1. ENERGY CONSERVATION EC Act 2001 Demand Side Management Performance Contracting Nov. 16, 2010

2. Energy Division 2 Agenda  Energy Conservation Act 2001  Demand Side Management  ESCO – Performance Contracting 02/09/2015

3. Energy Division 3 02/09/2015 Energy Conservation Act 2001

4. Energy Division 4 Energy Conservation Act - Background 02/09/2015 An Act to provide for efficient use of energy and its conservation and for matters connected therewith or incidental thereto It extends to the whole of India except the state of Jammu and Kashmir It was enacted by Parliament in the Fifty-second Year of the Republic of India on October 2001 The Bureau of Energy Efficiency (BEE) came into force from March 2002 onwards Powers to the Central Government: Specify the norms for processes and energy consumption standards for any equipment, appliances which consumes, generates, transmits or supplies energy Specify equipment or appliance or class of equipments or appliances, as the case may be, for the purposes of the proposed legislation Prohibit manufacture or sale or purchase or import of equipment or appliances unless such equipment or appliances conforms to energy consumption standards Direct display of such particulars on label on equipment or on appliance Specify, having regard to the intensity or quantity of energy consumed by any user or class of users of energy as designated consumer for the purposes of the legislation Direct any designated consumer to get energy audit conducted by an accredited energy auditor Direct designated consumer to appoint energy manager in charge of activities for conservation of energy Prescribe minimum qualifications for appointment of energy managers

5. Energy Division 5 02/09/2015 Energy Conservation Act - Background Direct any designated consumer to furnish information with regard to energy consumed and action taken on the recommendation of the accredited energy auditor Direct any designated consumer to prepare a scheme for efficient use of energy and its conservation and implement such schemes as may be prescribed Prescribe energy conservation building codes for efficient use of energy and its conservation in the building or building complex Powers of BEE: Recommend to the Central Government the norms for processes and energy consumption standards for equipment and appliances Recommend to the Central Government for notifying any user or class of users of energy as a designated consumer having regard to intensity or quantity of energy used by it Recommend to the Central Government the particulars required to be displayed on label of equipments or on appliances and manner of their display Take suitable steps to prescribe guidelines for energy conservation building codes Develop testing and certification procedure and promote testing facilities for certification and testing for energy consumption of equipment and appliances Promote use of energy efficient processes, equipment, devices and systems Specify qualifications for the accredited energy auditors, the manners and interval of time in which the energy audit shall be conducted by such auditors Specify certification procedures for energy managers to be appointed by designated consumers

6. Energy Division 6 02/09/2015 Prepare educational curriculum on efficient use of energy and its conservation for educational institutions, boards, universities or autonomous bodies and coordinate with them for inclusion of such curriculum in their syllabus Power of State Government: Amend the energy conservation building codes to suit the regional and local climatic conditions Direct every owner or occupier of a building or building complex being a designated consumer to comply with the provisions of the energy conservation building codes Direct if considered necessary for efficient use of energy and its conservation, any designated consumer to get energy audit conducted by an accredited energy auditor in such manner and at such intervals of time as may be specified by regulations Designate any agency as designated agency to coordinate, regulate and enforce provisions of EC Act 2001 within the State Take all measures necessary to create awareness and disseminate information for efficient use of energy and its conservation Expected Outcome: Barriers for EE & DSM to be removed. The State Regulatory Commissions and Utilities to be encouraged to implement the Conservation initiatives Engagement of Stakeholders Energy Conservation Act - Background

7. Energy Division 7 02/09/2015 Energy Conservation Act - Background Industrial and Commercial users Time of use tariff for industrial and commercial users. Incentives to industry to adopt conservation/ efficiency measures States Encourage implementation of DSM programmes in Agriculture/ Municipalities Domestic consumers Promoting use of low cost CFLs.

8. Energy Division 8 Energy Efficiency- Initiatives Agency & InitiativeComments Revenue Size Bureau of Energy Efficiency Standards & Labeling Reduce Use Consumption Check Testing 9.00 Cr Energy Conservation Building Code Enhance efficiency of buildings Promotion of ESCOs Innovative Financial Products Rating of ESCOs 2.80 Cr Bachat Lamp Yojana Promote EE through CFLs Country wide coverage Est. 6.5 Cr CFLs required 6.00 Cr NMEEE Promotion of PAT Inclusion of DCs for EE 125.00 Cr Misc. Market Development Promotion Activities 18.94 Cr Ministry of Power & BEE SME Programme Energy Audits DPR Implementation Assistance 6.50 Cr MuDSM & AgDSM Database on Baseline Data Bankable DPRs Implementation Assistance 8.37 Cr SDAs Estd SECF22.26 Cr State Level Capacity Building Knowledge Strengthening Policy & Reforms Energy Conservation Action Teams 12.00 Cr

9. Energy Division 9 02/09/2015 Demand Side Management

10. Energy Division 10 Introduction to DSM 02/09/2015 Main Drivers for DSM Prevention of Future Electricity Crises Reduce Cost for Capacity Addition Reduction in Energy Prices IndustrialAgricultureCommercialDomesticMunicipalitiesUtilities Demand Side Management (DSM), entails actions that influence the quantity or patterns of use of energy consumed by end users, such as actions targeting reduction of peak demand during periods when energy-supply systems are constrained. Peak demand management does not necessarily decrease total energy consumption but could be expected to reduce the need for investments in networks and/or power plants.

11. Energy Division 11 02/09/2015 Type of DSM Programs Energy Efficiency Efficiency equipment upgrades that provide long term energy savings can provide peak demand reductions “Peak Shaving” Programs Load reductions during peak hours or whenever supply/demand margin is tight includes interruptible / curtailable load which can be called upon when needed or demand response which relies on voluntary load reductions

12. Energy Division 12 02/09/2015 Reduced customer peak and overall energy demandImproves the electric grid's reliabilityBalances the electric grid through increased efficiencyEnergy efficiencyManages electricity costs DSM Measures Load managementFuel switchingDistributed energyEncourage load shifting or load shedding

13. Energy Division 13 Approach to DSM 02/09/2015 Demand ForecastingLoad Profiling Selecting Load Shape Objectives Area SelectionCost Benefit Analysis Identify Sources of Financing Cluster Identification Assessment of DSM / Cost Benefits Implementation Plan Regulators can make certain DSM Measures mandatory, arrange for financing through incentivization, create consumer awareness, develop ESCOs, create templates, DSM plans, DSM design, selection criteria etc.

14. Energy Division 14 02/09/2015 Energy Service Company- Performance Contracting

15. Energy Division 15 Introduction to ESCOs 02/09/2015 In the Indian context, Energy Service Companies (ESCOs) identify and evaluate the energy savings potential in industrial units, commercial complexes, hospitals, municipalities and utilities, among others, by using energy audit tools. On completing a detailed audit they recommend a set of energy conservation measures which on implementation can pay for the investment through the resultant savings. Types of ESCOs in India Consulting based Vendor based Energy Savings Guarantees Commissionin g FinancingIntegrators Energy Audit Engineering Design Equipment Design Construction & Project Management Performance Monitoring & Verification

16. Energy Division 16 ESCO Contract Models 02/09/2015 Guaranteed Model ESCO Responsibility - Project Development, & Implementation Financing - Mainly Client Share of Savings – Smaller share (≈20%) Risk- Performance risk Payback period – 2-10 years ESCOs can do more projects without getting more leveraged Guaranteed Model ESCO Responsibility - Project Development, & Implementation Financing - Mainly Client Share of Savings – Smaller share (≈20%) Risk- Performance risk Payback period – 2-10 years ESCOs can do more projects without getting more leveraged Shared Model ESCO Responsibility - Project Development, Financing & Implementation Financing - Mainly ESCO Share of Savings -Recover cost from customers, therefore higher share of the savings (≈70 - 80%) Risk- Both Credit and Performance risk Payback period – Shorter 2 - 14 years Favours large ESCOs “Performance based contract to implement measures which reduce energy consumption and costs in a technically and financially viable manner”

17. Energy Division 17 ESCO – Financial Summary 02/09/2015 The 3 most critical financial needs of an ESCO Meeting Development Expenditure Financing a part of project Cost Sponsor support under Risk Sharing GUARANTEED SAVINGS MODEL SHARED SAVINGS MODEL Common RoIs for Guaranteed & Shared Savings model: Average savings of 23 to 46 percent on baseline energy costs Majority of ESCO projects have < 3 years payback period Savings classified according to the type of Energy Conservation Measure Recommended

18. Energy Division 18 ESCO - Process Mapping

19. Energy Division 19 02/09/2015 ESCO – Planning & Approach

20. Energy Division 20 02/09/2015 ESCO – Planning & Approach

21. Energy Division 21 02/09/2015 Baseline Data Collection& Investment Grade Energy Audit Preparation of Project Design and Technical Recommendations (ECMs) Cost Projections Detailed Project Report Financial Viability and Modeling Structuring Options including risk mitigation and incentives Capacity Building Selection of Implementation Agency Pre & Post Bid Assistance Preparation of Bid Documents Pre Bid Meeting Evaluation of Proposals Evaluation Report Drafting of Contract Agreement Measurement & Verification SECTORALCOVERAGESECTORALCOVERAGE SECTORALCOVERAGESECTORALCOVERAGE Municipalities Commercial Buildings / Green Buildings Agriculture Small & Medium Enterprise Lighting Industries Traditional Approach to EPC

22. Energy Division 22 Modern Approach to EPC EoIEmpanelment Verification of Investment, Technology, Payback, etc RFP – Respond with Technical & Financial Proposal Discussions around M&VLetter of Award Hiring of 3 rd Party Independent M&V Agency Investment Grade AuditOption to Proceed (Yes/No)Implementation of ECMsSavings – Payment to ESCO 3 rd Party M&V – Release of Final Payment

23. Energy Division 23 02/09/2015 Funding Options

24. Energy Division 24 Transaction Model Contracting Agency ESCO Building Owner Financial Institution FINANCIAL SUPPORT – PROJECT FINANCING DIRECT PAYMENT OF INTEREST & PRINCIPAL TO F.I. PAYMENT OF SAVINGS TO ESCO AS PER CONTRACT CONFIRMS SAVINGS AS SHOWN BY ESCO RISK COVERAGE TO F.I. THROUGH PRGF EPC CONTRACTING

25. Energy Division 25 02/09/2015 Technology & Innovation - Due Diligence The Importance of Technology Changes to ESCOs Sources of EE innovation Technology innovation & competitiveness Assessing new technology potential in local market Gathering international competitive intelligence Cost & value analysis of introducing new technology to ESCO project portfolio Incorporation of new technology Technology teams Prototype projects using new technologies Training staff on new operational procedures Managing Risk of New Technologies New technologies in small components Negotiating manufacturers guarantees Hidden cost of new technologies (unexpected maintenance cost)

26. Energy Division 26 02/09/2015 Key Barriers in ESCO Market Development Accurate and latest baseline energy consumption data Financing of ESCO projects through Debt Equity Absence of good M&V guidelines for confirmation of savings Robust performance contracting guidelines Awareness about ESCO performance contracting Disconnection of Energy Audit and Implementation Phases in order to avoid biased recommendation of energy conservation measures Energy conservation is a non-core activity for most consumers.

27. Energy Division 27 Thank You This document does not carry any right of publication or disclosure to any other party. The information in this document has been compiled by Feedback Ventures Pvt. Ltd. (Feedback) based on various public domain sources, primary surveys and interviews and Feedback’s proprietary research. This document is incomplete without reference to, and should be viewed solely in conjunction with, the oral briefing provided by Feedback. Neither this presentation nor any of its contents may be used for any other purpose without the prior written consent of Feedback India’s Leading Integrated Infrastructure Services Company www.feedbackventures.com