ENERGY CONSERVATION EC Act 2001 Demand Side Management Performance Contracting

1. ENERGY CONSERVATION EC Act 2001 Demand Side Management Performance Contracting Nov. 16, 2010

2. Agenda

4. Energy Conservation Act - Background • An Act to provide for efficient use of energy and its conservation and for matters connected therewith or incidental thereto • It extends to the whole of India except the state of Jammu and Kashmir • It was enacted by Parliament in the Fifty-second Year of the Republic of India on October 2001 • The Bureau of Energy Efficiency (BEE) came into force from March 2002 onwards • Powers to the Central Government: • Specify the norms for processes and energy consumption standards for any equipment, appliances which consumes, generates, transmits or supplies energy • Specify equipment or appliance or class of equipments or appliances, as the case may be, for the purposes of the proposed legislation • Prohibit manufacture or sale or purchase or import of equipment or appliances unless such equipment or appliances conforms to energy consumption standards • Direct display of such particulars on label on equipment or on appliance • Specify, having regard to the intensity or quantity of energy consumed by any user or class of users of energy as designated consumer for the purposes of the legislation • Direct any designated consumer to get energy audit conducted by an accredited energy auditor • Direct designated consumer to appoint energy manager in charge of activities for conservation of energy • Prescribe minimum qualifications for appointment of energy managers

5. Energy Conservation Act - Background • Direct any designated consumer to furnish information with regard to energy consumed and action taken on the recommendation of the accredited energy auditor • Direct any designated consumer to prepare a scheme for efficient use of energy and its conservation and implement such schemes as may be prescribed • Prescribe energy conservation building codes for efficient use of energy and its conservation in the building or building complex • Powers of BEE: • Recommend to the Central Government the norms for processes and energy consumption standards for equipment and appliances • Recommend to the Central Government for notifying any user or class of users of energy as a designated consumer having regard to intensity or quantity of energy used by it • Recommend to the Central Government the particulars required to be displayed on label of equipments or on appliances and manner of their display • Take suitable steps to prescribe guidelines for energy conservation building codes • Develop testing and certification procedure and promote testing facilities for certification and testing for energy consumption of equipment and appliances • Promote use of energy efficient processes, equipment, devices and systems • Specify qualifications for the accredited energy auditors, the manners and interval of time in which the energy audit shall be conducted by such auditors • Specify certification procedures for energy managers to be appointed by designated consumers

6. Energy Conservation Act - Background • Prepare educational curriculum on efficient use of energy and its conservation for educational institutions, boards, universities or autonomous bodies and coordinate with them for inclusion of such curriculum in their syllabus • Power of State Government: • Amend the energy conservation building codes to suit the regional and local climatic conditions • Direct every owner or occupier of a building or building complex being a designated consumer to comply with the provisions of the energy conservation building codes • Direct if considered necessary for efficient use of energy and its conservation, any designated consumer to get energy audit conducted by an accredited energy auditor in such manner and at such intervals of time as may be specified by regulations • Designate any agency as designated agency to coordinate, regulate and enforce provisions of EC Act 2001 within the State • Take all measures necessary to create awareness and disseminate information for efficient use of energy and its conservation • Expected Outcome: • Barriers for EE & DSM to be removed. • The State Regulatory Commissions and Utilities to be encouraged to implement the Conservation initiatives • Engagement of Stakeholders

7. Energy Conservation Act - Background • Industrial and Commercial users • Time of use tariff for industrial and commercial users. • Incentives to industry to adopt conservation/ efficiency measures • States • Encourage implementation of DSM programmes in Agriculture/ Municipalities • Domestic consumers • Promoting use of low cost CFLs.

8. Energy Efficiency- Initiatives

10. Introduction to DSM Demand Side Management (DSM), entails actions that influence the quantity or patterns of use of energy consumed by end users, such as actions targeting reduction of peak demand during periods when energy-supply systems are constrained. Peak demand management does not necessarily decrease total energy consumption but could be expected to reduce the need for investments in networks and/or power plants.

11. Type of DSM Programs • Energy Efficiency • Efficiency equipment upgrades that provide long term energy savings can provide peak demand reductions • “Peak Shaving” Programs • Load reductions during peak hours or whenever supply/demand margin is tight includes interruptible / curtailable load which can be called upon when needed or demand response which relies on voluntary load reductions

12. DSM Measures

13. Approach to DSM Regulators can make certain DSM Measures mandatory, arrange for financing through incentivization, create consumer awareness, develop ESCOs, create templates, DSM plans, DSM design, selection criteria etc.

15. Introduction to ESCOs In the Indian context, Energy Service Companies (ESCOs) identify and evaluate the energy savings potential in industrial units, commercial complexes, hospitals, municipalities and utilities, among others, by using energy audit tools. On completing a detailed audit they recommend a set of energy conservation measures which on implementation can pay for the investment through the resultant savings. Types of ESCOs in India • Consulting based • Vendor based

16. ESCO Contract Models Shared Model ESCO Responsibility - Project Development, Financing & Implementation Financing - Mainly ESCO Share of Savings -Recover cost from customers, therefore higher share of the savings (≈70 - 80%) Risk- Both Credit and Performance risk Payback period – Shorter 2 - 14 years Favours large ESCOs “Performance based contract to implement measures which reduce energy consumption and costs in a technically and financially viable manner” Guaranteed Model ESCO Responsibility - Project Development, & Implementation Financing - Mainly Client Share of Savings – Smaller share (≈20%) Risk- Performance risk Payback period – 2-10 years ESCOs can do more projects without getting more leveraged

17. ESCO – Financial Summary The 3 most critical financial needs of an ESCO • Meeting Development Expenditure • Financing a part of project Cost • Sponsor support under Risk Sharing SHARED SAVINGS MODEL • Common RoIs for Guaranteed & Shared Savings model: • Average savings of 23 to 46 percent on baseline energy costs • Majority of ESCO projects have < 3 years payback period • Savings classified according to the type of Energy Conservation Measure Recommended GUARANTEED SAVINGS MODEL

18. ESCO - Process Mapping

19. ESCO – Planning & Approach

20. ESCO – Planning & Approach

21. Traditional Approach to EPC Baseline Data Collection& Investment Grade Energy Audit • Pre & Post Bid Assistance • Preparation of Bid Documents • Pre Bid Meeting • Evaluation of Proposals • Evaluation Report Selection of Implementation Agency S E C T O R A L C O V E R A G E Preparation of Project Design and Technical Recommendations (ECMs) Capacity Building Drafting of Contract Agreement Cost Projections Structuring Options including risk mitigation and incentives Measurement & Verification Detailed Project Report Financial Viability and Modeling

22. Modern Approach to EPC

23. Funding Options

24. Transaction Model FINANCIAL SUPPORT – PROJECT FINANCING PAYMENT OF SAVINGS TO ESCO AS PER CONTRACT DIRECT PAYMENT OF INTEREST & PRINCIPAL TO F.I. EPC CONTRACTING RISK COVERAGE TO F.I. THROUGH PRGF CONFIRMS SAVINGS AS SHOWN BY ESCO

25. Technology & Innovation - Due Diligence • The Importance of Technology Changes to ESCOs • Sources of EE innovation • Technology innovation & competitiveness • Assessing new technology potential in local market • Gathering international competitive intelligence • Cost & value analysis of introducing new technology to ESCO project portfolio • Incorporation of new technology • Technology teams • Prototype projects using new technologies • Training staff on new operational procedures • Managing Risk of New Technologies • New technologies in small components • Negotiating manufacturers guarantees • Hidden cost of new technologies (unexpected maintenance cost)

26. Key Barriers in ESCO Market Development • Accurate and latest baseline energy consumption data • Financing of ESCO projects through • Debt • Equity • Absence of good M&V guidelines for confirmation of savings • Robust performance contracting guidelines • Awareness about ESCO performance contracting • Disconnection of Energy Audit and Implementation Phases in order to avoid biased recommendation of energy conservation measures • Energy conservation is a non-core activity for most consumers.

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