Asia Clean Energy Forum 2011

India: Energy Saving Certificates for Industrial Energy Efficiency

Balawant Joshi, Director ABPS Infrastructure Advisory balawant@gmail.com, balawant.joshi@abpsinfra.com

Indias response to Climate Change

Honorable Prime Minister of India unveiled National Action Plan on Climate Change (NAPCC) on June 30, 2008. NAPCC identifies measures that promote Indias development objectives while also yielding co-benefits for addressing climate change effectively. NAPCC is comprised of eight core national missions running through 2017 and will help in bringing better planning, management and developmental strategies and cleaner technologies Increased attention towards energy efficiency at a policy level is visible with National Mission on Enhanced Energy Efficiency (NMEEE) as one of the missions under NAPCC

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National Mission on Enhanced Energy Efficiency

The basic tenet of the mission is to ensure a sustainable growth by an appropriate mix of 4 Es namely- Energy, Efficiency, Equity and Environment. Promote development objectives, while also yielding co-benefits for addressing climate change effects. By 2014-15 NMEEE to ensure,
Annual fuel savings in excess of 23 million toe Cumulative avoided electricity capacity addition of 19,000 MW

CO2 emission mitigation of 98 million tons per year

NMEEE is expected to create a regulatory and policy regime to foster innovative and sustainable business models to unlock the market for energy efficiency which is estimated to be around Rs. 74,000 crores (USD 15 billion).

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Action Plan Under NMEEE

Action plan under the National Mission for Enhanced Energy Efficiency seeks to implement four major initiatives.
A market based mechanism to enhance cost effective EE improvements in energy-intensive industries and facilities, through Tradable Energy Savings Certificates. (Perform Achieve and Trade(PAT)) Accelerating the shift to energy efficient appliances through innovative measures to make the products more affordable. (Market Transformation for Energy Efficiency)

Creation of mechanisms that would help finance DSM programmes in all sectors by capturing future energy savings. (Energy Efficiency Financing Platform (EEFP))
Developing fiscal instruments to promote energy efficiency namely Framework for Energy Efficient Economic Development (FEEED)

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Why PAT Scheme?

Energy consumption by industry is significantly higher as compared to its contribution to GDP.

Sector Industry Agri, AH & Fisheries Commercial & Services Household & Others

% Energy Consumption 40 7 43 10

% Contribution to GDP 27 19 54 Source : Energy Conservation Guide, PCRA

If India has to reduce CO2 intensity, energy intensity of economy has to reduce. Given its characteristic, industry is low lying fruit.
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Energy Scenario in Industrial Sector

The energy intensity i.e. energy consumed per unit of GDP for industrial sector has declined by about 1.5% per annum during 2004-05 to 2008-09 although the ratio of energy intensity in industry to agriculture & service sector hovers around 4.0 4.4
Particulars Industry GDP (in Rs. Crore) Commercial energy consumption in Industry (in mtoe) Energy Intensity of industry sector (mtoe per Billion Rs. GDP) Ratio energy intensity: industry vs. agriculture and service sector 2004-05 468,451 152.8 0.0326 4 2005-06 506,519 164.7 0.0325 4.3 2006-07 560,775 174.3 0.03102 4.2 2007-08 602,032 181.4 0.03019 4.3 2008-09 617,882 186.3 0.03015 4.4

Note: GDP at factor cost at constant (1999-2000) prices (in Rs. Crore) Source: Green rating Project, 2009, Centre for Science and Environment, New Delhi

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Why Scheme for Industrial Energy Efficiency?

Energy tariffs to industry in India are very high due to cross-subsidies Competition drives industrial energy efficiency, but Industry is risk averse to take up early adoption of new technologies In developing countries, where new-plant addition rates are high,
Capacity expansion is more profitable than EE investment Financially depreciated plants which are older and less efficient can

compete with newer plants which have to be more efficient

It is necessary to have Compliance scheme to incentivise industry to undertake energy efficiency measures

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Energy Efficiency Legislation in India

The Energy Conservation Act, 2001, overcomes some market barriers by enabling:
Setting of minimum energy standards for, and affixing energy consumption labels on appliances and equipment and promulgation of Energy Conservation Building Codes Energy use monitoring, verification and reporting by large energy users, and the establishment of energy consumption norms for these consumers and creation of cadre of Energy Management professionals in the country

EC Act, provides a legal mandate for energy-efficiency regulations for industry Identifies 15 sectors as energy intensive industries & establishment

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PAT Legal Framework (1/2)

Amendment to The Energy Conservation Act 2001 vide The Energy Conservation (Amendment) Act 2010 enacted on August 24, 2010 has put

in place legaa framework necessary for implementation of PAT Scheme.

Furnish report of energy consumption to the Designated Authority of the State as well as to BEE (section 14(k)). Designate or appoint an Energy Manager who will be in-charge of submission of annual energy consumption returns to the Designated Agencies and BEE (section 14 (l)). Comply with the energy conservation norms and standards prescribed under section 14 (g) of the Act.

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PAT Legal Framework (2/2)

Purchase ESCerts for compliance under section 14 (g) in the event of default.

The Act has been amended to enable this and section 14A(2) allows such
trading. EScerts are defined by adding a new sub-section 2(ma). Monitoring and Verification of compliance by Designated Energy Auditors (DENA) under section 14A/13 (p) of the Act. Excess achievement would entail issuance of ESCerts under section 14A(1). Penalty for non-compliance being Rs. 10 lakhs and the value of noncompliance measured in terms of the market value of tones of oil equivalent by inserting a new section 26(1A). BEE to be the overall regulator and dispute resolution agency and Energy Efficiency Service Ltd. (EESL) to be the process manager.
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Overview of PAT Mechanism

Market Based Mechanism Reward over achiever Penalize under performer

Set Targets
Setting targets on the basis of current specific energy consumption Set compliance period May take into account Location, Vintage, Technology, raw materials, product mix etc.

Administrator
Set target and compliance period 8 sectors Thermal Power Plant, Steel, Cement, Fertilizer, Pulp & Paper, Textile, Aluminium, Chloralkali Independent Monitor, verify and certify Transaction of energy efficiency instrument ABPS Infrastructure Advisory Private Limited
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Designated Consumers

Monitoring & verification of targets by Designated Energy Auditors (DENA)

Check if designated consumer has achieved targets Underachievement: Obligations to buy ESCerts or pay penalty Overachievement: Issuance of ESCerts for banking for later use or trade

Auditing Agencies

Trading of ESCerts
Participation by Designated consumers on platform provided by Power Exchanges Symmetrical flow of information

Market Place

Designated Consumers in PAT Scheme

On 12th March 2007, Government of India notified minimum energy
consumption for following nine industrial sectors and notified the industries qualifying these criteria as designated consumers. Specific Energy Consumption (SEC) reduction targets for 563 energyintensive units which are Designated Consumers under EC Act, 2001
Targets would be percentage reduction of current SEC Percentage reduction requirement based on Current SEC as a ratio of the best in

the sector and fuel mix

SEC measurement and verification by BEE through accredited auditors

Issuance of Energy Savings Certificates (ESCerts) to those designated consumers who exceed their target SEC reduction Trading of ESCerts among designated consumers and for Compliance
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Distribution of of Designated Consumers

Industry Sector Annual Energy Consumption Norm to be DC (mtoe)
7500 30000

No. of Identified DCs

Aluminum Cement

11 83

Chlor-Alkali
Fertilizer Pulp & Paper Power Iron & Steel

12000
30000 30000 30000 30000

20
23 51 146 101

Textiles

3000

128

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Share of DCs in Energy Consumption

Energy Consumption (MToE)Share Among DCs
Power (Thermal) Integrated Steel Cement Fertilizer Sponge Iron Textile Aluminium Paper Chlor-Alkali

4% 6.2% 5.1%

2%

0.6% 1%

0.18%

11.65%

69.23%

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Estimated Energy Consumption of DCs

Sector Power (Thermal) Integrated Steel Cement Fertilizer Textile Aluminium Paper Chlor-Alkali TOTAL Sector MTOE 104.1 28.0 11.87 7.86 1.62 7.73 2.09 1.06 164.15 MTOE

About 55% of DCs Contribute 96% of Total Consumption

About 45% of DCs contribute rest 4% of Total Consumption

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Target in PAT
Target is defined as the % reduction of Specific Energy Consumption (SEC) from Baseline value.
All forms of Energy

Plant System Boundary SEC = E / P

Product

S E C

Baseline SEC

Reduction in SEC Target SEC

Expressed in %

Y1

Y2

Y3
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Range of SEC
Sector Power plant Fertilizer Cement Range of SEC 2300 3400 5.86 9.11 665 900 kcal / kwh Gcal/T of Urea

Kcal/Kg of Clinker (Thermal) KWH/ T (Elect)

66 127 Integrated Steel Sponge Iron

6.15 8.18 Gcal / tcs 4.4 7.6 Gcal / T (Thermal) 72 135 KWH/T (Elect)

Aluminium (Smelter) Aluminium (Refinery) Pulp & Paper Textile

15875 17083 KWH/T 3.28 4.12 MKcal / T of Alumina 25.3 121 GJ/T 3000 16100 Kcal/kg (Thermal) 0.25 10 KWH/Kg (Elect)

Chlor-AlkaliInfrastructure Advisory Private Limited ABPS

2300 2600 kwh/ T Practical Solutionssoda Life Problems of caustic to Real

Process Flow for PAT Scheme

2 Target setting 7 Annual Redemption of ESCerts Information Exchange (compliance reports) 8 Decide & Levy penalty Designated Consumers (DC) 1 Identify DCs 4 Monitoring, verification & reporting to administrator Designated Energy Auditor (DENA) State Designated Agency 9 Appointment & empanelment Energy Auditors Information Exchange (instruction to monitor transactions) Scheme Administrator

6 ESCerts Trading 3 Obligations Trading

5 Issue ESCerts

Registry/ Depository

Power Exchange

Information Exchange (trade data)

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Proposed Institutional Design

BEE Market Regulator & Administrator
Any Baselines Improvement Levy Penalties in case of default Apply for Empanelment E-filing PAD Information Apply for ESCerts through PAT Assessment Document (PAD) Issuance of EScerts

MoP
Updated list of DCs and DENA

Audited Result of DCs

SDA

Regular updates

DENA

Audit

Designated Consumers (DCs)

Regular Checks & Levy Penalties in case of defaults ESCerts Trading Updated ESCerts Account Info Updated Obligation of DCs: Deficit or Surplus

Central Registry
Settlement Details

Trading Exchange

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Roles of institutions
Sr No Institution Ministry of Power Role Issue necessary notifications in consultation with BEE Reduce conflict of Interest; Accredit DENA Maintain centralized data administration; strong quality assurance Maintain compliance with set energy efficiency benchmark Responsibility

1 2 3

Bureau of Energy Efficiency Market Regulator and (BEE) Administrator Energy Efficiency Services Limited Process Manager, appoint accredited 3rd party energy auditors Undertake energy efficiency measures;

Designated Consumer

5 6 7

Trading Platforms

Maintain data of traded prices, traded volumes and trends. Monitor Designated Consumers in the State and levy penalty

Create efficient and transparent market for trading

State Designated Agencies

Designated Energy Auditors Verification of specific energy consumption ABPS Infrastructure Advisory Private Limited

Audit industry energy savings

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Key Challenges in PAT Scheme

Legal Framework Reasonability of targets Allowances Vs Credits Ex-Ante Vs Ex-Post Proposed Trading Mechanism Monitoring and Reporting Verification & Issuance Compliance Mechanism Next phases - banking Fungibility with other MBIs
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