Background

An important part of the Perform, Achieve, and Trade (PAT) mechanism for Energy Efficiency is the ‘trading’ aspect. PAT Cycle I was completed last year and the next logical step in the process is the trading of Energy Saving Certificates (ESCerts).  For a detailed analysis of the PAT scheme, see our Newsletter  Vol. 47 January 2015.

 

The actual ‘trading’ may soon become a reality as CERC recently came out with draft regulations that will govern such trading on power exchanges. A brief analysis is below:

 

Draft Regulation:

The draft Regulations has proposed to assign the responsibilities to BEE, CERC and POSOCO:

 

BEE:BEE shall discharge the role of Administrator of ESCerts and shall provide assistance to the Commission in the matters involving exchange of ESCerts on Power Exchanges and shall coordinate with the Power Exchanges and Registry for smooth interface for Exchange of ESCerts

 

CERC : CERC would function as the Market  Regulator.  In its role as Market Regulator, the draft Regulations proposes to  approve the procedure for interface activities between Power Exchanges and Registry, Administrator and Registry, and Registry and Designated Consumer And monitor the operations and performance of Power Exchanges with regard to exchange of ESCerts ;

 

POSOCO: During the introduction of Renewable Energy Certificates ( RECs) , POSOCO was mandated to act as the Registry.  Ministry of Power has assigned the

function of Registry of ESCerts trading to POSOCO for the exchange of ESCerts on the Power Exchanges .  In its capacity as the Registry for ESCerts, POSOCO is envisaged to discharge the following important functions:

 

  • Assistance in registration process of ESCerts including crediting of ESCerts to DCs after approval from MoP,
  • Guidance on dealing in the process of ESCerts trading/ exchange
  • Coordination and information dissemination with DCs, Power Exchanges, BEE and Regulator (i.e. CERC)

 

Issuance of ESCerts:

  • The DCs would be issued ESCerts in electronic form in a cycle period for achieving specific energy consumption less than the energy consumption norms and standards notified by the Central Government for the cycle period, under Energy Conservation Rules, and subsequent cycles, who have held such certificates in Registry accounts.

 

  • The DC’s whose specific energy consumption shall be more than the prescribed energy consumption norms and standards specified for a cycle period and subsequent cycles and who wish to comply with the prescribed energy consumption norms and standards using ESCerts in lieu of implementing energy conservation and energy efficiency improvement measures shall be entitled to purchase the ESCerts to meet compliance with the norms and standards prescribed under

 

The Certificate issued to eligible entities by the Government on the recommendations of the Bureau could be transacted on any of the Power Exchanges by the ESCerts holder.

It’s important to note that BEE has proposed that ESCerts have no floor or forbearance price. Pricing will therefore be determined purely through demand and supply of ESCerts. Initial analysis suggests that there will be significant oversupply of ESCerts, leading to low prices. However, its important to note that companies have the choice to ‘bank’ ESCerts to the next cycle – this feature may have the effect of a floor price as if the trading price is lower than the cost of achieving energy savings, the company will be better off banking the certificates rather than trading them.

 

The regulation can be accessed here.