PAT scheme making firms energy efficient

The energy markets have become a key facilitator in supporting distribution utilities and industrial consumers to plan, meet and optimise their power consumption in a transparent, competitive, and flexible manner. Over the last decade, power exchanges have contributed significantly in bringing about a great deal of efficiency in the generation, transmission, procurement and supply of electricity.

Considering that only 6 per cent of the power that is consumed in the country is traded on the exchanges, this is a significant contribution.

The Perform, Achieve and Trade (PAT) scheme and the energy saving certificates (ESCerts) therein are playing a key role in building an efficient industry and eventually a sustainable energy economy. According to International Energy Agency (IEA), the primary energy demand in India is currently at around 900 MTOE (million tonnes of oil equivalent) in which the industrial sector accounts for around 20 per cent around 140 MTOE.

When it comes to electricity consumption, the industrial and commercial sector consumption, at 576,424 GWh, accounts for around 51 per cent of the total electricity consumption in India standing at 11,30,244 GWh. Therefore, it becomes extremely imperative to boost efficiency in this segment to make the entire industrial value chain economically and environmentally sustainable.

Driven by factors like increase in incomes and economic growth, India’s primary energy demand is expected to increase to 1,500 MTOE by 2030. Hence efficiency improvements are the mainstay of long-term power sector decarbonisation strategies.

To address the pertinent area of energy efficiency, the government of India enacted the Energy Conservation Act, 2001 and established the Bureau of Energy Efficiency (BEE) in March 2002. The government also launched the critical Perform, Achieve and Trade (PAT) scheme or earning carbon credits through trading of Energy Saving Certificates (ESCerts) on the power exchanges for the industrial sector to benefit from their investments in energy efficiency.

While there are no doubts about efficiencies leading to savings, it was also felt necessary to quantify such savings and monetise them, thus motivating the consumers to be pro-active in getting their strategies right. About 13 lakh ESCerts traded on the power exchanges under PAT cycle-1 greatly helped designated energy intensive industries to optimise their specific energy consumption and also gain incentives through trading.

The weighted average price discovered in the first cycle of trade was about ₹770 per certificate, implying about ₹100 crore worth of incentives for the designated consumers. Further, according to BEE data, at country level, PAT-1 enabled ₹2,600 crore worth of investments by the industry in energy efficient technologies and helped achieve 31 million tonnes reduction in CO2 emissions.

ESCert trading

PAT is a multi-cycle scheme encompassing several industry sectors. The first cycle (2012-15) aimed at reducing specific energy consumption in 478 industrial consumers across eight industry sectors — aluminium, cement, chlor-alkali, fertiliser, iron and steel, paper and pulp, thermal power and textile. PAT cycle I achieved an energy saving of 8.67 (MTOE which was 30 per cent over the target, saving approximately ₹9,500 crore.

Based on the success of PAT cycle I, the market instrument was further extended to second cycle that includes three more sectors — petroleum refinery, railways and electricity distribution utilities — besides the earlier eight industry segments. Thus a total of 11 industry segments that are high energy consumers are covered.

In its second cycle, from 2016 to 2019, PAT aims at achieving an overall energy consumption reduction of 8.869 MTOE for which the energy reduction targets were assigned to the direct consumers in these 11 sectors.

The trade in energy savings certificates under PAT Cycle-2 commenced in the first quarter of fiscal 2022 on the power exchanges. The second cycle has far greater potential in terms of net trade, as the scheme is deep as well as wide enough to achieve significant efficiency gains. It has 89 more designated consumers (DCs) from existing sectors and 84 new DCs included from additional industries, adding to a total of 621 industrial consumers across the country.

The Ministry of Power and Bureau of Energy Efficiency had notified the price of per metric tonne of oil equivalent for DCs of PAT cycle as ₹18,402 for the year 2018-19.

Paving the way

As the fastest growing developing nation, industrialisation and urbanisation in India are expected to increase in the years ahead. A crucial — and even more challenging — task ahead is to put the industrial sector on a path of widespread energy efficiency and sustainability and a switch to progressively lower-carbon fuels.

Energy efficiency is key to promoting industrial and economic competitiveness and growth. Besides focus on efficiency, adoption of low carbon renewable technologies for competitive and sustainable energy supply as well as continuous research into other advanced technologies, including green hydrogen, to decarbonise the ‘hard-to-abate’ sectors is the need of hour and sector-specific policy measures are required to march towards carbon neutrality.

Furthermore, as a signatory of the Paris Climate Agreement, India aspires to reduce global greenhouse gases (GHGs) in order to limit the global temperature rise to 1.5 degrees Celsius and cut down emission intensity by 33-35 per cent from 2005 levels.

All these ambitious aspirations indeed require a dramatic overhaul of the energy systems and enhanced role for energy efficiency through innovative policy frameworks, advanced technologies and innovative approaches for accelerating energy efficient operations and transition to a low-carbon economy.

The writer is a former Secretary, Ministry of New and Renewable Energy

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