ESCerts Trading

CERC approves transaction procedure

Trading of energy saving certificates (ESCerts) under the Perform, Trade, Achieve (PAT) scheme has inched a step closer to reality with the Central Electricity Regulatory Commission (CERC) approving the ESCerts transaction procedure in February 2017. The Bureau of Energy Efficiency (BEE) prepared the transaction procedures in compliance with the CERC’s ESCerts transaction regulations notified in May 2016. These regulations defined the institutional framework to facilitate ESCerts trading where the CERC is the market regulator, the BEE is the administrator, the Power System Operation Corporation (POSOCO) is the registry, and the Indian Energy Exchange (IEX) and Power Exchange India Limited (PXIL) are the trading platforms.

The latest approved procedures give details regarding the process for the registration of designated consumers (DCs) (industrial consumers required to meet the prescribed specific energy consumption [SEC] targets under PAT) with the registry (POSOCO) as an eligible entity; interface activities between the power exchanges and the registry, administrator and registry, and the registry and DCs; and dealing of ESCerts, transfer and other matters (transaction timelines).

This allows the DCs of PAT Cycle I (April 2012-March 2015) to obtain ESCerts (for every metric tonne of oil equivalent of energy savings achieved) from the Ministry of Power (MoP) and trade them on the exchanges once trading is allowed. All active DCs of PAT Cycle I have either been issued ESCerts or are entitled to purchase ESCerts by the MoP.

Power Line takes a look at some of the key features of the recently approved procedures for ESCerts trading…

Registration as eligible entities

The MoP will issue ESCerts in electronic form to DCs that have overachieved their SEC targets. This will be facilitated through the PATNet portal, which has been developed by the BEE. It will help in all ESCerts-related activities including online submission of monitoring and verification reports from DCs for the issuance and extinguishment of ESCerts. ESCerts issued in one cycle period are valid till the compliance period of the next PAT cycle or until the submission of ESCerts to the administrator, whichever is earlier. The BEE will share the list of ESCerts issued by the MoP with the registry.

Eligible entities are those DCs that have either been issued ESCerts or those that wish to comply with the standards using ESCerts. All DCs applying to become eligible members have to pay a one-time registration fee notified by the CERC and an ESCert fee for the issuance of such certificates by the MoP.  The registry will collect the fee and charges from eligible members.

Based on the BEE’s suggestion, the eligible DCs have to register with the registry through the PATNet portal. The registry will then undertake preliminary scrutiny based on the details provided by the applicant and the administrator, and inform the applicant regarding the completeness of the application within seven working days. In case of any comments by the registry, the applicant would need to furnish the requested details within seven working days. If the application is complete, including the payment of the fee and charges notified by the CERC, the DC will be registered as an eligible entity within 15 working days. The registry will issue the certificate of registration (in electronic form) to the eligible entity thereafter. It will also share the list of eligible entities for each PAT cycle with the exchanges and the administrator.

For the trading of ESCerts, a separate dynamic customer relationship management (D-CRM) system will be developed by the administrator. POSOCO and the power exchanges will have log-in access to the D-CRM system. This platform will help generate and share trading-related reports, as well as cross-verification and confirmation reports between the registry and the exchanges. The BEE will act as the web administrator for the PATNet portal and D-CRM system, and will provide IT assistance with regard to D-CRM to POSOCO during the initial phase and whenever required. It will also provide the CERC access to view the D-CRM reports.

According to the PAT rules, bilateral trading even within the same corporate group is not permitted and hence, inter-sector self-retention of ESCerts is prohibited. Also, ESCerts once purchased cannot be resold. Once compliance is secured through the purchase of ESCerts, the same must be notified to the BEE within one month of the completion of trading of the respective cycle. In this regard, the DCs must furnish the compliance status to the BEE between June 1 and June 30 of the target year in which the compliance of the respective PAT cycles is due. These timelines can, however, be modified by the administrator.

The administrator may revoke an eligible entity’s registration in case it makes wilful and prolonged defaults, fails to pay the applicable fees or perform its duties or abide by the provisions of the ESCerts transaction regulations, procedures or the CERC’s direction. More than three cases of default will result in the debarring of the eligible entity from ESCerts transactions for six months as well as the imposition of the applicable penalty as per the Energy Conservation Act.

Interface activities

The entities involved in ESCerts transactions will interact through the online PATNet and D-CRM platforms. After POSOCO registers the DC as an eligible entity, it needs to register itself with the exchanges for ESCerts trading (as a member or a client) according to the CERC’s approved business rules. Once trading is permitted, the eligible entities must place their buy/sell bids on the exchanges when the bidding window opens. Subsequently, the exchanges should collate all such bids and send them to the registry through their D-CRM account for verification of the ESCerts quantity available for transactions. The registry will cross-check the same and send the confirmation report if everything is in order. If the sum of ESCerts offered for sale on the exchanges exceeds the quantity available for transaction in the eligible entity’s account, such entities will be treated as defaulters and their bids will not be considered. Alternatively, if the cumulative buy bids placed on the exchanges exceed the ESCerts quantity entitled to be purchased for compliance in that PAT cycle, the registry will allow the exchanges to accept the bid for higher numbers.

After the registry’s confirmation, the exchanges will aggregate all the buy bids and confirmed sell bids to discover the market clearing price (MCP) and market clearing volume (MCV) through the closed double-sided uniform price auction method. The exchanges will then upload the confirmation report on the D-CRM with the details of the ESCerts sell and buy volume for each eligible entity that successfully transacted during that particular trading session. After each successful trading session, the registry will update the details of ESCerts traded on the exchanges, and the opening and closing balances of the eligible entities. The ESCerts transactions will be based on the first-in-first-out principle.

Timelines for ESCerts trading

Trading will be carried out on a weekly basis every Tuesday and will be open from 1 p.m. to 3 p.m. on that day. The exchanges will intimate the details of the maximum offer of each eligible entity to POSOCO electronically by 3.30 p.m. POSOCO will cross-check the combined maximum bid volume on the exchanges and confirm the availability of ESCerts in the respective eligible entities accounts maintained on the PATNet portal by 4 p.m. Thereafter, the exchanges will discover the MCP and MCV by 5 p.m. and send a confirmation report with the final cleared transaction details to POSOCO by 5.15 p.m. Finally, POSOCO will send the transaction approval acknowledgement to the exchanges by 5.30 p.m.

The way forward

Prior to the commencement of trading, the exchanges have to make amendments in their by laws and rules under the CERC’s power market regulations to enable ESCerts transactions on their platforms. Both the IEX and PXIL put up these amendments in the public domain for comments in early March 2017, which have to now be approved by the CERC. DCs will start the registration process to become eligible entities after the CERC approves the fee order for ESCerts transactions. Being the administrator, the BEE will announce the date of opening of registration to all DCs with fee details as well as the date of commencement of ESCerts trading. On its part, the IEX has notified the charges that will be levied on entities trading on its platform at the rate of Rs 20 per ESCert to be collected from both buyers and sellers.

Given that the first PAT cycle has been evaluated, and the regulatory and administrative formalities for ESCerts trading are being put in place, trading is expected to take place in April 2017. While PAT Cycle I targets were easily met by almost all segments, barring the thermal power plant (TPP) segment, only limited trade is expected to take place due to the oversupply of ESCerts (2.135 million against the demand of 0.151 million) in the first cycle. Further, since ESCerts can be banked for two cycles, most DCs that are not able to sell their ESCerts this year may be able to bring them back to the market during the compliance period of the next cycle. In any case, the success of ESCerts trading is largely dependent on the enforcement of the applicable penalty under the Energy Conservation Act for the non-compliance with energy consumption norms by DCs. The opportunity for energy savings is immense across various industries given that the achievements under the first cycle have been well in excess of the targets. Although ESCerts trading may be limited to begin with, it will be a good start and will complete the loop of the market-based PAT scheme.


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