Page 325 - Low Carbon Development in China and India
P. 325
Some of the barriers in implementing DSM measures in India include
lack of necessary institutional capacity and funds, lack of clarity about
baseline data and monitoring and verification (M&V) protocol, and
non-availability of financing options to develop a practical approach
for undertaking energy efficiency and demand-side management
initiatives. Thus, regulatory interventions to ensure adequate funding
for design, development, and implementation of DSM initiatives by
utility companies are essential.
Currently, the tariff regulation for determining the Aggregate
Revenue Requirement (ARR) in India does not have an exclusive
provision under which the state utilities can book the expenses
incurred by it for various DSM initiatives. The State Commission could
consider providing suitable provisions under the tariff regulations to
allow recovery of DSM related expenditure as part of the ARR. This
would create the necessary funding for the design and implementation
of DSM initiatives by the states. For instance, a certain percentage of
the ARR could be utilized for DSM programmes—this percentage
could be worked out on the basis of the indicated savings from the
power purchase costs and peak clipping. In this way, the utility will
be certain of recovering the costs through consumer tariffs, and will,
therefore not be reluctant to undertake DSM measures which would
benefit the state.
Financing many of the DSM initiatives through commercial
banks remains challenging, as they often do not meet the standard
investment criteria, such as collateral requirements. Energy Service
Companies (ESCOs) can be helpful here. An ESCO provides a wide
range of comprehensive energy solutions to the client company/utility
which includes design and implementation of energy savings projects,
energy infrastructure outsourcing, and risk management. The ESCO
typically signs a contract with the client company/utility to finance
and implement DSM projects; it may borrow the amount required
for the project and repay it from project revenues which it gets back
over the contract period. In case a project does not provide returns
on the investment, the ESCO is responsible for paying the difference.
The different energy services that ESCOs provide include energy
audits, energy management, energy or equipment supply, etc., to the
client company/utility. ESCOs may also provide or arrange financing.
A full-service ESCO business model includes designing, financing and
implementation of the project. Here the ESCO verifies energy savings
and shares an agreed percentage of the actual energy savings over a
fixed period with the client company/utility.
290 Low Carbon Development in China and India
lack of necessary institutional capacity and funds, lack of clarity about
baseline data and monitoring and verification (M&V) protocol, and
non-availability of financing options to develop a practical approach
for undertaking energy efficiency and demand-side management
initiatives. Thus, regulatory interventions to ensure adequate funding
for design, development, and implementation of DSM initiatives by
utility companies are essential.
Currently, the tariff regulation for determining the Aggregate
Revenue Requirement (ARR) in India does not have an exclusive
provision under which the state utilities can book the expenses
incurred by it for various DSM initiatives. The State Commission could
consider providing suitable provisions under the tariff regulations to
allow recovery of DSM related expenditure as part of the ARR. This
would create the necessary funding for the design and implementation
of DSM initiatives by the states. For instance, a certain percentage of
the ARR could be utilized for DSM programmes—this percentage
could be worked out on the basis of the indicated savings from the
power purchase costs and peak clipping. In this way, the utility will
be certain of recovering the costs through consumer tariffs, and will,
therefore not be reluctant to undertake DSM measures which would
benefit the state.
Financing many of the DSM initiatives through commercial
banks remains challenging, as they often do not meet the standard
investment criteria, such as collateral requirements. Energy Service
Companies (ESCOs) can be helpful here. An ESCO provides a wide
range of comprehensive energy solutions to the client company/utility
which includes design and implementation of energy savings projects,
energy infrastructure outsourcing, and risk management. The ESCO
typically signs a contract with the client company/utility to finance
and implement DSM projects; it may borrow the amount required
for the project and repay it from project revenues which it gets back
over the contract period. In case a project does not provide returns
on the investment, the ESCO is responsible for paying the difference.
The different energy services that ESCOs provide include energy
audits, energy management, energy or equipment supply, etc., to the
client company/utility. ESCOs may also provide or arrange financing.
A full-service ESCO business model includes designing, financing and
implementation of the project. Here the ESCO verifies energy savings
and shares an agreed percentage of the actual energy savings over a
fixed period with the client company/utility.
290 Low Carbon Development in China and India
