Energy Efficiency in India: PAT Scheme - The Way … Efficiency in India: PAT Scheme – The Way...

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


TABLE OF CONTENTS


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


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


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


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


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


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.


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


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


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


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


Country Snapshots

7

2.2

Country

Energy Efficiency

Program

and its aim

Comments

United

Kingdom

National Energy


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


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.


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


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


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


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.


5.1

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


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


5.2

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


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


Perform, Achieve and Trade (PAT) Scheme

14

5.3

Source: Secondary Research,

Analysis by Tata Strategic

Fig 7: Stakeholders in PAT Scheme



Fig 8: PAT Scheme mechanism



Fig 9: Implications of PAT Scheme on DCs


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




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



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


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


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.


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


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


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.


Annexure

24

List of Companies participated in the Primary Research


About TATA Strategic

25

Industry Domains and Functional Areas


Overview of Energy Practice

Our Client Service Offerings

About TATA Strategic


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


TATA Strategic Contacts

Manish Panchal

PRACTICE HEAD – CHEMICAL & ENERGY

E-mail: [email protected]

Phone: +91 22 6637 6713

Shardul Kulkarni

PRINCIPAL – ENERGY


Phone: +91 22 6637 6728

Shailesh Agrawal

ASSOCIATE CONSULTANT – ENERGY


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

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