energy efficiency policy

interventions in
electricity supply chain
Narayanan A M

July - September 2013

Cascade energy efficiency of Indian power system shows that over 90%
of the primary energy input is lost, on the way from primary energy
input to the power plant to the end use application. About 80% of total
power generated in India is from fossil fuels, and losses of such high
grade affect the economy. The demand-driven nature of power sector
value chain and the potential factors influencing generation, grid
operations, end-user behaviour and the techno-commercial and
operational aspects emphasize the significance of enabling policy
provisions in facilitating, developing, regulating and thereby converging
to the sustainable implementation of energy efficiency.

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39

energy efficiency policy interventions in electricity supply chain

n the electricity supply chain, a substantial portion

of the energy content of the available energy source
is wasted due to inefficiencies in the energy
conversion, distribution and end-use application
processes. Typical cascade energy efficiency of
Indian power system, depicted in Figure 1, shows that
over 90% of the primary energy input is lost, on the
way from primary energy input to the power plant to
the end use application. About 80% of total power
generated in India is from fossil fuels, and losses of
such high grade affect the economy.

Regulatory compliance requirements, land availability

and political compulsions and compromises also
influence the performance efficiency indices. Further,
the economic evaluation of power system has a
strong bearing on factors such as fuel price,
transmission pricing, long-term power purchase
agreements, power trading, tariff structure and billing
and collection efficiency.
The demand-driven nature of power sector value
chain and the potential factors influencing generation,
grid operations, end-user behaviour and the techno-

July - September 2013

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40

Figure 1. Typical Cascade Energy Efficiency of Electricity Supply Chain

The energy losses occurring throughout the chain can

be divided into
w

Intrinsic losses: Unavoidable losses that are a

function of the activity or process and depend on
thermodynamic and physical laws.

Avoidable losses: Losses resulting from suboptimal or poor design, maintenance and
operation

The efficiency figures indicated in Figure 1 are

essentially technical ratios, which are primarily
dependent on equipment or process technology. In
addition to this, technical factors applicable to
operation and maintenance, transmission corridor
availability, schedule and dispatch, centralized versus
distributed generation, demand variation and load
management affect the operational efficiency. The
choice of technologies is influenced by technoeconomics, budget outlay and investment attraction
in the power sector.

commercial and operational aspects emphasize the

significance of enabling policy provisions in
facilitating, developing, regulating and thereby
converging to the sustainable implementation of
energy efficiency.
The various perspectives of cost-effectiveness of
energy efficiency, as applicable to diverse
stakeholders, are one of the key factors to establish
the policy framework to capture the long-term
resource value of energy efficiency. Policy can drive
the commitment necessary to make investments in
energy efficiency. Evaluating the existing policy
provisos for energy efficiency is essential to identify
how much of the country's potential for energy
efficiency resources can be captured.
Subsidies and incentives for encouraging the
implementation of energy efficiency shall have a
definite time frame after which energy efficiency
should sustain on its own.

Energy-related avoidable costs, fuel costs and

other variable costs

Capacity-related avoidable costs with reference to

infrastructure investments

From an environmental point of view, reduced

emissions, including greenhouse gases (GHGs)

Direct savings and reduction in energy intensity

Within each of these categories, policy makers must

decide which specific benefits are sufficiently known
and quantifiable to be included in the evaluation of
cost-effectiveness. Although these parameters are
visible to independent system operators (ISO) or
national load dispatch centers, the absence of a
quantitative index (indices) as a real-time notification
that communicates online efficiency of electricity in
the electricity supply chain may be noted.
Real-time communication of network data has
become a requirement in the wake of
w Open access

there can be many other versions of deregulated

structure.

Trading for power delivered in any

particular minute begins years in advance
and continues until real time, the actual
time at which the power flows out of a
generator and into a load. This is
accomplished by a sequence of
overlapping markets. The earliest amongst
these are forward markets that trade nonstandard, long-term, bilateral contracts.
This generally represents energy trading
between buyers and sellers directly for a
mutually agreed price. This type of trading
stops about one day prior to real time. At
that point, the day-ahead market is held.
The day-ahead market is often followed by
a real-time market.

energy efficiency policy interventions in electricity supply chain

The policy-driven economics of energy efficiency

investments shall encompass

w Power trading

w Deregulation demanding quick responses to

market
w Trend of moving towards restructured power
system etc.

Structure Neutrality of Energy Efficiency Policy

Parameters
Figure 2 shows the representative structure of a
deregulated power system. It should be noted that

In general, real-time transactions require central

coordination, whereas week-ahead trades do not
require the same. Somewhere in between are the
dividing lines that describe the system operator's
diminishing role in forward markets. A larger role for
the system operator implies a smaller role for private,
profit-making entities.
The structure of power sector is moving from a
vertically integrated to a fully restructured model; and
in many cases it is being operated maintaining the
legacy of the vertically integrated structure. This
implies,

Figure 2: Restructured Power Systems - Power, Information and Money Flow

w A single entity owning and operating generation,

transmission and distribution, and customer
services with allocation from central power

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a quarterly magazine of the society of energy engineers and managers / India

w Smart grid enabled new products and services

Trading for power delivered in any particular minute

begins years in advance and continues until real time,
the actual time at which the power flows out of a
generator and into a load. This is accomplished by a
sequence of overlapping markets. The earliest
amongst these are forward markets that trade nonstandard, long-term, bilateral contracts. This generally
represents energy trading between buyers and sellers
directly for a mutually agreed price. This type of
trading stops about one day prior to real time. At that
point, the day-ahead market is held. The day-ahead
market is often followed by a real-time market.

July - September 2013

w Distributed generation with grid-interactive

renewable-based generators

energy efficiency policy interventions in electricity supply chain

July - September 2013

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42

generating stations and long-term power purchase

agreements with independent power producers
w Transactions through power trading

standards, indices and parameters should

be integrated with the energy efficiency
policies.

w Power procurement through tariff-based bidding

w State and central transmission utility overseeing
the grid operations
w National and regional load dispatch centers
performing the technical management
Whatever be the structure, maximization of energy
efficiency shall be integrated in the policy parameters.
Therefore, energy efficiency policy parameters shall
be neutral to the structure of the power system.
Based on such parameters
w

Energy efficiency policies shall be established and

strategies adapted

The legal and regulatory environment to promote

energy efficiency shall be created

Programmes shall be developed, implemented

and updated, which shall include, among others,
such activities as economic and environmental
assessment of action taken, norms and standards,
innovative approaches to financing energy
efficiency, development of databases, and support
for energy-efficient technologies

Impact of Energy Efficiency Policies

Impact of energy efficiency policies on wholesale and
retail electricity costs and tariff, network costs and
tariff, investment in the power sector and
environmental policies are significant to all the key
stakeholders and, in turn, to the country's economy.

The current trend shows that energy bills

will continue an upward trend, with or
without policies, as a result of rising
wholesale energy and network costs.
Although the implementation costs of
policies also increase to warrant
increasing investment, international
experience indicates that energy efficiency
policies deliver increasing energy
efficiency savings and make positive
contributions towards overall socioeconomic development. The point in
question is to what extent efficiency

The current trend shows that energy bills will continue

an upward trend, with or without policies, as a result
of rising wholesale energy and network costs.
Although the implementation costs of policies also
increase to warrant increasing investment,
international experience indicates that energy
efficiency policies deliver increasing energy efficiency
savings and make positive contributions towards
overall socio-economic development. The point in
question is to what extent efficiency standards,
indices and parameters should be integrated with the
energy efficiency policies.
In recent years, the number of energy efficiency
policies implemented has grown very rapidly as
energy security and climate change have become top
policy issues for many governments around the world.
The significance of policy impetus to reach technically
realizable maximum efficiency is shown in Figure. 3.
The potential for energy efficiency stays within the
technical efficiency indices, for a given equipment,
process or technology. At the initial level, efficiency
follows what occurs naturally; this is followed by a
stage driven by specific programmatic activities, in
tandem with techno-economics and facilitations and
compulsions of the economy.

Figure 3: The Potential for Energy Efficiency

A systematic study on the experience with policy

interventions in energy efficiency programmes is
essential to broaden and expand the efforts and
approaches to advance energy efficiency and to
realize maximization of savings and benefits that
energy efficiency offers. Such studies are effective
tools for identifying policy parameters for energy

w maintaining socio-economic growth and

development
w ensuring access to competitively priced and
reliable power

Setting specific targets for energy savings with a

clear road map

Expanding the use of renewable energy sources

Energy efficiency funding programmes

The government can advance the implementation

through the appropriations process.
The process, mostly regulatory in nature, involves
initiatives such as
w

Setting compliance requirements at design,

construction, operation, maintenance and upgrade

Implementation of minimum energy performance

standards (MEPS)

Retrofits: capturing the savings potential within an

established structure

w promoting appropriate pricing/tariff mechanism

Directives, notifications and government orders

w attracting investments in the electricity sector

Development of design-level, factory-level and

field-level test procedures and labs

Inspection and monitoring by certified agencies

and statutes

Incentives and penalties

w providing energy security

w ensuring environmental sustainability
w encompassing diversified primary energy supplies
w enhancing infrastructure and systems

At the supply side, energy resources shall be used

more efficiently, setting efficiency targets and
benchmarks by incorporating appropriate technical
parameters in policy such as those pertaining to
w identifying the potential for energy savings
w increasing the share of renewable sources by
distributed generation; centralized generation;
end-user-end substitution with off-grid power

And non-regulatory policy measures include

w

Development of large-scale awareness

programmes

Capacity building efforts and support

structure/institutional mechanism

Market monitoring to support national regulation

and incentive programmes

w improving plant load factor

Impact studies

w technology mapping

Financing schemes

w outlays for investments in technology upgrade

Regular update on implementation plans

At transmission, distribution and end-use, the

parameters pertain to

Tax reforms

w increasing heat rate in thermal power plants

w minimizing auxiliary consumption
w minimizing support fuel

w identifying the energy efficiency indices

w setting benchmarks and specific targets for
energy savings, with a clear road map
w technology mapping
w outlays for investments in technology upgrade
Energy efficiency provides risk management, as it
diversifies utility resource portfolios which acts as a
hedge against the uncertainty associated with

As per International Energy Agency (IEA), "the impact

of energy efficiency measures can go far beyond
energy savings and be a key contributor to economic
growth and social development. Outcomes are
produced at the individual level, at the sectoral level,
at the national level (including macro?economic
benefits, and benefits to national budgets) and at the
international level" as shown in Figure 4.

energy efficiency policy interventions in electricity supply chain

Energy efficiency policy framework aims to maximize

the technical efficiency while

The energy efficiency policy implementation includes

43
a quarterly magazine of the society of energy engineers and managers / India

Policy Objectives to Improve Energy Efficiency in

Electricity Supply Chain

fluctuating fuel prices and other risk factors.

July - September 2013

efficiency, evaluating efficiency as an alternative to

high-priority supply-side resources and formulating
detailed action plans.

energy efficiency policy interventions in electricity supply chain

a quarterly magazine of the society of energy engineers and managers / India

End-users from manufacturing systems to

transportation choices to home appliances

Independent system operator (ISO)/National load

dispatch centre (NLDC)

Formulation of Energy Efficiency Policy

Parameters

To study the multiple benefits of energy efficiency

shown in the Figure 4, effective models capturing all
pertinent details will be very meaningful to establish
the impact of policy interventions and to formulate
policy parameters.

July - September 2013

Auxiliary service providers

Out of these, trading is prevalent up to about 10%,

and NLDC to some extend acts as an ISO; however,
demand aggregators and auxiliary service providers
are yet to become part of the Indian power sector.

Figure 4: Multiple Benefits of Energy Efficiency

44

When attempting such an exercise, the following

major policies implemented in Indian Power Sector
maybe considered:
w

Enabling provisions in the Energy Conservation

Act of 2001 and the Electricity Act of 2003.

Institutional setup by establishment of the Bureau

of Energy Efficiency (BEE) at the centre and the
state designated agencies (SDAs) at the state
level

Disclosure of company-level energy efficiency

information, in the case of designated consumers

Accelerated depreciation for energy efficiency

equipment

Energy price reforms to guide energy efficiency

initiatives and encourage competitiveness through
the electricity regulatory mechanism

Also reference should be made to the point that

opportunities for realizing energy efficiency are
distributed throughout the electricity supply chain, in
areas such as
w

Generation

Transmission

Distribution

Trading

Demand aggregators

The most important step towards policy parameter

formulation is arriving at an appropriate methodology
well defined for
w

Potential analysis to forecast baseline energy

efficiency

Identifying and screening efficiency measures and

designing programmes

Calculating total savings and selecting the

appropriate cost-effective test

The base line shall be developed based on the

impact of existing policies and levels of energy
efficiency ratios and indices. The cost-effectiveness or
techno-economics involves total resource cost,
societal cost, participant cost, rate-payer impact
measures, programme administration cost tests and
comparison of results from multiple tests. National
policies and state policies that promote investment in
energy efficiency shall be specifically identified.

Characterize the Overall State of Energy

Efficiency
No single metric can provide a comprehensive
parameter of energy efficiency of the electricity supply
chain. The range of matrices shall include
w

Absolute energy savings

Energy performance index (EPI) (e.g., EPI of

Buildings)

Specific energy consumption (SEC) (e.g., Energy

intensity of the industrial sector)

Minimum energy performance standards (MEPS)

Energy productivity: economic output per unit of

energy

GHG reduction (Components such as combustion

Efficiency indices: thermal power plants,

transmission & distribution

The difficulty in assessing energy

efficiency by a single parameter in the
electricity supply chain calls for the need
for cautiously choosing meaningful
matrices for "energy efficiency
parameters". The matrices shall account
for all major policy objectives
quantitatively allocating appropriate weight
to each one. The weight shall be arrived at
judiciously by field study; and data
regarding quantifiable objectives shall be
taken from authentic sources. The range
of matrices can characterize the overall
energy efficiency.

If energy efficiency is either not properly measured or

not adequately tracked, then key stakeholders and
policy leaders may be misreading the real dynamics
of the economic activity, which may lead to policy
prescriptions that are suboptimal and dampen
economic well-being. This discussion highlights the
limitations of traditional methods of accounting
energy efficiency in policy impact assessment.

energy efficiency policy interventions in electricity supply chain

Energy wastage reduction; power recovery

through waste heat recovery; cogeneration

Energy efficiency policies shall demonstrate principles

of net economic and public benefits and economic
efficiency with administrative simplicity.

45

The difficulty in assessing energy efficiency by a

single parameter in the electricity supply chain calls
for the need for cautiously choosing meaningful

National/State Level

Building & Domestic Sector

Change in energy intensity

Energy performance index (EPI): commercial

Energy productivity

EPI: residential

Thermal power plant energy efficiency

Code compliance: Commercial

T&D loss

Code compliance: Residential

Mandatory savings

Labeling

Tax credit; loan programmes

Equipment covered by standards

R&D spending

Off-grid power

Energy efficiency spending

Domestic appliances

Renewable-based generation

Building materials

Green corridor for evacuation

Market transformation

Transportation, non-electric utilities and others

Industry

Electric vehicles

Energy intensity

Investment in electric rail

Cogeneration/Combined heat and power

Water and sewerage utility

R&D in manufacturing

Communication

Voluntary performance agreements

IT sector

Energy-efficient technology

Agriculture

Mandatory energy audit

a quarterly magazine of the society of energy engineers and managers / India

matrices for "energy efficiency parameters". The

matrices shall account for all major policy objectives
quantitatively allocating appropriate weight to each
one. The weight shall be arrived at judiciously by field
study; and data regarding quantifiable objectives
shall be taken from authentic sources. The range of
matrices can characterize the overall energy
efficiency. Typically, as a guideline, the components
that may be taken for the matrices are indicated in
the Table 1. The average rate of energy efficiency
improvement can be quantifiably traced by this
analysis.

July - September 2013

efficiency, generation mix)

energy efficiency policy interventions in electricity supply chain

July - September 2013

a quarterly magazine of the society of energy engineers and managers / India

Energy efficiency is only one of a number

of electricity or power policy objectives for
the government and one of a number of
46 factors that impact the entire electricity
supply chain. Nevertheless, several policy
objectives are interlinked with energy
efficiency, such as financials and
investments, tariff and pricing, mitigation
of greenhouse gas emissions,
development of technological solutions,
reducing energy intensity, and increasing
energy security, reliability and quality,
which are often complementary.

Energy efficiency is only one of a number of electricity

or power policy objectives for the government and
one of a number of factors that impact the entire
electricity supply chain. Nevertheless, several policy
objectives are interlinked with energy efficiency, such
as financials and investments, tariff and pricing,
mitigation of greenhouse gas emissions, development
of technological solutions, reducing energy intensity,
and increasing energy security, reliability and quality,
which are often complementary.
A comprehensive index (indices) to characterize
energy efficiency shall form the basis for formulation
of policy parameters. Such a characteristic index will

indicate the increasing, decreasing or standstill trend

of energy efficiency in tandem with growth in
electricity demand. This characteristic index shall also
help in unification and convergence of the crosscutting programmes in energy efficiency and assist in
decision support, project transactions and technology
applications. Policy parameters with technical ratios
will be a strong enabler for energy efficiency in
electricity supply chain.

Acknowledgement
The author acknowledges the published information in
IEEE Proceedings, International Energy Agency,
American Council for Energy Efficiency and Economy,
Department of Energy, USA, World Energy Council,
Federal Electricity Regulatory Commission, Electricity
Regulatory Commissions, Central Electricity Authority,
Bureau of Energy Efficiency, Electricity Licensees,
Power Companies, and various reputed organizations,
Journals and Universities.

Mr. Narayanan A.M. is a certified

energy manager and auditor and is
presently heading the energy
efficiency division of Energy
Management Centre, Kerala. His
domain of experience includes
electricity regulatory functions,
energy management and execution
of large engineering procurement
and construction (EPC) projects.