Demand Side Management in India

1. Demand Side Management in India Jitendra Sood, Energy Economist Bureau of Energy Efficiency, India

2. Content • Energy trends in India • Design for best DSM practices in India • Utility driven energy efficiency programmes • Super efficient appliances

3. Energy Trends in India

4. Growth Pattern Per Capita Consumption of Electricity in India Source: CEA (Projected) As per UN Methodology (Gross Electrical Energy Availability / Population)

5. India - Intensity Trends Economic growth has been much faster; energy intensity and carbon intensity has been declining

6. Energy Intensity is amongst the lowest in the world • Japan, Denmark, UK and Brazil have lower energy intensity • Energy intensity is declining at about 1.5% per year

7. Energy Trends in India • Energy consumption in India is low • Per capita energy consumption is 530 kgoe; world average is 1770 kgoe. • Per capita electricity consumption is 704 kWh against world average of 2500 kWh • Increase in quality of life (HDI) requires increase in energy consumption • Energy demand is increasing due to rising incomes, accelerated industrialization, urbanization and population growth • 2003-04 572 Mtoe • 2016-17 : 842-916 Mtoe • 2026-27 : 1406-1561 Mtoe • The country is facing power shortages : • Peak shortage = 15.2 % , • Average shortage = 9 % • Meeting the increasing demand only through increases in supply may lead to: • Reduced energy security due to volatility in availability and prices of imported fuels • Adverse environmental impacts • Strain on balance of payments

8. Energy efficiency potential & outcome

9. Reduction in generation capacity due to energy efficiency interventions during the financial year 2007-08 & 2008-09 3.5 BU in 2007-08 and 6.5 BU during 2008-09 is saved 9

10. Electrical Energy Consumption and Conservation Potential Source: BEE/ NPC Study 2009

11. DSM-Potential & opportunities of Energy Savings 1-42

12. Design for Best DSM practices in India

13. Rationale for designing best DSM practices Almost all the States are not able to meet the electricity demand of the electrified areas Demand Side Management initiatives are still in nascent stage Existing initiatives by various utilities are either pilot programmes or demonstration projects Very little quality information available about the existing schemes No information available on post implementation project performance

14. Stakeholders in the design of DSM initiatives

15. Steps in the design of DSM projects

16. Role of Distribution Utilities Undertake load research studies and pursue DSM options in various sectors Institutional capacity - Create dedicated DSM cells within the utility to plan, implement and monitor DSM measures Consumer awareness Develop necessary infrastructure for implementation

17. Role of Electricity Regulatory commissions Direct distribution utilities to create DSM cells Direct distribution utilities to submit DSM Plans along with ARR/APR Proposals for next tariff period Develop a mechanism to enable utilities to recover the costs incurred in performing DSM related activities Develop guidelines for evaluating DSM options Develop guidelines / methodologies to be adopted for integrating DSM options with supply side options Develop suitable incentive mechanism which will enable sharing of benefits between the consumers and the utilities

18. Role of BEE/Ministry of Power National DSM Policy. Identification of sectors and end-uses suitable for DSM and help create appropriate programme design for ease of implementation. Identification of DSM measures or technologies within the identified end-use. Development of appropriate policy/ programme, financial, commercial and regulatory framework for implementation of identified DSM measures. Coordination with various agencies of Central and State Governments for implementation of DSM measures. Identification of capacity building requirements for implementation of such DSM programmes within stakeholders as well as implementing partners and make appropriate arrangements for their development and implementation. Arrange suitable training programmes for stakeholders for design and implementation of DSM programmes for high replicability. Create awareness among various stakeholders about energy conservation and need for DSM programmes. Provide necessary support to ERCs/ Utilities.

19. Role of State Governments Financially support the pilot programmes in various sectors to enable the market transformation Take necessary steps to enhance the effectiveness of SDAs in planning & implementing DSM measures in co-ordination with utilities Enable fiscal incentives to promote the use energy efficient appliances

20. Utility driven energy efficiency programmes

21. Utility driven DSM The utility driven measures to incentivise DSM are: • Tariff Reforms • Load Management Directives • Public awareness campaigns • Funding Options for DSM • Sector specific programmes in Municipalities/ Agriculture.

22. What is Demand Side Management • In the electricity industry, ‘demand side management’ (DSM) is used to refer to actions which change the demand on the electricity system, including: • Actions taken on the customer side of the electricity meter (the ‘demand side’); such as energy efficiency measures • Fuel switching, such as changing from electricity to gas for water heating • Distributed generation, such as stand by generators in office building or PV modules on rooftops; and • Pricing initiatives; including time of use and demand based tariffs

23. Peak Clipping Common DSM implementation strategies Conservation Load Building Valley Filling Load Shifting

24. Agricultural & Municipal DSM • Over 35% of electricity consumed by Agriculture and Municipal sector. • High inefficiencies in pumping system- targeted through a subsidy reduction approach; Business model linked to subsidy reduction being evolved. • Shelf of bankable DPRs to be prepared- to stimulate the market. • Baseline development, conducive regulatory regime and payment security mechanism being worked out. • Awareness and outreach to local and municipal bodies. • • Risk mitigation measures for encouraging PPP being evolved CDM benefits for the scheme being put in. • Ag DSM pilot projects started in 5 States : Maharashtra, Gujarat, Punjab, Rajasthan, Haryana, Rajasthan.

25. Findings of DPRs- 5 States

26. Cost Benefit Analysis-Country No. of agriculture connections in the country : 13.4 Million Total investment envisaged (INR crores) : 33470 Conservative estimate of Energy savings (in MU) : 27790 Avoided generation capacity (in MW) : 4910 Avoided power purchase (in MU) : 32694 Annual gain due to reduction in power purchase (INR crores) : 11443 Loss of sale to agricultural consumers (INR crores) : 1400 Annual gain due to reduction in subsidy from state govts. (INR crores) : 4200 Total annual gain to Discoms and state govts. (INR crores) : 14200 Simple payback period (Years) : 2.5

27. Electricity sales Utility / Discom Consumers • Annual payment from Special DSM fund to support capital expenditure • Sharing of savings to support operating expenses • Improved Collection efficiency • Reduced Losses and Peak Load • Sale of saved energy to other consumers Government / Regulatory Commission • Reduction in Subsidy payments • Policy Guidelines and Approvals • Inclusion in Annual Revenue Requirement Policy guidelines & Approvals Payment Security Package Regulator Monitoring Agency Farmer Third Party Testing Agreement ESCO/ Contractor • Free Energy Efficient Pump sets • Reduced Energy Bills • Free Maintenance • Quality Power Supply • Capital investment for Installation of new pumps • Design / Installation / Commissioning & R&M • Demonstrate the energy savings • Repair and Maintenance Hybrid Business Model

28. Flow chart of Hybrid business model – Ag DSM Solapur Initial Capital Cost (Rs. 706) All figures in Rs. lakhs Annual subsidy reduction of Rs. 53 lakhs State Govt. Payment from savings (30% - 71.62 lakhs) Annual Savings retained (70% - Rs 167 lakhs) ESCO/Pump Manufacturer MSEDCL Annual benefit from savings of 8.8 MU/annum (Rs. 238.73) Special DSM fund approved by state commission (Rs.706 lac) Annual support of 141.24 lakhs Operating Expenses for 5 years Avg. annual Interest Payment (Rs. 28) Payback – 4 years Avg Annual R&M (Rs. 34.60)

29. Municipal DSM • Over 150 Mu DSM projects prepared; ESCO contracting underway • DPRs for over 85 ULBs prepared • Online monitoring system for DPRs put in place • Awareness and capacity building of municipalities initiated

30. Market Transformation driven DSM • Lighting DSM • Reducing cost of efficient light • Awareness/ facilitation • Standards and Labelling • Mandating standards • Awareness/ outreach • Commercial Buildings • New codes for commercial buildings • Development of ESCO market for existing buildings • Agriculture DSM • Replacement of inefficient pumpsets with star-rated on PPP mode • Municipal DSM • Replacement of pumpsets with star rated on PPP mode • Replacement of street lighting on PPP mode • PAT Scheme • Issue of ESCerts • CDM • Programmatic approach • Issue of CERs

31. Energy Savings during 2008-09 Independent Agency verification Total for 2007-08 and 2008-09 : 2128 MW

32. Super Efficient Equipment/Appliances

33. Background • FOR in its meeting held on 15th January, 2010 gave in-principle go-ahead to BEE to prepare a detailed implementation plan for RMSDP • National Mission for Enhanced Energy Efficiency (NMEEE) calls for measures to accelerate the shift to energy efficient appliances in designated sectors through innovative measures to make the products more affordable by way of Market Transformation for Energy Efficiency (MTEE) • International effort for coordinated national activities underway – Super Efficient Appliances Deployment (SEAD) programme • A similar concept for promoting LED lights have been approved by National Manufacturing Competitiveness Council (NMCC) on 19.5.2010

34. Background - Consultations • BEE, in consultation with LBNL and PRAYAS Energy Group has prepared the detailed implementation plan • The issue of aggregating demand to promote super efficient ACs was discussed with the Room Airconditioners Manufacturing Association (RAMA) in May, 2010 – in-principle agreement of concept • In case of LEDs, detailed discussions with ELCOMA and other LED manufacturers have yielded positive results • RMSDP concept presented to Joint Secretary, MOP during the EE Global meeting in Washington DC on 10th May, 2010- appreciation and support from several governments • SEAD is an approved Task of IPEEC, with India as one of the participants.

35. Key objectives of RMSDP • Promote long term utility based DSM. • Reduce transaction costs by bundling future demand across several states/ regions - higher demand to stimulate reduction in prices - necessary to sustain the market in the long run. • Enhance the ease of administering the programme - simpler and more robust evaluation and monitoring, leading to greater transparency and accountability. • Enable design and deployment of appliances that are better suited to Indian conditions and accelerated adoption of superior technology. • Facilitate better coordination with the Standards and Labeling program and allow rapid ratcheting-up of energy performance standards. • Significantly accelerate the pace of market penetration of super efficient appliances in the market. • Enable India to take leadership position in designing, developing and implementing such a programme – eg. SEAD

36. Possible Impact Of RMSDP Could help save 38-40% of household energy consumption

37. RMSDP – 3 different interventions • I.Incentives for SEE • The incremental cost of SEE is within reasonable limit as compared to normal equipment. • The Standards and Labeling programme of BEE has initiated market • II. Direct Procurement by Utility • The incremental cost of SEE is many times higher that a similar in-efficient equipment (like LEDs vis-à-vis the incandescent bulbs). • The technical standards are in an evolutionary stage and the testing facilities are not adequate. • III. Project Based SEE Deployment • Encourage project development by utilities to promote DSM under a regulatory oversight • Provide a suitable payment security mechanism by leveraging the regulatory charge to encourage ESCOs.

38. Key barriers for promoting SEEs • High initial cost of SEEs • The cost of SEE is likely to be high- penetration in price sensitive market an issue – offtake of 5 STAR products is low as compared to others • Lack of availability of information – as in Standards and Labeling Programme – need a SEE Label • Lack of motivation amongst manufacturers • Manufacturers hesitant to introduce SEEs – lack of demand, and of willingness of consumers to pay • S&L Programme provides a time- table for achieving higher efficiencies – no incentive to accelerate the process

39. Leveraging energy savings Labeling of ‘super-efficient’ equipments (SEE) Determination of incentives based on peak load reduction Monitoring sale of SEE, verification and incentive payout

40. Financing DSM EE initiatives • Due to barriers such as untested outcomes, lack of clarity about baseline data and M & V protocol, lack of financing and huge demand – supply gap, DSM has not taken off. • While costs associated with DSM projects are usually insignificant; due to poor cash situation, utilities are finding it difficult to arrange necessary funding. • Following four major sources of finance are usually available to utilities: • Self Financing or Recovery of Cost through ARR; • Development of Special Funds; • Grants from Government Agencies; • International Financial Institutions / development agencies

41. Possible regulatory incentives • SERC may make suitable provisions in the Tariff Regulations to include DSM expenditure in the Annual Revenue Requirement and recover the same through tariffs. • SERC may develop suitable incentive mechanism for utility to earn additional return on equity for procurement of DSM Resources in place of supply side resources. Such incentive could be in the form of additional ROE (say 1%) for DSM/EE in subsidised categories like residential, municipal, agriculture, etc. • Higher incremental return on equity (say 2%) be provided to utility for investments in DSM programs in subsidizing categories like Commercial and Industrial Sector.

42. Possible regulatory incentives …contd • Alternative incentive mechanism in the form of savings in costly power purchase may be developed where it is possible to identify costly power purchase. • Utilities may be encouraged to develop peak load saving programs so that overall power purchase cost decreases. Utilities may be allowed to retain percentage of such saving. • Utilities may be encouraged to create their own Energy Service Companies (ESCO) as an unregulated activity and capture the business opportunities by implementation of DSM and EE projects in their licensed areas. • Utilities may be encouraged to design DSM/EE schemes where benefits are large enough to allow sharing of benefits as a way to reduce utility risk.

43. Building Blocks – Incentive and Procurement Interventions • In-principle approval of FOR – under consideration • Approval of funds required from GOI – under consideration • Selection of Equipments – to be taken up by BEE after FOR and GOI approvals • Technical specifications of Selected Equipments – Technical Committees to be formed for selected equipment having stakeholder participation • Calculating the amount to be recovered from ARR of utilities – to be taken up for each selected equipment based on the technical specifications decided by BEE – incentive or procurement price to be decided based on competitive bidding of aggregated demand by EESL – with adequate safeguards to ensure proper price discovery - draft bidding documents prepared

44. Building Blocks – Incentive and Procurement Interventions • Monitoring of RMSDP – EESL to monitor the sales of SEE in each of the participating state on behalf of FOR/ ERCs/ BEE –necessary draft contracts between EESL and the manufacturers prepared • Payment of Incentives/Procurement Costs – Based on the monitoring of sales of SEEs, EESL to propose payment of incentive (or cost) • State Specific Regulatory Approval - to be taken up on behalf of Utilities of participating states by EESL • Evaluation and Impact Analysis – Through an independent agency

45. Project based SEE deployment • Energy savings by EE project captured under regulatory oversight • Expenditure on project development, implementation, monitoring and evaluation to be allowed as pass through in ARR • Fixed annual payout to ESCO based on performance during the project lifecycle • Sharing of savings with Utility

46. Way forward • National Steering Committee to be constituted under DG, BEE with participation from all States participating in the programme. The NSC would be the overall coordinating body for the programme- EESL to provide the Secretariat services to the NSC • Technical Committee for two equipments (Fans and ACs) be constituted – with participation from all manufacturers, test labs, SDAs, other stakeholders – give recommendations for technical specification and label for SEE in a time bound manner – within 6 months • BEE to move the MOP for seeking approval of the financial resources required for the programme

47. Thank you Visit us at: www.bee.gov.in www.bee-india.nic.in