CII STEEL SUMMIT 2009 Implications of PAT Scheme for Technology Selection Balawant Joshi - Director November 2009
Energy Efficiency Legislation in India In India, industry accounts for 25% of National GDP and 44.4% of commercial energy use in India Since 2000, industrial GDP has been growing at 8.6% per annum, and energy use in industry has been growing at 5.8% per annum. The Energy Conservation Act, 2001, provides a legal mandate for energy-efficiency regulations for industry Under the EC Act, units in nine sectors, with energy consumption exceeding specified thresholds, have been notified as designated consumers Power Fertilizer Chlor-Alkali Iron & steel Cement Textile Pulp & paper Aluminum Railways Iron & Steel Industrial Sector is one of the notified sectors under the Energy Conservation Act, 2001
Background of PAT Scheme National Mission on Enhances Energy Efficiency (NMEEE) initiated by Ministry of Power (MoP) under National Action Plan on Climate Change (NAPCC) One of the four initiatives under the mission 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 This Scheme which is being called PAT Scheme and the Instrument which is likely to be called Energy Saving Certificate is expected to create market for undertaking energy efficiency in a a cost effective manner. savings that could be traded
Proposed PAT Scheme "Perform, Achieve and Trade" (PAT) scheme is a market-based mechanism to enhance EE in the Designated Consumers (DCs). Specification of specific energy consumption (SEC) norm for each designated consumer in the base year and in the target year- Statutory requirement for designated consumers under EC Act Verification of the SEC of each designated consumer in the base year and in the target year by an accredited verification agency Issuance of Energy Savings Certificates (ESCerts) to those designated consumers who exceed their target SEC reduction Trading of ESCerts with designated consumers who are unable to meet their target SEC reduction Checking of compliance, and reconciliation of ESCerts Fungibility with other MBIs such as REC, CERs, etc
Operational Framework for PAT Scheme 6. Third party Audit auditors 3. Industry A 4. Stock Exchange 2. Intermediary Transfer Depository agent Clearing House and ESCert issuance EScert Reports 3. Industry B 1. Bureau of Energy Efficiency Compliance Directive 1 ESCert = 1 TOE
Issues in Designing of PAT Scheme Methodology for setting up SEC norms for each DC in the base year and target year Systems and processes for efficient implementation of the Energy Savings Certificates (ESCerts) Regulations & institutions necessary for trading of ESCerts Trading process for ESCerts Issuance process for EScerts to those designated consumers who exceed their target SEC reduction Cross-sectoral use of ESCerts Mechanism for synergizing renewable energy certificates (RECs) with ESCerts
Setting SEC Norms Setting SEC norms include defining SEC, establishing baseline, defining and setting of targets etc. SEC has been defined as Million Tonne Oil Equivalent (MTOE) per tonne of the product as MTOE has well defined conversion factors Baseline of the plant has been defined as average of the two best years out of the last three years. Setting baseline also requires accounting for variables that could influence energy efficiency of the plant As industries operate over wide range of SEC, gap between the best and minimum values (defined as bandwidth ) is divided into 3-4 groups and separate achievement targets are set for each group
Different ranges within bandwidth Bandwidth of energy efficiencies in all sectors is large; old, low energy-efficiency units coexist with newer, state-of-the-art units Energy efficiency norms based on current relative efficiency of units within a sector; Highly energy-efficient units have lower improvement targets Units with lower energy efficiency have more stringent improvement targets Decrease the energy-efficiency bandwith of the sector Tin tries harder than bronze,, Gold sets world standards
Diversity of Scale in Steel Industry Large variation in scale of production capacities
Diversity in SEC in Steel Industry Specific Energy Consumption- Indian Plants 7.6 7.4 7.2 7 6.8 6.6 6.4 6.2 6 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Tata Steel, Jharkhand Bhilai Steel Plant Bokaro Steel plant JSW Steel SEC, GCal/tcs (1) Large bandwidth in specific energy consumption (2) The most energy efficient unit is also amongst the most efficient units in the world
Potential for EE in Steel Industry Source: Mckinsey India Cost Curve Model
EE Potential in Steel Sector as per McKinsey Two types of abatement opportunities: 1. Energy Efficiency Measures could reduce emission by around 70 million tonnes of CO2 e by 2030 Making process more energy efficient; Optimize energy use though processes such as pulverized coal injection and coke dry quenching Recovering of waste heat from various processes; 2. Technology Changes, recycled raw materials, and alternative fuels could reduce emission by around 42 million tonnes CO2 e by 2030; Smelt reduction through technologies such as direct smelting, which eliminates the need for coking plants. Moving to scrap based steel making, which requires one third the energy consumed by standard blast furnace using iron ore; Gas based Direct Reduced Iron (DRI),
Indian Steel Industry Trends in Thermal Specific Energy Consumption Source: Bureau of Energy Efficiency Over the past decade, energy efficiency in Indian Iron & Steel Industry has increased steadily. A CII Study estimated energy efficiency potential of minimum of 10% of total energy consumption. Specific Energy Consumption has been declining because of energy conservation in existing units, and due to new capacity addition with state of the art technology. Technological improvements at different stages of manufacturing process can further increase energy efficiency and reduce carbon emission
Institution Role Responsibility Authority Agency Policy Governor and Compliance Driver Market Governor Industry Roles of institutions Stock Exchange Transfer Agents / Depositories Third Party energy Auditors Compliance assurance through incentives and automatic penalties Ensure publicly available data Undertake energy efficiency measures; appoint accredited 3 rd party energy auditors Maintain data of traded prices, traded volumes and trends. Hold the ESC in electronic form. Reduce conflict of Interest; Accredit independent 3 rd party Energy auditors Maintain centralized data administration; strong quality assurance Maintain compliance with set energy efficiency benchmark Create efficient and transparent market for trading Provides services related to transactions in ESC. -- Audit industry energy savings Sets Compliance benchmarks; Resolve disputes through collaborative approach with petition process level playing field; Issue of ESC safeguard market integrity and enhance transparency in operations Bureau of Energy Efficiency (BEE) Bureau of Energy Efficiency -- Designated Consumers etc Power Exchange, NCDEX, MCX -- KARVY, CAMS, NSDL, CDSL Recommendation for the issue of ESCerts Accredited Auditors
Institutional Mechanism For PAT Scheme (1/4) Specification of specific energy consumption norm for each designated consumer in the base year and the target year: SEC = (Total Energy Purchased + Captive Energy Generation Total Energy Sold) / Production For a designated consumer: Specified SEC in target year = (F X Specified SEC in baseline year), where F < 1, and to be specified on the basis of the bandwidth of SEC amongst designated consumers in a sector, the specified SEC in the baseline year, and the total sectoral energy savings to be achieved.
Institutional Mechanism For PAT Scheme (2/4) Verification of the specific energy consumption of each designated consumer in the baseline year and in the target year by an accredited verification agency Energy use and production verification protocol for each sector Verification agencies would be accredited energy auditors under the EC Act who also assume liability for verification Designated consumers can use any accredited verification agency for verification Sample-based check testing of verification by another accredited verification agency.
Institutional Mechanism For PAT Scheme (3/4) Issuance of Energy Savings Certificates (ESCerts) to those designated consumers whose verified SEC is less than their specified SEC in the target year ESCerts denominated in tones of oil-equivalent ESCert is a virtual certificate lodged in account of designated consumer; transferred to account of another designated consumer on instructions from both parties Number of ESCerts issued to a designated consumer = (Verified SEC in target year Specified SEC in target year) X (Production in target year)
Institutional Mechanism For PAT Scheme (4/4) Checking of compliance and Reconciliation of ESCerts. For compliance with mandated SEC improvement: Verified SEC < Specified SEC + (ESCerts/ Production in target year For reconciliation of ESCerts: ESCerts issued = ESCerts Used for Compliance + ESCerts Carried Over to Next Compliance Period ESCerts used for Compliance are retired
Implications for Steel Industry All players will have to invest in energy efficiency improvement projects in their plants irrespective of their other capital expenditure measures. Situation could be difficult for small, high SEC players as their current cash flows may not support further capital expenditure. Currently scheme lacks clarity on various other issues such financing, CDM compatibility, etc.
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