Energy efficiency: A shortcut to cleaner future

With National Mission for Enhanced Energy Efficiency (NMEEE), India has embarked on an ambitious plan to cut its energy consumption by 5% by 2015. If it delivers, the plan would also prevent 100 million tonnes of carbon dioxide from being emitted in the atmosphere, showing India’s commitment to fight climate change.

In recent years, India’s energy consumption has been increasing at one of the fastest rates in the world due to population growth and economic development. Commercial primary energy consumption in India has grown by about 700% in the last four decades. Driven by the quest for improved quality of life, energy usage in India is expected to grow at an exponential rate. Since 70% of the energy needs are met by coal, energy sector alone accounts for half of India’s carbon-dioxide (CO2) emissions that are blamed for climate change. In such a scenario, enhancing energy efficiency is the fastest and cheapest means to save energy, for national energy security as well as for reducing GHG emissions. At present India is fifth lowest in the energy efficiency in the world but studies suggest that there is a huge potential for substantial improvement.

Milestones

• The Energy conservation Act (ECA), 2001
• Setting up of Bureau of Energy efficiency in 2002
• National Mission for Enhanced Energy Efficiency (NMEEE), 2009

NMEEE Policy Summary

NMEEE is the second of the eight missions under India's National Action Plan on Climate Change to be approved by the Council. Prepared by Ministry of Power and the Bureau of Energy Efficiency, NMEEE will be implemented from the 1st of April, 2010.

This Mission aims to enable about Rs. 75,000 crores worth of transactions in energy efficiency. In doing so, it will, by 2015, help save about 5% of our annual energy consumption, and nearly 100 million tonnes of carbon dioxide every year(this is roughly equivalent to taking 12 million American cars off the road every year). It is also estimated that at by 2015, about 23 million tons oil-equivalent of fuel savings-in coal, gas, and petroleum products, will be achieved every year along with an expected avoided capacity addition of over 19,000 MW. The consequential carbon dioxide emission reduction is estimated to be 98.55 million tons annually.

Current initiatives are expected to yield savings of 10,000 MW by 2012.  Building on the Energy Conservation Act 2001, The Energy Efficiency Action Plan includes a number of innovative and challenging initiatives to tackle the inefficiencies in the country like:

The “Perform, Achieve and Trade” (PAT) mechanism which is a market based instrument. According to PAT, energy efficiency improvement targets will be assigned to the country’s most energy intensive industrial units, with the provision that those consumers who exceed their targets will be credited with tradable energy permits or Energy Savings Certificates, called ESCerts. These permits can be sold to designated consumers who failed to meet their target to avoid penalties.

Market Transformation for Energy Efficiency (MTEE) is one particularly progressive initiative of the NMEEE. The goal of the MTEE is to speed up the shift to more energy efficient appliances and materials. The MTEE takes a ‘sector specific' (such as lighting, agriculture, and commercial buildings) approach at increasing energy efficiency and decreasing greenhouse gas emissions. The initiative includes the National CDM Roadmap, Standards and Labelling, Energy Conservation Building Code (ECBC), ECSO Promotion and capacity building.

The financing initiative focuses on creation of mechanisms that would help finance demand side management programmes in all sectors by capturing future energy savings; these include Tax exemptions for the profits and gains made from energy efficiency projects by ESCos and Venture Capital funds. Reduction of VAT for energy efficient equipment (e.g. CFLs), Revolving fund to promote carbon finance and Partial Risk Guarantee Fund to provide commercial banks with partial coverage of risk exposure against loans made for energy efficiency projects. The fund will charge a small fee on all projects seeing the risk guarantee.

The plan also involves Power Sector Technology Strategy which is aimed at enhancing energy efficiency in power plants, both new and existing ones by mechanisms like fuel shift or adoption of latest technologies like supercritical boilers
 
Roadbumps in NMEEE

Though NMEEE seems as the most advanced in terms of implementation and the mission doesn’t need as much financial resources as some of the other missions will require (in subsidies), but it does need capacity upgrade. The benchmarking will have to be done very carefully to include adequate number of buyers and sellers or the market won’t work. There are apprehensions about ESCerts prices which may be too low which may not justify the company’s investment. The Government also needs to keep a check on sudden increase in price of energy efficient equipment, because of demand created by energy efficiency targets. This might lead to closing down of several plants.

Recommendations

According to a report of CII the proposed PAT (Perform Achieve and Trade) should not be implemented in isolation. An enabling framework should be first created which should include:

• soft capital at 2-3% interest rate
• accelerated depreciation for energy efficient technology
• zero custom duty on energy efficient product’s import
• A gestation period of 3-4 years is required before the PAT is implemented
• The PAT system should be well-defined as manufacturers may outsource energy intensive activities thereby manipulating the system
• Administrative cost under PAT and transaction cost of issuing ESCerts, trading etc should also be considered and it should be kept as low as possible.

The new Building codes would be even better if they were expanded to apply to residential buildings as well, which already account for approximately 25% of electricity use in India, despite the fact that nearly 40% of homes in the country are yet to be electrified.

Regardless of what critics say, NMEEE can provide India with a big leap in international market with its energy efficient strategies as well as show India’s commitment to fight the global challenge of Climate Change, the only thing required is the  government’s will to be more proactive to signal and encourage investment in energy efficiency strategies. Aside from the publication of NMEEE and BEE’s accreditation of ESCos, much of the activities to promote energy efficiency seem to be business/private sector driven. Increasing energy efficiency is desperately needed in India’s power and transport sectors, but lacks government involvement and the necessary mechanisms to encourage industry-driven commitment and customer support. The targets assigned by NMEEE are achievable if NMEEE and corporate-led efforts can be linked together only by government-supported mechanisms and instruments which will encourage long-term commitment to ‘energy efficient’ society.
 
References:
http://www.pib.nic.in/release/release.asp?relid=52092
http://www.livemint.com/2009/06/19000832/Sops-for-better-energy-use-acr.html
http://switchboard.nrdc.org/blogs/nzigelbaum/india_mission_on_energy_effici.html
http://www.pib.nic.in/release/release.asp?relid=55875
http://www.climaticoanalysis.org/post/ict-industry-in-india-looks-to-enhance-energy-efficiency/
http://www.hindustantimes.com/News-Feed/newdelhi/Conserving-power-one-bulb-at-a-time/Article1-517580.aspx
http://www.pewclimate.org/international/country-policies/india-climate-plan-summary/06-2008
http://news.webindia123.com/news/Articles/Business/20100313/1463951.html
http://www.indiaenergy.net/why_ie_2010.htm

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