Director-General Ajay Mathur on new initiatives of Bureau of Energy Efficiency
Neha Sethi | May 13, 2010
Ajay Mathur, the director general of Bureau of Energy Efficiency (BEE), has been taking a number of initiatives to fulfill the mandate of his organisation. The bureau now plans to set up funds to help companies to get energy efficiency measures financed. Innovation centres are also being set up by the bureau to further the development of energy efficient products suited to Indian conditions. Neha Sethi of Governance Now spoke to Mathur on BEE's latest initiatives. Excerpts from the interview:
What are the amendments being proposed to the Energy Conservation Act 2001?
At the moment, the Energy Conservation Act gives us the powers to issue energy consumption norms for the most energy intensive industries, those which are called designated consumers in the Act, and they have to meet those norms. If they don’t, there is a flat penalty of Rs 10,000 and an additional Rs 1,000 for each day that they are not in compliance. But when the national mission on enhanced energy efficiency (NMEEE) was brought out as a part of the prime minister’s national action plan, it was said that we should create a market mechanism so that the energy intensive industries can be incentivised to save more energy through the trading of savings that have been certified. On the basis of this, we created the ‘perform, achieve and trade’ scheme, PAT. PAT’s goals are to provide energy consumption norms to the industry as it is under the Act. If they are able to do more than their savings, then we give the excess savings to them, excess is beyond the target, as energy savings certificates.
And other companies that find it very expensive to meet their own targets could buy these certificates for compliance. As far as we are concerned, we get the total savings we want. But whether it is done by company A or company B is immaterial and it is obviously done in a manner that is the most cost effective for the economy as a whole because the cheapest savings would be done.
The amendment to the Act, therefore, seeks that a company can meet its energy consumption norm either by its own actions or by buying energy savings certificates; so it enables the energy savings certificates. The second of the amendment is to look at the penalty. The penalty is flat now but the proposed penalty is that it would be related to the amount of the energy cost which is not met. For example, if a company had to reduce its energy use by 200 tons of oil equivalent but they did only 150 after doing whatever they have done and buying the certificates, 50 is still short. So the penalty would be equivalent to the cost of 50 tons of oil. It reflects the opportunity cost.
The other amendments are corrective amendments to bring consistency, to correct things.
Do you see any opposition from the industry on this?
No, industry is seeing this against what is in the Act now. Today in the Act, they don’t have an option but to meet the targets. Even if the penalty is very small, they don’t have an option. What the addition of the energy savings certificates does is that they can do more than their target, they get an opportunity to get the energy savings certificate and that becomes an additional revenue tool. So, industry tends to see this as an opportunity.
When we made this programme, we took industry on board. There was a committee which included ministry, experts and also industry and it included FICCI and CII and it’s the recommendations of that committee which have formed the programme.
What role would BEE play in the new green building rating system, GRIHA?
As far as the bureau is concerned, we have brought the energy conservation building code (ECBC), which is mandated by the Energy Conservation Act. Therefore, as far as energy is concerned, this becomes the base line. That means anybody who makes a building will have to make its energy efficiency better under the energy conservation building code. GRIHA is a rating system and it looks at use and energy.
Since buildings are a municipal subject under the Constitution, the implementation of anything to do with buildings has to be done at the level of municipalities, or where building is not under municipality, by the state. But the issuance of the regulation will be done by the bureau and then the states and municipalities would need to add it to their bye-laws. Each municipality, each state will have to do it. It’s a long haul. Many (are) doing it. Delhi, Haryana, Maharashtra, Uttarakhand, and Kolkatta are in the process.
Our role is that is that at least in the eight major urban areas where the largest growth of commercial buildings is occurring, we do it within the next two years. (Those are) Mumbai, Pune, Chennai, Hyderabad, Bangalore, Calcutta, Haryana, and Delhi and NCR.
What is the progress of this project?
It’s very advanced in some places. In Pune, we have had a lot of discussions with the municipality, with the mayor and the municipal commissioner. That’s the only city where I was sharing a table with both the municipal commissioner and the mayor. So there’s a commitment there. Maharashtra has already started issuing notifications that it plans to do an eco code. Delhi has already brought out the first part that says that government buildings will be ECBC compliant. (In) Haryana, they’ve already created a committee which is looking at it and we are also a part of it. Bangalore has also said that they will also do this. So in different cities, it is happening at different paces.
When do you see the voluntary products like LPG stove etc. becoming compulsorily star labeled products?
We move into mandatory compliance once we see that consumers are willing to pay the additional price. Last thing you want is a law which is inconvenient to the people. So in the case of refrigerators and air conditioners, we made it mandatory once we saw that 50 percent of the sales were for labeled products. That meant consumers were willing to pay more for energy efficient devices. It meant that manufacturers would redo for this purpose. Then we made it mandatory. So as we see this market transformation occurring, we would move to make it mandatory in the case of other things as well, cooking stoves and ceiling fans and everything else.
Have you set a time frame for it?
It depends on market transformation. The quicker you and I, in our next purchases, decide to buy energy efficient products, the quicker the mandatory labeling will come into place.
Can you tell us a little about the recent MoU you signed with HSBC?
This is part of a larger set of agreements that we are doing with financial institutions. The key is that we want financial institutions to lend for energy efficiency. Now supposing if I have an energy efficiency project, I go to a bank and ask them for a loan. If I have a great balance sheet, they’ll have no problem giving me a loan. But many times, these are start-up companies so the entire repayment depends on the repayment of the energy efficiency project. Banks are not familiar with it. They see that the risks are very high.
It is very difficult to have a large number of equipment which is collateral for this and therefore, there is a problem in energy efficiency project financing. You can always have balance sheet financing but project financing is difficult so what we are doing is developing a relationship with a number of financial institutions: PTC financial services, SIDBI, IREDA, now HSBC and move on to other PSUs in the future. And the goal of this is to be able to hold their hands in the first few transactions that they do.
Second is that all these banks share their experiences as far as energy efficiency is concerned because as they lend they know what the issues are, how to deal with them, so all of them are learning together. That shortens the learning period for the banking industry. So that’s why we created this energy efficiency financing platform and getting HSBC was important because it is a private sector bank. With public sector bank you can do directives. But a private sector banks implies that they are doing this because they see that this is a commercial market that is going to develop. It sends a strong signal in the way market energy efficiency is going to occur in the future.
What new do you see coming up under the enhanced energy efficiency mission under NAPCC?
The most important thing is that the framework document goes to the cabinet. So we are hoping that in this month or in the first half of next month, the cabinet would approve it.
Number two is the amendments to the EC Act to enable these things to happen.
Number three, we would also be in the relatively short term putting up two funds.
One is the partial risk guarantee fund, other is the venture fund. Banks are reluctant to give loans, so once they give a loan, they sign a back to back agreement with the partial risk guarantee fund. Then suppose they give a loan to a company and the company doesn’t repay, then 50 percent of the non-repayment can be paid out of the partial risk guarantee fund. This increases their confidence in lending so it will hopefully increase the lending. After they have done two to five transactions, they understand what the risks are and they price the debt capital accordingly and then there’s no need for a fund. This is again a transitional kind of a thing to help us get over it.
The venture capital fund is towards companies which will provide energy efficiency services on manufacturing energy efficiency codes. It is a venture fund where equity is put in, which is the equity of last resort. If there is an important project and it is not happening because of the lack of equity, then this fund would consider it. For example, if somebody wants to manufacture LEDs, somebody wants to manufacture very efficient, with an emphasis on efficient, fans or refrigerators, then you have difficulty getting equity because you don’t know whether it will sell. So this will close it. It will be structured so that it takes the loss before others.
Or for example, energy services companies. These are companies that will come in to make buildings efficient at their own cost. This business model is relatively new. They may not be able to attract enough equity. If the market grows very fast and there is less equity and more debt, then that’s about it. And then if there’s another project, then they are worried. This would put in some bridging equity and as the company grows, the equity is taken out.
These are transitional measures to help the market grow. All our efforts are towards creating markets for energy efficiency goods and services and markets which will be sustainable and efforts are to help us move in sustainable markets.
Money for these funds would be coming from the centre.
How do the energy efficient service companies work?
As the building becomes more efficient, its energy costs reduce. And suppose it reduces by 100, then some percent of it would be given to energy efficient companies for four or five years, whatever the agreement is and therefore it recovers its money plus profits.
Could you tell us a little about the innovation centres being set up by BEE?
As we look ahead, we are looking at the need for new technologies which provide the opportunity for being a lot more efficient from the technology that we have today. Where do they come from? Some of these come from global companies. And I can see somebody making a new, very efficient television set for India, even the same for the world. But if I look at a fan, I really can’t see a fan being made for sale in US market as well as for India. We have to look at the vast amount of energy that industry has to let go at low temperatures because they can’t use it. Low temperatures are 100-160 degree centigrade. These are areas in which we need new products, we need them to be very efficient, their performance has to be high but their cost also has to be such that people are willing to pay for it and therefore, what the innovation centres will do is that they will facilitate this process. The technology will still be developed by some private sector company or public sector company. What innovation centre does is brings together the potential manufacturers of such a technology and the potential buyers of such a technology to come to an agreement on the performance and price level.
Also if possible, in some cases, to take advance orders. If you produce something of this price and this performance, I will buy ten of them. Then next is that we have, as these guys develop the technology, if they need any technical assistance. For example, if they say, we are doing this but we need to get the services of professor X in Europe, we make that available. Or if they say, the product is not fitting needs of consumer as it is too bulky. And we say if you need a product designer, we can pay for that. Or, if you say price is too high, we need a supply chain, then we get a supply chain. So in terms of technical assistance, this is something else that the centre could help co-ordinate.
And the third thing is, as this (the product) comes into the market, there may be a need for policy or regulatory intervention. So you get together the policy makers and regulators. For example, if a product is developed which can produce electricity very efficiently and at affordable prices or near affordable prices, in rural locations. In order for these to come on board and be setup and be connected to the grid, you need electricity regulators. So bring them in beforehand. So that they know what is happening and they can pass appropriate orders for this to be put through.
So those are the kinds of things that an innovation centre would do. It would facilitate the process of the identification, of the development, and of the part of strengthening and creating markets for those products.
When do you see the first one coming?
We are looking at three or four products. One is waste heat recovery, which is the industry low temperature thing. Other is air conditioner because we see that as the single largest growth for energy demand in the country. And the third is the lighting. Right now these in the process of consultation with the industry and in the next month or the month after that, we would have a round table with communities of users, communities of developers, policymakers, and experts etc. to come and see how we do this. And also, international agencies who want to be involved in it (the roundtable).
Apart from the energy savings certificates, what are the other incentives for industry in the energy market?
The largest incentive for any industry, as far as energy efficiency is concerned, are lower energy bills. If you do that, at an environment where energy costs are increasing, and they continue to increase, this is the greatest incentive.
What are the five things that BEE is doing to promote clean energy?
1. Standards and labeling
2. Energy conservation building code for new, large commercial buildings.
3. Industrial energy efficiency, which is now being expanded with the use of the energy savings certificate.
4. Energy service companies
5. Demand site management, these are large programmes, typically driven by electricity distribution companies, but not always. Sometimes, we do it. You essentially bundle large markets. As far as the utility is concerned, the most expensive electricity is the one he buys at peak hours and especially during summers, where it might go to Rs 11-12. If, therefore, you and I do something as a consumer that our peak demand reduces, he doesn’t have to buy that expensive electricity, so he gains. And if he gains, he can afford to share those savings with you. That’s the concept of demand-site management. So therefore, we are working with regulators to see how this can be done.
So what do you think can be done?
For example, something which is on at all the times is refrigerators and we know that the pre-2002 refrigerators were very inefficient. So something that can be done is that if someone is willing to junk his/her pre-2002 refrigerator and buy a new refrigerator today, the utility gets a very minimum load difference. So he says ok I will give you this much flat discount of Rs 500 or Rs 1000 or whatever, some number, one time if you junk your old refrigerator and buy a five star refrigerator.
Or for fans, there are fans now available which use half as much energy as the other fans that we buy. But they are not picked up because they are expensive. Every house has a fan, and I am not exaggerating, we sell like 20 million fans a year. So if those fans were energy efficient, then the impact on the peak would be huge. So if you a give a Rs 100 for a energy efficient fan, that would help. So these are the things and programmes that we are working on.
When do you see it coming?
Very soon. I think we would start off the first one in the next six months. If you go and buy (an energy efficient fan), you get a discount of Rs 100. So that Rs 100 is either paid to you or it will be paid to the manufacturer. How this will be worked is being discussed. But the utility will pay this money.
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