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IT In Power | September 2014

PAT Scheme - The way ahead

India has launched several schemes to promote energy efficiency. The prominent among them is the Perform Achieve and Trade (PAT) scheme being implemented by BEE across energy-intensive sectors in India.

Perform, Achieve and Trade (PAT) is a market-based mechanism to enhance cost-effectiveness of improvements in energy efficiency in energy-intensive large industries and facilities, through certification of energy savings that could be traded. The government, in March 2007, notified units in nine sectors, namely aluminium, cement, chlor-alkali, fertilisers, iron & steel, pulp & paper, railways, textiles and thermal power plants, as Designated Consumers (DCs).

The PAT scheme in its first phase of implementation, called PAT Cycle 1 (2012-2015), covers 478 DCs in all identified industries except railways. During the PAT Cycle 1, the total energy saving target is 6.686 Mtoe out of which more than 80 per cent lies in three industries, viz., thermal power plants, iron & steel, and cement with targets of 3.211 Mtoe, 1.486 Mtoe and 0.816 Mtoe respectively.

In India, thermal power plants generate 65 per cent of electricity consumed. The thermal power plant sector has been categorised on the basis of fuel input into three subsectors, i.e., gas, oil and coal based plants.

The identified threshold limit is 30,000 toe for the thermal power plant sector to become designated consumers and about 144 designated consumers from various States have been identified. Total reported energy consumption of these designated consumers is 104 Mtoe. By the end of the first PAT cycle, energy savings of 3.211 Mtoe/ year are expected to be achieved, which is around 48 per cent of total national energy saving targets assessed under PAT.

SEC or the net heat rate varies from 1774 kcal/ kWh to 5134 kcal/ kWh for these 144 designated consumers.

BEE has played an exceptional role so far in promoting energy efficiency in India. As mentioned earlier, before the PAT scheme was launched, BEE programmes have resulted in substantial savings resulting in avoidance of Rs 20,000 crore worth of additional investment. Based on the inputs received from the industry participants through the primary interactions carried out for preparation of the report, 60 per cent success rate of the PAT Cycle I is expected. This would amount to avoidance of Rs 6,500 crore worth of investment through improved energy efficiency. The overall success rate is lower, largely due to low success rate of 40 per cent expected from the power sector especially due to inability of the not so progressive State gencos to meet the targets and coal quality and availability issues. Going forward, it is understood that BEE is contemplating to cover more number of sectors and more DCs within the chosen sectors to increase the efficacy of the PAT scheme. These new sectors and new DCs could be intimated under Cycle II 2016-19.

Key Challenges faced by DCs with regard to PAT Compliance Business specific Decision-making in India is still based on ´investment and payback´ and not on ´life-cycle costing approach´ leading to less efficient equipment. Recessionary trends are already putting lot of pressure on the toplines and bottomlines of DCs. Low capacity utilisation, inconsistent quality and unreliable availability of coal leads are the major impediments for PAT cycle I under-achievement. Lack of skilled labour leading to inefficient operations and thereby poor energy performance is another problem area.

ESCerts related
In absence of price clarity for ESCerts, it is very difficult to justify any EE capex investments to the top management.
Oversupply of ESCerts likely to affect the RoI for the investment in energy-efficient projects by the DCs.
Regulators are still unclear about the framework and methodology for PAT.
No guidelines or suggested measures by BEE for energy cost reduction.
Measurement and verification´, an important part of baselining and improvement is still not focussed upon.
CPP utilisation is going down due to EE and RE measures leading to lower PLF and hence, higher SHR.
Power plants not incentivised to reduce auxiliary power consumption as PPA is silent on sale of additional energy due to efficiency improvements.
No adjustments provided in SEC for installation of additional pollution control equipment required by stringent CPCB norms.
Funding related
Credible ESCOs required for capex intensive energy efficiency projects like WHR.
Project-based funding at low interest rates still very limited for energy efficiency projects.
For thermal power plants, EE capex is not considered as a statutory expense for pollution control equipment. Hence, passing such expenditure to consumers is very difficult.
A few measures adopted by DCs to become PAT compliant
Reduced coal consumption by reducing unburnt coal by using catalysts and improving burner efficiency.
Pre-drying of coal to ensure uniform combustion and thereby reduce unburnt coal.
Adoption of alternative fuels like petcoke and hazardous waste to reduce the SEC of the plant.
Installation of auto coal samplers to increase testing frequency for input fuel to appropriately adjust the operating parameters and obtain accurate GCV data for SEC calculation.
In cases where EE is not viable, DCs have adopted RE options (Solar & Wind) to achieve SEC targets.
Waste Heat Recovery has been adopted primarily by cement sector but the adoption remains low due to high capex.
Certifications like ISO 50001 have been adopted to increase awareness and methodologically gear up all stakeholders towards energy efficiency.

Feedback received from the financing agencies
Contractual ecosystem for performance contracting is absent in India.
EE projects involve high project development and transaction costs reducing margins for EE financing agencies.
Many of the projects involve utilisation of new or innovative technologies which are difficult to evaluate.
Most of the EE projects are perceived as high risk projects as returns are dependent on proper implementation & maintenance by DCs.
Reluctance and conservatism of top management in India to have fruitful profit-sharing agreement with the ESCOs.
Limited number of credible ESCOs in India.
Lack of specific performance guarantee and implementation support by the OEMs.

The PAT scheme has kicked off the energy efficiency drive in India. It has been a blessing in disguise for most of the designated consumers. It has enabled managements to implement several energy efficiency programmes and thereby, reduce their energy bill.

Findings from the study conducted by Tata Strategic revels that most of the industry stakeholders applaud the scheme in principle. Comparison of Indian energy intensive sectors against some of the best global peers reveals different picture for different sectors Cement is emerging as the most advanced sector while thermal power is emerging as the least advanced in terms of energy efficiency and overall energy management. Stakeholders, especially the designated consumers, opined that current policy has helped them reduce their energy bills.

However, they also expressed concerns regarding weak handholding by regulators and DENAs, inflexible approach for normalisation, less clarity on M&V, absence of regulations for ESCerts trading, likely over-supply of ESCerts and financing requirements for EE measures especially to meet Cycle II targets. Several of them have suggested a host of measures to be taken up by the regulators in order to enhance the efficacy of the scheme going forward, including strong M&V portal, disseminating information about sector progress, success stories and best practices, building capacity among stakeholders, widening depth and width of ESCerts markets, and promoting credible EE financing institutions. Proactive implementation of such suggestions would mark the making of a vibrant energy efficiency market in India. Tata Strategic believes that the scheme has established need for innovative energy efficient equipment, solutions and business models along with helping the DCs in energy cost reduction. The evolving EE market along with the projected next growth phase of the Indian economy offer growth opportunities for global OEMs, energy efficiency product manufacturers, energy monitoring companies and software solution providers, going forward.

The article has been authored by Manish Panchal, Practice Head-Chemical & Energy and Shardul Kulkarni, Principal-Energy, Tata Strategic Management Group.

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