Dealing in ESCerts: Bringing energy efficiency to Indian Power Exchanges
There exists a large potential in India as far as the achievement of energy efficiency is concerned and it is up to the Indian policy-makers, regulators and obligated entities to ensure that India realizes this potential to the fullest.
The Energy Conservation Act, 2001 paved way for the energy efficiency in the country to provide for efficient use of energy and its conservation. The Act also provided for the establishment and incorporation of Bureau of Energy Efficiency (BEE) in March, 2002 as a statutory body under the Ministry of Power (MoP). On 27th May,2016 Central Electricity Regulatory Commission (Terms and Conditions for Dealing in Energy Savings Certificates) Regulations, 2016 were notified to define a framework for dealing in ESCerts through power exchanges.
The ESCerts are to be traded in line with PAT (Perform Achieve Trade) scheme under NMEEE (National Mission on Enhanced Energy Efficiency) by NAPCC.
- ESCert is an instrument issued by the Central government guaranteeing the stipulated amount of energy saving has been achieved.
- Additional units of intangible bundles of societal and environmental benefits created by the energy saved over and above baseline.
- ESCerts as a tradable commodity could help to mobilize market forces and capital towards investments in energy efficiency.
- One ESCert is equivalent to one million Tons of Oil Equivalent (Mtoe) energy saved above the target savings.
- Certificates are maintained in DEMAT form to make them tradable in IEX and PXIL.
About PAT (Perform-Achieve-Trade) Scheme
- ESCerts were first introduced in India in 2011 under PAT scheme propelled by BEE under NMEEE.
- The scheme recognizes 478 energy intensive units which lie in 8 industries known as Designated Consumers (DC’s) which are – Aluminum, Cement, Chlor-alkali, Fertilizers, Pulp and paper, Iron and Steel, Textiles, Railways and Thermal Power Plants.
- Energy Audit by BEE has been made mandatory for these units.
- Maximum of these units is present in Gujarat, Tamil Nadu, Maharashtra and Rajasthan states.
- For the DC’s, Specific Energy Consumption (SEC) target is set. The achievement of target calls for issuing of ESCerts.
- The scheme involves three phases.
Phases in PAT Scheme
|Phase 1 – Goal setting phase||Setting of specific energy consumption (SEC) target for each plant on the basis of their current energy intensity. The target specifies the percentage by which a plant has to reduce its energy intensity in a 3-year period|
|Phase 2 – Reduction Phase||Reduction in energy intensity according to set target by the Designated Consumer.|
|Phase 3 – Trading Phase||The consumers who have surpassed the SEC target are credited with tradable permits or ESCerts.
A penalty is levied on the consumers who fail to meet the targets.
Key Features of the Regulation
- The ESCerts can only be traded through “Power Exchanges” i.e IEX and PXIL only, unless otherwise specified by the CERC.
- The frequency of transaction of certificates on the monthly basis.
- All eligible entities are to register themselves with the Registry and Power Exchanges before dealing in ESCerts.
- Any entity placing sale bids more than the ESCerts held in the Registry account shall be marked as Defaulter.
- Entities defaulting thrice in a cycle shall be barred from the transaction of ESCerts for six months.
- The market price of the ESCerts is to be discovered through the bidding process in the Power exchange.
- The matching mechanism for ESCerts in Power Exchanges to be closed bid double-sided auction.
- POSOCO has been designated as “Registry”, responsible for registration of eligible entities, record maintenance, information dissemination, assisting IT development of ESCerts database and signing of a non-disclosure agreement with Administrator.
- BEE (Bureau of Energy Efficiency) has been designated as “Administrator” with the function to act as a facilitator between Registry, Power Exchanges and Eligible Entities.
- The power to issue directions to the matters pertaining to Regulatory affairs lies with the CERC.
Scope for Improvement
The ESCerts are issued after the verification of savings during the initial reduction phase thus, there exists no tradable price upfront. In the case of overachievement by the DC’s, the supply of ESCerts will surpass demand for them, thus setting a low market price for the ESCerts and further nullifying the benefits of financial incentive for the achiever and ESCerts available at low prices to underachievers.
In order to mitigate this problem, flooring for the prices should be done, so as to ensure a minimum return on the ESCerts.
The issuance of Energy Saving Certificates (ESCerts) shall serve the twin purpose of financial incentives, thereby reduction in the cost as well as compliance with energy efficiency targets.