ESCerts Trading under PAT Scheme Girja Shankar Assistant Energy Economist BUREAU OF ENERGY EFFICIENCY (A Statutory body under Ministry of Power, Government of India) 4 th Floor, Sewa Bhawan, R. K. Puram, New Delhi 110 066
EVOLUTION OF PERFORM ACHIEVE & TRADE (PAT)
INTRODUCTION TO PAT SCHEME The EC Act was amended on 24 th August 2010 authorizing Central Government to issue Energy Savings Certificates (ESCerts) u/s 14A to specify the value of energy u/s 14 B. Prescribed Energy Consumption Norms and Standards notified vide S. O. number 687(E) dated 30 th March, 2012 G.S.R. number 269 (E) dated 30 th March 2012. PAT Cycle I covers 478 Designated Consumers (DC) of eight energy intensive sectors : Aluminum, Cement, Chlor-alkali, Fertilizer, Iron and Steel, Pulp and Paper, Textile and Thermal power plant Targeted reduction in the average energy consumption by 2014-15:- 4.05% Annual energy saving of about 6.686 million tonnes of oil equivalent (mtoe) Annual reduction of carbon dioxide emission is about 23 million tonnes
INTRODUCTION TO PAT SCHEME.Cont. Quantified energy savings are converted into Energy Saving Certificates (ESCerts). Purchase ESCert or pay penalty ESCert issued Trade of ESCert Cost effective instrument for energy efficiency improvement
PAT Cycle I Achievements Saving of about 8.67 MTOE from the assessed 427 DCs (5.24%) CO 2 mitigation - 31 million tonne
PAT Cycle II Notified Sectors PAT Cycle II [2016-2019] Baseline Year: 2014-15 Assessment Year: 2018-19 Total Energy Consumption from 11 sectors: 227 mtoe National Target = 8.869 mtoe at the end of 2 nd PAT Cycle (by 2018-19)
ENERGY SAVINGS CERTIFICATES (ESCerts) The energy savings certificate shall be issued in electronic form. The value of one energy savings certificates shall be equal to one metric ton of oil equivalent of energy consumed. The designated consumer who has been issued energy savings certificates may sell them through the power exchange. Each certificate will be unique tradable commodity which will be traded in two exchanges The designated consumer who has been issued the energy savings certificates during the current cycle may use them for the purpose of banking until the next compliance cycle after which they stand expired.
REC v/s ESCerts REC Cycle 1 year 3 years ESCerts Life of Certificate 365 days (2 nd time extended to 1095) Closure of second Cycle (> 3 years) Target State specific set by SERC Plant/DC specific, set by GoI Unit 1MWh equivalent 1 Toe Energy Conserved Buyers Obligated Entities (Discoms, CPPs and OA Consumers) Designated Consumers falling shortfall of Target Sellers Qualified Renewable Generators Designated Consumers surpassing Target Banking No Yes (1 Cycle) Floor Price Yes No Forbearance Price Yes No Regulator CERC (Trading) & SERCs (Compliance) BEE(Scheme) & CERC(Trading) Penalty SERCs SERCs Issuance Central Agency (POSOCO) MoP
PROCESS FLOW FOR ISSUANCE OF ESCerts
PROCESS FLOW FOR ISSUANCE OF ESCerts Cont... Targets DC Account Central Government ESCert credit to a/c Registry Recommendation for ESCert issuance PATNet Portal ESCert issuance Designated Consumer Form-A & B BEE (Administrator) Electronic ESCert issuance instruction SDA(s) Form-A &B with comments for issuance, if over achieved
ESCert CERTIFICATE NUMBER - FORMAT CYCLE - DC Registration Number - S No. - Issued Date [DDMMYY] C1 - TPP0001MH - 0000001-171015 C1-TPP0001MH-00000001-171015
Progress So Far Issuance of Central Electricity Regulatory Commission (Terms and Conditions for Dealing in Energy Savings Certificates) Regulations, 2016 on 27 th June, 2016 Identification of interface activities, Formulation of Business Procedures for ESCerts Exchange on Power Exchanges Finalization of Roles and Responsibilities of Entities Involved Up-gradation of PATNet Portal including M & V process, ESCerts Issuance, Check Verification Process, Trading, Compliance Process, Banked ESCerts. MoP authorized official for online issuance, advised CERC for market regulation, directed POSOCO for Registry function Determination of value of one ESCert Manual on Penalty & Adjudication Process
MARKET TYPES & CONTRACTS Spot Market Forward Contracts & Forward Markets - quantity to be delivered, date of delivery & payment, price to be paid, standardised terms & conditions Future Contracts & Future Markets -not backed by physical delivery
MARKET GENESIS OF ESCerts Regulatory Structural changes- Emergence of Uniform Standards- Evidence of ownership/legal instrument for transfer Development of informal spot markets. Power System Reforms-EA 2003, Power Market Regulation 2010 NAPCC-2008, NMEEE, EC Act, PAT Scheme, INDC, Norms & standard assigned to Designated Consumers under PAT rules and EC-Act Definition of ESCert, issuance & exchange of ESCerts with ownership right, Future linking of ESCerts with CERs or REC, bilateral trading Emergence of Exchange based trading Two power exchange under regulation of CERC Creation of organized futures markets and options Proliferation of over-thecounter markets
ESCert MARKET ARCHITECTURE Existing regulatory framework is the basis for existence of ESCert market Transparent & clearly defined regulatory attributes Mandate Administrator & regulator Timelines of mandate Consequences of non-compliance Interlinking between PAT cycles Streamlined and straightforward process for ESCert issuance Standardization of baseline, quantification, normalization and monitoring methodologies for various mandated sectors
ESCert COMMODITISATION ESCert already have standardized Commodity attribute that allows economic gains from trade/ exchange Standardization Specifying quality attributes of the deliverable commodity Allows buyers and sellers to focus on price negotiation Trading Unit Smallest indivisible unit for transactions equal to One (1) ESCert Price Basis Quoted in Indian Rupees
ESCert s EFFECTIVE DELIVERY MECHANISM ESCert contracts are designed with physical delivery features MoP designated POSOCO as Centralized Registry for ESCerts exchange Developed a secure internet-based infrastructure to enable 24x7 accessibility of account ESCerts assigned with unique individualized serial numbers according to International standards with 100% tracking features in each session of exchange
ENTITIES INVOLVED IN ESCerts TRADING MECHANISM Bureau of Energy Efficiency 7 7 (BEE) 3 PXs 6 Central Electricity 4 5 Regulatory Commission (CERC) Registry (POSOCO) EE CERC Power Exchanges (PXs) Eligible Entity (EE) [Designated Consumers (DC)] DC 1 BEE PATNet 2 8 ` REGISTRY
ENTITIES INVOLVED IN ESCerts TRADING MECHANISM COMMISSION: CERC is Market Regulator for development of ESCert Market. Central Electricity Regulatory Commission (CERC) defines the regulatory framework for trading of Energy Savings Certificate. MoP agreed to issue the advisory to CERC to frame Regulations and issue necessary Orders / Guidelines. POWER EXCHANGE: Power Exchange means the power exchange as defined in Power Market Regulations of the Commission.
ESCerts TRADE/EXCHANGE REGULATIONS Central Electricity Regulatory Commission (Terms and Conditions for Dealing in Energy Savings Certificates) Regulations, 2016 OBJECTIVE: To define a framework for trading of Energy Savings Certificate on Power Exchanges to facilitate the trading component of Perform, Achieve and Trade (PAT) scheme under NMEEE. The Regulation covered definitions, functions of the Commissions & the Bureau, Category of Certificates, dealing of ESCerts, pricing of Certificate, fees and charges, market oversight, power to Relax.
ESCerts EXCHANGE REGULATIONS - DEFINITIONS EXCHANGE OR TRADE OF ESCerts: Sell or purchase of ESCerts under the Perform, Achieve and Trade (PAT) scheme on Power Exchanges, Including the delivery of ESCerts. ELIGIBLE ENTITY: Any Designated Consumer registered with Registry who has been issued or deemed to have been issued ESCerts and desire to sell or purchase ESCerts for compliance with the energy consumption norms and standards under clause (g) of section 14 of the EC Act. POWER EXCHANGE: Means the power exchange as defined in Power Market Regulations of the Commission. POWER MARKET REGULATIONS: Power Market Regulations means the Central Electricity Regulatory Commission (Power Market) Regulations, 2010 and as amended from time to time. REGISTRY: Registry means POSOCO or any other agency appointed by the Commission for management of exchange of ESCerts.
ROLE OF ADMINISTRATOR Define detailed procedure in consultation with the Registry: (i) Interface activities between Power Exchanges and Registry, Administrator and Registry and Registry and Designated Consumer (s); (ii) Registration of eligible entities; and (iii) Dealing, transfer and other residual matters. provide assistance to the Commission in the matters involving transaction of ESCerts disseminate relevant market information to all stakeholders monitor to ensure that transaction in ESCerts takes place in a transparent manner, provide relevant information regarding Designated Consumer(s) to the Registry adhere to all compliance under EC Act pertaining to ESCerts signing of Non Disclosure Agreement with the Registry coordinate with the Software developer/agency who maintains the IT portal intimate the Registry regarding the extinguishment of ESCerts from the accounts of the concerned Eligible Entity; coordinate with the Power Exchanges and Registry for smooth interface for transaction of ESCerts;
ROLE OF REGISTRY Registration of Eligible Entity; Maintaining records of ESCerts viz., issuance, dealing, etc; Dissemination of information in coordination with the Bureau ; Assistance in development of IT Platform for maintaining database of ESCerts; Signing of Non Disclosure Agreement with the Administrator ; and Any other function, as assigned by the Commission in consultation with the Bureau, after assessment of the prevailing market conditions.
ROLE OF POWER EXCHANGES Exchanges provide standardized procedures and regulated market conditions Aggregate market interest in one platform Provide efficient price discovery Provide clearing function by assuming default risk of transaction Ensure financial integrity of market participants Provide professional management of Trading Ecosystem
DEALING IN ENERGY SAVINGS CERTIFICATE (ESCerts) Exchange of ESCerts shall be in accordance with the rules and bye laws of respective Power Exchanges. The frequency of exchange of ESCerts shall be on monthly basis or in such periodicity as approved by the Commission. All eligible entities who intend to participate in the exchange of ESCerts shall register themselves with the Power Exchange. Eligibility Entity can exchange the ESCerts either directly on a Power Exchange or through a Member of a Power Exchange. The matching mechanism on Power Exchanges for ESCerts exchange shall be closed bid double-sided auction In any trading session, an eligible entity shall not place sale bids in excess of total ESCerts held in its Registry Account. In case of breach, such eligible entities shall be treated as defaulter and any bid submitted by such eligible entity shall not be considered by the Power Exchange for the purpose of price discovery.
PROCESS FLOW FOR ESCerts TRADING Market Regulator: CERC 3 Confirmation & Shortages, if any (by 16:00) Reports 4 PX Member Sell Bid (13:00 to 15:00) DC (Buyer) Registry 6 2 Sell Bids for verification (by 15:30) Power Exchange(s) 1 Buy Bid (13:00 to 15:00) DC (Seller) A/C Update on PATNet 5 Trade Results (by 17:00) Market Clearance (Volume & Price) by 16:30 #The time shown above is the tentative time.
PROCESS FLOW FOR EXTINGUISHING ESCerts BEE (Administrator) Form-D with comments 6 7 Extinguish Registry 3 4 Debit DC1 Credit DC2 Power Exchange(s) SDA(s) 8 Banking Sell Bid 1 2 Buy Bid 5 Form-D DC 1 DC 2 Form-D ( by 5 months from closure of Cycle)
ESCerts TRANSFER OWNERSHIP ALM0000MH CYCLE I CYCLE II ESCerts Issued Trading Session I Trading Session II Trading Session I Trading Session II S. No 1 2 3 4 5 C1-ALM0001MH-0000001-171015 TPP0057TN IX C1-ALM0001MH-0000002-117015 TPP0057TN IX C1-ALM0001MH-0000003-171015 TPP0001MH PX C1-ALM0001MH-0000004-171015 C1-ALM0001MH-0000005-171015 TXT0001RJ PX
ADJUDICATION PROCESS FLOW ENTITIES INVOLVED: FOR : Forum of Regulators; SERC : State Electricity Regulatory Commission AO : Adjudicating Officer SDA : State Designated Agency BEE : Bureau of Energy Efficiency AT : Appellate Tribunal CP : Concerned Person
CHALLENGES Forbearing and floor prices Reduction in the transaction cost to DCs IT related issue-fail safe mode of operation of software, non editable audit trail of all activities Transparent and flawless exchange of ESCerts Multiple rolling cycles Liquidity of ESCerts Bilateral trading Inclusion of non-compliance players (Financial institutions, traders, other entities etc.)
CONCLUSION Address the Challenges Making mechanism simple and transparent, Reduction of transaction cost to DC Linking of ESCerts to other similar products (RECs & CERs) Tax and accounting treatment of ESCerts
त न (समस त ऊर ज क ) त यक त न (त यजग क सजथ ) म र थ: ( उपय ग कर ) -----ईशजवजस य पननषद THANK YOU BUREAU OF ENERGY EFFICIENCY A Statutory body under Ministry of Power, Government of India 4 th Floor, Sewa Bhawan, R. K. Puram, New Delhi 110 066 Ph: +91-11- 2617 9699 Fax: +91-11- 2617 8352 Email: gshankar@beenet.in