Government Policies & Regulation for Clean-Tech Industry

1. Government Policies & Regulation for Clean-Tech Industry

2. Agenda • Background • India’s response to Climate Change & Clean Technologies • Renewable Energy Policy Overview • Energy Efficiency Policy Overview

3. Background

4. Drivers for Clean Technologies • India is faced with the challenge of sustaining its rapid economic growth while dealing with the global threat of climate change • Increasing gross domestic product (GDP) remains the key target of the India’s economic development strategy; however GDP growth is tied closely to increasing energy consumption • Unless economic growth is decoupled from increased energy consumption, the energy shortage situation will continue • While per-capita GHG emissions of India are low, in absolute terms India’s GHG emissions very high • Necessarily to deploy appropriate Clean Technologies for both adaptation and mitigation of GHG emissions extensively and at an accelerated pace.

5. Which are Clean Technologies? Renewable Energy Energy Efficiency • Solar Energy Technology • Biomass Energy Technology • Wind Energy Technology • Waste to Energy Technology • Energy Efficient Motors • Energy Efficient Lighting • Clean Coal Technologies • Energy Efficient Processes Transport Efficiency Environmental Protection • Multimodal Transport Technique • Hydrogen Fuel Cells • Electric Hybrid Vehicles • Biofuel Technologies • Water Purification & Desalinization Technologies • Sewage Treatment Technologies • Environmental Remediation Technologies (FGD, ESP etc)

6. India’s response to Climate Change & Clean Technologies

7. India’s response to Climate Change Hon Prime Minister of India unveiled National Action Plan on Climate Change on June 30, 2008 which states: Our response will have to be firmly based on the ground realties which involve: Only 44% population has access to electricity. Economy has to grow to increase Per capita GDP Indian economy is closely tied to climate-sensitive sectors such as agriculture, water and forestry. India has abundant coal resources which though carbon intensive provide energy security Recognizing urgency, India has decided to engage actively in multilateral negotiations on UNFCCC.

8. National Mission for Enhanced Energy Efficiency National Mission on Sustainable Habitat National Mission on Sustainable Habitat National Solar Mission • Increase the share of solar energy in the total energy mix • Decentralized distribution of energy • Creation of more affordable, more convenient solar power systems and storage • Clean technologies involved: Solar Thermal power generation, solar photovoltaic generation etc. • Enhance cost effectiveness of improvements in energy efficiency in energy-intensive large industries and facilities • Shift to energy efficient appliances through innovative measures • Mechanisms for financing demand side management programmes & other fiscal instruments • Clean technologies involved : Fuel switch to natural gas, Use of biofuels , clean coal technology etc. • Extension of application of Energy Conservation, Building Code, incentives for re-tooling existing building stock • Recycling of materials and urban waste management; technology development for power from waste • Better urban planning and modal shift to public transport • Clean technology involved: Energy efficient buildings etc. • Focus on conservation of water, minimizing wastage and ensuring equitable distribution • Recycling of waste water to meet needs of urban areas • Adoption of new and appropriate technologies such as low temperature desalination for coastal cities • Optimize efficiency of existing irrigation systems • Clean water purification technology National Action Plan on Climate Change (2/3)

9. National Mission for a Green India National Mission for Sustainable Agriculture National Mission for Sustaining Himalayan Ecosystem National Mission on Strategic Knowledge for Climate Change • Sustaining and safeguarding the Himalayan glacier and mountain eco-system • Understand whether and the extent to which the Himalayan glaciers are in recession • Observational and monitoring network for the Himalayan environment: to assess fresh water resources and health of ecosystem • Afforestation of 6 million hectares • Coverage of degraded forest land • Enhancement of ecosystem services including carbon sinks • Involvement of communities in Forest protection & afforestation • Develop new varieties of crops capable of withstanding extreme weather: • Orientation of agricultural research systems to monitor and evaluate climate change and recommend changes • Convergence and integration of traditional knowledge and practice systems, information technologies and biotechnology • Funding of high quality and focused research into climate change • Study impact on health, demography, mitigation patterns and livelihoods • Establish network of dedicated climate change related units in academic scientific institutions, Set up Climate change research fund • Private sector initiatives through venture capital funds National Action Plan on Climate Change (3/3)

10. Renewable Energy Technologies

11. Electricity Act 2003 : Enabling provisions The EA 2003 has outlined several enabling provisions to accelerate the development of RE based generation: (Section 3): National Electricity Policy and Plan for development of power system based on optimal utilization of resources including renewable sources of energy. (Section 61(h)): Tariff Regulations by Regulatory Commission to be guided by promotion of generation of electricity from renewable energy sources in their area of jurisdiction. (Section 86(1)(e)): Regulatory Commission to Specify Purchase Obligation from renewable energy sources. (Section 66): Appropriate Commission shall endeavor to promote the development of market (including trading) in power in such a manner as may be specified and shall be guided by National Electricity Policy in Section 3.

12. RPO targets in few States Source: RPS order/Tariff Orders for respective years

13. Key Features of existing RPOs • Specify % of RE every utility need to purchase: • Single target for overall renewable energy purchase, • Usually close to existing purchase levels, • In some cases Y-o-Y targets, • Technology specific targets in some States • Period is upto five years, • Applicable to OA/Captive in only three States, • Purchase of RE from outside the State is not permitted, • Silent on mode of procurement, competitive or cost based • Weak on enforcement methodology

14. Need for inter-state sales Renewable sources are not spread evenly across country Many states with no or little RE are not able to promote RE States with good RE have exhausted their capacity Currently, no mechanism for purchase of RE across the State boundary It may not be possible to carry out inter-State sales using CERC OA Regulations for following reasons: Most RE generators are difficult to schedule Transaction would be expensive due to low capacity factors of RE RE generators are not connected to STU but to Discoms Intra-state balancing systems have not yet stabilized Therefore, a mechanism which will enable inter-state sale and purchase of renewable energy is required.

15. NAPCC – Specific Provisions related to RE • At National level for FY 2010, target for RE Purchase may be set at 5% of total grid purchase, to be increased by 1% each year for 10 years. • SERCs may set higher target than this minimum at any point in time. • Central & State Govts may set up a verification mechanism to ensure that renewable power is actually procured. • Appropriate authorities may issue certificates that procure renewable power in excess of the national standard. Such certificates may be tradable, to enable utilities falling short to meet their RPS. • Penalties as may be allowed under EA 2003 may be levied, if utilities are still falling short in RPS.

16. Concept of Renewable Energy Certificate Existing Regime for sale of Renewable Energy Renewable Energy Distribution Company Commodity Electricity REC Sale of Renewable Energy under REC Regime Distribution Company Commodity Electricity Renewable Energy DISCOM OA Consumer Voluntary Market REC

17. Renewable Energy Certificates – General Features • 1 “certificate” ≃ 1 MWhe of renewable energy generated • Mechanism is used in many countries, RPS (US & Japan), ROCs (UK), RECs (Australia). • Certificates are traded to meet the mandatory targets for RE purchases by utilities/DISCOMs • Targets establish demand • Market for RECs sets price • At times regulators fixes the ceiling price ~ in form of penalty to bring in certainty • Purchase of REC would be deemed as purchase of renewable energy. • Entity under S 86(1)(e) obligation can purchase RECs to satisfy its obligation.

18. REC Mechanism for implementation in India • Renewable Energy Certificate (REC) shall be proof that certain environmental attributed have been produced by way of generation of renewable energy • RE generators will be selling two products: • Electricity generated by RE source • Environmental attributes in the form of REC • Electricity will be procured by the licensee to whose network RE generator is connected • Purchase would be at the prices determined by the SERC which may be average power purchase price for that utility • It will reduce the burden on the local distribution licensee • RECs could be procured by all entities subjected to RPS. • For serving RPS, purchase of RECs should serve the purpose

19. National Policy on Biofuels (1/2) • The Policy will bring about accelerated development and promotion of cultivation, production and use of biofuels to increasingly substitute petrol & diesel for transport and other applications. • An indicative target of 20% blending of biofuels, both for bio-diesel and bio-ethanol, by 2017. • Distribution & Marketing of Biofuels • Minimum Purchase Price (MPP) for bio-diesel by the Oil Marketing Companies will be linked to the prevailing retail diesel price. • MPP for bio-ethanol, will be based on the actual cost of production and import price of bio-ethanol. • MPP, both for bio-diesel and bio-ethanol will be determined by the Biofuel Steering Committee and decided by the National Biofuel Coordination Committee.

20. National Policy on Biofuels (2/2) • Financing • Investments and JVs encouraged. • Biofuel technologies and projects would be allowed 100% foreign equity through automatic approval route to attract Foreign Direct Investment (FDI), provided biofuel is for domestic use only. • Plantations would not be open for FDI participation. • Financial and Fiscal Incentives • Bio-ethanol enjoys concessional excise duty of 16% and biodiesel is exempted from excise duty. • No other Central taxes and duties are proposed to be levied. • Custom and excise duty concessions would be provided on plant and machinery for production of bio-diesel or bio-ethanol, as well as for engines run on biofuels for transport, stationary and other applications, if these are not manufactured indigenously. • Demonstration Projects will be set up for biofuels, both for bio-diesel and bio-ethanol production, conversion and applications based on state-of-theart technologies through Public Private Partnership (PPP).

21. Energy Efficiency Policy Overview

22. Legal Framework for Energy Efficiency • Energy Conservation Act passed by Indian Parliament in 2001; created Bureau of Energy Efficiency • BEE is responsible for spearheading the improvement of energy efficiency in the economy through various regulatory and promotional instruments • Plan, manage and implement provisions the EC Act • Appliance standards and labeling • Industrial energy benchmarks • Energy Conservation Building Codes • Monitor energy use in high energy-consumption units • Certify and accredit energy auditors and energy managers • Provide a policy framework for national energy conservation activities • Disseminate information and knowledge, and facilitate capacity building, and pilot & demonstration projects • Establish EE delivery systems through Public-Private Partnerships (PPP).

23. BEE Initiatives to Promote Energy Efficiency • Bachat Lamp Yojana to promote energy efficient and high quality CFLs as replacement for incandescent bulbs in households. • Standards & Labeling Scheme targets high energy end use equipment and appliances to lay down minimum energy performance standards. • Energy Conservation Building Code (ECBC) sets minimum energy performance standards for new commercial buildings. • Agricultural and Municipal DSM targeting replacement of inefficient pumpsets, street lighting, etc. • Operationalising EC Act by Strengthening Institutional Capacity of State Designated Agencies (SDAs) : The scheme seeks to build institutional capacity of the newly created SDAs to perform their regulatory, enforcement and facilitative functions in the respective States. • Energy Efficiency Improvement in Small and Medium Enterprises (SMEs): To stimulate energy efficiency measures in 25 high energy consuming small and medium enterprise clusters.

24. National Mission on Enhanced Energy Efficiency • The basic tenet of the mission is to ensure a sustainable growth by an appropriate mix of 4 E’s namely- Energy, Efficiency, Equity and Environment. • Promote development objectives, while also yielding co benefits for addressing climate change effects. • By 2014-15 NMEEE to ensure, • Annual fuel savings in excess of 23 million toe • Cumulative avoided electricity capacity addition of 19,000 MW • CO2 emission mitigation of 98 million tons per year • NMEEE is expected to create a regulatory and policy regime to foster innovative and sustainable business models to unlock the market for energy efficiency which is estimated to be around Rs. 74,000 crores.

25. Action Plan Under NMEEE Action plan under the National Mission for Enhanced Energy Efficiency seeks to implement four major initiatives. • A market based mechanism to enhance cost effective EE improvements in energy-intensive industries and facilities, through Tradable Energy Savings Certificates. (Perform Achieve and Trade(PAT)) • Accelerating the shift to energy efficient appliances through innovative measures to make the products more affordable. (Market Transformation for Energy Efficiency) • Creation of mechanisms that would help finance DSM programmes in all sectors by capturing future energy savings. (Energy Efficiency Financing Platform (EEFP)) • Developing fiscal instruments to promote energy efficiency namely Framework for Energy Efficient Economic Development (FEEED)

26. NMEEE – Benefits to Corporate Sector • Institution of innovative fiscal instruments like Partial Risk Guarantee Fund (PRGF) and Venture Capital Fund for Energy Efficiency (VCFEE) under NMEEE will help channel investment into energy-efficiency projects. • PRGF will provide back-to-back guarantees to banks for loans to energy-efficiency projects so as to reduce the perceived risks of these projects, whereas VCFEE would support investment in the manufacturing of energy-efficient products and provision of energy-efficiency services • Adoption of energy efficient technologies and practices by corporate sector will help to reduce their overall energy intensity. Other co-benefits to corporate sector include reduction in fuel and material use, reduced local emissions, and improved product quality • Mechanisms like Perform, Achieve & Trade (PAT) and Energy Service Companies (ESCOs) under NMEEE also provide numerous opportunities to the private sector to enhance their activities in the energy conservation field (for example, activities like verification, monitoring, and validation). • )

27. Overview of Proposed PAT Scheme • "Perform, Achieve and Trade" (PAT) scheme is a market-based mechanism to enhance energy efficiency in the ‘Designated Consumers’ (DCs). • Under PAT mechanism energy efficiency improvement targets would be assigned in a form of specific energy consumption (SEC) norm for each designated consumer in the base year and in the target year- Statutory requirement for designated consumers under EC Act, 2001 • Verification of the SEC of each designated consumer in the base year and in the target year by an accredited verification agency • Issuance of Energy Savings Certificates (ESCerts) to those designated consumers who exceed their target SEC reduction • Trading of ESCerts with designated consumers who are unable to meet their target SEC reduction • Checking of compliance, and reconciliation of ESCerts • Fungibility with RECs to be considered