cii steel summit - confederation of indian...

November 2009November 2009ABPS Infrastructure Advisory Pvt Ltd

CII STEEL SUMMIT – 2009

Implications of PAT Scheme for Technology Selection

Balawant Joshi - Director

Practical Solutions to Real Life ProblemsABPS Infrastructure Advisory Pvt Ltd

Energy Efficiency Legislation in IndiaEnergy Efficiency Legislation in India• In India, industry accounts for 25% of National GDP and 44.4% of

commercial energy use in India• Since 2000, industrial GDP has been growing at 8.6% per annum,

and energy use in industry has been growing at 5.8% per annum. • The Energy Conservation Act, 2001, provides a legal mandate for

energy-efficiency regulations for industry

• Under the EC Act, units in nine sectors, with energy consumptionexceeding specified thresholds, have been notified as “designated consumers”– Power Fertilizer Chlor-Alkali–– Iron & steelIron & steel Cement Textile– Pulp & paper Aluminum Railways

Iron & Steel Industrial Sector is one of the notified sectors unIron & Steel Industrial Sector is one of the notified sectors under der the Energy Conservation Act, 2001the Energy Conservation Act, 2001


Background of PAT SchemeBackground of PAT Scheme• National Mission on Enhances Energy Efficiency (NMEEE)

initiated by Ministry of Power (MoP) under National Action Plan on Climate Change (NAPCC)

• One of the four initiatives under the mission is

• This Scheme which is being called PAT Scheme and the Instrument which is likely to be called ‘Energy Saving Certificate’is expected to create market for undertaking energy efficiency in a a cost – effective manner.

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


Proposed PAT SchemeProposed PAT Scheme• "Perform, Achieve and Trade" (PAT) scheme is a market-based

mechanism to enhance EE in the ‘Designated Consumers’ (DCs). • Specification of specific energy consumption (SEC) norm for each

designated consumer in the base year and in the target year-Statutory requirement for designated consumers under EC Act

• Verification of the SEC of each designated consumer in the base year and in the target year by an accredited verification agency

• Issuance of Energy Savings Certificates (ESCerts) to those designated consumers who exceed their target SEC reduction

• Trading of ESCerts with designated consumers who are unable to meet their target SEC reduction

• Checking of compliance, and reconciliation of ESCerts• Fungibility with other MBIs such as REC, CERs, etc


3. Industry A

3. Industry B

1. Bureau of

Energy Efficiency

6. Third party Audit

auditors

2. Intermediary

Transfer agent

Depository

4. Stock Exchange

Compliance Directive

Clearing House and ESCertissuance

EScertReports

1 ESCert = 1 TOE

Operational Framework for PAT SchemeOperational Framework for PAT Scheme


Issues in Designing of PAT SchemeIssues in Designing of PAT Scheme• Methodology for setting up SEC norms for each DC in the

base year and target year• Systems and processes for efficient implementation of the

Energy Savings Certificates (ESCerts)• Regulations & institutions necessary for trading of ESCerts• Trading process for ESCerts• Issuance process for EScerts to those designated consumers

who exceed their target SEC reduction• Cross-sectoral use of ESCerts• Mechanism for synergizing renewable energy certificates

(RECs) with ESCerts


Setting SEC NormsSetting SEC Norms• Setting SEC norms include defining SEC, establishing

baseline, defining and setting of targets etc.• SEC has been defined as ‘Million Tonne Oil Equivalent

(MTOE) per tonne of the product as MTOE has well defined conversion factors

• Baseline of the plant has been defined as average of the two best years out of the last three years. Setting baseline also requires accounting for variables that could influence energy efficiency of the plant

• As industries operate over wide range of SEC, gap between the best and minimum values (defined as ‘bandwidth’) is divided into 3-4 groups and separate achievement targets are set for each group


Different ranges within bandwidth

Decrease the energy-efficiency bandwith of the sector

Tin tries harder than bronze, … , Gold sets world standards

Bandwidth of energy efficiencies in all sectors is large; old, low energy-efficiency units coexist with newer, state-of-the-art units

Energy efficiency norms based on current relative efficiency of units within a sector;

Highly energy-efficient units have lower improvement targets Units with lower energy efficiency have more stringent improvement targets


Large variation in scale of productioncapacities

Diversity of Scale in Steel IndustryDiversity of Scale in Steel Industry


Diversity in SEC in Steel IndustryDiversity in SEC in Steel Industry

(1) Large bandwidth in specific energy consumption

(2) The most energy efficient unit is also amongst the most efficient units in the world

Specific Energy Consumption- Indian Plants

6

6.2

6.4

6.6

6.8

7

7.2

7.4

7.6

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

SEC, GCal/tcs

Tata Steel,Jharkhand

Bhilai SteelPlant

Bokaro Steelplant

JSW Steel


Potential for EE in Steel IndustryPotential for EE in Steel Industry

Source: Mckinsey India Cost Curve Model


EE Potential in Steel Sector as per McKinseyEE Potential in Steel Sector as per McKinsey• Two types of abatement opportunities:

1. Energy Efficiency Measures could reduce emission by around 70 million tonnes of CO2 e by 2030

Making process more energy efficient;Optimize energy use though processes such as pulverized coal injection and coke dry quenchingRecovering of waste heat from various processes;

2. Technology Changes, recycled raw materials, and alternative fuels could reduce emission by around 42 million tonnes CO2 e by 2030;

Smelt reduction through technologies such as direct smelting, which eliminates the need for coking plants.Moving to scrap based steel making, which requires one third theenergy consumed by standard blast furnace using iron ore;Gas based Direct Reduced Iron (DRI),


• Over the past decade, energy efficiency in Indian Iron & Steel Industry has increased steadily.

• A CII Study estimated energy efficiency potential of minimum of 10% of total energy consumption.

• Specific Energy Consumption has been declining because of energy conservation in existing units, and due to new capacity addition with state of the art technology.

• Technological improvements at different stages of manufacturing process can further increase energy efficiency and reduce carbon emission

Indian Steel IndustryIndian Steel Industry

Source: Bureau of Energy EfficiencySource: Bureau of Energy Efficiency

Trends in Thermal Specific Energy ConsumptionTrends in Thermal Specific Energy Consumption


Institution Role Responsibility Authority Agency

Policy Governor and Compliance Driver

Compliance assurance through incentives and automatic penalties

Reduce conflict of Interest;

Accredit independent 3rd

party Energy auditors

Sets Compliance benchmarks; Resolve disputes through collaborative approach with petition process

Bureau of Energy Efficiency (BEE)

Market Governor

Ensure publicly available data

Maintain centralized data administration; strong quality assurance

level playing field; Issue of ESC

Bureau of Energy Efficiency

Industry Undertake energy efficiency measures; appoint accredited 3rd

party energy auditors

Maintain compliance with set energy efficiency benchmark

-- Designated Consumers etc

Stock Exchange Maintain data of traded prices, traded volumes and trends.

Create efficient and transparent market for trading

safeguard market integrity and enhance transparency in operations

Power Exchange, NCDEX, MCX

Transfer Agents / Depositories

Hold the ESC in electronic form.

Provides services related to transactions in ESC.

-- KARVY, CAMS, NSDL, CDSL

Third Party energy Auditors

-- Audit industry energy savings

Recommendation for the issue of ESCerts

Accredited Auditors

Roles of institutionsRoles of institutions


Institutional Mechanism For PAT Scheme (1/4)Institutional Mechanism For PAT Scheme (1/4)

• Specification of specific energy consumption norm for each designated consumer in the base year and the target year:– SEC = (Total Energy Purchased + Captive Energy Generation – Total

Energy Sold) / Production

– For a designated consumer:Specified SEC in target year = (F X Specified SEC in baseline year), where F < 1, and to be specified on the basis of the bandwidth of SEC amongst designated consumers in a sector, the specified SEC in the baseline year, and the total sectoral energy savings to be achieved.


• Verification of the specific energy consumption of each designated consumer in the baseline year and in the target year by an accredited verification agency– Energy use and production verification protocol for each sector– Verification agencies would be accredited energy auditors under the

EC Act who also assume liability for verification– Designated consumers can use any accredited verification agency for

verification– Sample-based check testing of verification by another accredited

verification agency.



• Issuance of Energy Savings Certificates (ESCerts) to those designated consumers whose verified SEC is less than their specified SEC in the target year– ESCerts denominated in tones of oil-equivalent– ESCert is a virtual certificate lodged in account of designated

consumer; transferred to account of another designated consumer on instructions from both parties

– Number of ESCerts issued to a designated consumer = (Verified SEC in target year – Specified SEC in target year) X (Production in target year)



• Checking of compliance and Reconciliation of ESCerts.– For compliance with mandated SEC improvement:

Verified SEC < Specified SEC + (ESCerts/ Production in target year

– For reconciliation of ESCerts:ESCerts issued = ESCerts Used for Compliance + ESCerts Carried Over to Next Compliance Period

– ESCerts used for Compliance are retired



Implications for Steel Industry

• All players will have to invest in energy efficiency improvement projects in their plants irrespective of their other capital expenditure measures.

• Situation could be difficult for small, high SEC players as their current cash flows may not support further capital expenditure.

• Currently scheme lacks clarity on various other issues such financing, CDM compatibility, etc.

November 2009November 2009ABPS Infrastructure Advisory Pvt Ltd

ABPS Infrastructure AdvisoryPractical Solutions to Real Life Problems

ABPS Infrastructure Advisory703/704, The Avenue,

Opposite The Leela, International Airport Road,Andheri (East), Mumbai 400 059

Ph: +91 22 2825 0050 / 2825 6481Fax:+91 22 2825 0051

Email: [email protected]

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