EnergyPAT Scheme (Perform, Achieve & Trade):A Blessing in DisguiseThe PAT Scheme introduced by the Bureau of Energy Effici...
The PAT Scheme (Perform, Achieve and Trade) is one of thefour energy efficiency improvement initiatives spelt outunder Nat...
et specific objectives.In short, the PAT scheme aims to reduce pollution, protectconventional energy sources and manage wa...
About Tata Strategic The largest Indian owned Management Consulting firm 500+ engagements, 100+ clients, across countrie...
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Perform Achieve Trade Scheme

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The PAT Scheme introduced by the Bureau of Energy Efficiency (BEE) under the purview of the Ministry of Power aims to reduce the energy consump-tion in 8 energy intensive sectors by 6.68 million toe by 2015. With the PAT Scheme becoming a reality, organizations should develop a strategic energy management plan to comply with the PAT targets for each cycle.

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Perform Achieve Trade Scheme

  1. 1. EnergyPAT Scheme (Perform, Achieve & Trade):A Blessing in DisguiseThe PAT Scheme introduced by the Bureau of Energy Efficiency (BEE) underthe purview of the Ministry of Power aims to reduce the energy consump-tion in 8 energy intensive sectors by 6.68 million toe by 2015. With the PATScheme becoming a reality, organizations should develop a strategic ener-gy management plan to comply with the PAT targets for each cycle. In reali-ty PAT Scheme is a blessing in disguise, an intuitive way to move towardsthe Triple Bottom Line and overall Energy Excellence, say Shardul Kulkarni,Amit Kumar Singh and Pranab Medhi of Tata Strategic ManagementGroup.
  2. 2. The PAT Scheme (Perform, Achieve and Trade) is one of thefour energy efficiency improvement initiatives spelt outunder National Mission for Enhanced Energy Efficiency(NMEEE).The genesis of the PAT mechanism is the Energy Conserva-tion Act, 2001 which empowers the Ministry of Power(MoP) to notify industrial units consuming energy morethan the threshold in 9 sectors namely Thermal PowerPlants, Fertilizer, Cement, Pulp and Paper, Textiles, Chlor-Alkali, Iron & Steel, Aluminum and Railways as DesignatedConsumers (DCs).PAT scheme is currently being implemented in 2 cycles,Cycle I (2012-2015) and Cycle II (2015-18).It is targeted at increasing energy efficiency across identi-fied sectors and aims to save 6.68 million toe of energy atthe end of Cycle I.Bureau of Energy Efficiency (BEE) conducted sector specificstudies to arrive at the acceptable band of Specific EnergyConsumption (SEC) within an industrial sector. The wideband of SEC within an industrial sector is indicative of thelarge energy-savings potential and the differences amongstplants because of their varying vintage, production capaci-ty, raw material quality, and product-mix. Due to thesedifferences SEC improvement targets are plant-specific. Thetargets are decided using a baseline which is the arithmeticaverage of the last 3 years (2008-10) SEC and normalized asper a methodology specified by BEE. It is observed thathigher the energy efficiency (lower the SEC), the lower arethe energy-saving targets.The SEC of a plant is calculated based on Gate-to-Gate con-cept (Only energy used within the boundary walls of theplant for producing the final product is considered) andexpressed in terms of the metric ton of oil equivalent (toe)per unit of product. The total energy input to the plant isconverted into a single unit and all products produced areconverted to equivalent of the major product.A total of 478 DCs have been identified across 8 sectors forthe first cycle of PAT. Each of the plants has been given anenergy saving target for 2015. At the end of 2015, Designat-ed Energy Auditors will conduct energy audits to ascertainthe achieved SEC. Inability to meet the targets wouldattract penalty while overachievement would be rewardedwith Energy Certificates (ESCerts) which can be traded inthe designated exchanges (IEX and PXIL). The value of 1ESCert has been set to the value of 1 MTOE of energy (~Rs12,500/MTOE as per BEE pricing formula).In short, the PAT scheme is a perfect example of rewardingthe overachiever and penalizing the underperformer.The PAT Scheme has generated a lot of ripples in the ener-gy intensive process industries and is perceived as a sourceof capital outflows in tough economic times. Though thereare some disputes over the target setting methodology andskepticism as associated with any new regulation about it’simplementation, some proactive firms have used this regu-lation to initiate comprehensive energy management andimprove their margins. We, at Tata Strategic, believe thatthis is the right time to view the PAT scheme in a fresh per-spective; as a blessing rather than another regulatory road-block.Figure 1: PAT MechanismThe PAT scheme is in fact an indirect way to approach theelusive triple bottom line. The triple bottom line (TBL) cap-tures an expanded spectrum of values for measuring organ-izational success: profit, planet and people. In the privatesector, a commitment to corporate social responsibility(CSR) has been traditionally viewed as a commitment tosome form of TBL reporting. But a closer look reveals thatthe PAT scheme actually allows organizations to move to-wards a true TBL reporting. See Figure 2 below:Figure 2: Triple Bottom-line ConceptProfit : The PAT scheme aims at reducing the energy con-sumption per unit of output product. In the current situa-tion when increasing competition is already putting pres-sure on margins, reduction in energy cost will help boostthe bottom line. E.g. Energy cost accounts for ~30-35% oftotal manufacturing expenses for DCs in the cement sector.10% reduction in the energy cost could potentially boostoperating profit margins by ~20%.Planet : Reducing energy consumption will not only benefitthe DC but would also have a lasting impact on theplanet. 1 toe reduction in energy consumption can poten-tially reduce carbon dioxide emissions by ~3.18 tons.Many progressive Indian Groups (e.g. Tata, Essar) have vol-untarily taken carbon emission reduction targets in thelarger interest of community and Planet. PAT provides anexcellent opportunity for such Groups to achieve their plan-IntroductionTarget Setting MethodologyPAT and the Triple Bottom Line
  3. 3. et specific objectives.In short, the PAT scheme aims to reduce pollution, protectconventional energy sources and manage waste.PeopleBEE conducts conferences and workshops on energy efficien-cy and on new and advanced technologies. Companies coulduse such programs to train their employees for sustainableenergy management.These employees could be further empowered by manage-ment to achieve higher performance through suitably de-signed Key Performance Indicators (KPI).With the proposed Companies Act mandating CSR spend,increased profit margins would also allow companies to con-tribute some portion of their profits to strengthening thecommunity.In short, the PAT scheme hits the sweet spot between thethree pillars of the triple bottom line.Problem: A major cement player in West India was under thePAT scanner and was given one of the highest energy reduc-tion targets owing to poor energy management in the past.The company having recognized the benefits of energy effi-ciency decided to take proactive measures to ensure PATcompliance.Action: The company took the help of external consultantsto undertake an energy audit to pin point areas for reductionof energy consumption.A structured exercise was conducted to identify opportuni-ties to reduce primary and secondary energy consumptionacross the integrated cement plant. Improvement areaswere identified and associated capital expenditure and pay-back period were arrived at.Impact: The study revealed multiple improvement areasacross the main plant, grinding unit and power plant.High levels of ingress air, low efficiencies of fans, venting inseveral blowers, lower efficiency of motors etc. were identi-fied.At the end of the exercise, measures with the potential ofsaving over 100 kilocalories per kg of cement were identifiedwhich translated into a reduction of ~20% relative to base-line SEC.~25% of the saving potential could be realized without anyincremental capex while the next 25% saving needed mini-mal capital investment. A SEC Abatement curve was pre-pared to enable the client achieve future PAT targets underCycle I and II. See Figure 3 below:Figure 3: SEC Abatement CurvePAT: Destination or a Milestone in Overall Energy Excel-lence?By achieving PAT target, not only compliance is met but alsoorganizations can move towards triple bottom line reporting.In spite of the many benefits of the PAT scheme, the under-lying principles of NMEEE can only be realized if PAT is seenas milestone and not a destination in the long journey to-wards “Energy Excellence”.CEOs and CXOs need to challenge themselves by asking thefollowing strategic questions: How does the company’s energy consumption and man-agement compare with peers/best-in-class/global play-ers? What are the best in class technologies and practic-es companies have adopted? What are the gaps? Is there a need to review the com-pany’s long term energy consumption goals? Is there an effective monitoring system and processes inplace to achieve stated objectives? What kind of KPIsand dashboards are desired? What is the overall strategic roadmap in terms of mile-stones/ investments/ benefits? Thus journey to energy excellence involves climbing amountain of internal improvements, following the rain-bow of best in class competencies and crossing thestream of arranging financial resources for energy savingmeasures.With the introduction of market based instruments for ener-gy efficiency, the Indian industrial sector needs to develop afresh strategic perspective on PAT. In fact, the PAT schemeshould be seen as a blessing in disguise and an opportunityto achieve the ever elusive triple bottom line and achievesuperior energy management.Going forward, PAT compliance could be treated as an im-portant milestone in the journey towards “Energy Excel-lence”. With ever rising cost of input energy, companies as-piring for such excellence are bound to gain sustainable stra-tegic advantage and earn handsome dividends going for-ward!!!_____________________________________________________________© Tata Strategic Management Group, 2013. No part of it may be circulatedor reproduced for distribution without prior written approval from TataStrategic Management GroupCase Study: Cement Company in West IndiaConclusion
  4. 4. About Tata Strategic The largest Indian owned Management Consulting firm 500+ engagements, 100+ clients, across countries, across sectors Increasing presence outside the Tata Group & India 50+% revenue outside Tata Group 20% revenue outside IndiaOur offeringsContacts:The Energy Practice at Tata Strategic has in-depth understanding of Indian Power Sector and has focus on Energy Man-agement, Renewable Energy, Services and Smart Grid. We have been associated with private sector utilities, large cor-porates & MNCs and supported them in areas of strategy, market assessment and strategic performance improve-ment. USP of Energy Practice is a pool of consultants in areas such as EM, RE, generation, distribution & transmission.We are also a part of Core Group on Smart Grid at CII.EnergyShardul Kulkarni is Principal of Energy practice. He has about 11 years experience. His areas of specialization include Strate-gy Formulation, Project Finance and Energy Management. He is Certified Energy Auditor from Bureau of Energy Efficiency,an offshoot of Ministry of Power, India. (shardul.kulkarni@tsmg.com)Amit Kumar Singh is an Associate Consultant. He has about 4 years of experience in the power sector and has worked onseveral engagements across segments in power (conventional & renewable), oil & gas and petrochemicals at Tata Strategic.Pranab Medhi is an Associate Consultant. He has about 3 years of experience and has worked on several engagementsacross segments in areas of Strategy Formulation, Energy Management and Organization Restructuring at Tata StrategicAuthorsOur Domains Auto Engineering Technology Infocomm, Education Healthcare Infrastructure & EPCFunctional Areas Strategy Organizational Effectiveness Delivery Excellence Logistics Sourcing Sales EffectivenessMumbaiB - 1001, Marathon Futurex,N.M. Joshi RoadLower Parel (East),Mumbai 400 013. INDIATel: +91 22 66376789Fax: +91 22 66376600DelhiLevel 12, Building No.8, Tower CDLF Cyber City, Phase IIGurgaon – 122002Haryana, INDIATel: +91 124 4696692Fax: +91 124 4696970Set DirectionsDrive StrategicInitiativesSupportImplementation Durables FMCG Retail Hospitality & Tourism Chemicals Energy Vision Market insights Growth Strategy/Business Plans Scenario Planning India Entry Alliance & Acquisition Planning Strategic due diligence Manufacturing StrategyStrategyOperations Supply Chain Optimization Throughput enhancement Superior Fulfillment Project Excellence Procurement Transformation Strategic Cost Reduction Energy/Water Management Revenue Enhancement Product Innovation Market Share Growth —Rural/Urban Dealer Effectiveness Sales EffectivenessOrganization Effectiveness Organization Structure Corporate Center Design Roles & Decision rules Culture Transformation Performance Management Capability Assessment Talent ManagementMarketing & SalesImplementation Support Implementation Plan Program Management Refinements/Course Corrections

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