Unique scheme for energy efficiency

SAURABH KUMAR

The Power Ministry had notified units consuming more energy in paper and
some industries.

India's Perform, Achieve and Trade Mechanism creates a market for energy
efficiency through tradable certificates.

As the sun was setting on the previous fiscal year, the Ministry of Power
and Bureau of Energy Efficiency (BEE) were quietly resurrecting a historic
regulation for accelerating energy efficiency in the industrial sector. The
set of notifications issued on March 30, 2012, requires 478 industries to
achieve reductions in specific energy consumption by an average of 5 per
cent during the next 3 years. This scheme is the first of its kind in a
developing country.
PERFORM, ACHIEVE, TRADE

The Perform, Achieve and Trade (PAT) mechanism, as the scheme is called,
requires notified industries to invest in energy efficiency and reduce at
least 5 per cent of input energy cost for self and public good. The savings
in the first three years of the scheme are estimated at 9.8 million tonnes
of oil equivalent of energy or approximately 9000 MW of avoided thermal
power capacity, without compromising on the industrial output.

The direct benefits for the participating industries in this period is
reductions in input costs related to energy of approximately Rs 30,000
crore at the current oil prices.

Needless to add, this will significantly enhance global competitiveness of
industry while simultaneously reducing India's overall GHG emissions. The
PAT scheme is the flagship scheme of the National Mission for Enhanced
Energy Efficiency (NMEEE), which is one of the 8 national missions
announced under the National Action Plan on Climate Change (NAPCC) by the
Prime Minister in June 2008.

The thrust of NAPCC is towards development of multi-pronged, long-term, and
integrated strategies for achieving key goals of sustainable development,
while balancing the concerns of climate change.

The scheme builds on the provision of the Energy Conservation Act that
empowers the Central Government to notify energy-intensive industries and
mandate them to report their energy usage, appoint Energy Managers, and
adhere to targets for energy efficiency.

The Ministry of Power had, in 2007, notified units consuming energy more
than the prescribed benchmark in 9 industrial sectors — namely Thermal
Power Plants, Fertilisers, Cement, Pulp and Paper, Textiles, Chlor Alkali,
Steel, Aluminium and Railways. The present notification requires the 478
listed industries amongst the 9 industrial sectors to achieve the target
for Specific Energy Consumption (SEC) by 2015. SEC, as defined under the
scheme, is the energy used for generating a unit of output.
ENERGY EFFICIENCY

The scheme is unique in many ways, particularly from a developing-country
perspective. Firstly, it creates a market for energy efficiency through
tradable certificates, called Energy Saving Certificate (ESCerts) by
allowing them to be used for meeting targets. These certificates can be
issued to any of the 478 industries who are able to exceed their respective
notified target, the value of the certificate being the excess achievement,
more than the target set. The beneficiary industry could trade this
certificate to any of the rest of the entities (of the 478) that is unable
to meet its target, as buying ESCerts has been allowed as sufficient
fulfilment of compliance requirement without any penal action.

Thus, the scheme, by allowing the use of market-based instrument in the
form of ESCerts, incentivises to over-achieve at the individual industry
level, while simultaneously making sure that the overall goal of improving
energy intensity is achieved in the most economical manner. This innovative
mechanism to encourage compliance is a significant departure from the
command and control regime, while promising to be more efficient,
transparent, and inclusive.

Secondly, the rules promulgated take note of the fact that the scheme,
particularly its market creation goal, needs to align with the investment
decision-making processes of the private sector. In order to make sure that
industries take a considered decision of making investments for achievement
of specified targets or purchasing ESCerts, the certainty of adequate
numbers of ESCerts being available as well as their price needs to be known
much earlier than the end of the compliance period.

Under normal circumstances, both these parameters would be known at the end
of the compliance period of 3 years. The rules notified allow intermediate
issue of ESCerts after every year, based on partial fulfilment of targets,
and thereby enable sufficient liquidity of ESCerts in the market at the end
of the first year itself, allowing for decision by the remaining actors to
purchase them for compliance. This will create the critical mass for market
for ESCert to function.
SIMPLE, TRANSPARENT

Thirdly, the monitoring and verification protocol of the scheme culls out
the best from similar schemes around the globe, simultaneously making it
simple, transparent and effective. The targeted reduction of SEC is
measured on a gate-to-gate basis, by measuring energy usage per unit of
output. The simplicity of approach will not only make the exercise robust,
but will also encourage companies to comply due to reduced cost of
compliance.

Fourthly, the rules outline the monitoring and verification mechanism by
inviting reputed agencies having adequate technical knowledge and having
energy auditors certified by BEE. The eligibility conditions, the manner of
their appointment, have been elaborated in the rules, making them
transparent and credible at par with global standards. It also includes a
liability clause for the monitoring and verification agencies to guard
against frivolous certifications.

Fifthly, the scheme assimilates several competing issues seamlessly under
its domain. Being an energy intensity reduction (or energy efficiency)
scheme, it doesn't present any restriction on the expansion of capacity. It
may be mentioned that an energy or emission cap scheme would have needed
reduction in energy use, and thereby the output from the baseline.

The added incentive of ESCerts and its attendant additional monetary
benefits enhances the attractiveness of implementing energy efficiency. The
overall reduction in energy use enhances efforts towards energy security,
reducing GHG emissions, while simultaneously taking the industry on a
higher growth path.

The scheme has been a result of extensive consultations, both at the policy
level as well as with the industries, and addresses most of the concerns.
PAT scheme has all the traits to become a benchmark for design and
implementation of policies and measures, particularly when the need for
aligning of competing incentives of various actors exists. It also
highlights an innovative approach of introducing market-based instruments
to encourage compliance. Successful implementation of the scheme could
serve as a model for upcoming and existing environmental regulations in a
transparent and economically efficient manner.

(The author is Programme Officer, OzoneAction Programme, United Nations
Environment Programme, Bangkok.)

-
Gopinath S
Chief Executive
nRG Consulting Services, Bangalore
http://in.linkedin.com/in/gopimysore
http://nrgcs.blogspot.com/
+91 99161 29728

How India is getting gas and coal policy wrong

EDITORIAL: How India is getting gas and coal policy wrong
by Sunita Narain
======================================================
Two monopolies. One private and the other public; one in gas and one in
coal. Both equally disastrous for the environment. I speak here of
Reliance Industries Ltd and Coal India Ltd.

We know that air pollution in Indian cities is hazardous. We need urgent
solutions to cut emissions from all sources so that we do not lose this
critical health battle. In Delhi and its surrounding region, for
instance, we know that air toxins are a clear and present danger. The
tiny particles of PM 2.5 that can go deep into lungs and cause serous
health impairment are several times higher than standards during
winters. In addition, nitrogen oxide (NOx) levels are rising because of
the burning of diesel and coal. A new danger is lurking: ozone, a deadly
pollutant, which targets lungs and is linked to high NOx emissions.

We need to find urgent solutions. We know that one big part of the
solution is to reinvent mobility and to phase out diesel use in
vehicles. Another part of the solution is to phase out coal use in
thermal power stations in densely polluted areas and to run them on
relatively cleaner natural gas. Gas-based power stations have no
particulate emissions and much lower NOx emissions. They can achieve 20
ppm NOx levels where coal-based power stations have no standards but
emit between 100 ppm and 300 ppm. Coal-based power plants are regulated
based on their stack height—the assumption is that the higher the
dispersion of pollutants, the lesser the problem. But this worked when
there was cleaner air for dilution. It does not work now. So the
transition done in the case of vehicles to compressed natural gas (CNG),
which helped the city leapfrog to cleaner air, is needed in power plants
as well.

This has been accepted. So, for the past few years, Delhi and its
surrounding region have invested in building gas-based power plants.
Delhi has shut down its coal-based IP power plant and is waiting to
close the Rajghat power station. It has built Pragati, Bawana and
Rithala plants. The combined installed capacity of these gas-based power
plants is over 1,730 MW. In addition, the city is ready to invest in a
plant of 700 MW at Bamnoli and to convert three units of the Badarpur
power plant to gas.

But there is a small hitch. There is no gas to run these commissioned
plants. The country, they say, has run out of gas. Oops! This is exactly
what was said over a decade ago when demand was raised for natural gas
to run vehicles. Then, gas became available; there was talk about huge
finds in the Krishna-Godavari basin. But now the wells have mysteriously
dried up, gone kaput.

Or so it is said. According to the Ministry of Petroleum and Natural Gas
(MoPNG), India's gas output is expected to fall by a whopping 35 per
cent in this fiscal and another 12 per cent next year. Nobody cares to
explain this. But it is clear that the new monopoly player—Reliance
Industries—is not playing ball. The Comptroller and Auditor General of
India's (CAG's) report on hydrocarbon production sharing contracts has a
damning indictment of the loss to the exchequer in the allotment of the
gas field and of the manner in which the capital costs have been rigged
to reduce the sharing with government. The widely held belief is that
exploration is down and gas is drying up because Reliance Industries
wants prices to be hiked. It wants control over the sale and allocation
of gas. Its partner in this is oil major BP, which picked up 30 per cent
stake in it for US $7.2 billion. Clearly, this investment would not have
been made if the fields were dud.

In coal the story is same and different. It is said that thermal power
plants are running out of coal because environment and forest clearances
are holding up projects. So there is a clamour to open up more forests
to private players. The leaked draft report of CAG on allocation of coal
blocks reveals dirty secrets. What is worse is that Coal India, which
produces 90 per cent of India's black gold, has under its control some
200,000 hectares (ha) of mine lease area, including 55,000 ha of forest
land. Still it produces only about 500 million tonnes annually. So it is
convenient for all to not fix this supply problem, but ask for even more
forests to be mined.

The environment is hurt in both ways—by the unavailability of natural
gas, which would have cleaned up emissions; and by the demand to destroy
more forests, surrounding water bodies and livelihoods of people,
because of our inability to use the existing coal fields optimally.

The issue also hides the serious problem of pricing power at affordable
levels, given the rising price of coal and gas. Currently, imported and
re-liquified gas price is touching US $17-18 mmscd. Imported coal price
has also spiralled out of control. In this scenario, the options are as
follows: one, to maximise domestic resources and operate them at tight
capital and operational costs; and two, pay for higher raw material
costs in power generation by investing in reducing inefficiencies,
including losses in transmission. As yet, there is little evidence that
we are moving in any of these directions. The only evidence is that the
big monopolies are taking us for a ride with disastrous consequences for
our health and environment.

--
Gopinath S
Chief Executive
nRG Consulting Services, Bangalore
http://in.linkedin.com/in/gopimysore
http://nrgcs.blogspot.com/
+91 99161 29728