Perform Achieve and Trade (PAT)- Methodology- Baseline Normalization, Energy Performance Indicators, Targets and M&V 4 th July,2012 K. K. Chakarvarti Bureau of Energy Efficiency New Delhi

NATIONAL MISSION FOR ENHANCED ENERGY EFFICIENCY (NMEEE) The National Action Plan on Climate Change was released by Prime Minister of India in June 2008 The Action Plan Outlines 8 Missions including National Mission for Enhanced Energy Efficiency (NMEEE)8 Missions The basic objective of the NMEEE mission is to ensure a sustainable growth by an approximate mix of 4 E’s, namely-Energy, Efficiency, Equity and Environment

NMEEE – Four New Initiatives Perform Achieve and Trade (PAT): 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. Market Transformation for Energy Efficiency (MTEE): Accelerating the shift to energy efficient appliances in designated sectors through innovative measures to make the products more affordable Energy Efficiency Financing Platform (EEFP): Creation of mechanisms that would help finance demand side management programmes in all sectors by capturing future energy savings. Framework for Energy Efficient Economic Development (FEEED): Developing fiscal instruments to promote energy efficiency

Fiscal Instrument for EE Partial Risk Guarantee Fund Venture Capital Fund Public Procurement Fiscal Instrument for EE Partial Risk Guarantee Fund Venture Capital Fund Public Procurement Stimulate Funding for ESCOs Stimulate Funding for ESCOs Energy Efficient Appliances Super Energy Efficient Program Energy Efficient Appliances Super Energy Efficient Program Energy Intensive Industries Targets for Mandatory Energy Saving Energy Intensive Industries Targets for Mandatory Energy Saving PATEEFP FEEEDMTEE NMEEE – Four New Initiatives NMEEE

Provisions in the Energy Conservation Act As per Section 14(g) of EC Act, 2001 “[Establish and prescribe such energy consumption norms and standards for designated consumers as it may be considered necessary: provided that the central government may prescribe different norms and standards for different designated consumers having regard to such factors as may be prescribed] the central government can stipulate energy usage norms for designated consumers.

The Energy Conservation (Amendment) Act, 2010 Main Amendments The Central Government may issue the energy savings certificate to the designated consumer whose energy consumption is less than the prescribed norms and standards in accordance with the procedure as may be prescribed. The designated consumer whose energy consumption is more than the prescribed norms and standards shall be entitled to purchase the energy savings certificate to comply with the prescribed norms and standards. The Central Government may, in consultation with the Bureau, prescribe the value of per metric ton of oil equivalent of energy consumed.

Perform, Achieve & Trade (PAT) Mechanism  The key goal of the PAT scheme is to mandate specific energy efficiency improvements for the most energy intensive industries.  The scheme builds on the large variation in energy intensities of different units in almost every sector, ranging from amongst the best in the world, to extremely inefficient units as well.  The energy intensity reduction target mandated for each unit is dependent on its current efficiency : the reduction target is less for those who are more efficient, and is higher for the currently less-efficient units.  The design of PAT is the result of extensive consultations over the last two years ( and ), which have contributed to its robustness and simplicity.

The energy usage pattern varies widely in industries of a particular sector due to various diversities like -Scale of Production (Installed Capacities) - Use of Raw Material - Process Technology - Vintage - O & M Practices - Type of Product Output etc. Factors of DiversityMost Affected Sectors a)Raw Material InputPulp & Paper, Fertilizer, Power Plant, Textile a)Quality of Raw Material / FuelAll sectors a)Process & TechnologyAluminium, Iron & steel, Chlor-Alkali, Paper a)Final Product outputTextile, Iron & Steel, Aluminium a)VintageAll Sectors a)Capacity UtililizationAll sectors Reasons for Large Energy Usage Bandwidth

Number of Designated Consumers (DCs) as notified under Indian Energy Conservation Act Industry SectorAnnual Energy Consumption Norm to be DC (toe) No. of Identified DCs Aluminum Cement Chlor-Alkali Fertilizer Pulp & Paper Thermal Power Iron & Steel Textiles300090

PAT - METHODOLOGY

PAT Scheme : Background & Scope  Covers 478 designated consumers in 8 sectors  All DCs consume about 165 million toe energy  Targets would be given to all DCs to achieve the same within a time frame -Achievement > Target E-Scerts -Achievement < Target Purchase E-Scerts / Penalty  The Energy Savings Certificates (ESCerts) so issued will be tradable on special trading platforms to be created in the two power exchanges (Indian Energy Exchange and Power Exchange India).  National Target = million toe at the end of 1st PAT Cycle ( by )

PAT Scheme : Approach Towards Target Setting  Establishment of Baseline : –As per reported data of 3 years ( to ) –Normalization Factors –Average of last 3 years value  Targets to be statistically calculated based on relative SEC approach after grouping the DCs suitably  The target reviewed by an expert committee before notification

Estimation of Energy Savings  Base: – Baseline Year : – Baseline Production (P base ) : Avg. of , & – Baseline SEC (SEC base ) : Avg. of , & – Target SEC (SEC target ) : SEC as estimated in – Target : % reduction from SEC base  Estimation of Energy Saving (TOE) : P base ( SEC base – SEC target )

National Energy Saving Targets under PAT (%) ( )

Saving Target Baseline SEC Target SEC Achieved SEC Scenario 1 Scenario 2 Compliance Issued Escerts Purchase Escerts Penalty Concept of Target, Compliance, ESCerts & Penalty

Example  Specific Energy Consumption (SEC) in Baseline year: 10 TOE/unit of production  Baseline Production: units  Target: 4% reduction in SEC  SEC in the target year: 9.6 TOE/unit production  For ESCerts or Penalty: – Reduction requirement: 4000 TOE – Scenario 1 (Achieved SEC = 9.4): TOE(ESCerts) – Scenario 2 (Achieved SEC = 9.8): TOE (Penalty)

Market Design ESCerts are issued – When energy efficiency improvements surpass targets – With 1 toe = 1 ESCert – Banking of ESCerts allowed during each cycle 1 st cycle ESCerts to 2 nd cycle 2 nd cycle ESCerts to 3 rd cycle

Advanced ESCerts Baseline, SEC(b) = 10 toe/t Target, SEC (t) = 7 toe/t Achieved after year 1, SEC (a) = 8.5 toe/t Production = tons AFTER YEAR 1 ESCerts =[(SEC(b) – (SEC (b)– SEC (t))/3) – SEC(a)] x 80% x prod = ((10 – (10-7)/3) – 8.5)) x 0.8 x = (9-8.5) x 8000 = 4000 ESCerts Revised Target = SEC(t) – (ESCerts/Prod) = 7 – (4000/10000) = 6.6 toe/t

Perform, Achieve & Trade (PAT) - Summary Administrator Set target and compliance period Designated Consumers 8 sectors Thermal Power Plant, Steel, Cement, Fertilizer, Pulp & Paper, Textile, Aluminium, Chlor-alkali Auditing Agencies Independent Monitor, verify and certify Market Place Transaction of energy efficiency instrument Reward over achiever Penalize under performer Stakeholders Set Targets Setting targets on the basis of baseline specific energy consumption Set compliance period Monitoring & verification of targets by Designated Energy Auditors (DENA) Check if designated consumer has achieved targets Underachievement: Obligations to buy ESCerts or pay penalty Overachievement: Issuance of ESCerts for banking for later use or trade Trading of ESCerts Participation by Designated consumers on platform provided by Power Exchanges Symmetrical flow of information Processes Involved Market Based Mechanism

PAT for Cement Sector- A Case Example

Indian Cement Industry  India is the second largest cement market in the world, accounting for about 6% of the world’s cement production  The cement industry uses coal and electricity as the main sources of fuel.  Energy cost accounts for about 40% of the total manufacturing cost in some of the cement plants and coal accounts for 15%–20% of the total production costs.  The specific thermal energy consumption and electrical energy consumption for state-of-the-art cement plants are as low as 658 kcal/kg of clinker and 65 kWh/ton of cement, respectively.

Indian Cement Industry (contd.)  The specific energy consumption patterns of most of the plants very, having wide band variation.  This happens mainly because of plants having different product mix based on addition of Pozzolona, Slag and Fly Ash and different blending percentage.  The pure cement being Ordinary Portland Cement (OPC) and no dilution by additives, consumes the highest energy per ton.  The blending with additives to manufacture other varieties reduces the Specific Energy Consumption per ton.

Indian Cement Industry (contd.)  Because of these complexities, it becomes extremely difficult to come to a common model to arrive at standardized SEC per ton.  Considering all these situations, the conversion factors and best possible combination and categorization have been worked out so that no Designated Consumer may have any grievance on the targets set out  While setting targets, units best in the group as reference and then worked out targets for others.

Normalization of Product Mix *CF (Conversion Factor)= Clinker used for x grade/Cement Production of x grade **Conversion of exported clinker to equivalent major grade cement = Clinker exported/CF of major grade cement Raw Material Cement Plant Clinkering Unit (Clinker Production) Grinding Unit Clinker + Gypsum+ additives* = Cement (OPC/PPC/PSC/any other Variety) *(fly ash/Slag/any other unit) Cement Plant Clinkering Unit (Clinker Production) Grinding Unit Clinker + Gypsum+ additives* = Cement (OPC/PPC/PSC/any other Variety) *(fly ash/Slag/any other unit) Clinker Imported from Other Unit Clinker Exported to Other Unit Cement Dispatched Conversion of Cement Equivalent to Major grade = (Cement production of a particular grade) X (CF* of Same grade)/(CF of Major grade) Total Cement Production Equivalent to major grade =Production of all grades of cement equivalent major grade + (exported clinker equivalent to major grade Cement)**

Coal (Indian) (1,03,339 Tons/yr,GCV 3438 kcal/kg ) Coal1 (Imported) (6246 Tons/yr, GCV 5454 kcal/kg) Pet Coke (3316 Tons/yr, GCV 8400 kcal/kg) Furnace Oil (669 Tons/yr, GCV kcal/kg) HSD (570 Tons/yr, GCV 8600 kcal/litre) Grid Electricity (53.08 Lakh KWh) Crushed Limestone Iron Ore, Bauxite,Gypsum Clinker (0.06 Lakh Tons/yr) CPP (Heat Rate 3135 kcal/kWh) GRID (Exported) (19.35 LAKH kWh/YR) Coal2 (Imported) Tons/yr, GCV 6192 kcal/kg) EXAMPLE- INPUT & OUTPUT FOR A TYPICAL CEMENT PLANT PPC (14.92LAKHTONNE/YR) PSC /OTHER (2.30 LAKH TONNE/YR) OPC (0.08 LAKH TONNE/YR) DG SET (Heat Rate 2212 kcal/kWh) 2.09 Lakh kWh Clinkerization (Raw Material Processing & Pyro-processing) Grinding (VRM and RP &BM) Flyash, Slag, Etc 3148 lakh KWh Colony, (5.1 Lakh kWh) Crushing and Mining (Exported) (25.12 LAKH kWh/YR) Note: All values presented in the above diagram are average of annual energy consumption of , ,

Methodology for Baseline and EPIs (Summary)  For each plant, different types of cement products and exported clinker are converted in to equivalent major product produced by that plant with the help of conversion factor, reported by the concerned plant.  Thermal Energy Input is arrived at by taking all type of fuels into account.  Electricity Purchased is converted in to equivalent thermal energy by multiplying it with 860. Whereas the electricity exported to grid is calculated similarly by multiplying it with 2717 (national avg. heat rate).  Notional energy is also imposed on imported power  Notional Equivalent Thermal Energy for Imported Power= Electricity purchased from Grid x (Weighted avg. heat rate of CPP of Cement plants-860).

Methodology for Baseline and EPIs (Summary)  Total GtG Energy Consumption is calculated by adding the thermal inputs through all type of fuels, electricity purchased and subtracting the power exported to grid.  Notional Energy (equivalent thermal energy) for Exported and Imported clinker are calculated based on thermal and electrical SEC reported by the concerned plant, wherein the Electrical kWh is converted into thermal kCal by multiplying the weighted average heat rate of the all form of electricity used in plant  The notional energy required for exported/imported clinker is added to the total thermal and electrical energy consumed by the plant only to arrive at the Gate to Gate Sp. Energy Consumption.

Estimation of Gate to Gate (GtG) SEC GtG SEC (kcal/kg major product cement) Total GtG Energy Consumption with normalisation (kcal) = Production of Equivalent Major Grade of Cement (kg)

Grouping of DCs CEMENT PLANTS (85 DCs) PPC (55)OPC(16)PSC (7) White OPC (2) + Grinding(2) + Only clinker(1) Based on Major Product Wet Plant (2)

National Target of Energy Saving among all Sectors S.NO.Sector No. of Identified DCs Annual Energy Consumption (Million toe) Share Consumption (%) Apportioned Energy Reduction For PAT Cycle-1 (Million toe) 1 Power (Thermal) % Iron & Steel % Cement % Aluminium % Fertilizer % Paper & Pulp % Textile % Chlor- Alkali %0.054 Total %6.686

Apportionment of Sub-Sector Target of Energy Saving in Cement Sector (Data pertains to 85 plants as DC) S.No.Sub SectorNO. OF DCs Avg. Energy Consumption Target Energy Reduction for PAT Cycle-1 MkcalMillion toe% toe 1PPC % OPC % PSC % White % Wet % Grinding % Clinkerization % Total %

Summary Sheet of Designated Consumer Cement Plant Details of information regarding Gate to Gate SEC, Target SEC and Target Energy saving for PAT Cycle -1 1Name of the Unit ABC Plant 2The Sector to which unit fallsCement Sector 3Complete Postal address of Plant India 4 Details of ProductionBasis/CalculationUnitAverage of Period ( ) a Total Clinker ProductionAnnual ProductionLakh Tonne11.02 b Total Combined Cement ProductionAnnual ProductionLakh Tonne13.64 c Production of OPCAnnual ProductionLakh Tonne2.65 d Production of PPCAnnual ProductionLakh Tonne10.99 e Production of PSCAnnual ProductionLakh Tonne0.00 f Clinker ExportedAnnualLakh Tonne0.33 g Clinker ImportedAnnualLakh Tonne0.09 h Clinker Stock(Closing Clinker stock in Opening Clinker Stock in 2007)/3Lakh Tonne0.19 i Total Clinker Exported(Clinker Exported + Clinker exported to clinker stock)Lakh Tonne0.52 j Total Clinker Imported(Clinker imported + Clinker Imported from clinker stock)Lakh Tonne Conversion Factors (CF) for Clinker to various Cement gradesunit a Clinker to OPCClinker used for OPC Production/OPC ProducedFraction0.97 b Clinker to PPCClinker used for PPC Production/PPC ProducedFraction0.73 c Clinker to PSCClinker used for PSC Production/PSC ProducedFraction Total Thermal Energy Consumption [Fuel Consumed (Lakh Tonne) X CGV of Fuel (Kcal/Kg)] X 100 Million kcal Total Electricity consumed within the plant {(Electricity Generated through CPP+Electricity generation through DG Set + Electricity generation through WHR+ Electricity Purchased from Grid) - Electricity exported to Grid}Lakh kWh Electricity Purchased from GridAverage of year , and Lakh kWh Electricity Exported to GridAverage of year , and Lakh kWh Total Energy Consumed (Thermal+Electrical) [Total Thermal Energy (Million kcal)+{(Total Electricity purchased from grid (Lakh kWh) X 860)-Electricity exported (Lakh kWh) X National Heat Rate 2717 kcal/kWh}/10] Million kcal Equivalent major grade cement ProductionunitAverage of Period ( ) a OPC Production equivalent to major product (OPC Produced X CF Of OPC)/CF of Major Product Lakh Tonne3.52 b PPC Production equivalent to major product (PPC Produced X CF Of PPC)/CF of Major Product Lakh Tonne10.99 c PSC/any other verity Cement Production equivalent to major product (PSC Produced X CF Of PSC)/CF of Major Product Lakh Tonne0.00 d Total Exported clinker to major product Total Exported Clinker/CF of Major Product Lakh Tonne0.71 e Total Imported Clinker to major product Total Imported Clinker/CF of Major Product Lakh Tonne0.12 f Total Equivalent major product of Cement(11a)+(11b)+(11c)+(11d)Lakh Tonne Performance Indicators unitAverage of Period ( ) aThermal SECAnnualkCal/kg Clinker b Electrical SEC (up to Clinkerization)AnnualkWh/Tonne Clinker67.04 cElectrical SEC (Cement Grinding)AnnualkWh/Tonne Cement32.33

13Calculation for Gate to Gate SECunitAverage of Period ( ) a Notional Energy Required for grinding of exported Clinker {Major Product of Cement of Total exported clinker (Lakh Tonne) x Electrical SEC of cement grinding (kWh/Tonne of cement) x Weighted average Heat Rate (kcal/kWh)}/10 Million kCal b Notional Energy Required for clinkerization of imported Clinker [Total Clinker imported (Lakh Tonne) x {Thermal SEC of Clinkerization kCal/kg clinker) x 1000+electrical SEC of clinkerization (kWh/Tonne of clinker)x Weighted average Heat Rate (kcal/kWh)}/10] Million kCal c Notional Energy for Purchased Power Purchesed Electricity (sr.no.8) X {Weighted average heat rate of all dcs in cement sector( 3208 kcal/kWh) - 860}/10 Million kCal d Gate to Gate Energy Consumption (10)+(13a)+(13b)+(13c) Million kCal e Gate to Gate Specific Energy Consumption (13d)/{(11f)*100} kcal/kg equivalent major cement product Target Estimation for PAT Cycle-1 unit PAT Cycle-1 a Reduction Specific Energy Consumption (SEC) Target From Summary Sheet of Cement Sector % b Target Specfic Energy Consumption for PAT cycle-I (13e) x {1- (14a)/100} kcal/kg equivalent major cement product c Target Energy saving for PAT cycle-I [{(13e) - (14b)} x (11f) x 10] metric ton of oil equivalent (toe) Note:- Weighted average heat rate of your plant [{Imported Electricity (Lakh kWh) X 3208 (kcal/kWh)} + {DG generation (lakh kWh) x DG heat rate (kcal/kWh)} +{Captive Power Plant Generation (lakh kWh) x Captive Power plant heat rate (kcal/kWh)}] / [Imported Electricity (Lakh kWh) +DG generation (Lakh kWh)+Captive power plant generation (Lakh kWh)] kcal/kWh Note:- Weighted average heat rate of all DCs in Cement Sector ∑{Captive power plant generation (Lakh kWh) X Captive power plant Heat Rate (kcal/kWh)} / ∑ {Captive power plant generation (Lakh kWh)} kcal/kWh3208

Summary of Energy Saving targets for Cement Sector 1) Total Energy Consumption : Million toe 2) No. of DC's as of date :- 85 3) Total reduction for cement sector: Million toe 4) Reduction target for DC's varying from :- i) 3.99% to 6.87% (for PPC as major Product) ii) 4.23% to 6.00% ( for OPC as major product) iii)3.71% to 5.13% ( for PSC as major product) iv) 5.01% to 5.12% (for white cement plants) v) 4.87% to 4.88% (for Wet Cement plants) vi) 4.10% to 5.94% ( for grinding plants)

CONCLUSION  Introduction of Perform, Achieve and Trade Scheme for Energy Intensive Industries improves energy efficiency and facilitates cost effectiveness by certifying energy saving that could be traded due to its market based mechanism.  The 478 designated consumer plants offer an energy saving potential of 6,686,000 ton of oil equivalent/year(6.686 million toe/year) at the end of first phase of PAT Cycle ( ).

CONCLUSION  PAT is one of the most promising initiatives to achieve the goal by implementing Best Available Practices and Technologies in the identified sectors through economical viable projects.  Broader implementation of sectoral crediting mechanisms could ensure that low‐carbon technologies are also used more widely, which in turn would encourage Indian industries to invest in these technologies.

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