Perform achieve and trade mechanism
(PAT)
Neeraj Dhingra
Project Engineer
Bureau of Energy Efficiency
4th Floor, Sewa Bhawan
R.K. Puram, New Delhi-110066
neerajdhingras@gmail.com
Keywords
target, industrial energy saving
Abstract
PAT is a market based mechanism to enhance cost effectiveness
of improvements in energy efficiency in energy-intensive large
industries and facilities, through certification of energy savings
that could be traded. Thus the PAT Mechanism would broadly
cover the 9 sectors designated by Government of India under
Energy Conservation Act, 2001. The 9 covered sectors are Fer-
tilizer, Aluminium, Chlor-alkali, Railways, Cement, Iron and
Steel, Pulp and Paper, Textile, Power Generation Plant.
In this mechanism, an individual target will be set for the
industries by the Government of India to reduce their Spe-
cific Energy Consumption (SEC). The overall objective of this
scheme is to save 10 mMtoe in the first PAT cycle. Among the
23 mMTOE set as target from NMEEE, implementation of PAT
scheme do focus on achieving 10 mMTOE by 2014. These tar-
gets can be achieved over a period of 3 years. The industries
can achieve this target by implementing best practices in their
industries, change the old technology to the latest one, by using
energy efficient equipment and by any other suitable innovative
method or they can use their R&D facilities to develop efficient
process. etc., or any other initiatives.
Those industries that achieve and exceed the target would be
issued Energy Saving Certificates (ESCerts) and those indus-
tries who could not achieve the target have to either pay penal-
ties or buy the ESCerts from the industries who have secured
ESCerts by exceeding the target assigned to them.
The PAT has been divided into 2 Phases, Design of the PAT
framework and Implementation. Some of the steps involved in
PAT are:
ECEEE 2011 SUMMER STUDY • Energy efficiency first: The foundation of a low-carbon society  777
1. Collection of Data from the Industries through baseline
audit
2. Methodology for setting Specific Consumption targets for
Each Industry;
3. Monitoring and Verification for target achieved;
4. Issuance of Energy Saving Certificates (ESCerts);
5. Trading Process for ESCerts;
6. Compliance and reconciliation process for ESCerts;
Sharing of Technology of Higher Efficient Industries to other
industries means sharing of methodology of efficient plant to
inefficient plant.The objective of this paper is to share the initia-
tive taken by govt. of India to save energy and start trading of
the savings and achieve monitory benefits.
Introduction
As broadly brought out in the framework document on “Na-
tional Mission on Enhanced Energy Efficiency”, the Energy
Conservation Act, 2001 has identified 15 large Energy Intensive
Industries for energy efficiency improvements. It empowers the
Central Government, on the recommendations of the Bureau
of Energy Efficiency (BEE), to prescribe energy consumption
norms and standards. In March, 2007, the Government notified
9 industrial sectors, namely Aluminum, Cement, Chlor-Alkali,
Pulp & Paper, Fertilizers, Power Generation Plant, Steel, Rail-
ways as Designated Consumers (DCs). Designated Consumers
are those consumers whose energy consumption is more than
the threshold value set by the govt. of India (Table 1). These
industries have to appoint an energy manager, file energy con-
3-494 Dhingra
Table 1: Minimum annual energy consumption and estimated number of DCs in select sectors.
Minimum annual energy consumption
Sector
for the DC (tonnes of oil equivalent)
Aluminium 7500
Cement 30000
Chlor-alkali 12000
Fertilizer 30000
Iron and steel 30000
Pulp and paper 30000
Railways (diesel loco
sheds and workshops)
Textiles 3000
Thermal power plants 30000
sumption returns every year and conduct mandatory energy
audit. They also will have to adhere to the energy consumption
targets specified by the Government. The Perform Achieve and
Trade Mechanism is a scheme that is being designed to incentiv-
ize higher plant efficiencies and is applicable within India only.
The Union Cabinet approved the National Mission for En-
hanced Energy Efficiency (NMEEE) on May 2010. The Mission
will usher in the four new initiatives to significantly scale up
implementation of energy efficiency in India. The initiatives are
1. Perform, Achieve and Trade (PAT)
2. Market Transformation for Energy Efficiency (MTEE) -
Accelerating the shift to energy efficient appliances in des-
ignated sectors through innovative measures to make the
product more affordable
3. Energy Efficiency Financing Platform (EEFP) – Creation of
a mechanism that would help finance DSM programs in all
sectors by capturing future energy saving
4. Framework for Energy Efficient Economic Development
(FEEED) – Develop fiscal instruments to promote energy
efficiency
The flagship of the Mission is the Perform, Achieve and Trade
(PAT) mechanism, which is a market-based mechanism to
make improvements in energy efficiency in energy-intensive
large industries and facilities more cost-effective by certifica-
tion of energy savings that could be traded. The PAT mecha-
nism is designed to facilitate the DCs to not only achieve their
legal obligations under the Energy Conservation Act, 2001, but
also to provide them with necessary market based incentives to
overachieve the targets set for them.
The Design features of the mechanism are:
a. Methodology for establishing the baseline energy consump-
tion
b. Methodology for target setting for each sector
c. The process of measurement and verification
d. The manner in which trading of the certificates can be en-
couraged, in particular instruments that could increase li-
quidity in the system.
DCs account for 25  % of the national gross domestic prod-
uct (GDP) and about 45 % of commercial energy use in India.
Since 2000, industrial GDP has been growing at 8.6 % annually
778  ECEEE 2011 SUMMER STUDY • Energy efficiency first: The foundation of a low-carbon society
PANEL 3: ENERGY USE IN INDUSTRY
No. of probable DCs
11
83
20
23
101
51
8
128
146
and energy use in industry at 5.8 %. The lower rate of growth of
industrial energy use can be attributed to many reasons. It has
been observed that in recent years, industry has been choosing
state-of-the-art technologies, which are more energy-efficient.
Also, there have been many in-house efforts made by the in-
dustry to become more energy-efficient. In order to further
accelerate as well as incentivize energy efficiency, the Perform
Achieve and Trade (PAT) mechanism is being designed.
The Act requires the DCs to:
a. Furnish report of energy consumption to the Designated
Authority of the State as well as to BEE
b. Designate or appoint an Energy Manager who will be in-
charge of submission of annual energy consumption returns
of the Designated Agencies and BEE
c. Purchase Energy Saving Certificates (ESCerts) for compli-
ance of default. The Act has been amended to enable this
and allows such trading.
d. Monitoring and Verification of compliance by Designated
Energy Auditors (DENA).
e. Excess achievement of the target set would entail issuance
of ESCerts
f. Penalty for non-compliance being Rs. 10 lakhs ($22,222)
and the value of non-compliance measured in terms of the
market value of tones of oil equivalent.
g. BEE to be the overall regulator and dispute resolution agen-
cy and Energy Efficiency Service Ltd. (EESL) to be the proc-
ess manager.
The amendment to the EC Act has been passed by the Lok Sab-
ha during the Budget Session of Parliament and in the Mon-
soon Session Rajya Sabha in 2010. This is the necessary step
taken by govt. of India in order to implement PAT.
PAT Framework
The PAT framework has been developed considering the legal
requirement under EC Act, 2001, situation analysis of desig-
nated consumers, national goal to be achieved by 2013–2014 in
terms of energy saving and sustainability of the entire scheme.
The PAT scheme is evolve in order to incentivize industry to
achieve better energy efficiency improvements with respect to
their existing energy performance in a cost effective manner.
 PANEL 3: ENERGY USE IN INDUSTRY 3-494 Dhingra

Tentative  Milestones……….
CYCLE  #  1
Freezing  o f   Base  Line   Targ et   Start  o f  
DC  List Parameters S etting M&V

M&V  Process

Mar’14
Apr ’10 Dec’ 10 Mar  ‘11 A pril  ‘13

Defining  M&V  Protocol

Creation  o f  DENA

Creation  of  Trading  Platform,  

Traders  &  Trading  Mechanism

  Figure 1: Tentative Milestone.

The Energy Savings Certificates (ESCerts) will be traded on
special trading platforms to be created in the two power ex-
changes (IEX and PXIL). The guiding principles for developing
the PAT mechanism are Simplicity, Accountability, Transpar-
ency, Predictability, Consistency, and Adaptability. The PAT
framework includes the following elements:
1. Methodology for setting specific energy consumption (SEC)
for each DC in the baseline year
2. Methodology for setting the target to reduce the Specific
Energy Consumption (SEC) by the target year from the
baseline year.
In the next cycle(s) of PAT scheme (post 2013-2014), the
number of DCs participating in the PAT scheme may increase
as more number of sectors will be added up and more/less
number of plants may be present in the 8 sectors.
(b) Phases of PAT scheme
The 1st cycle of PAT scheme would be operational during April
2011 to March 2014. The following basic phases would be in-
volved during this cycle
I. Target Setting Phase
II. Target Achieve Phase

3. The process to verify the SEC of each DC in the baseline year III. M&V Phase
and in the target year by an accredited verification agency
IV. Trading Phase
4. The process to issue energy savings certificates (ESCerts) to
The milestone of 1st cycle scheme is shown in Figure 1. The
those DCs who achieve SEC lower than the specified value
scheme will start from April 2010 but the trading may start in
5. Trading of ESCerts 3rd year of 1st PAT cycle.

6. Compliance and reconciliation of ESCerts

7. Cross-sectoral use of ESCerts and their synergy with renew-
able energy certificates
The following sections provide explanations on implementa-
tion of PAT framework
Broad Umbrella of PAT Scheme
(a) Participation in the PAT scheme
There are about 563 numbers of DCs in these 8 sectors (Ta-
ble 1). All these DCs except Railways will be required to par-
ticipate in the 1st cycle of PAT scheme.
Rationale in selecting the 8 industrial sectors in the 1st
cycle of the scheme
The DCs of these 8  sectors account for about 231  mMTOE
(million metric tons of oil equivalent) of energy consumption
annually as per 2007-2008 data which is about 54 % of the to-
tal energy consumed in the country. The breakdown of energy
consumption and the average specific energy consumption of
each sector is depicted in Table 2. Considering the quantum of
energy consumption, the energy intensity, large bandwidth in
energy usage pattern, the above 8 sectors are selected in the 1st
cycle of PAT scheme.

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3-494 Dhingra PANEL 3: ENERGY USE IN INDUSTRY

Table 2 : Approximate Energy Consumption by DCs in different sectors (2007 data).

SL SECTOR ENERGY CONSUMPTION (mMTOE*)

1 Power (Thermal) 160.3
2 Iron & Steel 36.1
3 Cement 14.5
4 Fertilizers 12.0
5 Textile 4.5
6 Aluminium 2.4
7 Pulp & Paper 1.4
8 Chlor-Alkali 0.43
TOTAL 231.6

*Million Metric Tons of Oil Equivalent

Table 3: SEC bandwidth in different sectors.

Sector Range of SEC

a) Power plant 2300 – 3400 kcal/kwh
b) Fertilizer 5.86 – 9.11 Gcal/T of Urea
c) Cement 665 – 900 Kcal/Kg of Clinker (Thermal) 66 – 127 KWH/ T (Elect)
d) Integrated Steel 6.15 – 8.18 Gcal / tcs
e) Sponge Iron 4.4 – 7.6 Gcal / T (Thermal) 72 – 135 KWH/T (Elect)
f) Aluminum (Smelter)
15875 – 17083 KWH/T 3.28 – 4.12 MKcal / T of Alumina
Aluminium (Refinery)
g) Pulp & Paper 25.3 – 121 GJ/T
h) Textile 3000 – 16100 Kcal/kg (Thermal) 0.25 – 10 KWH/Kg (Elect)
i) Chlor-Alkali 2300 – 2600 kwh/ T of caustic soda

Basis of fixing an energy consumption norm of a Establishment of Baseline SEC

designated consumer
As per the Energy Conservation Act, central government may Calculation for specific energy consumption of any
set different targets to the different designated consumers. The industry
central government can stipulate energy usage norms for desig- The SEC of an industry is calculated based on Gate-to-Gate
nated consumers. BEE has earlier conducted sector specific stud- concept with the following formula.
ies through various organizations to do the situation analysis. As
per the studies, the wide bandwidth of specific energy consump- SEC = Total energy input to the plant boundary
tion (SEC) within an industrial sector is indicative of the large
Quantity of the Product
energy-savings potential in the sector. The wide bandwidth is
also a reflection of the differences in the energy-saving possibili-
While calculating the total energy input to the plant, all energy
ties amongst plants because of their varying vintage, production
sources will be converted to a single unit i.e. MTOE (metric
capacity, raw material quality, and product-mix. Such wide vari-
ton of oil equivalent) using standard engineering conversion
ation also makes it difficult to specify a single benchmark SEC
formula. In this calculation, the following elements will be con-
for the sector as a whole: older plants will find the benchmark
sidered:
impossibly high if it is set at the level of newer plants; newer
plants will find it trivial if it is set at the level of older plants. a) All forms of energy (Electricity, Solid fuel, Liquid fuel, Gas-
The broad bandwidth of SEC within a sector (see Table 3), eous fuel, by-products used as fuel etc.) which are actually
and the inability of all plants to achieve a sectoral benchmark consumed for production of output should be considered.
SEC, suggests that SEC improvement norms need to be set for
b) Energy consumed in residential areas of the plant and for
individual plants. These SEC improvement targets can be based
outside transportation system should not be accounted.
on the trend of energy consumption and energy-savings poten-
tial of the plants. In general, the higher the energy efficiency c) Energy used through renewable energy sources should not
(or the lower the SEC), the lower the energy-savings potential. be accounted.
Thus, it is evident that it is not feasible to define a single norm/
d) Any energy consumed for major construction work would
standard unless there is significant homogeneity amongst units
not be accounted for.
in a sector. The energy efficiency improvement targets would
have to be almost “unit specific”. In March 2011, each DC will
be mandated to reduce its SEC by a fixed percentage, based on
its current SEC (or baseline SEC) within the sectoral bandwidth.

780  ECEEE 2011 SUMMER STUDY • Energy efficiency first: The foundation of a low-carbon society
 PANEL 3: ENERGY USE IN INDUSTRY
Plant boundary/Gate to gate concept
The plant boundary would be selected such that the total en-
ergy input and the above defined product output will be fully
captured. Typically it is the entire plant excluding, residential
areas of the plant and transportation system. Similarly, mining
operations in case of Iron & Steel, Aluminum and Cement sec-
tor are not part of plant boundary.
Once the plant boundary has been fixed, the same boundary
should be considered for entire PAT cycle. Ideally, plant bound-
ary should not change during the entire cycle.
Baseline SEC for the base year
The base line SEC would be calculated based on the following
procedure:
  i. The reduction target for each plant will be based on an ob-
a. All DCs would submit the details of production and an-
nual energy consumption since 2005–2006 to 2009–2010
through a notified form which is a mandatory as per EC
Act, 2001.
b. Few additional sector specific information like process tech-
nology, process flow, raw material, product mix etc. would
also be collected.
c. The SEC calculated from step (a) would be the ‘Reported
SEC’ by the DC. As there may be various variable factors
which affect the energy consumption significantly, some
‘Normalization Factors’ would be considered. It is proposed
to consider the ‘capacity utilization’ as one of the most im-
portant parameter to have a normalization factor. However,
the rationale for developing the ‘normalization factors’ is
underway by suitable agencies
d. The reported SEC will be normalized:
Normalized SEC = f (Reported SEC, Normalization factors)
e. The baseline SEC will be estimated by taking the average
normalized SEC of last 3 years i.e. 2007–2008, 2008–2009
and 2009–2010.
f. The base year will be defined as 2009–2010.
Figure 2. Setting Specific Energy Consumption Targets.
ECEEE 2011 SUMMER STUDY • Energy efficiency first: The foundation of a low-carbon society  781
3-494 Dhingra
Methodology for setting Specific Energy
Consumption targets
The target will be defined in the ‘percentage’ form. It is the per-
centage reduction of SEC from baseline value to that of the
target year.
The methodology for setting target SEC for DCs will be such
that the process is transparent and has no room for arbitrari-
ness. The methodology will be simple and easy to use and will
be based on SEC reduction on a gate-to-gate basis and will
be such as to achieve targeted savings in the first cycle period
of 3 years (2011-2014), about reduction of 10 million metric
tons of oil equivalent (mMTOE). The guiding principles of the
methodology are:
jective and transparent basis. These rules out one-to-one
negotiations for this purpose, which in any case would be
undesirable, both from the viewpoint of credibility and le-
gal soundness, as well as from the viewpoint of information
asymmetry. Consequently, first the overall target reduc-
tion of 10 mMTOE will be divided amongst the sectors in
proportion to their relative energy use to ensure that the
sectoral reduction is equal, in percentage terms, to the per-
centage of the energy consumption of all covered plants in
a sector to the overall energy consumption of all covered
plants. The next level of allocation of reduction target would
correspond to the disaggregation of the sectoral reduction
target to each plant within the sector. Given the diversity of
plant configurations within a sector, and of plant vintages,
it is being proposed to apply gate-to-gate approach for each
plant and defining SEC targets according to the methodol-
ogy defined below.
ii. The target SEC will need to be achieved over a 3 year period
commencing from 1st April, 2011. The targeted improve-
ment in energy efficiency will be a energy intensity targets
(i.e. a percentage improvement over a DC’s baseline SEC).
iii. The methodology is based on the expectation that all DCs
will reduce their SEC. The less energy-efficient DCs within a
sector will be required to achieve a greater reduction in their
SEC than the more energy-efficient DCs. The SEC targets
Figure 3. Allocation of
National Target
reduction targets.
(10 mMTOE)
SECTORS
DC
3-494 Dhingra PANEL 3: ENERGY USE IN INDUSTRY

Table 4: Illustration of Apportionment of energy reduction target in different sectors.

Energy Share of Apportioned Energy No. of Probable

SN Sector
Consumption Consumption reduction DCs
(mMTOE) (%) (mMTOE)
Power Plant
1 160.30 69.24% 6.69 146
(Thermal)
2 Iron & Steel 36.08 15.58% 1.56 101
3 Cement 14.47 6.25% 0.60 83
4 Fertilizers 11.95 5.16% 0.51 23
Textile
5 4.50 1.94% 0.20 128
(Approximated)
6 Aluminium 2.42 1.05% 0.11 11
7 Pulp & paper 1.38 0.60% 0.06 51
8 Chlor-Alkali 0.43 0.19% 0.02 20
Total 231.6 100.00% 10.00 563

will be determined with a statistical analysis followed by
stakeholder consultation in each designated sector.
iv. In the case of thermal power plants and fertilizer plants, the
targets for SEC decrease are to be aligned with the existing
tariff-setting context. In the case of thermal power plants,
the Central Electricity Regulatory Commission (CERC) and
in the fertilizer sector, the Department of Fertilizers are in
the process of integrating these targets in their respective
tariff setting exercise.
v. Other energy-intensive industries and sectors such petrole-
um refineries, petrochemicals, gas crackers/naphtha crack-
ers, sugar, chemicals, port trusts, transport (industries and
services), hydro power stations, electricity transmission and
distribution companies, and commercial buildings and es-
tablishments may be added to the list of DCs and included
in the PAT scheme in a phased manner.
vi. Application of this methodology would entail the follow-
ing allocations to various sectors, given that the overall goal
of energy consumption reduction under the PAT scheme is
expected to be 10 mMTOE.
Methodology for establishing the target in individual
sector except Power Plant
As explained earlier, the sectoral targets will be disaggregated
among the DCs taking into account historical energy consump-
tion (average of previous 3 year energy consumption), potential
of energy saving in the DC, sustainability of trading market
and other related issues. The lowest % target would be given to
the best performing plant where as others will be assigned as
per a ‘relative increment’ based on the concept of relative SEC.
However, the idea is to arrive at a % value (of target) where the
sectoral target would be achieved. The absolute energy saving
at the end of 3 years will be estimated as:
Energy Saving = P base year (SEC base year – SEC target year)
Where
P = Production Quantity
Therefore, if the best performing plant has an X % target, the
targets for the other plants would be (Plant SEC/Best SEC)
times of X %. The X can be numerically calculated taking into
account the total energy saving goal in the target year.
If any sector has large variation in the consumption pattern
like process technology and raw material, DCs will be grouped
(clusters) based on their similar characteristics and the above
methodology will be applied to the cluster’s target.
Methodology for establishing the target for Power Plant
For Thermal Power Plants, the targets for SEC reduction will be
set within current tariff setting context. The Central Electricity
Regulatory Commission (CERC) has been involved along with
Central Electricity Authority (CEA) to specify the criteria for
target setting. The following methodology for target setting has
been proposed.
The target settings for power stations are specified in terms
of specific percentage of their present deviation of Net Operat-
ing Heat Rate (Avg. of last 3 years) from the Net Design Heat
Rate. The stations could be classified in to various bands ac-
cording to their present deviations of operating heat rate from
design heat rate. Stations with higher deviations will be given
higher targets. The indicative classification and targets for vari-
ous bands for the coal/lignite based generating stations will be
as stated in Table 5.
The factors affecting the heat rate of the stations and correc-
tions for the following factors will be considered for the target
setting:
1. Quality of the fuel i.e. (coal)
2. Plant Load Factor (PLF)
Similar approach will be followed in case of gas/liquid fuel
based generating stations. However the average plant load fac-
tor of these stations is much lower than the coal based stations.
Also the heat rate of the gas turbines is very sensitive to the unit
loading and ambient air conditions. Nonetheless, quality of gas
supply does not vary widely. As such, correction for fuel quality
will not be required.
The generating companies have no control over the quality
of coal supplied, which varies from station to station. Imported
coal is also being used and blended by large number of stations,
which can lead to variations in coal quality. Thus the methodol-
ogy should provisions to take care of the impact of variations in
coal quality on the target prescribed. Average “Ash” and “Mois-
ture” contents during the baseline period will be considered for
corrections and the correction factor will be calculated based
on the boiler efficiency formula.

782  ECEEE 2011 SUMMER STUDY • Energy efficiency first: The foundation of a low-carbon society
PANEL 3: ENERGY USE IN INDUSTRY
Table 5. The indicative classification and targets for various bands for the coal/lignite based generating stations.
Variation in Net Station Heat Rate from Reduction Target for % deviation in
Design Net Heat Rate the Net Station Heat Rate
Upto 5%
More than 5% and up to 10%
More than 10% and up to 20%
More than 20%
Measurement & verification
The success of this scheme depends upon a cohesive and trans-
parent Measurement & Verification (M&V) system. A proper
M&V system is being designed for this purpose.
M&V system in the base year
The reported data would get verified through Designated En-
ergy Auditors (DENA) (see Annex for the definition of DENA)
who would be conducting a ‘Baseline Energy Audit’ in the DCs.
The baseline energy audit is aimed at knowing the energy per-
formance of various key equipment, energy balance, energy
saving potential, various energy conservation options imple-
mented in the plant etc.
M&V in the target year
In principle, the M&V will be carried out by ‘Designated En-
ergy Auditors (DENA)’. The broad principles that the DENA
shall apply are:
a. Consistency: by applying uniform criteria to meet the
requirements of the applicable approved methodology
throughout the crediting period(s), applying uniform crite-
ria to expert judgments over time and among projects
b. Transparency: Information in the validation and verifica-
tion reports shall be presented in an open, clear, factual,
neutral, and coherent manner based on documentary evi-
dence.
c. Impartiality, independence, and safeguards against con-
flicts of interest by remaining free of any commercial, fi-
nancial, or other processes that influence their judgment
or jeopardize trust in their independence and integrity.
The designated energy auditors shall base their findings
and conclusions upon objective evidence, conduct all ac-
tivities in connection with the validation and verification
processes in accordance with the rules and procedures laid
down by BEE, and state their validation or verification ac-
tivities, findings, and conclusions in their reports truthfully
and accurately.
d. Confidentiality: In accordance with the requirements of the
PAT scheme, DENAs shall safeguard the confidentiality of
all information obtained or generated during validation or
verification.
e. Validation of the PAT scheme: DENA shall convey the re-
sults of their assessment through a validation report they
shall submit, along with the supporting documents, to BEE
as part of the request for compliance as a PAT project activ-
ity. A positive recommendation shall be submitted only if
the proposed project activity complies with all the require-
ments stipulated under the PAT scheme. DENA shall take
ECEEE 2011 SUMMER STUDY • Energy efficiency first: The foundation of a low-carbon society  783
3-494 Dhingra
% Reduction Target in Net Station Heat
Rate
10% 0.5
15% 0.75 to 1.5
20% 2.0 to 4.0
25% 5 and above
into consideration all evidence that is likely to alter the rec-
ommendation about validation.
f. Verification/Validation methods DENA shall apply stand-
ard auditing techniques to assess the correctness of the in-
formation provided by the project DC, including but not
limited to the following:
• Assessment and verification that the implementation of
the project activity and the steps taken to report that the
specific energy consumption comply with the PAT cri-
teria and relevant guidelines are as prescribed by BEE.
This assessment shall involve a review of relevant docu-
ment action as well as an on-site assessment.
• The verification by DENA of project documentation
provided by the project DC shall be based upon both
quantitative and qualitative information on SEC. Quan-
titative information comprises the reported numbers in
the monitoring report submitted to the DENA. Quali-
tative information comprises information on internal
management controls, calculation procedures, proce-
dures for transfer, frequency of SEC reports, and review
and internal audit of calculations and data.
• Review of the PAT Assessment Document (PAD), in-
cluding the monitoring plan and the corresponding
validation report, earlier verification reports, the meth-
odology used for monitoring, relevant decisions, clarifi-
cations, and guidance from BEE, any other information
and references relevant to the project activity that have
a bearing on SEC (data on electricity generation or labo-
ratory analysis, for example).
• In addition to reviewing the monitoring documenta-
tion, the DENA shall confirm that the project DC has
complied with requests, if any, made during validation.
Accreditation/Selection of DENA
Accreditation of DENAs will be undertaken by BEE under
appropriate rules/ regulations in this regard. The designated
energy auditor shall be a legal entity and that it can enter into
contracts, make decisions independently, and may be sued for
failure to perform as agreed in the contract.
M&V in intermediate years
There would not be any M&V during the intermediate years i.e.
between 2011 & 2014. However, each DC would be required
to submit the annual energy consumption through the ‘Form-
1’ to BEE. Apart from this, one to two energy audits by ‘Ac-
credited energy auditors’ will be conducted by DCs as per the
provision of EC Act, 2001. These would form a basis of M&V
system in the target year.
3-494 Dhingra
Energy Saving Certificates & Trading
Definition of energy saving certificate (ESCerts)
Energy saving certificates (ESCerts) would be issuable to a DC
who achieves the target reduction from the baseline SEC dur-
ing the stipulated period of 3 years. The ESCerts may be is-
sued and the trading may start within 3 years period as some
of the DCs may achieve their target before 3 years period. The
number of e-certs which would be issued depends upon the
quantum of energy saved at the target year. The value of each
e-scert would also be based on the crude oil price and to be
controlled in a suitable mechanism.
Promotion of ESCerts
The following protocols are being designed to promote trading
of ESCerts:
• Verifying the SEC of each DC in the baseline year and in the
target year by an accredited verification agency. DENAs will
be appointed by BEE to undertake this activity.
• Issuing energy savings certificates (ESCerts) to those DCs
who exceed the target efficiency levels, that is who manage
an even lower SEC than stipulated. This would be quantified
on the basis of the report by DENA and provided to the DCs
in the form of ESCerts.
• Trading the ESCerts by DCs with other DCs who are unable
to meet their target specific energy consumption by their
own actions. This trading can be carried out bilaterally be-
tween any two DCs (within or across the designated sectors)
or on special platforms for their trading created in power
exchanges.
• Ensuring compliance and organizing reconciliation of ES-
Certs will be undertaken by BEE in association with the two
Power Exchanges.
• Fungibility of ESCerts is also being discussed with the
proposed Renewable Energy Certificates (RECs) being
developed by the Ministry of New and Renewable Energy
(MNRE). The conversion factor for enabling this fungibility
will be based on verifiable parameters such as energy con-
sumption in kgOE.
Penalty for non-compliance of the target
DCs who would fail to achieve the target by the time frame
will be subject to a penalty as per the EC Act. Penalty for non-
compliance is Rs. 10 lakhs (USD 22,222) and is also linked to
the value of non-compliance measured in terms of the market
value of tones of oil equivalent.
Market design criteria of ESCerts trading
Trading mechanism design: The Energy Savings Certificates
(ESCerts) will be traded on special trading platforms to be
created in the two power exchanges (IEX and PXIL). The ex-
changes would create an efficient and transparent market for
trading by taking measures to safeguard market integrity and
enhance transparency in operations. The exchanges will also
maintain data on traded prices, traded volumes, and trends.
Transfer agents or depositories shall hold the ESCerts in elec-
tronic form and provide client services in relation to ESCerts.
784  ECEEE 2011 SUMMER STUDY • Energy efficiency first: The foundation of a low-carbon society
PANEL 3: ENERGY USE IN INDUSTRY
To ensure liquidity and demand for ESCerts, bulk buying
and bundling of ESCerts should be encouraged. Some of the
issues that are being discussed in order to enhance liquidity
are:
a. Intermediate compliance timeframes to enhance market li-
quidity: Different approaches have been adopted in schemes
to balance issues such as environmental integrity, monitor
progress against targets and cost burden. Shorter compli-
ance periods enhance market liquidity but tend to gener-
ally increase transaction costs and potentially the market
price of the certificates. Regular reporting allows for effec-
tive monitoring against targets and early detection of any
discrepancies. Penalties and incentives could be linked to
intermediate compliance targets.
b. Energy Allowances vs ESCerts: The size of certificates in-
fluences the prices and tradability. The smaller the size of
certificates, the higher the administration costs.
c. Banking of Certificates: The lifetime of ESCerts also affects
its price; shorter lifetimes of certificates may significantly
distort market prices as the market will tend to respond to
short term demand and supply issues. Most international
schemes allow for borrowing and/or banking of excess sav-
ings across compliance periods. The use of banking is per-
ceived as being essential in building investor confidence and
market stability.
d. Auctions/buy-back of ESCerts by the Government/BEE to
ensure stability of price as well as to provide price signals
upfront. The use of a market maker to enable this process
is also important.
e. Exchange of Information between stakeholders related to
Escert trading mechanism
The proposed ESCerts trading mechanism involves exten-
sive information exchange between Designated Consumers
(DCs), State Designated Agencies (SDAs) (SDAs are the agen-
cies designated by State Governments to coordinate, regulate
and enforce provision of EC Act within the state.), Designated
Energy Auditors (DENAs), Power Exchanges, Bureau of En-
ergy Efficiency (BEE) and Central Registry on a regular basis.
Timely and accurate information exchange while maintaining
confidentiality, transparency and security could be achieved
through adopting an online integrated information system for
the program. Therefore, a central online integrated informa-
tion system (IIS) i.e. PAT-Net connecting all the DCs, SDAs,
DENAs, Trading Exchanges, Central Registry and BEE is sug-
gested for this purpose.
The indicative process flow diagram involving all institu-
tions/entities is illustrated in Figure 4.
Every DC will be provided with individual access to PAT-
Net so as to perform all the mandatory reporting activities
through this system. Self declaration of energy savings by En-
ergy Manager of DC will be made through the PAT-Net to BEE
for consideration for issuance of ESCerts. BEE will assess such
information for all the plants received through PAD (PAT As-
sessment Document) from all the SDAs/DCs/DENA and upon
satisfaction send online instructions to Central Registry for
issuance of ESCerts to DCs. The reported data by DC can be
easily gathered, monitored and analysed by BEE/SDAs to iden-
PANEL 3: ENERGY USE IN INDUSTRY 3-494 Dhingra

BEE
MoP Market Regulator & Administrator
Apply for
ESCerts
Updated list Any Baselines Any Baselines Apply for Issuance of
through PAT
of DCs and Improvement Improvement Empanelment E-�iling ESCerts
Assessment
DENA Document
PAD
Information (PAD)
Audited Result
of DCs
Designated
SDA DENA
Regular Audit Consumers (DCs)
updates

Regular Checks & Levy Penalties in case of defaults

ESCerts Trading

Updated ESCerts
Account Info

Updated Obligation
of DCs: De�icit or
Central Registry Trading Exchange
Surplus
Settlement details

Figure 4: Indicative Process Flow for ESCerts-Trading Mechanism under PAT Scheme.

tify any anomalies . Once issued by the Central Registry, the
ESCerts credited to a DC could be viewed by the DC through
PAT-Net. Communication between a Power Exchange and
Central Agency will also be performed through PAT-Net. De-
tails such as list of registered DCs, ESCerts available with each
DC for trading, etc could be intimated to Trading Exchanges
by the Central Registry to accommodate trading. The Trading
Exchanges could also intimate the trade details and obligations
to all the participating DCs, the Central Registry and if neces-
sary to SDAs.
DENAs, once registered, could use the PAT-Net for re-
porting their mandatory organizational details like person-
nel details, promoters etc to the Administrator. All the audit
details conducted by DENAs could also be reported to the
Administrator and/or SDA through PAT-Net. Details such as
the list of qualified Energy Auditors, Energy Managers and
DENAs along with their performance details could be main-
tained with PAT-Net. Constant performance monitoring of
the program by the Administrator, through parameters like
total ESCerts issued & traded, complying sectors or partici-
pants, market liquidity etc., will also be carried out. Delays at
any point of the process-chain will be identified and timely
action will be taken by the Administrator/Regulator. Targets
will be issued to participants through PAT-Net. End-of-the-
phase reconciliation will also be carried out. Penalties will
be imposed on non-compliant participants and monitored
through PAT-Net. Automation of processes wherever fea-
sible will be carried out for seamless implementation of the
proposed ESCerts program. A single PAT-Net connecting all
the stakeholders and participants ensures implementation of
common standards at all the levels and promotes consistency.
Abbreviations
BEE: Bureau of Energy Efficiency
DC: Designated Consumer
DENA: Designated Energy Auditor
ECA/EC Act: Energy Conservation Act
ESCerts: Energy Saving Certificate
MoP: Ministry of Power
MTOE: Metric Tonne of Oil Equivalent
mMTOE: Million Metric Tonne of Oil Equivalent
PAT: Perform Achieve and Trade
SEC: Specific Energy Consumption
Acknowledgements
This document has been prepared to describe the framework of
PAT scheme. I would like to thank Shri Kapil Mohan, Deputy
Director General, BEE, Shri Saurabh Yadav, Knowledge Man-
agement Specialist, BEE for their guidance and unstinted sup-
port towards the presentation of this document.

ECEEE 2011 SUMMER STUDY • Energy efficiency first: The foundation of a low-carbon society  785
3-494 Dhingra PANEL 3: ENERGY USE IN INDUSTRY

Annex • Should have conducted at least 3 energy audit, in the particu-

lar designated energy intensive industrial sector, in last 5 years.
Designated Energy Auditor (DENA) – Firm or Company or • Should have energy auditing instruments
Associations
Qualification (Qualifications for accreditation of DENA is un-
der process): Role of Dena:
DENA have been proposed for the various activities under PAT
• Should be a firm/company registered/incorporated in India. (Perform, Achieve & Trade) like:
• Should have at least 3 certified energy auditors or organi- • Baseline data collection
zation/sectoral associations having more than 3 personnel
with more than 10 years of experience in particular desig- • Baseline Energy Audit
nated energy intensive industrial sector (however, associa- • Monitoring & Verification
tion should have 3 certified energy auditors within stipu-
lated time). • And other PAT related activities

786  ECEEE 2011 SUMMER STUDY • Energy efficiency first: The foundation of a low-carbon society