Expanding the Ambit

Sector gears up for PAT Cycle II

With the aim of making the industrial sector energy efficient, the Bureau of Energy Efficiency (BEE) launched the Perform, Achieve and Trade (PAT) scheme in August 2012. It is one of the four components of the National Mission on Enhanced Energy Efficiency, which is a part of the National Action Plan on Climate Change. PAT is a first-of-its-kind demand-side management policy initiative, which intends to create an energy efficiency market in the country. It is the biggest national programme driving energy efficiency in the industrial sector.

The scheme aims to enhance the energy efficiency of energy-intensive industries through the trade of energy saving certificates (ESCerts). For every 1 tonne of oil equivalent (toe) of energy savings achieved, an ESCert will be issued by the BEE to the designated consumer (DC). Each certificate will be considered a unique tradable commodity on the power exchanges. The certificates issued during one cycle period (three years) will remain valid till the completion of the compliance period of the next cycle.

All industrial units within the identified sectors with energy consumption of more than the minimum specified threshold are notified as DCs and are required to reduce their specific energy consumption (SEC) during a given time period. The DCs would be issued ESCerts in an electronic form in a cycle period to achieve SEC less than the norms and standards notified by the central government under the Energy Conservation Rules, 2012. DCs whose SEC is more than the prescribed standards for a cycle period will be entitled to purchase ESCerts to comply with the norms and standards prescribed under the Energy Conservation Act, 2001.

The reduction targets will be set by the government in consultation with the BEE. Under the first cycle, it is expected that the traded power through ESCerts will be between 7 per cent and 10 per cent of the total energy savings target of about 6.686 million tonnes of oil equivalent (mtoe).

In order to operationalise ESCerts trading, the Central Electricity Regulatory Commission (CERC) in February 2016 issued draft regulations defining a framework for the trading of ESCerts on the power exchanges. The draft regulations, called the Central Electricity Regulatory Commission (Terms and Conditions for Exchange of Energy Savings Certificates) Regulations, propose to make BEE the administrator and Power System Operation Corporation Limited the registry for the mechanism.

PAT Cycle I: Participation and results

The first cycle of PAT was from April 1, 2012 to March 31, 2015. Under the first phase, a total of 478 DCs operating within eight industrial sectors – thermal power plants, aluminium, pulp and paper, chlor-alkali, cement, iron and steel, textiles, and fertilisers – were notified. These units, which together consumed around 165 mtoe of energy, had to cumulatively achieve a 4.05 per cent reduction in their average energy consumption by the end of the cycle.

Across the eight industrial sectors, the thermal power segment had the maximum number of DCs at 144, comprising 97 coal/lignite-based power plants, 40 gas-based plants and 7 diesel-based plants. The BEE notified a national energy saving target of 3.2 mtoe for DCs in the thermal power segment.

At present, all the 478 DCs under PAT I have been undergoing the required verification at the end of the three-year cycle (2012-15). The process is being carried out by 179 accredited energy auditors and 53 firms that have been made empanelled accrediting energy auditors (EmAEAs). The normalisation formulas pertaining to exogenous factors that change SEC have been made available to the DCs and EmAEAs, and the final results are expected soon.

The Federation of Indian Chambers of Commerce and Industry and BEE conducted a survey to review the performance of PAT I. The responses were obtained during August 10-20, 2015, wherein about 10 per cent DCs and 44 per cent EmAEAs responded through a structured questionnaire. With regard to the fulfilment of targets, the survey results show that 74 per cent DCs exceeded their targets, 7 per cent DCs did not achieve their targets, and information is still being compiled for about 19 per cent DCs.

Meanwhile, the India Energy Efficiency Report, 2015, compiled by the Carbon Disclosure Project, states that as per government calculations, the first cycle of PAT is expected to have led to a reduction of 23 million tonnes of carbon dioxide equivalent and energy savings of 6.6 mtoe. This implies that the scheme has eliminated the need for electricity roughly equivalent to the output of five coal-fired power plants. As per estimates, more than 90 per cent of the companies that were covered under PAT I are on track to meet their targets.

A survey conducted by the Sustainability Outlook and Alliance for Energy Efficient Economy revealed that in the first phase, the DCs focused primarily on enhancing efficiency through retrofits and routine optimisations, as well as through instrumentation and new technology projects.

PAT Cycle II: Current status

The second phase of PAT is slated to commence from April 1, 2016 and will continue for a three-year period. The government plans to expand the ambit of the scheme so that those industrial units that get covered under Cycle II account for more than or are equal to 50 per cent of the country’s energy consumption. The target will be to bring about a 5 per cent reduction in the SEC of the industries. It will be designed and implemented in a manner that it incorporates the learning of the previous cycle and thereby helps achieve better results. The BEE is planning to finalise the normalisation parameters by June 2016 and notify the SEC targets by March 31, 2016.

PAT II will cover additional units among the eight industrial sectors that were covered under PAT I, as there is still significant scope for energy conservation from these sectors. For instance, within the paper and pulp sector, there is an additional scope of 12 per cent energy savings with PAT deepening. Hence, under PAT II, about 170 new DCs will be included from the iron and steel, paper and pulp, cement, and textile sectors. Similarly, 100-110 new DCs will be taken into consideration for assessment from the remaining four sectors: thermal power plants, chlor-alkali, fertilisers and aluminium.

In addition, PAT II will cover about 175 DCs from three new energy-intensive sectors – petroleum refineries (with an annual energy consumption of 90,000 toe or above), railways (including all zones with a annual traction consumption of 70,000 toe or above and production/workshop units with an annual energy consumption of 30,000 toe or above), and electricity distribution companies (with annual aggregate technical and commercial losses of 1,000 MUs or 86,000 toe or above).

New provisions under the Energy Conservation Rules, 2012 have been suggested for the second phase of the PAT scheme.

Challenges and the way forward

A number of challenges were encountered by various stakeholders while implementing Cycle I of PAT. During the initial stages of implementation, data collection was a big challenge due to the lack of energy accounting infrastructure. In terms of implementation, the biggest challenge was the diverse energy profile and end-products portfolio of the DCs along with the different processes and technologies deployed by them. As such, benchmarks had to be formulated for the various DCs. The shortage of energy management professionals with domain knowledge was another major challenge.

The functioning of the ESCert trading mechanism and financing models for energy efficiency projects continue to remain an area of uncertainty. While the first cycle of PAT was characterised by low capex and short payback projects, the outlook for the second phase is more focused towards process innovation and system efficiency. Therefore, high quality research and development, as well as quick mainstreaming will be needed for the second cycle of PAT. The majority of DCs have been acknowledging the need for and benefits of undertaking energy efficiency projects. However, they are requesting for incentives to aggressively implement such measures during the second cycle.

Meanwhile, stricter monitoring and greater compliance are needed to ensure that ESCerts do not meet the same fate as that of renewable energy certificates, where inventories have piled up due to few takers. With the effective implementaion of PAT II, India will spearhead the drive for energy efficiency among developing countries.

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