Trading Mechanism

Bureau of Energy Efficiency

Agenda

• PAT Mechanism

• Market Design

• Institutional Design

PERFORM ACHIEVE AND TRADE MECHANISM

PAT MechanismOverall structure

• Administrator– Set target and compliance

period

• Designated Consumers– 8 sectors Thermal Power

Plant, Steel, Cement,Fertilizer, Pulp & Paper,Textile, Aluminium, Chlor-alkali

• Auditing Agencies– Independent

– Monitor, verify and certify

• Market Place– Transaction of energy

efficiency instrument

Set Targets

• Setting targets on the basis of current specific energy consumption

• Set compliance period

• May take into account Location, Vintage, Technology, raw materials, product mix etc.

Monitoring & verification of targets by Designated Energy Auditors (DENA)

• Check if designated consumer has achieved targets

• Underachievement: Obligations to buy ESCerts or pay penalty

• Overachievement: Issuance of ESCerts for banking for later use or trade

Trading of ESCerts

• Participation by Designated consumers on platform provided by Power Exchanges

• Symmetrical flow of information

Market Based Mechanism

Reward over -

achiever

Penalize

under -

performer

Activity Flow Sheet

Designated Consumer

Prepare PAT Assessment

Document (PAD)

Verification of PAD by DENA

Submission of PAD to BEE

Issuance:ESCerts or Penalty

Issue of e-Certsafter successful

M&V

Baseline Format Design

Getting Information

Through Base Line Format

Data Compilation/ Evaluation

Target Setting [Target Year:

2011-14]

Baseline & Target Setting

BEE may verify data submitted by

DENA/DCs

PAT Mechanism- Key Steps

•Assessment of energy consumption & SEC

•Establishing baseline energy consumption normsBaseline Study

• Setting EE targets

•Defining compliance period Target Setting

• Scheme Participants

•Market structure and overall process

• Liquidity, tradability and fungibility

•Trading Cycle

Market design

• Scheme Participants - Roles and Responsibilities

• Implementation & Registration of EE projects

•M&V & Issuance of EE certificates

•Trading & Redemption of EE Certificates

Institutional Design

•Draft regulations governing the overall PAT MechanismRegulatory Framework

• Final Regulation

•Detailed procedures Regulations

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Why market based mechanism?

• Allow quantification of volatile and not so measurable

EE

• Market based EE instruments serve as accounting tool

to demonstrate that certain amount of energy has

been saved

• Offer alternative to PURE obligation of achieving EE

• Reduced cost of compliance to EE targets

• Greater flexibility

• Serve as additional source of revenue

Market Design

Major Points

• Target: In % of Specific Energy Consumption

• ESCerts: in toe or kgoe

• For ESCerts or Penalty:

– (Baseline Production) x (% change in SEC)

Example

• SEC in 2011: 10 toe/unit of production

• Baseline Production: 10000 units

• Target: 4% reduction in SEC

• SEC at the end of 2013-14: 9.6 toe/unit prod

• For ESCerts or Penalty:

– Reduction requirement: 4000 toe

– Case1 (Achieved SEC = 9.8): -2000 toe (Penalty)

– Case2 (Achieved SEC = 9.4): +2000 toe (ESCerts)

Market Design

• Designated Consumers are obligated to improve energy efficiency

• Energy Efficiency Targets are %-age reduction in SEC expressed in AbsoluteSavings terms– Various plants in an industry clustered on the basis of different parameters like technology etc

– Each DC will get an energy efficiency improvement percentage target

– The target would be converted into absolute energy saving target (in mToE terms) on the basis ofplant capacity

– The absolute energy saving target (obligations) would be applicable for a compliance period ofthree years

• Designated consumer can meet target by– Undertaking energy efficiency measures themselves

– Buy ESCerts from someone else

Market Design

• Compliance and Reporting

– Total compliance period of 3 years

– Designated Consumers would undertake energy efficiency measures and submitannual reports

– If submitted annual reports show over-achievement, ESCerts to be issued for levelof over-achievement

– Provision of annual reporting along with penalties in case of non- compliance

– After period of 3 years, a complete gate-to-gate measurement to be undertakenfor verifying SEC and plant capacity for each DC

– BEE would appoint Designated Energy Auditors (DENAs) for M&V

• DENAs would be organizations, which meet minimum capability norms

• DENAs would be accredited and empanelled by BEE

• BEE can initiate compliance checks on dip-check basis on both DC and DENA

• In case of non-compliance State Designated Agencies to levy penalties on DC

Market Design

• ESCerts are issued– When energy efficiency improvements surpass

targets

– With 1 mToE improvement above target = 1 ESCert

– Banking of ESCerts allowed during each cycle• 1st cycle ESCerts to 2nd cycle

• 2nd cycle ESCerts to 3rd cycle

• Partial issuance of ESCerts will be allowed on Ex-ante basis to DC

Market Design

• Registry– “Obligations” and ESCerts would be held in electronic form and be registered

with a depository

– All DCs would have electronic accounts and trading systems

– System Registry would maintain track and record of all transactions of anyparticular tradable instrument (obligation or ESCerts) throughout its life cycle

• Trade– All obligations and ESCerts can be traded through electronic platforms provided

by power exchanges

– Trades would take place through automated order driven exchange tradingsystems

– Auction sessions and timings would be notified to the participants well inadvance

• Expected to be monthly sessions to begin with

– Financial settlement would be undertaken through electronic bank interfaces

Market DesignSchematic

Power Exchange

Scheme Administrator

Designated Consumers

(DC)

2 Target setting

Registry/ Depository

Information Exchange (instruction to monitor

transactions)

3 Obligations Trading

InformationExchange

(trade data)

Issue ESCerts

Designated Energy Auditor

(DENA)

4 Monitoring, verification & reporting to administrator

6 Annual Redemption of

ESCerts

1 Appointment & empanelment Energy Auditors

5 ESCerts Trading

Information Exchange

(compliance reports)State

Designated Agency

7 Decide & Levy penalty

Institutional Design

Proposed Institutional DesignSchematic

BEEMarket Regulator & Administrator

SDA DENADesignated

Consumers (DCs)

Central Registry Trading Exchange

Updated

list of DCs

and DENA

Any Baselines

Improvement

Audited

Result of DCs

Any Baselines

Improvement

Audit

Apply for

ESCerts

through PAT

Assessment

Document

(PAD)

Issuance of

EScerts

Updated Obligation

of DCs: Deficit or

Surplus

Updated

ESCerts

Account Info

Settlement

Details

ESCerts

Trading

Regular

updates

Regular Checks & Levy Penalties in case of

defaults

E-filingApply for

Empanelment

PAD

Information

MoP

Conclusion

• Easy to implement

• Robust and Reliable

• Induces Tradability and Liquidity

• Allows development of energy efficiency market

• Multiple trading opportunities-creation of demand

• In line with the existing structure and practices

THANK YOU FOR YOUR KIND ATTENTION

sdiddi@beenet.in