Energy Efficiency in India: PAT Scheme – The Way Ahead
Event Organiser Knowledge Partner
Knowledge Paper prepared by
TATA Strategic Management Group
Energy Management and Excellence Summit
Energy Efficiency in India:
PAT Scheme - The Way Ahead
July 2014
Energy Efficiency in India: PAT Scheme – The Way Ahead
TABLE OF CONTENTS
Energy Management and Excellence Summit
1. Introduction
2. Energy Efficiency: Global Trends and Regulations
4. Energy Conservation in India
5. Energy Efficiency in India
6. Industry Viewpoint
7. Conclusion
Annexure
FOREWORD
EXECUTIVE SUMMARY
1
2
About Energy Practice Offerings and TATA Strategic
5.1 Overview
5.3 PAT
6.1 Key Challenges faced by DCs with regard to PAT Compliance
6.2 Few measures adopted by DCs to become PAT compliant
6.3 Comments on ESCerts trading
6.4 Feedback received from the Financing Agencies
3. EU Emissions Trading System
6.5 Untapped Levers for Energy Management and improving Energy Efficiency
6.6 Comparison of Indian energy intensive sectors with Global Standards
6.7 Expectations on meeting PAT targets
6.8 Suggestions by Industry Players for Policy Makers and Regulators
3
5
8
9
11
13
16
18
19
20
20
20
21
21
22
25
23
18
5.4 Update
5.2 National Mission on Enhanced Energy Efficiency (NMEEE)
i
11
12
17
24
Energy Efficiency in India: PAT Scheme – The Way Ahead
List of Figures
Fig 1: Increasing energy consumption in India
Fig 2: Total Energy Consumption pattern for the world
Fig 3: List of programs to promote energy efficiency
Fig 4: NMEEE programs to promote energy efficiency
Fig 5: Sectors and DCs under PAT Scheme
Fig 6: Sectorial share of projected savings through PAT Scheme
Fig 7: Stakeholders in PAT Scheme
Fig 8: PAT Scheme mechanism
Fig 9: Implications of PAT Scheme on DCs
Energy Management and Excellence Summit
Fig 10: Required Submissions by DCs under PAT scheme
Fig 11: Views on PAT targets and Energy Efficiency of the sector
Fig 12: Expectations on meeting PAT targets
ii
Energy Efficiency in India: PAT Scheme – The Way Ahead
LIST OF ABBREVIATIONS
BEE Bureau of Energy Efficiency
CAGR Compounded Annual Growth Rate
CIS Commonwealth of Independent States
CPCB Central Pollution Control Board
DCs Designated Consumers
DECC Department of Energy and Climate Change
DENA Designated Energy Auditors
DSM Demand Side Management
ECBC Energy Conservation Building Code
EE Energy Efficiency
EEFP Energy Efficiency Financing Platform
EESL Energy Efficiency Services Limited
EnMS Energy Management Systems
EnPIs Energy Performance Indicators
ESCerts Energy Savings Certificates
ESCO Energy Service Companies
ETS Emissions Trading Scheme
EU European Union
EU ETS European Union Emissions Trading Scheme
FEEED Framework for Energy Efficient Economic Development
GDP Gross Domestic Product
M&V Measurement and Verification
MTEE Market Transformation for Energy Efficiency
Mtoe Million Tonnes of Oil Equivalent
MTPA Million Tonnes Per Annum
NAPCC National Action Plan on Climate Change
NEEAP National Energy Efficiency Action Plan
NMEEE National Mission for Enhanced Energy Efficiency
NSM National Solar Mission
OECD Organization for Economic Cooperation and Development
OEM Original Equipment Manufacturer
PAT Perform Achieve & Trade
PRGF Partial Risk Guarantee Fund for Energy Efficiency Projects
REC Renewable Energy Certificates
ROI Return on Investment
RPO Renewable Purchase Obligations
SEC Specific Energy Consumption
SECF State Energy Conservation Funds
toe Tonnes of Oil Equivalent
VCFEE BEE Venture Capital Fund for Energy Efficiency
iii
Energy Efficiency in India: PAT Scheme – The Way Ahead
The Energy Practice at Tata Strategic has in-depth understanding of Indian Power
Sector and has focus on Power Equipment market, Strategic Energy Management,
O&M strategy and Renewable Energy. Tata Strategic has supported power equipment
companies (OEMs), private sector utilities and energy intensive industries in areas of
strategy formulation, market assessment, portfolio rationalization, diversification, energy
cost optimization, RPO & PAT management, scenario planning, feasibility study and
comprehensive performance improvement.
This vast body of accumulated knowledge and experience gives us an additional
advantage in the development of this report. The report attempts to highlight the
challenges and possible ways to promote energy efficiency in India.
India is faced with challenges of energy security and energy sufficiency. Increasing
energy efficiency of the existing processes would help address this challenges and also
help reduce the carbon footprint of the country. Energy efficiency and energy
management are relatively unharnessed levers under Nation Action Plan on Climate
Change (NAPCC). It is, therefore, the opportune time for this report to be released.
We thank Power BusinessView for giving us an opportunity to be the Knowledge Partner
for the Energy Management and Excellence Summit 2014. We are grateful to all the
industry stalwarts who participated in the primary research for sharing their expert
views. As always, it was very insightful experience for Tata Strategic team to materialize
this report. We hope it acts as a guiding star for the stakeholders propagating the goal of
improving energy efficiency in India.
FOREWORD
1
Energy Efficiency in India: PAT Scheme – The Way Ahead
EXECUTIVE SUMMARY
2
This report on “Energy Efficiency in India: PAT Scheme - Success and Failures”,
prepared by Tata Strategic Management Group, has a holistic view on the current state
of energy efficiency and energy management in India. The focus of this report is on
identifying key challenges faced by designated consumers in implementation of PAT
Cycle I and how a collaborative effort in the right direction could ensure fast adoption of
EE and robust energy management in India. It would gear India towards reducing
energy intensity of the future growth, one of the prime objectives under NAPCC.
Energy demand in India has been growing at 6% CAGR on account of industrial
development, rising population and evolving lifestyle aspirations. One of the important
challenges that the country needs to address is that of energy availability to all. In order
to address these challenges, traditional route has been to boost the supply side
resources like increasing hydrocarbon exploration through private sector participation,
seeking strategic oil reserves outside India, adding conventional and non-conventional
power generation capacities. However, it’s the need of the hour that demand side
resources like energy efficiency and management be exploited to its true potential in
order to address these impending challenges.
The global scenario highlights several such policies been adopted by countries – both
developed and developing - across the globe. One popular scheme in EU is the EU
Energy Trading Scheme aimed at improving energy efficiency and reducing carbon
emissions. India has launched several schemes to promote energy efficiency. The
prominent among them is Perform Achieve and Trade (PAT) scheme being implemented
by BEE across energy intensive sectors in India.
Tata Strategic study indicates that though the scheme is good, in principle, but several
affirmative actions are required to enhance its efficacy. Stakeholders specifically the
designated consumers opined that current policy has helped them reduce their energy
bill by at least 3-4%. However, they also expressed their concerns regarding weak
handholding by Regulators and Designated Energy Auditors (DENAs), inflexible
approach for normalisation, less clarity for M&V, absence of regulations for ESCerts
trading, likely over-supply of ESCerts, and financing of EE capex especially for Cycle II
targets. Several of them have suggested host of measures to be taken up by the
regulators to enhance efficacy of the scheme going forward including strong monitoring
& verification portal, disseminating information about sector progress, success stories
and best practices, building capacity among stakeholders, widening depth and width of
ESCerts markets, and promoting credible EE financing institutions. This report has
captured summary of such comments & suggestions in later half of the report.
Energy Efficiency in India: PAT Scheme – The Way Ahead
In India, per capita energy consumption is very low as compared to other countries. In
2011, it reached 0.6 toe (Tonne of oil equivalent), which is on a lower side when
compared with a world average of ~1.9 toe and ~1.2 toe for non-OECD countries. The
total energy consumption has been increasing steadily since 1990 (4.2% p.a.), with a
growth rate of over 5% per year since 2005. The global economic downturn in 2009
did not have a major effect on that rapid pace. Going forward at continued pace, the
present energy inefficiencies are bound to multiply and if not checked would be
detrimental to both the economy and ecology.
In order to promote energy efficiency, Ministry of Power launched the first of its kind
Energy Conservation Act came in March 2002. This Act laid out energy consumption
norms for the large energy consumers to adhere to, formulated new Energy
Conservation Building Code for new buildings to follow, efficient energy performance
standards as well as display energy consumption labels on appliances. The Act also
created the Bureau of Energy Efficiency (BEE) to implement the provisions laid under
Act. This act was further amended and strengthened in 2010.
As per Tata Strategic estimates, between 2007 and 2010, BEE programs have
resulted in savings of 12.15 Mtoe or 18,875 Million kWh of electricity which is
equivalent to electricity generated ~4 GW of generation capacity or ~INR 15,000 –
20,000 Cr worth of additional investment.
Also, National Action Plan on Climate Change (NAPCC) was adopted in 2008. Under
this action plan, National Mission for Enhanced Energy Efficiency (NMEEE) was
launched with several targets for fiscal year 2014-2015. Some of the targets are
annual fuel savings of at least 23 Mtoe, a cumulative avoided electricity capacity
addition of 19 GW, and a CO2 emission mitigation of 98 Mt.
Specific initiatives envisioned by the NMEEE include Perform Achieve and Trade
scheme, which has assigned energy efficiency improvement targets to the most
energy intensive industrial units in the country. This mandatory scheme sets
benchmark for consumers in designated sectors (Thermal power plants, Steel,
Cement, Aluminium, ChlorAlkali, Textiles, Pulp & Paper, Fertilizers). Tradable Energy
Savings Certificates (ESCerts) would be created within the PAT scheme.
1. Introduction
Energy security, energy shortage concerns and climate change initiatives driving India towards efficient energy use
3
Energy Efficiency in India: PAT Scheme – The Way Ahead
This scheme allows companies exceeding their target to buy tradable energy saving
certificates from those using less energy, creating an Energy Savings market in India.
The scheme is expecting an energy saving of 3.5 million tons of oil equivalent (Mtoe)
in eight selective industrial sectors and 3.1 million tons of oil equivalents in thermal
power stations by 2014–15.
To further improve energy efficiency various other schemes like Market
Transformation for Energy Efficiency (MTEE), Energy Efficiency Financing Platform
(EEFP) were also launched. Both these schemes aim at creation of mechanisms that
would help finance demand side management programmes in all sectors by capturing
future energy savings. In this direction, MoUs have been signed by BEE with PTC
India, SIDBI and HSBC Bank.
Fig 1: Increasing energy consumption in India
Primary Energy
Consumption per
million people (TOE)
India China US Germany
World Average
1.8
Source: Secondary Research, Analysis by Tata Strategic
Trends in Per-Capita
Energy Consumption
(00’ kWh)
4
Energy Efficiency in India: PAT Scheme – The Way Ahead
Overview
Since 1990, most (~80%) of countries in the world have decreased their energy
intensity. Their total energy consumption per unit of GDP (primary energy intensity)
decreased by less than 1 % p.a., whereas the reduction in ~15% of countries (mainly
in few Asian and East European countries) took place at the pace of over 3% p.a.
On the contrary, in the other ~20% countries (primarily located in the Middle East,
Africa and Latin America), energy productivity is decreasing. The high energy
intensity in the CIS, China and the Middle East is explained by various factors,
including the predominance of energy-intensive industries like steel, cement,
manufacturing and heavy engineering and low energy prices.
The total worldwide energy intensity decreased by 1.3% p.a. between 1990 and
2011 and fell in all regions except the Middle East. That trend is explained by the
combined effect of high energy prices, energy efficiency programs and, more
recently, CO2 abatement policies in OECD countries, as well as other economic
factors, such as the move by economies towards tertiary activities.
5
2. Energy Efficiency: Global Trends and Regulations
Energy intensity has been decreasing throughout the world by improvements in energy efficiency
2.1
Source: Enerdata, Secondary Research, Analysis by Tata Strategic
Fig 2: Total Energy Consumption pattern for the world
Energy Efficiency in India: PAT Scheme – The Way Ahead
Country Snapshots
6
2.2
Country
Energy Efficiency
Program
and its aim
Comments
USA
Global Climate Change
Initiative (2002)
18 % reduction in
greenhouse gas intensity
by 2012
• EE program includes tax
incentives for renewable energy,
cogeneration and new
technologies
• Voluntary agreements with the
business community;
comprehensive transportation
programs, etc.
Germany
National Energy
Efficiency Action Plan
(NEEAP) 2008-2016
Reduce primary energy
consumption by 20% by
2020 and by 50 % by 2050,
compared with 2008
• Energy Concept for an
Environmentally Sound, Reliable
and Affordable Energy Supply”
presenting strategy for period up
to 2050 launched in 2010
• Electricity consumption to be
reduced by 10% by 2020 and by
25% by 2050.
• NEEAP sets energy savings
target of 231 TWh in sectors not
covered under the EU Energy
Trading Scheme (ETS).
Japan
National Energy Strategy
2006
Improve energy efficiency
by at least 30% by 2030
compared with its 2003
level
• Manufacturers and importers are
obliged to enhance energy
efficiency of their products
• Energy Conservation Frontrunner
Plan to promote energy efficiency
within energy intensive industries
in Japan
Energy Efficiency in India: PAT Scheme – The Way Ahead
Country Snapshots
7
2.2
Country
Energy Efficiency
Program
and its aim
Comments
United
Kingdom
National Energy
Efficiency Action Plan
2011-2020
Energy savings target of
136.5 TWh by 2016 in
sectors not under the
Emissions Trading
Scheme (ETS)
• UK has implemented diverse
energy/CO2 savings obligations for
electric and gas utilities since 2002
• In 2011 the Department of Energy
and Climate Change (DECC)
published the country’s Carbon
Plan, which is aimed at cutting
carbon emissions by 80% by 2050
compared with 1990 levels
France
National Energy
Efficiency Action Plan
2008-2016
Energy savings target of
at least 9% (139 TWh)
by 2016
• The 2005 energy law aims to
reduce final energy intensity by 2%
p.a. by 2015 and by 2.5%/ year
between 2015 and 2030.
• It also implements energy saving
obligations for energy utilities,
known as the energy savings
certificate scheme.
China
12th Five-Year Plan
(2011-2015)
16% energy intensity
reduction target for 2015
• Plans to invest US$372 billion to
save energy and launch anti-
pollution projects to cut coal
consumption by 300 Mt; US$155
billion should go towards energy
savings projects.
• Implemented various policy
measures like EE labels, minimum
efficiency standards, financial
incentives, pricing, etc.
Energy Efficiency in India: PAT Scheme – The Way Ahead
EU Emissions Trading System (EUETS) is the largest emissions trading scheme in
the world and operates in all 28 EU countries and Iceland, Liechtenstein & Norway.
This scheme covers around 45% of the EU's greenhouse gas emissions and
restricts emissions from more than 11,000 heavy energy-using installations in power
generation and manufacturing industry with a net heat of more than 20 MW.
It works on the 'cap and trade' principle. A 'cap', is the total amount pollutant gases
that can be emitted by the factories, power plants and other installations in the
system. Companies can receive or buy emission allowances which they can trade
with one another as needed.
In 2020, emissions from sectors covered by the EU ETS will be 21% lower than in
2005. By 2030, the Commission proposes, they would be 43% lower. It would
promote investment in clean technologies and low-carbon solutions, particularly in
developing countries.
Phase I (2005-2007) was popularly described as 'learning by doing' phase. In this
phase, allowances were allocated to different firms. The prices of ETS fell to near
zero in 2007 as most of the firms became aware that the reduction achieved is
much more than the allocated allowances. Phase II (2008-2011) included three
Non-EU countries also under its purview. The price of the tradable certificates fell by
~50% during this phase. This fall can be primarily attributed to reduced output in
energy intensive sectors like steel and cement due to recession. Phase III (2012-
2020) sees a turn to auctioning a majority of permits rather than allocating freely
and the inclusion of other greenhouse gases, such as nitrous oxide and
perfluorocarbons. Phase IV, planned from 2021-2030, aims at achieving 43%
reduction in EU CO2 emissions compared to that of 2005.
Tokyo Metropolitan Government (TMG) has also introduced mandatory targets for
reduction in overall greenhouse gas emissions for large-scale emitters as part of an
emissions trading program based on principles similar to EU ETS. TMG's program
is the first one to be implemented in Japan and Asia. This scheme achieved ~23%
reduction in emissions in its 2nd year (FY2011) compared to the base year.
8
3. EU Emissions Trading System
EU Emissions Trading System can be said to be the first large scale trading systems for energy efficiency
Energy Efficiency in India: PAT Scheme – The Way Ahead
To harness the substantial potential of energy savings and benefits of energy
efficiency, the Government of India enacted the Energy Conservation Act, 2001. The
Act provides for the legal framework, institutional arrangement and a regulatory
mechanism at the Central and State level to embark upon energy efficiency drive in
the country. Five major provisions of EC Act relate to Designated Consumers,
Standard and Labelling of Appliances, Energy Conservation Building Codes, Creation
of Institutional Set up (BEE) and Establishment of Energy Conservation Fund.
Designated Consumers: The government has notified energy intensive industries
and other establishments as designated consumers. The schedule to the Act provides
list of designated consumers which covers energy intensive industries, Railways, Port
Trust, Transport Sector, Power Stations, Transmission & Distribution Companies and
Commercial buildings or establishments. The DCs have to get an energy audit
conducted by an accredited energy auditor and have to comply with norms and
standards of energy consumption as prescribed by the central government.
Standards & Labelling Programme: The key objective of this scheme is to provide
the consumer an informed choice about the energy-saving and thereby the cost
saving potential of the relevant marketed product. The scheme is currently applicable
for 12 equipment/appliances, i.e. ACs, Tube lights, Frost Free Refrigerators,
Distribution Transformers, Induction Motors, Direct Cool Refrigerator, Geysers,
Ceiling fans, Colour TVs, Agricultural pump sets, LPG stoves and Washing machine,
of which the first 4 have been notified under mandatory labelling from 7th January,
2010. The other appliances are presently under voluntary labelling phase. The STAR
rating ranges from 1 to 5 in the increasing order of energy efficiency.
Energy Conservation Building Codes: ECBC was launched by the Government of
India on 27th May, 2007. The ECBC sets minimum energy standards for new
commercial buildings having a connected load of 100kW or contract demand of
120kVA in terms of Energy Conservation (Amendment) Act, 2010.
9
4. Energy Conservation in India
Several government programmes and organisations have been set-up to promote energy conservation and energy
efficiency in India
Energy Efficiency in India: PAT Scheme – The Way Ahead
State Energy Conservation Fund (SECF): The scheme is for support of INR 70 Cr.
as contribution by BEE to SECF to invest in Energy Efficiency projects. The effort will
be to create a pool of financially sustainable activities for SDAs (like training
programmes, fee for services, etc.) which can augment the fund. The funds were
disbursed to those states which have constituted their state energy conservation fund
and finalized the rules and regulations to operationalize the same.
Bureau of Energy Efficiency (BEE): The BEE is an institutional set up by
Government of India, under the Ministry of Power. It was created in March 2002. Its
primary objective is to reduce energy intensity in the economy. The agency's function
is to develop programs which will increase the conservation and efficient use of
energy in India. The mission of Bureau of Energy Efficiency is to "institutionalize"
energy efficiency services, enable delivery mechanisms in the country and provide
leadership to energy efficiency in all sectors of the country.
The Energy Conservation Act became effective and Bureau of Energy Efficiency
(BEE) was operationalized from 1st March, 2002. Energy efficiency institutional
practices and programs in India are now mainly being guided through various
voluntary and mandatory provisions of the Energy Conservation Act. The Energy
Conservation (Amendment) Bill was introduced in the Lok Sabha on March 8, 2010. It
amends the Energy Conservation Act, 2001
Energy Efficiency Services Limited (EESL): Ministry of Power has set up Energy
Efficiency Services Limited (EESL), a Joint Venture of NTPC Limited, PFC, REC and
Power Grid in order to develop a viable Energy Service Companies (ESCO) industry
and to facilitate implementation of energy efficiency projects. EESL will work as
ESCO, as Consultancy Organization for Energy Efficiency projects and as a
Resource Centre for capacity building of State Designated Agencies, Utilities, and
financial institutions. EESL will also lead the market-related actions of the NMEEE. It
will be the first such company exclusively for implementation of energy efficiency in
South Asia and amongst a very few such instances in the world. The concept of
performance contracting implemented by Energy Service Companies (ESCOs) is
being increasingly considered as a mechanism to overcome some of the barriers
hindering and discouraging the large-scale implementation of energy efficiency
projects.
10
Energy Efficiency in India: PAT Scheme – The Way Ahead
Overview
To address the issues of climate change and ecological sustainability, the government
of India launched the National Action Plan on Climate Change (NAPCC) in June,
2008. This nation-wide comprehensive plan outlines eight individual but related
proposals to promote efficient energy use and reduce the adverse effects on the
environment – National Solar Mission (NSM), National Mission for Enhanced Energy
Efficiency (NMEEE), National Mission on Sustainable Habitat, National Water
Mission, National Mission for sustaining the Himalayan Ecosystem, Nation Mission for
a “Green India”, National Mission for Sustainable Agriculture, National Mission on
strategic knowledge for Climate Change.
5. Energy Efficiency in India
5.1
Energy
Conservation
Act, 2001
• EE in Buildings
• Defined DCs and Industries
• EE Audits and ESCOs
• Appliance Labelling
Schemes related
to Energy
Efficiency
Electricity Act,
2003
• Open Access
• Mandatory RE purchase
• Demand Side Management
NMEEE
• PAT Scheme
• MTEE Scheme
• Financing for EE
• Promotion of EE designs
Energy
Conservation
Building Code
(ECBC)
• Set energy standards for
commercial buildings
• Rating program by BEE for
Buildings
National Mission
on Sustainable
Habitat (NMSH)
• Energy Efficient construction
• Track of buildings energy
performance
11
National Urban
Transport Policy
2006
• Focus on sustainable urban
infrastructure
• Emphasis on public transport
and fuel efficiency
Source: Ministry of Power, Secondary Research, Analysis by Tata Strategic
Fig 3: List of programs to promote energy efficiency
Energy Efficiency in India: PAT Scheme – The Way Ahead
National Mission on Enhanced Energy Efficiency (NMEEE)
The NMEEE scheme was launched in 2011 by the government of India with the
objective of “promoting innovative policy and regulatory regimes, financing
mechanisms, and business models which not only create, but also sustain, markets
for energy efficiency in a transparent manner with clear deliverables to be achieved in
a time bound manner.”
BEE, entrusted with implementation of NMEEE, creates and manages market for
energy efficiency to unlock investment of ~INR 74,000 Cr. The Mission is projected to
achieve ~23 Mtoe of fuel savings in coal, gas, and petroleum products, along with
expected avoided capacity addition of over 19GW by FY15.
The NMEEE has rolled out four different programs for the orderly implementation of
energy efficiency programs supplementary to the existing programs:
12
5. Energy Efficiency in India
5.2
S.No. Scheme Objectives
1. Perform Achieve and Trade
(PAT)
Improvements in energy intensive industries through
tradable energy savings certificates
2. Market Transformation for
Energy Efficiency (MTEE)
Shifting to energy efficient appliances in designated
sectors. Making energy efficient appliances affordable
and increase their levels of penetration
3. Energy Efficiency Financing
Platform (EEFP)
Creation of mechanisms that would help finance
demand side management programmes in all sectors
by capturing future energy savings
4.
Framework for Energy Efficient
Economic Development
(FEEED)
Developing fiscal instruments and policy measures like
PRGF and VCFEE, DSM etc. to promote energy
efficiency
Source: Ministry of Power, Secondary Research, Analysis by Tata Strategic
Fig 4: NMEEE programs to promote energy efficiency
Energy Efficiency in India: PAT Scheme – The Way Ahead
Perform, Achieve and Trade (PAT) Scheme
Perform, Achieve and Trade (PAT) is a market based mechanism to enhance cost
effectiveness of improvements in energy efficiency in energy-intensive large
industries and facilities, through certification of energy savings that could be traded.
The Government, in March 2007, notified units in nine sectors, namely Aluminium,
Cement, Chlor-alkali, Fertilizers, Iron and Steel, Pulp and Paper, Railways, Textiles
and Thermal Power Plants, as Designated Consumers (DCs).
The PAT scheme in its first phase of implementation, called PAT Cycle 1 (2012-
2015), covers 478 DCs in all identified industries except Railways. During the PAT
Cycle 1, the total energy saving targets is 6.686 Mtoe out of which more than 80%
lies in three industries, viz. Thermal Power Plants, Iron and Steel, and Cement with
targets of 3.211 Mtoe, 1.486 Mtoe and 0.816 Mtoe respectively.
13
5.3
Source: BEE, Secondary Research, Analysis by Tata Strategic
Fig 5: Sectors and DCs under PAT Scheme
Source: BEE, Secondary Research, Analysis by Tata Strategic
Fig 6: Sectorial share of projected savings through PAT Scheme
S.
No
Designated
Sector
No. of
DCs
Energy
Consumption
threshold
(toe)
Savings
Potential
(Million kWh)
Avoided
additional
Investment
(INR Cr)
1 Aluminium 10 7,500 708 751
2 Cement 85 30,000 1,268 1,343
3 ChlorAlkali 22 12,000 84 89
4 Fertilizer 29 30,000 743 787
5 Iron & Steel 67 30,000 2,308 2,446
6 Pulp & Paper 31 30,000 185 196
7 Textile 90 3,000 103 109
8 Power Plants 144 30,000 4,988 5,286
Total 478 10,387 11,006
Energy Efficiency in India: PAT Scheme – The Way Ahead
Perform, Achieve and Trade (PAT) Scheme
14
5.3
Source: Secondary Research,
Analysis by Tata Strategic
Fig 7: Stakeholders in PAT Scheme
Source: Secondary Research,
Analysis by Tata Strategic
Fig 8: PAT Scheme mechanism
Source: Secondary Research,
Analysis by Tata Strategic
Fig 9: Implications of PAT Scheme on DCs
Energy Efficiency in India: PAT Scheme – The Way Ahead
ALUMINIUM
Aluminium making process includes refinery, smelting units and integrated and cold
sheet mills. Major manufacturing steps are refining of bauxite ore to alumina
followed by the smelting of alumina into aluminium. Smelting is primary energy
intensive process consuming >80% of total electrical energy consumed.
The SEC threshold limit is set to 7,500 toe in aluminium sector. Under PAT cycle-I,
BEE has recognised 10 DCs across the states of Odisha, Karnataka, Jharkhand,
Chhattisgarh, Maharashtra and Uttar Pradesh. Total average reported energy
consumption of these designated consumers is about 7.71 Mtoe/ year in FY08-
FY10. By the end of the first PAT cycle, energy savings of 0.456 Mtoe/ year is
expected to be achieved. It is ~7% of total national energy saving targets assessed
under PAT.
CEMENT
India accounts for ~6% of world’s cement production with per capita cement
consumption of ~136 Kg against world average of ~396 Kg. Indian cement industry
is characterised by ~148 large cement plants (installed capacity: ~220 MTPA) and
350+ mini-cement plants (installed capacity: ~11 MTPA). Coal & electricity are main
sources of fuel and account for ~40% of manufacturing cost in some cement plants.
For cement sector, BEE has set the SEC threshold limit at 30,000 toe. There are 85
DCs identified across India, largest number of all chosen sectors. The total reported
energy consumption of these designated consumers is ~15 Mtoe. Energy savings
of 0.816 Mtoe/ year is expected to be achieved by the end of the first PAT cycle.
This accounts for ~12% of total national energy saving targets assessed under PAT.
CHLORALKALI
The ChlorAlkali industry includes the unit producing three inorganic chemicals
which are caustic soda, chlorine and soda ash. Caustic soda and chlorine are
produced simultaneously while soda ash is produced during a different process.
There are about 40 major caustic soda plants with an average plant size of 150 tons
per day (TPD). The Indian ChlorAlkali industry is driven by the demand for caustic
soda, and chlorine is considered a by-product.
15
Perform, Achieve and Trade (PAT) Scheme 5.3
80%
100%
60%
Note : 1) The ticker indicates the probable success rate of the scheme in the sector
Energy Savings Target under Cycle I: 0.456 Mtoe
Energy Savings Target under Cycle I: 0.816 Mtoe
Energy Savings Target under Cycle I: 0.054 Mtoe
Energy Efficiency in India: PAT Scheme – The Way Ahead
In first PAT cycle, 22 designated consumers from various States have been
identified using the threshold limit of 12,500 toe. The total reported energy
consumption of these designated consumers is about 0.88 Mtoe/ year. Specific
energy consumption of these 22 designated consumers varies from 0.262 to 0.997
toe/ year. By the end of the first PAT cycle, the energy savings of 0.054 Mtoe/ year
is expected to be achieved, which is 0.81% of total national energy saving targets
assessed under PAT.
IRON AND STEEL
Indian iron and steel industry is one of the highest energy consuming industries in
India. It can be broadly categorized into integrated steel producers and secondary
steel producers. Integrated steel producers have integrated steel units with captive
plants for iron ore and coke and on the other hand secondary producers use steel
scrap, sponge iron/ direct reduced iron or hot briquetted iron as raw materials. The
SEC of large integrated steel plants in India is between 6.5–7.0 GCal/ ton of crude
steel as against the international norm of 4.5–5.5 GCal/ ton.
The threshold level for this industry is set at 30,000 toe with 67 DCs falling in this
category. The specific energy consumption varies from 0.0527 to1.907 toe/ tonne
for these 67 designated consumers. By the end of the first PAT cycle, the energy
savings of 1.486 million ton of oil equivalent p.a. is expected to be achieved, which
is around 22% of total national energy saving targets assessed under PAT.
THERMAL POWER PLANTS
In India, thermal power plants generate ~65% of electricity consumed. Thermal
Power Plant sector has been categorized on the basis of their fuel input in to three
subsector i.e. gas, oil and coal based plants.
The identified threshold limit is 30,000 toe for Thermal Power Plant sector to
become designated consumers and about 144 designated consumers from various
states have been identified. Total reported energy consumption of these designated
consumers is ~104 Mtoe. By the end of first PAT cycle, energy savings of 3.211
Mtoe/ year is expected to be achieved, which is around 48% of total national energy
saving targets assessed under PAT. SEC or the net heat rate varies from 1774 kcal/
kWh to 5134 kcal/ kWh for these 144 designated consumers.
16
Perform, Achieve and Trade (PAT) Scheme 5.3
40%
70%
Note : 1) The ticker indicates the probable success rate of the scheme in the sector
Energy Savings Target under
Cycle I: 3.211 Mtoe
Energy Savings Target under Cycle I: 1.486 Mtoe
Energy Efficiency in India: PAT Scheme – The Way Ahead
BEE has played an exceptional role so far in promoting energy efficiency in India.
As mentioned earlier, before the PAT scheme was launched, BEE programs have
resulted in substantial savings resulting in avoidance of ~INR 20,000 Cr worth of
additional investment.
Based on the inputs received from the industry participants through the primary
interactions carried out for preparation of the report, ~60% success rate of the PAT
Cycle I is expected. This would amount avoidance of ~INR 6,500 Cr. worth of
investment through improved energy efficiency. The overall success rate is lower
largely due to low success rate of ~40% expected from the Power sector especially
due to inability of not so progressive state gencos to meet the targets and coal
quality & availability issues.
Going forward, it is understood that BEE is contemplating to cover more number of
sectors and more DCs within the chosen sectors to increase the efficacy of the PAT
scheme. This new sectors and new DCs could be intimated under Cycle II 2016-19.
17
Update 5.4
Submissions Frequency Date Comments
Submission of Form 1 Once in a
year 30th June -
Submission of Form A
(Performance Assessment
Document)
Once in 3
years
30th June,
2015
Can be voluntarily
submitted every
year
Submission of Form B
(Verification by AEAa)
Once in 3
years
30th June,
2015
Can be voluntarily
submitted every
year
Issuance of ESCerts Once in a
year August 2015 -
Submission of Form D
(Performance Compliance
Document)
Once in 3
years
30th
November,
2015
-
Source: BEE, Secondary Research
Fig 10: Required Submissions by DCs under PAT scheme
Energy Efficiency in India: PAT Scheme – The Way Ahead 18
Decision-making in India is still based on ‘Investment and payback’ and not on ‘life
cycle costing approach’ leading to less efficient equipment
Recessionary trends already putting lot of pressure on the toplines and bottomlines
of DCs
Low capacity utilization, inconsistent quality and unreliable availability of coal leads
are the major impediments for PAT cycle I under achievement
Lack of skilled labour leading to inefficient operations and thereby poor energy
performance
Regulators are still unclear about the framework and methodology for PAT
No guidelines or suggested measures by BEE for energy cost reduction
‘Measurement and verification’, an important part of baselining and improvement is
still not focussed on
CPP utilization is going down due to EE and RE measures leading to lower PLF and
hence, higher SHR
Power plants not incentivised to reduce auxiliary power consumption as PPA is
silent on sale of additional energy due to efficiency improvements
No adjustments provided in SEC for installation of additional pollution control
equipment required by stringent CPCB norms
In absence of price clarity for ESCerts, it is very difficult to justify any EE capex
investments to the top management
Oversupply of ESCerts likely to affect the ROI for the investment in energy efficient
projects by the DCs
6.1 Key Challenges faced by DCs with regard to PAT Compliance
6. The Industry Viewpoint
Industry stakeholders interviewed while preparing the report highlight several gaps and suggest forward looking
changes in India’s energy efficiency roadmap through the PAT scheme
Credible ESCOs required for capex intensive energy efficiency projects like WHR
Project based funding at low interest rates still very limited for energy efficiency
projects
For thermal power plants, EE capex is not considered statutory expenses unlike in
case of pollution control equipment. Hence, passing such expenditure to consumers
is very difficult
Business Specific
ESCerts related
Regulatory
Funding related
Energy Efficiency in India: PAT Scheme – The Way Ahead 19
In cases where EE are not viable, DCs have adopted RE options (Solar &
Wind) to achieve SEC targets
Installation of auto coal samplers to increase testing frequency for input
fuel to appropriately adjust the operating parameters and obtain accurate
GCV data for SEC calculation
Pre-drying of coal to ensure uniform combustion and thereby reduce
unburnt coal
Certifications like ISO 50001 have been adopted to increase awareness
and methodologically gear up all stakeholders towards energy efficiency
Waste Heat Recovery has been adopted primarily by cement sector but
the adoption remains low due to high capex
Reduced coal consumption by reducing unburnt coal by using catalysts
and improving burner efficiency
Adoption of alternative fuels like petcoke and hazardous waste to reduce
the SEC of the plant
6.2 Few measures adopted by DCs to become PAT compliant
Trading frequency should be at least 3-5 times per year to ensure enough
buyers and sellers during each trading cycle
Depth (number of companies) and Width (number of sectors) under PAT
scheme needs to be increased to ensure a competitive market for price
discovery and trading of ESCerts
Re-trading of ESCerts should not be allowed as it could lead to black
marketing
No clear regulations on ESCerts by BEE might lead to lot of ambiguity
and possible failure of PAT scheme
Lessons learnt from REC trading should be incorporated for trading of
ESCerts
• Lack of RPO enforcement leading to low demand and rock bottom
REC prices
• REC demand is low throughout the year and peaks only in month of
March due to regulatory deadlines. Such inputs should be built in to
decide the trading mechanism and frequency.
RECs and ESCerts should not be fungible unlike demanded by few
stakeholders as aim of both the certificates is clearly different – RECs for
Energy Security and ESCerts for Energy Efficiency
6.3 Comments on ESCerts trading
Energy Efficiency in India: PAT Scheme – The Way Ahead 20
Reluctance and conservatism of top management in India to have fruitful
profit sharing agreement with the ESCOs
Most of the EE projects are perceived as high risk projects as returns are
dependent on proper implementation & maintenance by DCs
EE projects involve high project development and transaction costs
reducing margins for EE financing agencies
Lack of specific performance guarantee and implementation support by
the OEMs
Limited number of credible ESCOs in India
Contractual ecosystem for performance contracting is absent in India
Many of the projects involve utilization of new or innovative technologies
which are difficult to evaluate
6.4 Feedback received from the Financing Agencies
6.5 Untapped Levers for Energy Management and improving Energy Efficiency
State of energy monitoring in plants in India needs a lot of improvement. “What gets
measured, gets done”. This simple management principle is quite relevant for energy
optimization. It can also lead to improvements in maintenance practices at the plant.
Few DCs have defined EnPIs at process and critical equipment level and consistently
monitor them. They have also formulated the reaction and escalation levels and
strategy for the same. This has led to gradual but substantial improvement in energy
efficiency of the plant.
Another potential area that could be targeted is proper baselining through correct
measurement and verification (M&V) protocols. Defining and following clear protocols
for M&V enables their smooth implementation and standardises the practice within
the organisation.
Lubricant technology is another area where awareness levels are very low. Some
synthetic lubricants can deliver energy efficiency savings of ~1 - 4% when compared
with conventional oils. An energy efficient lubricant will not only cater to extreme
operating conditions (heat, dust, etc.) but at the same time, also ensure that there is
an overall reduction in the energy consumed by the equipment.
Energy Efficiency in India: PAT Scheme – The Way Ahead
2.5 Regulations in India: JNNSM Phase I 6.6 Comparison of Indian energy intensive sectors with Global Standards
Source: Primary Research, Analysis by Tata Strategic
21
Cement
Steel
Thermal
Power
Plants
Aluminium
Chlor-Alkali
Summary of comments from key stakeholders
“Private Sector power plants are doing well in India but the
large share of government sector especially the state
power plants that drags down the sector in terms of energy
efficiency”
Stakeholders
8
6
4
6
7
“Large integrated steel plants are at par or in fact better
than global peers but the smaller plants need to improve a
lot”
“Most of the cement plants in India are technologically
advanced and at par with global standards”
“Large cement plants are at par with global peers, but the
small to mid size plants still have a lot to improve”
“Aluminium sector has few players and almost all of them
are at par or a little behind the global benchmarks in terms
of energy efficiency”
“Chlor-Alkali sector has improved a lot under PAT scheme
and has adopted advanced measurement & monitoring for
focussing their efforts to reduce energy consumption within
the plants”
View of
Cycle I
targets
Cement
Power
ChlorAlkali Aluminium
Steel
Will most of
companies in
respective sector meet
their PAT targets?
Ratings#
Med
High
Med
High
Med
6.7 Expectations on meeting PAT targets
Fig 12: Expectations on meeting PAT targets
Source: Primary Research, Analysis by Tata Strategic
Fig 11: Views on PAT targets and Energy Efficiency of the sector #Ratings on the sector with regard to Energy
Efficiency compared to global standards
1 – Least Efficient 10 – Best in Class
Energy Efficiency in India: PAT Scheme – The Way Ahead 22
Strong monitoring and reporting system can build confidence and
facilitate linkage to international carbon markets & global EE funds
BEE could help DCs develop measurement and verification capabilities
for PAT scheme to be robust
BEE needs to play a more active role of mentor to support DCs
Cycle II targets would be stringent and would need substantial capex but
country doesn’t have credible EE debt financing institutions, which should
be a priority
More clarity on trading mechanism and price bands for ESCerts needed
Baselining and Target setting in Cycle II could be more transparent and
collaborative
Clarifications for T&D sector and Railways should be announced (huge
energy losses and high improvement potential)
Guidelines for implementation of Energy Management Systems (EnMS)
should be set and such systems should be made mandatory for DCs
BEE should create a central monitoring body on the lines of CPCB to
enhance monitoring
BEE should publish success stories to encourage adoption of EE
measures among DCs
DENAs should play more active role beyond data collection and provide
energy performance improvement measures
Depth (number of companies) and Width (number of sectors) under PAT
scheme needs to be increased by decreasing the threshold for selection
and including other sectors like Railways and T&D
Government should launch practical skill building programs to ensure
adequate supply for qualified technical labour
6.8 Suggestions by Industry Players for Policy Makers and Regulators
Energy Efficiency in India: PAT Scheme – The Way Ahead
7. Conclusion
23
Energy demand in India has been growing at 6% CAGR on account of industrial
development and, rising population and evolving lifestyle aspirations. In order to
promote energy efficiency as one of the means for addressing growing energy
demand, BEE has launched PAT scheme for energy intensive industries such as
Power, Steel, Cement, Aluminium, ChlorAlkali which accounts for 45% of total
industrial energy consumption.
PAT scheme has kicked off the energy efficiency drive in India. It has been a
blessing in disguise for most of the designated consumers. It has enabled the
management implement several energy efficiency programs and thereby, reduce
their energy bill.
Findings from the study conducted by TATA Strategic revels that most of the industry
stakeholders applaud the scheme in principle. Comparison of Indian energy
intensive sectors against some of the best global peers reveals different picture for
different sectors – Cement emerging as the most advanced while Thermal power
emerging as the least advanced in terms of energy efficiency and overall energy
management. Stakeholders especially the designated consumers opined that
current policy has helped them reduce their energy bill. However, they also
expressed concerns regarding weak handholding by regulators and DENAs,
inflexible approach for normalisation, less clarity on M&V, absence of regulations for
ESCerts trading, likely over-supply of ESCerts, financing requirements for EE
measures especially to meet Cycle II targets. Several of them have suggested a
host of measures to be taken up by the regulators in order to enhance the efficacy of
the scheme going forward including strong M&V portal, disseminating information
about sector progress, success stories and best practices, building capacity among
stakeholders, widening depth and width of ESCerts markets, and promoting credible
EE financing institutions. Proactive implementation of such suggestions would mark
making of vibrant energy efficiency market in India.
Tata Strategic believes that the scheme has established need for innovative energy
efficient equipment, solutions and business models along with helping the DCs in
energy cost reduction. Evolving EE market along with the project next growth phase
of Indian economy offers growth opportunities for global OEMs, energy efficiency
product manufacturers, energy monitoring companies and software solution
providers going forward.
Energy Efficiency in India: PAT Scheme – The Way Ahead
Annexure
24
List of Companies participated in the Primary Research
Energy Efficiency in India: PAT Scheme – The Way Ahead
About TATA Strategic
25
Industry Domains and Functional Areas
Energy Efficiency in India: PAT Scheme – The Way Ahead 26
Overview of Energy Practice
Our Client Service Offerings
About TATA Strategic
Energy Efficiency in India: PAT Scheme – The Way Ahead
OVERVIEW OF ENERGY PRACTICE OFFERINGS
27
Select Experience in Power Sector
1. Performance improvement, energy cost reduction and PAT compliance
through adoption of energy efficient measures
a. Conducted plant energy audit to identify energy efficiency measures in main
plant and 60 MW CPP
b. Recommended strategic efficiency measures for Energy cost reduction
c. Recommended strategies for Cycle 1 & 2 PAT compliance
d. Provide continuous implementation support to the client team
2. O&M services outsourcing and BTG after sales market assessment for a
leading Power equipment manufacturer
a. Interacted with various players across the value chain including power plants
(State and Central, CPPs, IPPs) 3rd party O&M service providers and OEMs
b. Identified key customer segments to develop market understanding including
key trends, maintenance policies, approval processes etc.
c. Assessed the addressable market opportunity and identified success factors
for O&M services and BTG after sales market in the Indian Power Sector
3. Feasibility analysis and business model formulation for a leading MNC for
usage of Lithium Ion batteries on ‘pay per use’ model
a. Ascertain feasibility of electric commercial vehicles in India and application of
Li Ion in the same
b. Develop business model for primary usage, secondary usage and tertiary
usage of Li Ion batteries
c. Develop business plan for pay per use model of usage of batteries
4. Market assessment for micro-turbines based power generation in India
a. Assessed power scenario and analysed customer segments to understand
needs/ challenges and paying propensity
b. Prepared competitive landscape by understanding current solutions deployed
c. Analysed the new technology and its value proposition for the target market
d. Developed preliminary business model with respect to value proposition, go
to market approach and partnerships required & roles of partners
5. State-wise demand estimation for DG sets in India
a. Analysed economic parameters & state wise power scenario to estimate
segment wise current DG demand in various states
b. Identified customers mix and their expected contribution to DG demand
Energy Efficiency in India: PAT Scheme – The Way Ahead
TATA Strategic Contacts
Manish Panchal
PRACTICE HEAD – CHEMICAL & ENERGY
E-mail: [email protected]
Phone: +91 22 6637 6713
Shardul Kulkarni
PRINCIPAL – ENERGY
E-mail: [email protected]
Phone: +91 22 6637 6728
Shailesh Agrawal
ASSOCIATE CONSULTANT – ENERGY
E-mail: [email protected]
Phone: +91 22 6637 6706
Mumbai
B - 1001, Marathon Futurex,
N.M. Joshi Road
Lower Parel (East),
Mumbai 400 013. INDIA
Tel:+91 22 66376789
Fax: +91 22 66376600
Delhi
Level 12, Building No.8, Tower C
DLF Cyber City, Phase II
Gurgaon – 122002
Haryana, INDIA
Tel:+91 124 4696692
Fax: +91 124 4696970
Report was co-authored by Manan Agrawal,
Analyst at Tata Strategic Management Group