An effective energy cost management process optimises energy usÂage and reduces expenses for larÂge commercial and industrial (C&I) consumers. This process involves monitoring and analyÂsing energy usage, identifying opportunities for improvement, imÂplementing energy-saving measures, and measuring and verifying results. It also includes upÂgrading equipment, implementing energy efficient technologies, improving builÂding insulation and ventilation, and adÂopting energy coÂnservation best practicÂes. By reducing energy consumption and waste, energy cost management can help companies save money on energy expenÂses, improÂve their sustainability and enÂvironmental performance, and enhance their oveÂrall operational efficiency.
Lowering energy costs directly contriÂbutes to increased profitability, especiaÂlly for energy-intensive industries. EnÂergy cost management can also contriÂbute 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 imÂplementing energy-saÂving meÂÂaÂÂsures and adopting sustainable praÂcÂtices, orgaÂnisaÂtions can reduce their exÂposure to energy price fluctuations and volatility, which, in turn, helps them in risk mitigation. MaÂnging the energy cost efficiently can be a win-win situation for both businesses and the enviroÂnÂment, as it results in more financial saÂvings and environmental benefits.
Drivers of energy cost management
Renewable energy integration is an imÂportant strategy for companies seeking to lower their energy costs. As the costs of renewable energy sources such as soÂlar and wind power continue to decliÂne, energy cost management strategies will need to account for the unique challenÂges 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 puÂmped hydro storage are gaining tractiÂon. 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 betÂween 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 enÂergy 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 opÂportunities 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 accÂounts for about 50 per cent of the electricity consumption in India and the deÂmand 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 poÂwer plants, reducing their cost from Rs 9 per kWh to Rs 3-Rs 3.30 per kWh. HowÂever, 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 poÂwer 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 opÂen access route in order to significantly loÂwÂer 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 shoÂrter 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 potÂentially 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 priÂces offered by different suppliers, alloÂwing them to make informed decisions, based on market dynamics. This transparency fosters competition and empowers consumers to choose the most cost-effective options available. MoreÂover, poÂwer exchanges provide risk management tools such as futures and forward contracts. C&I consumers can utiÂlise these inÂstruments to hedge against price volÂatility 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 reÂneÂwable energy directly through these exchanges, supporting their environmeÂntal 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. AddiÂtionally, the suitability of power exchanÂges 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 EfficiÂency (BEE), the Energy Conservation BuilÂding Code (ECBC) by the Ministry of PoÂwer (MoP), the National Mission for EnÂhanced Energy Efficiency under the NaÂtiÂonal Action Plan on Climate ChanÂge, proÂmoÂtion of energy efficient LED bulbs (UJALA scheme), and the EV National EleÂctric Mobility MiÂssion Plan, which proÂmote energy efficiency and cost savings.
To give consumers the information they need to make an informed deÂcision on energy savings, the BEE launÂched the StaÂnÂÂdards and Labelling ProgÂramme for equipment and appliances in 2006. The aim of the BEE’s energy efficiency labellÂing 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 builÂdings. The ECBC has been amended in 2017 to create guidelines for developers, designers and architects to include passive design techniques and renewable enÂergy 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, throÂuÂgh which the government targets to acÂcelerate energy efficiency initiatives across industries. The energy savings are converted into tradable insÂtruments caÂllÂed energy saving certificaÂtes (ESCerts), which are traded at the poÂwer 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 traÂde them to fulfil their compliance neÂeds. The ongoing PAT cycle VI (2020-21-2022-23) commenced with effect from April 1, 2020. The BEE projects total enÂerÂgy savings of about 26 million tonnes of oil equivalent and avoiÂdance 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 programÂmÂes 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 FrameÂwork for Energy EfÂfiÂcient EconoÂmic DeÂvelopÂment (FEEED) was established to develop financial tools to support enÂerÂgy efficiency. The Partial Risk GuaranÂtee Fund for Energy EffiÂciency (PRGFEE) and the Venture Capital Fund for Energy EffiÂciency (VCFEE) are two initiatives under FEEED. The PRGFEE, a risk-sharing mechanism, enÂables commercial banks to partially cover the risk associated with loans for energy effiÂciency projects. The VCFEE, in contrast, is a fund that offers equity funding for enÂergy efficiency projects.
The UJALA programme is another initiative aiming to encourage consumers to use energy more efficiently, increase conÂsumer 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 caÂse 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.