Sustainable Cost Cutting: Energy efficiency in industries

Energy efficiency in industries

Industries in India consume roughly 55-60 per cent of the country’s electricity. There is a potential to reduce this energy consumption by 10-25 per cent depending on size, industry and type of technology adopted by the companies. It is estimated that around 40 per cent of the industrial energy consumption is concentrated in six industries, namely, aluminium, cement, fertiliser, iron and steel, paper and glass. Essentially, implementing best energy practices in all these industries will save substantial costs, and improve efficiency in operations while enhancing safety. In other words, broadly improving energy efficiency throughout all industries will have an enormously salutary effect on energy consumption in India and provide benefits such as reduced energy usage, decreased fuel consumption, increased revenue, improved safety and enhanced sustainability-related credentials.

Energy efficient equipment

According to several industry experts, equipment related to compressed air, heat and steam as well as electromechanical systems such as motors and drives has huge potential for improving energy efficiency. Such equipment has huge upfront capital costs, leading industries to purchase less energy efficient equipment to reduce their expenditure. Consequently, the less efficient equipment also becomes more expensive over its lifetime due to increased operational and maintenance costs, making it more commercially viable to procure energy efficient equipment.

Motors and drives are responsible for approximately 28 per cent of India’s total electricity consumption, 70 per cent of its industrial electricity consumption and 38-40 per cent of its commercial consumption. Despite all these factors, 98 per cent of Indian motors are of sub-IE2 grade (very inefficient), leading to higher energy costs over their lifetimes. According to some studies, the energy cost of running an electric motor over 10 years is at least 30 times the original purchase cost of the motor. Additionally, reusing the wasted heat already being generated in industrial processes is one way companies can significantly improve energy efficiency. By installing a condensing economiser, companies can improve overall heat recovery and steam system efficiency by up to 10 per cent.

A largely ignored element in the process of improving energy efficiency in industrial units is the cost incurred from operating ageing and outdated equipment. It has been noted that upgrading machinery with recognised efficiency ratings could significantly reduce energy and costs. For example, correctly sized motors that run at higher loads and efficiencies are also an important way to generate energy savings. In addition, maintaining ageing equipment can be a challenge, as parts for such old equipment are often no longer available or very expensive.

Energy efficient systems using IoT, ML and AI

According to estimates, internet of things (IoT)-enabled energy management systems can help save 20-30 per cent of electricity costs in industrial units. Additionally, such technologies are supplemented by artificial intelligence (AI) and machine learning (ML), which supply analytical insights to improve performance. They also aid managers in simulating operations and making better decisions.

Integrating IoT-based machines supplemented by ML/AI algorithms will also help industrial units in forecasting energy consumption, controlling lighting and optimising energy consumption by the unit. AI/ML algorithms can gather and analyse historical, day-to-day data of various parameters such as temperature and lighting within an industrial unit to create a predictive model for forecasting. Energy providers can thus gain deeper insights into total energy production and consumption, allowing them to redistribute energy to the right places.

Policy initiatives and PAT programme

The Energy Conservation Act, 2001 made energy audits mandatory for industries notified as designated consumers of energy. This has helped identify various energy-saving opportunities in energy-intensive industries and other establishments. Many state governments provide financial support for the cost of audit for both water and energy conservation projects. In addition, the introduction of a policy initiative called the ZED (Zero Effect Zero Defect) Maturity Assessment Model has enhanced resource efficiency.

Taking these factors into consideration, the Bureau of Energy Efficiency (BEE), a statutory body under the Ministry of Power, introduced the Perform Achieve and Trade scheme in 2011, obliging energy-intensive industries to reduce energy consumption by a specific extent, evaluated every three years. The excess energy savings are converted into tradable instruments called energy saving certificates, which are traded at the power exchanges. As of March 2020, six cycles have been rolled out with 1,073 DCs, covering 13 sectors, mandated to adopt energy efficiency measures.

Essentially, the PAT scheme has been an eminently huge policy success as it has contributed to 62.64 per cent of the total energy savings in 2019-20. Moreover, the industrial sector at large is responsible for 53 per cent of energy savings in 2019-20 and has been responsible for much of the energy savings in the last decade since the launch of the PAT scheme. The estimated total energy saving is around 28 million tonnes of oil equivalent (Mtoe) as of PAT Cycle VI (2020-21 to 2022-23). In PAT Cycle VII (2022-23 to 2024-25), BEE is targeting energy savings of 6.62 mtoe by obliging 509 industrial units (designated consumers).

Meanwhile, demand-side efficiency can be raised by procuring electricity from captive sources as this reduces the cost of electricity generation. As a result, many industries, such as steel, cement, sugar and metal smelting industries routinely invest in developing and maintaining captive capacities to fulfil their own power requirements. The government is also putting in place rules and regulations facilitating development of captive capacity. For instance, the Green Open Access Rules, 2022 enable industrial and corporate customers with a demand of over 100 kw to set up their own solar plants and wheel power to their establishments. Under the new rules, connectivity approval for renewable plants, when sought, shall not take more than 15 days to be granted. Additionally, CSS cannot be increased beyond 50 per cent of the applicable CSS at the time of grant of open access approval for the first 12 years. These measures are likely to provide a fillip to energy-efficient demand-side practices.

Energy efficiency in MSMEs

MSMEs are characterised by a high degree of heterogeneity in manufacturing processes and size of units, but are extremely inefficient with regard to energy consumption. This inefficiency can be traced to their financial weakness and lack of access to finance, which forces them to opt for low-cost substandard energy-intensive alternatives that incur disproportionate costs down the line via O&M expenses. Additionally, the MSMEs are also more vulnerable to increasing energy prices, as they pay more per unit of energy compared to larger industries.

Hence, the BEE, taking cognisance of their vulnerabilities and difficulties in adopting energy efficient technologies, developed the National Programme on Energy Efficiency and Technology Upgradation in SMEs with the objective of ensuring distribution and adoption of energy efficient technologies in MSMEs. The objective of this programme is to improve the energy efficiency of the SME sector in India by accelerating the adoption of energy efficient technologies, knowledge sharing, capacity building and the development of innovative financial mechanisms.

Furthermore, the BEE has also initiated two programmes: the Partial Risk Guarantee Fund for Energy Efficiency (PRGFEE) and Framework for Energy Efficient Economic Development (FEEED). The PRGFEE is a risk-sharing mechanism that provides participating financial institutions (PFIs) with partial coverage of the risk involved in disbursing loans to ESCOs for energy efficiency projects. The PRGFEE guarantees a maximum of 50 per cent of the loan amount, up to Rs 100 million per project. Meanwhile, FEEED focuses on developing appropriate fiscal instruments to promote energy efficiency financing. The objective is to assure concerned stakeholders such as banks and other financial institutions that extend finance to projects (MSMEs, commercial establishments, etc.) implementing energy efficiency schemes that their credit is guaranteed. For example, the partial risk sharing facility extends partial credit guarantees covering default risk for companies implementing energy efficiency schemes. These energy saving loans are given by PFIs and are partially guaranteed for a maximum tenor of five years, with guaranteed coverage ranging from 40 to 75 per cent of the loan amount or Rs 150 million per project.

The way forward

Industrial units in India can improve their energy efficiency, and reduce their energy costs and emissions, by deploying energy efficient technologies, advanced digital technologies such as AI/ ML and IoT, and carbon-neutral captive capacity. The adoption of energy efficient technologies and practices in industrial units can be supercharged by a combination of governmental policies stimulating investment in these technologies as well as the eagerness of other financial stakeholders to extend financing. Conversely, industrial units can also be nudged to improve and upgrade their equipment by disincentivising companies operating inefficiently. Hence, it is vital for stakeholders in the industry to come together regularly and focus on rapidly deploying energy efficient technologies as well as measures, thereby increasing energy efficiency throughout industrial units.