SNAPSHOT ENERGY EFFICIENCY IN INDIA This report is derived from an extensive secondary literature survey of the energy efficiency sector in India. The primary aim of the report is to set the context for understanding the current state and future evolution of the sector in the country. Briefly, the policy framework and institutional structure as well as the challenges and opportunities within the sectors are delineated. www.ebtc.eu
ENERGY EFFICIENCY IN INDIA SNAPSHOT Background India is one of the fastest growing modern economies of the world today. With economic growth rates ranging between 8% and 9% in the last 6 years and a double digit growth rate target for next decade, the Indian economy has become an energy guzzler. As per the global environment facility (GEF), industry remains the largest consumer of energy in the Indian economy; accounting for over 50% of total primary energy consumption in the country. There are estimated 13 million Micro, Small, and Medium-sized Enterprises (MSME) contributing to around 45% of manufacturing output, and employing more than 40 million people. Most of energy intensive MSMEs depend on inefficient equipment, technology and operating practices, leading to high energy consumption and significant CO 2 emissions. India has limited sources of conventional energy and is highly dependent on the imports for coal and oil. A lot of the nation s wealth goes into the import of coal and oil for energy. According to the reports of World Resources Institute (WRI) India s energy demand will more than double in 2030. The volatile situation in oil exporting area raises concerns of energy security rather than just price volatility. For a nation like India where internal resources are limited and external resources are costly and uncertain, the future lies in renewable energies and energy efficiency. Market Assessment According to data from the Indian power ministry, the energy conservation potential for the economy as a whole has been assessed as 23% with maximum potential in the industrial and agricultural sectors. In 2009 the investment potential for energy saving in India was estimated to be 7.19 billion with annual savings of 183.5 billion kwh (WRI). These energy savings were estimated to equate to 148.6 million tons of avoided CO 2 emissions per year. According to the Page 2 www.ebtc.eu
SNAPSHOT Cleantech group LLC, Indian companies raised around 160 million in venture capital investment in 2008 and $ 139.4 million in 2009. The role of the energy services companies (ESCOs) is increasing rapidly in India. The government has also realized the importance of these companies and is taking serious steps towards promotion and development of ESCOs. In 2009 WRI estimated the payback period for the ESCOs to be only 2 years. Besides suffering from the energy supply shortfalls, the Indian economy is also plagued by inefficient technologies and procedures. According to estimates from a study carried out by the BEE and National Productivity Council (NPC) in 2009, there is a potential of energy saving from around 7% to 30% across different sectors. This implies that energy efficiency offers huge market volumes in India and holds the key to solving India s energy problems to a great extent. Policy and Regulatory Framework One of the key components to increased energy efficiency in India has been due to the regulatory framework that the government has evolved. For instance, in the last 25 years, the Indian government has initiated six major industrial energy efficiency policies: 1. Requiring the disclosure of company energy efficiency information. 2. Accelerated depreciation for energy efficiency and pollution control equipment. 3. Establishment of the Energy Management Center. 4. Removal of price and output controls to promote industrial competitiveness. 5. Energy price reforms designed to guide energy efficiency initiatives. 6. Passage of the Energy Conservation Act and the Electricity Act. www.ebtc.eu Page 3
SNAPSHOT Barriers for Energy Efficiency Cross-subsidized electricity prices leading to wastage in residential and agricultural sectors. Limited information about the benefit of energy efficiency investments and technologies. Lack of enforcement of standards, codes, and labelling. Mistrust of counterparties in the context of weak contract enforcement. Bias against the counterintuitive disposal of existing plant and equipment. Difficulty of measuring negawatts (or efficiency savings) in the context of project cash flows. Asymmetric risk/reward distributions (mostly in the building sector for owner/investors versus tenants). Competing objectives in complex planning situations involving new investments and development. Inadequate investment in supportive institutional mechanisms and human resources. High transaction costs from legal, technical, and transactional complexities, like non-standardized deal structures and substantial technical content of project appraisal, development, and monitoring. The Energy Conservation Act created the Bureau of Energy Efficiency (BEE), a statutory body under the Ministry of Power. The BEE promotes, manages, finances, and monitors energy efficient efforts throughout the economy, including the industrial sector, through energy audits. It has the statutory authority to mandate energy efficiency standards. The BEE has created various task forces within several industrial sectors cement, paper, aluminium, steel, fertilizer, and petrochemicals. The BEE has now recently set out action plans for the industrial sector, designed to improve energy efficiency. They have directed industrial energy consumers to: 1. Designate a certified energy manager to take charge of energy efficiency activities. 2. Obtain energy audits by certified auditors at designated intervals. 3. Provide the designated agency energy consumption information and action taken based on the recommendations of the auditor. 4. Comply with energy consumption norms and standards, or provide plans to achieve compliance within a designated timeframe. In a sign that the BEE is serious about energy efficiency in industry, it took the further step of preparing energy efficiency targets for 580 industrial units operating under eight sectors, which all together consume over 44% of India s energy use. In another step, the BEE established a consortium of companies that will look specifically at establishing guidelines for electrical, cooling, operations, maintenance, information technology, and infrastructure management in an effort to show that reducing power consumption will lead to cost savings. Indicative Opportunity Spaces The main opportunities in the energy efficiency lie in the following areas: Operations and maintenance systems. Technologies and best practices. Waste heat recovery and steam utilization. Use of improved materials. Use of efficient lightings, heating and cooling. Use of efficient cooking. Use of improved fuels. Government Initiatives: The following steps were taken by the government of India in order to create the market demand for the energy efficiency in India: Page 4 www.ebtc.eu
SNAPSHOT 1. Preparation of bankable projects in various sectors like Government buildings, municipalities, agriculture, SMEs - About 1200 projects to be ready for implementation 2011 with an estimated investment of about 733.84 million. 2. Mandating all large Government buildings to undertake energy efficiency in 2013 - about 8000 large buildings with investment potential of 1.47 billion. 3. Setting appliance standards and making them mandatory. 4. Setting up norms for large energy intensive industries like thermal power, fertilizer, cement, pulp & paper, chlor alkali, steel, textiles, railways and aluminum. An investment in new technologies of 4.4 billion is expected. 5. Massive mass media campaign to enhance awareness amongst stakeholders. 6. National Energy Conservation Awards for best performing industries in energy efficiency. The Indian Energy Efficiency Trading Scheme: Indian industries ever-increasing demand for energy has led the government to mandate efficiency savings on hundreds of the largest energy users. The Indian Government s Bureau of Energy Efficiency (BEE) is introducing the Perform, Achieve and Trade (PAT) scheme. The formal energy reduction targets under the PAT mechanism have been drafted and Phase 1 of the scheme has started in 2011. Efficiency improvement targets will be given to the country s most energy-intensive industrial units on an intensity basis. The first phase runs for three years, and aims to achieve 6.6m metric tonnes of oil equivalent (Mtoe) of energy saving from the baseline of 231.6m Mtoe in 2007. Participants that achieve savings in excess of their target will be issued Energy Savings Certificates (ESCerts). Sites that underperform can buy ESCerts to meet their compliance requirement, or pay a penalty. Deploying a trading mechanism should ensure that the market allocates project capital such that total desired savings are achieved in the most cost effective manner. International equipment manufacturers will benefit as replacement of old equipment is brought forward, and enhancements are made to existing equipment to improve efficiency. Sources: 1. Market opportunities in environmental goods and services, renewable energy, carbon finance and CATs Country report India, UK Trade & Investment, October 2008. 2. UK-India Collaboration on Energy Efficiency, DFID, and UK Trade and Invest, 2011 3. India Infrastructure report 2010. 4. Energy Efficiency in the U.S. and India: A Study in Contrasts and Possibilities, Evolution markets, 2010. 5. http://www.beeindia.in/ Disclaimer All information provided in this publication has been compiled from reliable sources. Although reasonable care has been taken to ensure that the information in this publication is true and accurate, such information is provided as is, without any warranty, express or implied as to the accuracy or completeness of any such information. EBTC shall not be liable for any losses incurred by any person from any use of this publication. Readers should consult their legal, tax and other advisors before making any investment or other decision with regard to any business in India. www.ebtc.eu Page 5
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