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Vol. XX
April 2012 Analysis of the Energy Savings Certificate Markets

Index PAT Mechanism Regulatory News REC Trade Report REC Project Statistics Green News About REConnect

The rules relating to the Energy Efficiency Perform, Achieve and Trade mechanism (PAT)
were notified by the central government recently. We present the highlights below (for an
From Managements Desk
introduction to the PAT scheme see our newsletter Vol. 9 of May 2011): Dear Readers,
The PAT mechanism1 was notified recently. This will operationalize the mechanism. Broadly,
the mechanism requires designated consumers the largest companies in the 8 most energy April trading session was the pleasant sur-
intensive industries in the country to meet certain energy efficiency norms. The program is prise. Traded price was Rs 2201/ REC (32%
managed by the Bureau of Energy Efficiency (BEE). higher than the floor price). But the bigger
surprise was the robust demand of 264,000
What is required of the Designated Consumers? RECs - in the very first month of the compli-
Approximately 560 industrial units in 8 energy intensive sectors are considered Designated ance year. It is perhaps an indication of en-
Consumers (DCs). The PAT notification provides a specific target for the end of the first cycle forcement expectation.
a period of three years that the DC has to achieve. As an example, NALCOs Aluminium unit
in Korpaut district is a DC. Its target is to reach 0.307 tons of oil equivalent (TOE) per ton of In the main article this month, we have devi-
production from the current 0.325 TOE (a reduction of 6.1%). This target is specific to each ated from our focus on the REC markets. But
unit, and is based on its recent energy consumption pattern. For examples, another aluminum we believe that its with a very good reason.
unit Hindalcos plant in Muri has a target of 0.598 TOE (vs 0.674 TOE at present; a reduction The recent notification of rules of the PAT
of 11.3%). mechanism will kick-off and exciting new mar-
ket of Energy Savings Certificates. We present
Reduction Target in Specific Energy Consumption in Aluminum Industry a detailed analysis in the article.

On the regulatory side, all eyes are now on

State ERCs for enforcement of the RPO regu-
lations. However, a recent development re-
garding applicability of RPO in Chhattisgarh is
covered.

We look forward to feedback and comments

from you. Enjoy reading!

-Team REConnect

1The rules framed are called Energy Conservation (Energy Consumption Norms and Standards for Desig-
nated Consumers, Form, Time within which, and Manner and Preparation and Implementation of Scheme,
Procedure for Issue of Energy Saving Certificate and Value of Per Metric Ton of Oil Equivalent of Energy
Consumed) Rules, 2012. Since it will be impossible to come up with an abbreviation of this name, we will
stick to calling it the PAT mechanism or PAT Rulesin this article
http://220.156.189.23/schemes/documents/nmeee/pat/PAT_Rules_English.PDF

Desiganted Consumers are from the following sectors :

1. Alumunium 2. Cement 3.Chlor Alkali 4. Fertilizer
5. Iron and Steel 6. Pulp and Paper 7.Textile 8. Themal Power Plant

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How are energy efficiency norms calculated?

The norms have been calculated by developing a detailed baseline for each DC. For this, data of the past 3 years have been considered.
After calculating the baseline, a benchmark was developed and targets set on the basis of the deviation from the benchmark.

What will be the targets and progress be monitored?

Each DC is required to maintain extensive data on its energy consumption and reduction efforts. The DCs will be subject to extensive audits
by designated Energy Auditors. Data will have to be submitted to BEE on an annual basis, along with a report of the energy auditor and its
opinion on the efforts and achievement of target by the DC.

There is a further provision of a check-verification that BEE can order. This will require another Energy Auditor to independently verify the
submissions of the DC and the opinion of the auditor. Penalty provisions are in place in case of mis-reporting and taking unfair advantage
of the trading scheme.

How will issuance and trading of Energy Saving Certificates work?

The T in the PAT scheme refers to trading. The DCs who exceed their target will be entitled
to get Energy Saving Certificates (ESCerts) and those who do not meet them will be required
to purchase for compliance. In this way, the more efficient DCs will be rewarded and the less
efficiency ones will be penalized.

ESCerts will be issued to DCs on the basis of the annual return and the Energy Auditors
report, and will be adjusted against the entitlement in the final year of the 3 year cycle. Each
ESCert will represent one TOE, and will be tradable in the power exchanges. The ESCert will
have a value assigned to it which will be calculated on the basis of price and consumption
mix of coal, oil, gas and electricity of all DCs. The value assigned to 1 TOE for 2011-12 is Rs
10,154.

The rules pertaining to trading of ESCerts leave some important questions unanswered and are silent on other important matters. Will
ESCerts be traded only once and then retired (like in the case of REC) or can they be traded multiple times? It is also unclear what would be
the purpose of the value of 1 TOE as specified in the rules. Is it a penalty price?

An important aspect the Rules leave out is the provision to issue ESCerts to non-DCs for energy efficiency measures. This could have been a
great monetary incentive and potentially led to the development a broad-based energy efficiency market going beyond the DCs. Another
aspect is the interaction and transferability between REC and ESCerts this can be easily done by allowing companies that purchase RECs
beyond their RPO requirement to count zero TOE for renewable energy consumed. Similarly, what will the TOE for companies that gener-
ate and consume renewable power but claim RECs (and therefore essentially consume regular power)?

Conclusion

Compared to other environmental markets like REC and carbon credits, the PAT mechanism is complex. There is a significant monitoring
and reporting requirement which puts an onerous burden on the DCs and relies on the Energy Auditor to a great extent.

ESCerts will be issued annually. This will make the trading market in ESCerts illiquid. At the same time, there are several unanswered ques-
tions regarding the finer details of trading of ESCerts. However, there is time to sort out those details as trading is unlikely to begin for an-
other 1.5 years

Overall, its great to see another environmental market kick-off. This will be a very different market from RECs, but lets hope that its fol-
lows the same trajectory in terms of market participation and development.

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RPO notification from Chhattisgarh State Electricity Regulatory Commission (CSERC)

Recently a notification regarding the applicability and enforcement of RPO regulations was made by Chhattisgarh State Electricity Regula-
tory Commission (CSERC). Previously, the CSERC RPO 2011 regulation specified that the RPO will be applicable to the captive user(s) and
open access consumer(s) from the date as would be notified in the Official Gazette. This notification specified that the renewable
purchase obligation will be applicable from April 01,2012 for the captive user(s) and open access consumer(s) .

Those captive users and open access consumers who have purchased RECS in the last financial year 2011-12 can adjust against their
renewable purchase obligation for 2012-13. This notification will be little disappointing for those who bought RECs later during the last
financial year at a higher price.

Tamil Nadu Electricity Regulatory Commission (TNERC) order on Generation, Distribution and Transmission charges

The TNERC, recently released an order on the Determination of Tariff for Generation & Distribution of TANGEDCO and the Intra-State
Transmission Tariff of TANTRANSCO. Some of the key highlights have been mentioned below.

Transmission Charges:
The transmission tariff for long term & short term open access has been increased by about two and half times from the existing tariff.
The transmission charges are as follows

Transmission Charges Existing Charges Revised Charges

Long Term Open Access Rs. 2781/MW/Day Rs. 6483/MW/Day
Short Term Open Access Rs. 28.96/MWh Rs. 270.11/MWh
Trans- m issio n
Loss:
The transmission losses have been maintained almost the same form the previous year. The losses, as defined by TNERC,

Voltage Level 2011 12 2012 13

230 KV 0.95% 0.95%
110 KV 1.5% 1.5%
33 KV 1.5% 1.5%
22 KV 2.5% 2.5%
11 KV 3% 3%
LT 10.5% 10.1%

Wheeling Charges:
The wheeling charges for the year 2012 13 have been increased from Rs. 14.74 paise/unit to Rs. 23.27 paise/unit.

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Aprils trading session was the first of the new compliance year (2012-13). Both volume and price expectations were low, given that there
is no real pressure on the obligated entities to buy this early in the year. Considering that, both prices and volumes surprised IEX and
PXIL traded price was Rs 2,201/ REC (32% higher than the floor price of Rs 1,500; we believe that prices and volume this month are not
comparable with March 2012 as the drivers for buyers and sellers were very different last month).

The total demand was for 263,913 RECs. This appears high compared to last month (demand last month was for 389,000 RECs; last April
was 260) given that this is the first month of the compliance year.

Supply was impacted by low issuance of RECs (118,000 in April vs 204,000 in March) likely due to reduced urgency on part of generators
to claim RECs. Total available RECs were 157,000, of which 133,000 were bid for sale (85% participation). At this stage in the market, the
participation level was high. Of the total bid for sale, only 54% were sold indicating sellers willingness to hold and expectation of even
higher prices later in the year.

With the new floor and forbearance price from this financial year coming in picture, todays price will bring some smile on the sellers. The
relatively high demand and prices are an indication of expectation of enforcement.

No solar RECs were traded this month.

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Status of projects in REC Mechanism S
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Accredited Capacity : 2767.148 MW

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Registered Capacity : 2339.733 MW

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Green News Vol. XX

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Narmada canals can give 2,200 MW of solar power:Mr Narendra Modi

If even 10 per cent of the 19,000 km-long Narmada canal network in Gujarat is used for setting up canal-top solar panels, it
has the potential to produce 2,200 MW of solar power, save 11,000 acres of land that would otherwise be used and prevent
2,000 crore of precious water from evaporation annually, the Chief Minister, Mr Narendra Modi, said.
http://www.thehindubusinessline.com/industry-and-economy/economy/article3352783.ece

Sun shines over renewable energy

The Indian renewable energy industry has never had it so good. Wind power installations in 2011-12 were the highest in a
single financial year, at 3,163 MW, taking the total installed capacity to 17,320 MW.
http://www.thehindubusinessline.com/features/article3342620.ece

Offshore wind energy panel formed

In a bid to give a big thrust to wind power, the Ministry for New and Renewable Energy (MNRE) has constituted an Offshore
Wing Energy Steering Committee (OWESC) under the chairmanship of Secretary, MNRE to steer the offshore wind power de-
velopment in India in a directed and focused manner especially in Tamil Nadu, Maharahstra and Gujarat.
http://www.thehindu.com/business/article3345520.ece

Gujarat Solar Park: Asia's largest solar power park opens

A 600 MW solar power park, touted as Asia's first and largest, was Thursday dedicated to the nation by Gujarat Chief Minister
Narendra Modi in the state's Patan district, in a boost to India's efforts towards low carbon growth.
http://articles.economictimes.indiatimes.com/2012-04-19/news/31367545_1_gujarat-solar-park-solar-project-solar-power-
policy

IFC may invest $40 million in Inox Groups wind energy businesses
International Finance Corporation (IFC) is looking to invest up to $40 million to acquire stake in a subsidiary of Gujarat Fluoro-
chemicals Ltd that runs its wind power generation business. The investment arm of the World Bank will also provide a senior
debt of $90 million to INOX Renewables Ltd, part of the $2 billion INOX Group.
http://www.vccircle.com/500/news/ifc-may-invest-40m-in-inox-group%E2%80%99s-wind-energy-biz

Indian Banks Exposure to Coal Limits Lending to Solar, SBI Says

Indian banks have limited scope to boost lending to solar plants after funding for coal projects pushed them close to the limit
for financing to the power industry, the nations biggest lender said.
http://www.bloomberg.com/news/2012-04-26/indian-banks-exposure-to-coal-limits-lending-to-solar-sbi-says.html

Biomass-based power producers seek tariff revision

Biomass-based power producers, with an installed capacity of 2,664 Mw, have made a strong pitch for according priority sec-
tor status on the lines of agro sector. These producers have also appealed to the Centre to launch biomass mission on the
lines of solar mission to attract more investments.
http://business-standard.com/india/news/biomass-based-power-producers-seek-tariff-revision/470758/

Investment in green technologies will benefit India,US: Sushilkumar Shinde

US companies investing in India's green energy market will have good prospects and it will be a "win-win" situation for both
the countries, Power Minister Sushilkumar Shinde said.
http://articles.economictimes.indiatimes.com/2012-04-17/news/31355377_1_energy-sector-win-win-situation-power-sector

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State Status of Regulation 201213 RPO RPO on CPP? RPO on OA Penalty ?
Obligation Users?

Andhra Pradesh Final 4.75 % + 0.25 % Yes Yes Not Specified

Assam Final 4.05 % + 0.15 % Yes Yes Yes (RECmax)

Arunachal Pradesh Draft 4.1 % +0.1 % Yes Yes Yes (RECmax)

Bihar Final 3.25 % + 0..75 % Yes Yes Yes (RECmax)

Chhattisgarh Final 5.25 % + 0.50 % Yes Yes Yes (RECmax)

Delhi Draft 3.25 %+ 0.15 % Yes Yes Yes (RECmax)

Gujarat Final 6.00 % + 1.00 % Yet to be notified Yes Yes (RECmax)

Haryana Final 1.50 % + 0.50 % Yes Yes Yes (RECmax)

Himachal Pradesh Final 10.00 % + 0.25 % Yes Yes Yes (RECmax)

J&K Final 4.75 %+0.25 % Yes Yes Yes (RECmax)

Jharkhand Final 3.00 % + 1.00 % Yes (>5MW) Yes Yes (RECmax)

Karnataka Final 10 % + 0.25 % Yes (RECmax)

(BESCOM,MESCOM,CHESCO Yes (>5MW) Yes (>5MW)
M), 7 % + 0.25 % for others 5% RPO 5% RPO
Kerala Final 3.35 %+0.25 % Yes Yes Yes (RECmax)

Madhya Pradesh Final 3.40 % + 0.60 % Yes Yes Yes (RECmax)

Maharashtra Final 7.75 % + 0.25 % Yes Yes Yes (RECmax)

Meghalaya Final 0.60 % + 0.40 % Yes Yes Yes (RECmax)

Orissa Final 5.35 % + 0.15 % Yes(>5MW) Yes Yes (RECmax)

Punjab Final 2.83 %+0.07 % Yes Yes Yes (RECmax)

Rajasthan Final 7.10 % + JNNSM Yes Yes Yes (RECmax)

Tamil Nadu Final 8.95 % + 0.05 % Yes Yes Yes (RECmax)

Tripura Final 0.90 % + 0.10 % Yes (>5MW) Yes Yes (RECmax)

Uttrakhand Final 4.5 % + 0.025 % Yes Yes Yes (RECmax)

Uttar Pradesh Final 5.00 %+ 1.00 % Yes Yes Yes (RECmax)

West Bengal Final 4 % + NA NA NA REC not recognized

JERC for Goa and Final 2.60 % + 0.40 % Yes Yes Yes (RECmax)
UTs
JERC for Manipur Final 4.75 % + 0.25% (Man) Yes Yes Yes (RECmax)
and Mizoram 6.75% + 0.25% (Miz)
Nagaland Final 7.75 % + 0.25% Yes Yes Yes (RECmax)

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Past Newsletters
Dear Readers,

Our previous newsletters are available at our website www.reconnectenergy.com and can be downloaded from :
http://www.reconnectenergy.com/rec/index.php/newsletters-on-rec-mechanism.html
The summary of our previous newsletters we have published is available below.
Volume IX: May 2011
REC Market: Another round of Regulatory Push Required

Volume X: June 2011

Analysis on proposed Floor & Forbearance Prices for control period 2012-2015

Volume XI: July 2011

Applicability of REC/RPO on Co-Generation Power Plants

Volume XII: August 2011

REC & RPO: The Dilemma of Double Accounting of Green Tags

Volume XIII: September 2011

Metering Issues in CPPs and Co-Gen: From REC Perspective

Volume XIV: October 2011

Introduction to Renewable Regulatory Fund

Volume XV: November 2011

Renewable Purchase Obligation A Demand - Supply Analysis

Volume XVI: December 2011

Analysis of Draft RPO of Andhra Pradesh + REC Market Update

Volume XVII: January 2012

Voluntary Market for RECs

Volume XVIII: February 2012

Off Grid Projects and REC: A new socio-development tool?

Volume XIX: March 2012

Applicability of RPO on Co-Generation Projects (An Update)

Feedback:

We wholeheartedly thank you for providing your valuable feed-back on our last newsletter. Your feedback on the
newsletter keeps us motivated and would certainly help us to improve the quality of it. Kindly keep writing to us.
We are eager hear your views.

Best Regards, Team - REConnect

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Services Provided by REConnect S
Vol. XX

Index PAT Mechanism Regulatory News REC Trade Report REC Project Statistics Green News About REConnect

Detailed Services in REC Space

Services for RE Generators

Services for Obligated Entities (Distribution Companies / Open Access Consumers / Captive Consumers)

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Index PAT Mechanism Regulatory News REC Trade Report REC Project Statistics Green News About REConnect

REConnect is a venture focused on the Renewable Energy Certificates, Contact REConnect

Energy Efficiency and Electricity Portfolio Management.
New Delhi
Vibhav Nuwal
REConnects team has extensive experience in the environmental markets vibhav.nuwal@reconnectenergy.com
+91 88006 79988
both in India and internationally:
Worked in the international carbon markets for several years and has Bangalore
Vishal Pandya
expertise in the consulting and trading of emissions reductions vishal.pandya@reconnectenergy.com
Extensive knowledge about various Renewable Energy Certificate and +91 96202 21101

Energy Efficiency Certificate markets in USA, Europe and Australia etc. Suresh Kumar (for RPO)
Worked with Indian Energy Exchange (IEX), Indias leading power ex- suresh.kumar@reconnectenergy.com
+91 99727 24727
change, and have extensive knowledge and experience of power
markets Mumbai
Ramkumar K
Alumnus of Columbia University, an Ivy League University in USA, and ramkumar@reconnectenergy.com
IIT Bombay +91 99303 59992

Highly experienced core team worked with organizations like Chennai

J P Morgan, Indian Energy Exchange, Asia Carbon and Gensol. Rajesh Vaidyula
rajesh.vaidyula@reconnectenergy.com
+91 99404 78306

Pune
Mohit Tyagi
mohit.tyagi@reconnectenergy.com
+91 96650 42397

Volume: XX Page
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