Perform achieve and trade mechanism (PAT)

Neeraj Dhingra Project Engineer Bureau of Energy Efficiency 4th Floor, Sewa Bhawan R.K. Puram, New Delhi-110066 [email protected]

Keywords target, industrial energy saving

1. Collection of Data from the Industries through baseline

Abstract

2. Methodology for setting Specific Consumption targets for

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. Thus the PAT Mechanism would broadly cover the 9 sectors designated by Government of India under Energy Conservation Act, 2001. The 9 covered sectors are Fertilizer, Aluminium, Chlor-alkali, Railways, Cement, Iron and Steel, Pulp and Paper, Textile, Power Generation Plant. In this mechanism, an individual target will be set for the industries by the Government of India to reduce their Specific Energy Consumption (SEC). The overall objective of this scheme is to save 10 mMtoe in the first PAT cycle. Among the 23 mMTOE set as target from NMEEE, implementation of PAT scheme do focus on achieving 10 mMTOE by 2014. These targets can be achieved over a period of 3 years. The industries can achieve this target by implementing best practices in their industries, change the old technology to the latest one, by using energy efficient equipment and by any other suitable innovative method or they can use their R&D facilities to develop efficient process. etc., or any other initiatives. Those industries that achieve and exceed the target would be issued Energy Saving Certificates (ESCerts) and those industries who could not achieve the target have to either pay penalties or buy the ESCerts from the industries who have secured ESCerts by exceeding the target assigned to them. The PAT has been divided into 2 Phases, Design of the PAT framework and Implementation. Some of the steps involved in PAT are:



audit

Each Industry;

3. Monitoring and Verification for target achieved; 4. Issuance of Energy Saving Certificates (ESCerts); 5. Trading Process for ESCerts; 6. Compliance and reconciliation process for ESCerts;

Sharing of Technology of Higher Efficient Industries to other industries means sharing of methodology of efficient plant to inefficient plant.The objective of this paper is to share the initiative taken by govt. of India to save energy and start trading of the savings and achieve monitory benefits.

Introduction As broadly brought out in the framework document on “National Mission on Enhanced Energy Efficiency”, the Energy Conservation Act, 2001 has identified 15 large Energy Intensive Industries for energy efficiency improvements. It empowers the Central Government, on the recommendations of the Bureau of Energy Efficiency (BEE), to prescribe energy consumption norms and standards. In March, 2007, the Government notified 9 industrial sectors, namely Aluminum, Cement, Chlor-Alkali, Pulp & Paper, Fertilizers, Power Generation Plant, Steel, Railways as Designated Consumers (DCs). Designated Consumers are those consumers whose energy consumption is more than the threshold value set by the govt. of India (Table 1). These industries have to appoint an energy manager, file energy con-

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Table 1: Minimum annual energy consumption and estimated number of DCs in select sectors. Minimum annual energy consumption for the DC (tonnes of oil equivalent)

No. of probable DCs

Aluminium

7500

11

Cement

30000

83

Chlor-alkali

12000

20

Fertilizer

30000

23

Iron and steel

30000

101

Pulp and paper

30000

51

Sector

Railways (diesel loco sheds and workshops)

8

Textiles

3000

128

Thermal power plants

30000

146

sumption returns every year and conduct mandatory energy audit. They also will have to adhere to the energy consumption targets specified by the Government. The Perform Achieve and Trade Mechanism is a scheme that is being designed to incentivize higher plant efficiencies and is applicable within India only. The Union Cabinet approved the National Mission for Enhanced Energy Efficiency (NMEEE) on May 2010. The Mission will usher in the four new initiatives to significantly scale up implementation of energy efficiency in India. The initiatives are

and energy use in industry at 5.8 %. The lower rate of growth of industrial energy use can be attributed to many reasons. It has been observed that in recent years, industry has been choosing state-of-the-art technologies, which are more energy-efficient. Also, there have been many in-house efforts made by the industry to become more energy-efficient. In order to further accelerate as well as incentivize energy efficiency, the Perform Achieve and Trade (PAT) mechanism is being designed. The Act requires the DCs to:

1. Perform, Achieve and Trade (PAT)

a. Furnish report of energy consumption to the Designated

2. Market Transformation for Energy Efficiency (MTEE) -

Authority of the State as well as to BEE

Accelerating the shift to energy efficient appliances in designated sectors through innovative measures to make the product more affordable

b. Designate or appoint an Energy Manager who will be in-

3. Energy Efficiency Financing Platform (EEFP) – Creation of

c. Purchase Energy Saving Certificates (ESCerts) for compli-

4. Framework for Energy Efficient Economic Development

d. Monitoring and Verification of compliance by Designated

a mechanism that would help finance DSM programs in all sectors by capturing future energy saving (FEEED) – Develop fiscal instruments to promote energy efficiency

The flagship of the Mission is the Perform, Achieve and Trade (PAT) mechanism, which is a market-based mechanism to make improvements in energy efficiency in energy-intensive large industries and facilities more cost-effective by certification of energy savings that could be traded. The PAT mechanism is designed to facilitate the DCs to not only achieve their legal obligations under the Energy Conservation Act, 2001, but also to provide them with necessary market based incentives to overachieve the targets set for them. The Design features of the mechanism are: a. Methodology for establishing the baseline energy consump-

tion

b. Methodology for target setting for each sector c. The process of measurement and verification d. The manner in which trading of the certificates can be en-

couraged, in particular instruments that could increase liquidity in the system.

DCs account for 25  % of the national gross domestic product (GDP) and about 45 % of commercial energy use in India. Since 2000, industrial GDP has been growing at 8.6 % annually

charge of submission of annual energy consumption returns of the Designated Agencies and BEE

ance of default. The Act has been amended to enable this and allows such trading. Energy Auditors (DENA).

e. Excess achievement of the target set would entail issuance

of ESCerts

f. Penalty for non-compliance being Rs. 10 lakhs ($22,222)

and the value of non-compliance measured in terms of the market value of tones of oil equivalent.

g. BEE to be the overall regulator and dispute resolution agen-

cy and Energy Efficiency Service Ltd. (EESL) to be the process manager.

The amendment to the EC Act has been passed by the Lok Sabha during the Budget Session of Parliament and in the Monsoon Session Rajya Sabha in 2010. This is the necessary step taken by govt. of India in order to implement PAT.

PAT Framework The PAT framework has been developed considering the legal requirement under EC Act, 2001, situation analysis of designated consumers, national goal to be achieved by 2013–2014 in terms of energy saving and sustainability of the entire scheme. The PAT scheme is evolve in order to incentivize industry to achieve better energy efficiency improvements with respect to their existing energy performance in a cost effective manner.

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Tentative  Milestones………. CYCLE  #  1 Freezing  o f   DC  List

Base  Line   Parameters

Targ et   S etting

Start  o f   M&V

M&V  Process

Apr ’10

Dec’ 10

Mar  ‘11

A pril  ‘13

Mar’14

Defining  M&V  Protocol Creation  o f  DENA

Creation  of  Trading  Platform,   Traders  &  Trading  Mechanism

 

Figure 1: Tentative Milestone.

The Energy Savings Certificates (ESCerts) will be traded on special trading platforms to be created in the two power exchanges (IEX and PXIL). The guiding principles for developing the PAT mechanism are Simplicity, Accountability, Transparency, Predictability, Consistency, and Adaptability. The PAT framework includes the following elements: 1. Methodology for setting specific energy consumption (SEC)

for each DC in the baseline year

2. Methodology for setting the target to reduce the Specific

Energy Consumption (SEC) by the target year from the baseline year.

3. The process to verify the SEC of each DC in the baseline year

and in the target year by an accredited verification agency

4. The process to issue energy savings certificates (ESCerts) to

those DCs who achieve SEC lower than the specified value

5. Trading of ESCerts 6. Compliance and reconciliation of ESCerts 7. Cross-sectoral use of ESCerts and their synergy with renew-

able energy certificates

The following sections provide explanations on implementation of PAT framework Broad Umbrella of PAT Scheme

(a) Participation in the PAT scheme

There are about 563 numbers of DCs in these 8 sectors (Table 1). All these DCs except Railways will be required to participate in the 1st cycle of PAT scheme.



In the next cycle(s) of PAT scheme (post 2013-2014), the number of DCs participating in the PAT scheme may increase as more number of sectors will be added up and more/less number of plants may be present in the 8 sectors. (b) Phases of PAT scheme

The 1st cycle of PAT scheme would be operational during April 2011 to March 2014. The following basic phases would be involved during this cycle I. Target Setting Phase II. Target Achieve Phase III. M&V Phase IV. Trading Phase

The milestone of 1st cycle scheme is shown in Figure 1. The scheme will start from April 2010 but the trading may start in 3rd year of 1st PAT cycle. Rationale in selecting the 8 industrial sectors in the 1st cycle of the scheme

The DCs of these 8  sectors account for about 231  mMTOE (million metric tons of oil equivalent) of energy consumption annually as per 2007-2008 data which is about 54 % of the total energy consumed in the country. The breakdown of energy consumption and the average specific energy consumption of each sector is depicted in Table 2. Considering the quantum of energy consumption, the energy intensity, large bandwidth in energy usage pattern, the above 8 sectors are selected in the 1st cycle of PAT scheme.

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Table 2 : Approximate Energy Consumption by DCs in different sectors (2007 data). SL

SECTOR

ENERGY CONSUMPTION (mMTOE*)

1

Power (Thermal)

160.3

2

Iron & Steel

36.1

3

Cement

14.5

4

Fertilizers

12.0

5

Textile

4.5

6

Aluminium

2.4

7

Pulp & Paper

1.4

8

Chlor-Alkali

0.43

TOTAL

231.6

*Million Metric Tons of Oil Equivalent Table 3: SEC bandwidth in different sectors. Sector a)

Range of SEC

Power plant

2300 – 3400 kcal/kwh

b)

Fertilizer

5.86 – 9.11 Gcal/T of Urea

c)

Cement

665 – 900 Kcal/Kg of Clinker (Thermal) 66 – 127 KWH/ T (Elect)

d)

Integrated Steel

e)

Sponge Iron

f)

Aluminum (Smelter) Aluminium (Refinery)

g)

Pulp & Paper

h)

Textile

i)

Chlor-Alkali

6.15 – 8.18 Gcal / tcs 4.4 – 7.6 Gcal / T (Thermal) 72 – 135 KWH/T (Elect) 15875 – 17083 KWH/T 3.28 – 4.12 MKcal / T of Alumina 25.3 – 121 GJ/T 3000 – 16100 Kcal/kg (Thermal) 0.25 – 10 KWH/Kg (Elect) 2300 – 2600 kwh/ T of caustic soda

Basis of fixing an energy consumption norm of a designated consumer

As per the Energy Conservation Act, central government may set different targets to the different designated consumers. The central government can stipulate energy usage norms for designated consumers. BEE has earlier conducted sector specific studies through various organizations to do the situation analysis. As per the studies, the wide bandwidth of specific energy consumption (SEC) within an industrial sector is indicative of the large energy-savings potential in the sector. The wide bandwidth is also a reflection of the differences in the energy-saving possibilities amongst plants because of their varying vintage, production capacity, raw material quality, and product-mix. Such wide variation also makes it difficult to specify a single benchmark SEC for the sector as a whole: older plants will find the benchmark impossibly high if it is set at the level of newer plants; newer plants will find it trivial if it is set at the level of older plants. The broad bandwidth of SEC within a sector (see Table 3), and the inability of all plants to achieve a sectoral benchmark SEC, suggests that SEC improvement norms need to be set for individual plants. These SEC improvement targets can be based on the trend of energy consumption and energy-savings potential of the plants. In general, the higher the energy efficiency (or the lower the SEC), the lower the energy-savings potential. Thus, it is evident that it is not feasible to define a single norm/ standard unless there is significant homogeneity amongst units in a sector. The energy efficiency improvement targets would have to be almost “unit specific”. In March 2011, each DC will be mandated to reduce its SEC by a fixed percentage, based on its current SEC (or baseline SEC) within the sectoral bandwidth.

Establishment of Baseline SEC Calculation for specific energy consumption of any industry

The SEC of an industry is calculated based on Gate-to-Gate concept with the following formula. SEC = Total energy input to the plant boundary

Quantity of the Product

While calculating the total energy input to the plant, all energy sources will be converted to a single unit i.e. MTOE (metric ton of oil equivalent) using standard engineering conversion formula. In this calculation, the following elements will be considered: a) All forms of energy (Electricity, Solid fuel, Liquid fuel, Gaseous fuel, by-products used as fuel etc.) which are actually consumed for production of output should be considered. b) Energy consumed in residential areas of the plant and for outside transportation system should not be accounted. c) Energy used through renewable energy sources should not be accounted. d) Any energy consumed for major construction work would not be accounted for.

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Plant boundary/Gate to gate concept

The plant boundary would be selected such that the total energy input and the above defined product output will be fully captured. Typically it is the entire plant excluding, residential areas of the plant and transportation system. Similarly, mining operations in case of Iron & Steel, Aluminum and Cement sector are not part of plant boundary. Once the plant boundary has been fixed, the same boundary should be considered for entire PAT cycle. Ideally, plant boundary should not change during the entire cycle. Baseline SEC for the base year

 

The base line SEC would be calculated based on the following procedure: a. All DCs would submit the details of production and an-

nual energy consumption since 2005–2006 to 2009–2010 through a notified form which is a mandatory as per EC Act, 2001.

b. Few additional sector specific information like process tech-

nology, process flow, raw material, product mix etc. would also be collected.

c. The SEC calculated from step (a) would be the ‘Reported

SEC’ by the DC. As there may be various variable factors which affect the energy consumption significantly, some ‘Normalization Factors’ would be considered. It is proposed to consider the ‘capacity utilization’ as one of the most important parameter to have a normalization factor. However, the rationale for developing the ‘normalization factors’ is underway by suitable agencies

d. The reported SEC will be normalized:

Normalized SEC = f (Reported SEC, Normalization factors) e. The baseline SEC will be estimated by taking the average

normalized SEC of last 3 years i.e. 2007–2008, 2008–2009 and 2009–2010.

f. The base year will be defined as 2009–2010.

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Methodology for setting Specific Energy Consumption targets The target will be defined in the ‘percentage’ form. It is the percentage reduction of SEC from baseline value to that of the target year. The methodology for setting target SEC for DCs will be such that the process is transparent and has no room for arbitrariness. The methodology will be simple and easy to use and will be based on SEC reduction on a gate-to-gate basis and will be such as to achieve targeted savings in the first cycle period of 3 years (2011-2014), about reduction of 10 million metric tons of oil equivalent (mMTOE). The guiding principles of the methodology are: i. The reduction target for each plant will be based on an ob-

jective and transparent basis. These rules out one-to-one negotiations for this purpose, which in any case would be undesirable, both from the viewpoint of credibility and legal soundness, as well as from the viewpoint of information asymmetry. Consequently, first the overall target reduction of 10 mMTOE will be divided amongst the sectors in proportion to their relative energy use to ensure that the sectoral reduction is equal, in percentage terms, to the percentage of the energy consumption of all covered plants in a sector to the overall energy consumption of all covered plants. The next level of allocation of reduction target would correspond to the disaggregation of the sectoral reduction target to each plant within the sector. Given the diversity of plant configurations within a sector, and of plant vintages, it is being proposed to apply gate-to-gate approach for each plant and defining SEC targets according to the methodology defined below.

ii. The target SEC will need to be achieved over a 3 year period

commencing from 1st April, 2011. The targeted improvement in energy efficiency will be a energy intensity targets (i.e. a percentage improvement over a DC’s baseline SEC).

iii. The methodology is based on the expectation that all DCs

will reduce their SEC. The less energy-efficient DCs within a sector will be required to achieve a greater reduction in their SEC than the more energy-efficient DCs. The SEC targets

National Target (10 mMTOE)

Figure 3. Allocation of reduction targets.

SECTORS

DC

Figure 2. Setting Specific Energy Consumption Targets.



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Table 4: Illustration of Apportionment of energy reduction target in different sectors. SN 1 2 3 4 5 6 7 8

Sector Power Plant (Thermal) Iron & Steel Cement Fertilizers Textile (Approximated) Aluminium Pulp & paper Chlor-Alkali Total

Energy Consumption (mMTOE)

Share of Consumption (%)

Apportioned Energy reduction (mMTOE)

No. of Probable DCs

160.30

69.24%

6.69

146

36.08 14.47 11.95

15.58% 6.25% 5.16%

1.56 0.60 0.51

101 83 23

4.50

1.94%

0.20

128

2.42 1.38 0.43 231.6

1.05% 0.60% 0.19% 100.00%

0.11 0.06 0.02 10.00

11 51 20 563

will be determined with a statistical analysis followed by stakeholder consultation in each designated sector. iv. In the case of thermal power plants and fertilizer plants, the

targets for SEC decrease are to be aligned with the existing tariff-setting context. In the case of thermal power plants, the Central Electricity Regulatory Commission (CERC) and in the fertilizer sector, the Department of Fertilizers are in the process of integrating these targets in their respective tariff setting exercise.

v. Other energy-intensive industries and sectors such petrole-

um refineries, petrochemicals, gas crackers/naphtha crackers, sugar, chemicals, port trusts, transport (industries and services), hydro power stations, electricity transmission and distribution companies, and commercial buildings and establishments may be added to the list of DCs and included in the PAT scheme in a phased manner.

vi. Application of this methodology would entail the follow-

ing allocations to various sectors, given that the overall goal of energy consumption reduction under the PAT scheme is expected to be 10 mMTOE.

Methodology for establishing the target in individual sector except Power Plant

As explained earlier, the sectoral targets will be disaggregated among the DCs taking into account historical energy consumption (average of previous 3 year energy consumption), potential of energy saving in the DC, sustainability of trading market and other related issues. The lowest % target would be given to the best performing plant where as others will be assigned as per a ‘relative increment’ based on the concept of relative SEC. However, the idea is to arrive at a % value (of target) where the sectoral target would be achieved. The absolute energy saving at the end of 3 years will be estimated as: Energy Saving = P base year (SEC base year – SEC target year) Where P = Production Quantity Therefore, if the best performing plant has an X % target, the targets for the other plants would be (Plant SEC/Best SEC) times of X %. The X can be numerically calculated taking into account the total energy saving goal in the target year.

If any sector has large variation in the consumption pattern like process technology and raw material, DCs will be grouped (clusters) based on their similar characteristics and the above methodology will be applied to the cluster’s target. Methodology for establishing the target for Power Plant

For Thermal Power Plants, the targets for SEC reduction will be set within current tariff setting context. The Central Electricity Regulatory Commission (CERC) has been involved along with Central Electricity Authority (CEA) to specify the criteria for target setting. The following methodology for target setting has been proposed. The target settings for power stations are specified in terms of specific percentage of their present deviation of Net Operating Heat Rate (Avg. of last 3 years) from the Net Design Heat Rate. The stations could be classified in to various bands according to their present deviations of operating heat rate from design heat rate. Stations with higher deviations will be given higher targets. The indicative classification and targets for various bands for the coal/lignite based generating stations will be as stated in Table 5. The factors affecting the heat rate of the stations and corrections for the following factors will be considered for the target setting: 1. Quality of the fuel i.e. (coal) 2. Plant Load Factor (PLF)

Similar approach will be followed in case of gas/liquid fuel based generating stations. However the average plant load factor of these stations is much lower than the coal based stations. Also the heat rate of the gas turbines is very sensitive to the unit loading and ambient air conditions. Nonetheless, quality of gas supply does not vary widely. As such, correction for fuel quality will not be required. The generating companies have no control over the quality of coal supplied, which varies from station to station. Imported coal is also being used and blended by large number of stations, which can lead to variations in coal quality. Thus the methodology should provisions to take care of the impact of variations in coal quality on the target prescribed. Average “Ash” and “Moisture” contents during the baseline period will be considered for corrections and the correction factor will be calculated based on the boiler efficiency formula.

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Table 5. The indicative classification and targets for various bands for the coal/lignite based generating stations.

Variation in Net Station Heat Rate from Design Net Heat Rate

Reduction Target for % deviation in the Net Station Heat Rate

% Reduction Target in Net Station Heat Rate

10% 15% 20% 25%

0.5 0.75 to 1.5 2.0 to 4.0 5 and above

Upto 5% More than 5% and up to 10% More than 10% and up to 20% More than 20%

Measurement & verification The success of this scheme depends upon a cohesive and transparent Measurement & Verification (M&V) system. A proper M&V system is being designed for this purpose. M&V system in the base year

The reported data would get verified through Designated Energy Auditors (DENA) (see Annex for the definition of DENA) who would be conducting a ‘Baseline Energy Audit’ in the DCs. The baseline energy audit is aimed at knowing the energy performance of various key equipment, energy balance, energy saving potential, various energy conservation options implemented in the plant etc.

into consideration all evidence that is likely to alter the recommendation about validation. f. Verification/Validation methods DENA shall apply stand-

ard auditing techniques to assess the correctness of the information provided by the project DC, including but not limited to the following:

• Assessment and verification that the implementation of

the project activity and the steps taken to report that the specific energy consumption comply with the PAT criteria and relevant guidelines are as prescribed by BEE. This assessment shall involve a review of relevant document action as well as an on-site assessment.

• The verification by DENA of project documentation

M&V in the target year

requirements of the applicable approved methodology throughout the crediting period(s), applying uniform criteria to expert judgments over time and among projects

provided by the project DC shall be based upon both quantitative and qualitative information on SEC. Quantitative information comprises the reported numbers in the monitoring report submitted to the DENA. Qualitative information comprises information on internal management controls, calculation procedures, procedures for transfer, frequency of SEC reports, and review and internal audit of calculations and data.

b. Transparency: Information in the validation and verifica-

• Review of the PAT Assessment Document (PAD), in-

In principle, the M&V will be carried out by ‘Designated Energy Auditors (DENA)’. The broad principles that the DENA shall apply are: a. Consistency: by applying uniform criteria to meet the

tion reports shall be presented in an open, clear, factual, neutral, and coherent manner based on documentary evidence.

c. Impartiality, independence, and safeguards against con-

flicts of interest by remaining free of any commercial, financial, or other processes that influence their judgment or jeopardize trust in their independence and integrity. The designated energy auditors shall base their findings and conclusions upon objective evidence, conduct all activities in connection with the validation and verification processes in accordance with the rules and procedures laid down by BEE, and state their validation or verification activities, findings, and conclusions in their reports truthfully and accurately.

d. Confidentiality: In accordance with the requirements of the

PAT scheme, DENAs shall safeguard the confidentiality of all information obtained or generated during validation or verification.

e. Validation of the PAT scheme: DENA shall convey the re-

sults of their assessment through a validation report they shall submit, along with the supporting documents, to BEE as part of the request for compliance as a PAT project activity. A positive recommendation shall be submitted only if the proposed project activity complies with all the requirements stipulated under the PAT scheme. DENA shall take



cluding the monitoring plan and the corresponding validation report, earlier verification reports, the methodology used for monitoring, relevant decisions, clarifications, and guidance from BEE, any other information and references relevant to the project activity that have a bearing on SEC (data on electricity generation or laboratory analysis, for example).

• In addition to reviewing the monitoring documenta-

tion, the DENA shall confirm that the project DC has complied with requests, if any, made during validation.

Accreditation/Selection of DENA

Accreditation of DENAs will be undertaken by BEE under appropriate rules/ regulations in this regard. The designated energy auditor shall be a legal entity and that it can enter into contracts, make decisions independently, and may be sued for failure to perform as agreed in the contract. M&V in intermediate years

There would not be any M&V during the intermediate years i.e. between 2011 & 2014. However, each DC would be required to submit the annual energy consumption through the ‘Form1’ to BEE. Apart from this, one to two energy audits by ‘Accredited energy auditors’ will be conducted by DCs as per the provision of EC Act, 2001. These would form a basis of M&V system in the target year.

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Energy Saving Certificates & Trading Definition of energy saving certificate (ESCerts)

Energy saving certificates (ESCerts) would be issuable to a DC who achieves the target reduction from the baseline SEC during the stipulated period of 3 years. The ESCerts may be issued and the trading may start within 3 years period as some of the DCs may achieve their target before 3 years period. The number of e-certs which would be issued depends upon the quantum of energy saved at the target year. The value of each e-scert would also be based on the crude oil price and to be controlled in a suitable mechanism. Promotion of ESCerts

The following protocols are being designed to promote trading of ESCerts: • Verifying the SEC of each DC in the baseline year and in the

target year by an accredited verification agency. DENAs will be appointed by BEE to undertake this activity.

• Issuing energy savings certificates (ESCerts) to those DCs

who exceed the target efficiency levels, that is who manage an even lower SEC than stipulated. This would be quantified on the basis of the report by DENA and provided to the DCs in the form of ESCerts.

• Trading the ESCerts by DCs with other DCs who are unable

to meet their target specific energy consumption by their own actions. This trading can be carried out bilaterally between any two DCs (within or across the designated sectors) or on special platforms for their trading created in power exchanges.

• Ensuring compliance and organizing reconciliation of ES-

Certs will be undertaken by BEE in association with the two Power Exchanges.

• Fungibility of ESCerts is also being discussed with the

proposed Renewable Energy Certificates (RECs) being developed by the Ministry of New and Renewable Energy (MNRE). The conversion factor for enabling this fungibility will be based on verifiable parameters such as energy consumption in kgOE.

Penalty for non-compliance of the target

DCs who would fail to achieve the target by the time frame will be subject to a penalty as per the EC Act. Penalty for noncompliance is Rs. 10 lakhs (USD 22,222) and is also linked to the value of non-compliance measured in terms of the market value of tones of oil equivalent. Market design criteria of ESCerts trading

Trading mechanism design: The Energy Savings Certificates (ESCerts) will be traded on special trading platforms to be created in the two power exchanges (IEX and PXIL). The exchanges would create an efficient and transparent market for trading by taking measures to safeguard market integrity and enhance transparency in operations. The exchanges will also maintain data on traded prices, traded volumes, and trends. Transfer agents or depositories shall hold the ESCerts in electronic form and provide client services in relation to ESCerts.

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To ensure liquidity and demand for ESCerts, bulk buying and bundling of ESCerts should be encouraged. Some of the issues that are being discussed in order to enhance liquidity are: a. Intermediate compliance timeframes to enhance market li-

quidity: Different approaches have been adopted in schemes to balance issues such as environmental integrity, monitor progress against targets and cost burden. Shorter compliance periods enhance market liquidity but tend to generally increase transaction costs and potentially the market price of the certificates. Regular reporting allows for effective monitoring against targets and early detection of any discrepancies. Penalties and incentives could be linked to intermediate compliance targets.

b. Energy Allowances vs ESCerts: The size of certificates in-

fluences the prices and tradability. The smaller the size of certificates, the higher the administration costs.

c. Banking of Certificates: The lifetime of ESCerts also affects

its price; shorter lifetimes of certificates may significantly distort market prices as the market will tend to respond to short term demand and supply issues. Most international schemes allow for borrowing and/or banking of excess savings across compliance periods. The use of banking is perceived as being essential in building investor confidence and market stability.

d. Auctions/buy-back of ESCerts by the Government/BEE to

ensure stability of price as well as to provide price signals upfront. The use of a market maker to enable this process is also important.

e. Exchange of Information between stakeholders related to

Escert trading mechanism

The proposed ESCerts trading mechanism involves extensive information exchange between Designated Consumers (DCs), State Designated Agencies (SDAs) (SDAs are the agencies designated by State Governments to coordinate, regulate and enforce provision of EC Act within the state.), Designated Energy Auditors (DENAs), Power Exchanges, Bureau of Energy Efficiency (BEE) and Central Registry on a regular basis. Timely and accurate information exchange while maintaining confidentiality, transparency and security could be achieved through adopting an online integrated information system for the program. Therefore, a central online integrated information system (IIS) i.e. PAT-Net connecting all the DCs, SDAs, DENAs, Trading Exchanges, Central Registry and BEE is suggested for this purpose. The indicative process flow diagram involving all institutions/entities is illustrated in Figure 4. Every DC will be provided with individual access to PATNet so as to perform all the mandatory reporting activities through this system. Self declaration of energy savings by Energy Manager of DC will be made through the PAT-Net to BEE for consideration for issuance of ESCerts. BEE will assess such information for all the plants received through PAD (PAT Assessment Document) from all the SDAs/DCs/DENA and upon satisfaction send online instructions to Central Registry for issuance of ESCerts to DCs. The reported data by DC can be easily gathered, monitored and analysed by BEE/SDAs to iden-

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BEE Market Regulator & Administrator

MoP

Any Baselines Any Baselines Improvement Improvement

Updated list of DCs and DENA

SDA

Audited Result of DCs Regular updates

Apply for Empanelment

DENA

E-�iling

PAD Information Audit

Apply for ESCerts through PAT Assessment Document (PAD)

Issuance of ESCerts

Designated Consumers (DCs)

Regular Checks & Levy Penalties in case of defaults ESCerts Trading

Updated Obligation of DCs: De�icit or Surplus

Central Registry

Updated ESCerts Account Info

Settlement details

Trading Exchange

Figure 4: Indicative Process Flow for ESCerts-Trading Mechanism under PAT Scheme.

tify any anomalies . Once issued by the Central Registry, the ESCerts credited to a DC could be viewed by the DC through PAT-Net. Communication between a Power Exchange and Central Agency will also be performed through PAT-Net. Details such as list of registered DCs, ESCerts available with each DC for trading, etc could be intimated to Trading Exchanges by the Central Registry to accommodate trading. The Trading Exchanges could also intimate the trade details and obligations to all the participating DCs, the Central Registry and if necessary to SDAs. DENAs, once registered, could use the PAT-Net for reporting their mandatory organizational details like personnel details, promoters etc to the Administrator. All the audit details conducted by DENAs could also be reported to the Administrator and/or SDA through PAT-Net. Details such as the list of qualified Energy Auditors, Energy Managers and DENAs along with their performance details could be maintained with PAT-Net. Constant performance monitoring of the program by the Administrator, through parameters like total ESCerts issued & traded, complying sectors or participants, market liquidity etc., will also be carried out. Delays at any point of the process-chain will be identified and timely action will be taken by the Administrator/Regulator. Targets will be issued to participants through PAT-Net. End-of-thephase reconciliation will also be carried out. Penalties will be imposed on non-compliant participants and monitored



through PAT-Net. Automation of processes wherever feasible will be carried out for seamless implementation of the proposed ESCerts program. A single PAT-Net connecting all the stakeholders and participants ensures implementation of common standards at all the levels and promotes consistency.

Abbreviations BEE: Bureau of Energy Efficiency DC: Designated Consumer DENA: Designated Energy Auditor ECA/EC Act: Energy Conservation Act ESCerts: Energy Saving Certificate MoP: Ministry of Power MTOE: Metric Tonne of Oil Equivalent mMTOE: Million Metric Tonne of Oil Equivalent PAT: Perform Achieve and Trade SEC: Specific Energy Consumption

Acknowledgements This document has been prepared to describe the framework of PAT scheme. I would like to thank Shri Kapil Mohan, Deputy Director General, BEE, Shri Saurabh Yadav, Knowledge Management Specialist, BEE for their guidance and unstinted support towards the presentation of this document.

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• Should have conducted at least 3 energy audit, in the particu-

Designated Energy Auditor (DENA) – Firm or Company or Associations

• Should have energy auditing instruments

Qualification (Qualifications for accreditation of DENA is under process):

Role of Dena:

lar designated energy intensive industrial sector, in last 5 years.

• Should be a firm/company registered/incorporated in India.

DENA have been proposed for the various activities under PAT (Perform, Achieve & Trade) like:

• Should have at least 3 certified energy auditors or organi-

• Baseline data collection

zation/sectoral associations having more than 3 personnel with more than 10 years of experience in particular designated energy intensive industrial sector (however, association should have 3 certified energy auditors within stipulated time).

• Baseline Energy Audit • Monitoring & Verification • And other PAT related activities

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