Energy sector and energy security

The first principle

Energy is an input to almost every other good, so its price and its reliability set the cost of everything an economy makes. The International Energy Agency defines energy security as the uninterrupted availability of energy at an affordable price, and the definition has two halves that pull against each other: a country can buy security by holding expensive stocks or paying for its own costlier fuels, or buy cheapness by importing and accepting the risk. India balances the two while moving away from fossil fuels, which changes which resources count as strategic.

The core

The energy mix

• Primary energy is still mostly coal. Of India's total primary energy supply of about 9.33 lakh kilotonnes of oil equivalent in 2024-25, coal and lignite supplied about 5.52 lakh, which is 59 per cent; crude oil and natural gas make up most of the rest (Ministry of Statistics and Programme Implementation, MoSPI, Energy Statistics India 2026).
• Electricity capacity is now mostly clean. India's installed power capacity was about 552 gigawatts (GW) on 31 July 2026, of which non fossil sources made up 300.5 GW: solar about 164.6, wind about 58.1, hydro about 57.2, bioenergy about 11.8 and nuclear about 8.8 (Ministry of New and Renewable Energy, MNRE). Coal and lignite plants still had about 231 GW (Central Electricity Authority, CEA, June 2026).
• Capacity is not generation. A solar plant produces about a fifth of its rated output over a year and a coal plant can run most of the time, so coal still generates roughly three quarters of India's electricity even with well under half of the capacity. Peak demand met first passed 250 GW on 30 May 2024 (Ministry of Power), which is still less than half the installed capacity, mainly because solar and wind are not available at full rating when the peak comes.

The power chain and the distribution company

• Four links, one law. The Electricity Act, 2003 freed generation from licensing, kept transmission and distribution licensed, allowed large consumers open access to buy from any seller, and set up regulatory commissions at the Centre and in each State.
• The distribution company is the weak link. Distribution companies (discoms), mostly owned by States, buy power from generators and sell it to consumers at tariffs fixed by State regulators. Farmers and many households pay less than cost, industry and commerce pay more to make up the difference, which is called cross subsidy, and the State is meant to pay the rest as subsidy. When it pays late or not at all, the discom pays generators late, and the shortfall travels up the chain.
• Two numbers measure the damage. The aggregate technical and commercial (AT&C) loss is the share of power bought for which no money comes back, whether lost in wires, stolen, unbilled or billed and not collected: AT&C loss = 1 − (billing efficiency × collection efficiency). The gap between the average cost of supply (ACS) and the average revenue realised (ARR) per unit shows whether each unit sold makes or loses money.

• Worked example. A discom buys 100 units; 88 reach a bill, so billing efficiency is 0.88, and 96.6 per cent of the money billed is collected. It is paid for 88 × 0.966 = 85.0 units, so its AT&C loss is 1 − 0.850 = 15.0 per cent. If supplying each unit bought costs Rs 7.50 and it realises Rs 7.20, it loses Rs 0.30 on every unit, which on 1,000 crore units a year is Rs 300 crore.

Fuels: coal, oil and gas

• Coal is domestic but not always cheap to move. India produced 1,047.5 million tonnes of coal in 2024-25 (Ministry of Coal), mostly from Coal India in Jharkhand, Odisha and Chhattisgarh, and since 2020 the Centre auctions blocks for commercial mining by any company, not only for a buyer's own plant. It still imports coking coal for steel and high grade coal for some coastal plants.
• Oil and gas are imported. India imported 88.2 per cent of its crude oil requirement in 2024-25 (Petroleum Planning and Analysis Cell), while domestic crude output fell from 34.2 million tonnes in 2018-19 to under 29 million tonnes in 2024-25; nearly half of the natural gas it uses is imported as liquefied natural gas (PRS Legislative Research, 2026).
• Stocks buy time. The Indian Strategic Petroleum Reserves Limited holds underground caverns of 5.33 million tonnes at Visakhapatnam, Mangaluru and Padur, which when full cover about nine and a half days of India's crude needs, a cushion of days, not months.

Dimensions

• Macroeconomic. Crude oil is India's largest import, so a rise in oil prices widens the current account deficit, weakens the rupee and feeds inflation together.
• Fiscal. Discom losses end on State budgets through subsidies, bailouts and guarantees; the Ujwal DISCOM Assurance Yojana (UDAY) of 2015 made States take over three quarters of discom debt, and the losses grew back because tariffs and collection did not change.
• Strategic. Supply passes through a few sea lanes and a few exporters, and the new strategic resources are minerals refined mostly in China, so energy security now includes lithium, cobalt, graphite and rare earths as much as crude oil.
• Environmental. Coal is the largest source of India's carbon dioxide and of particulate pollution near plants, and India's climate pledges, including half of installed capacity from non fossil sources by 2030, which it has met, steer investment towards renewables; the targets are in the note on India's climate action.
• Social and regional. Coal districts in Jharkhand, Chhattisgarh and Odisha depend on mining for jobs and royalties, so closing mines needs a plan for those workers and States: a just transition.

In practice

• Distribution reform. The Revamped Distribution Sector Scheme (RDSS) of 2021, with an outlay of about Rs 3.04 lakh crore, pays for prepaid smart meters and loss reduction, but only to discoms that meet loss and gap targets. The Late Payment Surcharge Rules, 2022 allow supply to be cut to a discom that does not pay its generators. National AT&C losses fell from 22.62 per cent in 2013-14 to 15.04 per cent in 2024-25, and discoms together made a profit after tax of Rs 2,701 crore in 2024-25 after a loss of Rs 25,553 crore the year before (Ministry of Power, January 2026).
• The draft law. The Ministry of Power released a draft Electricity (Amendment) Bill for comment in October 2025 that would let more than one discom supply through the same network, require tariffs to reflect cost and remove the cross subsidy paid by manufacturing industry, railways and metro rail within five years, and set up an Electricity Council of the Union and State power ministers.
• Critical minerals. The Ministry of Mines named 30 critical minerals in 2023; the Mines and Minerals (Development and Regulation) Amendment Act, 2023 let the Centre auction 24 of them and removed lithium and five others from the atomic minerals list. The National Critical Mineral Mission, approved in January 2025, has an outlay of Rs 34,300 crore over seven years (Rs 16,300 crore from the Union and Rs 18,000 crore from public sector companies) for exploration at home and offshore, processing, recycling and assets abroad through Khanij Bidesh India Limited (KABIL). A scheme of Rs 1,500 crore for recycling critical minerals followed in September 2025, and a scheme of Rs 7,280 crore for making sintered rare earth permanent magnets in India in November 2025.

Issues and way forward

• Discoms lose money by design. Tariffs are set below cost for farms and homes for political reasons, and the State subsidy that should fill the gap arrives late; direct transfer of the subsidy to farmers, separate feeders for agriculture, smart prepaid meters and independent regulators who revise tariffs every year are the remedies, and the draft amendment bill aims at the last two.
• Variable power, fixed costs. Solar peaks at noon and demand after sunset, so coal plants must ramp up and down and renewable power is curtailed when lines are full; storage, time of day tariffs, pumped hydro and more inter State transmission let clean capacity actually replace coal.
• Import exposure. Diverse suppliers, larger and fuller reserves, domestic exploration and electric transport can reduce, not remove, oil import dependence.
• Refining is the chokepoint for minerals. China refines most of the world's lithium, cobalt, graphite and rare earths, so owning a mine abroad still leaves India dependent on Chinese refineries; the mission's processing parks, the magnet scheme and partnerships such as the Minerals Security Partnership, which India joined in 2023, aim at the middle of the chain.
• A just transition. Closing mines and plants must come with retraining, land reuse and new industry, and with a slower path where the grid still needs coal for stability.

Common confusions

• Installed capacity and generation. Capacity is the rating of plants in gigawatts, generation the energy they deliver in a year in units (kilowatt hours); India's non fossil share of capacity is above half, while its share of generation is far lower.
• Energy security and energy independence. Security means reliable and affordable supply, which can come from diverse imports and stocks; independence means producing everything at home, which may be neither cheap nor possible.
• AT&C loss and transmission and distribution loss. Transmission and distribution loss counts only power lost or stolen before billing, while AT&C loss also counts power billed but not paid for.
• Critical and strategic minerals. Critical minerals are those an economy needs and whose supply can be cut; strategic minerals matter for defence and security, and the 2023 amendment grouped both in one part of the mining law.

For the exam

• Keyword bank: energy security, energy mix, installed capacity, peak demand, distribution company, AT&C loss, ACS–ARR gap, cross subsidy, Revamped Distribution Sector Scheme, import dependence, strategic petroleum reserve, commercial coal mining, critical minerals, National Critical Mineral Mission, just transition.
• Previous year questions: Practise the previous year questions on this topic →
• Use in an answer:
  • Introduction with data: India imported 88.2 per cent of its crude oil requirement in 2024-25 (Petroleum Planning and Analysis Cell), even as non fossil sources passed half of its installed power capacity, about 300 GW out of 552 GW in July 2026 (MNRE).
  • Introduction with a law: The Electricity Act, 2003 freed generation from licensing and created independent regulators, yet the distribution companies it left with the States remain the weakest link in India's power chain.
  • Conclusion: India has solved the problem of adding cheap clean capacity; its energy security now depends on solvent discoms, a grid that can absorb variable power, and access to refined critical minerals.
  • Conclusion: Energy security for India is a portfolio, not a single source: domestic coal for stability, renewables for price and climate, diverse imports and stocks for oil, and processing at home for minerals.