SNAPSHOT

ENERGY EFFICIENCY IN INDIA

This report is derived from an extensive secondary literature survey of the energy efficiency
sector in India. The primary aim of the report is to set the context for understanding the
current state and future evolution of the sector in the country. Briefly, the policy framework
and institutional structure as well as the challenges and opportunities within the sectors
are delineated.

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ENERGY EFFICIENCY IN INDIA

SNAPSHOT

Background
India is one of the fastest growing modern economies of the world
today. With economic growth rates ranging between 8% and 9% in
the last 6 years and a double digit growth rate target for next decade,
the Indian economy has become an energy guzzler. As per the global
environment facility (GEF), industry remains the largest consumer
of energy in the Indian economy; accounting for over 50% of total
primary energy consumption in the country. There are estimated
13 million Micro, Small, and Medium-sized Enterprises (MSME)
contributing to around 45% of manufacturing output, and employing
more than 40 million people. Most of energy intensive MSMEs
depend on inefficient equipment, technology and operating practices,
leading to high energy consumption and significant CO2 emissions.
India has limited sources of conventional energy and is highly
dependent on the imports for coal and oil. A lot of the nations wealth
goes into the import of coal and oil for energy. According to the reports
of World Resources Institute (WRI) Indias energy demand will more
than double in 2030. The volatile situation in oil exporting area raises
concerns of energy security rather than just price volatility. For a nation
like India where internal resources are limited and external resources
are costly and uncertain, the future lies in renewable energies and
energy efficiency.

Market Assessment
According to data from the Indian power ministry, the energy
conservation potential for the economy as a whole has been assessed
as 23% with maximum potential in the industrial and agricultural
sectors. In 2009 the investment potential for energy saving in India
was estimated to be 7.19 billion with annual savings of 183.5 billion
kwh (WRI). These energy savings were estimated to equate to 148.6
million tons of avoided CO2 emissions per year. According to the

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SNAPSHOT

Cleantech group LLC, Indian companies raised around 160 million in

venture capital investment in 2008 and $ 139.4 million in 2009.
The role of the energy services companies (ESCOs) is increasing
rapidly in India. The government has also realized the importance of
these companies and is taking serious steps towards promotion and
development of ESCOs. In 2009 WRI estimated the payback period
for the ESCOs to be only 2 years.
Besides suffering from the energy supply shortfalls, the Indian
economy is also plagued by inefficient technologies and procedures.
According to estimates from a study carried out by the BEE and
National Productivity Council (NPC) in 2009, there is a potential of
energy saving from around 7% to 30% across different sectors. This
implies that energy efficiency offers huge market volumes in India
and holds the key to solving Indias energy problems to a great extent.

Policy and Regulatory Framework

One of the key components to increased energy efficiency in India
has been due to the regulatory framework that the government has
evolved. For instance, in the last 25 years, the Indian government has
initiated six major industrial energy efficiency policies:
1. Requiring the disclosure of company energy efficiency
information.
2. Accelerated depreciation for energy efficiency and pollution
control equipment.
3. Establishment of the Energy Management Center.
4. Removal of price and output controls to promote industrial
competitiveness.
5. Energy price reforms designed to guide energy efficiency
initiatives.
6. Passage of the Energy Conservation Act and the Electricity Act.

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SNAPSHOT
The Energy Conservation Act created the Bureau of Energy Efficiency
(BEE), a statutory body under the Ministry of Power. The BEE promotes,

Barriers for Energy Efficiency

Cross-subsidized

electricity

prices

leading to wastage in residential and

agricultural sectors.
Limited information about the benefit
of energy efficiency investments and
technologies.
Lack of enforcement of standards,
codes, and labelling.
Mistrust of counterparties in the
context of weak contract enforcement.
Bias

against

disposal

of

the

counterintuitive

existing

plant

and

equipment.
Difficulty of measuring negawatts
(or efficiency savings) in the context

manages, finances, and monitors energy efficient efforts throughout

the economy, including the industrial sector, through energy audits.
It has the statutory authority to mandate energy efficiency standards.
The BEE has created various task forces within several industrial
sectors

cement,

paper,

aluminium,

steel,

fertilizer,

and

petrochemicals. The BEE has now recently set out action plans for
the industrial sector, designed to improve energy efficiency. They
have directed industrial energy consumers to:
1. Designate a certified energy manager to take charge of energy
efficiency activities.
2. Obtain energy audits by certified auditors at designated intervals.
3. Provide the designated agency energy consumption information
and action taken based on the recommendations of the auditor.
4. Comply with energy consumption norms and standards, or provide
plans to achieve compliance within a designated timeframe.
In a sign that the BEE is serious about energy efficiency in industry,

of project cash flows.

Asymmetric risk/reward distributions
(mostly in the building sector for
owner/investors versus tenants).

it took the further step of preparing energy efficiency targets for

580 industrial units operating under eight sectors, which all together
consume over 44% of Indias energy use.

Competing objectives in complex

In another step, the BEE established a consortium of companies that

planning situations involving new

will look specifically at establishing guidelines for electrical, cooling,

investments and development.

operations, maintenance, information technology, and infrastructure

Inadequate investment in supportive

institutional mechanisms and human
resources.
High

transaction

costs

from

legal, technical, and transactional

management in an effort to show that reducing power consumption

will lead to cost savings.

Indicative Opportunity Spaces

The main opportunities in the energy efficiency lie in the following areas:

complexities, like non-standardized

Operations and maintenance systems.

deal

Technologies and best practices.

structures

and

substantial

technical content of project appraisal,

Waste heat recovery and steam utilization.

development, and monitoring.

Use of improved materials.

Use of efficient lightings, heating and cooling.
Use of efficient cooking.
Use of improved fuels.

Government Initiatives:
The following steps were taken by the government of India in order to
create the market demand for the energy efficiency in India:
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SNAPSHOT
1. Preparation of bankable projects in various sectors like
Government buildings, municipalities, agriculture, SMEs About 1200 projects to be ready for implementation 2011 with
an estimated investment of about 733.84 million.
2. Mandating all large Government buildings to undertake energy
efficiency in 2013 - about 8000 large buildings with investment
potential of 1.47 billion.
3. Setting appliance standards and making them mandatory.
4. Setting up norms for large energy intensive industries like
thermal power, fertilizer, cement, pulp & paper, chlor alkali,
steel, textiles, railways and aluminum. An investment in new
technologies of 4.4 billion is expected.
5. Massive mass media campaign to enhance awareness amongst
stakeholders.
6. National Energy Conservation Awards for best performing
industries in energy efficiency.

The Indian Energy Efficiency Trading

Scheme:
Indian industries ever-increasing demand for energy has led the
government to mandate efficiency savings on hundreds of the largest
energy users. The Indian Governments Bureau of Energy Efficiency
(BEE) is introducing the Perform, Achieve and Trade (PAT) scheme.
The formal energy reduction targets under the PAT mechanism have
been drafted and Phase 1 of the scheme has started in 2011.
Efficiency improvement targets will be given to the countrys most

Sources:

energy-intensive industrial units on an intensity basis. The first phase

1. Market opportunities in environmental goods

runs for three years, and aims to achieve 6.6m metric tonnes of oil

and services, renewable energy, carbon finance

equivalent (Mtoe) of energy saving from the baseline of 231.6m Mtoe in

2007. Participants that achieve savings in excess of their target will be
issued Energy Savings Certificates (ESCerts). Sites that underperform
can buy ESCerts to meet their compliance requirement, or pay a

and CATs Country report India, UK Trade &

Investment, October 2008.
2. UK-India Collaboration on Energy Efficiency,
DFID, and UK Trade and Invest, 2011

penalty. Deploying a trading mechanism should ensure that the market

3. India Infrastructure report 2010.

allocates project capital such that total desired savings are achieved in

4. Energy Efficiency in the U.S. and India: A

the most cost effective manner. International equipment manufacturers

Study in Contrasts and Possibilities, Evolution

will benefit as replacement of old equipment is brought forward, and

markets, 2010.

enhancements are made to existing equipment to improve efficiency.

5. http://www.beeindia.in/

Disclaimer
All information provided in this publication has been compiled from reliable sources. Although reasonable care has been taken to ensure that the
information in this publication is true and accurate, such information is provided as is, without any warranty, express or implied as to the accuracy or
completeness of any such information. EBTC shall not be liable for any losses incurred by any person from any use of this publication. Readers should
consult their legal, tax and other advisors before making any investment or other decision with regard to any business in India.

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Notes

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Notes

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Copyright 2011 European Business and Technology Centre. 111031_1_SNA

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