Energy Economics and Policy - IIT Bombayrb/Professional Activities/17econpol.pdf · Maharashtra India Global ... Green Climate Fund) ... Ratnagiri district –French –AREVA 9.3

Rangan BanerjeeForbes Marshall Chair Professor

Department of Energy Science and Engineering

IIT Bombay

Invited Talk at National Research Workshop on Energy Technologies - 12 Jan 2017 IIEST, Shibpur, West Bengal, India

Energy Economics and Policy

Decisions

Yes/ No – Viability of a specific option

Best Possible option - Ranking or choice between different possible options

All Technical Feasible Options included

Criteria – Cost-Initial cost, Operating cost

Reliability

Emissions

Operational flexibility/ convenience

Lighting Choices

www.bijlibachao.com http://www.engineersgarage.com

Electronic Ballast

Magnetic Ballast

Car Choices

http://mahindrareva.com/product/specifications

Powering a remote Telecom tower

Existing Fuel Based System

30,000 litres/day Pasteuriser Boiler

Hot Water

Air

Fuel

Water

Steam

85oC

95oCMilk

ARUN

Storage Tank

Solar

Radiation

Boiler

Hot Water

Air

Fuel

Water

Steam

(If required)

85oC

95oC

Milk

Modified Solar System

Steam system stand by

30,000 litres/day Pasteuriser

Investing in Renewable Energy/ Energy Efficient Equipment ?

What are the factors that determine the cost-effectiveness of the additional investment?

Parameters affecting Decision

Amount of Investment

Amount of Energy Saving (fossil fuel)

Price of Energy

Life of Equipment/ project

Time Value of Money

Renewables – usually higher initial cost,

lower operating cost

http://www.macrotrends.net/2503/brent-crude-oil-prices-historical-chart‘ last accessed on Nov 20, 2016

Economic Criteria

Simple Payback Period (SPP)

Net Present Value (NPV)

Benefit/ Cost Ratio (B/C)

Internal Rate of Return (IRR)

Life Cycle Costing

Life Cycle Cost

Annualised Life Cycle Cost (ALCC)

Simple Payback Period

No of years in which investment pays for itself

SPP = Initial Investment/ Annual Saving

Limitations?

A Inv Rs 100,000 , Saving Rs 50000

B Inv Rs 120,000, Saving Rs 40,000

Decision?

Discount Rate

Compare investment today with expected future benefits

Discount rate represents how money today is worth more than in the future

No theoretically correct value

Lower bound – bank interest rate

2017 2018 2017+k

Value in year 1 1 1Present Value 1 1/(1+d) 1/(1+d)k

Discounting the future

A1 A2

Cash Flows

A3 An

n=1 n=2 n=3 n=20

Co

Present Value

For constant annual cash flows A

Capital Recovery Factor (CRF)

CRF = f (d,n)d – discount raten – life

o

n

kk

k Cd

ANPV

1 )1(

n

kk

ko

IRR

AC

1 )1(

NPV, IRR and B/C ratio

oC

n

1kk)d1(

kA

C

B

Annualised Life Cycle Cost

Annualised Life Cycle Costs (ALCC) -annual cost of owning and operating equipment

ALCC = C0 CRF(d,n) + AC f + AC O&M

CRF (d,n) =[ d(1+d)n]/[(1+d)n-1]

discount rate d, Life n years, C0 Capital Cost,AC f , AC O&M , annual cost - fuel and O&M CRF – Capital recovery factor

Methodology - Cost Analysis

Solar Field Cost

Solar Field Efficiency

Turbine Efficiency

Loss %

Plant Efficiency

Operating Hours

Storage Size

Plant Size

Collector Size

Receiver Size

Solar Field Area

Land Area

Land Cost

HX Cost

HTF quantity HTF Cost

Power Block Cost

Storage Cost

Capital Cost

Plant Output

Solar Insolation

Capacity Factor

Discount Rate

Life

AnnualisedCost O&M

Replacement Costs

Cost of Generation

Annual Plant output

Feed-in tariff

Annual Revenue Annual O&M Expenses

Annual Working Capital

EBITDA

Capital Cost

Annual Depreciation

Debt to equity ratio

Total Debt

Interest Rate

Interest EBT

MAT Rate

Taxes

Net Profit Depreciation

Rate

Salvage Value

Free Cash Flow to Firm

Loan repayment period

Net annual repayment

Free cash flow to equity

IRR Equity

Net repayment upto ith year

Marginal Abatement Cost Curve

http://www.climateworksaustralia.org/project/national-plan/how-read-marginal-abatement-cost-curve

Global Cost Curve

India Abatement Curve

Source: McKinsey

What is an energy policy?

25

What is a policy?

A policy is a principle or protocol to guide decisions and achieve rational outcomes(Wiki)

26

Framework

Decisions

Stakeholders

Policies

Goals

Criteria

Analysis

27

Deciding Energy Policies

Scope

IIT Campus

Powai

Village

Block

Mumbai

Maharashtra

India

Global

Elements

Decide Goals

List out Policy instruments

List out challenges

Existing Institutions and roles

Time Horizon

Analytical framework

28

Policy Instruments

Direct Subsidies – Investment subsidies, production subsidies

Taxes/ Duties/ Fiscal Incentives

Legislation

Standards and Labelling (Building Codes)

R & D funding/ Demonstrations

Removal of market barriers/ entry barriers

Emissions trading, Renewable Energy Certificates, CERs, Certificates and Trading

India -Policy Documents

Five Year Plans Integrated Energy Policy, 2008 National Action Plan on Climate Change –

JNNSM and NMEEE Electricity Regulation Commission Act 1998 Electricity Act 2003 UMPP 2005 Rural Electrification Policy 2006 INDC 2015

30

Policy options

Market or Government (Mandate/ Legislate)

Regulation

31

• Energy Access• Renewable Energy• Energy Efficiency• Nuclear Energy• Pricing/ Taxes/Subsidies

INDC

Reduce Carbon Intensity of GDP by 33-35% of 2005 level in 2030

Create 40% cumulative non fossil power by installed capacity by 2030 (using finance from Green Climate Fund)

create an additional carbon sink of 2.5 to 3

billion tonnes of CO2 equivalent through additional tree cover and forest

32

Capital Subsidy

33Source: GNESD, 2014

Electricity Service and Price

34Source : UN Foundation, 2014

Tariff Comparison


Community Involvement


DSM Measures used


Lonarwadi

Dissoli

Rajmachi

Maharashtra

INDIA

Affordable Access

38

Sunderbans Microgrids - Organisation

39Source: Ulsrud et al (2011)

17 micro grids

Biomass Gasifier

Solar PV + Battery

65,000 1,25,000

90,000 1,55,000

1,15,000 1,90,000

Cost of Electricity Generation

Capital cost Rs/kW

Selco Case study For profit company – Solar Home

systems – started 1996 – sold about 100,000 SHS

90% of products – credit schemes

Partnership with 9 banks – interest rates between 12-17%

Financing Institutions pay 85% of the amount- monthly payments of Rs 300- 400 over a period of 5 years

Financing/ repayment options –tailormade to end users – paddy farmers – repayment schedule based on crop cycle, street vendors – daily payments – Rs 10

Funding from REEP – meet margin amount for poor customers, reduce interest rate 41

Source: SELCO, 2011

DESI Power

Biomass based power solutions – Bihar- 25 kW to 100 kW

Local distributors – decide pricing

Registered under CDM and sold CERs to Swiss buyer

MNRE funds, Promoters Equity, ICICI Loan

Monthly rate based on no of bulbs / loads, Circuit breaker to limit consumption

Irrigation pump users Rs 50/ hour, Household Rs 120- 150 per month

Underground trunk wiring-distribution

Enabling micro-enterprises –battery charging station, flour mill, workshop etc

Tie up with Telecom towers – increasing capacity factor

42

Husk Power

Initial funding – prize money 30-100 kW – biomass gasifiers- based on

rice husk Energy audit of households Focus on household demand for lighting Lower production, operating costs – use of

bamboo, asbestos Overhead pole wiring Directly reach end user

43

JNNSM Steps

44

45Source: CEEW, NRDC, 2012

Phase 1 – Successful bids

46Source: Prayas report, 2012

Phase 1 – Successful bids

47Source: Prayas report, 2012

NVVN

48

Source: CEEW, NRDC, 2012

JNNSM by Source

49Source: CEEW, NRDC, 2012

Nuclear Liability

Civil Liability for Nuclear Damage Act –Operator Liability Limit Rs 1500 crores

“The operator shall have a right of recourse where-the nuclear incident has resulted is a consequence of an act of supplier or his employee, which includes supply of equipment or material with patent or latent defects or sub-standard services.”

50

Indo-US Deal (Jan 2015)

Nuclear Liability Fund – Insurance cover of Rs 1500 crores

Insurance premium from electricity supply price

51

New Nuclear Power Plants

Kudankulam, Tamil Nadu – VVERs –Russia – 2X1000 MW- Rs 17320 crores

Jaitapur 9900 MW (6*1600 MW) –Ratnagiri district – French – AREVA 9.3 Billion US $

52

53

Source: PAT Consultation Document 2011

54Source: PAT Consultation Document 2011

Target Setting for Aluminium Smelters

55Source: PAT consultation Document, 2011

56Source: PAT consultation Document, 2011

57

Source: BEE - Dr Ashok Kumar presentation

PAT Steps

58Source: BEE - Dr Ashok Kumar presentation

59

Source: PAT Consultation Document 2011

Not feasible to define a single norm/standard unless there is significant homogeneity amongst units in a sector

Energy efficiency improvement targets would have to be almost“unit specific”

Bands of differential targets to be created within sectors

Each DC mandated to reduce its SEC by a fixed percentage, based on its current SEC within the sectoral bandwidth

Setting Energy Consumption Norms

Source: DG BEE presentation

Huge spread in Specific Energy Consumption within sectors

Target is Plant Specific …… Less for Energy Efficient and more for Inefficient Plants


Wood : Ch. Pulping + NSP

100% market Pulp

Wood : Ch. Pulping + SP

Agro based RCF :

News Print

Wood : News Print

RCF : Non-News Print

SEC Spread and Grouping of DCs in Pulp & Paper Sector


Target

Baseline SEC

Target SEC

Achieved SEC

Scenario 1 Scenario 2

Compliance

Issued Escerts

Purchase Escerts

Penalty

PAT - Energy Savings Certificates - incentivize actions


Data Requirements and Verification

Verification to be carried out by independent BEE-designated energy auditors (DENAs)

SEC for a plant is based on the records of quantum of energy going into the plant and quantity of products shipped out of plant

Cross check with records such as invoices, payment receipts, and excise paid

Inplant renewable energy production would not be added to quantum of energy used

Normalization factors for large changes (during the 3-year period) in:

Share of captive electricity generation

Capacity utilization

Raw material quality/Product Mix


PAT – progress

SEC reduction targets notified for 478 units in 8 energy intensive sectors notified as Designated Consumers under EC Act. They sectors are: Aluminum, Cement, Iron & Steel, Chlor Alkali, Thermal Power Plants, Fertilizer, Pulp & Paper, and Textiles

Targets to be accomplished in 2014-15

Normalization formulae notified in December 2013

ESCert issuance and trading Rules to be notified in March 2013

Accredited Energy Auditors listed

Scope for second cycle (widening and deepening) being developed

PAT- Phase II

66

National Mission for Enhanced Energy Efficiency (NMEEE)

Efficient Lighting

Standards and Labelling – 21 products

Partial Risk Guarantee Fund for Energy Efficiency and Venture Capital Fund for Energy Efficiency

GRIHA and ECBC

PAT

67

Shared Savings Model

68

DELP: Current Scenario

69http://www.ujala.gov.in/

DELP: Current Scenario

70

http://www.ujala.gov.in/

EESL – LED Price reduction

71

Summing Up

Efforts for cost reduction

Discount rate, access to capital

Govt policies

References

www.bijlibachao.com

http://www.engineersgarage.com

http://mahindrareva.com/product/specifications


http://www.ujala.gov.in/

BEE web site: Bureau of Energy Efficiency (BEE), Government of India, Ministry of Power, New Delhi, http://www.beeindia.in/

McKinsey, 2010: McKinsey Global Institute, India’s urban awakening: Building inclusive cities, sustaining economic growth, April 2010

http://www.iipnetwork.org/consultation-document-perform-achieve-and-trade-pat-scheme

GNESD 2014: Renewable energy-based rural electrification: The Mini-Grid Experience from India. New Delhi: Prepared by The Energy and Resources Institute (TERI) for the Global Network on Energy for Sustainable Development (GNESD).

References

Ulsrud et al (2011): The Solar Transitions research on solar mini-grids in India:

Learning from local cases of innovative socio-technical systems, Ulsrud, K., et al,

Energy for Sustainable Development, 15, 293-303, 2011

S.B.Kedare, Solar Concentrators for Process Heat, Proc ICORE 2005, p 41-51 R.Banerjee, Comparison of Distributed generation Options for India, Energy Policy 34,

2006,p101-111

http://www.macrotrends.net/2503/brent-crude-oil-prices-historical-chart‘ last accessed on Nov 20, 2016

UN Foundation 2014: Microgrids for Rural Electrification: A critical review of best practices based on seven case studies, United Nations Foundation, February 2014.

Jacobsen, Energy Policy , 2005: Jacobsen et al, Energy Policy, Energy Policy 33 (2005) 1825–1832.


Krishnamurthy, P., Mishra, S., and Banerjee, R., “An analysis of costs of parabolic trough technology in India,” Energy Policy, Volume 48, 407–419, September 2012.