Determining the value of energy saving certificate for Indian thermal power sector in context of the PAT energy saving scheme
Student name: Ms Kriti Khurana
Guide: Dr Subir Sen
Year of completion: 2011
Host Organisation: Climate Connect Limited and TERI University
Abstract: PAT Energy Efficiency scheme aiming at enhancing industrial energy efficiency, introduces
social cost of energy. The market of Energy Saving Certificates internalizes the social cost
related to wasteful energy usage and aligns market price of energy with the shadow price of
energy. The Designated Consumers must take the shadow price of energy as reference price to
ascertain their compliance cost for the scheme. The study derives an expression of the marginal
willingness to pay for energy consumption for the power sector by framing theoretical model
under the conditions of PAT energy consumption target.
The model involves the estimation of the production function of the DC thermal power plants
using a flexible specification of production function. Data on 41 thermal power plants with
annual energy consumption above the threshold limit of 30, 000 MTOE is collected from Central
Electricity Authority.
An unrestricted flexible specification of the production function is chosen i.e. the Transcendental
production function. This functional form allows for the substitutability between the inputs, the
non-linearity in the production process and most importantly, the diversity in efficiency among
the thermal power plants.
By deriving the demand and supply schedule of energy under the PAT market mechanism, the
model arrives at the shadow price of energy at Rs 9759 approximately.
Also it is found that the marginal cost of reducing energy is relatively higher for plants that have
low levels of SEC. this implies that the more efficient thermal power plants face a relatively
higher cost of abatement. This insight is in line with the discussion in the PAT Consultation
Document, the seminal policy literature on the PAT Scheme.
