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NATIONAL MISSION FOR ENHANCED ENERGY EFFICIENCY

ACKNOWLEDGEMENT
Perform, Achieve & Trade (PAT)

PAT
CONSULTATION 2010-11
DOCUMENT

(As on 10th January, 2011)

Bureau of Energy Efficiency


Ministry of Power, Govt. Of India
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PAT CONSULTATION DOCUMENT

Acknowledgement

Ministry of Power & Bureau of Energy Efficiency (BEE) have been entrusted to develop
the implementation framework of National Mission for Enhanced Energy efficiency
(NMEEE). PAT (Perform, Achieve and Trade) consultation document has been prepared
to describe the implementation framework of PAT scheme under the said mission by
BEE.

Bureau of Energy Efficiency is grateful to the Ministry of Power (MoP) for entrusting the
task of implementation of PAT scheme by Bureau.

This PAT consultation document is the result of a joint effort by many officials from
various organizations. All those who have contributed to the project by taking part in
the writing process or the numerous discussions are gratefully acknowledged.
Needless to say, some of the participants have also taken more responsibility for
development of various mechanisms under PAT scheme.

I am thankful to all the officials from various Ministries & Departments for their unstinted
cooperation, support and help required for the development PAT framework. I also
place on record my sincere thanks to all the CEOs and Plant Head of Designated
Consumers, Sector experts/consultants and Energy Managers for extending their
necessary co-operation.

Last but not the least, I wholeheartedly thank Mr. Kapil Mohan, Deputy Director
General, BEE, Ms. Abha Shukla, Secretary, BEE and Mr. S P Garnaik, Energy
Economist, BEE, Mr. Saurabh Diddi, Energy Economist, BEE and Mr. A. K. Asthana, Sr.
Technical Expert, IGEN for their unstinted support towards development of this
document and preparation of PAT mechanism.

Ajay Mathur, PhD


Director General

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CONTENTS

Table of Contents

Preface ...................................................................................................................... 4

Background:............................................................................................................ 7

Legal Framework:..................................................................................................... 9

PAT Framework....................................................................................................... 12

Broad Umbrella of PAT Scheme.............................................................................. 12

Establishment of Baseline SEC ................................................................................ 16

Target Setting...................................................................................................... 18

Measurement & Verification.................................................................................. 24

Energy Saving Certificates & Trading ..................................................................... 26

International Experience ...........................................................................................34

Survey of International trading and energy efficiency schemes ....................................34

Approval of PAT Scheme ..........................................................................................37

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Perform Achieve and Trade (PAT)


Preface
The Union Cabinet has earlier approved the National Mission for Enhanced Energy
Efficiency (NMEEE). The Mission will usher in the four new initiatives to significantly
scale up implementation of energy efficiency in India. The flagship of the Mission is the
Perform, Achieve and Trade (PAT) mechanism, which is a market-based mechanism to
make improvements in energy efficiency in energy-intensive large industries and
facilities more cost-effective by certification of energy savings that could be traded. The
PAT mechanism is designed to facilitate the Designated Consumers to not only achieve
their legal obligations under the Energy Conservation Act, 2001, but also to provide
them with necessary market based incentives to overachieve the targets set for them.

The Bureau of Energy Efficiency (BEE) has already carried out background work to
enable design of a transparent, flexible, efficient and robust system for the PAT
mechanism. In compliance with the directions of the Prime Minister's Council on Climate
Change, this consultation document has been prepared to enable stakeholder
consultation and discussion. The key issues that need to be discussed in the final
preparations of the mechanism are:
a) Methodology for establishing the baseline energy consumption
b) Methodology for target setting for each sector
c) The process of measurement and verification, in particular the verification
agencies that need to be appointed by BEE for this purpose.
d) The manner in which trading of the certificates can be encouraged, in particular
instruments that could increase liquidity in the system.

BEE has, in this document, provided broad principles on each of the four issues
mentioned above and several other related ones that are important in the overall
design. This document will be shared with all the key stakeholders like Designated
Consumers, Energy Auditors/ Managers, Industry Associations, Academician, etc. to
solicit comments. The timelines for this consultation are as follows:
a) Consultations with CEOs in January 2011
b) Draft PAT document by January 2011
c) Final document, including baseline SEC and %-reduction targets for each DC, by
February 2011

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This document is the first version. It will get revised with incorporations of comments and
suggestions received from various sources time to time before the final version is
released.

As per the approval of the Government, the first compliance period of PAT would be
from 01.04.2011 to 31.03.2014. This implies that legal notifications for targets for all
Designated Consumers covered by the PAT scheme would be issued by March 2011.

Various consultation workshops & meetings were held by BEE during the recent time to
discuss about the implementation of PAT mechanism and its implications in industry. The
comments and recommendations of each workshop were duly reviewed and
incorporated in this consultation document. The following are the list of consultation
workshops and meetings held by BEE:

About Date & Venue Organizers

Stakeholder’s Workshop Feb’2010 / New Delhi BEE

Stakeholder’s Workshop March’2010/Mumbai ABPS

Stakeholder’s Workshop July’2010/Chennai CII

May’2010/Mumbai

Sectoral Meetings July’2010/Baroda Indian Chemical Council

Sept’2010/New Delhi

Mini-Blast Furnace
Sectoral Meeting Sept’2010/New Delhi
Association

Ministry Meeting Nov’2010/Ministry of Steel BEE / Ministry of Steel

Ministry Meeting Nov’2010/DIPP BEE/DIPP

Nov’2010/Ministry of
Ministry Meeting BEE/ DoF
Chemical & Fertilizer

Apart from this, number of plant level meetings has also been organized by various
industries wherein presentations have been made by BEE to highlight the PAT
component of NMEEE.

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Perform Achieve and Trade (PAT)


Consultation Document

1 Background:
The National Action Plan on Climate Change (NAPCC), released by the Prime
Minister on 30th June 2008, recognizes the need to maintain a high growth rate
for increasing the living standards of the vast majority of people and reducing their
vulnerability to adverse impacts of climate change. The Action Plan enunciates the
following principles.
• Protecting the poor and vulnerable sections of society through an inclusive and
sustainable development strategy sensitive to climate change
• Achieving national growth objectives through a qualitative change in direction
that enhances ecological sustainability, leading to further reduction in emissions
of GHGs
• Devising efficient and cost-effective strategies for end-use demand-side
measures
• Deploying appropriate technologies for both adaptation to and mitigation of the
adverse effects of emissions of GHGs extensively as well as at an accelerated
pace
• Engineering new and innovative forms of market, regulatory, and voluntary
mechanisms to promote sustainable development

1.1 The National Action Plan outlines eight national missions that represent multi-
pronged, long-term, and integrated strategies for achieving key goals in the context of
climate change. These missions are listed below.
a) National Solar Mission
b) National Mission for Enhanced Energy Efficiency
c) National Mission on Sustainable Habitat
d) National Water Mission
e) National Mission for Sustaining the Himalayan Ecosystem
f) National Mission for a Green India
g) National Mission for Sustainable Agriculture
h) National Mission for Strategic Knowledge for Climate Change

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1.2 The Ministry of Power (MoP) and BEE were entrusted with the task of preparing
the implementation plan for the national mission for enhanced energy efficiency
(NMEEE). NMEEE will usher in the following four initiatives, in addition to the policies
and programmes for energy efficiency being implemented by BEE. These initiatives are
as follows:
• Perform, Achieve, and Trade (PAT), a market-based mechanism to make
improvements in energy efficiency in energy-intensive large industries and
facilities more cost-effective by certification of energy savings that could be
traded
• Market transformation for energy efficiency (MTEE) by accelerating the shift to
energy-efficient appliances in designated sectors through innovative measures
that make the products more affordable
• Energy efficiency financing platform (EEFP), a mechanism to finance DSM
programmes in all sectors by capturing future energy savings
• Framework for energy efficient economic development (FEEED), or developing
fiscal instruments to promote energy efficiency

1.3 The implementation plan of NMEEE seeks to upscale the efforts to create the market for
energy efficiency, which is estimated to be about Rs 74,000 crore. The Mission would
create conducive regulatory and policy regime to foster innovative and sustainable
business models to unlock this market. As a result of implementing NMEEE, we estimate
that by the end of five years, about 23 million tonnes of oil equivalent (MTOE) of fuel
will be saved, capacity addition of over 19,000 MW avoided, and emissions of carbon
dioxide reduced by 98.55 million tonnes annually.

1.4 The NMEEE set out a comprehensive strategy, which comprised the following
components.
• Create demand for energy-efficiency products, goods, and services by
spreading awareness about the efficacy of these products and services,
amending government policies and programmes to integrate energy efficiency,
preparing bankable projects to stimulate the process, and offering the right
incentives to cost-effective improvements in energy efficiency in energy-intensive
industries and facilities through certification of energy savings that could be
traded.
• Ensure adequate supply of energy-efficient products, goods, and services. This
is being done by creating a cadre of certified energy professionals; promoting
energy service companies (ESCOs), standards, and labelling of end-use
equipment and appliances; and preparing structured programmes to leverage
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international financing instruments including the Clean Development Mechanism


(CDM) to reduce transaction costs to attract private investment, etc.
• Create and promote the energy efficiency financing platform, set up partial risk
guarantee funds, and develop innovative financial derivatives of performance
contracts and fiscal and tax incentives for investment in this sector.
• Create and adopt robust and credible monitoring and verification protocols to
capture energy savings from all energy-efficiency activities in a transparent
manner.
• Take necessary steps to overcome market failures by appropriate regulatory and
policy framework to support the measures mentioned above.

2 Legal Framework:
Designated Consumers account for 25% of the national gross domestic
product (GDP) and about 45% of commercial energy use in India. Since 2000,
industrial GDP has been growing at 8.6% annually and energy use in industry at 5.8%.
The lower rate of growth of industrial energy use can be attributed to many reasons. It
has been observed that in recent years, industry has been choosing state-of-the-art
technologies, which are more energy-efficient. Also, there have been many in-house
efforts made by the industry to become more energy-efficient. In order to further
accelerate as well as incentivize energy efficiency, the Perform Achieve and Trade
(PAT) mechanism is being designed. 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 genesis
of the PAT mechanism flows out of the provision of the Energy Conservation Act, 2001,
hereinafter referred to as the Act. Section 14 (e) of the Act empowers the Central
Government to notify energy intensive industries, as listed out in the Schedule to the Act,
as Designated Consumers (DCs). The Ministry of Power (MoP) has notified industrial
units and other establishments consuming energy more than the threshold in 9 industrial
sectors namely Thermal Power Plants, Fertilizer, Cement, Pulp and Paper, Textiles,
Chlor-Alkali, Iron & Steel, Aluminum and Railways in March, 2007 as DCs. The Ministry
of Power’s notification issued on 2nd March 2007 under section 14 (e) of the Act is
summarised hereunder:

Table 1: Minimum annual energy consumption and estimated number of Designated


Consumers (DCs) in select sectors

Minimum annual energy


consumption for the DC No. of prob-
Sector (tonnes of oil equivalent) able DCs

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Aluminium 7500 11
Cement 30000 83
Chlor-alkali 12000 20
Fertilizer 30000 23
Iron and steel 30000 101
Pulp and paper 30000 51
Railways (diesel loco 8
sheds and workshops)
Textiles 3000 128
Thermal power plants 30000 146

2.1 The Act requires the DCs to:

a) Furnish report of energy consumption to the Designated Authority of the State


as well as to BEE (section 14(k)).

b) Designate or appoint an Energy Manager who will be in-charge of submission


of annual energy consumption returns of the Designated Agencies and BEE
(section 14 (l)).

c) Comply with the energy conservation norms and standards prescribed under
section 14 (g) of the Act.

d) Purchase Energy Saving Certificates (ESCerts) for compliance to section 14 (g) in


the event of default. The Act has been amended with the addition of new sub-
section 14A to enable this and section 14A(2) allows such trading. EScerts are
defined by adding a new sub-section 2(ma).

e) Monitoring and Verification of compliance by Designated Energy Auditors


(DENA) which will be prescribed the Government/ BEE under section 14A/13
(p) of the Act.

f) Excess achievement of the target set would entail issuance of ESCerts under
section 14A(1).

g) Penalty for non-compliance being Rs. 10 lakhs and the value of non-
compliance measured in terms of the market value of tones of oil equivalent by
inserting a new section 26(1A).

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h) BEE to be the overall regulator and dispute resolution agency and Energy
Efficiency Service Ltd. (EESL) to be the process manager.

2.2 The amendment to the EC Act have been passed by the Lok Sabha during the
Budget Session of Parliament and in the Monsoon Session Rajya Sabha during 2010.

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PAT Framework

3 The PAT framework has been developed considering the legal requirement
under EC Act, 2001, situation analysis of designated consumers, national goal
to be achieved by 2013-14 in terms of energy saving and sustainability of the
entire scheme. The PAT scheme is involved in order to incentivize industry to achieve
better energy efficiency improvements than their specified SEC improvement target in a
cost-effective manner. The additional certified energy savings can be traded with other
designated consumers who could use these certificates to comply with their SEC
reduction targets. The Energy Savings Certificates (ESCerts) will be traded on special
trading platforms to be created in the two power exchanges (IEX and PXIL). The
guiding principles for developing the PAT mechanism are Simplicity, Accountability,
Transparency, Predictability, Consistency, and Adaptability. The PAT framework
includes the following elements:

1. Methodology for setting specific energy consumption (SEC) for each DC in the
baseline year
2. Methodology for setting the target to reduce the Specific Energy Consumption
(SEC) by the target year from the baseline year.
3. The process to verify the SEC of each DC in the baseline year and in the target
year by an accredited verification agency
4. The process to issue energy savings certificates (ESCerts) to those DCs who
achieve SEC lower than the specified value
5. Trading of ESCerts
6. Compliance and reconciliation of ESCerts
7. Cross-sectoral use of ESCerts and their synergy with renewable energy
certificates

The following are few of the explanations on implementation of PAT framework which
has been put in Q&A pattern.

3.1 Broad Umbrella of PAT Scheme


(a) Who would participate in the ensuing PAT scheme ?

The PAT scheme will be participated by ‘Designated Consumers (DC)’ of energy


intensive sector. In the first cycle of PAT scheme i.e. during 2011-12 to 2013-14, 8
energy intensive sectors such as Thermal Power plants, Iron & Steel, Cement, Fertilizer,
Aluminium, Textile, Pulp & Paper, Chlor-alkali have been included. As per annual

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energy consumption reported by industries of these sectors through a mandatory


reporting (section 14(k) EC Act, 2001) or otherwise, there are about 563 number of DCs
in these 8 sectors (Refer Table 1 in section 2). All these DCs except Railways will
automatically be required to participate in the 1st cycle of PAT scheme.

Railways are having 8 DCs as per the notification of MoP. As the sectoral energy
scenario and energy usage pattern is under study by BEE, these DCs have been
excluded from the 1st cycle of PAT scheme.

In the next cycle(s) of PAT scheme (post 2013-14), the number of DCs may get revised as
more number of sectors will be added up and more/less number of plants may be there
in the present 8 sectors.

(b) How would the DCs be declared/notified?

Section 14(e) [specify, having regard to the intensity or quantity of energy consumed and the amount
of investment required for switching over to energy efficient equipment and capacity of industry to invest
in it and availability of energy efficient machinery and equipment required by the industry, any user or
class of users of energy as a designated consumer for the purpose of this Act] and 14(f) [alter the list of
Energy intensive industries specified in the schedule] of EC Act, 2001 empowers the central
government to notify the DCs based on the annual energy consumption of a plant and
comparing to the threshold limit prescribed for the sector (Refer Table 1 in section 2). The
industries of a sector are required to submit their energy consumption every year [Section
14(k) of EC Act] the Designated Agency through a mandatory reporting system which
would enable the central government to decide on DC status.

(c) What are the basic phases of PAT scheme?


The 1st cycle of PAT scheme would be operational during April 2011 to March 2014. The
following basic phases would be involved during this cycle

(i) Target Setting Phase : By March 2011


(ii) Target Achieve Phase : April 2011 to March 2014
(iii) M&V Phase : April 2012 and beyond
(iv) Trading Phase : After M&V Phase

The tentative mile-stones of 1st cycle scheme is shown in figure 1.

(d) What is the rationale in selecting the 8 industrial sectors in the 1st cycle of the
scheme?
The DCs of these 8 sectors account for about 231 mMTOE (million metric tons of oil
equivalent) of energy consumption annually as per 2007-08 data which is about 54%
of the total energy consumed in the country. The breakup of energy consumption and

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the average specific energy consumption of each sector is depicted in the table 2.
Considering the quantum of energy consumption, the energy intensity, large bandwidth
in energy usage pattern, the above 8 sectors are selected in the 1st cycle of PAT
scheme.

Tentative M ilestones……….
CYCLE # 1
Freezingof Base Line Target St art of
DC List Paramet ers Sett ing M&V

M&V Process

Mar’14
Apr ’10 Dec’ 10 Mar ‘11 April ‘13

Defining M&V Prot ocol


Creat ion of DENA

Creation of Trading Plat form,


Traders & Trading Mechanism

Figure 1: Tentative Milestone

SL SECTOR ENERGY CONSUMPTION (mMTOE*)

1 Power (Thermal) 160.3


2 Iron & Steel 36.1
3 Cement 14.5
4 Fertilizers 12.0
5 Textile 4.5
6 Aluminium 2.4
7 Pulp & Paper 1.4

8 Chlor-Alkali 0.43

TOTAL 231.6
Table 2 : Approximate Energy Consumption by DCs in different sectors (2007 data)

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*Million Metric Tons of Oil Equivalent

(e) What is the basis of fixing an energy consumption norm of a Designated Consumer?

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. BEE has earlier conducted sector specific
studies through various organizations (See Annexure I) to do the situation analysis. As
per the studies, the wide bandwidth of specific energy consumption (SEC) within an
industrial sector is indicative of the large energy-savings potential in the sector. The
wide bandwidth is also a reflection of the differences in the energy-saving possibilities
amongst plants because of their varying vintage, production capacity, raw material
quality, and product-mix. Such wide variation also makes it difficult to specify a single
benchmark SEC for the sector as a whole: older plants will find the benchmark
impossibly high if it is set at the level of newer plants; newer plants will find it trivial if it
is set at the level of older plants. The broad bandwidth of SEC within a sector, and the
inability of all plants to achieve a sectoral benchmark SEC, suggests that SEC
improvement norms need to be set for individual plants. These SEC improvement targets
can be based on the trend of energy consumption and energy-savings potential of the
plants. In general, the higher the energy efficiency (or the lower the SEC), the lower the
energy-savings potential. Thus, it is evident that it is not feasible to define a single
norm/standard unless there is significant homogeneity amongst units in a sector.
Therefore, the energy efficiency improvement targets would have to be almost “unit
specific”. Each DC is mandated to reduce its SEC by a fixed percentage, based on its
current SEC (or baseline SEC) within the sectoral bandwidth. The typical SEC
bandwidth in each sector is shown in Table 3:

Table 3: SEC bandwidth in different sectors

Sector Range of SEC


a) Power plant 2300 – 3400 kcal / kwh
b) Fertilizer 5.86 – 9.11 Gcal/T of Urea
c) Cement 665 – 900 Kcal/Kg of Clinker (Thermal)
66 – 127 KWH/ T (Elect)

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d) Integrated Steel 6.15 – 8.18 Gcal / tcs


e) Sponge Iron 4.4 – 7.6 Gcal / T (Thermal)
72 – 135 KWH/T (Elect)
f) Aluminum (Smelter) 15875 – 17083 KWH/T
Aluminium (Refinery) 3.28 – 4.12 MKcal / T of Alumina
g) Pulp & Paper 25.3 – 121 GJ/T
h) Textile 3000 – 16100 Kcal/kg (Thermal)
0.25 – 10 KWH/Kg (Elect)
i) Chlor-Alkali 2300 – 2600 kwh/ T of caustic soda

3.2 Establishment of Baseline SEC


(a) How is the specific energy consumption of any industry calculated?

The SEC of an industry would be calculated based on Gate-to-Gate concept with the
following formula.

SEC = Total energy input to the plant boundary

Quantity of the Product

While calculating the total energy input to the plant, all energy sources would be
converted to a single unit i.e. MTOE (metric ton of oil equivalent) using standard
engineering conversion formula. In this calculation, the following would be considered :

(a) All forms of energy (Electricity, Solid fuel, Liquid fuel, Gaseous fuel, by-
products used as fuel etc.) which are actually consumed for production of
output should be considered.
(b) Energy consumed in colony and for outside transportation system should not
be accounted.
(c) Energy used through renewable energy sources should not be accounted.
(d) The ‘Product’ is the key parameter. The definition of product for various
sectors has been shown below for the purpose of calculating SEC. This has
been arrived at considering the typical practice of defining SEC and
consistency in product output.

Table 4: Definition of Product to calculate SEC

Sector Main Product Unit

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Cement Cement Tonnes


Fertilizer Urea Tonnes
Iron & Steel (Integrated) Crude Steel Tonnes
Iron & Steel (Sponge Iron) Sponge Iron Tonnes
Aluminium (Refinery) Alumina Tonnes
Aluminium (Smelter) Molten Aluminium Tonnes
Aluminium (Integrated) Molten Aluminium Tonnes
Paper (Pulping) Pulp Tonnes
Paper (Paper Making) Paper Tonnes
Paper (Pulp & Paper) Paper Tonnes
Textile (Spinning) Fabric Kg
Textile (Composite) Yarn Kg
Fabric Kg
Textile (Processing) Fabric kg
Chlor-Alakli Caustic Soda Tonnes
Power Plant Electricity Million kWh

(e) Any energy consumed for major construction work would not be accounted
as this is not meant for producing the product. Quantity of such energy should be
separated out from total energy consumption.

(b) How is the plant boundary defined?

The plant boundary would be selected such that the total energy input and the above
defined product output will be fully captured. Typically it is the entire plant excluding
colony, residential complex and transportation system. Similarly, mining operations in
case of Iron & Steel, Aluminium and Cement sector are not part of plant boundary.

Once the plant boundary has been fixed, the same boundary should be considered for
entire PAT cycle. Ideally, plant boundary should not change during the entire cycle.

(c) What is the baseline SEC and base year?

The base line SEC would be calculated based on the following procedure:

(a) All DCs would submit the details of production and annual energy
consumption since 2005-6 to 2009-10 through a notified form which is a
mandatory as per EC Act, 2001.

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(b) Few additional sector specific information like process technology, process
flow, raw material, product mix etc. would also be collected.
(c) The SEC calculated from step(a) would be the ‘Reported SEC’ by the DC. As
there may be various variable factors which affect the energy consumption
significantly, some ‘Normalization Factors’ would be considered. It is
proposed to consider the ‘capacity utilization’ as one of the most important
parameter to have a normalization factor. However, the rationale for
developing the ‘normalization factors’ is underway by suitable agencies
through a scientific manner.
(d) Now the reported SEC will be normalized after incorporating the
normalization factor.

f
Normalized SEC = ( Reported SEC , Normalization factors)

(e) The base line SEC will be estimated by taking the average normalized SEC
of last 3 years i.e. 2007-8, 2008-9, 2009-10.
(f) The base year may be defined as 2009-10.

The base line SEC for each DC is expected to be fixed by January 2011. The rules of
establishing the baseline SEC with an example has been shown in Annexure- III.

3.3 Target Setting


(a) How is the target defined and what is the rationale in defining this target?

The target will be defined in the ‘percentage’ form. It is the percentage reduction of
SEC from baseline value to
that of target year.

The methodology for setting


target SEC for DCs will be
such that the process is
transparent and has no room
for arbitrariness as directed by
the Prime Minister's Council on
Climate Change. The
methodology will be simple and easy to use and will be based on SEC reduction on a
gate-to-gate basis and will be such as to achieve targeted savings in the first
commitment period of 3 years (2011-2014), about 4.2% reduction which is estimated at
10 million metric tons of oil equivalent (mMTOE). Among the 23 mMTOE set as target

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from NMEEE, implementation of PAT scheme do focus on achieving 10 mMTOE by


2014. The guiding principles of the methodology are as under:

(i) The reduction target for each plant will be based on an objective and
transparent basis. This rules out one-to-one negotiations for this purpose, which in any
case would be undesirable both from the viewpoint of credibility
National Target
and legal soundness, as well as from the viewpoint of information
(10 mMTOE)
asymmetry. Consequently, first the overall target reduction of 10
mMTOE would be apportioned amongst the sectors in proportion to
their relative energy use to ensure that the sectoral reduction is SECTORS

equal, in percentage terms, to the percentage of the energy


consumption of all covered plants in a sector to the overall energy
consumption of all covered plants. The next level of allocation of DC

reduction target would correspond to the disaggregation of the


sectoral reduction target to each plant within the sector. Given the diversity of plant
configurations within a sector, and of plant vintages, it is being proposed to apply
gate-to-gate approach for each plant.

(ii) The target SEC would need to be achieved over a 3 year period commencing
from 1st April, 2011. The targeted improvement in energy efficiency would be a
percentage improvement over its base line SEC.

(iii) The methodology is based on the expectation that all DCs would reduce their
SEC, the less energy-efficient DCs in a sector being required to achieve a greater
reduction in their SEC than the more energy-efficient DCs in the same sector. The SEC
targets will be fixed as per a statistical analysis followed by stakeholder consultation in
each designated sector.

(iv) In the case of thermal power plants and fertilizer plants, the targets for SEC
decrease are to be aligned with the existing tariff-setting context. In the case of thermal
power plants, the Central Electricity Regulatory Commission (CERC) and in the fertilizer
sector, the Department of Fertilizers are in the process of integrating these targets in
their respective tariff setting exercise.

(v) Other energy-intensive industries and sectors such petroleum refineries,


petrochemicals, gas crackers/naphtha crackers, sugar, chemicals, port trusts, transport
(industries and services), hydro power stations, electricity transmission and distribution
companies, and commercial buildings and establishments may be added to the list of
DCs and included in the PAT scheme in a phased manner.

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(vi) Application of this methodology would entail the following allocations to various
sectors, given that the overall goal of energy consumption reduction under the PAT
scheme is expected to be 10 mMTOE.

Table 5: Illustration of Apportionment of energy reduction target in different sectors

Apportioned
Energy Share of No. of
SN Sector Energy
Consumption Consumption Probable DCs
reduction
(mMTOE) (%) (mMTOE)
1 Power Plant (Thermal) 160.30 69.24% 6.92 146

2 Iron & Steel 36.08 15.58% 1.56 101

3 Cement 14.47 6.25% 0.60 83

4 Fertilizers 11.95 5.16% 0.51 23

5 Textile (Approximated) 4.50 1.94% 0.20 128

6 Aluminium 2.42 1.05% 0.11 11

7 Pulp & paper 1.38 0.60% 0.06 51

8 Chlor-Alkali 0.43 0.19% 0.02 20


Total 231.6 100.00% 10.00 563
[However, the above table may get revised with actual data of 2009-10 base line
values]

(b) What would be the methodology for establishing the target in individual sector
except Power Plant?

As explained earlier, the sectoral targets would again be disaggregated among the
DCs in a logical manner keeping in view of historical energy consumption scenario,
potential availability in the DC, sustainability of trading market and other related issue.
The lowest % target would be given to the best performing plant where as others will
be assigned as per a ‘relative increment’ based on the concept of relative SEC.
However, the idea is to arrive at a % value (of target) where the sectoral target would
be achieved. The absolute energy saving at the end of 3 years would be estimated as :

Energy Saving = P base year ( SEC base year – SEC target year)

Where P = Production Quantity

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Therefore, if the best performing plant has X % target to reduce the SEC, the other
plants would be having (Plant SEC / Best SEC) times of X %. The X can be numerically
calculated keeping in view of total energy saving in the target year.

If any sector has larger diversities like process technology and raw material, DCs would
be grouped as per their similarity in characteristics and the above methodology would
be applied for the same.

The draft target for each DC would be over by January 2011 which will be put for stake-
holders discussion before finalization.

The proposed methodology of target setting has been attached in Annexure- IV.

(c) What would be the methodology for establishing the target for Power Plant?

The working committee recommended that in case of Thermal Power Plant, the targets
for SEC reduction would be set within current tariff setting context. The Central
Electricity Regulatory Commission (CERC) has been involved alongwith Central
Electricity Authority (CEA) to specify the criteria for target setting. As per the committee
meetings held between CERC, CEA, BEE and other stake holders, the following
methodology for target setting has been proposed.

The target settings for power stations are specified in terms of specific percentage of
their present deviation of Net Operating Heat Rate (Avg. of last 3 years) from the Net
Design Heat Rate. The stations could be classified in to various bands according to their
present deviations of operating heat rate from design heat rate and stations with higher
deviations will be given higher targets. The indicative classification and targets for
various bands for the coal/lignite based generating stations could be as under:-

Variation in Net Station Heat Reduction Target for % % Reduction Target in Net
Rate from Design Net Heat deviation in the Net Station Heat Rate
Rate Station Heat Rate

Upto 5% 10% 0.5

More than 5% and upto 10% 15% 0.75 to 1.5

More than 10% and upto 20% 20% 2.0 to 4.0

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More than 20% 25% 5 and above

The factors affecting the heat rate of the stations and corrections for the following
factors will be considered for the target setting:

1. Quality of the fuel i.e. (coal)

2. Plant Load Factor (PLF)

Similar approach could be followed in case of gas/liquid fuel based generating


stations. However the average plant load factor of these stations is much lower than the
coal based stations perhaps due to low availability of gas/liquid fuel. Also the heat
rate of the gas turbines is very sensitive to the unit loading and ambient air conditions.
However, quality of gas supply does not vary widely and so correction for fuel quality
would not be required.

Correction factor to be considered for target setting for coal/lignite based power
stations

The generating companies have no control over the quality of coal supplied. Due to
raw coal mainly being supplied to the power stations, there could be variation in coal
quality. Further, imported coal is also being used and blended by large number of
stations, which could lead to variations in coal quality. Thus the methodology should
have provisions to take care of the impact of variations in coal quality on the target
prescribed. Therefore, average “Ash” and “Moisture” contents during the baseline
period would be considered for corrections and the correction factor would be worked
out based on the boiler efficiency formula adopted in the draft CEA regulations on
(construction of Electrical Plants and Electric lines).

Sample Calculation for Target Setting for Power Station

1. Installed Capacity = 1000 MW

2. Average Plant Load Factor = 90%

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3. Station Gross Design Heat Rate (as reported) = 2295 kCal/kWh

4. Norms for Auxiliary Power Consumption (as reported) = 9%

5. Average Auxiliary Power Consumption for last 3 years (2007-2010) = 8%

6. Station Average Gross Heat Rate for last 3 years (2007-2010) = 2450
kCal/kWh

7. Station Net Design Heat Rate = 2295/0.91 = 2522 kCal/kWh

8. Station Average Net Heat Rate = 2450/0.92 = 2663 kCal/kWh

9. Deviation in Station Net Heat Rate from Design Net Heat Rate = (2663-
2552)/(2552)=0.53 or 5.3%

10. Target (for deviation more than 5% in Net Station Heat Rate from Design Heat
Rate= 15% of percentage deviation) = 0.795%

11. Net Station Heat Rate target for Pat-cycle 1 i.e. from April’11 to March’14 =
2502 kCal/kWh

(d) Will there be any targets for subsequent PAT cycles ?

Yes, there will be different targets for subsequent PAT cycles. The baseline SEC and
targets will be revised in subsequent PAT cycles. The SEC reduction target will be
progressively stringent in subsequent PAT cycles to keep pace with the national energy
efficiency mission.

It is also expected that the number of DCs will get revised in a sectors depending upon
the annual energy consumption norm. The number of DCs may go up as new plants are
coming up in a sector and capacity addition is happening in the existing smaller size
plants. At the same time, more sectors which are energy intensive (as defined in the EC
Act, 2001) will also be included in the umbrella of PAT mechanism.

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3.4 Measurement & Verification


The success of this scheme depends upon a cohesive and transparent Measurement &
Verification (M&V) system. A proper M&V system is being designed for this purpose.

(a) What would be M&V system in the base year?

As defined earlier, the baseline SEC would be estimated based on the reported data of
DCs through the mandatory reporting system of annual energy consumption and
quantity produced. As it is a self declared data, this would form the basis of
establishing baseline SEC. As the baseline SEC is on gate-to-gate basis, there is no
such measurement involved in any sub-system or sub-process of the plant.

The reported data would get verified through Designated Energy Auditors (DENA) (See
Annexure – II. For definition of DENA) who would be conducting a ‘Baseline Energy
Audit’ in the DCs. The baseline energy audit is aimed at knowing the energy
performance of various key equipments, energy balance, energy saving potential,
various energy conservation options implemented in the plant etc. This audit activity will
be managed by Energy Efficiency Service Ltd. (EESL) during January 2011 onwards.

(b) Who would be conducting the M&V in the target year?

In principle, the M&V will be carried out by ‘Designated Energy Auditors (DENA)’. The
broad principles that the DENA shall apply are:
a) Consistency by applying uniform criteria to meet the requirements of the applicable
approved methodology throughout the crediting period(s), applying uniform criteria
to expert judgments over time and among projects
b) Transparency: Information in the validation and verification reports shall be
presented in an open, clear, factual, neutral, and coherent manner based on
documentary evidence.
c) Impartiality, independence, and safeguards against conflicts of interest by
remaining free of any commercial, financial, or other processes that influence their
judgment or jeopardize trust in their independence and integrity. The designated
energy auditors shall base their findings and conclusions upon objective evidence,
conduct all activities in connection with the validation and verification processes in
accordance with the rules and procedures laid down by BEE, and state their
validation or verification activities, findings, and conclusions in their reports truthfully
and accurately.

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d) Confidentiality: In accordance with the requirements of the PAT scheme, DENAs


shall safeguard the confidentiality of all information obtained or generated during
validation or verification.
e) Validation of the PAT scheme: DENA shall convey the results of their assessment
through a validation report they shall submit, along with the supporting documents,
to BEE as part of the request for compliance as a PAT project activity. A positive
recommendation shall be submitted only if the proposed project activity complies
with all the requirements stipulated under the PAT scheme. DENA shall take into
consideration all evidence that is likely to alter the recommendation about
validation.
f) Verification/ Validation methods DENA shall apply standard auditing techniques to
assess the correctness of the information provided by the project DC, including but
not limited to the following:

• Assessment and verification that the implementation of the project activity and the
steps taken to report that the specific energy consumption comply with the PAT
criteria and relevant guidelines are as prescribed by BEE. This assessment shall
involve a review of relevant document action as well as an on-site assessment.

• The verification by DENA of project documentation provided by the project DC shall


be based upon both quantitative and qualitative information on SEC. Quantitative
information comprises the reported numbers in the monitoring report submitted to
the DENA. Qualitative information comprises information on internal management
controls, calculation procedures, procedures for transfer, frequency of SEC reports,
and review and internal audit of calculations and data.

• Review of the PAT Assessment Document (PAD), including the monitoring plan and
the corresponding validation report, earlier verification reports, the methodology
used for monitoring, relevant decisions, clarifications, and guidance from BEE, any
other information and references relevant to the project activity that have a bearing
on SEC (data on electricity generation or laboratory analysis, for example).

• In addition to reviewing the monitoring documentation, the DENA shall confirm that
the project DC has complied with requests, if any, made during validation.

(c) How would be the DENA selected or accredited?

Accreditation of DENAs will be undertaken by BEE under appropriate rules/ regulations


in this regard. The designated energy auditor shall be a legal entity and that it can
function legally, enter into contracts, make decisions independently, and may be sued
for failure to perform as agreed in the contract. DENA will have appropriate legal and

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financial liabilities for all its actions under the PAT scheme and such liabilities will be an
integral part of the accreditation.

(d) Will there be any M&V in intermediate years?

There would not be any M&V during the intermediate years i.e. between 2011 & 2014.
However, each DC would be required to submit the annual energy consumption
through the ‘Form-1’ to BEE. Apart from this, one to two energy audits by ‘Accredited
energy auditors’ will be conducted by DCs as per the provision of EC Act, 2001. These
would form a basis of M&V system in the target year.

3.5 Energy Saving Certificates & Trading


(a) What is energy saving certificate (ESCerts)?

Energy saving certificates (ESCerts) would be issuable to a DC who achieves the target
reduction from the baseline SEC during the stipulated period of 3 years. The number of
e-certs which would be issued depends upon the quantum of energy saved at the
target year. The value of each e-scert would also be based on the crude oil price and
to be controlled in a suitable mechanism.

(b) How will the promotion of ESCerts be done ?

The following protocols are being designed to promote trading of ESCerts :

• Verifying the SEC of each DC in the baseline year and in the target year by an
accredited verification agency which will verify the compliance based on the
current SEC of the DCs on a gate-to-gate basis. DENAs will be appointed by
BEE to undertake this activity.
• Issuing energy savings certificates (ESCerts) to those DCs who exceed the target
efficiency levels, that is who manage an even lower SEC than stipulated. This
would be quantified on the basis of the report by DENA and provided to the DCs
in the form of ESCerts.
• Trading the ESCerts by DCs with other DCs who are unable to meet their target
specific energy consumption by their own actions. This trading can be carried
out bilaterally between any two DCs (within or across the designated sectors) or
on special platforms for their trading created in power exchanges.
• Ensuring compliance and organizing reconciliation of ESCerts will be undertaken
by BEE in association with the two Power Exchanges.
• Fungibility of ESCerts is also being discussed with the proposed Renewable
Energy Certificates (RECs) being developed by the Ministry of New and

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Renewable Energy (MNRE). The conversion factor for enabling this fungibility will
be based on verifiable parameters such as energy consumption in kgOE.

(c) Is there any penalty for non-compliance of the target ?

DCs who would fail to achieve the target by the time frame would be imposed with
penalty for the non-compliance as per the provision of the EC Act. Penalty for non-
compliance is Rs. 10 lakhs and is also linked to the value of non-compliance measured
in terms of the market value of tones of oil equivalent by inserting a new section 26(1A).

A sample calculation of the compliance scenario against the target of a Designated


Consumer is given below.

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The following case situations are illustrated for a Designated Consumer (DC) based on
the actual data obtained.

Example : Cement Sector

Plant Reference P-10


Prodn. In Base Year 1562541 Tonne (From Baseline Analysis)
Baseline SEC 750 Kcal/kg (From Baseline Analysis)
Target 3.22 % (From Statistical Analysis)
Target SEC 725.6 Kcal/kg (Calculated)
Target Energy Saving 3774.10 MTOE (Calculated)

Scenario#1 (Over-Achieved)
SEC in the Target Year 720 Kcal/kg (Assumed)
% reduction 4.0 % (Calculated)
Estimated Energy Saving 4651.4 MTOE
Extra Energy Saved 877.3 MTOE
Value of escerts for issuance 877.3 X INR (@ X INR per MTOE)

Scenario#2 (Under-Achieved)
SEC in the Target Year 735 Kcal/kg (Assumed)
% reduction 2.0 % (Calculated)
Estimated Energy Saving 2307.6 MTOE
Shortfall in Energy Saving 1466.5 MTOE
Equivalent Monetary Value 1466.5 X

Compliance

(Say 80% by) Purchase of


Ecerts 1173.2 MTOE
Monetary Value (A) 1173.2 X INR

(Rest 20% by) Paying Penalty


for 293.3 MTOE (Calculated)
Upfront penalty 1000000 INR (As per Act)
Non-compliance Penalty 293.2 X INR
1000000+293.2
Total Penalty Value(B) X INR

Total Monetary Implications to DC A + B INR

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(d) What would be the market design criteria of ESCerts trading ?

Trading mechanism design: The Energy Savings Certificates (ESCerts) will be traded on
special trading platforms to be created in the two power exchanges (IEX and PXIL). The
exchanges would create an efficient and transparent market for trading by taking
measures to safeguard market integrity and enhance transparency in operations. The
exchanges will also maintain data on traded prices, traded volumes, and trends.
Transfer agents or depositories shall hold the ESCerts in electronic form and provide
client services in relation to ESCerts.

To ensure liquidity and demand for ESCerts, bulk buying and bundling of ESCerts
should be encouraged. Some of the issues that are being discussed in order to enhance
liquidity are:

a) Intermediate compliance timeframes to enhance market liquidity: Different


approaches have been adopted in schemes to balance issues such as
environmental integrity, monitor progress against targets and cost burden. Shorter
compliance periods enhance market liquidity but tend to generally increase
transaction costs and potentially the market price of the certificates. Regular
reporting allows for effective monitoring against targets and early detection of any
discrepancies. Penalties and incentives could be linked to intermediate compliance
targets.

b) Energy Allowances vs ESCerts: The size of certificates influences the prices and
tradability. The smaller the size of certificates, the higher the administration costs.
Energy allowances provide an alternative to increase the trading volumes as
compared to the incremental energy saving certificate.

c) Banking of Certificates: The lifetime of ESCerts also affects it price; shorter lifetimes
of certificates may significantly distort market prices as the market will tend to
respond to short term demand and supply issues. Most international schemes allow
for borrowing and/or banking of excess savings across compliance periods. The use
of banking is perceived as being essential in building investor confidence and
market stability.

d) Auctions/ buy-back of ESCerts by the Government/ BEE to ensure stability of price


as well as to provide price signals upfront. The use of market maker to enable this
process is also important.
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A separate study on market design & institutional mechanism has been done by PXIL and the
study reports are under review. The executive summary of the study has been placed in
Annexure V

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(e) How would information be exchanged between all the stakeholder related to Escert
trading mechanism

The proposed ESCerts trading mechanism involves extensive information exchange


between Designated Consumers (DCs), State Designated Agencies (SDAs), Designated
Energy Auditors (DENAs), Power Exchanges, Bureau of Energy Efficiency (BEE) and
Central Registry on a regular basis. Timely and accurate information exchange while
maintaining confidentiality, transparency and security could be achieved through
adopting an online integrated information system for the program. Therefore, a central
online integrated information system (IIS) i.e. PAT-Net connecting all the DCs, SDAs,
DENAs, Trading Exchanges, Central Registry and BEE is suggested for this purpose.

Development of such a common platform would not only support a simple and much
faster transfer of information between the stakeholders but through a selective viewing
rights. Apart from this in-built approval mechanisms would ensure security of the energy
consumption details of DCs. The software will help data processing and analysis that
will facilitate an MIS/ reporting mechanism and industry performance measure for BEE
to regulate PAT implementation. Moreover, on the basis of industry performance, BEE
can also inform the DCs of the progress and subsequently, help give indicators to the
exchanges and market intermediaries for help with price discovery of ESCerts.
Moreover, by integrating DC, DENA & SDA, PAT-Net will enable tracking, monitoring
and reporting of energy reduction details (consumption, energy audit and verification
by DENA and supporting documents) by DCs to the DEA. In case of non-achievement
of targets by the DC at the end of 3 years, SDA may also access the information
available on PAT-NET to calculate and levy penalty on the respective DCs.

A central online integrated information system (IIS) i.e. PAT-Net connecting all the DCs,
SDAs, DENAs, Trading Exchanges, Central Registry and BEE will be employed. Each
one of them will be provided with a unique access depending on their category, with
user rights assigned accordingly. Overall administrative rights will be with a BEE.

The indicative process flow diagram involving all institutions/entities has been
illustrated in Figure 2:

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Figure 2: Indicative Process Flow for ESCerts-Trading Mechanism under PAT Scheme

Every DC will be provided with individual access to PAT-Net so as to perform all the
mandatory reporting activities through this system. Self declaration of energy savings
by Energy Manager of DC will be made through the PAT-Net to BEE for consideration
for issuance of ESCerts. BEE will assess such information received through PAD (PAT
Assessment Document) from all the SDAs/DCs/DENA and upon satisfaction pass online
instructions to Central Registry for issuance of ESCerts to DCs. The reported data by DC
can be easily gathered, monitored and analysed by BEE/SDAs to identify any uneven
aberrations in energy savings, so as to conduct site audits. Once issued by the Central
Registry, the ESCerts credited to a DC could be viewed by him through PAT-Net.
Communication between a Power Exchange and Central Agency will also be
performed through PAT-Net. Details like list of registered DCs, ESCerts available with
each DC for trading, etc could be intimated to Trading Exchanges by Central Registry
to accommodate trading. On the other way, the Trading Exchanges could intimate the
trade details and obligations to all the participating DCs, Central Registry and if
necessary to SDAs also.

DENAs, once registered, could use the PAT-Net for reporting their mandatory
organizational details like personnel details, promoters etc to the Administrator. All the
audit details conducted by DENAs could also be reported to the Administrator and/or
SDA through PAT-Net. Details like list of qualified Energy Auditors, Energy Managers

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and DENAs along with their performance details could be maintained with PAT-Net.
Constant performance monitoring of the program by the Administrator, through
parameters like total ESCerts issued & traded, complying sectors or participants, market
liquidity etc., will also be carried out. Delays at any point of the process-chain will be
identified and timely action be taken by the Administrator/Regulator. Targets will be
issued to participants through PAT-Net and also end-of-the-phase reconciliation be
carried out. Penalties will be imposed on non-compliant participants and its adherence
could be monitored through PAT-Net. Automation of processes wherever feasible will
be carried out for seamless implementation of the proposed ESCerts program. A single
PAT-Net connecting all the stakeholders and participants ensures implementation of
common standards at all the levels and promotes consistency.

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4 International Experience
The PAT mechanism is a unique scheme that, perhaps, does not have any
international benchmark. However, while designing the scheme, a survey of
best practices and lessons learnt from several international schemes was undertaken.
The same is discussed in brief below.

4.1 Survey of International trading and energy efficiency


schemes
a) European Union Emission Trading Scheme (EU ETS)

The EU ETS is a mandatory emissions trading scheme covering over 10,000 energy
intensive installations across the 25 Member States of the European Union. The Scheme
is one of the EU’s key measures for delivering its commitments under the Kyoto Protocol
and for delivering its objective of demonstrating leadership in reducing emissions of
greenhouse gases. Phase 1 of the scheme operated from 2005 to 2007. Phase 2
started in 2008 and will last until 2012, and phase III will operate from 2013 to 2020.

b) Climate Change Agreements (CCAs)

CCAs are voluntary mechanisms that encourage energy efficiency in energy intensive
industries in the UK. The Government has provided an 80% discount from the Climate
Change Levy for those industry sectors that agree challenging targets for improving
their energy efficiency or reducing carbon emissions. CCAs cover ten major energy
intensive sectors (aluminum, cement, ceramics, chemicals, food & drink, foundries,
glass, non-ferrous metals, paper, and steel) and there are over thirty smaller sectors
with agreements. CCAs were introduced in 2001 and are set to expire in March 2013.
However, the Government intends for the scheme to continue until 2017.

c) CRC Energy Efficiency Scheme (CRC)

The CRC is the UK's mandatory energy saving scheme aimed at improving energy
efficiency and reducing carbon dioxide emissions, as set out in the Climate Change Act
2008. It has been designed to raise awareness in large organisations and encourage
changes in behaviour and infrastructure. The scheme will affect approximately 20,000
organisations, with around 5,000 of these required to participate in the scheme. The
scheme is due to start in April 2010, with a three-year introductory phase.

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d) Tradable White Certificates (TWCs)

Tradable White Certificates are part of mandatory schemes implemented in several EU


countries, with varying scope. Under this mechanism, producers, suppliers or
distributors of electricity, gas and oil are required to undertake energy efficiency
measures for the final user. A white certificate also referred to as an Energy Savings
Certificate (ESC) or Energy Efficiency Credit (EEC), is an instrument issued by an
authorised body guaranteeing that a specified amount of energy savings has been
achieved. The targets vary with countries, due to fragmented markets with different
objectives and policy responses. The Italian (Jan 2005) and UK schemes (April 2002)
were the first to be implemented followed by France (Jan 2006). TWCs have been
implemented or being considered in other EU member states.

e) United Kingdom Emission Trading Scheme (UK ETS)

The UK ETS was a voluntary emission trading system created as a pilot prior to the
mandatory EU ETS. The scheme aimed to secure cost-effective emissions reductions and
give UK companies early experience of emissions trading. Participants ranged from
energy intensive industries to the service sector and encompassed both the public and
private sector. The scheme ran from 2002-2006.

f) UK Renewables Obligation (RO)

The Renewables Obligation (RO) is the Government’s main policy mechanism for
incentivising renewable electricity in the UK. The RO places an obligation on UK
suppliers of electricity to source an increasing proportion of their electricity from
renewable sources. The RO was introduced in 2002.

g) Regional Greenhouse Gas Initiative (RGGI)

The RGGI is a mandatory scheme in the United States aiming to reduce greenhouse gas
emissions. Ten Northeastern and Mid-Atlantic States have agreed cap and will reduce
emissions from the power sector by 10% by 2018. Approximately 225 fossil fuel-fired
electric power plants (25 megawatts or greater) are covered by the scheme. Emission
permit auctioning began in 2008, and the first three-year compliance period began in
January, 2009.

h) New South Wales Greenhouse Gas Abatement Scheme (NSW GGAS)

The NSW GGAS is a mandatory scheme aiming to reduce greenhouse gas emissions
associated with the production and use of electricity. It aims to achieve this by using
project-based activities to offset the production of greenhouse gas emissions. The

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scheme imposes benchmark targets on all NSW electricity retail suppliers, certain
generators and all market customers that take electricity supply in NSW directly from
the National Electricity Market. The scheme commenced in January, 2003.

i) Chicago Climate Exchange (CCX)

CCX is a voluntary, legally binding greenhouse gas reduction and trading system for
emission sources and offset projects in North America and Brazil. The companies joining
the exchange commit to reducing their aggregate emissions by 6% by 2010. CCX has
more than 350 members ranging from corporations, educational institutions and
government organisations. The exchange was launched in 2003.

j) US Acid Rain Programme (ARP)

The ARP is an initiative undertaken by the United States Environmental Protection


Agency, aiming to reduce overall atmospheric levels of sulphur dioxide and nitrogen
oxides, which cause acid rain. The program primarily targets coal-burning power
plants. Phase 1 began in 1995 and Phase 2 began in 2000.

k) China's Top-1000 Energy-Consuming Enterprises Program

The National Development Reform Commission (NDRC) in China launched the 'Top-
1,000 Program,' which targets energy efficiency improvements in the 1,000 largest
enterprises that together consume one-third of all China's primary energy. The scheme
was launched and aims to save approximately 100 million tons of coal equivalent in
2010.

4.2
Lessons learnt from these international schemes:
The key lessons learnt from these schemes are indicated hereinbelow:

4.2.1 Ambition and target setting methodology must be such that targets need to be
fair, realistic, provide clarity in terms of short and long-term actions, and most critically,
make allowance for growth in developing economies. The key elements of this are:

The need for consistent and comprehensive baseline data to make sure that setting
baselines is balanced and not too high for individual sources that can undermine the
effectiveness of a scheme.

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Banding of targets based on historical data with the aim to keep payback periods for
energy saving investments the similar across all units and sectors to ensure an
“equitable” approach that does not penalise early action, and will be most effective for
industrial sectors that have a wider bandwidth in ‘specific energy consumption’ (SEC).
As performance within a sector or subsector converges, then it might be possible to
move towards a single benchmark across all installations.

Intermediate compliance timeframes to enhance market liquidity which would enable


easier economic decisions by DCs

Allowing for a growth metric makes the scheme more attractive - thus intensity targets
are better than absolute caps.

4.2.2 Institutional capacity / governance: Key considerations for effective on-


going stable scheme operation are institutional capacity, avoidance of conflict of
interest between scheme administrator/ regulator and scheme assessor, and where
possible, integration with existing institutions.

4.2.3 Simplicity in the scheme design and integration with other policy to ensure its
attractiveness to the industry and to reduce the cost of compliance as well as other
transaction costs.

4.2.4 Monitoring, reporting and verification need to have desirable attributes like
consistency, reliability, accuracy, flexibility, low cost of implementation for both scheme
participant and administrating authority, and rigour that allows a scheme to establish
inter-linkages with other similar schemes. Some of the building blocks are the need for
data accuracy and reliability, creating incentives for self-regulation, and balancing
accuracy and transaction costs for MRV.

5 Approval of PAT Scheme

The Cabinet approved the financial outlay of Rs.235.35 crores for National Mission on
Enhanced Energy Efficiency (NMEEE) in May, 2010 of which PAT is a component.

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Annexure-I

Different Sectoral Studies Carried out by BEE

S.No Sector Sectoral study (Agency) Remarks

1 Aluminum Completed (FICCI) Under review by BEE

2 Cement Study under revalidation

3 Chlor Alkali Completed (NPC) Under review by BEE

4 Fertilizer Completed (NPC) Discussions with Ministry of Fertilizer initiated


for setting targets under their existing tariff
(subsidy) programme

5 Iron & Steel Completed (MITCON) Under review by BEE

6 Pulp & Completed (CPPRI) Under review by BEE


Paper

7 Textiles Completed (NITRA, Under review by BEE


BITRA, SITRA)

8 Thermal Completed (CEA/ CERC) Target setting being aligned by CERC and
Power CEA under the tariff setting process.

9 Railways - Discussions initiated with Railway Board

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Annexure-II

Designated Energy Auditor (DENA) – FIRM or COMPANY or


ASSOCIATIONS

Qualification (Qualifications for accreditation of DENA is under process):


• Should be a firm/company registered/incorporated in India.
• Should have at least 3 certified energy auditors or organization/sectoral
associations having more than 3 personnel with more than 10 years of experience
in particular designated energy intensive industrial sector (however, association
should have 3 certified energy auditors within stipulated time).
• Should have conducted at least 3 energy audit, in the particular designated
energy intensive industrial sector, in last 5 years.
• Should have energy auditing instruments

Role of DENA:
• DENA have been proposed for the various activities under PAT (Perform, Achieve
& Trade) like
o Baseline data collection
o Baseline Energy Audit
o Monitoring & Verification
o And other PAT related activities

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Annexure-III

METHODOLOGY FOR

ESTIMATION OF BASELINE SPECIFIC ENERGY


CONSUMPTION (SEC)

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This section describes the various Rules that are proposed for estimating Baseline SEC
within the PAT methodology. The implementation of these and other Rules described in
this document will be subject to revisions or modifications based on periodic review by
the BEE based on inputs from the technical expert committees.

Rules for Estimating Baseline SEC

Rule #1 : Eight industrial sectors and Railways among the 15 energy intensive sector as
per EC Act, 2001 have been included in the 1st cycle of PAT.

Rule #2 : Each industrial sector is divided into sub-sectors based on certain factors
which are most common and prevalent.

Sector Basis for Sub-sector Sub-Sector

Thermal Power plant Fuel Based Coal, Gas, Oil

Cement Process Based Dry, Wet

Iron & Steel Operation Based Integrated, Sponge Iron

Fertilizer Feedstock Based Natural Gas, Naptha

Aluminum Product Based Refinery, Smelter

Pulp & Paper Raw Material Based Wood, Agro, RCF

Spinning, Processing,
Textile Operation Based
Composite, Fiber yarn

Chlor-Alkali Technology Based Membrane cell, Mercury

Rule #3 : The Specific Energy Consumption (SEC) is computed as the ratio of the total
energy input to the total quantity of production of the DC.

The SEC of an industry would be calculated based on the following formula.

SEC = Total Energy input to the Plant Boundary (in MTOE)


Total Quantity of Production (in Unit of Product)

Hence, units of SEC would be: MTOE/Unit of Product.

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While calculating the total energy input to the plant, all energy sources would be
converted to a single unit i.e. MTOE (metric ton of oil equivalent) using standard
engineering conversion formulae:
• Electricity purchased from Grid: 1 kWh = 860 kcal.
• Solid fuel: Quantity (kg) * GCV (kcal/kg) kcal.
• Liquid fuel: Quantity (m3) * density (kg/m3) * GCV (kcal/kg) kcal.
• 1 MTOE = 107 kcal.

The following items would be considered:

1. All forms of energy (Electricity, Solid fuel, Liquid fuel, Gaseous fuel, by-products
used as fuel etc.) which are actually consumed for production of output should
be considered.
2. Energy consumed in the plant colony, temporary construction and for outside
transportation system should not be accounted.
3. Energy used through renewable energy sources should not be accounted.
4. Any energy consumed for major construction work would not be considered as
this is not meant for producing the existing product. Quantity of such energy
should be deducted from the total energy consumption.
5. If any DC does not have disaggregated figures of above, then the total energy
may be considered for calculations in both baseline and target phases.

Definition of ‘Product’

In order to calculate the SEC, the definition of product is important. In certain


sectors/sub-sectors of industry such as Iron & Steel, Aluminium-Smelter, Pulp & Paper
and Textiles a significant product mix is observed. Hence, a robust definition of product
is critical to the definition of the SEC. The following would be used while considering the
product in different sub-sectors.

Sector Main Product


Cement Cement
Fertilizer Urea
Iron & Steel (Integrated) Crude Steel
Iron & Steel (Sponge Iron) Sponge Iron or Crude Steel
Aluminium (Refinery) Alumina
Aluminium (Smelter) Molten Aluminium
Aluminium (Integrated) Molten Aluminium
Paper (Pulping) Pulp
Paper (Paper Making) Paper

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Paper (Pulp & Paper) Paper


Textile (Spinning) Fabric
Textile (Composite) Yarn
Fabric
Textile (Processing) Fabric
Chlor-Alakli Caustic Soda
Power Plant Electricity

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Rule #4 : The boundary of a DC is to be defined on a Gate-to-Gate (GtG) concept.

The following boundary for different sectors is considered.

(a) Thermal Power Plant

OPSS : Other Process Sub-Systems

(b) Cement

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(c ) Integrated Steel Plant

(d) Sponge Iron plant

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(e) Fertilizer

(f) Aluminium

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(g) Pulp & Paper

(h) Textile

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(i) Chlor-Alkali

Rule #5 : The baseline estimation of SEC will be based on historical data of individual
plants as reported by the DC in the specified format.

In the context of PAT, it is proposed to collect data as specified in Form 1 under the
provisions of the Energy Conservation Act 2001. As it was felt that the information may
not be sufficient, an additional annexure has been designed (also provided for
reference in Form 1). As per the EC Act, it has been mandatory for all industrial
consumers to file annual energy consumption returns from 2005-06. As a result, it is
proposed to collect the above data for five years up to 2009-10.

The following items of data relating to energy consumption and production are to be
collected based on the specified format:
1. Installed capacity
2. Actual quantity of production
3. Electricity purchased from grid
4. Electricity sold to the grid or other facility
5. In house generation of electricity by CPP/DG sets/Co-Generation
6. All solid fuels used
7. All liquid fuels used
8. All gaseous fuels used
9. All recovered energy from process [byproducts etc.,]

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Rule #6 : The SEC Estimation is based on application of the Gate-to-Gate (GtG)


concept and the Rule for Definition of SEC. This may be defined as ‘Reported SEC’.

The following are the explanations on estimating the total energy consumption and specific
energy consumption in various case situations as encountered in Designated Consumer
industries.

The cases have been prepared based on prevailing scenario of energy usage in the energy
intensive sectors like Power Plant, Iron & Steel, cement, Fertilizer, Aluminium, pulp & paper,
Textile, Chlor-Alkali etc.

CASE -I : All Energy Purchased and Consumed

• Electricity is purchased from the Grid

Electricity (KWH)

FO (Liter)
Product (Kg)
NG (SCM)
PROCESS
Coal (KG)

Others (KG or Ltr)

Total Energy Consumption (Etotal) =

[Elect x 860 + FO x GCVfo + Coal x GCVcoal + NG x GCVng + Others x GCVeach]

Total Electrical Energy Consumption (ELtotal) =

Electricity KWH

Total Thermal Energy Consumption (THtotal) =

[FO x GCVfo + Coal x GCVcoal + NG x GCVng + Others x GCVeach] Kcal

Gate –to-Gate SEC =

[Etotal /kg of product] Kcal/kg

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CASE -II : Electricity Partially Generated by DG Sets, other Energy


Purchased and Consumed

• Electricity is purchased from the Grid & generated by DG set

Electricity (KWH)
A (Ltr)
X ( kwh)
DG
FO (Liter)
Set
Product (Kg)
NG (SCM) SFC

Coal (KG)
Process
Others (KG or Ltr)

(a) If X is known and A is known, SFC = ( X / A) kwh/ltr


(b) If A is known X = ( A x SFC ) kwh where SFC = 3.0 to 3.5 kwh/ltr
(c) If X is known A = ( X / SFC) kwh where SFC = 3.0 to 3.5 kwh/ltr

Total Energy Consumption (Etotal) =

[Elect x 860 + A x GCVa + FO x GCVfo + Coal x GCVcoal + NG x GCVng + Others x

Total Electrical Energy Consumption (ELtotal) =

(Purchased Electricity + X) KWH

Total Thermal Energy Consumption (THtotal) =

[(FO-A) x GCVfo + Coal x GCVcoal + NG x GCVng + Others x GCVeach] Kcal

Gate –to-Gate SEC =

[Etotal /kg of product] Kcal/kg


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CASE -III : Electricity Generated by CPP, other Energy Purchased &


Consumed, Electricity partially sold to grid

• Electricity is generated by Coal Based CPP, partially sold to grid


Y (KWH) to
Grid
A (KG)
X ( kwh)
CPP
Coal (KG)
Product (Kg)
NG (SCM)
Heat Rate (Kcal/Kwh)
FO (Ltr)
Process
Others (KG or Ltr)

(a) If X is known and A is known, Heat Rate (HR) = [( A x GCVcoal ) / X] Kcal/kwh


(b) If A is known X = [( A x GCVcoal ) / HR ] kwh where HR = Avg. Plant Heat Rate
(c) If X is known A =[ ( X * HR)/ GCVcoal] KG where HR= Avg. Plant Heat Rate

* If plant HR is not available, then National Avg. HR i.e. 2717 Kcal/kg may be considered

* The total electricity consumption also includes the auxiliary power consumption of CPP

Total Energy Consumption (Etotal) =

[FO x GCVfo + Coal x GCVcoal + NG x GCVng + Others x GCVeach] Kcal

Total Electrical Energy Consumption (ELtotal) =

(X - Y) KWH

Total Thermal Energy Consumption (THtotal) =

52 | P a[FO
g ex GCV + (Coal-A) x GCV 10th January 2011
fo coal + NG x GCVng + Others x GCVeach] Kcal
PAT CONSULTATION DOCUMENT

Gate –to-Gate SEC =

[Etotal /kg of product] Kcal/kg


CASE -IV : Electricity Generated by CPP, other Energy Purchased &
Consumed, Electricity partially sold to grid from CPP.

• Electricity is generated by Coal Based CPP, partially sold to grid. CPP is in separate
Boundary

B G (KWH)
Coal (KG)
CPP Y (KWH) to Grid

Others (KG or Ltr) Aux P (a%)


X (KWH)

FO (Liter)
A
NG (SCM) Product (Kg)

Coal (KG)
PROCESS

Others (KG or Ltr)

Here, in case of two separate boundaries, two different Norms / Targets to be established

1. For the ‘Production Plant’ Boundary (A):

Total Energy Consumption (Etotal) =

[X *860 + FO x GCVfo + Coal x GCVcoal + NG x GCVng + Others x GCVeach]

Total Electrical Energy Consumption (ELtotal) = X kwh

53 | P a g e Total Thermal Energy Consumption (THtotal


1 0) =
t h
January 2011

[FO x GCVfo + Coal x GCVcoal + NG x GCVng + Others x GCVeach] Kcal


PAT CONSULTATION DOCUMENT

Gate –to-Gate SEC =

[Etotal /kg of product] Kcal/kg

2. For the ‘Captive Power Plant’ Boundary (B):

Total Energy Consumption (Etotal) =

[FO x GCVfo + Coal x GCVcoal + Others x GCVeach] Kcal

Total Electrical Energy Consumption (ELtotal) =


( G ) x (a/100) kwh

Gate –to-Gate SEC ( i.e Net Heat Rate) =

Etotal / (G - ELtotal) Kcal / kwh

Here, the target setting criteria of ‘Power Plant’ should be adopted which is based on ‘Net
Heat Rate’.

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CASE -V : Energy Purchased & Consumed, Electricity & Heat partially


Generated through Co-Gen plant

• Electricity & Heat are generated by Co-Gen Plant

Elect (KWH)
A (KG) X ( kwh)
Co-
Coal (KG)
Gen
Product (Kg)
Y (Kcal)
NG (SCM)
Plant Eff. (%)
FO (Ltr)
Process
Others (KG or Ltr)

Total Energy Consumption (Etotal) =

[Elect x 860 +FO x GCVfo + Coal x GCVcoal + NG x GCVng + Others x GCVeach] Kcal

Total Electrical Energy Consumption (ELtotal) =

(Elect + X) KWH

Total Thermal Energy Consumption (THtotal) =

[FO x GCVfo + Coal x GCVcoal + NG x GCVng + Others x GCVeach + Y] Kcal

Gate –to-Gate SEC =

[Etotal /kg of product] Kcal/kg

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CASE -VI : Energy Purchased & Consumed, Heat energy partially met by
waste / by-product of the Process

Elect (KWH)

Coal (KG)
PROCESS
Product (Kg)
NG (SCM)

FO (Ltr)

Others (KG or Ltr)

Z Kcal By-Product (X KG)

Heat Content of By-Product = Y Kcal / Kg

So, Energy Available Z = X * Y Kcal

Total Energy Consumption (Etotal) =

[Elect x 860 +FO x GCVfo + Coal x GCVcoal + NG x GCVng + Others x GCVeach] Kcal

Total Electrical Energy Consumption (ELtotal) =

(Elect) KWH

Total Thermal Energy Consumption (THtotal) =

[FO x GCVfo + Coal x GCVcoal + NG x GCVng + Others x GCVeach + Z] Kcal

Gate –to-Gate SEC =

[Etotal /kg of product] Kcal/kg

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Example: Estimation of ‘Reported SEC’ from historical data

Name of Unit ABC Ltd.


Place XYZ
Total Installed Capacity 2000000 TPD Sector : Cement

S. No Particulars Unit 2005-06 2006-07 2007-08 2008-09 2009-10


A1 Installed Capacity Tonnes 1700000.00 1700000.00 2000000.00 2000000.00 2000000.00
A2 Actual Production (Cement) Tonnes 1872395 1931782 1616332 1696219 1931595
A3 Actual Production (Clinker) Tonnes 1355000 1363000 1281000 1400000 1463000
A4 Capacity Utilization % 110.14 113.63 80.82 84.81 96.58

B Total Energy Input Million Kcal 1148826.5 1126812.8 1046070.6 1179242.6 1228594.7
B1 Electricity Million Kcal 41839 16684 23194.2 18507.2 24028.4
B2 Solid Fuel Million Kcal 1065086.55 1082190.39 1002816.09 1148366.30 1185412.00
B3 Liquid Fuel Million Kcal 41900.93 27938.45 20060.33 12369.12 19154.28
B4 Gaseous Fuel Million Kcal 0.00 0.00 0.00 0.00 0.00
B5 Other Fuel Million Kcal 0.00 0.00 0.00 0.00 0.00

C1 % Blending % 27.83 29.04 28.34 28.18 28.32

SEC (Electrical) w.r.t.


C2 Cement kWh/t 61.83 63.79 76.34 74.96 69.89

E1 Total Energy Consumption MTOE 114883 112681 104607 117924 122859


Gate-to-Gate SEC w.r.t.
E2 cement Kcal/kg 614 583 647 695 636

58 | P a g e
Rule #6 : The SEC will be normalized, during baseline and target periods, based on a
statistical procedures.

Although there may be multiple factors that affect energy consumption, it is suggested
that only the ‘Capacity Utilization’ may be considered for Normalization as this is likely
to vary in every year as a result of many factors such as :

The Normalization procedure is proposed to be applied if the Capacity Utilization (CU)


or Plant Load Factor (PLF) has a deviation of more than 30% (and considered by BEE
after a study of the inputs from the technical expert committees) in any of the last three
years when compared to the average CU of the historic data provided. It will be
applied only if CU has deviated due to uncontrollable factors which will be declared by
the DC.

The factors for which Normalization is proposed to be applied are:


(a) Natural disaster
(b) Rioting or Social Unrest
(c) Acute shortage of raw material
(d) Major change in government policy

The Normalization procedure is depicted in the following diagram and comprises the
following steps:
1. Calculate the annual SEC for the last 3 years.
2. Calculate the capacity utilization (CU) for the same period.
3. The average CU is also computed for the same period.

The SEC for a specific year will be Normalized if:


• If the deviation of the CU in that year is greater than 30% and
• If the deviation of the SEC is more than 5% for that year, and
• If production operations did not begin in that specific year, and
• If capacity did not increase more than 10% as compared to the previous
• year.

This Normalization will be done by performing a statistical analysis of the SEC and
production data:
1. Plotting the Production versus Energy Consumption curves.
2. Performing statistical analysis to represent the relationship between the
production and energy consumption.
3. Extrapolating the above relationship to generate CU versus energy consumption
and CU versus SEC data for a suitable range of CU values.
4. The average CU will be used to identify the corresponding SEC value from the
above table.
5. The normalized SEC will be the value as computed in the previous step.

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6. Above Normalization process will be repeated for each year that the CU has
deviated greater than 30% from the average over the last 3 years.
7. In the above description, CU will be replaced by PLF in the case of DCs from the
Thermal Power Plant Sector.
8. The above calculation will result in the Normalized SEC for the DC.

Example :

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Rule #7 : The baseline SEC estimation will be the simple arithmetic average of the SEC
of the last three years. The base year will be defined as 2009-10.

Result of Baseline SEC of 46 Dry Process cement plants.

Plant Baseline SEC Total Energy Cons.


No. Avg. Production (Tonne) CU (%) (Kcal/kg) (MTOE)
P-2 2498446 124.92 691 172665.23
P-3 730858 87.01 1725 126095.85
P-4 372218 93.05 1065 39652.43
P-5 1613070 89.03 1083 174757.06
P-6 1730000 89.61 688 119011.12
P-7 1141000 95.08 851 97081.94
P-8 950575 99.02 1036 98449.09
P-10 1562541 71.02 750 117154.30
P-11 1032531 103.58 791 81640.38
P-12 2996457 71.34 1489 446091.63
P-13 2485522 114.38 1548 384795.30
P-14 3863000 136.99 1174 453348.90
P-15 3661383 85.45 1058 387222.54
P-16 2433333 72.27 1334 324625.71
P-17 3806667 83.02 1171 445710.59
P-18 814667 113.15 1073 87383.14
P-19 299271 19.95 851 25456.68
P-20 109637 36.91 1067 11698.61
P-21 153677 40.44 840 12910.22
P-22 1281267 80.08 789 101104.41
P-27 471283 112.21 940 44308.30
P-29 2082667 86.69 572 119054.91
P-30 417333 62.60 1277 53290.02
P-31 770926 61.63 1088 83861.83
P-32 469095 88.34 1109 52042.04
P-33 417333 62.60 1277 53290.02
P-34 2678554 74.40 1254 335880.93
P-37 261152 65.29 1992 52017.72
P-38 454000 88.15 1473 66862.41
P-39 1107000 73.80 497 55055.01
P-40 2188333 82.89 1174 257015.14
P-41 981695 102.26 663 65045.79
P-42 1812930 100.72 1395 252986.30
P-43 2001852 90.99 2112 422806.19
P-44 1748049 87.40 659 115281.38
P-45 1700000 89.47 1007 171241.38

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P-46 372218 93.05 1065 39652.43


P-48 1086333 108.63 1060 115175.79
P-49 3245702 113.88 737 239267.42
P-50 3430000 95.28 1183 405735.06
P-51 2082667 86.69 550 114482.11
P-53 2143667 85.75 732 156874.52
P-54 1973333 93.97 979 193177.19
P-55 1322840 95.20 948 125442.99
P-56 1363000 87.55 877 119597.54
P-57 1118000 93.17 877 98099.81

Summary of Steps of Establishing Baseline SEC

REPORTED SEC
(from Mandatory Reporting)

Normalized SEC
(from Statistical Analysis)

BASELINE SEC

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Annexure-IV

METHODOLOGY FOR

TARGET SETTING

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General Principles of Target Setting

There are certain principles that are proposed for the purpose of target setting, in
addition to the general requirements and principles of the methodology as described
earlier in this document.

Some of the principles of the target setting process are listed below:

1. Industry Focused:
This principle indicates that the overall target setting process utilize various scientific
methods and logical techniques that are widely used and in general usage in similar
situations in policy formulation for industrial technical assessments.

2. M&V Compliant:
This principle requires that the overall target setting process be designed in such
technical terms so as to be readily amenable to effective and fair Measurement &
Verification (M&V) practices by the M&V infrastructure that will be put in place.

3. Pro-rata Approach:
The national energy saving objective will be apportioned to various components of the
industry using a pro-rata approach. This means that in general, a sector or cluster
which consumes more energy shall be apportioned a larger portion of the energy
saving estimate.

4. Percentage SEC Reduction:


The targets assigned to each DC shall be a percentage reduction with respect to its
current estimated Baseline SEC.

5. Independent Targets:
Each DC shall be assigned independent targets expressed as a percentage reduction
with respect to its current estimated Baseline SEC. This reinforces the principle that a
plant or DC is essentially working to improve energy efficiency with respect to itself.

6. Differential Targets:
This principle states that more inefficient plants shall be assigned higher targets or
larger percentage reductions with respect to their current estimated Baseline SEC. This
principle also incorporates the general industry feedback that early movers should be
recognized. The more efficient plants or DCs shall be assigned smaller targets or
smaller percentage reductions with respect to their current estimated Baseline SEC.

7. SEC Captures Plant Variations

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This principle states that the current estimated Baseline SEC, the historic SEC data and
SEC analysis of a DC, captures various characteristics and static and dynamic effects of
the various plant specific parameters that may be unique to that particular plant or DC.

8. Relative SEC Index based targets:


This principle states that the targets that are assigned to a DC shall be based on the
Relative SEC Index of that DC. This principle also implies the natural principle that more
inefficient plants shall be assigned larger targets expressed as a percentage reduction
with respect to their current estimated Baseline SEC.

9. Targets for TPP and Fertilizer Plants


In the case of thermal power plants and fertilizer plants, the targets for SEC decrease
are to be aligned with the existing tariff-setting context. In the case of thermal power
plants, the Central Electricity Regulatory Commission (CERC) and in the fertilizer sector,
the Department of Fertilizers are in the process of integrating these targets in their
respective tariff setting exercise.

Rule #1 : The total estimated energy savings will be apportioned and disaggregated for
sectors based on the pro-rata approach in the same ratio as their relative energy
consumption in the baseline year.

Energy Share of Apportioned Energy


SN Sector
Consumption Consumption reduction Target

(mMTOE) (%) (mMTOE)


1 Power (Thermal) 160.30 66.64% 6.66

2 Iron & Steel 36.08 15.00% 1.50

3 Cement 14.47 6.02% 0.60

4 Fertilizers 11.95 4.97% 0.50

5 Railways (Approx.) 9.00 3.74% 0.37

6 Textile (Approx.) 4.50 1.87% 0.19

7 Aluminium 2.42 1.01% 0.10

8 Paper & pulp 1.38 0.57% 0.06

9 Chlor-Alkali 0.43 0.18% 0.02


Tota
l 240.53 100.00% 10.00

The further apportionment of targeted energy saving would be upto the level of sub-
sector as described earlier.

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Example: Target Setting of 46 dry processing cement plants (Illustrative)

Total Consumption = 240 mMtoe


Share of % (46 plants)= 3.13 %
Share of Saving from Cement = 313100 Mtoe

175827 X = 313100 Mtoe


X = 1.78

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Estimation of Target for Selective Cement Sector (dry Process)

Plant Avg. Production Baseline GtG Total Energy Relative Target Saving at Target
CU (%)
No. (Tonne) SEC (Kcal/kg) Cons. (MTOE) SEC (%) Target Yr. (%)
P-39 1107000 73.80 497 55055.01 1.00 X 550.55 X 1.78
P-51 2082667 86.69 550 114482.11 1.105 X 1265.34 X 1.97
P-29 2082667 86.69 572 119054.91 1.149 X 1368.44 X 2.05
P-44 1748049 87.40 659 115281.38 1.326 X 1528.68 X 2.36
P-41 981695 102.26 663 65045.79 1.332 X 866.59 X 2.37
P-6 1730000 89.61 688 119011.12 1.383 X 1646.19 X 2.46
P-2 2498446 124.92 691 172665.23 1.390 X 2399.33 X 2.47
P-53 2143667 85.75 732 156874.52 1.471 X 2308.33 X 2.62
P-49 3245702 113.88 737 239267.42 1.482 X 3546.58 X 2.64
P-10 1562541 71.02 750 117154.30 1.508 X 1766.18 X 2.68
P-22 1281267 80.08 789 101104.41 1.587 X 1604.17 X 2.83
P-11 1032531 103.58 791 81640.38 1.590 X 1297.95 X 2.83
P-21 153677 40.44 840 12910.22 1.689 X 218.08 X 3.01
P-19 299271 19.95 851 25456.68 1.710 X 435.40 X 3.05
P-7 1141000 95.08 851 97081.94 1.711 X 1660.89 X 3.05
P-56 1363000 87.55 877 119597.54 1.764 X 2110.08 X 3.14
P-57 1118000 93.17 877 98099.81 1.764 X 1730.79 X 3.14
P-27 471283 112.21 940 44308.30 1.890 X 837.60 X 3.37
P-55 1322840 95.20 948 125442.99 1.907 X 2391.86 X 3.40
P-54 1973333 93.97 979 193177.19 1.968 X 3802.44 X 3.51
P-45 1700000 89.47 1007 171241.38 2.025 X 3468.32 X 3.61
P-8 950575 99.02 1036 98449.09 2.082 X 2050.16 X 3.71
P-15 3661383 85.45 1058 387222.54 2.127 X 8234.30 X 3.79
P-48 1086333 108.63 1060 115175.79 2.132 X 2455.33 X 3.80
P-4 372218 93.05 1065 39652.43 2.142 X 849.36 X 3.81

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P-46 372218 93.05 1065 39652.43 2.142 X 849.36 X 3.81


P-20 109637 36.91 1067 11698.61 2.146 X 250.99 X 3.82
P-18 814667 113.15 1073 87383.14 2.157 X 1884.63 X 3.84
P-5 1613070 89.03 1083 174757.06 2.178 X 3806.86 X 3.88
P-31 770926 61.63 1088 83861.83 2.187 X 1834.28 X 3.89
P-32 469095 88.34 1109 52042.04 2.231 X 1160.91 X 3.97
P-17 3806667 83.02 1171 445710.59 2.354 X 10493.29 X 4.19
P-14 3863000 136.99 1174 453348.90 2.360 X 10697.72 X 4.20
P-40 2188333 82.89 1174 257015.14 2.362 X 6069.52 X 4.21
P-50 3430000 95.28 1183 405735.06 2.378 X 9650.32 X 4.24
P-34 2678554 74.40 1254 335880.93 2.521 X 8468.78 X 4.49
P-30 417333 62.60 1277 53290.02 2.568 X 1368.23 X 4.57
P-33 417333 62.60 1277 53290.02 2.568 X 1368.23 X 4.57
P-16 2433333 72.27 1334 324625.71 2.682 X 8707.93 X 4.78
P-42 1812930 100.72 1395 252986.30 2.806 X 7098.45 X 5.00
P-38 454000 88.15 1473 66862.41 2.961 X 1979.97 X 5.27
P-12 2996457 71.34 1489 446091.63 2.993 X 13353.37 X 5.33
P-13 2485522 114.38 1548 384795.30 3.113 X 11978.23 X 5.54
P-3 730858 87.01 1725 126095.85 3.469 X 4374.41 X 6.18
P-37 261152 65.29 1992 52017.72 4.005 X 2083.34 X 7.13
P-43 2001852 90.99 2112 422806.19 4.247 X 17955.66 X 7.56
TOTAL 71236081 7514399 175827 X

7.514 mMTOE

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Analysis for SEC target setting
- Sectoral analysis on Aluminum Sector based on historical data

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Energy consumption details of the Aluminium Sector

The model for target setting in Aluminium sector has been analysed based on the available
historical data. An overall snapshot of the energy consumption share of the sector has been
given below:

Particulars Total

Total Energy Consumption by Aluminium sector = 2.42 mMTOE

= 11 units (6 Smelters + 5
Total number of DCs in the sector
Refineries)

Share of industry in total Energy consumption of 8


sectors = 1.01% (2.42 mMTOE of 240.52
mMTOE)

= 0.10 mMTOE

Target Energy Saving by aluminium sector (i.e. 1.01% of 10 mMTOE)

after 1st cycle of PAT scheme

= 100,000 MTOE

Apportionment of Energy conservation targets between Smelter & Refineries

Based on the proportionate total energy consumption details of Smelter and refineries in the
Aluminium Sector, pro-rata energy saving targets have been calculated for each:

Particulars Total

= 1.50 mMTOE (62% of total


Total Energy Consumption in Smelter
consumption)

Total number of DCs = 6 Smelters

= 0.92 mMTOE (38% of total


Total Energy Consumption in Refinery
consumption)

Total number of DCs = 5 Refineries

Pro-rata energy saving target for Smelters = 62000 MTOE (62% of 0.10
mMTOE)

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= 38000 MTOE (38% of 0.10
Pro-rata energy saving target for Refineries
mMTOE)

*Note: 1 mMTOE = 1,000,000 MTOE

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Statistical analysis for Smelter

Production (in Tonnes) Estimated SEC (in MTOE/ ton)


Total Energy To be
Average Relative %
Plant Name 2007- 2008- 2009- Average consumption Energy
2007-08 2008-09 2009-10 production SEC Target
08 09 10 SEC (in MTOE) Saving
(MT)

Plant#1 3,62,793 3,68,867 3,78,157 3,69,939 1.275 1.272 1.277 1.274 1.000 4,71,455 X 4714.55x

Plant#2 3,58,954 3,58,734 3,59,213 3,58,967 1.364 1.365 1.362 1.364 1.070 4,89,546 1.07X 5238.14x

Plant#3 76,867 2,07,741 2,50,981 1,78,530 1.569 1.355 1.276 1.400 1.098 2,49,920 1.10X 2749.12x

Plant#4 66,347 73,008 99,406 79,587 1.425 1.452 1.408 1.428 1.121 1,13,679 1.12X 1273.2x

Plant#5 NA NA 37,635 37,635 NA NA 1.780 1.780 1.397 66,995 1.40X 937.93x


Total 13,91,594 14912.94X

Calculations of target % savings

Total Saving 14912.94x MTOE


Target
62000 MTOE
Saving
X 4.15 %

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Statistical analysis for Refineries

Production (in Tonnes) Estimated SEC (in MTOE/ ton)


Total Energy To be
Average Relative %
Plant Name 2007- 2008- 2009- Average consumption Energy
2007-08 2008-09 2009-10 production SEC Target
08 09 10 SEC (in MTOE) Saving
(MT)

Plant#1 3,83,200 3,72,100 3,77,000 3,77,433 0.247 0.241 0.244 0.244 1.000 92,073 X 920.73x

Plant#2 15,78,000 14,63,300 15,59,200 15,33,500 0.299 0.299 0.314 0.304 1.246 4,65,999 1.25X 5824.98x

Plant#3 83,148 NA NA 83,148 0.316 NA NA 0.316 1.294 26,245 1.29X 338.56x

Plant#4 2,17,270 2,26,765 2,26,881 2,23,639 0.346 0.300 0.307 0.318 1.303 71,074 1.30X 923.96x

Plant#5 7,01,578 7,16,745 NA 7,09,162 0.380 0.372 NA 0.376 1.542 2,66,823 1.54X 4109.07x

Total 9,22,214 12117.30X

Calculation of target % saving

Total Saving 12117.3x MTOE


Target 38000 MTOE
Saving
X 3.14 %

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Final Result – Smelter

Plant Name Baseline SEC Target (%) To be SEC To be MTOE


Plant#1 1.274 4.15 1.22 4,51,889
Plant#2 1.364 4.44 1.30 4,67,806
Plant#3 1.400 4.56 1.34 2,38,527
Plant#4 1.428 4.65 1.36 1,08,391
Plant#5 1.780 5.80 1.68 63,111
Total energy consumption at the end of 3 years (in MTOE) 13,29,725
Total present energy consumption (in MTOE) 13,91,594
Energy saving during the period 61,870

Final Result – Refinery

Plant Name Baseline SEC Target (%) To be SEC To be MTOE


Plant#1 0.244 3.14 0.236 89,182
Plant#2 0.304 3.91 0.292 4,47,771
Plant#3 0.316 4.06 0.303 25,178
Plant#4 0.318 4.09 0.305 68,167
Plant#5 0.376 4.84 0.358 2,53,901
Total energy consumption at the end of 3 years (in MTOE) 8,84,199
Total present energy consumption (in MTOE) 9,22,214
Energy saving during the period 38,014

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Annexure-V

Market Design for PAT Mechanism

The Perform, Achieve and Trade (PAT) Mechanism is a policy mandated market based
mechanism that has been envisaged under the National Mission for Enhanced Energy
Efficiency (NMEEE) for the purpose of deepening the energy efficiency activity in the
country across the largest energy consuming sectors to begin with. This would be
applicable on Designated Consumers (DCs), which are specific large industrial units
within pre-identified largest energy consuming industrial clusters.

Since the PAT Mechanism is a market-based mechanism, a highly efficient market


structure is critical for its continued success.

The overall Market Design needs to incorporates various processes in the market
structure in detail like target setting, monitoring verification and reporting, Trading of
Obligations and ESCerts, issuance and redemption of ESCerts, the compliance period
and penalty mechanism thereof. It is therefore akin to developing a blueprint of the PAT
mechanism for making it functional.

The proposed Market Design for implementing PAT Mechanism is based upon the
lessons derived from the critical analysis of similar policy-mandated market-based
mechanisms in the environmental domain across the world. The Market Design thus
proposed presents a simple yet highly efficient structure that would allow seamless
implementation of the PAT Scheme and would ensure tradability and liquidity of the
market-based instruments (Obligations and ESCerts) from the very start of the PAT
Mechanism.

For identifying an appropriate proposed market design, various optional designs for the
market structure based on type of target setting, participation, and timing of
introduction of tradable certificate in the market have been taken into consideration.
The design in its entirety discusses the requirement of market-based mechanism and
factors affecting the design of market structure.

The process of target setting for the DCs from the identified industrial sectors would
include evaluating the actual energy consumption within a particular industrial unit.
Such industrial units within an industrial segment would be clustered according to their
present Specific Energy Consumption (SEC) and given an improvement target for
reducing their SEC. Depending upon the production capacity and total energy
consumption, the target would be expressed in the form of absolute savings (in mToE
terms) to be achieved by the DCs. The total absolute savings to be achieved by a DC is
therefore the overall Obligation on the DC that needs to be fulfilled.

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The compliance period for achieving the energy efficiency targets is 3 years for the
DCs. The DCs would have the following three options to meet the annual targets and
eventually the total compliance targets

1. Option 1: Undertake trade of Obligations, wherein any DC can partly or fully


trade their annual savings obligations to any other DC. By virtue of this provision,
the liability to fulfill the energy savings obligations would be transferred to the
buying entity. The platform for trading Obligations would be provided by the
existing power exchanges in India. This provision would enable the market to
jump-start as soon as the PAT Scheme is launched.

2. Option 2: Undertake Energy efficiency projects that would result in energy


savings that shall be quantified and certified by independent third party energy
auditors. These energy auditors would be accredited and empanelled by the
scheme administrator for the purpose of undertaking monitoring and verification
of projects undertaken by the DCs.

The Scheme Administrator can also choose to ex-ante issue some ESCerts (% of
annual savings obligations) based upon the documentation submitted by the
Designated Consumers.

3. Option 3: The DCs would also have the choice of buying ESCerts from the open
market at a platform provided by the power exchanges to meet any shortfall in
the annual energy savings obligations.

The Obligation and ESCerts Trade will happen in electronic form with all transactions
being recorded by an online Registry/Depository. The design also promulgates the
idea of creating an online interface that would allow communication and interaction
among all the stakeholders at a real time basis creating a fully automated system for
operationalising the scheme and eliminating unnecessary delays on account of human
interventions.

The design also highlights the issues that are critical to its implementation and success
like creation of database of projects with predefined estimates of energy savings,
possibility of extension of scheme to the voluntary participants, steps to be taken to
increase the availability of auditors in sufficient numbers, defining tradable instrument
and its metrics, frequency of trading and pricing of tradable instrument among others.

The proposed design presents a robust market mechanism that enables creation of
demand with adequate opportunities to trade along with a robust system for monitoring
and verification of savings with high degree of transparency and reliability.

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The proposed market design provides a basis for development of the institutional
framework that would enable the implementation of PAT Mechanism seamlessly across
all the designated sectors.

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Institutional Design for PAT Mechanism

Market Based Mechanisms generally rely on two critical factors for success a) A strong
market design which has the entire blueprint of the market process along with detailing
of market signals that may influence behavior of the stakeholders and b) robust
institutional structure that supports its development, with roles and responsibilities of
various institutions being completely identified.

The Institutional Design has been built up to facilitate the implementation of the market
structure proposed in the Market Design. The institutional design is an amalgamation of
various independent entities interconnected via a series of functional relationships and
interacts in tandem with one or several other entities at any instance of time.

For developing the Institutional Design, a study of international policy-mandated


market-based mechanisms was conducted. In addition to lessons derived from these
international mechanisms, the existing policy and regulatory framework around energy
efficiency was also taken into consideration while proposing the institutional design.

In addition, the entities that can assume various responsibilities in the institutional
framework were also discussed emphasizing their interactions and inter-relationships
among them.

In the proposed Institutional Design the role of Scheme Administrator and Regulator are
taken up by the Bureau of Energy Efficiency (BEE) constituted under the provision of the
Energy Conservation Act, 2001 and The Central Electricity Regulatory Commission
(CERC), apex body in matters related to regulations governing the electricity sector,
respectively.

CERC would provide regulations that would govern the operations of the PAT
Mechanism. Similarly, BEE would act in its capacity to set the energy efficiency targets,
publish protocols and procedures for implementation of the PAT Mechanism. BEE would
also undertake the accreditation and empanelment of Designated Energy Auditors
(DEA). The DEA would be independent entities, accredited by BEE, responsible for
carrying out monitoring, verification, and reporting of energy efficiency projects
undertaken by Designated Consumers under the PAT Mechanism.

The Designated Consumers (DC) would have the obligations to fulfill the annual energy
savings targets and the total compliance targets. For this purpose, they either can
undertake energy efficiency initiatives or can engage in Obligations and/or ESCerts
Trading.

The DCs would be responsible annually for monitoring and reporting their energy
efficiency status to the BEE and ESCerts will be awarded to DC only if the energy

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savings in the particular year exceed the annual savings target. BEE can initiate
compliance checks against any DC at any point of time preferably upon submission of
annual monitoring report. BEE will recommend the DEA for the compliance check and in
case of compliance checks; the Designated Consumers would be responsible for
communication and cooperation with the DEA and for suitable compensation of the
DEA for its services.

The existing power Exchanges namely Power Exchange India Limited (PXIL) and Indian
Energy Exchange (IEX) will provide a neutral electronic platform to all designated
consumers for trading Obligation and ESCerts in a fair manner without any information
asymmetry. Both PXIL and IEX will have interfacing with BEESL, Banks and Clearing and
Settlement system to enable seamless transactions of the tradable instruments.

In case of non-compliance the State Designated Agencies (SDA) as constituted in


accordance with the Energy Conservation Act, 2001 will act as the body responsible
for adjudicating matters related to penalizing the Designated Consumers for non-
compliance.

Market Makers, Brokerage, Consulting firms, Financial Institutions, Financiers would


have their own roles to play as the entire mechanism attains greater depth and liquidity
in due course of time, wherein these entities would help the market to stabilize and
sustain in the longer run.

The critical issues considering the vast extent and applicability of PAT Mechanism have
also been discussed in the proposed institutional design. Few of these issues are
delineating and delegating specific roles and responsibilities for avoiding conflict
situations, development of institutional capacity for monitoring, verification and
reporting, performing registry and depository functions, appointment of Regulator and
a body for dispute resolution.

The proposed institutional design is simple, robust and optimally utilizes the existing
institutional capacity that allows maximum interaction among all participants in the PAT
Mechanism with minimum possibilities of conflicts thus creating favorable environment
for implementation of the PAT Mechanism.

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