ESCerts Trading under

PAT Scheme

Girja Shankar Assistant Energy Economist

BUREAU OF ENERGY EFFICIENCY (A Statutory body under Ministry of Power, Government of India)

4th Floor, Sewa Bhawan, R. K. Puram, New Delhi – 110 066

EVOLUTION OF PERFORM ACHIEVE & TRADE (PAT)

The EC Act was amended on 24th 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 30th March, 2012

G.S.R. number 269 (E) dated 30th 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

Quantified energy savings are converted into Energy Saving Certificates (ESCerts).

Trade of ESCert Cost effective instrument for energy efficiency improvement

INTRODUCTION TO PAT SCHEME….Cont.

Purchase ESCert or pay penalty

ESCert issued

Saving of about 8.67 MTOE from the assessed 427 DCs (5.24%) CO2 mitigation - 31 million

tonne

PAT Cycle I – ACHIEVEMENTS

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 2nd PAT Cycle (by 2018-19)

PAT Cycle II – NOTIFIED SECTORS

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 ESCerts

Cycle 1 year 3 years

Life of Certificate 365 days (2nd 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

Electronic ESCert issuance instruction

DC Account

ESCert issuance

Targets

Form-A & B

Form-A &B with comments for issuance, if over achieved

ESCert credit to a/c

Recommendation for ESCert issuance

Central Government

Registry

BEE (Administrator)

SDA(s)

Designated Consumer

PATNet Portal

PROCESS FLOW FOR ISSUANCE OF ESCerts Cont...

CYCLE

-

S No.

-

DC Registration

Number

-

Issued –Date

[DDMMYY]

01

-

00000001

-

TPP0001MH

-

170916

01-00000001-TPP0001MH-170916

ESCert CERTIFICATE NUMBER - FORMAT

• Issuance of Central Electricity Regulatory Commission (Terms and Conditions for Dealing in Energy Savings Certificates) Regulations, 2016 on 27th May, 2016

• Draft Procedures on:

– Registration of Designated Consumer as Eligible Entity

– Interface activity between different entities involved in exchange of ESCerts

• Up-gradation of IT Platform

– PATNet Portal including M & V process, ESCerts Issuance, Check Verification Process, Trading, Compliance Process, Banked ESCerts.

– CRM Portal (In Progress) including Registration of Eligible Entity and Trading Activities

• 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

PROGRESS SO FAR….

MARKET GENESIS OF ESCerts

Regulatory Structural changes-

Power System Reforms-EA 2003, Power Market Regulation 2010

NAPCC-2008, NMEEE, EC Act, PAT Scheme, INDC,

Emergence of Uniform Standards-

Norms & standard assigned to Designated Consumers under PAT rules and EC-Act

Evidence of ownership/legal

instrument for transfer

Definition of ESCert, issuance & exchange of ESCerts with ownership right,

Development of informal spot markets. 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-the-counter markets

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 MARKET ARCHITECTURE

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 COMMODITISATION

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

ESCert’s EFFECTIVE DELIVERY MECHANISM

Bureau of Energy Efficiency

(BEE)

Central Electricity

Regulatory Commission

(CERC)

Registry (POSOCO)

Power Exchanges (PXs)

Eligible Entity (EE)

[Designated Consumers

(DC)]

ENTITIES INVOLVED IN ESCerts TRADING MECHANISM

2

3

4 5

1

7 7

6

8`

EE

PXs

DC

REGISTRY

BEE

PATNet

CERC

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.

ENTITIES INVOLVED IN ESCerts TRADING MECHANISM

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 TRADE/EXCHANGE REGULATIONS

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.

ESCerts EXCHANGE REGULATIONS - DEFINITIONS

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 ADMINISTRATOR

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 REGISTRY

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

ROLE OF POWER EXCHANGES

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.

DEALING IN ENERGY SAVINGS CERTIFICATE (ESCerts)

Application Form for Registration of Designated Consumer to become Eligible

Entity shall contain the following information:

PAT Cycle Details

Owners Details

Details of Fees and Charges

Declaration

Attachments (Scan copy of PAN, TAN, CIN, Service Tax Number,

Authorisation letter)

APPLICATION FORM TO BECOME ELIGIBLE ENTITY

Coordinate with the Registry and shall be responsible to submit the information

in a timely manner so as to enable Registry to comply with requirements for

Registration within the time frame envisaged under CERC ESCerts Exchange

Regulations.

Pay one time non-refundable registration fee and cycle fee/charges as

determined by the CERC from time to time.

Comply with the duties and obligations specified by the Registry.

Follow directions given by any other competent authority from time to time.

ELIGIBLE ENTITY – ROLE & RESPONSIBILITIES

ESCerts TRADING ACTIVITY FLOW

Task

Sequen

ce

Activity Responsible Entity Day Time

Frame

1. DC registers to become Eligible Entity (EE) DC 0th Day 15 Days

2. Registry registers DC as EE Registry 1st Day 30 Days

3. Database of issued ESCerts is created for the

respective EE

D-CRM 1st Day 30 Days

4. Registry approve the Eligible Entity Registry 30th Day 1 Day

5. Publish - Certificate of Registration on PATNet (D –

CRM)

Registry 30th Day 1 Day

6. Certificate of Registration is uploaded in each DC’s

dashboard on PATNet Portal

Software 30th Day 1 Days

7. Register with Power Exchange for trading of ESCerts DC 30th Day 45 Days

ESCerts TRADING ACTIVITY FLOW

8. Any EE directly or through any power exchange member

place their sell or buy bids on the Power Exchange(s)

DC/Power

Exchange

10:00 – 12:00

9. Each Power Exchange uploads the ‘Cumulative

Sale Bids’ through their account on PATNet (D –

CRM)

Verifier PXs 12:00 – 12:30

Approver 12:30 – 13:00

Software 13:00 – 13:15

10. Cross-check the cumulative sale bids placed on

Power Exchanges with availability of ESCerts in

respective Registry account(s)

Verifier Registry 13:15 – 13:45

Approver 13:45 – 14:15

Software 14:15 – 14:30

11. Cross – check report is generated in the Registry Account Software 14:15 – 14:30

12. Registry publish the cross-check report to both the Power

Exchanges

Registry 14:30 – 15:00

13. PX(s) receives and download the cross-check report from

their PATNet (D-CRM) account

PX 15:00 – 15:30

ESCerts TRADING ACTIVITY FLOW

14. Trading of ESCerts takes place in the respective Power

Exchange in accordance with the CERC approved

procedures.

PXs 15:30 – 16:30

15. Each Power Exchange uploads the

‘Confirmation Report’ on PATNet (D-CRM)

account

Verifier PXs 16:30 – 17:00

Approver 17:00 – 17:30

Software 17:30 – 17:45

16. Registry receives the ‘Confirmation Report’ from both

the Power Exchanges

Registry 17:30 – 17:45

17. Registry sends the ‘Trade Approval Acknowledgement’

to each Power Exchange

Registry 17:45 – 18:15

Software 18:15 – 18:30

18. Registry triggers the ‘Generate Transaction Certificate’

Button

Registry 17:45 – 18:15

Software 18:15 – 18:30

19. Registry triggers the ‘Upload –portal’ Button Registry 17:45 – 18:15

Software 18:15 – 18:30

ESCerts TRADING ACTIVITY FLOW

20. Software update the ‘Trading Tab’ of the respective DC

on PATNet portal with the details of quantity of ESCerts

traded on any the exchange, closing balance (Sell |

Purchase), opening balance (Sell | Purchase) for the

next trading session

Software 18:15 – 19:00

21. Software upload the “Balance Certificate’ to the

respective DC dashboard on PATNet Portal

Software 18:15 – 19:00

22. Registry triggers the ESCerts Allocation Mechanism –

(Button)

Registry 18:30 – 19:00

Software 19:00 – 19:15

23. Evacuation of ESCerts from the Seller’s Registry Account

– Based on FIFO Concept

Software 19:00 – 19:15

24. ESCerts Allocation to the Buyer’s – Based on Queuing

Theory

Software 19:00 – 19:15

25. Registry receives the acknowledgement of “ESCerts

Allocation”

Software 19:15 – 19:30

26. Registry can view the ownership of each ESCert through

their D – CRM account in the KYE (Know Your ESCerts)

Tab

Software 19:15 – 19:30

5

4

DC (Buyer)

DC (Seller) Buy Bid

(13:00 to 15:00)

Sell Bid

(13:00 to 15:00)

1

PX Member

Power Exchange(s)

Market Clearance (Volume &

Price) by 16:30

Reports Confirmation &

Shortages, if any (by

16:00)

Registry Sell Bids for verification (by 15:30)

2

3

6

Trade Results (by 17:00)

A/C Update

on PATNet

#The time shown above is the tentative time.

Market Regulator: CERC

PROCESS FLOW FOR ESCerts TRADING

ESCerts TRANSFER OWNERSHIP

ALM0000MH

CYCLE I CYCLE II

S. No

ESCerts Issued Trading

Session I

Trading Session II

Trading

Session I

Trading

Session II

1

01-00000001-ALM0001MH-

170916 TPP0057TN IX

2

01-00000002-ALM0001MH-

170916 TPP0057TN IX

3

01-00000003-ALM0001MH-

170916 TPP0001MH PX

4

01-00000004-ALM0001MH-

170916

5

01-00000005-ALM0001MH-

170916 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

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.)

CHALLENGES

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

CONCLUSION

THANK YOU

BUREAU OF ENERGY EFFICIENCY A Statutory body under Ministry of Power, Government of India

4th Floor, Sewa Bhawan, R. K. Puram, New Delhi – 110 066

Ph: +91- 11- 2617 9699 | Fax: +91- 11- 2617 8352 | Email: gshankar@beenet.in

तेन (समस्त ऊर्जा को ) त्यके्तन (त्यजग के सजथ ) म ुंर्ीथ: ( उपयोग करे )

-----ईशजवजस्योपननषद