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Inter State Trading of Electricity
Regulatory note
Demand Side Management (DSM)
Recommendation of Integrated Energy Policy for DSM




















































Recommendation of Integrated Energy Policy for DSM

The following recommendations have been made in the integrated Energy Policy Report of the Planning Commission Government of India

1. The importance of energy efficiency and DSM has clearly emerged from the various supply scenarios and is underlined by the rising oil prices. Efficiency can be increased in energy extraction, energy conversion, energy transportation, as well as in energy consumption. Further, the same level of service can be provided by alternate means requiring less energy. The major areas where efficiency in energy use can make a substantial impact are mining, electricity generation, electricity transmission, electricity distribution, pumping water, industrial production, transport equipment, mass transport, building design, construction, heating ventilation & air conditioning, lighting and household appliances. Thus a “Negawatt” (a negative Megawatt), produced by reducing energy need saves more than a Megawatt generated.

2. The 10th Five Year Plan proposed benchmarking of the hydrocarbon sector against the rest in the world. It also suggested demand side management specifically in the transport sector. The target for energy savings in the 10th Plan 95,000 Million Units (Planning Commission of India) (13% of the estimated demand) in the projected terminal year of 7,19,000 Million Units.

3. A study for the Asian Development Bank (ADB, 2003) estimated an immediate market potential of energy savings of 54,500 Million Units and peak saving of 9240 MW. This has an investment potential of Rs.14,000 crores. Though there is some uncertainty in any aggregate estimates, it is clear that the cost-effective saving potential is at least 10% of the total generation through Demand Side Management. Additional savings are possible by auxiliary reduction in generation plants. At present an estimate of the total volume of the energy efficiency consulting business (Audit, performance contract, engineering and technical assistance consultancy) is less than 1% of this potential (DSCL,2004).

4. Since most Energy Efficiency/DSM schemes are often cost effective is it necessary to have policy interventions? In actual practice there are several barriers that constrain the adoption of EE/DSM. These relate to high transaction cost, lack of incentives to utilities who perceive DSM as loss of market, inadequate awareness, lack of access to capital, perceived uncertainty concerning savings, high private discount rate and limited testing infrastructure for ascertaining savings. Policy interventions are required to address these barriers.

5. BEE (Bureau of Energy Efficiency) should be made autonomous and independent of the Ministry of Power. It should be funded by contribution from all energy Ministries or a cess on fuels and electricity adjusted for cess on fuels used for generating electricity. BEE staffing should be substantially strengthened.

6. Increasing Efficiency of Coal-Based Power Plants:- Require NTPC and SEBs to acquire technology to enhance the fuel conversion efficiency of the existing population of thermal power stations from an average of 30% to 35%. No new thermal power plant to be allowed without a certified fuel conversion efficiency of at least 38%.

7. Implementing Time of Day (TOD) Tariffs: All utilities should introduce TOD tariffs for arge industrial and commercial consumers to flatten the load curve. Utilities should support load research to understand the nature of different sectoral load profiles and the price elasticities of these loads between different time periods to correctly assess the impact of differential tariffs during the day. The utility should have focus group meetings of industrial or large commercial consumers, document a few potential case studies illustrating the potential for shifting loads and provide information and analytical support along with implementation of the TOD tariff.

8. Facilitating grid interconnection for Cogenerators: Enforce mandatory purchase of electricity at fixed prices from cogenerators (at declared avoided costs of the utility) by the grid to encourage cogeneration. The buying/selling price should be time-differentiated and declared by the state regulatory commissions at the time of each tariff notification.

9. Improving efficiency of Municipal Water pumping:- Institute measures that encourage adoption of efficient pumping systems and shifting of pumping load to off-peak hours. The public sector should be mandated to do so. Private sector could be encouraged to do so through time of day pricing. This will help reduce peak demand and energy demand.

10. Promoting Variable Speed Drives:- All large industries should be required to assess suitability of variable speed drives for their major pumping and fan loads.

11. Undertaking efficient Lighting Initiative:- Utilities should launch pilot efficient lighting initiatives in towns/cities (similar to the BESCOM programme in Bangalore). Features should include warranties by manufacturers, deferred payment through utility bill savings. (International examples are available at

12. Making Energy Audits Compulsory For all Loads Above 1 MW:- Energy audit should be done periodically and be made mandatory for public buildings, large establishments (connected load> 1 MW or equivalent energy use > 1MVA) and energy intensive industries.

13. Reaping Daylight Savings:- Finally saving daylight by introducing two time zones in the country can save a lot of energy.

14. Adoption of a least cost planning and policy approach that ensures that energy efficiency and Demand Side Management (DSM) have a level playing field with supply options. The regulatory commissions should invite bids for DSM while approving new capacity additions. Thus, if a state requires an additional peak demand of 1000 MW in the next five years, the utility can ask for bids from Independent Power Producers (IPPs) as well as Energy Service Companies (ESCOs). For example, an efficient lighting programme may offer to save 150 MW at a cost of Rs.5000/peak kW saved. This would then become part of the cost of Rs.5000/peak kW saved. This would then become part of the least cost plan before putting in new power plants that may cost Rs.40,000 - 50,000/peak kW generated. Similar exercise should be adopted for the oil sector.

15. Regulatory commissions can allow utilities to factor EE/DSM expenditure into the tariff.

16. Each energy supply company/utility should set-up a DSM/energy efficiency cell. BEE can facilitate this process by providing guidelines and necessary training inputs. A large number of pilot programmes that target the barriers involved and have low transaction costs need to be designed need to be tried with different institutions, incentives, and implementation strategies. Innovative programme designs can be rewarded.

17. Create competition among manufacturers to e the first to achieve the target through a “golden carrot” which is a large monetary reward to the first one to commercialise products which provide, say a minimum saving of 20% over the best existing design within a given time frame.

18. Mandate clear and informative labelling in well-designed standardised form for equipment and appliances. Combine this with consumer awareness programmes that illustrate the savings & gains that can be made.

19. To strengthen the labelling initiatives create regional testing facilities for testing and certification. The labelling/standards initiative should be supported by analytical studies to establish equipment consumption benchmarks (minimum achievable energy consumption targets).

20. Industries may need technical support to identify and execute energy saving options. Energy Service Companies (ESCOs) can provide such support. We need to promote and facilitate ESCOs.

Some possibilities include-

Financing Support-
The support for ESCOs could be in the form of payment security mechanism (this may be required for projects in municipalities, government buildings), partial credit guarantee, venture capital.

Encouraging different business models-
For ESCOs to be successful in India a variety of alternative business models need to be attempted to determine the appropriate ones in the Indian context. BEE could facilitate 15-20 demonstration ESCO projects in different sectors. These should be well documented, independently monitored and made available to the public. This will encourage more entrepreneurs to invest in ESCOs.

ESCOs as producers of “Negawatts” may be given the same tax breaks that are available for renewable energy programmes or other energy investments.

Providing an institutional framework for independent monitoring & evaluation of projects delivered by ESCOs.

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