March, 2010

Joint policy research on co-benefits in tackling

climate change and improving energy efficiency
in India Preliminary Report

Prepared for
The Institute for Global Environmental Strategies (IGES), Japan

www. t er i i n. or g The Energy and Resources Institute

Table of Contents


1. Introduction pg.3

2. Background to Co-benefits and EE pg.3

3. Review of National Policy Instruments pg.4

3.1. Perform Achieve and Trade (PAT) Scheme pg.4

3.2. Market Transformation for Energy Efficiency (MTEE) pg.5

3.3. Energy Efficiency Financing Platform (EEFP) pg.6

3.4. Framework for Energy-Efficient Economic Development (FEEED) pg.6

4. CDM Portfolio Review pg.8

4.1. Global and India CDM overview pg.8

4.2. EE CDM project analysis pg.9

4.3. CDM project trend analysis pg.12

4.4. Investment Analysis pg.14

4.5. Overview of Indian project categories pg.15

5. Barriers to Investment Pg.18

5.1. Design Aspects of the CDM Pg.18

5.2. Financial Barriers Pg.18

5.3. Limited technological expertise Pg. 19

5.4. Dispersed nature of the end-user Pg.19

6. Detailed Case Studies Pg.20

6.1. Case Study 1 Pg.20

6.2. Case Study 2 Pg.22

7. Policy Recommendations Pg.25

7.1. Potential Avenues of Future Research Pg.26

8. References: Pg.27

1. Introduction

It is well accepted that all nations face a daunting task in balancing their domestic
priorities and addressing the challenges posed by climate change. This is especially so
for developing nations who face a greater challenge to do so in a way that does not
compromise on their economic development. There is however an opportunity to jointly
address several of the main development drivers that nations face, as well as achieving
the mitigation of greenhouse gases (GHG). This focus on such co-benefits is
increasingly becoming a crucial avenue of enabling successful GHG mitigation
strategies that do not compromise on national economic development plans.

This report will focus on the specific co-benefit aspects of GHG mitigation and improving
energy efficiency (EE) in India, and area of significant and increasing national and
international priority. It will provide an overview of the existing EE improvement policies
within India, highlight recent trends in Clean Development Mechanism (CDM) investment
in India in addition to assessing specific CDM case studies, and ultimately make
recommendations towards areas of future research that would expedite and enhance EE
and GHG mitigations opportunities in India.


2. Background to Co-benefits and EE

The UNFCCC (2007) estimates that mitigation measures require increase in the global
investments and financial flows of the scale of USD 200-210 billion per annum in 2030.
UNFCCC (2008) further emphasizes that the current levels of financing will be
insufficient. Unavailability of sufficient financial resources is often seen as a hindrance to
undertake mitigation actions in developing countries given their overriding
developmental priorities. IPCC, 2007 points out that there are however, multiple drivers
(economic security, other environmental concerns, energy security, industrial
development, biodiversity conservation etc.) for actions that (explicitly or implicitly)
reduce emissions and such actions also produce multiple benefits (health, employment,
air quality, costs savings etc.). Such additional benefits are termed co-benefits.
Literature reveals that co-benefits if quantified or monetized can make up for substantial
costs of mitigation action/policies. Thus, there is a need to asses, quantify/monetize co-
benefits of climate change mitigation actions/policies and integrate them into devising
policies (TERI 2010).

The Government of India (GoI) is well aware of the enormous potential that exists of
adopting a co-benefits approach. Especially in the area of EE given the prominence that
enhanced energy efficiency has in the announced National Action Plan on Climate
Change (NAPCC). India being one the main participants within the CDM has also
identified it as a major vehicle for driving such co-benefits in addressing national energy
demand priorities while at the same time mitigating GHGs. A greater incorporation of EE
projects within the CDM as well as avenues to increase foreign investment and support
for such measures is significant both nationally and internationally.







3. Review of National Policy Instruments

The GoIs NAPCC, being the main document in which the nations climate change
agenda is set, has identified eight national missions in order to achieve its climate
change objectives. The proposed National Mission on Enhanced Energy Efficiency
(NMEEE) aims at targeting and adopting measures in tune with the development
objectives of the nation pertaining to the growing energy demand and simultaneously
generating benefits to mitigate the perils of climate change. The mission seeks to
achieve sustainable development by maintaining a delicate balance of the four Es
namely- Energy, Efficiency, Equity and Environment (BEE 2008). The Bureau of Energy
Efficiency (BEE) is primarily tasked to aid and advise in developing policies and
strategies for the missions in order to achieve the required energy efficiency through
various mechanisms including market based approaches. The responsibility to
operationalise the mission lies both with the Ministry of Power (MoP) and the BEE.

The NMEEE specifically makes reference to the co-benefits of addressing EE priorities
which relate to energy conservation and energy security, and the corollary that this has
on GHG mitigation. To this effect, several implementation strategies have been planned
in order to achieve a saving of 10,000 MW by the end of the 11
th
Five year plan in 2012
(GoI 2008).These are:

1. The Perform Achieve and Trade (PAT) energy certificate trading scheme.
2. The Market Transformation for Energy Efficiency (MTEE)
3. The Energy Efficiency Financing Platform (EEFP)
4. Framework for Energy-Efficient Economic Development (FEEED)

A brief overview of each will be provided, highlighting the key design features, major
challenges and proposed implementation pathways.


3.1. Perform Achieve and Trade (PAT) Scheme

The PAT is a mechanism designed to achieve the required energy efficiency in energy-
intensive large industries and facilities through certification of energy savings and
possible trading of these certificates. Energy consumption norms and standards are set
by the BEE for large energy intensive industries. Specific high energy intensive firms and
facilities are identified as Designated Consumers (DCs) within certain key sectors, who
are required to appoint an energy manager, file energy consumption returns every year
and conduct mandatory energy audits regularly. The key tasks in the PAT mechanism is
to set the methodology for deciding the Specific Energy Consumption (SEC) norms for
each designated consumers in the baseline year and in the targeted years, devise the
verification process for SEC, finding ways of issuing the Energy Savings Certificates,
suggesting the trading process for ESCerts in addition to the compliance and
reconciliation process for ESCerts and offer solutions for cross sectoral use of ESCerts
as well as their synergy with Renewable Energy Certificates (BEE 2008).

Energy improvement targets are set for multi year period through specific
methodologies. For thermal power plants and fertiliser plants, the energy efficiency
improvement targets are aligned with their tariff setting process. IN order to set targets
for future reductions in the SEC, a detailed baseline survey is required. BEE has

undertaken a study in this regard in consultation with the administrative ministries,
departments, agencies and the industry associations (BEE 2008).

The trading mechanisms for ESCerts involve trading of these certificates with other
designated consumers who are unable to meet their target-specific energy consumption
by their own actions or banking of these certificates for own use in future. The trading
can happen bilaterally between any two designated consumers (within or across the
designated sectors) or on special platforms for their trading which can be created. There
is also a possibility of exchange of ESCerts with renewable energy certificates (RECs).
The possible conflict between the PAT and Clean Development Mechanism (CDM) is
also visualised by the Ministry and has been identified as an area which would require
further detailed scrutiny (BEE 2008).

Proposed Energy Efficiency Services Limited (EESL), a joint Venture of Public Sector
Undertakings under MoP which deals exclusively with the implementation of energy
efficiency projects, is assigned all works related to the PAT other than the regulatory part
of setting ESCerts and dispute resolution (BEE 2008).


3.2. Market Transformation for Energy Efficiency (MTEE)

A major barrier in adopting energy efficient products and technologies is the higher initial
cost associated with such products. This first cost bias could be overcome through
mechanisms like CDM which could help users of the energy efficient products and
technologies to enjoy additional financial benefits. However the process of accruing
CDM benefits also involves high transaction costs limiting their access for small and/or
medium sized projects i.e. most of the EE/DSM projects. This bias could be extenuated
with the current thrust on DSM by the government, both as a part of the XI five year plan
as well as the focus on the NMEEE. There have been considerable efforts undertaken to
minimise the transaction costs involved in the process of accruing CDM benefits. One
such instance is the initiative taken in the form of Programmes of Activities (PoA) in
CDM where small DSM projects are aggregated under an umbrella to reduce the
transaction cost. BEE also has undertaken similar Programmes of Activities (PoA) for
efficient lighting in domestic sector (Bachat Lamp Yojana). Other such initiatives are
Municipal DSM (Mu DSM), Agriculture DSM (Ag DSM), SME Sector, Commercial
Buildings sector and Distribution Transformers where Programmes of Activities are
being undertaken in a gradual manner. Engagement of public sector is also considered
vital for aggregation of projects in order to minimise the transaction costs associated with
the CDM projects. There must be an efficient and transparent regulatory framework
which will help in accruing the benefits flowing from the CDM mechanisms to the small
and dispersed energy efficiency projects. In order to reap the CDM benefits in the power
and energy efficiency sector, five broad categories of projects are identified to develop
PoA. These projects seek to enhance the energy efficiency through various means like
renovation/retrofit, replacement, green-field, fuel switch and captive generation.
Leveraging CDM benefits to overcome the first cost bias associated with the energy
efficiency products and technologies is not without its limitations. The CDM market in
India is characterised by a number of issues such as a lack of carbon market,
uncertainty associated with the carbon market in post 2012 regime, lack of concerted
strategy, lack of methodologies, lack of incentives in the public sector, additionality and
traceability issue, absence of financial sector and a lack of designated operational
entities. A CDM Road Map is suggested to be adopted and issued from March 2010.

The Road Map aims at increasing the global CER market share by at least 10 % during
the first commitment period. In order to lower the transaction costs, the MTEE would
advocate that PoA must be put in place to enable aggregation of small projects with
dispersed nature and reap the CDM benefits (BEE 2008).


3.3. Energy Efficiency Financing Platform (EEFP)

The Energy Efficiency Financing Platform (EEFP) primarily seeks to gather financial
arrangements for energy efficiency projects on a reasonable and long-term basis. The
aim is to expand the financing platform for such projects by incorporating a variety of
financial institutions and public and private sector banks. It also seeks to generate
demand for energy efficient products, goods and services through enhancing the
awareness, public policy, and through facilitation by preparation of bankable projects
and markets. The EEFP also promotes ESCOs (Energy Service Company) and also
aims to set credible monitoring and verification protocols to capture energy savings (BEE
2008).

Development of ESCOs based energy markets require appropriate policy interventions,
implementation of demonstration projects, developing and standardising sustainable
contractual and legal documents and putting in place a sound financial mechanism. BEE
has taken some effort in this direction by implementing some demonstration projects in
Government buildings in order to promote market development. It also helped in
developing a Government supported standard methodology. Setting a standard
performance contract, arranging a financial mechanism for project funding, facilitating
the capacity building ESCOs and project owners are also being developed by the BEE
(BEE 2008).

The major challenge for financing of energy efficient projects are identifying the key
barriers for financing, designing of appropriate policy interventions to address such
barriers, standardising performance contracts and building up of capacities of banks and
financial institutions. Financing barriers consist of insufficient access to project financing
by the ESCOs due to poor balance sheets of the ESCOs, lack of collateral assets
possessed by ESCOs and/or the hesitation on part of the banks for comprehensive or
long term lending for energy efficiency projects. High transaction costs associated with
the small energy efficiency projects act as a major hindrance for the development of
such projects. Lack of awareness and existing information asymmetries among financial
institutions and banks also cause hardships for these energy efficiency projects to get
the required financial support from banks. Both consumers and financial institutions have
insufficient knowledge about the financial options and benefits of energy savings.
Institutional barriers in terms of not adequately recognising energy efficiency as an
important domain for financing also act as a roadblock for the greater financing and
adoption of energy efficiency projects (BEE 2008).


3.4. Framework for Energy-Efficient Economic Development (FEEED)

In order to create a well functioning energy efficiency market, it is advantageous to have
sound and suitable fiscal instruments in place. The FEEED mechanism upholds the
need and support of a set of critical fiscal financial parameters to accelerate the
transition to an energy efficient market. Such provisions consists of several parameters

such as provision of a risk guarantee for performance contracts, provision of venture
capital funding, encouragement of energy efficiency in public procurement based on life
cycle cost analysis, the need for regulatory incentives by Electricity Regulatory
Commissions for DSM projects and provision of other fiscal incentives in terms of tax
and duty concessions to attract investment (BEE 2008).

The financial arrangement of partial risk guarantee fund (PRGF) is a risk sharing
mechanism which offers to commercial banks to partially cover their risks against loans
sanctioned for energy efficiency projects to cover up risk perceptions associated with the
lending for new technologies and new business models. This risk coverage is in addition
to the support provided by the Credit Guarantee Trust of India (BEE 2008).

Venture capital for energy efficiency (VCFEE), another financial support mechanism
provided by the government provides an equity base for energy efficiency projects. This
helps ESCOs in providing capital availability and secures lending from financial
institutions (BEE 2008).

Central Public Sector Undertakings (CPSUs) are suggested to have a pertinent role in
accelerating the development of the energy efficient projects and support the
development of these projects in order to achieve the required market transformation.
CPSUs are suggested to take up energy efficiency projects on their own facilities. The
suggested guidelines consist of procurement of energy efficiency products, undertaking
energy audits of all the existing facilities and the adoption of energy conservation
building codes. Public sector entities in this way can take up leadership in implementing
energy efficient projects and can promote markets for energy efficient goods and
services at a wider scale (BEE 2008).

Utility driven DSM has already been taken up by at least one of the State Electricity
Regulatory Commission i.e. Maharashtra. Designing of sound regulatory framework for
such DSM measures can have significant implications for energy efficiency (BEE 2008).

Tax and duty sops by the government are also considered in the context of the nascent
state of energy efficient market development. It is suggested that there is need for
government intervention to stimulate and further the growth of the energy efficient
market through appropriate designing of fiscal instruments like taxes and duties.
However at present no tax or duty benefits are offered (BEE 2008).



4. CDM Portfolio Review

It is well accepted that the Clean Development Mechanism (CDM) would be a key
instrument in advancing the co-benefits of climate change mitigation and EE, especially
with respect to end-use demand side EE projects being in conjunction with national
plans on energy security. Presently EE has a very low percentage within the CDM
processes be it at the planned, registered or issuance stages. Analysis as provided by
the latest CD4CDM pipeline
1
provides several insights as to the potential that exists for
EE projects in India, the main barriers towards greater adoption and some of the likely
policy and regulatory areas that should be focused upon to enhance the CDM towards
the full potential of EE projects that exists for India.


4.1. Global and India CDM overview

India is one of the main active participants within the CDM with 1267 projects out of the
total 4969 projects in the pipeline, contributing just over one quarter of the total pipeline.
In terms of projects with issued CERs it ranks only second to China with one third of all
projects having issued CERs (approximately 20% in terms of actual kCERs issued). The
main highlights of India and the CDM are shown below in Table 1.


Projects kCERs
All Sectors
Total
Pipeline
Projects
Registered
Projects
(% of Total)
Issued
Projects
(% of Total)
Total
2012
kCERs
Registered 2012
kCERs
(% of Total)
Issued
kCERs
Global 4969 2062 (41%) 666 (13%) 2835607 1763243 (62%) 385663
India 1267 489 (39%) 217 (17%) 452543 246104 (54%) 76852
% India of
global 25% 24% 33% 16% 14% 20%
Asia and
Pacific 3897 1516 (39%) 457 (12%) 2292096 1386054 (60%) 321859
% Asia and
Pacific of
Global 78% 74% 69% 81% 79% 83%

Table 1 Global and Indian CDM statistics (all sectors) (CD4CDM - 1 March 2010)

Table 1 above shows that not only is India high in total number of projects within the
pipeline, but also has a relatively high percentage of projects that have successfully had
CERs issued (33% of global issued projects and 20% of kCERs issued to date). Indias
own percentage of issued and registered projects is essentially at parity with global
percentages with 39% and 17% for percentage registered and issued projects
respectively out of total pipeline, in comparison to 41% registered and 13% issued
globally.

The specific breakdown of the 1267 total Indian pipeline projects reveals further insights
as to what main sectors feature more prominently within the pipeline. As shown below in

1
The entiie CBN piocess of pioject inception, iegistiation, valiuation anu issuance will be iefeiieu to
as "the Pipeline."

Figure 1, it is clear that wind and biomass are the most prominent CDM sectors. EE
measures also feature significantly, primarily through the Industry and Own Generation
sub-categories.


EE supply side
2%
EE industry
9%
EE service
1%
Cement
1%
Fossil fuel switch
2%
Hydro
11%
Landfill gas
2%
Methane avoidance
4%
Reforestation
1%
EE own generation
10% HFCs
1%
Transport
1%
Wind
28%
Biomass energy
24%
EE households
2%


Figure 1 - Distribution of CDM projects in India by project types (all projects in pipeline).
(CD4CDM - 1 March 2010)

It is interesting to note that the majority of the projects in India have been unilateral in
nature with little external technology transfer taking place given the lack of participation
of developed country partners. A recent study showed that only 4 out of the 54 projects
registered in India in the first half of 2009 were bilateral (TERI 2009).


4.2. EE CDM project analysis

In order to determine the specific investment opportunities within the EE sector, a closer
analysis of Indias EE projects within the pipeline is needed. Globally there are 730 EE
projects in the pipeline, and of this India has 304 EE projects being the second largest
country for EE, only slightly behind Chinas 312 EE projects. Table 2 shows the specific
spread of EE projects within the pipeline for India and its comparison to global figures.
India has a sizeable portion of the global EE projects and kCERs at both registration and
issuance stages. Given that it has 53% of global registered EE projects and 66% of
global issued EE projects, warrants further scrutiny as to the types of projects that
seemingly have a high project success rate (at least purely in terms of abatement
through kCERS) within the EE sector. It is worth noting also that Indias own
percentages of registered and issued projects (and registered kCERs) are also slightly
higher than the global values, suggesting elements of successful CDM processes with
respect to GHG abatement.


EE Projects EE kCERs
All EE
Sectors only
Total
Pipeline
Projects
Registered
Projects
(% of Total)
Issued
Projects
(% of Total)
Total
2012
kCERs
Registered 2012
kCERs
(% of Total)
Issued
kCERs
Global 730 221 (30%) 82 (11%) 341396 129874 (38%) 17524
India 304 118 (39%) 54 (18%) 92708 44740 (48%) 9685
% India of
global 42% 53% 66% 27% 34% 55%

Table 2 Global and Indian CDM statistics (EE sectors) (CD4CDM - 1 March 2010)

In looking at the specific breakdown of the EE projects for India and globally it is clear
where some of the main opportunities exists that have the greatest for potential
acceleration of EE projects. The CDM categorizes EE into 6 sub-sectors; Supply side EE
comprising of Supply Side, Own Generation and Energy Distribution and Demand side
EE which includes Industry, Households and Service based projects. In reference to
Table 3 and Figure 2 below, the global breakdown of the EE sector shows a very strong
representation from Industry (19% of total pipeline) and Own generation (62% of total
pipeline) sectors. It is also interesting to note that these two sub-categories almost
exclusively account for the total amount of projects with issued kCERs. Energy
distribution, Households and Service have very low values at both the registered and
issued stages suggesting likely areas of under-utilization.


EE Projects EE kCERs
Global EE
Sectors
Total
Pipeline
Projects
Registered
Projects
(% of Total)
Issued
Projects
(% of Total)
Total
2012
kCERs
Registered 2012
kCERs
(% of Total)
Issued
kCERs
Total EE 730 221 (30%) 82 (11%) 341396 129874 (38%) 17524
Energy
distribution 15 2 (13%) 0 (0%) 15703 739 (5%) 0
EE
households 32 7 (22%) 0 (0%) 4233 967 (23%) 0
EE industry 141 56 (40%) 24 (17%) 20321 9456 (47%) 1240
EE own
generation 455 132 (29%) 50 (11%) 245831 108431 (44%) 15886
EE service 17 5 (29%) 1 (6%) 867 330 (38%) 4
EE supply
side 70 19 (27%) 7 (10%) 54442 9951 (18%) 395

Table 3 Global CDM statistics (EE subcategories) (CD4CDM - 1 March 2010)




Figure 2 Global EE project distribution (CD4CDM - 1 March 2010)


Of the 730 pipeline projects on EE, India has 304 of them with Table 4 and Figure 3
showing the specific breakdown of sub-categories for India.


EE Projects EE kCERs
India EE
Sectors
Total
Pipeline
Projects
Registered
Projects
(% of Total)
Issued
Projects
(% of Total)
Total
2012
kCERs
Registered 2012
kCERs
(% of Total)
Issued
kCERs
Total EE 304 118 (39%) 54 (18%) 92708 44740 (48%) 9685
Energy
distribution 2 0 (0%) 0 (0%) 246 0 (0%) 0
EE
households 20 4 (20%) 0 (0%) 1669 432 (26%) 0
EE industry 110 47 (43%) 21 (19%) 13914 6787 (49%) 827
EE own
generation 131 55 (42%) 27 (21%) 59189 33255 (56%) 8643
EE service 11 2 (18%) 1 (9%) 540 52 (10%) 4
EE supply
side 30 10 (33%) 5 (17%) 17150 4214 (25%) 211

Table 4 Indian CDM statistics (EE subcategories) (CD4CDM - 1 March 2010)





Figure 3 India EE project distribution (CD4CDM - 1 March 2010)

In many ways the global EE trends are even more pronounced in India. Once again Own
generation and Industry account for the major types of EE projects at all stages of the
pipeline, especially at the issuance level where it is essentially entirely dominated by
these two sub-categories. This shows the types of EE projects where the greatest
investment has and is likely to be in. Similarly to the global values, Energy distribution,
Households and Energy service are barely represented. This is highlighted with there
being no energy distribution projects registered or issued with kCERs to date (out of only
the 2 projects registered), clearly making it an underutilized area of project investment

In addition to recent national policy developments highlighting the importance of co-
benefits, the potential that exists within India for transmission and distribution energy
savings is also acknowledged, with estimates in the range of 20-25% of energy savings
to be had in the entire power supply chain (TERI 2010a). Such areas will most likely take
on growing prominence and represent one of the key areas in which additional focus and
investment could be channeled towards.


4.3. CDM project trend analysis

India has certainly been one of the main contributors to the CDM and for a long time led
the market in terms of the size of the share of projects that it has in the pipeline. While
China has since overtaken India in terms of newer projects entered into the pipeline,
overall, recent investment has show some decline within all regions due to the global
economic turndown. This is highlighted below in Figure 4.





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Figure 4 - New project in Asia in the pipeline each quarter (TERI 2009)

When reviewing the actual issuance of kCERS for India, Figure 5 below also suggests
that EE projects in general have stalled in terms of abatement achievements given that
the issuance rates have leveled-off in recent times when compared to a steady increase
across all other sector. This comparatively low issuance rate could be an influencing
factor for investment in specific EE projects in India and warrants a further investigation
as to what specific elements are impacting upon the issuance rates.

Cummulative kCERs
(All Registered Projects in India)
0
20000
40000
60000
80000
100000
28-May-
05
10-Oct-06 22-Feb-08 06-Jul-09 18-Nov-10
Issuance Date
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R
s

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s
u
e
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All Sectors
EE Only


Figure 5 India Project Issuances of kCERs (CD4CDM - 1 March 2010)



4.4. Investment Analysis

At first glance, globally the overall investments in EE have seen a reasonable increase in
registered projects as shown by Figure 6 below. This however is significantly biased by a
large increase in overall investments in EE Supply side projects in 2009. All other EE
sectors seemingly have seen a decline in investment, with Own generation and Supply
side initiatives having the largest values.


Global EE Investment
0
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1000
1500
2000
2500
3000
3500
2003 2004 2005 2006 2007 2008 2009 2010 2011
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Energy Distribution
EE Households
EE Industry
EE Own generation
EE Service
EE Supply side
Total EE


Figure 6 Global investment in EE (CD4CDM - 1 March 2010)


The investments to date for all registered projects in India are shown below in Table 5
and Figure 7. Here it can be seen that the main investment in India as based on
successfully registered projects has been in wind, fossil fuel switch, EE supply side and
fossil fuel projects. All of the remaining EE sectors, most notably industry with only 1% of
the total 6.6 billion $US invested, have comparatively low investment to date and again
one could infer such areas as being those where greater potential exists.


Sector Million $US
Biomass 491
Cement 13
EE Households 12
EE Industry 99
EE Own 279

Generation
EE Service 2
EE Supply side 1116
Fossil fuel switch 1261
Fugative 4
HFCs 15
Hydro 1032
Landfill 119
Methane
avoidance
16
N2O 4
Transport 54
Wind 2156
Total 6672

Table 5 India EE project investment (CD4CDM - 1 March 2010)


Investment in Indian resgistered CDM projects
Wind
33%
Transport
1%
Landfill
2%
Biomass
7%
EE Own
Generation
4%
EE Industry
1%
EE Supply side
17%
Hydro
15%
Fossil fuel switch
20%


Figure 7 India EE project investment distribution (CD4CDM - 1 March 2010)

Note: No investment in PFC and SF6, reforestation and solar projects.


4.5. Overview of Indian project categories

In reviewing the specific types of EE projects in India, supply side and own generation
projects relating to waste heat utilization, cogeneration, process optimization and

retrofits have relatively larger projects with respect to CERs. Table 6 below provides an
overview of all the registered CDM projects in India for all sectors.


Category No. of
Projects
Total
2012
ktCO2e
2012
ktCO2e
/project
Total
Investment
Million
$US
Average
Investment
$US/tCO2e
Average
CERs
Issuance
Delay
(months)
Afforestation 1 44 44 NA - 11.5
Biomass
energy
150 35193 235 490.6 14 19.7
Cement 13 13712 1055 13 1 25.7
EE
Households
4 432 108 11.6 27 8.2
EE industry 47 6787 144 99 15 20
EE own
generation
55 33255 605 279.2 8 16.8
EE service 2 52 26 1.5 29 7.7
EE supply side 10 4214 421 1115.8 265 17.1
Fossil fuel
switch
9 20996 2333 1261.3 60 13.6
Fugitive 3 720 240 4 6 19
HFCs 7 78185 11169 15.4 0.2 7.2
Hydro 60 15150 253 1032.1 68.1 14.1
Landfill gas 11 2721 247 119.1 43.8 8.4
Methane
avoidance
12 2091 174 16.1 7.7 15.6
N2O 3 5234 1745 3.6 0.7 3.5
PFCs and SF6 1 1267 1267 NA - 1.1
Reforestation 2 472 236 NA - 5.3
Solar 3 171 57 NA - 17.8
Transport 1 206 206 54.1 262.9 14.7
Wind 95 25205 265 2156 85.5 14.9

Note Investment information is not available for all projects in each category

Table 6 India EE project examples (CD4CDM - 1 March 2010)

When viewed in terms of the investments to date of total, registered and issued projects
in India, the most notable observations from Table 6 is that even despite the overarching
trends in financial investment, issuance of kCERs, and project size that can be
attributable to certain sub-sectors in India (i.e. most investment is in wind, most issuance
in EE is in Own generation, etc), there is considerable variance within each sector.
Issuances and financial investment, are naturally very project specific and dependant on
numerous influencing parameters.

The projects do vary in terms of size, scope and technical details however one of the
main commonalities that can be seen across all sectors is the relatively poor issuance
rates, which specifically translates to project failure, or project hold-up at the validation

stage following successful registration (hence the typically long project issuance delays
as shown above in Table 6). Industry feedback has generally attributed this to poor post
project monitoring practices and forms one of the main barriers and recommendations
for enhancing the uptake of EE CDM projects (TERI 2010a).

While Table 6 is unfortunately afflicted with a lack of complete investment data, it also
shows that EE supply side projects are comparatively more expensive (the most
expensive overall based on $US/tCO2e). One could infer that that is one of the main
reasons as why this category of projects is underutilized in India. Especially given that
there are similarly less expensive project options available that can yield much greater
abatements in the form of kCERs (with reference to the 2012 ktCO2e per project).



5. Barriers to Investment

There have been many investigations as to the main types of barriers that can impede
present and future successful CDM implementation in addition to overall technology
transfer and foreign investment in clean technology. Based on a variety of industry
based consultations, literature reviews and CDM pipeline analysis, the main types of
concerns are either directly related to the design of the CDM itself, or those that are
external in nature to the CDM processes.


5.1. Design Aspects of the CDM

Additionality is an important criteria that all projects must meet in order to ensure the
overall environmental integrity of scheme. While significant developments have been
made in streamlining the additionality assessments of projects it is often a main hurdle
for successful project registration, especially for EE projects given the difficulties that can
arise in determining baselines for end-use efficiency projects (Shrivastava & Upadhyaya
2008). Often industrial applications can struggle to successfully predict specific process
and non-routine equipment upgrades, a-typical plant operating conditions such as
unplanned shutdowns as well as significant overhauls of unit operations, all of which will
likely significantly effect baseline predictions. In addition, EE projects can often be a
victim of their own financial attractiveness, given that the rising cost of fossil fuel which is
typically offset in most EE projects, leads to relatively short pay-back periods. In terms of
the financial additionality and the investment barriers that need to be overcome, it has
often been cited that many of these projects would fail such an investment analysis. The
majority of projects also often fail in their post-project monitoring requirements and
hence do not progress past validation. In recent times project validators are becoming
increasingly stringent on the requirements of hosts to demonstrate their monitoring
capabilities at higher frequencies (TERI 2010a). While this is an essential component of
ensuring greater environmental integrity, the capacities of host organizations to sustain
the monitoring requirements is being challenged and is one of the main areas that will
require institutional and capacity building support.


5.2. Financial Barriers

At the initial stage, installing energy-efficient equipment, buildings, and appliances
requires more up front capital. The additional investment is compensated for by the
energy savings, however users are hesitant because of the lack of information on the
relative efficiency of products and services, lack of information on the cost effectiveness
of energy-efficient choices, and constraints in initial funding (Shrivastava & Upadhyaya
2008). Improved regulatory environments which offer consumer confidence and certainty
is often cited as one of the main influences on financing initial investments. Furthermore,
specific venture capital funds for clean technology that can offer certainty of paybacks in
markets and governments that otherwise lack the regulatory strength could also offer
possible avenues of countering such financial hurdles.






5.3. Limited technological expertise

The developing countries lack technological capacity for designing and manufacturing
energy-efficient products as well as for deploying the technologies and practices in the
marketplace. Technological asymmetry is also more prevalent in developing countries.
For instance, small and midsize enterprises (SMEs) generally have less access to
energy efficiency technologies than their publicly owned counterparts and large private
or multinational companies (Shrivastava & Upadhyaya 2008). This is especially
prevalent in most of the EE sectors in India, with SMEs struggling to be incorporated in
national and international co-benefits approaches. The recent NMEEE makes specific
reference to the importance of tapping the vast potential that India has in GHG mitigation
through EE CDM projects of such SMEs, and it will likely take on an increased priority.


5.4. Dispersed nature of the end-user

Many of the financial, technical, and informational barriers for energy efficiency
improvement come from its dispersed nature. The widespread geographical locations,
multiplicity of small end-users, and differing technological and knowledge levels of end-
users make the management of activities difficult and costly. Command-and-control
government policies work best in large and aggregated energy consumers; they find it
difficult to reach the dispersed consumers effectively (Shrivastava & Upadhyaya 2008).
For EE in India this again is especially prevalent given the potential that exists for
incorporating such SMEs operations that essentially are not of a single point source and
would require some form of standardized approach.



6. Detailed Case Studies

Following a high level review of all of the registered EE CDM projects in India two case
studies are highlighted below based on their overall assessment against specific good
practice criteria. In addition to the successful issuance of CERs, the project
demonstrated unique and novel EE measures which were additional and achieved
significant GHG reductions, while entailing good levels of economic viability and project
replicability.


6.1. Case Study 1


Title
Reduction in Steam Consumption through Revamping of Ammonia Plant of Indian
Farmers Fertiliser Cooperative Ltd (IFFCO) plants (UNFCCC 2006)

Location:

i) Site 1- Kalol Plant, City-Gandhinagar, Gujarat
ii) Site 2- Phulpur Plant, City-Allahabad, Uttar Pradesh
iii) Site 3- Aonla Plant, City-Bareilly, Uttar Pradesh

Project Start Date: November 2004
Project End Date: November 2019 (Expected 15 years of operational life)

Host Sector: Private Entity IFFCO

Project Objective:
The upgrade of existing plant equipment through the use of new technology alternatives,
retrofits, new design and waste heat recovery in order to reduce the Specific Steam
Consumption Ratio (SSCR) of the Ammonia plant of Urea fertilizer units

Project Description
Following process profile analysis of their Ammonia Urea fertilizer operations, IFFCO
plans to upgrade their existing plants in three separate site locations with specific energy
saving process technologies. 8 specific technologies are to be employed throughout the
three plants that ultimately will contribute to a reduction in Specific Steam Consumption
Ratio (SSCR), thereby reducing overall plant specific steam consumption of the plant,
hence resulting in a reduction in the fossil fuel requirement which is fed to the boilers.

The 8 technological upgrades being employed include;

1. New Low Temperature (LT) shift guard, Boiler Feed Water (BFW) pre-heater:
Introduction of a new shift guard before the low-temperature shift converter can reduce
carbon-monoxide slippage from the section. This results in additional ammonia
production. With the Ammonia production being kept constant a corresponding reduction
in the feed (fossil fuel) results. Furthermore, the pressure drop across the converter can
be further reduced by concurrently installing a new boiler feedwater pre-heater. This
systems is to be employed in Aonla unit I & II , Phulpur unit I & II, and Kalol Plant.


2. Installation of S-50 radial flow Synthesis Converter and High Pressure (HP) /
Medium Pressure (MP) Boiler: The new S-50 converter reduces the recycled load of
synthesis gas on the compressor, thereby reducing the steam requirements for
compressor operations. Units Aonla-I, Aonla-II and Phulpur-II, would also see a new
waste heat HP boiler installed to capture reaction heat from the converter. Similarly in
Phulpur-I and Kalol , a new MP waste heat boiler would be installed downstream of S-50
converter for waste heat utilisation.

3. Installation of Make-up Gas Chiller: Installation of new chiller units at Aonla unit I & II,
Phulpur unit I & II, prior to the gas compressor will cool make-up gas to 6-80C. The
lower inlet temperature results in greater volumetric efficiency of the compressor, which
in turn leads to a reduction in steam consumption in the gas compressor.

4. Synthesis Gas Compressor LP & HP case Internal Replacement:
The compression efficiency in both the LP and HP gas compressors at Kalol Plant and
Phulpur Unit - I will be improved by replacing the LP and HP shell internals with more
modern components.

5. Drying of Make-up Gas and Synthesis Loop Re-piping: Re-piping of the synthesis loop
at Phulpur unit I & Kalol Plant would enable make-up gas to be fed directly to the
converter thereby avoiding complete chilling of the entire gas stream and reducing the
energy consumption.

6. Complete revamping of CO2 removal system to a modern two-stage GV process: The
installation of a new LP stripper in the CO2 absorption process at Aonla-I would allow for
regenerative flashing instead of steam heating, thus reducing the steam load.

7. Complete revamping of CO2 removal system to a modern 2-stage GV process: As per
Item 6 above, but installed at Phulpur I with additional CO2 blower on LP stripper
outlet.

8. Revamping of CO2 removal system to 2-stage a-MDEA process; A new lean and
semi lean absorption unit at Kalol plant with the inclusion of LP and HP flash vessels
enabling regenerative flashing instead of steam heating, thus reducing the steam load.

The energy efficient technologies have been developed by both IFFCO and M/s Haldor
Topse (HTAS) Denmark, a world leader in ammonia plant technology. M/s HTAS will
mainly be in charge of the design engineering, procurement services, equipment
inspections, expediting as well as providing oversight and assistance during the
construction, pre-commissioning and commissioning of the critical components. M/s
Projects & Development India Ltd. (PDIL)- will be the Indian Engineering Consultant for
the project
activity.

GHG Abatement
2,953,080 tCO2-equivalent over 10 years

Socio-Economic Aspects
Through use of efficient ammonia plant technology, the project reduces process steam
consumption and thereby the fossil fuel consumption (coal, natural gas , naphtha , Low
Sulphur Heavy Stock (LSHS)) .


Despite the variety of the fuel mix used, the Government of Indias Urea Pricing Policy
provides for reimbursement of implementation cost of such energy efficiency measures
on the basis of the basic cost of cheapest fuel used (cost excluding tax and
transportation) instead of cost of actual fuel saved in that particular plant.

Marginal increases in semi-skilled labor, skilled labor and professional employment
would result due to the project activity in addition to providing business opportunities for
local supplier and contractors, thereby having a positive impact on the local economy
and well-being of the community.

There also exists the benefit of capacity building of local employees in the utilization and
familiarization with the newer technologies. As well, the greater promotion of such
efficiencies as best practice within the fertilizer sector.

Methodology
Baseline methodology for steam optimization systems
Reference: AM0018, version 01 6th December 2004

Economic Data
Capital costs ~ US$ 90 million
Financing scheme - No public funding is available from Annex I parties

Project Developer
Indian Farmers Fertiliser Cooperative Ltd. (IFFCO)

Host Organization
As per project developer above.

Technology Provider
M/s Haldor Topse (HTAS) Denmark


6.2. Case Study 2


Title
Generation of power from process waste heat at Hi-Tech Carbon, Tamil Nadu (UNFCCC
2009)

Location:
HTC, SIPCOT industrial estate, Gummidipoondi about 45 km from Chennai
District: Thiruvallur.
P.O. Gummidipoondi

Project Start Date: 17 July 2003
Project End Date: 2023

Host Sector: Hi Tech Carbon (HTC) (Private entity)


Project Objective: The projects aims to generate electric power from low calorific value
waste gas coming from Carbon Black manufacturing process which is exported to grid,
after meeting captive requirements.

Project Description
Hi-Tech Carbon (HTC) is a unit of Aditya Birla Nuvo Ltd., a flagship company in the fold
of Aditya Birla Group of companies. HTC manufacturs Carbon Black from highly
aromatic petroleum oils, which are thermally cracked at high temperature in specially
designed reactors. HTC has three lines of carbon black production namely line 1, 2 and
3. Carbon Black product is produced from petroleum fraction called Carbon Black Feed
Stock (CBFS). CBFS stored in tank is pumped to the reactor where thermal cracking
takes place. The thermal cracking process leads to formation of two products. One is the
solid product, fine in size which comes out as smoke and the other one is waste gas.
Waste gas from the reactor that goes to boiler through main bag filter at 280-300C is of
significant volumes. Smoke enters through the bottom of filter bags and Carbon Black
particles are deposited inside the bags. Low calorific value waste gas separated from
accompanying carbon black particles in bag filter section are collected in the waste gas
header.

In the project activity, low calorific value waste gas coming out of new carbon black lines
(line 2 & 3 of capacities 55,000 & 60,000 Tonnes/year respectively) is utilized in 52 and
70 TPH (B 2 & B 3) boilers respectively, specially designed to generate high pressure
steam. This high pressure steam in turn drives the turbo-generators (TG`s) of capacity 8
MW and 17.2 MW (TG 3 & 4 respectively) to generate power. The project activity
displaces electricity from grid connected fossil fuel based power plants connected to
southern regional grid. Thereby, the project activity reduces approximately 87,305
tCO2e/year.

GHG Abatement
873,050 tCO2-equivalent over 10 years

Socio-Economic Aspects
The project would have below mentioned benefits:

I. Social Benefits
- The project activity creates direct and indirect employment opportunities
for local people during construction and operation of the project activity.

II. Economic Benefits:
- The project activity has enhanced business opportunities for consultants,
suppliers, manufacturers, contractors, transporters, hotels and taxi operators
etc during implementation phase.
- The project activity would reduce the fossil fuel requirement by displacing
electricity consumption from the fossil fuel based power plant connected to
the grid.
III. Environmental Benefits:
- The project activity generates power from waste heat. The project activity
saves power from fossil fuels and thereby avoids the GHG emissions.
Further, by recovering waste heat, the project activity avoids the thermal
pollution in the vicinity of plant location.
IV. Technological Benefits:

- The project activity recovers low heat value from waste gases to generate
steam, which further drives high efficiency multi-stage impulse type steam
turbine to generate power. The project activity adopts an advanced and
environmentally safe technology for long term benefits like multistage impulse
steam turbine etc., There is a progressive technological improvement in
turbine technology by reducing specific steam consumption


Methodology
The approved consolidated methodology Consolidated baseline methodology for GHG
emission reductions for waste gas or waste heat or waste pressure based energy
system is applicable for the project activity.

Reference: UNFCCC Approved consolidated baseline methodology ACM0012 / Version
01, Sectoral Scope: 01 & 04.

Economic Data
Capital costs: 706 million USD (in addition book depreciation for buildings of 3.34% and
book depreciation for plant and machinery of 5.28% needs to be accounted )

Financing scheme: No public funding from Parties included in Annex I of the
Convention is involved in the project activity

Project Developer
Hi Tech Carbon

Host Organization
As per Project Developer above.

Technology Provider
Thermax, Triveni, TDPS



7. Policy Recommendations

In light of the recent policy developments within India relating to the NMEEE, specifically
the focus on EE as a means of both ensuring energy supply as well mitigating GHG
emissions, assessing the current CDM portfolio investments does identify several
potential priority areas of policy development that could be focused on to significantly
increase the current investment and project uptake of EE initiatives. These are
summarized below.

1. Transmission and Distribution projects
From a purely empirical standpoint, it is clear that the energy distribution is a
highly underutilized sector and given the importance of ensuring adequate
energy supply for all citizens, represents a key area that should be developed. In
addition, transmission and distribution upgrades can be combined with
interconnectivity and DSM projects which also involve renewable energy
interfacing, thereby enabling even greater GHG offsets. In order to facilitate this
there should be a focus on developing specific methodologies that suit the Indian
condition, utilizing standardized benchmarks where possible. In addition, there is
a sever lack of metering capability in certain rural parts of the country which
would be a significant hurdle in developing accurate project baselines (TERI
2010a). Hence specific attention should be brought to developing accurate
metering capabilities with which to establish such baselines.

2. Sectoral Focus
The 9 high energy sectors under the PAT scheme should be focused on as likely
sectors which will see an increased push for EE projects with the advent of the
scheme. The scheme should ultimately serve as a platform for the identification
of specific facilities and likely technologies required and where possible it should
be investigated if the energy savings of the scheme as quantified by the ESCerts,
could be correlated and related to CDM GHG methodologies.

3. Programmatic CDM
Programmatic CDM projects PoA are likely to be a major mechanism in
advancing EE measures within the country given the large proportion of SMEs
across all sectors that are not incorporated with the CDM processes nor the initial
proposed stages of the PAT scheme. Countering the distributed nature of much
of the countries remaining energy based facilities will likely form the basis of the
countrys next phase of greater CDM project implementation in line with the
NMEEEs MTEE CDM roadmap. It is likely that in order to facilitate this, specific
sectoral standardized benchmarks across the SMEs will need to be developed.

4. Improving kCER Issuances
In order to ensure greater project success during the validation stage so that
there is a greater issuance of kCERs, an emphasis must be placed on
developing the monitoring capability of projects hosts such that it can be
conducted in a sustained manner. This could be done in conjunction with the
governments mandatory energy audit requirements, which should also where
possible be extended to other sectors.

5. Promotion of ESCOs

A focus on promoting greater bilateral activity could involve increasing the use of
ESCOs with the credibility of ESCOs possibly being increased by selecting them
through a competitive bidding process, in addition to the government accrediting
these ESCOs through rating agencies like CRISIL and ICRA. So far 35 ESCOs
have been accredited and graded in terms of their operational, financial and
technical capabilities. For achieving price transparency, standardized
performance contracts will be designed to capture future energy savings and
performance guarantees (BEE 2008).

6. Monitoring and GHG accounting Standards
There should be an over arching focus in developing the institutional capacity of
standardized GHG accounting practices with, where possible, accurate
inventorisation in order to help facilitate a greater inclusion of the underutilized
EE sectors as well as the SMEs by acquiring adequate data for simple and
accurate baseline standardizations.

7. Creating Enabling Environments for Foreign Investments
Improving the overall regulatory environment for foreign investment could also be
prioritized through specific incentive based mechanism such as tax credits,
discounted import and procurement benefits, facilitated in-country partnerships
as well as government enforced IP protection assurances. Such provisions would
help foster a greater enabling environment for not only increased bilateral CDM
participation, but also for accelerated technology transfer.


7.1. Potential Avenues of Future Research

In light of the above policy recommendation, suggested avenues of future international
collaborative research could include but are not limited to:

- Conducting a more detailed investigation as to why projects are being
rejected and the delays of kCERs issuances in the identified sectors.

- A study of the likely priority technologies that would be identified by the 9
designated emitter sectors in the PAT scheme.

- Determining specific energy transmission and distribution projects and
determining the methodological requirements.

- Identifying the types of PoA projects that could encapsulate the SMEs and
developing the required methodologies.

- Investigating capacity building opportunities for GHG monitoring and
accounting practices that could be enhanced through the PAT schemes
mandatory energy reporting requirements.


8. References:

BEE 2008, National Mission on Enhanced Energy Efficiency, Bureau of Energy
Efficiency, Government of India, New Delhi, India.

CD4CDM 2010, CDM Pipeline Overview (1 March 2010), UNEP Risoe Centre,
Denmark, Available online: http://www.cd4cdm.org/

GoI 2009, National Action Plan on Climate Change, Government of India, New Delhi,
India, Available online: http://pmindia.nic.in/Pg01-52.pdf

Seres & Haites, 2008. Analysis of Technology Transfer in CDM Projects, UNFCCC.

Shrivastava & Upadhyaya 2008, Promotion of demand side energy efficiency: Evaluation
of the Clean Development Mechanism, Mistras Climate Policy Research Program
Annual Report 2008, The Energy and Resources Institute, New Delhi, India.

TERI 2009, Sustainable Energy Technology at Work Country Profile for India, The
Energy and Resources Institute, New Delhi, India

TERI 2010, Internal Document , The Energy and Resources Institute, New Delhi, India.

TERI 2010a, Internal Discussions with various Business and Industry representatives,
The Energy and Resources Institute, New Delhi, India.

UNFCCC 2006, Project Design Document - Reduction in Steam Consumption through
Revamping of Ammonia Plant, Available online: http://cdm.unfccc.int/Projects/DB/DNV-
CUK1169204935.68/view

UNFCCC 2009, Project Design Document Generation of power from process waste
heat at Hi-Tech Carbon, Tamil Nadu, Available online:
http://cdm.unfccc.int/Projects/DB/TUEV-SUED1214896800.22/view