Perform Achieve and Trade (PAT) Mechanism

Tarun Kr Kushwaha, Project Manager

TUV SUD South Asia, New Delhi
Tel: +91-9560055124; E-mail: tarun.kushwaha@tuv-sud.in

Neeraj Gupta, Assistant Professor

Anand Engineering College
Keetham, Agra, UP
Tel: +91-9412176476; E-mail: neer1109@gmail.com

Abstract
PAT is a market based mechanism to enhance cost effectiveness of improvements in energy efficiency in energy-
intensive large industries and facilities, through certification of energy savings that could be traded. Thus the PAT
Mechanism would broadly cover the 9 sectors designated by Government of India under Energy Conservation Act,
2001. The 9 covered sectors are Fertilizer, Aluminium, Chlor-alkali, Railways, Cement, Iron and Steel, Pulp and
Paper, Textile, Power Generation Plant.
In this mechanism, individual target will be set for the industries by the Government of India to reduce their
Specific Energy Consumption (SEC). The overall objective of this scheme is to save 10mMtoe in the first PAT cycle.
Among the 23 mMTOE set as target from NMEEE, implementation of PAT scheme do focus on achieving 10
mMTOE by 2014. These targets can be achieved over a period of 3 years. The industries can achieve this target by
implementing best practices in their industries, change the old technology to the latest one, by using energy efficient
equipment and by any other suitable innovative method or they can use their R&D facilities to develop efficient
process. etc. Or any other initiatives.
Those industries that achieve and exceed the target would be issued Energy Saving Certificates (ESCerts) and those
industries who could not achieve the target have to either pay penalties or buy the ESCerts from the industries who
have secured ESCerts by exceeding the target assigned to them.
The PAT has been divided into 2 Phases, Design of the PAT framework and Implementation. Some of the steps
involved in PAT are:
Collection of Data from the Industries through baseline audit
Methodology for setting Specific Consumption targets for Each Industry;
Monitoring and Verification for target achieved;
Issuance of Energy Saving Certificates (ESCerts);
Trading Process for ESCerts;
Compliance and reconciliation process for ESCerts;
Sharing of Technology of Higher Efficient Industries to other industries means sharing of methodology of efficient
plant to inefficient plant.
The objective of this paper is to share the initiative taken by govt. of India to save energy and start trading of the
savings and achieve monitory benefits.

Introduction
As broadly brought out in the framework document on National Mission on Enhanced Energy Efficiency, the
Energy Conservation Act, 2001 has identified 15 large Energy Intensive Industries for energy efficiency
improvements. It empowers the Central Government, on the recommendations of the Bureau of Energy Efficiency
(BEE), to prescribe energy consumption norms and standards. In March, 2007, the Government notified 9 industrial
sectors, namely Aluminum, Cement, Chlor-Alkali, Pulp & Paper, Fertilizers, Power Generation Plant, Steel,
Railways as Designated Consumers (DCs). Designated Consumers are those consumers whose energy consumption
is more than the threshold value set by the govt. of India (Table-1) a. These industries have to appoint an energy
 Perform, Achieve and Trade (PAT) Mechanism

manager, file energy consumption returns every year and conduct mandatory energy audit. They also will have to
adhere to the energy consumption targets specified by the Government. The Perform Achieve and Trade Mechanism
is a scheme that is being designed to incentivize higher plant efficiencies and is applicable within India only.
The Union Cabinet approved the National Mission for Enhanced Energy Efficiency (NMEEE) on May 2010. The
Mission will usher in the four new initiatives to significantly scale up implementation of energy efficiency in India.
The initiatives are
1. Perform, Achieve and Trade (PAT)
2. Market Transformation for Energy Efficiency (MTEE) - Accelerating the shift to energy efficient
appliances in designated sectors through innovative measures to make the product more affordable
3. Energy Efficiency Financing Platform (EEFP) Creation of a mechanism that would help finance DSM
programs in all sectors by capturing future energy saving
4. Framework for Energy Efficient Economic Development (FEEED) Develop fiscal instruments to promote
energy efficiency
The flagship of the Mission is the Perform, Achieve and Trade (PAT) mechanism, which is a market-based
mechanism to make improvements in energy efficiency in energy-intensive large industries and facilities more cost-
effective by certification of energy savings that could be traded. The PAT mechanism is designed to facilitate the
DCs to not only achieve their legal obligations under the Energy Conservation Act, 2001, but also to provide them
with necessary market based incentives to overachieve the targets set for them.
The Design features of the mechanism are:
a) Methodology for establishing the baseline energy consumption
b) Methodology for target setting for each sector
c) The process of measurement and verification
d) The manner in which trading of the certificates can be encouraged, in particular instruments that could increase
liquidity in the system.
DCs account for 25% of the national gross domestic product (GDP) and about 45% of commercial energy use in
India. Since 2000, industrial GDP has been growing at 8.6% annually and energy use in industry at 5.8%. The lower
rate of growth of industrial energy use can be attributed to many reasons. It has been observed that in recent years,
industry has been choosing state-of-the-art technologies, which are more energy-efficient. Also, there have been
many in-house efforts made by the industry to become more energy-efficient. In order to further accelerate as well
as incentivize energy efficiency, the Perform Achieve and Trade (PAT) mechanism is being designed.
Table 1: Minimum annual energy consumption and estimated number of DCs in select sectors
Minimum annual energy
consumption for the DC No. of prob-
Sector (tonnes of oil equivalent) able DCs
Aluminium 7500 11
Cement 30000 83
Chlor-alkali 12000 20
Fertilizer 30000 23
Iron and steel 30000 101
Pulp and paper 30000 51
Railways (diesel loco 8
sheds and workshops)
Textiles 3000 128
Thermal power plants 30000 146

The Act requires the DCs to:

a) Furnish report of energy consumption to the Designated Authority of the State as well as to BEE
b) Designate or appoint an Energy Manager who will be in-charge of submission of annual energy
consumption returns of the Designated Agencies and BEE

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 Perform, Achieve and Trade (PAT) Mechanism

c) Purchase Energy Saving Certificates (ESCerts) for compliance of default. The Act has been amended to
enable this and allows such trading.
d) Monitoring and Verification of compliance by Designated Energy Auditors (DENA).
e) Excess achievement of the target set would entail issuance of ESCerts
f) Penalty for non-compliance being Rs. 10 lakhs ($ 22,222)and the value of non-compliance measured in
terms of the market value of tones of oil equivalent.
g) BEE to be the overall regulator and dispute resolution agency and Energy Efficiency Service Ltd.
(EESL) to be the process manager.
The amendment to the EC Act has been passed by the Lok Sabha during the Budget Session of Parliament and in
the Monsoon Session Rajya Sabha in 2010. This is the necessary step taken by govt. of India in order to implement
PAT.

PAT Framework
The PAT framework has been developed considering the legal requirement under EC Act, 2001, situation analysis
of designated consumers, national goal to be achieved by 2013-14 in terms of energy saving and sustainability of
the entire scheme. The PAT scheme is evolve in order to incentivize industry to achieve better energy efficiency
improvements with respect to their existing energy performance in a cost effective manner. The Energy Savings
Certificates (ESCerts) will be traded on special trading platforms to be created in the two power exchanges (IEX
and PXIL). The guiding principles for developing the PAT mechanism are Simplicity, Accountability,
Transparency, Predictability, Consistency, and Adaptability. The PAT framework includes the following elements:

1. Methodology for setting specific energy consumption (SEC) for each DC in the baseline year
2. Methodology for setting the target to reduce the Specific Energy Consumption (SEC) by the target year from
the baseline year.
3. The process to verify the SEC of each DC in the baseline year and in the target year by an accredited
verification agency
4. The process to issue energy savings certificates (ESCerts) to those DCs who achieve SEC lower than the
specified value
5. Trading of ESCerts
6. Compliance and reconciliation of ESCerts
7. Cross-sectoral use of ESCerts and their synergy with renewable energy certificates

The following sections provide explanations on implementation of PAT framework

Broad Umbrella of PAT Scheme

(a) Participation in the PAT scheme
There are about 563 numbers of DCs in these 8 sectors (Table 1). All these DCs except Railways will be required to
participate in the 1st cycle of PAT scheme.
In the next cycle(s) of PAT scheme (post 2013-14), the number of DCs participating in the PAT scheme may
increase as more number of sectors will be added up and more/less number of plants may be present in the 8
sectors.

(b) Phases of PAT scheme

The 1st cycle of PAT scheme would be operational during April 2011 to March 2014. The following basic phases
would be involved during this cycle
(i) Target Setting Phase
(ii) Target Achieve Phase
(iii) M&V Phase
(iv) Trading Phase
The milestone of 1st cycle scheme is shown in figure 1. The scheme is started from April 2010 but the trading may
start in 3nd year of 1st PAT cycle (2014).

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Rationale in selecting the 8 industrial sectors in the 1st cycle of the scheme
The DCs of these 8 sectors account for about 231 mMTOE (million metric tons of oil equivalent) of energy
consumption annually as per 2007-08 data which is about 54% of the total energy consumed in the country. The
breakdown of energy consumption and the average specific energy consumption of each sector is depicted in the
Table 2. Considering the quantum of energy consumption, the energy intensity, large bandwidth in energy usage
pattern, the above 8 sectors are selected in the 1st cycle of PAT scheme.

Tentative Milestones.
CYCLE # 1
Freezing of Base Line Target Start of
DC List Parameters Setting M&V

M&V Process

Apr10 Dec10 Mar 11 April 13 Mar14

Defining M&V Protocol

Creation of DENA

Creation of Trading Platform,

Traders & Trading Mechanism

Figure 1: Tentative Milestone

SL SECTOR ENERGY CONSUMPTION (mMTOE*)

1 Power (Thermal) 160.3

2 Iron & Steel 36.1
3 Cement 14.5
4 Fertilizers 12.0
5 Textile 4.5
6 Aluminium 2.4
7 Pulp & Paper 1.4

8 Chlor-Alkali 0.43

TOTAL 231.6
Table 2 : Approximate Energy Consumption by DCs in different sectors (2007 data)
*Million Metric Tons of Oil Equivalent

Basis of fixing an energy consumption norm of a Designated Consumer

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As per the Energy Conservation Act, central government may set different targets to the different designated
consumers. The central government can stipulate energy usage norms for designated consumers. BEE has earlier
conducted sector specific studies through various organizations to do the situation analysis. As per the studies, the
wide bandwidth of specific energy consumption (SEC) within an industrial sector is indicative of the large energy-
savings potential in the sector. The wide bandwidth is also a reflection of the differences in the energy-saving
possibilities amongst plants because of their varying vintage, production capacity, raw material quality, and
product-mix. Such wide variation also makes it difficult to specify a single benchmark SEC for the sector as a
whole: older plants will find the benchmark impossibly high if it is set at the level of newer plants; newer plants
will find it trivial if it is set at the level of older plants.

The broad bandwidth of SEC within a sector (see Table 3), and the inability of all plants to achieve a sectoral
benchmark SEC, suggests that SEC improvement norms need to be set for individual plants. These SEC
improvement targets can be based on the trend of energy consumption and energy-savings potential of the plants. In
general, the higher the energy efficiency (or the lower the SEC), the lower the energy-savings potential. Thus, it is
evident that it is not feasible to define a single norm/standard unless there is significant homogeneity amongst units
in a sector. The energy efficiency improvement targets would have to be almost unit specific. In March 2011,
each DC will be mandated to reduce its SEC by a fixed percentage, based on its current SEC (or baseline SEC)
within the sectoral bandwidth.
Table 3: SEC bandwidth in different sectors
Sector Range of SEC
a) Power plant 2300 3400 kcal / kwh
b) Fertilizer 5.86 9.11 Gcal/T of Urea
c) Cement 665 900 Kcal/Kg of Clinker (Thermal)
66 127 KWH/ T (Elect)
d) Integrated Steel 6.15 8.18 Gcal / tcs
e) Sponge Iron 4.4 7.6 Gcal / T (Thermal)
72 135 KWH/T (Elect)
f) Aluminum (Smelter) 15875 17083 KWH/T
Aluminium (Refinery) 3.28 4.12 MKcal / T of Alumina
g) Pulp & Paper 25.3 121 GJ/T
h) Textile 3000 16100 Kcal/kg (Thermal)
0.25 10 KWH/Kg (Elect)
i) Chlor-Alkali 2300 2600 kwh/ T of caustic soda
Establishment of Baseline SEC

Calculation for specific energy consumption of any industry

The SEC of an industry is calculated based on Gate-to-Gate concept with the following formula.
SEC = Total energy input to the plant boundary
Quantity of the Product
While calculating the total energy input to the plant, all energy sources will be converted to a single unit i.e. MTOE
(metric ton of oil equivalent) using standard engineering conversion formula. In this calculation, the following
elements will be considered:
(a) All forms of energy (Electricity, Solid fuel, Liquid fuel, Gaseous fuel, by-products used as fuel etc.) which are
actually consumed for production of output should be considered.
(b) Energy consumed in residential areas of the plant and for outside transportation system should not be
accounted.
(c) Energy used through renewable energy sources should not be accounted.
(d) Any energy consumed for major construction work would not be accounted for.

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Plant boundary/ Gate to Gate Concept

The plant boundary would be selected such that the total energy input and the above defined product output will be
fully captured. Typically it is the entire plant excluding, residential areas of the plant and transportation system.
Similarly, mining operations in case of Iron & Steel, Aluminium and Cement sector are not part of plant boundary.
Once the plant boundary has been fixed, the same boundary should be considered for entire PAT cycle. Ideally,
plant boundary should not change during the entire cycle.

Baseline SEC for the base year

The base line SEC would be calculated based on the following procedure:
(a) All DCs would submit the details of production and annual energy consumption since 2005-06 to 2009-10
through a notified form which is a mandatory as per EC Act, 2001.
(b) Few additional sector specific information like process technology, process flow, raw material, product mix etc.
would also be collected.
(c) The SEC calculated from step (a) would be the Reported SEC by the DC. As there may be various variable
factors which affect the energy consumption significantly, some Normalization Factors would be considered.
It is proposed to consider the capacity utilization as one of the most important parameter to have a
normalization factor. However, the rationale for developing the normalization factors is underway by suitable
agencies
(d) The reported SEC will be normalized:
Normalized SEC = f ( Reported SEC , Normalization factors)
(e) The baseline SEC will be estimated by taking the average normalized SEC of last 3 years i.e. 2007-8, 2008-9
and 2009-10.
(f) The base year will be defined as 2009-10.

Methodology for setting Specific Energy Consumption Targets

The target will be defined in the percentage form. It is the percentage reduction of SEC from baseline value to that
of target year.
The methodology for setting target SEC
for DCs will be such that the process is
transparent and has no room for
arbitrariness. The methodology will be
simple and easy to use and will be based
on SEC reduction on a gate-to-gate basis
and will be such as to achieve targeted
savings in the first cycle period of 3 years
(2011-2014), about reduction of 10 million
metric tons of oil equivalent (mMTOE). .
The guiding principles of the methodology
are as under:

(i) The reduction target for each plant will be based on an objective and transparent basis. These rules out
one-to-one negotiations for this purpose, which in any case would be undesirable, both from the viewpoint of
credibility and legal soundness, as well as from the viewpoint of information asymmetry. Consequently, first the
overall target reduction of 10 mMTOE will be divided amongst the sectors in proportion to their relative energy use
to ensure that the sectoral reduction is equal, in percentage terms, to the percentage of the energy consumption of all
covered plants in a sector to the overall energy consumption of all covered plants. The next level of allocation of
reduction target would correspond to the disaggregation of the sectoral reduction target to each plant within the
sector. Given the diversity of plant configurations within a sector, and of plant vintages, it is being proposed to
apply gate-to-gate approach for each plant and defining SEC targets according to the methodology defined below.

(ii) The target SEC will need to be achieved over a 3 year period commencing from 1st April, 2011. The
targeted improvement in energy efficiency will be a energy intensity targets (i.e. a percentage improvement over a
DCs baseline SEC).

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(iii) The methodology is based on the expectation that all DCs will reduce their SEC. The less energy-efficient
DCs within a sector will be required to achieve a greater reduction in their SEC than the more energy-efficient DCs.
The SEC targets will be determined with a statistical analysis followed by stakeholder consultation in each
designated sector.
(iv) In the case of thermal power plants and fertilizer plants, the targets for SEC decrease are to be aligned with
the existing tariff-setting context. In the case of thermal power plants, the Central Electricity Regulatory
Commission (CERC) and in the fertilizer sector, the Department of Fertilizers are in the process of integrating these
targets in their respective tariff setting exercise.
(v) Other energy-intensive industries and sectors such petroleum refineries, petrochemicals, gas
crackers/naphtha crackers, sugar, chemicals, port trusts, transport (industries and services), hydro power stations,
electricity transmission and distribution companies, and commercial buildings and establishments may be added to
the list of DCs and included in the PAT scheme in a phased manner.
(vi) Application of this methodology would entail the following allocations to various sectors, given that the
overall goal of energy consumption reduction under the PAT scheme is expected to be 10 mMTOE.
Table 4: Illustration of Apportionment of energy reduction target in different sectors
Apportioned
Energy Share of No. of Probable
SN Sector Energy
Consumption Consumption DCs
reduction
(mMTOE) (%) (mMTOE)
1 Power Plant (Thermal) 160.30 69.24% 6.69 146

2 Iron & Steel 36.08 15.58% 1.56 101

3 Cement 14.47 6.25% 0.60 83

4 Fertilizers 11.95 5.16% 0.51 23

5 Textile (Approximated) 4.50 1.94% 0.20 128

6 Aluminium 2.42 1.05% 0.11 11

7 Pulp & paper 1.38 0.60% 0.06 51

8 Chlor-Alkali 0.43 0.19% 0.02 20

Total 231.6 100.00% 10.00 563
[However, the above table may get revised with actual data of 2009-10 base line values]

Methodology for establishing the target in individual sector except Power Plant
As explained earlier, the sectoral targets will be disaggregated among the DCs taking into account historical energy
consumption (average of previous 3 year energy consumption), potential of energy saving in the DC, sustainability
of trading market and other related issues. The lowest % target would be given to the best performing plant where
as others will be assigned as per a relative increment based on the concept of relative SEC. However, the idea is to
arrive at a % value (of target) where the sectoral target would be achieved. The absolute energy saving at the end of
3 years will be estimated as:
Energy Saving = P base year ( SEC base year SEC target year)
Where P = Production Quantity
Therefore, if the best performing plant has an X % target, the targets for the other plants would be (Plant SEC / Best
SEC) times of X %. The X can be numerically calculated taking into account the total energy saving goal in the
target year.
If any sector has large variation in the consumption pattern like process technology and raw material, DCs will be
grouped (clusters) based on their similar characteristics and the above methodology will be applied to the clusters
target.

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Methodology for establishing the target for Power Plant

For Thermal Power Plants, the targets for SEC reduction will be set within current tariff setting context. The Central
Electricity Regulatory Commission (CERC) has been involved along with Central Electricity Authority (CEA) to
specify the criteria for target setting. The following methodology for target setting has been proposed.
The target settings for power stations are specified in terms of specific percentage of their present deviation of Net
Operating Heat Rate (Avg. of last 3 years) from the Net Design Heat Rate. The stations could be classified in to
various bands according to their present deviations of operating heat rate from design heat rate. Stations with higher
deviations will be given higher targets. The indicative classification and targets for various bands for the coal/lignite
based generating stations will be as under:-

Variation in Net Station Heat Rate Reduction Target for % % Reduction Target in Net Station
from Design Net Heat Rate deviation in the Net Station Heat Heat Rate
Rate
Upto 5% 10% 0.5
More than 5% and upto 10% 15% 0.75 to 1.5
More than 10% and upto 20% 20% 2.0 to 4.0
More than 20% 25% 5 and above

The factors affecting the heat rate of the stations and corrections for the following factors will be considered for the
target setting:
1. Quality of the fuel i.e. (coal)
2. Plant Load Factor (PLF)
Similar approach will be followed in case of gas/liquid fuel based generating stations. However the average plant
load factor of these stations is much lower than the coal based stations. Also the heat rate of the gas turbines is very
sensitive to the unit loading and ambient air conditions. Nonetheless, quality of gas supply does not vary widely. As
such, correction for fuel quality will not be required.
Correction factor to be considered for target setting for coal/lignite based power stations

The generating companies have no control over the quality of coal supplied, which varies from station to station. .
Imported coal is also being used and blended by large number of stations, which can lead to variations in coal
quality. Thus the methodology should provisions to take care of the impact of variations in coal quality on the target
prescribed. Average Ash and Moisture contents during the baseline period will be considered for corrections
and the correction factor will be calculated based on the boiler efficiency formula.

Measurement & Verification

The success of this scheme depends upon a cohesive and transparent Measurement & Verification (M&V) system.
A proper M&V system is being designed for this purpose.

M&V system in the base year

The reported data would get verified through Designated Energy Auditors (DENA) (See Annexure II. For
definition of DENA) who would be conducting a Baseline Energy Audit in the DCs. The baseline energy audit is
aimed at knowing the energy performance of various key equipments, energy balance, energy saving potential,
various energy conservation options implemented in the plant etc.
M&V in the target year
In principle, the M&V will be carried out by Designated Energy Auditors (DENA). The broad principles that the
DENA shall apply are:
a) Consistency: by applying uniform criteria to meet the requirements of the applicable approved methodology
throughout the crediting period(s), applying uniform criteria to expert judgments over time and among projects
b) Transparency: Information in the validation and verification reports shall be presented in an open, clear,
factual, neutral, and coherent manner based on documentary evidence.

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c) Impartiality, independence, and safeguards against conflicts of interest by remaining free of any commercial,
financial, or other processes that influence their judgment or jeopardize trust in their independence and
integrity. The designated energy auditors shall base their findings and conclusions upon objective evidence,
conduct all activities in connection with the validation and verification processes in accordance with the rules
and procedures laid down by BEE, and state their validation or verification activities, findings, and conclusions
in their reports truthfully and accurately.
d) Confidentiality: In accordance with the requirements of the PAT scheme, DENAs shall safeguard the
confidentiality of all information obtained or generated during validation or verification.
e) Validation of the PAT scheme: DENA shall convey the results of their assessment through a validation report
they shall submit, along with the supporting documents, to BEE as part of the request for compliance as a PAT
project activity. A positive recommendation shall be submitted only if the proposed project activity complies
with all the requirements stipulated under the PAT scheme. DENA shall take into consideration all evidence
that is likely to alter the recommendation about validation.
f) Verification/ Validation methods DENA shall apply standard auditing techniques to assess the correctness of
the information provided by the project DC, including but not limited to the following:
Assessment and verification that the implementation of the project activity and the steps taken to report
that the specific energy consumption comply with the PAT criteria and relevant guidelines are as
prescribed by BEE. This assessment shall involve a review of relevant document action as well as an on-
site assessment.
The verification by DENA of project documentation provided by the project DC shall be based upon both
quantitative and qualitative information on SEC. Quantitative information comprises the reported numbers
in the monitoring report submitted to the DENA. Qualitative information comprises information on
internal management controls, calculation procedures, procedures for transfer, frequency of SEC reports,
and review and internal audit of calculations and data.
Review of the PAT Assessment Document (PAD), including the monitoring plan and the corresponding
validation report, earlier verification reports, the methodology used for monitoring, relevant decisions,
clarifications, and guidance from BEE, any other information and references relevant to the project activity
that have a bearing on SEC (data on electricity generation or laboratory analysis, for example).
In addition to reviewing the monitoring documentation, the DENA shall confirm that the project DC has
complied with requests, if any, made during validation.

Accreditation / Selection of DENA

Accreditation of DENAs will be undertaken by BEE under appropriate rules/ regulations in this regard. The
designated energy auditor shall be a legal entity and that it can enter into contracts, make decisions independently,
and may be sued for failure to perform as agreed in the contract.
M&V in intermediate years
There would not be any M&V during the intermediate years i.e. between 2011 & 2014. However, each DC would
be required to submit the annual energy consumption through the Form-1 to BEE. Apart from this, one to two
energy audits by Accredited energy auditors will be conducted by DCs as per the provision of EC Act, 2001.
These would form a basis of M&V system in the target year.
Energy Saving Certificates & Trading
Energy Saving Certificate (ESCerts): Energy saving certificates (ESCerts) would be issuable to a DC who
achieves the target reduction from the baseline SEC during the stipulated period of 3 years. The ESCerts may be
issued and the trading may start within 3 years period as some of the DCs may achieve their target before 3 years
period. The number of e-certs which would be issued depends upon the quantum of energy saved at the target year.
The value of each e-scert would also be based on the crude oil price and to be controlled in a suitable mechanism.

Promotion of ESCerts
The following protocols are being designed to promote trading of ESCerts :
Verifying the SEC of each DC in the baseline year and in the target year by an accredited verification agency.
DENAs will be appointed by BEE to undertake this activity.

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Issuing energy savings certificates (ESCerts) to those DCs who exceed the target efficiency levels, that is who
manage an even lower SEC than stipulated. This would be quantified on the basis of the report by DENA and
provided to the DCs in the form of ESCerts.
Trading the ESCerts by DCs with other DCs who are unable to meet their target specific energy consumption
by their own actions. This trading can be carried out bilaterally between any two DCs (within or across the
designated sectors) or on special platforms for their trading created in power exchanges.
Ensuring compliance and organizing reconciliation of ESCerts will be undertaken by BEE in association with
the two Power Exchanges.
Fungibility of ESCerts is also being discussed with the proposed Renewable Energy Certificates (RECs) being
developed by the Ministry of New and Renewable Energy (MNRE). The conversion factor for enabling this
fungibility will be based on verifiable parameters such as energy consumption in kgOE.

Penalty for non-compliance of the target

DCs who would fail to achieve the target by the time frame will be subject to a penalty as per the EC Act. Penalty
for non-compliance is Rs. 10 lakhs (USD 22,222 and is also linked to the value of non-compliance measured in
terms of the market value of tones of oil equivalent.

Market design criteria of ESCerts trading

Trading mechanism design: The Energy Savings Certificates (ESCerts) will be traded on special trading platforms
to be created in the two power exchanges (IEX and PXIL). The exchanges would create an efficient and transparent
market for trading by taking measures to safeguard market integrity and enhance transparency in operations. The
exchanges will also maintain data on traded prices, traded volumes, and trends. Transfer agents or depositories shall
hold the ESCerts in electronic form and provide client services in relation to ESCerts.
To ensure liquidity and demand for ESCerts, bulk buying and bundling of ESCerts should be encouraged. Some of
the issues that are being discussed in order to enhance liquidity are:
a) Intermediate compliance timeframes to enhance market liquidity: Different approaches have been adopted in
schemes to balance issues such as environmental integrity, monitor progress against targets and cost burden.
Shorter compliance periods enhance market liquidity but tend to generally increase transaction costs and
potentially the market price of the certificates. Regular reporting allows for effective monitoring against targets
and early detection of any discrepancies. Penalties and incentives could be linked to intermediate compliance
targets.
b) Energy Allowances vs ESCerts: The size of certificates influences the prices and tradability. The smaller the
size of certificates, the higher the administration costs.
c) Banking of Certificates: The lifetime of ESCerts also affects its price; shorter lifetimes of certificates may
significantly distort market prices as the market will tend to respond to short term demand and supply issues.
Most international schemes allow for borrowing and/or banking of excess savings across compliance periods.
The use of banking is perceived as being essential in building investor confidence and market stability.
d) Auctions/ buy-back of ESCerts by the Government/ BEE to ensure stability of price as well as to provide price
signals upfront. The use of a market maker to enable this process is also important.
e) Exchange of Information between stakeholders related to Escert trading mechanism

The proposed ESCerts trading mechanism involves extensive information exchange between Designated
Consumers (DCs), State Designated Agencies (SDAs) (SDAs are the agencies designated by State Governments to
coordinate, regulate and enforce provision of EC Act within the state.), Designated Energy Auditors (DENAs),
Power Exchanges, Bureau of Energy Efficiency (BEE) and Central Registry on a regular basis. Timely and accurate
information exchange while maintaining confidentiality, transparency and security could be achieved through
adopting an online integrated information system for the program. Therefore, a central online integrated information
system (IIS) i.e. PAT-Net connecting all the DCs, SDAs, DENAs, Trading Exchanges, Central Registry and BEE is
suggested for this purpose.

The indicative process flow diagram involving all institutions/entities is illustrated in figure-2Figure 2Figure 2:
Indicative Process Flow for ESCerts-Trading Mechanism under PAT Scheme

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 Perform, Achieve and Trade (PAT) Mechanism

Every DC will be provided with individual access to PAT-Net so as to perform all the mandatory reporting
activities through this system. Self declaration of energy savings by Energy Manager of DC will be made through
the PAT-Net to BEE for consideration for issuance of ESCerts. BEE will assess such information for all the plants
received through PAD (PAT Assessment Document) from all the SDAs/DCs/DENA and upon satisfaction send
online instructions to Central Registry for issuance of ESCerts to DCs. The reported data by DC can be easily
gathered, monitored and analysed by BEE/SDAs to identify any anomalies . Once issued by the Central Registry,
the ESCerts credited to a DC could be viewed by the DC through PAT-Net. Communication between a Power
Exchange and Central Agency will also be performed through PAT-Net. Details such as list of registered DCs,
ESCerts available with each DC for trading, etc could be intimated to Trading Exchanges by the Central Registry to
accommodate trading. The Trading Exchanges could also intimate the trade details and obligations to all the
participating DCs, the Central Registry and if necessary to SDAs.

DENAs, once registered, could use the PAT-Net for reporting their mandatory organizational details like personnel
details, promoters etc to the Administrator. All the audit details conducted by DENAs could also be reported to the
Administrator and/or SDA through PAT-Net. Details such as the list of qualified Energy Auditors, Energy
Managers and DENAs along with their performance details could be maintained with PAT-Net. Constant
performance monitoring of the program by the Administrator, through parameters like total ESCerts issued &
traded, complying sectors or participants, market liquidity etc., will also be carried out. Delays at any point of the
process-chain will be identified and timely action will be taken by the Administrator/Regulator. Targets will be
issued to participants through PAT-Net. End-of-the-phase reconciliation will also be carried out. Penalties will be
imposed on non-compliant participants and monitored through PAT-Net. Automation of processes wherever
feasible will be carried out for seamless implementation of the proposed ESCerts program. A single PAT-Net
connecting all the stakeholders and participants ensures implementation of common standards at all the levels and
promotes consistency.

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 Perform, Achieve and Trade (PAT) Mechanism

Abbreviations

BEE Bureau of Energy Efficiency

DC Designated Consumer
DENA Designated Energy Auditor
ECA / EC Act Energy Conservation Act
ESCerts Energy Saving Certificate
MoP Ministry of Power
MTOE Metric Tonne of Oil Equivalent
mMTOE Million Metric Tonne of Oil Equivalent
PAT Perform Achieve and Trade
SEC Specific Energy Consumption

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 Perform, Achieve and Trade (PAT) Mechanism

Annexure-II

Designated Energy Auditor (DENA) Firm or Company or Associations

Qualification (Qualifications for accreditation of DENA is under process):

Should be a firm/company registered/incorporated in India.

Should have at least 3 certified energy auditors or organization/sectoral associations having more than 3 personnel
with more than 10 years of experience in particular designated energy intensive industrial sector (however,
association should have 3 certified energy auditors within stipulated time).

Should have conducted at least 3 energy audit, in the particular designated energy intensive industrial sector, in last
5 years.

Should have energy auditing instruments

Role of DENA:

DENA have been proposed for the various activities under PAT (Perform, Achieve & Trade) like

o Baseline data collection

o Baseline Energy Audit
o Monitoring & Verification
o And other PAT related activities

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