As India's economy accelerates, so does the quest for energy to keep its growth humming. The country's consumption of coal, oil, natural gas, and electricity is projected to rise by nearly 40 percent over the next five years and almost to double by 2020. Already, surging energy demand is outstripping supply (Exhibit 1), raising hard questions about how India will cope in the future. Electricity is such a chronic problem that manufacturers endure an average of 17 major power disruptions every month, according to the World Bank. Despite vast coal reserves, domestic production has lagged behind demand for ten years, and the shortfall is growing. What's more, India imports 70 percent of its petroleum, exposing it to wild swings in world energy prices and pitting it against China and other countries keen to buy hydrocarbon reserves.

India has taken important steps to increase the availability of affordable energy. A reform of the electricity sector, begun in 2001, recapitalized bankrupt state electricity boards and liberalized the generation of power. The country stepped up its efforts to secure oil and natural gas by investing in fields from Russia to Sudan as well as by encouraging private investment in domestic exploration. It is...