1 Co-Benefits EE

8/3/2019 1 Co-Benefits EE

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March, 2010

Joint policy research on co-benefits in tackling

climate change and improving energy efficiency

in India Preliminary Report

Prepared for

The Institute for Global Environmental Strategies (IGES), Japan

w w w . t e r i i n . o r g The Energy and Resources Institute


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Table of Contents

1. Introduction pg.3

2. Background to Co-benefits and EE pg.3

3. Review of National Policy Instruments pg.4

3.1. Perform Achieve and Trade (PAT) Scheme pg.4

3.2. Market Transformation for Energy Efficiency (MTEE) pg.5

3.3. Energy Efficiency Financing Platform (EEFP) pg.6

3.4. Framework for Energy-Efficient Economic Development (FEEED) pg.6

4. CDM Portfolio Review pg.8

4.1. Global and India CDM overview pg.8

4.2. EE CDM project analysis pg.9

4.3. CDM project trend analysis pg.12

4.4. Investment Analysis pg.14

4.5. Overview of Indian project categories pg.15

5. Barriers to Investment Pg.18

5.1. Design Aspects of the CDM Pg.18

5.2. Financial Barriers Pg.18

5.3. Limited technological expertise Pg. 19

5.4. Dispersed nature of the end-user Pg.19

6. Detailed Case Studies Pg.20

6.1. Case Study 1 Pg.20

6.2. Case Study 2 Pg.22

7. Policy Recommendations Pg.25

7.1. Potential Avenues of Future Research Pg.26

8. References: Pg.27


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1. Introduction

It is well accepted that all nations face a daunting task in balancing their domesticpriorities and addressing the challenges posed by climate change. This is especially sofor developing nations who face a greater challenge to do so in a way that does notcompromise on their economic development. There is however an opportunity to jointly

address several of the main development drivers that nations face, as well as achievingthe mitigation of greenhouse gases (GHG). This focus on such co-benefits isincreasingly becoming a crucial avenue of enabling successful GHG mitigationstrategies that do not compromise on national economic development plans.

This report will focus on the specific co-benefit aspects of GHG mitigation and improvingenergy efficiency (EE) in India, and area of significant and increasing national andinternational priority. It will provide an overview of the existing EE improvement policieswithin India, highlight recent trends in Clean Development Mechanism (CDM) investmentin India in addition to assessing specific CDM case studies, and ultimately makerecommendations towards areas of future research that would expedite and enhance EEand GHG mitigations opportunities in India.

2. Background to Co-benefits and EE

The UNFCCC (2007) estimates that mitigation measures require increase in the globalinvestments and financial flows of the scale of USD 200-210 billion per annum in 2030.UNFCCC (2008) further emphasizes that the current levels of financing will beinsufficient. Unavailability of sufficient financial resources is often seen as a hindrance toundertake mitigation actions in developing countries given their overridingdevelopmental priorities. IPCC, 2007 points out that there are however, multiple drivers(economic security, other environmental concerns, energy security, industrialdevelopment, biodiversity conservation etc.) for actions that (explicitly or implicitly)

reduce emissions and such actions also produce multiple benefits (health, employment,air quality, costs savings etc.). Such additional benefits are termed co-benefits.Literature reveals that co-benefits if quantified or monetized can make up for substantialcosts of mitigation action/policies. Thus, there is a need to asses, quantify/monetize co-benefits of climate change mitigation actions/policies and integrate them into devisingpolicies (TERI 2010).

The Government of India (GoI) is well aware of the enormous potential that exists ofadopting a co-benefits approach. Especially in the area of EE given the prominence thatenhanced energy efficiency has in the announced National Action Plan on ClimateChange (NAPCC). India being one the main participants within the CDM has alsoidentified it as a major vehicle for driving such co-benefits in addressing national energy

demand priorities while at the same time mitigating GHGs. A greater incorporation of EEprojects within the CDM as well as avenues to increase foreign investment and supportfor such measures is significant both nationally and internationally.


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3. Review of National Policy Instruments

The GoIs NAPCC, being the main document in which the nations climate changeagenda is set, has identified eight national missions in order to achieve its climatechange objectives. The proposed National Mission on Enhanced Energy Efficiency(NMEEE) aims at targeting and adopting measures in tune with the development

objectives of the nation pertaining to the growing energy demand and simultaneouslygenerating benefits to mitigate the perils of climate change. The mission seeks toachieve sustainable development by maintaining a delicate balance of the four Esnamely- Energy, Efficiency, Equity and Environment (BEE 2008). The Bureau of EnergyEfficiency (BEE) is primarily tasked to aid and advise in developing policies andstrategies for the missions in order to achieve the required energy efficiency throughvarious mechanisms including market based approaches. The responsibility tooperationalise the mission lies both with the Ministry of Power (MoP) and the BEE.

The NMEEE specifically makes reference to the co-benefits of addressing EE prioritieswhich relate to energy conservation and energy security, and the corollary that this hason GHG mitigation. To this effect, several implementation strategies have been planned

in order to achieve a saving of 10,000 MW by the end of the 11 th Five year plan in 2012(GoI 2008).These are:

1. The Perform Achieve and Trade (PAT) energy certificate trading scheme.2. The Market Transformation for Energy Efficiency (MTEE)3. The Energy Efficiency Financing Platform (EEFP)4. Framework for Energy-Efficient Economic Development (FEEED)

A brief overview of each will be provided, highlighting the key design features, majorchallenges and proposed implementation pathways.

3.1. Perform Achieve and Trade (PAT) Scheme

The PAT is a mechanism designed to achieve the required energy efficiency in energy-intensive large industries and facilities through certification of energy savings andpossible trading of these certificates. Energy consumption norms and standards are setby the BEE for large energy intensive industries. Specific high energy intensive firms andfacilities are identified as Designated Consumers (DCs) within certain key sectors, whoare required to appoint an energy manager, file energy consumption returns every yearand conduct mandatory energy audits regularly. The key tasks in the PAT mechanism isto set the methodology for deciding the Specific Energy Consumption (SEC) norms foreach designated consumers in the baseline year and in the targeted years, devise theverification process for SEC, finding ways of issuing the Energy Savings Certificates,

suggesting the trading process for ESCerts in addition to the compliance andreconciliation process for ESCerts and offer solutions for cross sectoral use of ESCertsas well as their synergy with Renewable Energy Certificates (BEE 2008).

Energy improvement targets are set for multi year period through specificmethodologies. For thermal power plants and fertiliser plants, the energy efficiencyimprovement targets are aligned with their tariff setting process. IN order to set targetsfor future reductions in the SEC, a detailed baseline survey is required. BEE has


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undertaken a study in this regard in consultation with the administrative ministries,departments, agencies and the industry associations (BEE 2008).

The trading mechanisms for ESCerts involve trading of these certificates with otherdesignated consumers who are unable to meet their target-specific energy consumptionby their own actions or banking of these certificates for own use in future. The trading

can happen bilaterally between any two designated consumers (within or across thedesignated sectors) or on special platforms for their trading which can be created. Thereis also a possibility of exchange of ESCerts with renewable energy certificates (RECs).The possible conflict between the PAT and Clean Development Mechanism (CDM) isalso visualised by the Ministry and has been identified as an area which would requirefurther detailed scrutiny (BEE 2008).

Proposed Energy Efficiency Services Limited (EESL), a joint Venture of Public SectorUndertakings under MoP which deals exclusively with the implementation of energyefficiency projects, is assigned all works related to the PAT other than the regulatory partof setting ESCerts and dispute resolution (BEE 2008).

3.2. Market Transformation for Energy Efficiency (MTEE)

A major barrier in adopting energy efficient products and technologies is the higher initialcost associated with such products. This first cost bias could be overcome throughmechanisms like CDM which could help users of the energy efficient products andtechnologies to enjoy additional financial benefits. However the process of accruingCDM benefits also involves high transaction costs limiting their access for small and/ormedium sized projects i.e. most of the EE/DSM projects. This bias could be extenuatedwith the current thrust on DSM by the government, both as a part of the XI five year planas well as the focus on the NMEEE. There have been considerable efforts undertaken tominimise the transaction costs involved in the process of accruing CDM benefits. One

such instance is the initiative taken in the form of Programmes of Activities (PoA) inCDM where small DSM projects are aggregated under an umbrella to reduce thetransaction cost. BEE also has undertaken similar Programmes of Activities (PoA) forefficient lighting in domestic sector (Bachat Lamp Yojana). Other such initiatives areMunicipal DSM (Mu DSM), Agriculture DSM (Ag DSM), SME Sector, CommercialBuildings sector and Distribution Transformers where Programmes of Activities arebeing undertaken in a gradual manner. Engagement of public sector is also consideredvital for aggregation of projects in order to minimise the transaction costs associated withthe CDM projects. There must be an efficient and transparent regulatory frameworkwhich will help in accruing the benefits flowing from the CDM mechanisms to the smalland dispersed energy efficiency projects. In order to reap the CDM benefits in the powerand energy efficiency sector, five broad categories of projects are identified to develop

PoA. These projects seek to enhance the energy efficiency through various means likerenovation/retrofit, replacement, green-field, fuel switch and captive generation.Leveraging CDM benefits to overcome the first cost bias associated with the energyefficiency products and technologies is not without its limitations. The CDM market inIndia is characterised by a number of issues such as a lack of carbon market,uncertainty associated with the carbon market in post 2012 regime, lack of concertedstrategy, lack of methodologies, lack of incentives in the public sector, additionality andtraceability issue, absence of financial sector and a lack of designated operationalentities. A CDM Road Map is suggested to be adopted and issued from March 2010.


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The Road Map aims at increasing the global CER market share by at least 10 % duringthe first commitment period. In order to lower the transaction costs, the MTEE wouldadvocate that PoA must be put in place to enable aggregation of small projects withdispersed nature and reap the CDM benefits (BEE 2008).

3.3. Energy Efficiency Financing Platform (EEFP)

The Energy Efficiency Financing Platform (EEFP) primarily seeks to gather financialarrangements for energy efficiency projects on a reasonable and long-term basis. Theaim is to expand the financing platform for such projects by incorporating a variety offinancial institutions and public and private sector banks. It also seeks to generatedemand for energy efficient products, goods and services through enhancing theawareness, public policy, and through facilitation by preparation of bankable projectsand markets. The EEFP also promotes ESCOs (Energy Service Company) and alsoaims to set credible monitoring and verification protocols to capture energy savings (BEE2008).

Development of ESCOs based energy markets require appropriate policy interventions,implementation of demonstration projects, developing and standardising sustainablecontractual and legal documents and putting in place a sound financial mechanism. BEEhas taken some effort in this direction by implementing some demonstration projects inGovernment buildings in order to promote market development. It also helped indeveloping a Government supported standard methodology. Setting a standardperformance contract, arranging a financial mechanism for project funding, facilitatingthe capacity building ESCOs and project owners are also being developed by the BEE(BEE 2008).

The major challenge for financing of energy efficient projects are identifying the keybarriers for financing, designing of appropriate policy interventions to address such

barriers, standardising performance contracts and building up of capacities of banks andfinancial institutions. Financing barriers consist of insufficient access to project financingby the ESCOs due to poor balance sheets of the ESCOs, lack of collateral assetspossessed by ESCOs and/or the hesitation on part of the banks for comprehensive orlong term lending for energy efficiency projects. High transaction costs associated withthe small energy efficiency projects act as a major hindrance for the development ofsuch projects. Lack of awareness and existing information asymmetries among financialinstitutions and banks also cause hardships for these energy efficiency projects to getthe required financial support from banks. Both consumers and financial institutions haveinsufficient knowledge about the financial options and benefits of energy savings.Institutional barriers in terms of not adequately recognising energy efficiency as animportant domain for financing also act as a roadblock for the greater financing and

adoption of energy efficiency projects (BEE 2008).

3.4. Framework for Energy-Efficient Economic Development (FEEED)

In order to create a well functioning energy efficiency market, it is advantageous to havesound and suitable fiscal instruments in place. The FEEED mechanism upholds theneed and support of a set of critical fiscal financial parameters to accelerate thetransition to an energy efficient market. Such provisions consists of several parameters


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such as provision of a risk guarantee for performance contracts, provision of venturecapital funding, encouragement of energy efficiency in public procurement based on lifecycle cost analysis, the need for regulatory incentives by Electricity RegulatoryCommissions for DSM projects and provision of other fiscal incentives in terms of taxand duty concessions to attract investment (BEE 2008).

The financial arrangement of partial risk guarantee fund (PRGF) is a risk sharingmechanism which offers to commercial banks to partially cover their risks against loanssanctioned for energy efficiency projects to cover up risk perceptions associated with thelending for new technologies and new business models. This risk coverage is in additionto the support provided by the Credit Guarantee Trust of India (BEE 2008).

Venture capital for energy efficiency (VCFEE), another financial support mechanismprovided by the government provides an equity base for energy efficiency projects. Thishelps ESCOs in providing capital availability and secures lending from financialinstitutions (BEE 2008).

Central Public Sector Undertakings (CPSUs) are suggested to have a pertinent role in

accelerating the development of the energy efficient projects and support thedevelopment of these projects in order to achieve the required market transformation.CPSUs are suggested to take up energy efficiency projects on their own facilities. Thesuggested guidelines consist of procurement of energy efficiency products, undertakingenergy audits of all the existing facilities and the adoption of energy conservationbuilding codes. Public sector entities in this way can take up leadership in implementingenergy efficient projects and can promote markets for energy efficient goods andservices at a wider scale (BEE 2008).

Utility driven DSM has already been taken up by at least one of the State ElectricityRegulatory Commission i.e. Maharashtra. Designing of sound regulatory framework forsuch DSM measures can have significant implications for energy efficiency (BEE 2008).

Tax and duty sops by the government are also considered in the context of the nascentstate of energy efficient market development. It is suggested that there is need forgovernment intervention to stimulate and further the growth of the energy efficientmarket through appropriate designing of fiscal instruments like taxes and duties.However at present no tax or duty benefits are offered (BEE 2008).


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4. CDM Portfolio Review

It is well accepted that the Clean Development Mechanism (CDM) would be a keyinstrument in advancing the co-benefits of climate change mitigation and EE, especiallywith respect to end-use demand side EE projects being in conjunction with nationalplans on energy security. Presently EE has a very low percentage within the CDM

processes be it at the planned, registered or issuance stages. Analysis as provided bythe latest CD4CDM pipeline1 provides several insights as to the potential that exists forEE projects in India, the main barriers towards greater adoption and some of the likelypolicy and regulatory areas that should be focused upon to enhance the CDM towardsthe full potential of EE projects that exists for India.

4.1. Global and India CDM overview

India is one of the main active participants within the CDM with 1267 projects out of thetotal 4969 projects in the pipeline, contributing just over one quarter of the total pipeline.In terms of projects with issued CERs it ranks only second to China with one third of all

projects having issued CERs (approximately 20% in terms of actual kCERs issued). Themain highlights of India and the CDM are shown below in Table 1.

Projects kCERs

All Sectors TotalPipelineProjects

RegisteredProjects

(% of Total)

IssuedProjects

(% of Total)

Total2012

kCERs

Registered 2012kCERs

(% of Total)

IssuedkCERs

Global 4969 2062 (41%) 666 (13%) 2835607 1763243 (62%) 385663India 1267 489 (39%) 217 (17%) 452543 246104 (54%) 76852% India ofglobal 25% 24% 33% 16% 14% 20%

Asia andPacific 3897 1516 (39%) 457 (12%) 2292096 1386054 (60%) 321859% Asia andPacific ofGlobal 78% 74% 69% 81% 79% 83%

Table 1 Global and Indian CDM statistics (all sectors) (CD4CDM - 1 March 2010)

Table 1 above shows that not only is India high in total number of projects within thepipeline, but also has a relatively high percentage of projects that have successfully hadCERs issued (33% of global issued projects and 20% of kCERs issued to date). Indiasown percentage of issued and registered projects is essentially at parity with globalpercentages with 39% and 17% for percentage registered and issued projectsrespectively out of total pipeline, in comparison to 41% registered and 13% issuedglobally.

The specific breakdown of the 1267 total Indian pipeline projects reveals further insightsas to what main sectors feature more prominently within the pipeline. As shown below in

1


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Figure 1, it is clear that wind and biomass are the most prominent CDM sectors. EEmeasures also feature significantly, primarily through the Industry and Own Generationsub-categories.

EE supply side

2%

EE industry

9%

EE service

1%

Cement

1%

Fossil fuel switch

2%

Hydro

11%

Landfill gas

2%

Methane avoidance4%

Reforestation

1%

EE own generation

10%HFCs

1%

Transport

1%

Wind

28%

Biomass energy

24%

EE households

2%

Figure 1 - Distribution of CDM projects in India by project types (all projects in pipeline).(CD4CDM - 1 March 2010)

It is interesting to note that the majority of the projects in India have been unilateral innature with little external technology transfer taking place given the lack of participationof developed country partners. A recent study showed that only 4 out of the 54 projectsregistered in India in the first half of 2009 were bilateral (TERI 2009).

4.2. EE CDM project analysis

In order to determine the specific investment opportunities within the EE sector, a closeranalysis of Indias EE projects within the pipeline is needed. Globally there are 730 EEprojects in the pipeline, and of this India has 304 EE projects being the second largestcountry for EE, only slightly behind Chinas 312 EE projects. Table 2 shows the specific

spread of EE projects within the pipeline for India and its comparison to global figures.India has a sizeable portion of the global EE projects and kCERs at both registration andissuance stages. Given that it has 53% of global registered EE projects and 66% ofglobal issued EE projects, warrants further scrutiny as to the types of projects thatseemingly have a high project success rate (at least purely in terms of abatementthrough kCERS) within the EE sector. It is worth noting also that Indias ownpercentages of registered and issued projects (and registered kCERs) are also slightlyhigher than the global values, suggesting elements of successful CDM processes withrespect to GHG abatement.


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EE Projects EE kCERsAll EE

Sectors onlyTotal

PipelineProjects

RegisteredProjects

(% of Total)

IssuedProjects

(% of Total)

Total2012

kCERs


(% of Total)

IssuedkCERs

Global 730 221 (30%) 82 (11%) 341396 129874 (38%) 17524

India 304 118 (39%) 54 (18%) 92708 44740 (48%) 9685% India ofglobal 42% 53% 66% 27% 34% 55%

Table 2 Global and Indian CDM statistics (EE sectors) (CD4CDM - 1 March 2010)

In looking at the specific breakdown of the EE projects for India and globally it is clearwhere some of the main opportunities exists that have the greatest for potentialacceleration of EE projects. The CDM categorizes EE into 6 sub-sectors; Supply side EEcomprising of Supply Side, Own Generation and Energy Distribution and Demand sideEE which includes Industry, Households and Service based projects. In reference toTable 3 and Figure 2 below, the global breakdown of the EE sector shows a very strong

representation from Industry (19% of total pipeline) and Own generation (62% of totalpipeline) sectors. It is also interesting to note that these two sub-categories almostexclusively account for the total amount of projects with issued kCERs. Energydistribution, Households and Service have very low values at both the registered andissued stages suggesting likely areas of under-utilization.

EE Projects EE kCERsGlobal EESectors

TotalPipelineProjects

RegisteredProjects

(% of Total)

IssuedProjects

(% of Total)

Total2012

kCERs


(% of Total)

IssuedkCERs

Total EE 730 221 (30%) 82 (11%) 341396 129874 (38%) 17524Energydistribution 15 2 (13%) 0 (0%) 15703 739 (5%) 0EEhouseholds 32 7 (22%) 0 (0%) 4233 967 (23%) 0EE industry 141 56 (40%) 24 (17%) 20321 9456 (47%) 1240EE owngeneration 455 132 (29%) 50 (11%) 245831 108431 (44%) 15886EE service 17 5 (29%) 1 (6%) 867 330 (38%) 4EE supplyside 70 19 (27%) 7 (10%) 54442 9951 (18%) 395

Table 3 Global CDM statistics (EE subcategories) (CD4CDM - 1 March 2010)


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Figure 2 Global EE project distribution (CD4CDM - 1 March 2010)

Of the 730 pipeline projects on EE, India has 304 of them with Table 4 and Figure 3showing the specific breakdown of sub-categories for India.

EE Projects EE kCERsIndia EESectors

TotalPipeline

Projects

RegisteredProjects

(% of Total)

IssuedProjects

(% of Total)

Total2012

kCERs


(% of Total)

Issued

kCERsTotal EE 304 118 (39%) 54 (18%) 92708 44740 (48%) 9685Energydistribution 2 0 (0%) 0 (0%) 246 0 (0%) 0EEhouseholds 20 4 (20%) 0 (0%) 1669 432 (26%) 0EE industry 110 47 (43%) 21 (19%) 13914 6787 (49%) 827EE owngeneration 131 55 (42%) 27 (21%) 59189 33255 (56%) 8643EE service 11 2 (18%) 1 (9%) 540 52 (10%) 4EE supplyside 30 10 (33%) 5 (17%) 17150 4214 (25%) 211

Table 4 Indian CDM statistics (EE subcategories) (CD4CDM - 1 March 2010)


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Figure 3 India EE project distribution (CD4CDM - 1 March 2010)

In many ways the global EE trends are even more pronounced in India. Once again Owngeneration and Industry account for the major types of EE projects at all stages of thepipeline, especially at the issuance level where it is essentially entirely dominated bythese two sub-categories. This shows the types of EE projects where the greatestinvestment has and is likely to be in. Similarly to the global values, Energy distribution,Households and Energy service are barely represented. This is highlighted with therebeing no energy distribution projects registered or issued with kCERs to date (out of onlythe 2 projects registered), clearly making it an underutilized area of project investment

In addition to recent national policy developments highlighting the importance of co-benefits, the potential that exists within India for transmission and distribution energysavings is also acknowledged, with estimates in the range of 20-25% of energy savingsto be had in the entire power supply chain (TERI 2010a). Such areas will most likely takeon growing prominence and represent one of the key areas in which additional focus andinvestment could be channeled towards.

4.3. CDM project trend analysis

India has certainly been one of the main contributors to the CDM and for a long time led

the market in terms of the size of the share of projects that it has in the pipeline. WhileChina has since overtaken India in terms of newer projects entered into the pipeline,overall, recent investment has show some decline within all regions due to the globaleconomic turndown. This is highlighted below in Figure 4.


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0

50

100

150200

250

300

350

Q1-04

Q2-04

Q3-04

Q4-04

Q1-05

Q2-05

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Q1-07

Q2-07

Q3-07

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Q1-08

Q2-08

Q3-08

Q4-08

Q1-09

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Projects

Asia & Pacific India China

Figure 4 - New project in Asia in the pipeline each quarter (TERI 2009)

When reviewing the actual issuance of kCERS for India, Figure 5 below also suggeststhat EE projects in general have stalled in terms of abatement achievements given thatthe issuance rates have leveled-off in recent times when compared to a steady increaseacross all other sector. This comparatively low issuance rate could be an influencingfactor for investment in specific EE projects in India and warrants a further investigationas to what specific elements are impacting upon the issuance rates.

Cummulative kCERs

(All Registered Projects in India)

0

20000

40000

60000

80000

100000

28-May-05

10-Oct-06 22-Feb-08 06-Jul-09 18-Nov-10

Issuance Date

kCERsIssued

All Sectors

EE Only

Figure 5 India Project Issuances of kCERs (CD4CDM - 1 March 2010)


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4.4. Investment Analysis

At first glance, globally the overall investments in EE have seen a reasonable increase inregistered projects as shown by Figure 6 below. This however is significantly biased by alarge increase in overall investments in EE Supply side projects in 2009. All other EEsectors seemingly have seen a decline in investment, with Own generation and Supply

side initiatives having the largest values.

Global EE Investment

0

500

1000

1500

2000

2500

3000

3500

2003 2004 2005 2006 2007 2008 2009 2010 2011Year

InvestmentinRegisteredProjects

(MillionUS$)

Energy Distribution

EE Households

EE Industry

EE Own generation

EE Service

EE Supply side

Total EE

Figure 6 Global investment in EE (CD4CDM - 1 March 2010)

The investments to date for all registered projects in India are shown below in Table 5and Figure 7. Here it can be seen that the main investment in India as based onsuccessfully registered projects has been in wind, fossil fuel switch, EE supply side andfossil fuel projects. All of the remaining EE sectors, most notably industry with only 1% ofthe total 6.6 billion $US invested, have comparatively low investment to date and againone could infer such areas as being those where greater potential exists.

Sector Million $US

Biomass 491

Cement 13

EE Households 12

EE Industry 99

EE Own 279


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Generation

EE Service 2

EE Supply side 1116

Fossil fuel switch 1261

Fugative 4

HFCs 15

Hydro 1032

Landfill 119

Methaneavoidance

16

N2O 4

Transport 54

Wind 2156

Total 6672

Table 5 India EE project investment (CD4CDM - 1 March 2010)

Investment in Indian resgistered CDM projects

Wind

33%

Transport

1%Landfill

2%

Biomass

7% EE Own

Generation

4%

EE Industry

1%

EE Supply side

17%

Hydro

15%

Fossil fuel switch

20%

Figure 7 India EE project investment distribution (CD4CDM - 1 March 2010)

Note: No investment in PFC and SF6, reforestation and solar projects.

4.5. Overview of Indian project categories

In reviewing the specific types of EE projects in India, supply side and own generationprojects relating to waste heat utilization, cogeneration, process optimization and


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retrofits have relatively larger projects with respect to CERs. Table 6 below provides anoverview of all the registered CDM projects in India for all sectors.

Category No. ofProjects

Total2012

ktCO2e

2012ktCO2e

/project

TotalInvestment

Million$US

AverageInvestment

$US/tCO2e

AverageCERs

IssuanceDelay(months)

Afforestation 1 44 44 NA - 11.5Biomassenergy

150 35193 235 490.6 14 19.7

Cement 13 13712 1055 13 1 25.7EEHouseholds

4 432 108 11.6 27 8.2

EE industry 47 6787 144 99 15 20EE owngeneration

55 33255 605 279.2 8 16.8

EE service 2 52 26 1.5 29 7.7EE supply side 10 4214 421 1115.8 265 17.1Fossil fuelswitch

9 20996 2333 1261.3 60 13.6

Fugitive 3 720 240 4 6 19HFCs 7 78185 11169 15.4 0.2 7.2Hydro 60 15150 253 1032.1 68.1 14.1Landfill gas 11 2721 247 119.1 43.8 8.4Methaneavoidance

12 2091 174 16.1 7.7 15.6

N2O 3 5234 1745 3.6 0.7 3.5

PFCs and SF6 1 1267 1267 NA - 1.1Reforestation 2 472 236 NA - 5.3Solar 3 171 57 NA - 17.8Transport 1 206 206 54.1 262.9 14.7Wind 95 25205 265 2156 85.5 14.9

Note Investment information is not available for all projects in each category

Table 6 India EE project examples (CD4CDM - 1 March 2010)

When viewed in terms of the investments to date of total, registered and issued projectsin India, the most notable observations from Table 6 is that even despite the overarching

trends in financial investment, issuance of kCERs, and project size that can beattributable to certain sub-sectors in India (i.e. most investment is in wind, most issuancein EE is in Own generation, etc), there is considerable variance within each sector.Issuances and financial investment, are naturally very project specific and dependant onnumerous influencing parameters.

The projects do vary in terms of size, scope and technical details however one of themain commonalities that can be seen across all sectors is the relatively poor issuancerates, which specifically translates to project failure, or project hold-up at the validation


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stage following successful registration (hence the typically long project issuance delaysas shown above in Table 6). Industry feedback has generally attributed this to poor postproject monitoring practices and forms one of the main barriers and recommendationsfor enhancing the uptake of EE CDM projects (TERI 2010a).

While Table 6 is unfortunately afflicted with a lack of complete investment data, it also

shows that EE supply side projects are comparatively more expensive (the mostexpensive overall based on $US/tCO2e). One could infer that that is one of the mainreasons as why this category of projects is underutilized in India. Especially given thatthere are similarly less expensive project options available that can yield much greaterabatements in the form of kCERs (with reference to the 2012 ktCO2e per project).


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5. Barriers to Investment

There have been many investigations as to the main types of barriers that can impedepresent and future successful CDM implementation in addition to overall technologytransfer and foreign investment in clean technology. Based on a variety of industrybased consultations, literature reviews and CDM pipeline analysis, the main types of

concerns are either directly related to the design of the CDM itself, or those that areexternal in nature to the CDM processes.

5.1. Design Aspects of the CDM

Additionality is an important criteria that all projects must meet in order to ensure theoverall environmental integrity of scheme. While significant developments have beenmade in streamlining the additionality assessments of projects it is often a main hurdlefor successful project registration, especially for EE projects given the difficulties that canarise in determining baselines for end-use efficiency projects (Shrivastava & Upadhyaya2008). Often industrial applications can struggle to successfully predict specific process

and non-routine equipment upgrades, a-typical plant operating conditions such asunplanned shutdowns as well as significant overhauls of unit operations, all of which willlikely significantly effect baseline predictions. In addition, EE projects can often be avictim of their own financial attractiveness, given that the rising cost of fossil fuel which istypically offset in most EE projects, leads to relatively short pay-back periods. In terms ofthe financial additionality and the investment barriers that need to be overcome, it hasoften been cited that many of these projects would fail such an investment analysis. Themajority of projects also often fail in their post-project monitoring requirements andhence do not progress past validation. In recent times project validators are becomingincreasingly stringent on the requirements of hosts to demonstrate their monitoringcapabilities at higher frequencies (TERI 2010a). While this is an essential component ofensuring greater environmental integrity, the capacities of host organizations to sustain

the monitoring requirements is being challenged and is one of the main areas that willrequire institutional and capacity building support.

5.2. Financial Barriers

At the initial stage, installing energy-efficient equipment, buildings, and appliancesrequires more up front capital. The additional investment is compensated for by theenergy savings, however users are hesitant because of the lack of information on therelative efficiency of products and services, lack of information on the cost effectivenessof energy-efficient choices, and constraints in initial funding (Shrivastava & Upadhyaya2008). Improved regulatory environments which offer consumer confidence and certainty

is often cited as one of the main influences on financing initial investments. Furthermore,specific venture capital funds for clean technology that can offer certainty of paybacks inmarkets and governments that otherwise lack the regulatory strength could also offerpossible avenues of countering such financial hurdles.


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5.3. Limited technological expertise

The developing countries lack technological capacity for designing and manufacturingenergy-efficient products as well as for deploying the technologies and practices in themarketplace. Technological asymmetry is also more prevalent in developing countries.For instance, small and midsize enterprises (SMEs) generally have less access to

energy efficiency technologies than their publicly owned counterparts and large privateor multinational companies (Shrivastava & Upadhyaya 2008). This is especiallyprevalent in most of the EE sectors in India, with SMEs struggling to be incorporated innational and international co-benefits approaches. The recent NMEEE makes specificreference to the importance of tapping the vast potential that India has in GHG mitigationthrough EE CDM projects of such SMEs, and it will likely take on an increased priority.

5.4. Dispersed nature of the end-user

Many of the financial, technical, and informational barriers for energy efficiencyimprovement come from its dispersed nature. The widespread geographical locations,

multiplicity of small end-users, and differing technological and knowledge levels of end-users make the management of activities difficult and costly. Command-and-controlgovernment policies work best in large and aggregated energy consumers; they find itdifficult to reach the dispersed consumers effectively (Shrivastava & Upadhyaya 2008).For EE in India this again is especially prevalent given the potential that exists forincorporating such SMEs operations that essentially are not of a single point source andwould require some form of standardized approach.


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6. Detailed Case Studies

Following a high level review of all of the registered EE CDM projects in India two casestudies are highlighted below based on their overall assessment against specific goodpractice criteria. In addition to the successful issuance of CERs, the projectdemonstrated unique and novel EE measures which were additional and achieved

significant GHG reductions, while entailing good levels of economic viability and projectreplicability.

6.1. Case Study 1

TitleReduction in Steam Consumption through Revamping of Ammonia Plant of IndianFarmers Fertiliser Cooperative Ltd (IFFCO) plants (UNFCCC 2006)

Location:

i) Site 1- Kalol Plant, City-Gandhinagar, Gujaratii) Site 2- Phulpur Plant, City-Allahabad, Uttar Pradeshiii) Site 3- Aonla Plant, City-Bareilly, Uttar Pradesh

Project Start Date: November 2004Project End Date: November 2019 (Expected 15 years of operational life)

Host Sector: Private Entity IFFCO

Project Objective:The upgrade of existing plant equipment through the use of new technology alternatives,

retrofits, new design and waste heat recovery in order to reduce the Specific SteamConsumption Ratio (SSCR) of the Ammonia plant of Urea fertilizer units

Project DescriptionFollowing process profile analysis of their Ammonia Urea fertilizer operations, IFFCOplans to upgrade their existing plants in three separate site locations with specific energysaving process technologies. 8 specific technologies are to be employed throughout thethree plants that ultimately will contribute to a reduction in Specific Steam ConsumptionRatio (SSCR), thereby reducing overall plant specific steam consumption of the plant,hence resulting in a reduction in the fossil fuel requirement which is fed to the boilers.

The 8 technological upgrades being employed include;

1. New Low Temperature (LT) shift guard, Boiler Feed Water (BFW) pre-heater:Introduction of a new shift guard before the low-temperature shift converter can reducecarbon-monoxide slippage from the section. This results in additional ammoniaproduction. With the Ammonia production being kept constant a corresponding reductionin the feed (fossil fuel) results. Furthermore, the pressure drop across the converter canbe further reduced by concurrently installing a new boiler feedwater pre-heater. Thissystems is to be employed in Aonla unit I & II , Phulpur unit I & II, and Kalol Plant.


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2. Installation of S-50 radial flow Synthesis Converter and High Pressure (HP) /Medium Pressure (MP) Boiler: The new S-50 converter reduces the recycled load ofsynthesis gas on the compressor, thereby reducing the steam requirements forcompressor operations. Units Aonla-I, Aonla-II and Phulpur-II, would also see a newwaste heat HP boiler installed to capture reaction heat from the converter. Similarly inPhulpur-I and Kalol , a new MP waste heat boiler would be installed downstream of S-50

converter for waste heat utilisation.

3. Installation of Make-up Gas Chiller: Installation of new chiller units at Aonla unit I & II,Phulpur unit I & II, prior to the gas compressor will cool make-up gas to 6-80C. Thelower inlet temperature results in greater volumetric efficiency of the compressor, whichin turn leads to a reduction in steam consumption in the gas compressor.

4. Synthesis Gas Compressor LP & HP case Internal Replacement:The compression efficiency in both the LP and HP gas compressors at Kalol Plant andPhulpur Unit - I will be improved by replacing the LP and HP shell internals with moremodern components.

5. Drying of Make-up Gas and Synthesis Loop Re-piping: Re-piping of the synthesis loopat Phulpur unit I & Kalol Plant would enable make-up gas to be fed directly to theconverter thereby avoiding complete chilling of the entire gas stream and reducing theenergy consumption.

6. Complete revamping of CO2 removal system to a modern two-stage GV process: Theinstallation of a new LP stripper in the CO2 absorption process at Aonla-I would allow forregenerative flashing instead of steam heating, thus reducing the steam load.

7. Complete revamping of CO2 removal system to a modern 2-stage GV process: As perItem 6 above, but installed at Phulpur I with additional CO2 blower on LP stripperoutlet.

8. Revamping of CO2 removal system to 2-stage a-MDEA process; A new lean andsemi lean absorption unit at Kalol plant with the inclusion of LP and HP flash vesselsenabling regenerative flashing instead of steam heating, thus reducing the steam load.

The energy efficient technologies have been developed by both IFFCO and M/s HaldorTopse (HTAS) Denmark, a world leader in ammonia plant technology. M/s HTAS willmainly be in charge of the design engineering, procurement services, equipmentinspections, expediting as well as providing oversight and assistance during theconstruction, pre-commissioning and commissioning of the critical components. M/sProjects & Development India Ltd. (PDIL)- will be the Indian Engineering Consultant forthe project

activity.

GHG Abatement2,953,080 tCO2-equivalent over 10 years

Socio-Economic AspectsThrough use of efficient ammonia plant technology, the project reduces process steamconsumption and thereby the fossil fuel consumption (coal, natural gas , naphtha , LowSulphur Heavy Stock (LSHS)) .


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Despite the variety of the fuel mix used, the Government of Indias Urea Pricing Policyprovides for reimbursement of implementation cost of such energy efficiency measureson the basis of the basic cost of cheapest fuel used (cost excluding tax andtransportation) instead of cost of actual fuel saved in that particular plant.

Marginal increases in semi-skilled labor, skilled labor and professional employmentwould result due to the project activity in addition to providing business opportunities forlocal supplier and contractors, thereby having a positive impact on the local economyand well-being of the community.

There also exists the benefit of capacity building of local employees in the utilization andfamiliarization with the newer technologies. As well, the greater promotion of suchefficiencies as best practice within the fertilizer sector.

MethodologyBaseline methodology for steam optimization systemsReference: AM0018, version 01 6th December 2004

Economic DataCapital costs ~ US$ 90 millionFinancing scheme - No public funding is available from Annex I parties

Project DeveloperIndian Farmers Fertiliser Cooperative Ltd. (IFFCO)

Host OrganizationAs per project developer above.

Technology Provider

M/s Haldor Topse (HTAS) Denmark

6.2. Case Study 2

TitleGeneration of power from process waste heat at Hi-Tech Carbon, Tamil Nadu (UNFCCC2009)

Location:HTC, SIPCOT industrial estate, Gummidipoondi about 45 km from Chennai

District: Thiruvallur.P.O. Gummidipoondi

Project Start Date: 17 July 2003Project End Date: 2023

Host Sector: Hi Tech Carbon (HTC) (Private entity)


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Project Objective: The projects aims to generate electric power from low calorific valuewaste gas coming from Carbon Black manufacturing process which is exported to grid,after meeting captive requirements.

Project DescriptionHi-Tech Carbon (HTC) is a unit of Aditya Birla Nuvo Ltd., a flagship company in the fold

of Aditya Birla Group of companies. HTC manufacturs Carbon Black from highlyaromatic petroleum oils, which are thermally cracked at high temperature in speciallydesigned reactors. HTC has three lines of carbon black production namely line 1, 2 and3. Carbon Black product is produced from petroleum fraction called Carbon Black FeedStock (CBFS). CBFS stored in tank is pumped to the reactor where thermal crackingtakes place. The thermal cracking process leads to formation of two products. One is thesolid product, fine in size which comes out as smoke and the other one is waste gas.Waste gas from the reactor that goes to boiler through main bag filter at 280-300C is ofsignificant volumes. Smoke enters through the bottom of filter bags and Carbon Blackparticles are deposited inside the bags. Low calorific value waste gas separated fromaccompanying carbon black particles in bag filter section are collected in the waste gasheader.

In the project activity, low calorific value waste gas coming out of new carbon black lines(line 2 & 3 of capacities 55,000 & 60,000 Tonnes/year respectively) is utilized in 52 and70 TPH (B 2 & B 3) boilers respectively, specially designed to generate high pressuresteam. This high pressure steam in turn drives the turbo-generators (TG`s) of capacity 8MW and 17.2 MW (TG 3 & 4 respectively) to generate power. The project activitydisplaces electricity from grid connected fossil fuel based power plants connected tosouthern regional grid. Thereby, the project activity reduces approximately 87,305tCO2e/year.

GHG Abatement873,050 tCO2-equivalent over 10 years

Socio-Economic AspectsThe project would have below mentioned benefits:

I. Social Benefits- The project activity creates direct and indirect employment opportunities

for local people during construction and operation of the project activity.

II. Economic Benefits:- The project activity has enhanced business opportunities for consultants,

suppliers, manufacturers, contractors, transporters, hotels and taxi operatorsetc during implementation phase.

- The project activity would reduce the fossil fuel requirement by displacingelectricity consumption from the fossil fuel based power plant connected tothe grid.

III. Environmental Benefits:- The project activity generates power from waste heat. The project activity

saves power from fossil fuels and thereby avoids the GHG emissions.Further, by recovering waste heat, the project activity avoids the thermalpollution in the vicinity of plant location.

IV. Technological Benefits:


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- The project activity recovers low heat value from waste gases to generatesteam, which further drives high efficiency multi-stage impulse type steamturbine to generate power. The project activity adopts an advanced andenvironmentally safe technology for long term benefits like multistage impulsesteam turbine etc., There is a progressive technological improvement inturbine technology by reducing specific steam consumption

MethodologyThe approved consolidated methodology Consolidated baseline methodology for GHGemission reductions for waste gas or waste heat or waste pressure based energysystem is applicable for the project activity.

Reference: UNFCCC Approved consolidated baseline methodology ACM0012 / Version01, Sectoral Scope: 01 & 04.

Economic DataCapital costs: 706 million USD (in addition book depreciation for buildings of 3.34% and

book depreciation for plant and machinery of 5.28% needs to be accounted )

Financing scheme: No public funding from Parties included in Annex I of theConvention is involved in the project activity

Project DeveloperHi Tech Carbon

Host OrganizationAs per Project Developer above.

Technology Provider

Thermax, Triveni, TDPS


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7. Policy Recommendations

In light of the recent policy developments within India relating to the NMEEE, specificallythe focus on EE as a means of both ensuring energy supply as well mitigating GHGemissions, assessing the current CDM portfolio investments does identify severalpotential priority areas of policy development that could be focused on to significantly

increase the current investment and project uptake of EE initiatives. These aresummarized below.

1. Transmission and Distribution projectsFrom a purely empirical standpoint, it is clear that the energy distribution is ahighly underutilized sector and given the importance of ensuring adequateenergy supply for all citizens, represents a key area that should be developed. Inaddition, transmission and distribution upgrades can be combined withinterconnectivity and DSM projects which also involve renewable energyinterfacing, thereby enabling even greater GHG offsets. In order to facilitate thisthere should be a focus on developing specific methodologies that suit the Indiancondition, utilizing standardized benchmarks where possible. In addition, there is

a sever lack of metering capability in certain rural parts of the country whichwould be a significant hurdle in developing accurate project baselines (TERI2010a). Hence specific attention should be brought to developing accuratemetering capabilities with which to establish such baselines.

2. Sectoral FocusThe 9 high energy sectors under the PAT scheme should be focused on as likelysectors which will see an increased push for EE projects with the advent of thescheme. The scheme should ultimately serve as a platform for the identificationof specific facilities and likely technologies required and where possible it shouldbe investigated if the energy savings of the scheme as quantified by the ESCerts,could be correlated and related to CDM GHG methodologies.

3. Programmatic CDMProgrammatic CDM projects PoA are likely to be a major mechanism inadvancing EE measures within the country given the large proportion of SMEsacross all sectors that are not incorporated with the CDM processes nor the initialproposed stages of the PAT scheme. Countering the distributed nature of muchof the countries remaining energy based facilities will likely form the basis of thecountrys next phase of greater CDM project implementation in line with theNMEEEs MTEE CDM roadmap. It is likely that in order to facilitate this, specificsectoral standardized benchmarks across the SMEs will need to be developed.

4. Improving kCER Issuances

In order to ensure greater project success during the validation stage so thatthere is a greater issuance of kCERs, an emphasis must be placed ondeveloping the monitoring capability of projects hosts such that it can beconducted in a sustained manner. This could be done in conjunction with thegovernments mandatory energy audit requirements, which should also wherepossible be extended to other sectors.

5. Promotion of ESCOs


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A focus on promoting greater bilateral activity could involve increasing the use ofESCOs with the credibility of ESCOs possibly being increased by selecting themthrough a competitive bidding process, in addition to the government accreditingthese ESCOs through rating agencies like CRISIL and ICRA. So far 35 ESCOshave been accredited and graded in terms of their operational, financial andtechnical capabilities. For achieving price transparency, standardized

performance contracts will be designed to capture future energy savings andperformance guarantees (BEE 2008).

6. Monitoring and GHG accounting StandardsThere should be an over arching focus in developing the institutional capacity ofstandardized GHG accounting practices with, where possible, accurateinventorisation in order to help facilitate a greater inclusion of the underutilizedEE sectors as well as the SMEs by acquiring adequate data for simple andaccurate baseline standardizations.

7. Creating Enabling Environments for Foreign InvestmentsImproving the overall regulatory environment for foreign investment could also be

prioritized through specific incentive based mechanism such as tax credits,discounted import and procurement benefits, facilitated in-country partnershipsas well as government enforced IP protection assurances. Such provisions wouldhelp foster a greater enabling environment for not only increased bilateral CDMparticipation, but also for accelerated technology transfer.

7.1. Potential Avenues of Future Research

In light of the above policy recommendation, suggested avenues of future internationalcollaborative research could include but are not limited to:

- Conducting a more detailed investigation as to why projects are beingrejected and the delays of kCERs issuances in the identified sectors.

- A study of the likely priority technologies that would be identified by the 9designated emitter sectors in the PAT scheme.

- Determining specific energy transmission and distribution projects anddetermining the methodological requirements.

- Identifying the types of PoA projects that could encapsulate the SMEs anddeveloping the required methodologies.

- Investigating capacity building opportunities for GHG monitoring andaccounting practices that could be enhanced through the PAT schemesmandatory energy reporting requirements.


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8. References:

BEE 2008, National Mission on Enhanced Energy Efficiency, Bureau of EnergyEfficiency, Government of India, New Delhi, India.

CD4CDM 2010, CDM Pipeline Overview (1 March 2010), UNEP Risoe Centre,

Denmark, Available online: http://www.cd4cdm.org/

GoI 2009, National Action Plan on Climate Change, Government of India, New Delhi,India, Available online: http://pmindia.nic.in/Pg01-52.pdf

Seres & Haites, 2008. Analysis of Technology Transfer in CDM Projects, UNFCCC.

Shrivastava & Upadhyaya 2008, Promotion of demand side energy efficiency: Evaluationof the Clean Development Mechanism, Mistras Climate Policy Research Program Annual Report 2008, The Energy and Resources Institute, New Delhi, India.

TERI 2009, Sustainable Energy Technology at Work Country Profile for India, The

Energy and Resources Institute, New Delhi, India

TERI 2010, Internal Document, The Energy and Resources Institute, New Delhi, India.

TERI 2010a, Internal Discussions with various Business and Industry representatives,The Energy and Resources Institute, New Delhi, India.

UNFCCC 2006, Project Design Document - Reduction in Steam Consumption throughRevamping of Ammonia Plant, Available online: http://cdm.unfccc.int/Projects/DB/DNV-CUK1169204935.68/view

UNFCCC 2009, Project Design Document Generation of power from process waste

heat at Hi-Tech Carbon, Tamil Nadu, Available online:http://cdm.unfccc.int/Projects/DB/TUEV-SUED1214896800.22/view

Documents

1 Co-Benefits EE