Dr Ajar Mathur
- 01 December 2009
Growing energy demands in India will drive a need for greater generation capacity, as well as place an emphasis on continued and extended efforts to use currently generated energy more efficiently.
In August 2009 the Prime Minister of India, Mr. Manmohan Singh, approved 'in principle' detailed plans under the energy efficiency mission of the National Action Plan on Climate Change. The Climate Group spoke with the Director General of the Bureau of Energy Efficiency, Dr. Ajay Mathur, to find out more about the work happening on energy efficiency in India and what can be done to enhance these efforts.
What are some of the key focuses for the Bureau of Energy Efficiency?
Over the past 8 - 9 years energy efficiency in India has been increasing at a good trot, and energy intensity [has] declined by about 20-25%. This is due to a variety of reasons, including the fact that energy prices in India are fairly high both in absolute terms as well as in terms of the affordability relative to people's incomes.
Yet there are places where energy efficiency opportunities continue to exist largely because of a range of market failures: information, risks and split incentives. This has led the Government of India through the Energy Conservation Act and the Bureau of Energy Efficiency to launch several programmes.
Firstly we have introduced labels and standards for appliances which provide comparative information as well as energy use information for refrigerators, air conditioners and a range of other appliances. In 2008/09 78% of the refrigerators sold and nearly 50% of the air conditioners sold were labelled. We have now made it mandatory that from the 7th of January next year all refrigerators, air conditioners, distribution transformers and fluorescent tube lights that are sold in the country must have a label.
The second major programme that is ongoing relates to buildings - particularly 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 and right now we are building up the capacity of architects to be able to design according to these codes.
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.
The NAPCC outlines plans for the Energy Efficiency Mission to yield savings of 10,000 MW per year. How will the programs you mention above help meet this goal? How will this mission build on efficiency measures that India has already introduced?
As a result of all of these activities - labelling, buildings, industry and so on - in the past year, (2008-09), energy savings - and these were verified by a third party agency - were about 5 million tonnes oil equivalent. This is a little over one percent of our total fossil fuel consumption and the avoided electricity generation capacity was about 1200MW. What the National Mission on Energy Efficiency does is it builds on all of these programmes.
The first and I think flagship, programme that the national mission introduces is something that builds on our existing industry programme - this is called the Perform Achieve and Trade (PAT) system. And here, as I mentioned earlier, for 714 energy intensive industries we would be specifying energy consumption norms. But what the national mission does is it moves it a step further. It says that somebody able to do better than their target would have those excess savings provided to them as tradeable energy savings certificates. These could then be sold to other units unable to comply with their specific energy consumption norms.
Each of these units has a particular target for improvement in its specific energy consumption, which is in percentage terms. The greatest challenge is the wide bandwidth of energy efficiencies in almost every sector - some of the newer plants are amongst the most energy efficient in the world, but you also have older plants which are much less energy efficient. Therefore having one benchmark doesn't serve the purpose - we want all of them to become more energy efficient.
The Mission also has two other operational programmes: one is to help market transformation from less efficient appliances to more efficient appliances. An example of this is the programme [Bachat Lamp Yojana], we have to promote use of compact fluorescent lamps in households instead of incandescent, using the programmatic CDM to cover the price difference.
The other relates to promoting Energy Service Companies [ESCOs] which go in to for example, old buildings, to implement energy efficiency projects. They [ESCOs] pay for it themselves and in turn get paid from the energy savings that occur over a period of time. This is a new business model: our goal is that we will handhold the first few transactions but after that it should start working by itself.
Have any international experiences been taken into account when developing the PAT scheme?
There are the sulphur and nitrogen schemes in the US [and] there is the European trading scheme for carbon dioxide. We have analysed all of them to see what lessons can we draw, and those lessons have been incorporated into the design of this programme - for example, the importance of the early allocations.
Secondly, we would like the measurement and verification process to be relatively easy, and that's why we are using the specific energy consumption as an indicator. This is a gate-to-gate measurement system: total amount of energy that enters the gate [divided by ]total amount of product that leaves the gate. That's it. These are also easy to verify because you can check it against energy bills, you can check it against the excise that is paid for the product that goes out and so on.
The third thing that we have learned is that, as far as trading is concerned, it should be as transparent as possible in order for price discovery to occur. And therefore we are working with the two power exchanges in the country to set up trading platforms. Obviously people can go in for bilateral deals, but we would very much encourage that the deals are done through the trading platform so as to both enhance liquidity as well as to enable price discovery.
It has been reported that the Energy Efficiency Permit scheme will create a US$ 15 Billion market. What sort of financial flows do you expect to take place in this market?
The 15 Billion market is a update of an earlier study carried out by the Asia Development Bank of the kinds of opportunities that occur in the sectors that are covered by the various programmes of the national mission. In a very real sense, all of these investments are being made even today.
The key is that Instead of investing in conventional technology, we would like investments to occur in more efficient technology - and there is an incremental cost to this. Now, based on our understanding we find that the capital costs are 10 - 20% higher than in the base cases; and payback periods are of a 3-5 year timeframe. We don't feel that the absolute level of financing is a major issue. What is a major issue is the incremental financing, and more importantly, the comfort of financial institutions in lending for higher-cost technologies.
So, a key issue that still remains is risk. Now risk is a very interesting thing - it is dynamic with time. Today people are very uncomfortable with using a particular energy efficient technology which has just been developed, but a few years later, ten years later, when enough people have used it then suddenly the risk perception falls and people are willing to spend the extra money. 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. So far as at least these win-win situations are concerned, we need to carefully structure the incremental financing availability.
In order for all of these three programmes [market transformation, building, and industry] to occur, there is obviously a need for a financial supporting structure. So, the mission looks at creating a venture capital fund which could invest through equity in ESCOs, in companies that manufacture energy efficient products and so on.
We are also looking at a partial- risk guarantee mechanism through which banks who lend for energy efficiency are provided with some amount of comfort so that if they are not repaid, then part of their repayment would be met through the partial risk guarantee fund facility.
Finally, ahead of Copenhagen, how do you think global collaboration could action on energy efficiency, in India and internationally?
As far as India and the work of energy efficiency is concerned we see, first as I said, the need to accelerate the adoption of more efficient technologies. [For this there is the need for] global cooperation efforts for technologies that are already mature. Then there is the need for global cooperative efforts to tweak existing technology to developing country needs. And the third are global cooperation efforts for tomorrow's technologies. I think a successful deal will have to create global cooperation in all of these three areas.
Let me focus on the second [point], for...there is a problem: global technologies that are available cannot be applied as they are to Indian situations for a variety of reasons, including the fact that the raw material is different, people's ability to pay is different, and that the products - and I make a distinction between technologies and products - people need are different.
How can global cooperation help? We have put forward [a proposal of] a network of innovation centres. Each innovation centre is not so much new brick and mortar, but actually a coordination hub, so if we feel we need a particular technology to be tweaked - eg a particular type of decentralised power generation -the centre would bring together and coordinate the efforts of three different kinds of communities:
The first community is the community of buyers and sellers: Why? To get an idea of the price and performance targets at which they would be willing to buy these technologies.
The second is the community of regulators and policy makers who in a sense create these markets or enlarge these markets, who make it possible that such kinds of technological solutions can be bought; if there are any restrictions against them they are removed.
And the third is the people who actually develop these technologies. These will be private sector companies and they would be supported by research labs, by universities, by state of the art engineering knowledge from anywhere over the world. And therefore this innovation centre helps bring together all the technical knowledge, all the engineering knowledge, from different parts of the world to make it happen.
When these three communities come together it is my belief that the time between the technology development and its large scale adoption shrinks.
Dr Ajay Mathur is Director General of the Bureau of Energy Efficiency, and a member of the Prime Minister's Council on Climate Change. As Director General of BEE, Dr. Mathur coordinates the national energy efficiency programme, including the standards and labeling programme for equipment and appliances; the energy conservation building code; the industrial energy efficiency programme, and the DSM programmes in the buildings, lighting, and municipal sectors.
He has worked on energy research, financing, and implementation; he has headed the World Bank's Climate Change Team in Washington, DC, and the Energy Engineering Division of TERI in New Delhi; and has also been President of Suzlon Energy Limited.
Dr Mathur received the Outstanding Alumni Award of the University of Illinois in 2002 and is the coauthor of three books, lead author of several reports of the IPCC, and the joint winner of the Nobel Peace Prize in 2007.