Energy Efficiency in India: PAT Scheme - The Way Ahead

Transcription

1 Energy Efficiency in India: PAT Scheme - The Way Ahead Energy Management and Excellence Summit Knowledge Paper prepared by TATA Strategic Management Group July 2014 Knowledge Partner Event Organiser

2 TABLE OF CONTENTS Energy Management and Excellence Summit FOREWORD EXECUTIVE SUMMARY 1. Introduction 2. Energy Efficiency: Global Trends and Regulations 3. EU Emissions Trading System 4. Energy Conservation in India 5. Energy Efficiency in India 5.1 Overview 5.2 National Mission on Enhanced Energy Efficiency (NMEEE) 5.3 PAT 5.4 Update 6. Industry Viewpoint 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 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 7. Conclusion Annexure About Energy Practice Offerings and TATA Strategic i

3 List of Figures Energy Management and Excellence Summit 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

4 BEE CAGR CIS CPCB DCs DECC DENA DSM ECBC EE EEFP EESL EnMS EnPIs ESCerts ESCO ETS EU EU ETS FEEED GDP M&V MTEE Mtoe MTPA NAPCC NEEAP NMEEE NSM OECD OEM PAT PRGF REC ROI RPO SEC SECF toe VCFEE LIST OF ABBREVIATIONS Bureau of Energy Efficiency Compounded Annual Growth Rate Commonwealth of Independent States Central Pollution Control Board Designated Consumers Department of Energy and Climate Change Designated Energy Auditors Demand Side Management Energy Conservation Building Code Energy Efficiency Energy Efficiency Financing Platform Energy Efficiency Services Limited Energy Management Systems Energy Performance Indicators Energy Savings Certificates Energy Service Companies Emissions Trading Scheme European Union European Union Emissions Trading Scheme Framework for Energy Efficient Economic Development Gross Domestic Product Measurement and Verification Market Transformation for Energy Efficiency Million Tonnes of Oil Equivalent Million Tonnes Per Annum National Action Plan on Climate Change National Energy Efficiency Action Plan National Mission for Enhanced Energy Efficiency National Solar Mission Organization for Economic Cooperation and Development Original Equipment Manufacturer Perform Achieve & Trade Partial Risk Guarantee Fund for Energy Efficiency Projects Renewable Energy Certificates Return on Investment Renewable Purchase Obligations Specific Energy Consumption State Energy Conservation Funds Tonnes of Oil Equivalent BEE Venture Capital Fund for Energy Efficiency iii

5 FOREWORD 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 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. 1

6 EXECUTIVE SUMMARY 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. 2

7 1. Introduction Energy security, energy shortage concerns and climate change initiatives driving India towards efficient energy use 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 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 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 As per Tata Strategic estimates, between 2007 and 2010, BEE programs have resulted in savings of 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 Under this action plan, National Mission for Enhanced Energy Efficiency (NMEEE) was launched with several targets for fiscal year Some of the targets are annual fuel savings of at least 23 Mtoe, a cumulative avoided electricity capacity addition of 19 GW, and a CO 2 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. 3

8 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 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. Primary Energy Consumption per million people (TOE) Trends in Per-Capita Energy Consumption (00 kwh) World Average 1.8 India China US Germany Fig 1: Increasing energy consumption in India Source: Secondary Research, Analysis by Tata Strategic 4

9 2. Energy Efficiency: Global Trends and Regulations Energy intensity has been decreasing throughout the world by improvements in energy efficiency 2.1 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. Fig 2: Total Energy Consumption pattern for the world Source: Enerdata, Secondary Research, Analysis by Tata Strategic 5

10 2.2 Country Snapshots Country Energy Efficiency Program and its aim Comments USA Germany Japan Global Climate Change Initiative (2002) 18 % reduction in greenhouse gas intensity by 2012 National Energy Efficiency Action Plan (NEEAP) Reduce primary energy consumption by 20% by 2020 and by 50 % by 2050, compared with 2008 National Energy Strategy 2006 Improve energy efficiency by at least 30% by 2030 compared with its 2003 level EE program includes tax incentives for renewable energy, cogeneration and new technologies Voluntary agreements with the business community; comprehensive transportation programs, etc. 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 NEEAP sets energy savings target of 231 TWh in sectors not covered under the EU Energy Trading Scheme (ETS). 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 6

11 2.2 Country Snapshots Country Energy Efficiency Program and its aim Comments United Kingdom France China National Energy Efficiency Action Plan Energy savings target of TWh by 2016 in sectors not under the Emissions Trading Scheme (ETS) National Energy Efficiency Action Plan Energy savings target of at least 9% (139 TWh) by th Five-Year Plan ( ) 16% energy intensity reduction target for 2015 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 The 2005 energy law aims to reduce final energy intensity by 2% p.a. by 2015 and by 2.5%/ year between 2015 and It also implements energy saving obligations for energy utilities, known as the energy savings certificate scheme. Plans to invest US$372 billion to save energy and launch antipollution 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. 7

12 3. EU Emissions Trading System EU Emissions Trading System can be said to be the first large scale trading systems for energy efficiency 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 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 ( ) 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 ( ) 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 ( ) 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 , aims at achieving 43% reduction in EU CO 2 emissions compared to that of 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 2 nd year (FY2011) compared to the base year. 8

13 4. Energy Conservation in India Several government programmes and organisations have been set-up to promote energy conservation and energy efficiency in India To harness the substantial potential of energy savings and benefits of energy efficiency, the Government of India enacted the Energy Conservation Act, 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, 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, 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,

14 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 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, 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, 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

15 5. Energy Efficiency in India 5.1 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, 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. Energy Conservation Act, 2001 EE in Buildings Defined DCs and Industries EE Audits and ESCOs Appliance Labelling Electricity Act, 2003 Open Access Mandatory RE purchase Demand Side Management Schemes related to Energy Efficiency NMEEE Energy Conservation Building Code (ECBC) National Urban Transport Policy 2006 PAT Scheme MTEE Scheme Financing for EE Promotion of EE designs Set energy standards for commercial buildings Rating program by BEE for Buildings Focus on sustainable urban infrastructure Emphasis on public transport and fuel efficiency National Mission on Sustainable Habitat (NMSH) Energy Efficient construction Track of buildings energy performance Fig 3: List of programs to promote energy efficiency Source: Ministry of Power, Secondary Research, Analysis by Tata Strategic 11

16 5. Energy Efficiency in India 5.2 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: S.No. Scheme Objectives Perform Achieve and Trade (PAT) Market Transformation for Energy Efficiency (MTEE) Energy Efficiency Financing Platform (EEFP) Framework for Energy Efficient Economic Development (FEEED) Improvements in energy intensive industries through tradable energy savings certificates Shifting to energy efficient appliances in designated sectors. Making energy efficient appliances affordable and increase their levels of penetration Creation of mechanisms that would help finance demand side management programmes in all sectors by capturing future energy savings Developing fiscal instruments and policy measures like PRGF and VCFEE, DSM etc. to promote energy efficiency Fig 4: NMEEE programs to promote energy efficiency Source: Ministry of Power, Secondary Research, Analysis by Tata Strategic 12

17 5.3 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 ( ), covers 478 DCs in all identified industries except Railways. During the PAT Cycle 1, the total energy saving targets is Mtoe out of which more than 80% lies in three industries, viz. Thermal Power Plants, Iron and Steel, and Cement with targets of Mtoe, Mtoe and Mtoe respectively. S. No Designated Sector No. of DCs Energy Consumption threshold (toe) Savings Potential (Million kwh) Fig 5: Sectors and DCs under PAT Scheme Source: BEE, Secondary Research, Analysis by Tata Strategic Avoided additional Investment (INR Cr) 1 Aluminium 10 7, Cement 85 30,000 1,268 1,343 3 ChlorAlkali 22 12, Fertilizer 29 30, Iron & Steel 67 30,000 2,308 2,446 6 Pulp & Paper 31 30, Textile 90 3, Power Plants ,000 4,988 5,286 Total ,387 11,006 Fig 6: Sectorial share of projected savings through PAT Scheme Source: BEE, Secondary Research, Analysis by Tata Strategic 13

18 5.3 Perform, Achieve and Trade (PAT) Scheme 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 Source: Secondary Research, Analysis by Tata Strategic 14

19 5.3 Perform, Achieve and Trade (PAT) Scheme ALUMINIUM Energy Savings Target under Cycle I: Mtoe 80% 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 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 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 Energy Savings Target under Cycle I: Mtoe 60% Energy Savings Target under Cycle I: Mtoe 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. 100% Note : 1) The ticker indicates the probable success rate of the scheme in the sector 15

20 5.3 Perform, Achieve and Trade (PAT) Scheme 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 to toe/ year. By the end of the first PAT cycle, the energy savings of Mtoe/ year is expected to be achieved, which is 0.81% of total national energy saving targets assessed under PAT. IRON AND STEEL 70% Energy Savings Target under Cycle I: Mtoe 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 GCal/ ton of crude steel as against the international norm of 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 to1.907 toe/ tonne for these 67 designated consumers. By the end of the first PAT cycle, the energy savings of 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 Energy Savings Target under Cycle I: Mtoe 40% 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 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. Note : 1) The ticker indicates the probable success rate of the scheme in the sector 16

21 5.4 Update 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 Submission of Form D (Performance Compliance Document) Once in 3 years 30th November, Fig 10: Required Submissions by DCs under PAT scheme Source: BEE, Secondary Research 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

22 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 6.1 Key Challenges faced by DCs with regard to PAT Compliance Business Specific 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 ESCerts related 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 Regulatory 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 Funding related 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 18

23 6.2 Few measures adopted by DCs to become PAT compliant Reduced coal consumption by reducing unburnt coal by using catalysts and improving burner efficiency Pre-drying of coal to ensure uniform combustion and thereby reduce unburnt coal Adoption of alternative fuels like petcoke and hazardous waste to reduce the SEC of the plant 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 In cases where EE are not viable, DCs have adopted RE options (Solar & Wind) to achieve SEC targets Waste Heat Recovery has been adopted primarily by cement sector but the adoption remains low due to high capex Certifications like ISO have been adopted to increase awareness and methodologically gear up all stakeholders towards energy efficiency 6.3 Comments on ESCerts trading 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. Re-trading of ESCerts should not be allowed as it could lead to black marketing 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 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 Trading frequency should be at least 3-5 times per year to ensure enough buyers and sellers during each trading cycle No clear regulations on ESCerts by BEE might lead to lot of ambiguity and possible failure of PAT scheme 19

24 6.4 Feedback received from the Financing Agencies Contractual ecosystem for performance contracting is absent in India EE projects involve high project development and transaction costs reducing margins for EE financing agencies Many of the projects involve utilization of new or innovative technologies which are difficult to evaluate Most of the EE projects are perceived as high risk projects as returns are dependent on proper implementation & maintenance by DCs Reluctance and conservatism of top management in India to have fruitful profit sharing agreement with the ESCOs Limited number of credible ESCOs in India Lack of specific performance guarantee and implementation support by the OEMs 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. 20

25 Comparison of Indian energy Regulations intensive sectors India: JNNSM with Global Phase Standards I Stakeholders View of Cycle I targets Ratings # Summary of comments from key stakeholders Cement Med 8 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 Steel High 6 Large integrated steel plants are at par or in fact better than global peers but the smaller plants need to improve a lot Thermal Power Plants Aluminium Chlor-Alkali Med High Med Fig 11: Views on PAT targets and Energy Efficiency of the sector Source: Primary Research, Analysis by Tata Strategic 6.7 Expectations on meeting PAT targets 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 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 # Ratings on the sector with regard to Energy Efficiency compared to global standards 1 Least Efficient 10 Best in Class Aluminium Will most of companies in respective sector meet their PAT targets? ChlorAlkali Cement Power Steel Fig 12: Expectations on meeting PAT targets Source: Primary Research, Analysis by Tata Strategic 21

26 6.8 Suggestions by Industry Players for Policy Makers and Regulators Strong monitoring and reporting system can build confidence and facilitate linkage to international carbon markets & global EE funds Baselining and Target setting in Cycle II could be more transparent and collaborative 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 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 Clarifications for T&D sector and Railways should be announced (huge energy losses and high improvement potential) More clarity on trading mechanism and price bands for ESCerts needed 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 Government should launch practical skill building programs to ensure adequate supply for qualified technical labour 22

27 7. Conclusion 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. 23

28 Annexure List of Companies participated in the Primary Research 24

29 About TATA Strategic Industry Domains and Functional Areas 25

30 About TATA Strategic Our Client Service Offerings Overview of Energy Practice 26

31 Select Experience in Power Sector OVERVIEW OF ENERGY PRACTICE OFFERINGS 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 27

32 TATA Strategic Contacts Manish Panchal PRACTICE HEAD CHEMICAL & ENERGY Phone: Shardul Kulkarni PRINCIPAL ENERGY Phone: Shailesh Agrawal ASSOCIATE CONSULTANT ENERGY Phone: Report was co-authored by Manan Agrawal, Analyst at Tata Strategic Management Group Mumbai B , Marathon Futurex, N.M. Joshi Road Lower Parel (East), Mumbai INDIA Tel: Fax: Delhi Level 12, Building No.8, Tower C DLF Cyber City, Phase II Gurgaon Haryana, INDIA Tel: Fax: