Energy Saving Certificates Market Mechanism: How is it shaping up?


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20 October 2017

The trading of Energy Saving Certificates (ESCerts) is progressing as scheduled in one of the power exchanges in India. The ESCerts, which have originated from the first PAT (Perform, Achieve and Trade) cycle out of energy interventions carried out by designated industrial units in eight energy intensive sectors of the Indian economy, are now up for trading.

To participate in trading of ESCerts in the power exchange, designated industrial units have to complete a two stage registration process.  First an industrial unit needs to register with ESCerts registry as eligible entity and thereafter it needs to register with the power exchange. The trading rules allow those with issued ESCerts to participate as seller and those with verified shortfall (as compared to their assigned energy efficiency target in PAT cycle 1) to participate as buyer.

Trading sessions for ESCerts have been scheduled for every Tuesday.  We have thus far Chart 1witnessed four such trading sessions starting with the first session on 26th September 2017. The first trading session discovered a clearing price of Rs1200 per ESCert. The clearing price held on to that level in the second session before dropping to Rs.1000 in the third session. In the most recent trading session (4th session) ESCerts price dropped further to Rs.800 per ESCert.

It is worth noting that, in the run up to PAT and through the M&V phase, many speculated (and reasoned) that the price of ESCerts would be upwards of Rs. 10,000.  This stemmed from the belief that the price of ESCerts will be higher than the penalty payable per TOE of shortfall, if that shortfall is not mitigated by purchase of ESCerts. This opportunity cost (penalty price to be precise) prompted many units to peg their ESCert price at Rs.10000 or thereabout.  So the actual ESCert trade price, as we know now, is not good news for sellers. It is very encouraging though for buyers as they now see the possibility of complying at a cost much less than what they had budgeted for.

 Of course, how long this price band holds is yet to be seen. While buyers should be rushing in to purchase their ESCerts at reigning price range, sellers should be really looking at their projected energy efficiency status at the end of second PAT cycle and deciding whether it would be prudent for them to bank their ESCerts rather than sell now.  Sellers also need to take a hard look to see how much room they have to lower their asking price based on their individual circumstance in the face of supply glut and a very low price to start with.

Meanwhile, more and more industrial units are completing the first requirement for trading – registering for becoming eligible entity. There are about 200 designated consumers who have registered as eligible entity – so in the coming days many more Chart 2should be participating in ESCert trade. Till now, the participation in trading has been low. A very small fraction of the total number of designated consumers in PAT cycle 1 has participated thus far. This is perhaps partly because there were not too many units who had fulfilled the requirements of registering as eligible entities in time for participating in the first few trading sessions. To what extent, if at all, this is also due to subdued enthusiasm on account of firstly supply far outnumbering demand and secondly on account of lack of visible market upside is as yet unknown. For buyers the falling price trend till now may have also signalled the possibility of complying at an even lower price by postponing participation.

For a participant in ESCert trading session – successfully transacting would among other things imply that the aspirations of the participant and its insight into the market mood are aligned to the embedded market success requirement. Trading strategy embodiesChart 3 these. Perhaps one way to gauge how good was the trading strategy of participating units, is to look at the success of the bids which emanated from trading strategy and how it is evolving. The trading started with a wide divergence (16.69%) between the maximum purchase bids which could have been theoretically cleared if there was perfect buyer and seller alignment. That divergence has been progressively reducing through the trading sessions. In the fourth trading session that divergence stood at only 0.10%. This is indicative of sellers reacting and quickly aligning their bids to catch the buyer in the face of the fact that supply of ESCerts was reported to be 2.7 times the ESCert demand.

We have with us now the outcome of only four trading sessions. Assuming no repeat participation a maximum of only 150 odd participants has so far participated in the market mechanism. Already 200+ eligible entities have registered with ESCerts registry out of 450+ designated consumers in PAT cycle 1 and many more are on course for registering. There is a significant quantum of ESCert demand yet to be fulfilled through exchange trade.  So it will not be unreasonable to assume that many more will participate in the coming trading sessions. It will be interesting to see which way the ESCert market moves with increase in participants in trade against the backdrop of very low ESCert prices thus far.

Trading data source: ESCerts Market update by IEX published in 

Source of data on eligible entities:

Disclaimer: The content of this article does not constitute any trading advice.

You can download the pdf version of this article at this link:  ADP_EnergySavingsCertificateMarket

Vikram Woollens Sustainability Report 2016-17

Vikram Woollens Sustainability Report 2016-17


Vikram Woollens (VW), a unit of Grasim Industries Ltd., was established
in 1995 and has its manufacturing unit at Malanpur in Bhind district,
Madhya Pradesh, India.

This is our third consecutive report with the company.

VW SR 2016-17 – Final2

Thai Acrylic Fibre Sustainability Report 2016-17

Thai Acrylic Fibre (TAF) is the 5th largest acrylic fibre manufacturer in the world. Our products are marketed under the brand name Birlacril™, which include high quality dyed and raw white tow, top and fibre for various end-uses such as sweaters, blankets, carpets, soft toys and awnings.

This is our 3rd consecutive sustainability report for TAF.

TAF SR 2016-17 -Rev

Energy Saving Certificates (EScerts) – Market Outlook, Trading Strategy and related ponderable

Energy Saving Certificates (EScerts) – Market Outlook, Trading Strategy and related ponderable


– Anupam Das Purkayastha



Finally, the first EScert (Energy Savings Certificate) trade has taken place in IEX (India Energy Exchange) on 26th September, 2017.

An Energy Saving certificate or EScert is an exchange tradable instrument which is issued to an industrial unit in India for generating surplus energy saving of one metric ton of oil equivalent (TOE) beyond the target needed for compliance.

Under the Perform Achieve and Trade (PAT) mechanism of the National Mission of Enhanced Energy Efficiency, industrial units (Designated Consumers or DCs) in the energy intensive sectors of the Indian economy are assigned energy efficiency enhancement targets. To comply, each designated consumer needs to undertake energy conservation and efficiency enhancement measures within a stipulated 3 year period – cycle years. In the third (last year also called target year) of the cycle the assigned targets have to be complied with.

The first such PAT cycle covered the period 2012-13, 2013-14 and 2014-15 and assigned targets to 478 industrial units belonging to 8 energy intensive sectors.

A hallmark of PAT is the market mechanism linked to it. The industrial units which are unable to meet the assigned SEC target end up with a shortfall calculated in terms of TOE. The market mechanism offers a flexible opportunity to industrial units to comply by making good the shortfall in energy performance by purchasing 1 EScert for each TOE of shortfall. The EScerts issued to those with surplus energy savings can be traded with those having shortfall only through an exchange trade mechanism in the designated power exchanges in India. The strike price for the trade is discovered by the market during trading.

The first such trade of EScerts in India was executed on 26th September 2017. Industrial units with their surplus and deficits of first PAT cycle 1 participated in the trade.

Highlights of the first EScert trade in IEX

The first EScerts trading in India took place in IEX – one of the two power exchanges in India designated for the purpose. The discovered price in the first trading session has been reported to be Rs.1200 per EScert.

The exchange received 2,39,644 sell bids and 50,904 buy bids. The volume of trade was 10,904 EScerts.

This implies 21.4% of buy bids transacted successfully whereas 4.5% of the sell bids transacted successfully.

The exchange reported that 77 Eligible Entities are registered in the exchange and 39 of them i.e. 50.6% participated in the first session.

Observations, Analysis and Open questions

We have just experienced one trading session. Given that such trading sessions are slated to take place weekly, there are many more trading sessions to come and the full picture is yet to emerge. Also the registration process for becoming Eligible Entity seems to have speeded up with 162 DCs already registered and 81 reported to be in the pipeline(*). However, it is worth analysing the picture thus far, to look at the first indications or questions which are emerging when the outcome of this trading session is analysed in context.

Traction in first EScerts trading session
Sell Bids in first trade session 6.3% of total supply
Buy Bids in first trade session 3.6% of expected demand
Participants in first trade session 9.3% of expected participants

It was well known that the supply of EScerts is about 2.7 times the demand for EScerts – assuming none of the EScerts are banked. Yet total EScerts offered for sale was about 6.3% of the total issued EScerts (approx.  38.24 Lakhs). The purchase bids amounted to 3.6% of the total purchase requirement (approx. 14.23lakhs).

Till 15th September there were about 126 eligible entities who had registered in EScerts registry. Only 61% of those have participated in the first trading session. Is enthusiasm for trading somewhat muted? Or is this a wait and watch approach adopted in absence of any pricing and other cues for EScerts?

The price of Rs1200 per EScert discovered in the first trading session works out to about Rs.0.10 per kWh. Is this price level good enough to motivate surplus savings in the on-going PAT cycles ie.PAT cycle 2 and PAT cycle 3? Within a corporate set up, is the price good enough to justify CXO interest in the market element of the mechanism and the capex or opex that it is capable of driving or will this rescind PAT to a largely compliance requirement with muted interest in the associated market aspect?

An area of immediate importance for DCs would be to decide what trading strategy to adopt in the upcoming trading session. There are some who would consider this price to be far lower than what they had expected their EScerts to fetch. Given that there were sellers who had offered to sell their EScerts at that price, one can infer that the marginal cost of producing each TOE of surplus saving has been Rs.1200 or lower at the least for the DCs who have been able to sell their offered volumes. How representative is that as cost of producing energy savings for other DCs with surplus will be known from the price discovery in the subsequent trade sessions. So for a DC with the marginal cost of generating the surplus savings (EScerts) greater than the discovered price, it would be prudent to look at the status of energy performance of the 2nd PAT cycle and decide whether banking of cycle-1 EScerts for use in cycle-2 make more commercial sense. What if significant number of DCs with issued EScerts take the banking route? How will it impact the market? If one was a seller with marginal cost of generation of EScerts less than the first trading session’s market clearing price – then for them even at this price there would be room for speculating on the possible upside. Their trading strategy in the upcoming sessions would likely be to maximize the upside from EScert sale.

Unlike RECs (Renewable Energy Certificates), which are also traded in the power exchanges, the regulators have not assigned EScerts a floor and forbearance price. It would be interesting to see whether the outcomes that emerge from subsequent trading sessions trigger a need for fixing a floor or forbearance price, at least in the subsequent PAT cycles.


With commencement of EScerts trading, an important landmark has no doubt been reached in PAT. With this, the 450+ industrial units of 8 energy intensive sectors of Indian economy have reached the last leg of their PAT cycle-1 journey. In the process a massive nationwide framework for systematically driving energy efficiency enhancement and continual energy performance improvement in industry has gotten deployed. This has indeed been a massive endeavour on the part of all stakeholders.

For DCs this has brought in a regime of building credible energy performance improvement. The technical measures which they have undertaken until 2015 have fixed their PAT cycle 1 SEC. Now they need to put in the mechanism in place to deal with the market aspect of their energy savings and compliance. As they do so, they need to set themselves up internally to effectively analyse trading outcomes, assimilate market insights and develop trading strategies for EScerts – be it to capture potential market upside or to comply at the lowest possible cost.

The inventory of clearable EScerts (after discounting excess supply), seems to have been valued at RS.170Crores by the market in the first session. To what extent there will be value enhancement or erosion of the inventory will be known in the coming sessions.


The data used in the article has been referenced from IEX Market Update dated 26th Sept 2017,,,

The views expressed by the author are his personal views. The content of this article does not constitute any trading advice.









What is a Green Bond?

A green bond is a fixed-income financial instrument for raising capital through the debt market. The green bond raises funds for projects having environmental benefits based on what we define as ‘green’.  Green bonds are usually sourced from pension funds, sovereign wealth funds and insurance companies. Green bonds are issued to serve three main objectives in the current market scenario which presents as a barrier to climate mitigation and adaptation activities:

  • Reduce the cost of capital further
  • Stimulate demand from institutional and retail investors
  • Expand and diversify the issuers base.

Types of Green Bond and Applicability Condition Set by Climate Bond Standard

Climate Bonds Standard sets out the requirements that apply to specific types of bonds. Definitions for the Bond Types are provided in the Definitions section of the Climate Bonds Standard. The table below specifies which Requirements are applicable to each Bond Type. The applicable Requirements differ between Bond Types, and address specific risks related to each Bond Type.

Bond Types Applicable Requirements
Use of Proceeds Bond ·         Project Holding

·         Settlement Period

·         Earmarking

Use of Proceeds Revenue Bond ·         Project Holding

·         Settlement Period

·         Earmarking

Project Bond
Securitized Bond ·         Project Holding

·         Earmarking

Other Debt Instrument ·         Project Holding

·         Settlement Period

·         Earmarking


History of Green Bond in India

India is one of popular markets when it comes to issuance of Green Bonds. It featured in the 7th position in terms of issuances in 2016 with issuance of USD 2.7 billion, behind United States, France, China, Germany, Netherlands and Sweden. The history of green bond market in India is well briefed in the figure below.


Axis Bank issued India’s 1st Certified Green bond on London Stock Exchange-The Certification was done by Climate Bond Standard

Defining ‘Green’

The Securities and Exchange Board of India (SEBI) on 30th May, 2017 came out with a circular stating which is the project activities, for which a Debt Security will be called ‘Green’ or ‘Green Bond Security’. The activities are aligned to the Green Bond Principle. The following are the broad categories:-


L&T Infrastructure Finance became the 1st SEBI approved green bond-IFC invests in L&T Infrastructure Finance

Before the development of guidelines by SEBI Internationally recognized Climate Bond Standards lists down a two-step process to determine the eligibility of specific projects as contributors to ‘low carbon’ and climate resilient economy which is well defined in CBS Version 2.1 under clause 9 and clause 10 of the report.

But does the terminology ‘green’ vary?

Yes, the term green will vary with geography and with the functionality of the project activity. All projects that are under ‘green’ may not exhibit the properties of ‘green’ if end effects of such project are detrimental to the society. The Standards stated by SEBI provide for an elaborate list of sectors which would qualify to be eligible projects for Climate Bonds issuances and they are as follows:

Energy Low Carbon Buildings Industry & Energy Intensive Commercial Waste & Pollution Control

•          Wind

•          Geothermal

•          Hydropower

•          Bioenergy

•          Wave and Tidal

•          Energy distribution & management

•          Dedicated transmission

•          Residential

•          Commercial

•          Retrofit

•          Products for building low carbon buildings

•          Manufacturing

•          Energy efficiency processes

•          Energy efficiency products

•          Retail and wholesale

•          Data centers

•          Process & fugitive emissions

•          Energy efficient appliances

•          Combined heat & power

•          Recycling facilities

•          Recycled products & circular economy

•          Waste to energy

•          Methane management





Information Technology & Communications Nature Based Assets Water

•          Vehicles

•          Mass transit

•          Bus rapid transport

•          Water-bourne transport

•          Alternative fuel infrastructure

•          Power management

•          Broadband

•          Resource efficiency


•          Agriculture land

•          Forests (managed and unmanaged)

•          Wetlands

•          Degraded land

•          Other land uses (managed and unmanaged)

•          Fisheries and aquaculture

•          Coastal infrastructure

•          Flood defenses

•          Water distribution infrastructure

•          Water capture & storage infrastructure

•          Water treatment plants

•          Assets in energy & production industries


Process of Issuance of Green Bonds

Issuance of Green Bonds in India will follow the existing SEBI regulations for issuance of corporate bonds as prescribed under ILDS Regulations. However, for describing a corporate bond as green bond, in addition to the compliance required under ILDS Regulations, the Green Bond Principles, 2015 will also have to be disclosed:

SEBI Disclosure Requirements

Over and above the SEBI guidelines the issuer will have to disclose the following points based on Green Bond Principles

  • Use of proceeds: issuers to define and disclose their criteria for what is considered ‘green’ i.e. which projects, assets or activities will be considered ‘eligible’ and how much funds will be spent on.
  • Project evaluation and selection: what process will be used to apply ‘green’ criteria to select specific projects or activities?
  • Management of proceeds: what processes and controls are in place to ensure funds are used only for the specified ‘green’ projects?
  • Reporting: how projects will be evaluated and progress reported, against both environmental and financing criteria.

Alternatively one can get green bonds internationally certified and get it subscribed by international agencies who can list it under foreign stock exchanges. The procedure to achieve such certification is through Climate Bond Standards.

The Climate Bonds Standard & Certification Scheme aims to provide the green bond market with the trust and assurance that it needs to achieve scale. Activating the mainstream debt capital markets to finance and refinance climate-aligned projects and assets is critical to achieving international climate goals, and robust labelling of green bonds is a key requirement for that mainstream participation.

The Climate Bonds Standard sets out clear criteria to verify certain green credentials of a bond or other debt instrument.


India has stated its’ INDC that suggests a requirement of atleast USD 2.5 trillion to finance climate change activities. Introduction of tax free infrastructure bonds amounting to INR 50 billion will help meet a target of 175 GW of renewable energy by 2022 which requires a funding of USD 200 billion. To make green bonds a success the guidelines stated by SEBI and CBS should be integrated to ensure project costs do not supersede the budgeted amount.

Identifying, Assessing and Addressing TBL = Long-term Value Creation

For a long time, annual reports have been the source of information regarding company’s performance, however much of the relevance was in terms of financial data. Companies have now made rapid transition from financial to non-financial data which together demonstrates the agility of the company to survive future shocks. Long term value generation has become a key driver for sustainability and has resulted in addition of several indices – for example: S&P Dow Jones (DJSI) and RobecoSAM together: Long Term Value Creation Index (LTCV). The index is based upon selected criteria which reflect companies’ quality management and its potential to generate long term value which proves to be a driver for RebecoSAM Corporate Sustainability Assessment (CSA).

Investor Seeks – Potential to Generate Sustainable Value

Assessment and disclosure of Long Term Value Creation Index (LTCV) by itself can be a complex exercise which may need significant progress in methodology and subsequent consensus building. In the meantime, businesses may disclose its diligent approach to assess the positive and negative social, environmental and economic value generation across the value chain. This would assist investors to understand and evaluate the potential of the business to generate sustainable value.

Companies generate products and services and in the process contribute to other outputs in the form of waste and by-products. The question that arises is does businesses measure the impact across the entire supply chain? Is it Business as Usual (BAU) or they go beyond it and do impact valuation? The answer is yes, since companies face pressure from its stakeholders, sometimes from NGOs, Government agencies it is necessary for companies to assess the impact. The impact can be positive and negative for society and environment.

Companies while generating the product and services have inputs in the form of raw material used and output in the form of environmental impact i.e.; emissions, waste water and hazardous waste generation, impact on health (negative impact but can be mitigated) social impact being increased productivity, employment (hiring, retention, improved quality of life to the employee and its family, skill development and company earnings) a positive impact.

The economic value generated help company, its employees through salaries, incentives and benefits; , shareholders through dividends and improvement in stock value; creditors through regular uptake and servicing of loan; and government in the form of tax which it pays. However environmental and social value generated (positive) and being affected (negative) by activities of the company is often neglected or limited. Impact valuation will allow companies to know what part of value chain in product generation with maximum environmental and social impact will help companies in assisting their growth paths and where to invest? For example RobecoSAM has come up with three questions that companies need to address:

  • Does the company conduct impact valuation?
  • What type of valuation?
  • Does the company disclose the information to its stakeholders?

    “Business is not all about Profit and Loss anymore – Its has more to do with impact on Society and Environment and its valuation”

Impact valuation help companies in identifying risks which in turn create opportunities for innovation in order to manage the negative impact. For example RobecoSAM surveyed 184 companies from 15 industries of 30 countries for impact valuation. Companies from Europe and Asia-Pacific were leading in impact valuation response evaluation for 2017 with major response from chemicals, metals & mining and oil, gas and consumable fuels industry.

Companies from varied industrial sectors : Beverages, Chemicals, Construction Materials, Containers & Packaging, Diversified Consumer Services, Food Products, Hotels, Restaurants & Leisure, Household Durables, Media, Metals & Mining, Multi line Retail, Oil, Gas & Consumable Fuels Paper & Forest Products, Specialty Retail, Textiles, Apparel & Luxury Goods did undertake impact valuation, however  for efficient impact valuation strategy setting, measuring and improving performance, product development and supply chain management were key inclusive factors that the companies need to address.

What companies lack is strategy setting, measuring and improving performance, product development and supply chain management as key inclusive sustainability factors for decision making for a more efficient impact valuation?

An appealing thing that was addressed in the RobecoSAM survey was: companies are undertaking impact valuation and majority of them are monetizing it. However what companies lacked was disclosure on valuation. A disclosure practice in place will help companies identify material issues and also exhibit to the investors the sustainability impacts which it creates.