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Energy Efficiency
An Energy Efficient Development of Indian Industry
Karthik GanesanSenior Research AssociateCouncil on Energy, Environment and Water
Climate Day: Negotiating the Climate Cliff: India’s Climate Policy and INDCsNew Delhi, 03 Feb 2015
© Council on Energy, Environment and Water, 2015
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CEEW: one of India’s leading think-tanks
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India’s Industrial Sector
3 SOURCE: ASI, RBI, MOSPI, CII, Fraunhofer Institute
• All the sectors which have a significant contribution to GDP have a significant fuel bill
▫ In sectors like Metals, Non-metallic Minerals, Chemicals and Textiles- Fuel inputs account for 9% to 23% of all input costs- Contribution of fuel to the GVA between 40% and 82%
▫ The average for the industrial sector is 5% of input costs and 25% of GVA
• However, overall material costs in manufacturing sector in India are staggering▫ Account for 78% of total input costs▫ Is such a large material cost masking the underlying need to address fuel as an
important sub-component?- Material costs in Germany are at 43% of input costs
• To raise manufacturing contribution of GDP to 25%, current cost structure would be big barrier and energy efficiency (along with broader resource efficiency) is the only way around.▫ The alternative will be a shift to a different industrial mix
- Metal fabrication, computers and electronics, electrical and mechanical machinery, transportation equipment
What should we “Make in India”?
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Waiting for a PAT on the back ?
4 SOURCE: ASI, RBI, MOSPI, CII, CSTEP , TERI, Fraunhofer Institute, BEE
• PAT Scheme introduced in FY 2012-13 and up for review at the end of this fiscal
▫ Industry units covered in 1st PAT Cycle consume only 63 MTOE of a total of ~ 160 MTOE
▫ Iron & steel and chemicals sectors have phenomenal potential for expansion of coverage
▫ Sectors like Food Processing and Textile have virtually not been covered in the first cycle – a large share of units here are in the small and medium category
• Average spend on energy has decreased from 7.2% to 5.1% (of total inputs) in the last decade▫ Average spend on energy is < 2% in Germany
• Macro-economic and aggregated energy consumption figures suggest that ▫ Though overall energy intensity of GDP has decreased, industrial contribution may
have become more energy intensive in recent years
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Indian Cement Sector
5 SOURCE: CEEW , CMA, WBCSD
• A large contributor which is likely to grow manifold
▫ Constitutes ~ 7% of overall GHG emissions of India▫ Consumes ~ 3% of the coal produced domestically
- 65% of electricity needs met by CPPs▫ More than a doubling in the production of cement by 2030 and nearly quadrupling by
2050
• Industry Structure
▫ Fairly concentrated ownership – 11 companies control 60% of the capacity- Simpler to assume penetration of energy efficiency interventions
▫ More than 85 per cent of the energy consuming units accounted for under PAT▫ The cement plant stock is relatively younger and has a high efficiency even in the
baseline (2012)- The best in class in India is a mere 8 -10% off the mark when compared to
global standards- 50% of the capacity only came up in the last decade
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Drivers for Efficiency Improvements
6 SOURCE: CEEW, CDP, WRI
• Compliance with schemes such as a PAT which mandate the reduction▫ More than 50% of corporate respondents in some sustainability reporting exercise
indicate compliance as the major driver▫ There is atleast one large manufacturer that has challenged the PAT scheme’s
validity in court
• Some companies that see it as an ‘NPV +ve’ move
• A large stake held by a foreign entity that brings emissions to international focus and hence the drive to reduce emissions
• Improving the quality of air for local communities in areas where these plants operate▫ A large emitter of particulates in addition to SOX
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How do the 57 units analysed fare?
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• Classified into three distinct cluster▫ Poor performing, in-transition and advanced plants based on a combination of
technology score and SEC▫ The difference in SEC values between the advanced and poor plants was ~ 25%
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What are the options to reduce SEC ?
8 SOURCE: CEEW
• No silver bullet for meeting the industries energy efficiency targets. However interventions can be broadly classified into three heads
▫ Product substitution ▫ Thermal and electrical efficiency improvements▫ Moving to alternate fuels would bring down fossil fuel related emissions
- But will probably increase energy intensity
• More than 19 possible technological interventions explored for ▫ Economic viability▫ Feasibility of implementation▫ Acceptance in India’s ‘operating environment’
• Analysis carried out for existing stock of plants and an assumed trajectory of new manufacturing capacity coming on-board
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The outcome of pursuing targeted interventions till 2050
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Intervention NPV (Million USD)Cumulative Investment (USD
Million)Emissions Reduction in
2050 (MT CO2eq)Investment per Ton CO2eq
(USD)AFR 723 809 21 38
Clinker Sub 1,647 6,577 70 94Efficiency 4,785 8,239 30 278
SOURCE: CEEW
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What is the Up-side of the EE story?
Industry• ↓ reliance on coal linkages provided by
PSU coal companies – 55% ↓ in coal demand in 2050
In 2010-11, less than 80% of the contracted supply was delivered
• Profitable and targeted investments => cost effective compliance process
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Government• 20% reduction in emissions intensity by
2030. Already an aggressive target
• Coal requirement ↓ 45 MT , ~ 10 % of current production
• Electricity requirement ↓ 18 BU, 2% of current consumption
Investors• Investments have a high NPV and an IRR ~
35%
• Not sensitive to carbon price => Risk from carbon market not taking off or low carbon prices are minimal
• Proven and existing technologies ; barring a few regulatory clearances no risks to implementation
Society• Refused Derived Fuels co-processing
9MT of MSW being used up beneficially → ~ 7% of India’s waste generation in 2050 => ↓ landfill requirements
• Health benefits of decreased coal firing and clinker production will create added value
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What is the way forward for industries ?
11 SOURCE: CEEW, CDP, WRI
• How can the current PAT scheme be strengthened, so that it captures the entire range of benefits that for all stakeholders?▫ Can it imbibe the goals of emissions intensity and translate to clear targets for
climate negotiations?▫ Can it cover the large base of SMEs that constitute the manufacturing sector ?
• Can interventions go beyond the existing process of conducting energy audits and sanctioning stand-alone interventions ?
• Finally, what could a new industrial policy look like, if we are to transition to an energy efficient industrial sector for India ?
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