An effective energy cost management process optimises energy usage and reduces expenses for large commercial and industrial (C&I) consumers. This process involves monitoring and analysing energy usage, identifying opportunities for improvement, implementing energy-saving measures, and measuring and verifying results. It also includes upgrading equipment, implementing energy efficient technologies, improving building insulation and ventilation, and adopting energy conservation best practices. By reducing energy consumption and waste, energy cost management can help companies save money on energy expenses, improve their sustainability and environmental performance, and enhance their overall operational efficiency.
Lowering energy costs directly contributes to increased profitability, especially for energy-intensive industries. Energy cost management can also contribute to reducing the carbon footprint for a more sustainable future. Further, it helps comply with energy efficiency regulations and avoid potential penalties or fines. By implementing energy-saving measures and adopting sustainable practices, organisations can reduce their exposure to energy price fluctuations and volatility, which, in turn, helps them in risk mitigation. Manging the energy cost efficiently can be a win-win situation for both businesses and the environment, as it results in more financial savings and environmental benefits.
Drivers of energy cost management
Renewable energy integration is an important strategy for companies seeking to lower their energy costs. As the costs of renewable energy sources such as solar and wind power continue to decline, energy cost management strategies will need to account for the unique challenges and opportunities associated with renewable energy integration, such as intermittency and variability.
To optimise the use of renewable energy sources and reduce the dependence on conventional energy sources, energy storage technologies such as batteries and pumped hydro storage are gaining traction. In this context, cost management strategies will need to account for the costs and benefits of energy storage as well as the potential trade-offs between storage and other energy-saving measures.
The increasing availability of energy data, combined with advances in analytics and machine learning, will create new opportunities for energy cost management. One can use data analytics to identify patterns and trends in energy usage, optimise energy performance and identify new opportunities for energy savings. The growing adoption of internet of things (IoT) technologies, such as sensors and smart meters, is providing businesses with more granular data on their energy usage and performance. However, energy cost management strategies need to account for unique challenges and opportunities associated with IoT, such as data security and privacy concerns.
Green energy procurement
A recent initiative that can help C&I consumers is the government’s notification of the green energy open access rules in September 2022. The C&I segment accounts for about 50 per cent of the electricity consumption in India and the demand for green energy from this segment, especially from open access projects, has been growing rapidly in the past few years. However, the perennial challenge faced by the C&I segment is the rising price of power, which has significantly impacted profitability.
To control the impact of the increase in grid tariff, many power-intensive industries have turned to captive thermal power plants, reducing their cost from Rs 9 per kWh to Rs 3-Rs 3.30 per kWh. However, not all industries have taken this route, as their power requirement was inadequate to support the cost associated with setting up captive units.
The new notified rules enable a simplified procedure for open access to green power. They will enable faster approval of green open access, uniform banking, voluntary purchase of renewable energy power by C&I consumers, applicability of open access charges, etc. C&I consumers are allowed to purchase green power on a voluntary basis. Captive consumers can procure power under green open access without any minimum limitation.
C&I consumers can use the transmission and distribution network of discoms to get green power from an off-site production facility by using the open access route in order to significantly lower their energy costs. Rooftop solar systems are designed to provide 20-50 per cent of a facility’s electrical needs on-site; while obtaining power via the open access route, rooftop solar could provide up to 70 per cent of the consumers’ electrical needs.
Short-term power exchange procurement
Power exchanges provide a platform for multiple electricity suppliers to offer their electricity at competitive prices. C&I consumers can participate in power exchanges and benefit from the competitive bidding process. This competition helps drive down prices and enables consumers to access electricity at potentially lower rates, compared to fixed grid tariffs. Further, power exchanges offer flexibility in terms of procurement. C&I consumers can choose to procure electricity for shorter durations, such as hours or days, based on their specific demand patterns. This flexibility allows consumers to align their procurement with their actual consumption requirements, thereby avoiding payment for unused or excess electricity.
Power exchanges often provide time-of-use pricing mechanisms. This means that electricity prices can vary, based on the time of the day or the season. C&I consumers who can shift their electricity consumption to off-peak or low-demand periods can take advantage of lower prices during those times. By actively managing their electricity usage, C&I consumers can optimise costs and potentially reduce their overall expenditure. Additionally, power exchanges operate as transparent markets, where electricity prices are determined through an open bidding process. This visibility enables C&I consumers to have insights into prices offered by different suppliers, allowing them to make informed decisions, based on market dynamics. This transparency fosters competition and empowers consumers to choose the most cost-effective options available. Moreover, power exchanges provide risk management tools such as futures and forward contracts. C&I consumers can utilise these instruments to hedge against price volatility and mitigate the risk of sudden price fluctuations in the electricity market. By managing price risks effectively, C&I consumers can stabilise their energy costs and budget more accurately. Power exchanges often facilitate the trading of renewable energy certificates for renewable electricity. C&I consumers with sustainability goals can procure renewable energy directly through these exchanges, supporting their environmental objectives, while potentially accessing competitive pricing for green power.
It is important to note that short-term power exchange procurement benefits depend on factors such as the specific electricity market structure, regulatory framework and the availability of power exchanges in a particular region. Additionally, the suitability of power exchanges versus grid tariffs may vary, based on individual consumer profiles and electricity consumption patterns.
Policies and programmes to promote energy efficiency
The government has come up with various programmes such as standards and labelling by the Bureau of Energy Efficiency (BEE), the Energy Conservation Building Code (ECBC) by the Ministry of Power (MoP), the National Mission for Enhanced Energy Efficiency under the National Action Plan on Climate Change, promotion of energy efficient LED bulbs (UJALA scheme), and the EV National Electric Mobility Mission Plan, which promote energy efficiency and cost savings.
To give consumers the information they need to make an informed decision on energy savings, the BEE launched the Standards and Labelling Programme for equipment and appliances in 2006. The aim of the BEE’s energy efficiency labelling programme is to lower appliances’ energy usage. Similarly, in 2007, the MoP introduced ECBC for new commercial buildings. It establishes minimal energy requirements for new commercial buildings. The ECBC has been amended in 2017 to create guidelines for developers, designers and architects to include passive design techniques and renewable energy sources in building designs. The code prefers life-cycle cost effectiveness to achieve energy neutrality in commercial buildings and seeks to balance energy savings. Another initiative has been the Perform, Achieve and Trade (PAT) scheme, through which the government targets to accelerate energy efficiency initiatives across industries. The energy savings are converted into tradable instruments called energy saving certificates (ESCerts), which are traded at the power exchanges. By certifying energy savings that can be traded, PAT serves a market-based mechanism to increase the cost-effectiveness of improving energy efficiency in enterprises that use a lot of energy. ESCerts can be awarded to units that are successful in meeting a certain energy consumption level that is lower than their goals. Other units covered by PAT can purchase ESCerts and trade them to fulfil their compliance needs. The ongoing PAT cycle VI (2020-21-2022-23) commenced with effect from April 1, 2020. The BEE projects total energy savings of about 26 million tonnes of oil equivalent and avoidance of about 70 million tonnes of carbon dioxide by March 2023.
The Bachat Lamp Yojana and Super-Efficient Equipment Programme are two other schemes that promote energy efficient appliances and usage of LED lighting. Meanwhile, the Energy Efficiency Financing Platform assists in financing demand-side management programmes across all sectors. As a result, an MoU has been signed with financial institutions to collaborate on the energy efficiency market growth and identification of problems associated with it. In addition, the Framework for Energy Efficient Economic Development (FEEED) was established to develop financial tools to support energy efficiency. The Partial Risk Guarantee Fund for Energy Efficiency (PRGFEE) and the Venture Capital Fund for Energy Efficiency (VCFEE) are two initiatives under FEEED. The PRGFEE, a risk-sharing mechanism, enables commercial banks to partially cover the risk associated with loans for energy efficiency projects. The VCFEE, in contrast, is a fund that offers equity funding for energy efficiency projects.
The UJALA programme is another initiative aiming to encourage consumers to use energy more efficiently, increase consumer knowledge of the benefits of using energy efficient appliances, and aggregate demand to lower the high initial costs of LED lighting.
The way forward
For C&I consumers, energy is a significant input cost, accounting for as much as 70 per cent of the share of costs in the case of chemical manufacturing companies. Sourcing reliable and competitively priced power and managing energy costs through new technologies while meeting their sustainability goals, are thus critical to business growth for C&I consumers.