Energy Economics and Policy

Transcription

1 Energy Economics and Policy Rangan Banerjee Forbes Marshall Chair Professor Department of Energy Science and Engineering IIT Bombay Invited Talk at National Research Workshop on Energy Technologies - 12 Jan 2017 IIEST, Shibpur, West Bengal, India

2 Decisions Yes/ No Viability of a specific option Best Possible option - Ranking or choice between different possible options All Technical Feasible Options included Criteria Cost-Initial cost, Operating cost Reliability Emissions Operational flexibility/ convenience

3 Lighting Choices Electronic Ballast Magnetic Ballast

4 Car Choices

5 Powering a remote Telecom tower

6 Existing Fuel Based System Steam Hot Water Fuel Water Air Boiler 95 o C Milk 30,000 litres/day Pasteuriser 85 o C

7 Modified Solar System Solar Radiation ARUN Storage Tank Fuel Water Air Boiler Steam (If required) Steam system stand by Hot Water 95 o C 85 o C Milk 30,000 litres/day Pasteuriser

8 Investing in Renewable Energy/ Energy Efficient Equipment? What are the factors that determine the costeffectiveness of the additional investment?

9 Parameters affecting Decision Amount of Investment Amount of Energy Saving (fossil fuel) Price of Energy Life of Equipment/ project Time Value of Money Renewables usually higher initial cost, lower operating cost

10 last accessed on Nov 20, 2016

11 Economic Criteria Simple Payback Period (SPP) Net Present Value (NPV) Benefit/ Cost Ratio (B/C) Internal Rate of Return (IRR) Life Cycle Costing Life Cycle Cost Annualised Life Cycle Cost (ALCC)

12 Simple Payback Period No of years in which investment pays for itself SPP = Initial Investment/ Annual Saving Limitations? A Inv Rs 100,000, Saving Rs B Inv Rs 120,000, Saving Rs 40,000 Decision?

13 Discount Rate Compare investment today with expected future benefits Discount rate represents how money today is worth more than in the future No theoretically correct value Lower bound bank interest rate

14 Discounting the future k Value in year Present Value 1 1/(1+d) 1/(1+d) k

15 Cash Flows Co A 1 A 2 A 3 A n n=1 n=2 n=3 n=20

16 Present Value For constant annual cash flows A

17 Capital Recovery Factor (CRF) CRF = f (d,n) d discount rate n life

18 NPV, IRR and B/C ratio NPV A n k k k 1 (1 d) C o B C n A k k 1 (1 d C o k ) C o n k k k 1 (1 IRR ) A

19 Annualised Life Cycle Cost Annualised Life Cycle Costs (ALCC) - annual cost of owning and operating equipment ALCC = C 0 CRF(d,n) + AC f + AC O&M CRF (d,n) =[ d(1+d) n ]/[(1+d) n -1] discount rate d, Life n years, C 0 Capital Cost,AC f, AC O&M, annual cost - fuel and O&M CRF Capital recovery factor

20 Methodology - Cost Analysis Solar Field Efficiency Turbine Efficiency Loss % Solar Insolation Solar Field Area Plant Efficiency Plant Output Operating Hours Storage Size Land Area Land Cost Solar Field Cost Plant Size HTF quantity HTF Cost Capacity Factor Collector Size Receiver Size Power Block Cost Storage Cost Capital Cost HX Cost O&M Replacement Costs Annualised Cost Life Discount Rate Cost of Generation

21 Annual Plant output Feed-in tariff MAT Rate Annual Revenue EBITDA Annual O&M Expenses Annual Working Capital Interest Rate EBT Interest Total Debt Annual Depreciation Taxes Loan repayment period Debt to equity ratio Depreciation Rate Salvage Value Net Profit Capital Cost Net annual repayment Net repayment upto i th year Free Cash Flow to Firm Free cash flow to equity IRR Equity

22 Marginal Abatement Cost Curve

23 Global Cost Curve

24 India Abatement Curve Source: McKinsey

25 What is an energy policy? 25

26 What is a policy? A policy is a principle or protocol to guide decisions and achieve rational outcomes(wiki) 26

27 Framework Decisions Stakeholders Policies Goals Criteria Analysis 27

28 Deciding Energy Policies Scope IIT Campus Powai Village Block Mumbai Maharashtra India Global Elements Decide Goals List out Policy instruments List out challenges Existing Institutions and roles Time Horizon Analytical framework 28

29 Policy Instruments Direct Subsidies Investment subsidies, production subsidies Taxes/ Duties/ Fiscal Incentives Legislation Standards and Labelling (Building Codes) R & D funding/ Demonstrations Removal of market barriers/ entry barriers Emissions trading, Renewable Energy Certificates, CERs, Certificates and Trading

30 India -Policy Documents Five Year Plans Integrated Energy Policy, 2008 National Action Plan on Climate Change JNNSM and NMEEE Electricity Regulation Commission Act 1998 Electricity Act 2003 UMPP 2005 Rural Electrification Policy 2006 INDC

31 Policy options Market or Government (Mandate/ Legislate) Regulation Energy Access Renewable Energy Energy Efficiency Nuclear Energy Pricing/ Taxes/Subsidies 31

32 INDC Reduce Carbon Intensity of GDP by 33-35% of 2005 level in 2030 Create 40% cumulative non fossil power by installed capacity by 2030 (using finance from Green Climate Fund) create an additional carbon sink of 2.5 to 3 billion tonnes of CO 2 equivalent through additional tree cover and forest 32

33 Capital Subsidy Source: GNESD,

34 Electricity Service and Price Source : UN Foundation,

35 Tariff Comparison Source : UN Foundation,

36 Community Involvement Source : UN Foundation,

37 DSM Measures used Source : UN Foundation,

38 Affordable Access Maharashtra Rajmachi INDIA Dissoli Lonarwadi 38

39 Sunderbans Microgrids - Organisation 17 micro grids Source: Ulsrud et al (2011) 39

40 Cost of Electricity Generation Capital cost Rs/kW Biomass Gasifier Solar PV + Battery 65,000 1,25,000 90,000 1,55,000 1,15,000 1,90,000

41 Selco Case study For profit company Solar Home systems started 1996 sold about 100,000 SHS 90% of products credit schemes Partnership with 9 banks interest rates between 12-17% Financing Institutions pay 85% of the amount- monthly payments of Rs over a period of 5 years Financing/ repayment options tailormade to end users paddy farmers repayment schedule based on crop cycle, street vendors daily payments Rs 10 Source: SELCO, 2011 Funding from REEP meet margin amount for poor customers, reduce interest rate 41

42 DESI Power Biomass based power solutions Bihar- 25 kw to 100 kw Local distributors decide pricing Registered under CDM and sold CERs to Swiss buyer MNRE funds, Promoters Equity, ICICI Loan Monthly rate based on no of bulbs / loads, Circuit breaker to limit consumption Irrigation pump users Rs 50/ hour, Household Rs per month Underground trunk wiring-distribution Enabling micro-enterprises battery charging station, flour mill, workshop etc Tie up with Telecom towers increasing capacity factor 42

43 Husk Power Initial funding prize money kw biomass gasifiers- based on rice husk Energy audit of households Focus on household demand for lighting Lower production, operating costs use of bamboo, asbestos Overhead pole wiring Directly reach end user 43

44 JNNSM Steps 44

45 Source: CEEW, NRDC,

46 Phase 1 Successful bids Source: Prayas report,

47 Phase 1 Successful bids Source: Prayas report,

48 NVVN Source: CEEW, NRDC,

49 JNNSM by Source Source: CEEW, NRDC,

50 Nuclear Liability Civil Liability for Nuclear Damage Act Operator Liability Limit Rs 1500 crores The operator shall have a right of recourse where-the nuclear incident has resulted is a consequence of an act of supplier or his employee, which includes supply of equipment or material with patent or latent defects or sub-standard services. 50

51 Indo-US Deal (Jan 2015) Nuclear Liability Fund Insurance cover of Rs 1500 crores Insurance premium from electricity supply price 51

52 New Nuclear Power Plants Kudankulam, Tamil Nadu VVERs Russia 2X1000 MW- Rs crores Jaitapur 9900 MW (6*1600 MW) Ratnagiri district French AREVA 9.3 Billion US $ 52

53 Source: PAT Consultation Document

54 Source: PAT Consultation Document

55 Target Setting for Aluminium Smelters Source: PAT consultation Document,

56 Source: PAT consultation Document,

57 Source: BEE - Dr Ashok Kumar presentation 57

58 PAT Steps Source: BEE - Dr Ashok Kumar presentation 58

59 Source: PAT Consultation Document

60 Setting Energy Consumption Norms Not feasible to define a single norm/standard unless there is significant homogeneity amongst units in a sector Energy efficiency improvement targets would have to be almost unit specific Bands of differential targets to be created within sectors Each DC mandated to reduce its SEC by a fixed percentage, based on its current SEC within the sectoral bandwidth Source: DG BEE presentation

61 Huge spread in Specific Energy Consumption within sectors Target is Plant Specific Less for Energy Efficient and more for Inefficient Plants Source: DG BEE presentation

62 SEC Spread and Grouping of DCs in Pulp & Paper Sector Wood : Ch. Pulping + SP RCF : Non-News Print Wood : Ch. Pulping + NSP Wood : News Print RCF : News Print Agro based 100% market Pulp Source: DG BEE presentation

63 PAT - Energy Savings Certificates - incentivize actions Baseline SEC Issued Escerts Penalty Target Achieved SEC Compliance Target SEC Purchase Escerts Source: DG BEE presentation Scenario 1 Scenario 2

64 Data Requirements and Verification Verification to be carried out by independent BEE-designated energy auditors (DENAs) SEC for a plant is based on the records of quantum of energy going into the plant and quantity of products shipped out of plant Cross check with records such as invoices, payment receipts, and excise paid Inplant renewable energy production would not be added to quantum of energy used Normalization factors for large changes (during the 3-year period) in: Share of captive electricity generation Capacity utilization Raw material quality/product Mix Source: DG BEE presentation

65 PAT progress SEC reduction targets notified for 478 units in 8 energy intensive sectors notified as Designated Consumers under EC Act. They sectors are: Aluminum, Cement, Iron & Steel, Chlor Alkali, Thermal Power Plants, Fertilizer, Pulp & Paper, and Textiles Targets to be accomplished in Normalization formulae notified in December 2013 ESCert issuance and trading Rules to be notified in March 2013 Accredited Energy Auditors listed Scope for second cycle (widening and deepening) being developed

66 PAT- Phase II 66

67 National Mission for Enhanced Energy Efficiency (NMEEE) Efficient Lighting Standards and Labelling 21 products Partial Risk Guarantee Fund for Energy Efficiency and Venture Capital Fund for Energy Efficiency GRIHA and ECBC PAT 67

68 Shared Savings Model 68

69 DELP: Current Scenario 69

70 DELP: Current Scenario 70

71 EESL LED Price reduction 71

72 Summing Up Efforts for cost reduction Discount rate, access to capital Govt policies

73 References BEE web site: Bureau of Energy Efficiency (BEE), Government of India, Ministry of Power, New Delhi, McKinsey, 2010: McKinsey Global Institute, India s urban awakening: Building inclusive cities, sustaining economic growth, April GNESD 2014: Renewable energy-based rural electrification: The Mini-Grid Experience from India. New Delhi: Prepared by The Energy and Resources Institute (TERI) for the Global Network on Energy for Sustainable Development (GNESD).

74 References Ulsrud et al (2011): The Solar Transitions research on solar mini-grids in India: Learning from local cases of innovative socio-technical systems, Ulsrud, K., et al, Energy for Sustainable Development, 15, , 2011 S.B.Kedare, Solar Concentrators for Process Heat, Proc ICORE 2005, p R.Banerjee, Comparison of Distributed generation Options for India, Energy Policy 34, 2006,p last accessed on Nov 20, 2016 UN Foundation 2014: Microgrids for Rural Electrification: A critical review of best practices based on seven case studies, United Nations Foundation, February Jacobsen, Energy Policy, 2005: Jacobsen et al, Energy Policy, Energy Policy 33 (2005) Krishnamurthy, P., Mishra, S., and Banerjee, R., An analysis of costs of parabolic trough technology in India, Energy Policy, Volume 48, , September 2012.