Ajay Mathur

January 2011
In Conversation:Ajay Mathur
Setting efficiency standards in India

With estimations predicting a doubling of demand for energy in India in the next 20 years, it is time the Indian government helps its industry adopt energy-efficient technologies. Energy efficiency visionary, Ajay Mathur, Director General of India’s Bureau of Energy Efficiency (BEE), in an interview with Energy Next, explains in detail various initiatives taken by the government to support the industry in this matter

What would be the status of the Indian Clean Development Mechanism (CDM) market post Cancun? Will the decisions that were taken at Cancun promote the growth of energy efficiency projects in India?

The language stated at Cancun implies that a Clean Development Mechanism (CDM) market would continue post 2012. But in India, CDM does not play a key role in promoting the energy efficiency sector. There are very few Indian CDM energy efficiency projects that have been registered with the CDM executive board; these projects are those that have used a completely new technology, which meant that significant business risks were involved in using that technology, and hence CDM funds helped cover those risks. But once the technology was used by several projects, the risk no longer existed and hence new projects based on that technology no longer qualified for the CDM benefits.

Indian industry does not require CDM finance in order to become energy-efficient. Though the demand for energy is increasing due to rapid economic growth, there is a large potential for India to become energy-efficient. The key target for energy efficiency is the industrial sector that accounts for 48 per cent of the country’s energy consumption and has a whopping 25 per cent potential for saving energy. Since India’s energy demand could double by 2030, it makes financial and economical sense to consider energy efficiency seriously for any Indian industry. If the industrial sector were to adopt energy efficiency measures, it would significantly contribute to its growth and output in the long term, demonstrating the fact that energy efficiency and economic growth actually work in tandem, rather than in conflict.

As far as India’s energy efficiency sector and any global framework to combat climate change are concerned, there is a need for cooperation for technologies that are already mature. India also seeks global cooperation for efforts to tweak existing technology to suit its needs. Lastly, the country also requires transfer of future energy-efficient technologies. Any future decision on climate change may have an impact on this cooperation that may be extended to India.

Are energy efficiency solutions an expensive option for developing nations like India?

Energy efficiency is the need of the day globally, both for the developed and developing countries. In the wake of climate change it becomes even more important. For a growing economy like India, energy efficiency makes sense as the cost of generating new energy is three times more than the cost of saving it. According to a study by the World Bank, India could reduce its yearly electricity usage by about 183.5 billion kWh by investing US$ 10 billion in energy efficiency measures. India suffers from a power deficit of 10.5 per cent during peak hours that threatens to stifle growth. The country could avoid 19,000 MW of generation capacity additions, more than half of what it still needs to install to 2012 under current targets, by having industries shift to appliances and technologies that save energy.

The largest incentive for any industry is reduced energy bills in the long run. And in an environment where energy costs are constantly escalating, this is a great incentive. The past few years have proved that India can slowly reduce its energy growth. The country’s economy has been growing at about 8 to 10 per cent annually, but the energy growth has been less than 3 per cent a year and electricity growth has been about 5 per cent. Therefore, energy intensity in India has been slowly declining during the past 10 years, mainly because Indian industries have invested in energy efficiency to bring down production cost and survive in a world of global competition.

Many companies cite two key barriers to improve energy efficiency in India – the first is the lack of technical expertise to identify opportunities for improving energy efficiency, and the second is the lack of internal capital budget. What is the government doing to overcome these barriers?

This is not entirely true for all industrial segments. We have the most energy-efficient cement and fertiliser plants in the world. But yes, there are some plants with low energy efficiency. The problem is an imbalance of energy efficiencies among various players of the industry, and the government’s goal is to rectify this situation. What is required is transfer of practices and knowledge from the most efficient plants to the least efficient plants. What’s more, energy inefficiency is essentially a problem of the small-scale and medium enterprises, and for this the BEE Small and Medium Enterprises (SME) scheme has been launched to improve the energy intensity of the Indian economy by undertaking actions in the SME sector which directly or indirectly produces 60 per cent of the GDP. The scheme aims to accelerate the adoption of Energy Efficiency (EE) technologies and practices in 30 clusters in the SME sector through knowledge sharing, capacity building and development of innovative financing mechanisms. The activities under the scheme include analysis of energy use and technology, preparation of Detailed Project Reports (DPRs) on EE technologies, implementation of EE measures, and facilitation of innovative financing mechanisms.

About 60 bankable DPRs on energy-efficient technologies have been prepared under this programme. These DPRs can be financed from various financial institutions including SIDBI with up to 25 per cent financial subsidy from Ministry of Micro Small and Medium Enterprises under National Manufacturing Competitiveness Programme scheme. Apart from this, the Bureau of Energy Efficiency (BEE) and HSBC India have signed a Memorandum of Understanding to work on BEE’s Energy Efficiency Financing Platform (EEFP) with the objective of the EEFP to create a mechanism towards mainstream financing of energy efficiency projects.

The average efficiency of India’s coal-based power plants is just 27 per cent, as compared to a world average of 34 per cent. As coal continues to be a power mainstay, why hasn’t the government introduced stringent norms for higher efficiency designs for upcoming power plants?

I think the figures are not entirely true. Indian coal power plants have become efficient over a period of time. The new plants that are being set up are based on the super critical technology. And, technology is not the only reason why Indian plants are not as efficient as their counterparts in other parts of the world. Weather conditions play a crucial role in deciding the efficiency of plants, and India’s hot environs hamper efficient functioning of the coal power plants.

To make the old plants better than what they are, they should know exactly the percentage reduction in their specific energy consumption they have to achieve over the next few years. The percentage reduction target would depend on how efficient that unit is compared to the most efficient unit in that sector. The most efficient one would have the smallest percentage reduction target and the least efficient will have the largest percentage reduction target.

How can India ensure the success of renewable energy?

India’s renewable energy sector is already heading for success. As of June 2010, India has over 17.5 GW of installed renewable energy capacity, which is approximately 10 per cent of India’s total installed capacity. India has achieved phenomenal growth rate in the renewable energy sector despite limited resources to do so. For a domestic demand for renewable energy to develop, the need of the day is to inform the consumers about the long-term benefits of renewable energy. Informing the consumers is a must as in the long run they are the ones who bear the cost of any energy form.

When is the government planning to give its green signal to trading energy efficiency credits, and what will be the market worth of such a trading?

The Perform Achieve and Trade (PAT) scheme is a market-based mechanism to enhance energy efficiency in the designated consumers (large energy-intensive industries and facilities), which would be introduced from April 2011. The scheme includes goal setting where a specific energy consumption (SEC) target is set for each plant, depending on the level of energy intensity (specific energy consumed = energy use/output) of that plant. The target will specify the percentage by which a plant has to improve its energy intensity from the base line value in a period of three years. This involves a reduction phase where the designated consumers try to reduce their energy intensity according to their target within a three-year period (2009-12). The third phase is the trading phase where consumers who exceed their target SEC will be credited tradable energy permits. These permits can be sold to designated consumers who failed to meet their target. Designated consumers who fail to achieve their target have to compensate by buying permits. If they fail to fulfil either of these requirements, they may have to pay penalties. Energy-efficiency targets will be set for over 700 industries that account for 40 per cent of the country’s fossil fuel use by the end of next year

Do you see opposition from the industry on this scheme?

Not really. The industry perceives the scheme to be part of an act, and it knows that it has no other alternative but to adhere to its targets. What’s more, those who do more energy saving can get more energy savings certificates and that can become an additional source of revenue. Therefore, if the industry so desires, the scheme can become a source of revenue for it. While devising the scheme we have taken the industry in the loophole, and had consultations with industry group such as FICCI and CII.

How can the public private partnership (PPP) model help unlock the market for energy efficiency?

Energy efficiency does not really require public private partnership. The government’s role is not so much to take part in the energy efficiency exercise but to show how to do so and also highlight the incentives in doing so. There are sectors which failed to take advantage of many energy efficiency opportunities due to the lack of information on risks and incentives therein. The role of the government is to address these issues. For this, we have launched several programmes. For instance, labels and standards have been introduced for appliances, which give comparative information about various brands of refrigerators, air conditioners and many other such appliances. The government is also trying to make buildings energy-efficient, particularly the large new commercial buildings. There the goal has been to enhance the efficiency of the building while it is being designed. Therefore, an energy conservation building code has been introduced. The third area that we are working in is industry, where a reporting system for energy use in large energy-intensive industries has been set up. We have identified nine sectors with a total of 714 units that are required to employ an energy manager, get energy audits done, and report what they have done with those audits. We are also in the process of asking these 714 designated consumers to comply with specific energy consumption norms.

Another key issue that still remains is risk. Today people are very uncomfortable with using a particular energy-efficient technology which has just been developed. They adopt it only when enough people have used it. And only when they perceive that there is minimum risk in adopting the technology, they come forward to invest in it. So the key to us is how to accelerate this time in which the risk perception becomes manageable and that is where we are looking at incremental finance to make it happen. Thus, the role of the government is more of a facilitator than that of a participant. Energy efficiency makes economical sense, but one needs to give the right push for people to realise this.