement forpower trade between the two countries,irrespective of them being government, semi-government, or private enterprises. The parties canthemselves determine the terms and conditions ofsuch an agreement, including the quantum ofsupply and its price. The parties will be affordedall the assistance and granted all the incentivesand concessions for both generation andtransmission of power in accordance with therelevant laws of the respective countries.

India–Bhutan Power Exchange

In case of the 336-MW Chukha project onWanchu river, Bhutan earned as much as BTN2367 million ($52 million) in 2002/03 mainlyfrom its power export to India (1472 GWh[gigawatt-hour]). This constituted almost 45% ofBhutan’s exports to India and 11% of Bhutan’sGDP (Royal Monetary Authority of Bhutan2000). This project was constructed with Indianassistance of Rs 2.45 billion with a 60% grant and40% loan. The sale of surplus power to highlypower-deficit areas of West Bengal, Orissa, and theNorth East has been the hallmark of this project.The transmission link has also been a greatsuccess and is likely to be upgraded to help in theevacuation of 4500 MW from three large potentialpower projects, which are being built in Bhutan.

Any power-trading arrangement in the regionshould take note of this success story, which isbased on the following principles: stronginstitutional arrangements and linkages, and clear-cut provisions for delivery point, wheeling chargesand transmission losses, system monitoring,control, metering, accounting of energy, outageand maintenance, schedule, and billing andpayment. Joint action of the PTC (Power Trading



Corporation of India) and CHPC (Chukha HydroPower Corporation) in the full utilization of thegenerating capacity and in transmission; andstrong provision of re-import of energy byBhutan’s Department of Power and PTC makesthe payment to CHPC within 45 days of thereceipt of the bills.

However, Bhutan is keen to diversify its powermarket given the fact that India is theonly buyer. Also, a number of hydel plants areunder construction in India’s north-east region,which may to a large extent lead to a diminutionin the demand for Bhutanese power.

West Seti Project of Nepal

Another revealing example is that of West Setipower project in Western Nepal. This is a thirdtype of power exchange, which is likely to takeplace in the region. A unique feature of thisarrangement is the involvement of a privateagency for the first time as a power-generatingunit primarily for exports to India. Thisindicates a changing paradigm of powerexchange—a direct outcome of a newhydropower development policy that has openedpower development to private producers. TheWest Seti Power project (750 MW) is being builtby SMEC (Snowy Mountain EngineeringCompany) and the power purchaser is likely tobe PTC. Point of delivery will be the India–Nepal border. The quantity of electricity to besupplied by SMEC to PTC will beapproximately 3000 GWh per annum. Theannual distribution of supplied energy will beapproximately 500 GWh per quarter(January–March, April—June, andOctober–December) except for the wet season(July–September) when the energy supply willbe approximately 1500 GWh. Types of energywill be primarily peak energy in dry seasons andbase energy in the wet season.

This will be the first dedicated export projectwith the added advantage that it will not requiregrid synchronization. The transmission would bedirectly to the Indian grid without connection tothe NEA (Nepal Electricity Authority) system.The West Seti Power Project will feed only theIndian system and will work as an integral part ofthe Indian system. India is negotiating with the

Nepalese government to purchase power from thisproject. The deal will be negotiated for 25 yearsfor which the levelized tariff is computed at $0.07.A number of crucial assumptions have been made.The annual saleable energy starting from 2007 to2031 is going to be maintained at 3000 millionunits. Rupee exchange rate is going to be devaluedat 6% per annum. That is, the tariff per unit willincrease by about 6.75% per annum. ‘When theproject begins production, it would give revenue of$60 million per annum to the Nepal government’(The Hindu 2008).

Pool-based approach

The pool-based approach, also known as agent-based integrated simulation, can also providesupport to develop competitive long-run marketequilibrium in regional power trade. Thisapproach involves the working together ofseveral agents such as a set of manufacturers, amonitoring, advisory, and channelizing regionalbody. These agents develop their own strategiesto explore and exploit capacity and otherconstraints in the market. They also evolve theirown market clearing as well as settlementmechanisms. Each of the agents represents oneof the generating firms. A key feature of thismodel is that it uses a micro-level, bottom-uprepresentation of the market, with eachgenerating firm (public and private) representedat the level of its individual plants.

Establishing an RPTC (Regional PowerTrading Corporation) could be a highly beneficialmarket mechanism for the SAARC region. Thiscould be called ‘SAARC-RPTC’, which couldprovide market feedback to individual powerproducers (agents) as well as the powerconsumers. The SAARC-RPTC could maintainand disseminate information on plant structures,avoidable cost of production, plant sales prices,sales volume, rate of utilization, profits generated,target utilization and market conditions, consumerbehaviour, and ongoing plant building and futureinvestment in the sector.

This in essence would involve the pooling ofsurplus power generated by individual plants inthe participating countries and transporting intodeficit ones by a coordinated exchangemechanism depending on demand and



consumer categories (estimated consumersurplus). However, information asymmetry inthis type of a model can create market havocand hence, serious aberrations. Therefore, amajor task of the SAARC-RPTC would be togather and analyse information on generation,demand, transmission, and payment modes wellin advance and arrange for the smooth operationof the market. The idea would be to evolve aneffective bidding system for individual plantgenerators depending on the plant capacity andfuel use, and so on across the entire spectrum ofits activities.

Wheeling facility

The physical boundaries in South Asia are suchthat it is only India that shares common borderswith almost all its neighbouring countries.However, there are very distinct advantages forcountries like Bangladesh, Pakistan, and Sri Lankato import power from Bhutan and Nepal becauseof the lower tariff and supply reliability. At thesame time, power-generating countries would alsolike to diversify their markets. For instance,Bhutan is keen to expand the market for its powerexports. At present, India is the only buyer for itspower.

Interestingly, the changing dimensions ofpower trading match the existing infrastructurein the form of expansive transmission lines in allthe bordering states of India, including theNorth East, Tamil Nadu, Jammu and Kashmir,Punjab, and Gujarat. Therefore, India as atransit corridor for power transfer could give amajor boost to both the power-trading activitiesand the process of regional cooperation andintegration. India could also ensure full use ofits transmission lines and generate substantialrevenue in the form of wheeling charges (Lama2004).

Challenges in South AsiaEnergy security in South Asia has seriouslyremained entangled in the geopolitics of theregion. India’s centrality in South Asia is a resultof both its size as well as its exclusivegeographical location. Seventeen provincialstates of India (out of 28) have internationalland borders. These borders highlight the

opportunities that South Asia can harnesscollectively. However, it also shows how variouscooperation/integration ventures includingvarious energy-related ideas, projects, andlinkages could be hindered by narrow politico-strategic interpretations of these borders.

A Tripartite Ministerial Meeting betweenIndia–Myanmar–Bangladesh held in Yangon on13 January 2005 agreed to import natural gasthrough pipeline from Myanmar via Bangladesh.It mentioned that the ‘Government of Myanmaragrees to export natural gas to India by pipelinethrough the territory of Bangladesh and India tobe operated by an international consortium...The route of the pipeline may be determined bymutual agreement of the three governments witha view to ensuring adequate access, maximumsecurity and optimal economic utilization’. Itwas considered to be a major policy shift inIndia’s approach to issues of cooperation in theneighbouring region on two grounds. First, itwas a clear shift from a traditional bilateralapproach to a new tripartite one. Second, thiswas a deal negotiated and managed by theMinistry of Petroleum and not the Ministry ofExternal Affairs.

The deal, however, could not be implementedpurportedly because India did not agree to thefollowing demands from Bangladesh.P Transmission of hydro-electricity from Nepal

and Bhutan to Bangladesh through the Indianterritory

P Corridor for the supply of commoditiesbetween Nepal and Bhutan and Bangladeshthrough Indian territory

P Taking necessary measures to reduce tradeimbalances between the two countries (JointPress Statement 2005).

Though this was discussed on the sidelines of thetripartite deal and even a formal-joint bilateralpress statement was issued by the Indian andBangladeshi ministers with some very positiveviews on these demands by the former, the entiredeal collapsed. It is now essentially a deal betweenIndia and Myanmar. Bangladesh’s demands lookedvery reasonable particularly in the context of theconspicuous trend of steady liberalization andeconomic integration the region has recorded in



the last decade or so. India has to now bear a veryheavy cost of diverting this gas pipeline through itsown territory in Assam. It has also forgone a goodopportunity to make substantive geo-strategic andsocio-economic gains in the long run. The goodwillamongst diverse stakeholders that such a projectwould have generated would have proven beneficialfor India in resolving its longstanding demands vis-à-vis Bangladesh. This includes getting betteraccess to energy projects in Bangladesh and transitfacilities to reach the states in the North East. Itcould have triggered a number of projects inBangladesh with a large-scale development impact.This could have in turn hindered the cross-bordermovement of people in search of better livelihood.

ConclusionRegional energy security can be ensured largelythrough the process of interdependence andmeasures of sustained cross-border exchanges.However, issues such as the exhaustive drainingof natural resources like coal, natural gas, andoil reserves, as well as the low level of politicalconfidence in sharing hydro resources havepresented serious reservations on enhancing thelevel of energy security in South Asia.Cooperation always implies that certainresources, geographical locations, and evenphysical and social infrastructures are shared asis national control over these resources. On thecontrary, the loss of control over resources bynation-states in turn could also imply a loss ofnational sovereignty. This is true for countrieslike Bangladesh (gas) and Nepal (hydelresources). This brings an element of reluctanceand a withdrawal syndrome sets in from theregional cooperation process. This has beenamply reflected in an array of negotiations ongas with Bangladesh (Lama, Sainju, and Ahmad2005) and hydel power projects like Karnali,Pancheswar, and Rapti in Nepal (Lama 1985;Lama and Bahadur 1995). Therefore, tacklingthis perception of national sovereignty overresources itself is a major hurdle. It demandsextending a new form of cooperation that notonly builds confidence among these countries to

cooperate but also addresses their concernscomprehensively.

References

CSO (Central Statistical Organisation). 1997Statistical Abstract IndiaNew Delhi: Department of Statistics, Ministry of Planning andProgramme Implementation. 176 pp.

Government of Pakistan. 1997Economic Survey 1997/98Pakistan: Government of Pakistan. 113 pp.

Joint Press Statement. 2005Bilateral between Minister of Energy and MineralResources of Bangladesh and Minister of Petroleum andNatural Gas of India to promote bilateral energycooperation. [13 January 2005]New Delhi: Ministry of External AffairsDetails available at <http://meaindia.nic.in/pressrelease/2005/01/13js01.htm>, last accessed in July 2008.

Lama M P. 1985The Economics of Indo-Nepalese Cooperation: a study ontrade, aid, and private foreign investmentNew Delhi: Atma Ram and Sons

Lama M P and Bahadur K. 1995New Perspectives on India–Nepal RelationsNew Delhi: Har-Anand Publications

Lama M P and Rais R B. 2001Pipelines and Powergrids for PeaceMumbai: International Centre for Peace Initiatives

Lama M P. 2004Energy Cooperation in South Asia: opportunities,strategies, and modalities [Regional Synthesis]Dhaka: Centre for Policy Dialogue-Coalition for Action on SouthAsian Cooperation

Lama M P, Sainju M M, and Ahmad Q K. 2005Reforms and Power Sector in South Asia: Scope andChallenges for Cross Border TradeIn Economic Development In South Asia, edited by M S KhanNew Delhi: Tata McGraw Pvt. Ltd

Planning Commission. 2006Approach Paper to the Eleventh Five-year Plan (2007–12)New Delhi: Planning Commission, Government of IndiaDetails available at <http://planningcommission.nic.in/plans/planrel/apppap_11.pdf>, last accessed in July 2008

Royal Monetary Authority of Bhutan. 2000Selected Economic IndicatorsThimphu: Government of Bhutan

The Hindu. 2008India Makes Foray into Nepal’s Power SectorThe Hindu, 19 July 2008Details available at <http://www.hindu.com/2008/07/19/stories/2008071954961300.htm>, last accessed in July 2008.

World Bank. 1999Nepalese Cost Estimates from Power System, Master PlanNepal: power sector development strategy[Draft Report]New Delhi: World Bank



US–India renewable energy collaboration: the roadaheadNeha MisraThe Energy and Resources Institute, North America

IntroductionToday, both the US and India are facingmammoth energy and environmental securitychallenges as perhaps never before in history.Ever-increasing reliance on imported oil, risingglobal energy prices, continuing dominance offossil fuels in the energy mix, and the urgency ofaddressing climate change all call for concertedaction. The US continues to be the largest energyconsumer in the world, accounting for close to22% of world primary energy consumption(BP 2008). Driven by rapid economic growth andhuge development needs of its billion-pluspopulation, India’s appetite for energy is alsorising rapidly. India is the fifth-largest energyconsumer in the world. High oil prices andtraditionally high dependence on foreign oil,which stands at about 70% in case of US and over75% in case of India, makes the case forsubstitution strong.

Financial repercussions on oil-basedeconomies through impact on the fiscal health aswell as the massive oil subsidies being doled outare but one part of this picture. Geopolitics of oilis linked with vital national security concerns,which neither of the two nations can ignore aslong as they continue to be heavily dependent onforeign oil. Then there is the debate over peak oilitself. There are also huge concerns – bothdomestic and global – about how the US andIndia will address the problem of increasing GHG(greenhouse gas) emissions. According to the UNHuman Development Report of 2007, the US isthe largest GHG emitter in the world contributingto 20.9% of global CO2 emissions in 2004. Theserapidly converging strategic energy, environment,and national security concerns for two of thelargest democracies of the world bring us to a case,now stronger than ever, for increased cooperationfor stimulating rapid advances in RE (renewableenergy) research, development, and deployment.This is already happening to some extent. Withthis backdrop, this article looks at the ongoing RE

collaboration between the US and India and thenlays down a roadmap for strengthening thisrelationship in the future.

Ongoing collaborationsGovernment: bilateral and multilateral efforts

The US–India Energy Dialogue launched on31 May 2005 reflected a transformed strategicrelationship between the US and India—arelationship that was called for by the USPresident George W Bush and the Indian PrimeMinister Dr Manmohan Singh. One of the fiveWorking Groups under the dialogue—the NewTechnology and Renewable Energy WorkingGroup—seeks to ‘promote the development anddeployment of clean, new, and RE technologiesleading to enhanced energy security and stableenergy markets that will support desired levelsof economic growth with appropriate concern forthe environment’. The mandate of this WorkingGroup includes creating public–private sectorpartnerships, as well as the promotion ofinvestment, trade, and technology cooperation inthe development of renewable resources. In 2005,Indo-US Science and Technology cooperationagreement was signed in Washington. On 24 June2006, the US–India Energy Security CooperationAct of 2006 was passed unanimously by the USSenate. In February 2008, talks for a bilateralinvestment treaty to help spur business in bothdirections were started.

The APP (Asia–Pacific Partnership) on CleanDevelopment and Climate is another effort toaccelerate the development and deployment ofclean energy technologies. The partnership wasannounced in July 2005 at the 38th ASEANMinisterial in Vientiane, Laos. APP is apartnership among seven major Asia–Pacificcountries – Australia, Canada, China, India, Japan,Korea, and the US – that have come togethervoluntarily to advance clean development andclimate objectives, recognizing that developmentand poverty eradication are urgent and overriding



goals at the international level. The partnershipbuilds on the foundation of existing bilateral andmultilateral initiatives. APP has a task force on‘Renewable Energy and Distributed Generation’that aims to facilitate demonstration anddeployment of RE technologies in partnercountries, matching country development needswith deployment of RE technologies, systems, andpractices; enumerating financial and engineeringbenefits of RE systems. In 2007, as part of thepartnership, the US announced grants for 23 cleantechnology projects for India. These projects rangefrom setting up RE business hubs with supportfrom USAID (United States Agency forInternational Development) and GE (GeneralElectric) to identifying barriers impedinginvestment in hydropower in collaboration withthe US Hydropower Council, the US Departmentof Commerce, and the US Department of Energyto the USEA (US Energy Association) workingwith experienced US regulatory commissions,electric utilities, RE/distributed generationcompanies as well as Indian utilities to help themdeploy RE and DG (distributed generation)technologies more efficiently (APP 2008). Inaddition to these programmes, the USAID SouthAsia Regional Initiative for Energy (SARI/Energy)has been engaged in promoting RE initiatives inIndia in partnership with a number of USorganizations. These include National RenewableEnergy Laboratory, US Department of Energy,US Department of State, Federal EnergyRegulatory Commission, as well as several otherprivate and governmental entities. USAID alsoworked with the CII (Confederation of IndianIndustry) and Government of Andhra Pradesh onthe Green Building Centre in Hyderabad, whichhas since spurred an active green buildingmovement throughout India. REEEP (RenewableEnergy and Energy Efficiency Partnership) is yetanother platform through which US is helping inbuilding renewable energy market in India.

Private sector

Opportunity for US companies

US–India private sector collaboration in the fieldof RE has seen a significant growth in the last fewyears. India’s significant economic growth and REmarket potential continues to foster this dynamicrelationship in many ways. India is the fourth-

largest wind energy producer in the world, afterGermany, Spain, and the US. The REN 21Renewable Global Status Report 2007 ranks Indiathird in terms of wind power added and fourth interms of solar hot water added (REN21 2007).The Indian RE industry offers a lucrative businessopportunity to US companies. According to theUS Department of Commerce, the RE market inIndia is estimated at $500 million and is growingat an annual rate of 15%. According to theEleventh New and Renewable Energy Five-yearPlan proposed by the GoI (Government of India),from 2008 to 2012, the RE market in India willreach an estimated $19 billion. In the Indian REsector, foreign investors can enter into a jointventure with an Indian partner for financial and/ortechnical collaboration and also for setting up RE-based power generation projects.

Ernst and Young’s ‘Renewable Energy CountryAttractiveness Indices’ for quarter four of 2007placed India third while the US as number one inthe world (E&Y 2007). Data from UNEP’s(United Nations Environment Programme) reportGlobal Trends in Sustainable Energy Investment 2008shows that venture capital and private equity REinvestment in India reached $265 million in 2007compared to $45 million in 2004—an almost six-fold increase! The report also says that Indiancompanies largely looked to foreign markets fornew capital, raising $1.4 billion overseas in 2007(UNEP 2008). Merrill Lynch made its first privateequity investment in India’s renewables sector inOctober 2007, with a $55-million investment inthe wind turbine manufacturer Vestas RRB India.Earlier in 2008, New York-based emissionscommodity asset management company, GreenVentures International, launched a $300-millionIndia Carbon Fund. The first-of-its-kind in India,the fund will buy CERs (certified emissionreductions) or carbon credits from companiesoperating under CDM (Clean DevelopmentMechanism), and then sell them to buyers inEurope. US-based Kleiner Perkins Caufield andByers, the VC (venture capital) that fundedAmazon.com and Google too, has shown itsinterest to actively invest in clean-technologycompanies in India.

California-based PV (photovoltaic) modulesmaker Signet Solar has announced that itsIndian operations, expected to start production



by the end of 2009, will be the company’slargest global facility. The Indian operationswith manufacturing facilities in differentlocations are expected to produce 300-MWof panels in five years at an investment ofRs 2000 crore (approximately $466 million).The first phase of this project will have acapacity of 60 MW (MNRE 2008). US-basedAstonfield Renewable Resources, a subsidiary ofAstonfield Management, is planning to set up anationwide RE project of 500 MW. Thecompany will take up these greenfield projectsover the next 5 to 7 years (Das 2008). As notedin the previous section, several other US privatesector companies are also engaged in Indiathrough the Asia–Pacific Partnership. In anotherinteresting partnership, the Multi CommodityExchange of India – India’s largest commoditiesexchange, which has a strategic alliance withthe Chicago Climate Exchange – launchedfutures trading in carbon credits in January2008 (The Economic Times 2008).

Opportunity for Indian companies

It is interesting to note that this flourishingrelationship in the private sector is notunidirectional. An increasing number of Indiancompanies are also tapping the US RE market.According to REN21 Renewables 2007 GlobalStatus, with an investment of $10 billion, theUS was one of the world leaders in creating newrenewable capacity in 2006. The report ranksUS number one in terms of wind power addedas well as ethanol production, second in bio-diesel production, and third in grid-tied solarPV. India has been exporting components andturbines for many years. Suzlon Energy hasgrown beyond the domestic market to emerge asthe world’s fifth-largest wind turbine supplierwith over 10.5% of global market share (Kabttaand Kant 2008). Suzlon Wind EnergyCorporation focuses on the North Americanmarket and is a step-down subsidiary of SuzlonEnergy Ltd, India. Since it began its push intothe US in 2005, Suzlon has secured an 8% shareof the US wind market (Johnson 2008). Anothercompany to watch for is Moser Baer, India’slargest and the world’s second-largest opticalstorage media manufacturer. Moser Baer aimsto distinguish itself as a significant player in the

global PV market by leveraging its high-volumemanufacturing expertise and plannedinvestments of nearly $3.2 billion in research,development, and manufacturing of productsdedicated to generating solar power. It has amulti-million dollar investment in a US-basedcompany, Solfocus, the developer of the high-CPV (concentrator photovoltaic) technology inpartnership with world-renowned PARC (PaloAlto Research Center) in California. Thecompany also has a significant equity stake inSolaria, a US-based technology company thathas developed a unique form of low-concentration solar PV technology. It is capableof producing power equivalent to two to threetimes the power produced by conventional PVmodules using the same amount of siliconmaterial. Besides, it has a minority stake inStion Corporation, a nanostructuresdevelopment company based in the SiliconValley in California, for producing extremelylow-cost solar power generating surfaces (MoserBaer 2008). Reliance Petroleum, a subsidiary inwhich US major Chevron Corp. has a 5% stake,has also announced plans to seek opportunitiesin RE. Indian IT companies are also venturinginto green-energy-related solutions, which couldhave a significant demand in the US as moreand more RE policies are adopted and demandfor related software goes up.

Academic, research, and NGO collaborations

In addition to the governmental and privatesector partnerships, a number of innovativepartnerships with universities, researchinstitutions, and NGOs are steering the US–India RE partnership. With support for NREL(National Renewable Energy Laboratory), USA,TERI (North America) has developed anenterprising project for training ‘Women as solarpower entrepreneurs’ in the Sundarbans. Thewomen are engaged in a variety of businessesincluding charging and renting solar lanterns ona daily basis, designing and assembling smallelectronic items as well as repairing solar homesystems. Apart from the financial independence,a sense of pride arising from the newly acquiredskill and confidence is the biggest contributionof the project. In 2007, Applied Materials, aglobal nanotechnology major headquartered



in Santa Clara, California, donated a state-of-the-art nano-manufacturing lab costingover $7.5 million to IIT Mumbai. The nanomanufacturing lab will serve as a centre ofexcellence to promote and catalyse researchactivity contributing to the creation of anecosystem to nurture and promote the nanomanufacturing industry in India. According toMike Splinter, CEO of AMAT, this made IITMumbai the first institute globally to handle aneight-inch silicon wafer used in making chips(The Economic Times 2007). In 2008, aconference supported by the Indo-US Scienceand Technology Forum will focus on ‘ScalableNanomaterials for Enhanced Energy Transport,Conversion, and Efficiency’. In partnership withits US partners, TERI North America is activelyworking for the ‘Lighting a Billion Lives’campaign, which aims to take solar devices toone billion people around the world.

The road aheadThe above discussion has highlighted some ofthe government, private, academic, and NGOpartnerships that are acting as a catalyst for theUS–India RE collaboration. While these effortsare promising, there is a long road ahead inorder to fully meet the RE potential in both theUS and India. The case for RE collaborationbetween two of the largest democracies in theworld is strong on multiple fronts—be it the riskand increasing costs of rising oil imports, GHGemissions associated with a high fossil fuelusage, or the energy security objectives set forthby both nations. Meeting the respective nationalRE potential and targets calls for a conducivepolicy regime in combination with fundingmechanisms, investment structures, as well ascutting edge innovation in research,development, and deployment of RE-relatedtechnologies to increase their efficiencies andbring down costs. There is a need to developbetter renewable resource assessment tools tofacilitate better planning, implementation, andmonitoring of RE projects. At the same time, acomprehensive review of the IPRs (intellectualproperty rights) regime for such technologies isrequired. The new US administration will have akey role in strengthening the US–India REcollaboration in future. All efforts should be

made to build on synergies of presentprogrammes and promote knowledge sharingthat can help both nations to learn from thesuccess as well as failures of each other. Somesuggestions in this regard include the following.

US–India Renewable Energy Fund

The US and Indian government should formalizea bilateral Renewable Energy Fund, the primarymission of which would be to make investments inRE technology companies. The fund would alsofacilitate partnerships between the US and Indianclean energy firms. In his State of the UnionAddress in 2008, President Bush committed toproviding $2 billion to create a new internationalclean energy technology fund to help confrontclimate change worldwide. At the G8 meeting inJapan in July 2008, Indian Prime MinisterManmohan Singh also called for a Global CleanEnergy Fund. Given India’s critical role as one ofthe most rapidly growing energy markets in theworld, it becomes critical that significant funds arededicated for promoting RE investments in thecountry. A dedicated Renewable Energy Fundshould be considered to ensure concerted effortson the RE business including energy storage aswell as companies providing products and services,such as software that specially caters to the REsector.

US–India Renewable Energy Incubator Programme

The role of such an incubator would be to nurturethe US–India RE startup companies and stimulategreen jobs. REIP (Renewable Energy IncubatorProgramme) would utilize expertise and resourcesfrom both the US and India to help startup REcompanies to develop their products to cater to theneeds of the US and Indian markets, attractfunding from sources in both countries, buildstrong RE management teams, as well as acceleratethe time taken by nascent technologies to get tothe market. The programme would build onpartnership between the US and Indiangovernments, private sector, NGOs, as well asengineering and business programmes of variousleading universities.

A number of clean energy business incubatorsexist in the US that can offer useful lessons forinstitutional, funding, and operational aspects ofREIP. For example, the CEI (Clean Energy



Incubator), launched in August 2001, is a jointeffort between the ATI (Austin TechnologyIncubator) and the NREL promoting thedevelopment of viable businesses focusing on cleanenergy. The ATI is a key programme of the IC²Institute at the University of Texas at Austin, aunique non-traditional centre for research andeducational excellence engaged in a quest forconstructive forms of capitalism that will allowcommunities and nations to grow and prosper. IC²combines technology, entrepreneurship, andeducation to improve the world by creating wealthand sharing prosperity. Since 2002, CEI has served18 companies within the renewable and energyefficiency sectors. More specifically, thesecompanies range from geothermal power andbiofuels, to wind energy and water conservation. WithCEI’s assistance, companies fill in knowledge gapsand build stronger business propositions, helpingto increase their chance for success.

Linking development assistance and renewableenergy

There is a need to establish stronger linkagesbetween development assistance and RE. This canwork in a number of ways. First, the quantum ofUS funds dedicated to RE projectsin India should be increased. Clean energy andwater is one of USAID’s focus areas in India.As discussed earlier, USAID South Asia RegionalInitiative for Energy (SARI/Energy) has beenengaged in promoting RE initiatives in India inpartnership with a number of US organizations.Increased development assistance for microfinancing of RE projects could also play a key rolein meeting India’s electrification targets.A study by USAID’s MicroenterpriseDevelopment Office brings out two potentialstructures for micro-finance umbrella programmes:(a) broader umbrella programmes with a micro-finance component, and (b) micro-finance: onlyumbrellas which work towards development of themicro-finance sector (USAID 2006). A portfolio ofprojects for such umbrella programmes should bespecially developed for RE-related projects in Indiaand would also offer many benefits for promotingoverall socio-economic development in thecountry. Second, there is a strong case for strategicintegration of RE into other development projectslinked to health, education, and poverty alleviation.

Finally, for giving a push to research, development,and deployment of RE technologies as well as fordesigning and scaling solutions for the bottom ofthe pyramid clean energy markets, models fromother development project areas should be studiedin detail.

Sister solar cities

The ‘Solar America Cities’ and Indian Solar Citiesprogrammes should work with each other to buildan innovative partnership to build sister solar citiesin both countries. Such a programme could bebased on unique cross-country public–private–people partnership model, which brings togetherpolicy-makers, private sector, as well as civil societyfrom both the nations closer to work towards thecommon goal of building solar cities. Under theSolar America Cities programme, the USDepartment of Energy is already working with itsnational laboratories, 25 cities across the US, and avariety of municipal, county, and state agencies,universities, solar companies, utilities, developers,and non-profit organizations. The city solarpartnerships are committed to developing asustainable solar infrastructure that removesbarriers and encourages the adoption of solarenergy by their residents and businesses, andincreases the number of solar installations withinthe municipalities. These cities are taking acomprehensive, city-wide approach that lays thefoundation for a viable solar market and provides amodel for other cities to follow. In addition tofunding, DoE provides hands-on assistance fromtechnical experts to help Solar America Citiesintegrate solar technologies into city facilities andenergy planning. Experts are available to assistSolar America Cities in streamlining localregulations and practices (for example, zoning andbuilding codes) that affect the adoption of solartechnologies by residents and businesses. They canalso help the cities develop solar financing optionsand incentivize programmes as well as promotesolar technology among residents and localbusinesses through outreach and curriculumdevelopment. As India moves ahead with its ownSolar Cities programme, which is still in an earlyphase of its learning curve, it can gain importantlessons from the US Solar Cities programme. Aunique programme like the Solar Sister Cities cannot only help replicate best practices for solar cities



of the future but also build stronger ties betweenthe civil societies of the US and India.

ReferencesAPP (Asian Pacific Partnership). 2008APP Renewable Energy and Distributed Generationproject rosterDetails available at <http://www.asiapacificpartnership.org/REDGTFProjects.htm>, last accessed in August 2008

BP (British Petroleum). 2008BP Statistical Review of World EnergyDetails available at <http://www.bp.com/productlanding.do?categoryId=6929&contentId=7044622>, lastaccessed in August 2008

Das S. 2008US firm to set up 500-Mw renewable energy projectsThe Financial Express, 25 June 2008Details available at <http://www.financialexpress.com/news/US-firm-to-set-up-500mw-renewable-energy-projects/327013>,last accessed in July 2008.

E&Y (Ernst & Young). 2007Renewable Energy Country Attractiveness IndicesDetails available at <http://www.ey.com/GLOBAL/content.nsf/International/Oil_Gas_Renewable_Energy_Attractiveness_Indices>, last accessed in August 2008

Johnson K. 2008A Fresh Breeze from India: Suzlon’s big challengeThe Wall Street Journal, 18 April 2008Details available at <http://blogs.wsj.com/environmentalcapital/2008/04/18/a-fresh-breeze-from-india-suzlons-big-challenge>,last accessed in July 2008.

Kabtta K and Kant K. 2008Right time for Investors to Accumulate Green StocksThe Economic Times, 28 July 2008Details available at <http://economictimes.indiatimes.com/articleshow/3292699.cms>, last accessed in July 2008

MNRE (Ministry of New and Renewable Energy). 2008Signet to invest Rs 2000 crore to set up photovoltaic facilityin ChennaiAkshay Urja 1(5): March–April 2008New Delhi: TERI Press

Moser Baer. 2008Photovoltaics: overviewDetails available at <http://www.moserbaer.in/photovoltaic_cells.asp>, last accessed in August 2008

REN 21. 2007Renewable Energy Policy Network for the 21st Century:renewables global status reportDetails available at <http://www.ren21.net/globalstatusreport/default.asp>, last accessed in August 2008

The Economic Times. 2007IIT Bombay teams up with US nanotechnology firm for labThe Economic Times, 2 November 2007Details available at <http://economictimes.indiatimes.com/News/News_By_Industry/IIT_Bombay_teams_up_with_US_nanotechnology_ firm_for_lab/articleshow/2508998.cms>,last accessed in July 2008.

The Economic Times. 2008MCX launches futures trading in carbon creditThe Economic Times, 9 June 2008Details available at <http://economictimes.indiatimes.com/Markets/Commodities/MCX_launches_futures_trading_in_carbon _credit/articleshow/3115007.cms>, last accessed in July 2008.

UNEP (United Nations EnvironmentProgramme). 2008Global Trends in Sustainable Energy Investment 2008:analysis of trends and issues in the financing of renewableenergy and energy efficiencyDetails available at <http://sefi.unep.org/fileadmin/media/sefi/docs/publications/Exec_summary.pdf>, last accessed in August2008

IEA’s strategic petroleum reserve:a coordinated mechanismDisruptions in oil supplies, such as the one in1973, are inextricably linked to price spikes andeconomic recession. Such shocks pose seriousimplications for energy security largely due to theirimpact on economic prices and costs. It was in

order to combat the threat of sudden oildisruptions in the future that the IEA(International Energy Agency) launched anemergency response mechanism in 1974.Under the IEP (International Energy Programme)agreement, IEA member countries (generallydeveloped OECD [Organization for Economic

Joint strategic oil stocks in Asia: an analysisSaptarshi Mukherjee1

The Energy and Resources Institute

1 The author thanks Anandajit Goswami, TERI, for his valuable comments.



Cooperation and Development] nations) arerequired to maintain oil reserves equivalent to atleast 90 days of net oil imports, and ‘in the eventof a major oil supply disruption—to release stocks,restrain demand, switch to other fuels, increasedomestic production, or share available oil, ifnecessary’ (OECD/IEA 2007). Under the IEAprogramme, every member country must have aneffective plan to use their SPR (strategicpetroleum reserve) through IEA-coordinatedaction. The stock obligations of member countriesare monitored on the basis of monthly oil data andquarterly stockholding reports submitted bymember countries themselves.

Literature from the IEA mentions how stock-draw has remained one of the most effectiveshort-run emergency response measures againstoil shocks. Decisions regarding stock holdingand release of oil are reached through acooperative mechanism. Although the IEA’smandate has gradually broadened to incorporateenergy security, environmental protection, andeconomic development, initially IEA’s main rolewas to coordinate measures in times of oilsupply disruptions. IEA’s joint strategic oil stocktherefore represents a successful example ofenergy collaboration over time.2 There havebeen instances of several supply shocks, forexample, the Gulf War of 1991, Venezuelanstrike in 2002/03, and the Iraq war in 2003,when release from the IEA’s SPR proved to bewelfare enhancing.

The IEA’s emergency response mechanismto deal with sudden supply shocks was formedmainly as a response to the oil crisis of 1973. Thecrisis compelled all member countries tocooperate, and their sustained coordinated actionover the years emerged as a pillar of success for theIEA. For Asian countries on the other hand, thenecessity to maintain joint oil stockpiles willbecome self-evident only when a supply shock of amagnitude similar to the 1973 oil crisis takes place.Since the import dependence of the Asiancountries on West Asia is a relatively recentphenomenon, the Asian economies are still not

fully cognizant of the possibility of disruptions inoil supply. However, the current and projectedtrends of import dependencies in Asia indicate thatcountries in Asia are motivated enough to initiatejoint stockpiling efforts as a precautionarymeasure.

In this paper, the economic nature of jointstockpiling and the importance of coordinatedaction, particularly in the context of the Asianeconomies, are analysed.3 Some efforts made inthis direction by Asian countries are mentionedbelow. Joint oil stockpiling is seen as aninternational public good. Hence, the paper alsoidentifies mechanisms that can combat the free-rider problem inherent in the provision ofinternational public goods. The literature on publicgoods helps identify key mechanisms that Asiancountries could potentially adopt to make energycollaborations, such as joint oil stockpiles, afeasible and mutually beneficial investment formember countries.

Crude oil supply shock: Asian economies on edge?Cooperation in maintaining strategic oil stocks hasbeen a successful example of energy collaborationfor IEA member countries. Asian countries havenot taken any such coordinated action to addresssudden oil supply shocks. However, in the lastdecade, the fastest rate of increase in demand(about 52%) for oil has occurred in the Asia–Pacific region that includes countries such as India

2 The mechanism includes coordinating stock holding of all member countries, periodic monitoring of the same, and suggesting other

demand restraining measures.3 The political feasibility of such cooperation is not under the purview of the discussion here.

Figure 1 Net imports as per cent of oil supplySource IEA (2001)



and Pakistan. Figure 1 from IEA depicts the oilsupply scenario of major Asian economies.

Asian economies have also increasingly becomedependent on crude oil imports from West Asia.Asia accounted for about 64.5% of total oil exportfrom West Asia in 2004 (Calder 2004). This figurewas 53% in 1990 (IEA 2000). Thus, the inter-regional alliance between the rest of Asia and WestAsia appears to be mutual. Asian countries likeJapan, China, and India are also investing in oiland gas fields in countries such as Iran and Qatar.However, West Asian countries have always beengeopolitically unstable. Also, any accident ordisruption in the Strait of Hormuz or the Strait ofMalacca (for China and Japan specifically) wouldcertainly affect oil supply to Asian countries.Therefore, it has always been in the interest of theAsian countries to hedge against such futureuncertainties regarding oil supply.

Apart from diversifying source of oil import,and investing in overseas oil and gas fields,countries such as Japan and Korea have alreadystarted maintaining strategic oil stocks to hedgeagainst sudden oil disruptions. China and Indiahave also recently followed suit. As per theASEAN (Association of South East AsianNations) Petroleum Security Agreement of1986, the issue of joint stockpiling was discussedunder the CERM (Common Energy ResponseMeasures). However, this has not been pursuedin a coordinated manner. Recently, the CERMhas again come into sharp focus in thediscussions amongst Asian economies. Forinstance, at the Beijing Asian Energy Workshopin 2004, the possibility of joint stockpiling wasdiscussed. A significant development in thisregard took place in June 2008 when energyofficials from India, China, the US, Japan, andSouth Korea met in Japan to discuss energy-related issues such as countermeasures againstrocketing crude oil prices (Xinhua 2008). At themeeting, China and India agreed to take part inkeeping oil stockpiles for dealing with oil priceturbulence in the future. The countries togetheralso emphasized the significance of strategic oilstocks and discussed possible cooperation andcoordination amongst the Asian countries.

Strategic oil stocks: an international public goodThe benefits of the rational use of strategic oilstocks, such as a joint oil stockpile, are wellknown. Oil is released from the stock when thereis a supply disruption for a short duration, forexample when war spreads or when there are anyaccidents in shipping routes, and so on.4 The oilstock is replenished when the situation returns tonormal and price of fuel stabilizes. In a dynamicframework, a strategic oil reserve helps contendwith short-term supply shocks. However, when oilstocks are held and used by several countries incommon under a coordinated action plan, there isgreater benefit to all the countries. There are tworeasons for this.

First, given the fact that oil is an essentialresource for regular economic activities, spareproduction capacity, fuel switching, demandrestraints, and alternative technologydevelopment are common measures to mitigatethe adverse effects of possible oil supplyinterruptions. Maintaining SPRs are also asimilarly beneficial investment. All thesemeasures are public goods. That is, the benefitsthat accrue from pursuing these measures areenjoyed by all national economies, even thoughthe measures are taken by a few countries. Thisis due to the non-excludability property of thebenefits obtained from reduced economic losses.Oil supply disruptions anywhere in the worldaffect oil markets of all the economies,particularly oil-importing countries. Therefore,actions taken by any country to mitigate theimpact of sudden oil supply disruptions wouldaffect global oil markets in a positive way aswell. Thus, the transnational nature of thebenefits ensuing from joint SPR makes it aninternational public good. As a result, thebenefit from rational usage of strategic stocks ofoil also permeates to all economies irrespectiveof the extent of the individual involvement inthe strategic stock holding. Therefore, the socialbenefits are greater than those perceived by theinvesting country.

Second, SPR investments as internationalpublic goods pose an inadvertent problem—thatof free riding. The countries which do not invest

4 A recent example is the disruption in USA’s oil supply caused by Hurricane Katrina in 2005.



in the SPR enjoy the benefits from SPRinvestments made by other countries. This is atypical free-riding problem. This ultimately leadsto inefficient market allocations. This is becausethe countries that invest in SPR enjoy benefitfrom insurance against short-run supply shocks.But investing in SPR causes a positiveexternality to other economies that do notactually invest in the joint oil stockpile. Thus,market return to the investing countries is lessthan the social benefits. This causes marketfailure and an under investment in SPR.5

Efficient provision through transnationalcooperationPublic economics literature provides detailedanalysis of the problem of free riding and suggestsseveral solutions such as government provisionsand dominant assurance contracts. However, inthe case of SPR, negotiations take place at theinternational level where the players are differentcountries. Thus, contract mechanisms are notlikely to work. A joint liability mechanism thatrequires all member countries to participatethrough a coordinated action plan is moreappropriate in this case. Since the effect of oilsupply disruptions or strategic oil release has agreater impact on countries within a geographicalzone, the joint mechanism must involve countriesthat are in the same band in terms of geopoliticalcharacteristics. This ensures participation from allmember economies so that all positive externalitiesare internalized and efficiency is attained.6

Economic theory has explained market failureand under-provision of public goods in the contextof non-cooperative game theory (Bergstrome,Blume, and Varian. 1986; Cornes and Sandler1984). Contributions to public goods can be seen

as strategies of the players concerned. However, alarge number of articles with experimentalevidence suggest that subjects are sometimescooperative (Dawes and Thaler 1988). There arealso several sophisticated mechanisms for theimplementation of an efficient allocation of publicgoods (Clarke 1971; Groves 1973; Laffont 1979).However, these mechanisms may be complicatedin transnational issues like SPR investments. Manyarguments have been put forward regarding suchinternational public goods—ranging from doingnothing to forming global governance bodies(Barrett 1994; Helm 1991; Zacher and Sutton1996).7

There is also a lot of literature that discussesthe implementation of joint or collectivemechanisms with respect to the provision oftransnational public goods. Barett (1994), forexample, discusses structures of suchmechanisms that make incentives forcooperation compatible between the playersinvolved.8 In the context of the Asianeconomies, the feasibility of a joint stockpilingmechanism would depend mainly on the extentof cooperation amongst member countries.Sandler (1998) identifies factors that promotecollective action at the transnational level. Forinstance, a key factor identified is the mixturebetween nation-specific and transnational publicbenefits. This implies that as the proportion of acountry-specific benefit relative to the globalbenefit increases, the likelihood of that countrybecoming active in the alliance also risesproportionately. Another factor is the presenceof a nation that can take the lead in coordinatingaction. However, the necessity of a lead nation,at least in the context of Asian joint oilstockpiling seems weak—no country can be

5 The inefficiency following free-rider problem is well documented in the literature dealing with provision of public goods. Market

allocation provides a level of public good where benefit gained from additional investment (marginal benefit) equals required cost to be

incurred for doing the same (marginal cost). But market posits a benefit function that is undervalued. This is simply because it takes

into account only the benefits accrued to the investor. Thus, positive externality enjoyed by other agents is not captured in the benefit

function. Since the marginal benefit function is downward sloping and marginal cost function is upward sloping (based on some

standard assumptions), an under-valued marginal benefit function implies less investment than the optimal one. Thus, market fails to

bring efficiency in the transaction of public goods.6 Positive externality is the benefit that all the countries enjoy from the usage of the strategic petroleum reserves by some specific

countries.7 This paper does not take any extremist position; in this sense it is akin to Sandler’s position (1998).8 Sandler (1998) also considered a strategic n-player framework to enforce cooperation as a dominant strategy. However, this discussion

is not exactly under the purview of this article.



singled out to take such a position among Asianoil-importing giants. Sandler also talks aboutremoval of uncertainty. The benefit from suchcoordinated action with respect to the publicgood (in case of strategic oil stock it is insuranceagainst supply shocks) must be vivid in allmember economies’ perception. MontrealProtocol got a big push after the link betweenCFCs (chlorofluorocarbons) and stratosphericozone destruction became known. Collectiveaction followed rapidly after this informationwas available.

ConclusionThis paper mainly emphasizes the importance ofstrategic oil stocks for Asian countries, its publicgood characteristics, and its implementationthrough a joint stockpiling mechanism. Criticsmight look at it as a mere imitation of developedcountries’ activities, that is, IEA. However, thenecessity of such a measure seems inevitable forensuring energy security in the Asian regiongiven the current geopolitical situation regardingworld oil trade.

ReferencesBarrett S A. 1994Self-enforcing International Environmental AgreementsOxford Economic Papers 46 (Special Issue on EnvironmentalEconomics): 878–894 pp.

Bergstrome T C, Blume L, and Varian H R. 1986On the private provision of public goodsJournal of Public Economics 29 (1): 25–49 pp.

Calder K E. 2004The geopolitics of energy in Northeast AsiaPaper presented at the Korean Institute for Energy Economics,16–17 March 2004Seoul: KoreaDetails available at <http://www.iea.org/Textbase/work/2004/seoul/Kent_Calder.pdf>, last accessed in July 2008.

Clarke E. 1971Multiparty pricing of public goodsPublic Choice 11 (Fall): 17–33 pp.

Cornes R and Sandler T. 1984Easy riders, joint production, and public goodsEconomic Journal 94 (375): 580–598 pp.

Dawes R M and Thaler R H. 1988CooperationJournal of Economic Perspectives 2 (3): 187–197 pp.

Groves T. 1973Incentives in teamsEconometrica 41(1): 617–631 pp.

Helm D (ed.). 1991Economic Policy towards the EnvironmentOxford: Blackwell Publications

IEA (International Energy Agency). 2000World Energy Outlook 2000Paris: Organization for Economic Cooperation and Development.

IEA (International Energy Agency). 2001Oil Supply Security: the emergency response potential ofIEA countries in 2000Paris: Organization for Economic Cooperation and Development

Laffont J J (ed.). 1979Aggregation and Revelation of PreferencesStudies in Public Economics [Volume 2]Amsterdam, New York and Oxford: North Holland

OECD (Organization for Economic Cooperation andDevelopment) and IEA (International Energy Agency). 2007IEA Reponse System for Oil Supply EmergenciesDetails available at <www.iea.org/Textbase/nppdf/free/2007/fs_response_system.pdf>, last accessed in July 2008.

Sandler T. 1998Global and Regional Public Goods: a prognosis forcollective actionFiscal Studies 19 (3): 221–247 pp.

Xinhua. 2008China, India praised for participation in oil emergencypreparednessDetails available at <http://english.people.com.cn/90001/90776/90883/6426392.html>, last accessed in July 2008.

Zacker M W and Sutton B A. 1996Governing Global Networks: international regimes fortransportation and communicationsCambridge: Cambridge University Press



Energy collaborations in nuclear fusion

William A GraciasThe Energy and Resources Institute, New Delhi

IntroductionIn absolute terms, the world’s energy needswill grow much more rapidly during this centurythan at any time before. A large fraction of theworld’s population that uses little energy todaywill use more tomorrow as has been the casewith China and India. Currently, about 4.5billion people use less than the world’s average,and of this, 1.6 billion do not have access toelectricity. If they all catch up with the presentaverage, the future average use of energy willrise by about 60%. Further, if the world’spopulation increases by approximately 50% by2050, energy consumption will also double(Mank and Burkart 2006). The doubling ofworld energy in large measure will be aconsequence of the sharp increase in economicgrowth, particularly in countries such as Chinaand India, where energy use per capita iscurrently very low by Western standards (Smith2004). Nearly 80% of the primary energy supplyin the world is derived from burning fossil fuels(oil, coal, and natural gas), which has seriousimplications for climate change. However,addressing energy security concerns andmitigating GHG (greenhouse gas) emissionssimultaneously is not easy. Even if we were in aposition to find ways to capture and store CO2

(carbon dioxide) at a reasonable cost, so as tomake it possible to continue burning fossil fuels,they would eventually run out. Today, animportant alternative technology that will beable to satisfy a substantial part of our globalenergy needs is nuclear fission. However,nuclear energy does not power cars andindustrial furnaces, although cars and furnaceswill eventually be powered by electricity orhydrogen generated (indirectly) by nuclearfission, or fusion.

There is therefore great impetus for globalaction and collaboration in the energy sectorgiven the fact that there are costs andconstraints attached to addressing the spirallingdemand for energy as well as mitigating climatechange. The shortfall in supply is a threat thatfaces all countries in common. It is for thisreason that energy collaborations play animportant role in bringing together like-mindedparties. The increasing worldwide energydemand asks for new solutions and changes inthe energy policies of countries, pushing scienceto new frontiers. This article highlights one suchcollaborative venture—that of internationalscientific collaboration in the area of nuclearfusion energy. The article also emphasizes theimportant role that nuclear fusion power mayplay in the future energy mix of the world.

Need for fusion energyEnergy conservation and using renewable energysources, although vital, will not be sufficient tomeet the growing world energy requirements.Nuclear energy using fission is an importantpart of the worldwide energy mix and has greatpotential for becoming part of a sustainableenergy security programme. However, there areconcerns in many countries regarding thismethod of power generation—concerns thathave not yet been effectively addressed. A futurepossibility is the nuclear reaction of fusion, thesource of solar (and other stellar) energy.1

Though many scientific and technical issues arestill to be resolved in fusion, controlled fusion isbecoming more and more realistic.2

The potential for nuclear fusion power,therefore, cannot be ignored. The basicsubstances needed for the fusion process,namely, deuterium and lithium, are available

1 Two kinds of nuclear reactions can be used to produce energy: fission, that is, gaining energy through the break-up of heavy elements

like uranium; and fusion, that is, gaining energy by merging light elements such as deuterium and tritium.2 The progress made by researchers the world-over in bringing the nuclear fusion reactor closer to commercialization is well acknowledged.



throughout the world in almost inexhaustiblequantities.3 A cubic metre of seawater contains34 grams of deuterium, the energy equivalent of300 000 litres of oil. When nuclear fusionbecomes commercially feasible, the oceans, seas,and lakes could supply enough deuterium forroughly 1000 reactors over a million years(Stankovij 2006). However, it would not berealistic and ecologically sound to plan ourenergy roadmap at the cost of depleting ourwater resources. Nevertheless, even if we use 1%of these waters, we could still power a thousandfusion reactors for about 10 000 years. Thesheer duration that this quantity of fuel cansustain with high reliability in supply will play amajor role in making the fusion power plantcommercially viable. Also, if one wishes to usenuclear fusion as an interim source of energy,until such time when better sources of energyare discovered or developed, nuclear fusionwould give us sufficient time to come up withbetter alternatives to electricity generation andefficient plans for resource utilization.

The words of IAEA (International AtomicEnergy Agency) Director General, Dr ElBaradei during the 49th Session of the IAEAGeneral Conference held in 2005, bestsummarizes the worldwide drive for energycollaborations in fusion energy.

While some of us may be sceptics when it comes toany science that takes such a long time to develop,there is no denying that nuclear fusion promisessome welcome characteristics: an inexhaustiblesource of energy in light nucleus atoms; the inherentsafety of a nuclear reaction that cannot besustained in a non-controlled reaction; and fewnegative environmental implications. With theconstruction of the ITER, the internationalscientific community can begin devoting seriousattention to this long-term objective.

Nuclear fusion collaborationJoint European Torus

Many energy planners have recognized the greatpotential in nuclear fusion, and nations have vied

for first position in taking a lead role in fusionresearch. However, largely due to costs of research,countries have come together to share facilities,human resources, and funds, so as to jointly takeforward the work in nuclear fusion. One suchexample is the JET (Joint European Torus). TheUKAEA (United Kingdom Atomic EnergyAuthority) research facility at Culham inOxfordshire is host to the JET experiment andalso to three other experimental tokamaks, that is,nuclear fusion devices that work on the principleof magnetic confinement.

JET was established from June 1978 to 1999 toconstruct and operate the JET machine. Since thebeginning of 2000, the JET experimentalprogramme has been managed under the EFDA(European Fusion Development Agreement). TheEFDA was created to provide a framework fornational fusion research parties to participate incollective activities such as JET. The EFDA runsfor a fixed term of years, and can be extended. Thegoal of EFDA is to develop the necessary scientificand technical basis in European research and

Figure 1 Countries that are part of the JET collaborationSource Green (2006)

3 Tritium is also required initially and is subsequently bred in the lithium blanket of the reactor, as part of the fusion process, for future

reactions.



industry for the construction of ITER(International Thermonuclear ExperimentalReactor) and a prototype fusion power plant, andto strengthen European capabilities. EFDAcoordinates the technological work carried out byEuropean fusion labs and industry, andcoordinates European contributions tointernational collaborations such as ITER. TheUKAEA has been contracted to maintain andoperate the facility, while experimental work iscarried out by visiting teams of scientists from allthe associated EURATOM laboratories working onthe fusion programme.

The JET facility is collectively used byEURATOM associations from more than20 European countries. The JET device iscurrently the world’s largest operational tokamak.The JET facilities include plasma-heating systemscapable of delivering up to 30-MW (megawatt) ofpower, an Active Gas Handling System, and aBeryllium Handling Facility, providing JET with aunique tritium and beryllium capability,respectively. Over the next few years, JET’stechnical capabilities will be significantly enhancedin order to optimally support the ITER’s finaldetail design and in preparation for exploiting itsenhanced features.

International Thermonuclear Experimental Reactor

If JET was at the continental level, ITER goesbeyond by operating internationally. ITER is ajoint international research and developmentproject that aims to demonstrate the scientific andtechnical feasibility of fusion power. The partnersin the project are the EU (European Union)(represented by EURATOM), Japan, China, India,South Korea, the Russian Federation, and the US.ITER is seen as the international way towards thepeaceful use of controlled nuclear fusion energy. It

combines two major elements in the developmentof fusion as a source of energy: (1) the exploitationof the established potential of the tokamakconfiguration to reach reactor conditions, and(2) the use of international collaboration to sharethe burden of costs and to accelerate progress bypooling resources and expertise. With ITER, fusionreactor conditions shall be achieved withtemperatures as high as several hundred millionkelvin and extremely high densities (about 1020/m3) to ignite the plasma and sustain the reaction.

IAEA has been an integral part of ITER sinceits inception, and its activities on controllednuclear fusion research have been advised by anexpert body —the IFRC (International FusionResearch Council). At the November 1985Geneva Superpower Summit, Premier Gorbachev,on the advice of academician Evgenij Velhikov andothers, and after talking the matter over withPresident Mitterand of France, took the initiativeto propose the development of an internationalproject. The project was to comprise Europe,Japan, the US, and the USSR in order to developfusion energy for peaceful purposes through thejoint construction of the device. In 1988, theIAEA ITER office started to support the CDA(conceptual design activities) for this device. Withthe signing of the ITER EDA (Engineering andDesign Activities) Agreement and Protocol 1 inJuly 1992, the ITER EDA led to a firstcomprehensive design and final report.4

After 2002, negotiations to pick a site for theinstallation of the device began and this attractedgrowing interest, especially after President Bushannounced on 30 January 2003 that the USAwould join ITER again.5 India joined the ITER inDecember 2005, reflecting the increasingworldwide interest in developing nuclear fusionenergy. The EU and France will contribute half of

4 Soon after the ceremony to celebrate the achievements of the ITER activities, on 14 December 1998 at the ITER San Diego Joint

Work Site, the US withdrew from further participation. However, within the ITPA (International Tokamak Physics Activities),

initiated by the IEA (International Energy Agency) and IAEA (International Atomic energy Agency), a redesign of ITER was possible

leading to a new and smaller design. The total R&D resources committed in nine years by the parties amounted to about 660 kIUA (1

kIUA = $1 million in 1989).5 Even though America did exit the ITER at one point, it simultaneously built an enviable network of nuclear fusion laboratories across

the country with collaborating universities and state institutes. The Republic of Korea and the People’s Republic of China joined

ITER in January 2003. Canada withdrew from ITER on 23 December 2003.



the total cost (Euro12.8 billion), while the otherpartners—Japan, China, South Korea, the US, andRussia—will contribute 10% each. Japan willprovide the high-tech components, host a Euro 1billion materials testing facility and will have theright to host a subsequent demonstration fusionreactor (called DEMO). Finally, at a MinisterialMeeting in May 2006 in Brussels, an agreementwas signed by the ministers representing morethan half of the world population to build theworld’s biggest fusion experiment in Cadarache,France.

Exchanges between JET and ITER

The UK will play a leading role in ITER bycontributing expertise acquired as a result ofhosting the JET. JET has a sizeable team ofscientists, engineers, and technicians withconsiderable experience in fusion energy. Today,most work at JET is done to complement thework at ITER. Most of the scientific objectivesof JET have been realigned to take into accountthe concerns of ITER. Technologicaldevelopments and targets have been planned incoordination with aiding ultimate ITERobjectives. For example, development of ITER-like wall materials, heating schemes, reactordiagnostics, and plasma scenarios in the JETprogramme have been planned and are carriedout with the goal of serving as inputs to ITERwork.6 Installation of major components isexpected to start by end of 2008.

JET represents the EU’s efforts in fusionscience. Several member states of the EU havecontributed to the establishment andmaintenance of JET financially and by providinghuman resources. The ITER represents aninternational level of interactions taking placebetween regional collaborations like the JET,and other member countries like Japan, Russia,and India, and these in turn contribute to theworldwide effort in ITER.

ITER: the future potentialThe ITER parties represent about half of theworld’s population. That alone is an enormousachievement, both politically and technically.For the other half of the world, it representsa major hope for future energy supplies.A reasonable goal for future supply is a mix offossil fuels, renewable energy, and nuclearfission, roughly in equal proportions, with otherenergy sources as minor partners. By about2050, we will know considerably more about theeconomic feasibility of nuclear fusion, hydrogen,and certain renewable energies, and we will haveto re-adapt ourselves to a new energy mix. By2050 therefore, these energy options must beready and mature enough to take on the role ofmajor energy-producing technologies in thepower sector. Hence, research and developmentcurrently being carried out in emergingtechnologies, like nuclear fusion, is required andjustified as part of the larger work towards asecure energy future for the world. Thisopportunity has spurred many countries toinvest in fusion research. The US alone, whichhad exited ITER earlier, has allocated nearly$493 million for fusion in the financial yearstarting 2009 (US DoE 2008). This represents a170% increase from the current financial year’sfunding allocation. The ITER is a goodinternational platform for fusion research to becarried out by nations that may not have theability to commit large sums to a domesticprogramme similar to the scale of the ITER.

Even if the huge potential for increasing energyefficiency is tapped, additional energy needs arelikely to come up, for example, to meet futureneeds of mankind for fresh water via desalinationof sea water. As for nuclear fusion, a commercialpower plant is several decades away. Fusion mayplay no role in the provision of energy in the nextthree to four decades, although it may play animportant one thereafter. Despite this and the high

6 The JET programme in support of ITER was launched to provide answers to urgent ITER-related questions such as tritium retention,

metallic plasma-facing components under ITER-relevant power loads in between and during transients and disruptions, compatibility

of metal-dominated wall with ITER plasma scenarios, and qualification of many diagnostics to ITER needs. Activities currently are

underway to fully replace the first wall material with beryllium in the main chamber and tungsten in the diverter, to upgrade the

overall heating power up to approximately 45 MW, to install a High-Frequency Pellet injector (end 2007), to upgrade the plasma

control system, to progress technology R&D in support of ITER.



initial investment costs required, fusion research issupported worldwide because of its great long-term potential and its ability to replace fossil fuelplants by meeting base loads.

A strategy to improve expertise andparticipation of emerging economies anddeveloping countries is needed, in view of theenergy demand in China and India. The evolutionof power technology, including a new generationof fission reactors (Generation-IV reactors) andfusion reactors, will have to be based on closeinternational collaboration. The IAEA has themandate to assist this development to accelerateand enlarge the contribution of atomic energytowards peace, health, and prosperity through thefacilitation of the ITER process and theencouragement of scientific and technicalcollaboration among its member states.

ConclusionWhat we have in the JET and ITER are examplesof energy collaborations working across politicalboundaries to achieve a common goal through theexchange of information and support by way ofmonetary, technological, and human resources.Such energy collaborations work towards globaland regional goals of energy security and help ingiving the region a balanced growth by uniformlydistributing the responsibilities and the beneficialoutcome of such ventures. As a ‘fusion of nationalinterests’ and improvement in foreign relationstake place, the working relationship establishedbetween ITER and JET member countries canhelp in aiding closer cooperation between

countries in other areas like poverty eradication,the fight against terrorism, and disastermanagement. These energy collaborations thushelp in contributing to the larger fabric of worldpeace and security.

ReferencesGreen B J. 2006The European Fusion Research and DevelopmentProgramme and the ITER ProjectJournal of Physics 44: 1–9Details available at <http://www.iop.org/EJ/article/1742-6596/44/1/001/jpconf6_44_001.pdf?request-id=28f5e571-baa8-41c5-b6a1-dbe1b1bd1b57>, last accessed on 12 July 2008

Mank G and Burkart W. 2006Controlled Nuclear Fusion: ITER, the first step towards anew energy source, nuclear energyTouch Briefings – Nuclear Energy 2006Details available at <http://www.touchbriefings.com/pdf/2178/Mank.pdf>, last accessed on 11 July 2008

Smith C L. 2004Clean Energy and the Fast Track to Fusion PowerProceedings of European Particle Accelerator Conference,Switzerland. 5–9 July 2004, organized by the Lucerne CongressCentre, SwitzerlandDetails available at <http://accelconf.web.cern.ch/accelconf/e04/papers/frybch01.pdf>, last accessed on 11 July 2008.

Stankovij J. 2006Energy of the Future—Nuclear Fusion: safe and sufficientPaper presented at the French-Serbian European SummerUniversity: renewable energy sources and environment-multidisciplinary aspectDetails available at <http://energy-environment.vin.bg.ac.yu/proceedings/162020185-18820str.20Stankovic 20B5.pdf>, lastaccessed on 13 July 2008.

US DoE (Department of Energy). 2008FY2009 Congressional BudgetDetails available at <http://www.er.doe.gov/obp/FY_09_Budget/FES.pdf>, last accessed on 11 July 2008



CeRES (Centre for Research on Energy Security) was set up on 31 May 2005. The objective of the Centre is to conduct research and

provide analysis, information, and direction on issues related to energy security in India. It aims to track global energy demands,

supply, prices, and technological research/breakthroughs – both in the present and for the future – and analyse their implications for

global as well as India’s energy security, and in relation to the energy needs of the poor. Its mission is also to engage in international,

regional, and national dialogues on energy security issues, form strategic partnerships with various countries, and take initiatives that

would be in India’s and the region’s long-term energy interest. Energy Security Insights is a quarterly bulletin of CeRES that seeks to

establish a multistakeholder dialogue on these issues.

Previous issues of this newsletter are available at <http://www.teriin.org/div_inside.php?id=41&m=3>.

Steering CommitteeChairmanDr Vijay Kelkar, Chairman, XIII Finance Commission

Members

P Mr Talmiz Ahmad, Ambassador to UAE

P Mr Mukesh D Ambani, Chairman and Managing Director, Reliance Industries Ltd

P Mr R K Batra, Distinguished Fellow, TERI

P Mr Suman Bery, Director General, National Council of Applied Economic Research

P Ms Preety Bhandari, Coordinator, Financial and Technical Support Programme, United Nations Framework Convention on

Climate Change

P Mr Satish Chandra, Former Deputy to the National Security Adviser, National Security Council

P Mr Raj Chengappa, Managing Editor, India Today

P Mr Shekhar Dasgupta, Distinguished Fellow, TERI

P Dr Prodipto Ghosh, Distinguished Fellow, TERI

P Mr V Subramanian, Former Secretary, Ministry of New and Renewable Energy (earlier Ministry of Non-conventional Energy

Sources), Government of India

P Mr R S Sharma, Chairman and Managing Director, Oil and Natural Gas Corporation Ltd

P Mr T Sankaralingam, Chairman and Managing Director, National Thermal Power Corporation Ltd

P Dr Shreyans Kumar Jain, Chairman and Managing Director, Nuclear Power Corporation of India Ltd

P Dr Anil Kakodkar, Chairman, Atomic Energy Commission

P Mr Vikram Singh Mehta, Chairman, Shell Group of Companies in India

P Prof. C Rajamohan, Rajaratnam School of International Studies, Nanyang Technological University, Singapore

P Prof. Indira Rajaraman, RBI Chair Professor, National Institute of Public Finance and Policy, and Member, XIII Finance Commission

P Mr R V Shahi, Former Secretary, Ministry of Power, Government of India

P Dr Leena Srivastava, Executive Director, TERI

P Mr S Sundar, NTPC Professor in Regulatory Studies, TERI University and Distinguished Fellow, TERI

Centre for Research on Energy Security

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