Energy Manager Apr - Jun 2012

April - June | 2012 | Vol :: 05 | No :: 2

ISSN 0974 - 0996

innovative financing strategies: vanguard of energy efficiency and clean energy

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Evolving financing approaches On-bill financing The United Kingdom's Green Deal Solar farming potential in India Harmonics - causes and effects

Editorial Consultant Prof. (Dr.) K. K.Sasi |Amrita University, India Guest Editor Akhilesh Awasthy Editor K. Madhusoodanan|SEEM, India Publishing Director Santosh Goenka Co-ordinating Editor Sonia Jose | Energy Press, India Book Design Badusha Creatives Translation Coordinator R. Sudhir Kumar|CPRI, Bangalore Financial Controller K. K. Babu | Energy Press, India Printed and Published by G. Krishnakumar, Energy Press for the Society of Energy Engineers and Managers and printed at St Francis Press, Ernakulam, India Disclaimer : The views expressed in the magazine are those of the authors and the Editorial team | SEEM | energy press | energyΡ manager does not take responsibility for the contents and opinions. Ρ energy manager will not be responsible for errors, omissions or comments made by writers, interviewers or advertisers. Any part of this publication may be reproduced with acknowledgement to the author and magazine.

April - June 2012 | Volume 05 | Number: 2 ISSN 0974 - 0996 Supported by::

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n the time of rising concerns over environment, energy shortage in the country, continued pressure on eliminating nuclear power post Fukushima tragedy and limited fossil fuel stock in the world, focus has rightly moved towards renewable resources. However, use of renewable resources particularly Wind and Solar, requires lot of land resources, is costly as compared with power generated through conventional sources and also that generation from these resources, being difficult to forecast, is difficult to integrate with the grid. This puts a limit to the substitution of fossil fuel based generation with renewables. In view of this it is important to use our resources intelligently. This highlights importance of efficient use of energy which requires implementation of projects, enhancing Energy Efficiency.

Although most of the Energy Efficiency projects could be self financing, getting external finance for the Energy Efficiency projects is really a big challenge owing to the following reasons: a) Identification of Baseline and establishing Monitoring and Verification protocol for Energy Efficiency project is difficult and therefore quantification of the advantage becomes difficult. b) The Energy Efficiency projects typically impacts the P & L account therefore getting acceptance of the management is much more difficult. There is no separate stream of fund which can be identified and escrowed towards the servicing of loan. c) Floor managers feel challenged because suggestion to implement Energy Efficiency projects may, for some time, hamper production and also will highlight existing inefficiencies. d) The assets created out of the Energy Efficiency project becomes part of the main plant and machinery and therefore identification of these assets and creating charge on these assets is difficult. e) Furthermore, once these assets are removed from the main plant and machinery, most of the time, they become junk, and it is difficult to realize value out of such junk. Therefore, even though the assets are separately identified, it serves little purpose for the financier. f)

Complex nature of projects and non availability of standardized template for evaluation make it difficult for the Bankers to analyse a project.

Financing barrier is therefore not necessarily caused by lack of money but the primary problem is inability of the energy efficiency project to access the funds, and it is caused primarily by a "disconnection" between established methods of financing and the fundamental composition of these projects.

Due to the above difficulties various countries across the world have tried to create different mechanisms for financing of Energy Efficiency projects. Some of these schemes are discussed as under:

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Overcoming the financial barrier to energy efficiency

a) Through command and control: Mandating certain schemes for implementation and ensuring whether these schemes are ...continued in page 53

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Editorial Board Prof. Ahamed Galal Abdo | Advisor Minister of Higher Education, Egypt Darshan Goswami | US Dept. of Energy, USA Prof. (Dr.) Hab Jurgis Staniskis | Director, Institute of Environmental Engg., Lithuania Dr. R. Harikumar | General Secretary, SEEM, India Prof. P.A. Onwualu | DG, RMR&D Council, Nigeria R.Paraman |Devki Energy Consultancy,India Ramesh Babu Gupta | India Dr. Rwaichi J.A. Minja | University of Dar Es Salaam, Tanzania Prof. (Dr.) R. Sethumadhavan | Anna University, India Prof. Sujay Basu | CEEM, India

(Mr. Akhilesh Awasthy is the Sr. Vice President, Market Operations, of Indian Energy Exchange Limited. He has long qualitative and enriching techno - commercial experience in the power sector. He has devised systems and procedures for operations of the exchange which is catering to more than 1500 grid connected entities, flawlessly.)

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Advisory Board Dr. Bhaskar Natarajan | C-Quest Capital, India Binu Parthan | REEEP, Vienna Dr. Brahmanand Mohanty | Advisor, ADEME M.C. Jain | President, SEEM, India Dr. B.G. Desai | Energy Expert, India C. Jayaraman | SEEM, India Dr. Kinsuk Mitra | Winrock International, India Dr. G. M. Pillai| WISE, India Dr. N.P Singh | Advisor MNRE, India Prof. P.R. Shukla | IIM Ahmedabad, India

editor's note

energy efficiency investments build upon credible energy audits I

ndia, is one among the top three energy consuming nations of the world. Together with China and Brazil, it also accounts for well over half of developing country energy demand. Added to this is the fact that the international financial and economic crisis, and the volatility of energy prices threaten not only our economic well being but also our ability to address other goals like climate change mitigation. It is here where the global community has to keep its eyes and ears open to a priceless opportunity - the untapped energy efficient potentials hidden across all sectors: buildings, industries and transport. Most importantly, all of these rely on the finance sector for implementation.

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In the industrial scenario, be it in the installation and commissioning of new facilities or restructuring investments in existing facilities, policy and regulatory tools are the energy efficiency promoter's best weapons for influencing technology choice as part of broader investment decisions.

Even for projects that only target energy cost savings, appropriate policy and regulatory interventions are the need of the hour, which can facilitate the packaging and delivery of commercial financing for many viable projects. Analysis by International Energy Agency (IEA) shows that government policies can help the scaling up of investments in energy efficiency projects, and goes on to say that governments should focus on creating enabling environments for private investors through appropriate mechanisms such as risk sharing instruments or preferential rate loans. Providing increased information to customers, as well as training private investors' staff, are also necessary measures.

Framing stimulus and rescue packages to ensure a scaling up of energy efficiency will not only boost the economy and create jobs but also set off the transition to a low-carbon economy.

However, this path is not without challenges. Experience suggests that the three biggest causes of operational failures in energy efficiency financing projects are mismatches between the solutions attempted and local institutional environments, lack of proper balance between financial intermediation functions and technical assessment functions, and lack of sustained effort and follow through especially during implementation, in response to market changes or operational inefficiencies. In the Indian context, the key impediments to effective energy efficiency investment through the market are high transaction costs; perceived high risks driving up the implicit discount rates associated with projects; and difficulties in structuring workable contracts for preparing, financing, and implementing energy efficiency investments. The most common impediments found in the uptake of energy efficiency retrofit projects include lack of information, lack of trained personnel or technical and managerial expertise, regulatory biases or absence of regulations, high initial

capital cost or lack of access to credit, high user discount rates, mismatch of the incidence of investment costs and energy savings, and higher perceived risks of the more efficient technology.

Financing may be found from any of a variety of sources, including internally generated funds of enterprises themselves; informal arrangements for loan or equity financing from shareholders or other financiers related to enterprises; formal loans from financial institutions; or, occasionally, various types of equity injection. For sustainable and sizable channels of financing, however, the local banking sector is ultimately the key in almost every country.

In addition to the problems faced by industrial units in formulating energy efficiency projects, financial institutions too face barriers in lending to small and medium enterprises, including high transaction costs per loan and the increased risk associated with lending to smaller clients. An answer to this is the cluster approach which brings specialized technical support and outreach to smaller enterprises and also results in substantial reductions in transaction costs per loan.

With strong requirements for specialization, efficient packaging, and financial intermediation, the energy efficiency business is particularly dependent upon prevailing local economic institutions. The successful design of energy efficiency investment delivery mechanism inevitably includes customization of program solutions to match the local business, a thorough understanding of applicable contracting and legal systems, and organization of technical specialist capacities. SBI, India's largest public sector bank and the Small Industries Development Bank of India (SIDBI) are two of the leading financial institutions that promote, finance, and develop the industrial sector in the country.

Because different EE technologies and different types of organizations require distinct types of finance depending on their particular stage of development, financial instruments are needed along the entire finance range from conception to construction and commercial operation.

Hope you will enjoy reading this edition of energyΡ manager magazine focusing on Energy Efficiency Financing. This edition also comes with a free 52 page exclusive supplement on Power Quality Management, brought to you as a part of APQI education series, which is sure to serve as a reference material for those with academic interests. We look forward to your comments and feedback on the magazine as well as the supplement.

K. Madhusoodanan Editor

(Please contribute your articles and case studies to reach the editor at madhukoovaprath@gmail.com or energymanagerhq@gmail.com)

content The United Kingdom's Green Deal: a solution with a few problems, or a problem with few solutions?

Julian Miller State of the market in environmental finance Murali Kanakasabai and Fang Yu Liang Renewable Energy Solar farming potential in India Darshan Goswami Energy Management Energy management - the intelligent response to environmental issues Ram Sinha Harmonics - causes and effects David Chapman Best Practice Resilient and reliable power supply in a modern office building: case study Angelo Baggini and Hans De Keulenaer A rare case of low leading power factor Dalip Singh

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

On-bill financing may address barriers to energy efficiency Kenneth J. Anderson

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April - June 2012

Cover Feature Innovative financing approaches: evolving, but a long way to go Ojasvi Gupta and Arvind Mohta

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innovative financing approaches:

evolving, but a long way to go

Ojasvi Gupta and Arvind Mohta

innovative financing approaches: evolving, but a long way to go

For funding of renewable energy projects, apart from the conventional means of finance, some nonconventional means have also been explored in recent years such as export credit agencies (ECAs), renewable energy certificate (REC) financing, CDMbased financing and securitization. ECA is becoming very popular, particularly in the solar space. Renewable power plants can be registered as CDM projects, and the CERs obtained can provide an additional stream of revenue. In addition, developers, instead of delaying projects, may finance projects during their development phase with funds borrowed at market-determined interest rates, and, at a later stage, resort to refinancing at reduced interest rates, when the cash flows are established for the project. The appetite of lenders for financing renewable energy projects is also improving, based on their past experience. However, these markets still seem to be in the developmental phase, and further changes are necessary for them to be more effective.

During the past 5 years, renewable energy portfolio has grown at a CAGR of 26% (see Table 1). This growth has been at a faster pace in comparison to the growth of conventional sources of energy. At present the share of renewable energy in India is approximately 12%, most of which is contributed by wind energy.

Table 1: Comparison of Growth Rates of Conventional and Renewable Sources of Energy

Particulars

2007

2012

CAGR

Thermal

86,015

131,603

9%

Nuclear

3,900

4,780

4%

34,654

38,990

2%

7,760

24,503

26%

Hydro Renewable Source: CEA

The government has introduced various schemes and policies to encourage the generation and use of renewable energy. Some of the major initiatives taken include renewable purchase obligations (RPOs), Jawaharlal Nehru National Solar Mission (JNNSM), accelerated depreciation (AD), generation-based incentives (GBIs), concessional banking and preferential tariff.

The major driver for promoting renewable energy is the state electricity regulatory commissions' (SERCs')

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enewable energy looks set to play an important role in the Indian energy mix as a result of increasing awareness of climate change combined with rising coal prices. To date, India has scarcely begun to tap the potential of renewable energy in comparison to other developed nations. In order to develop renewable energy to its fullest potential, the Ministry of New and Renewable Energy (MNRE) has formulated the goal of increasing grid-connected renewable capacity to 72,400 MW by 2022, which is 3 times the present installed capacity of approximately 24,503 MW. This would require the renewable portfolio to grow at a compound annual growth rate (CAGR) of 11.4% for the next 10 years.

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innovative financing approaches: evolving, but a long way to go

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Routes of Financing: Balance sheet-based financing: This option is mostly feasible for large conglomerates with a strong balance sheet. This route is better in the sense that it helps the developer to get a lower rate of financing. However, this results in exposure of the company to the risks entailed by renewable power plants.

Non-recourse or limited-recourse project financing: In this option the financial institution provides loan to a special purpose vehicle (SPV) to set up the project. This structure keeps the developer's balance sheet free from any exposure to the risks associated with the project. In this case, the lender seeks comfort from the EPC contractor/technology provider through performance guarantee for long-term performance of the project and revenue guarantee in the form of long-term power purchase agreement with consumers.

Sometimes lenders insist on sponsor support for cost overrun of the project.

making mandatory of the compliance to RPO. Also, the central government, in order to promote solar energy, has introduced JNNSM, whereby the government has set an ambitious target of 20,000 MW solar capacity by 2022. In addition to this, the renewable energy projects (except wind power plants) can avail AD to get tax benefits. GBI is another form of incentive whereby the developer can earn extra revenue from renewable projects.

As per National Electricity Plan (January 2012), renewable energy is envisaged to contribute around 19% of the total capacity addition of 98,190 MW in the 12th five-year plan.

Table 2: Investment Requirement for Renewable Energy Development

Particulars

Capacity Addition 2012-2017 (MW)

*Investment (Rs. in Crores)

Solar

4,000

40,000

Wind

11,000

66,000

Others

3,500

21,000

Total

18,500

1,27,000

*Investment required per megawatt: Solar - Rs 10 Crores; wind & others - Rs 6 Crores.

The total investment required for development of 18,500 MW of renewable energy in the 12th five-year

plan is approximately Rs. 1.27 lakh crores (see Table 2). It is expected that growth in the renewable energy space would continue considering the strong growth witnessed during the 11th five-year plan, wherein it was able to maintain the momentum, in spite of the risks involved in renewable power projects such as technology risk (non-proven technology, technology obsolescence), resource risk (inadequate field study), and tariff and regulatory risks. This was possible because of the major initiatives taken by the government, regulatory agencies and financial institutions such as Asian Development Bank (ADB) and US EXIM. One such initiative was the partial credit guarantees (PCGs) issued by ADB in favour of the foreign and local commercial banks lending money to solar power generation projects in India. This facility supports multiple projects up to a maximum size of 25 MW under a solar power programme with the central or state government. The PCGs are provided without the government's counter-guarantee.

Means of Financing in the Renewable Energy Space Apart from the conventional means of finance, some non-conventional means have also been explored in recent years, such as export credit agencies (ECAs), renewable energy certificate (REC) financing, CDMbased financing and securitization, for funding of renewable energy projects.

Many banks provide financial assistance for projects that import a substantial part of the project. In such situations, a good option is to go for financing through ECA. Developers can tap this source of financing at lower interest rates. In India this source of financing is mainly prevalent for solar energy projects, since most of the equipment for these plants is imported. It has been observed that EXIM Bank of the United States is showing active interest in financing solar projects in India for equipment imported from the United States.

Export Credit Agencies ECAs are financial institutions that provide trade

Table 3: Some companies that have opted for ECA Financing

Name of the Company

Amount

($ Million) RPOWER

80

Dalmia Power

30

Acme

19

Tatith Energies Gujarat Private Ltd.

19

Source: SBICAP Analysis

We understand that this source of financing would be available to more developers in the future, as it is a win-win situation for both the developer and the foreign equipment supplier. The main attraction of such financing is that developers are given access to a cheaper source of finance which is very essential for the viability of renewable energy projects and at the same time foreign equipment suppliers are able to establish their footprint in a growing economy like India.

The National Action Plan on Climate Change (NAPCC) has stipulated that a dynamic minimum renewable purchase target of 5% (of total grid purchase) may be prescribed for FY 2009-10 and this should increase by 1% each year for a period of 10 years, thereby reaching 15%

by FY 2020. In states where there is little or no renewable energy potential, the distribution licensee has the option to purchase RECs to fulfil their RPO.

The National Action Plan on Climate Change (NAPCC) has stipulated that a dynamic minimum renewable purchase target of 5% (of total grid purchase) may be prescribed for FY 2009-10 and that this should be increased by 1% each year for a period of 10 years, thereby reaching 15% by FY 2020.

innovative financing approaches: evolving, but a long way to go

Electricity Act 2003 mandates SERCs to promote renewable sources of energy by specifying the percentage of total consumption of energy to be sourced from renewable sources in the area of a distribution licensee. Thus, SERCs mandate renewable power obligations (RPOs) under which a distribution licensee has to purchase a minimum quantum of renewable energy.

In states where there is little or no renewable energy potential, the distribution licensee has the option of purchasing RECs to fulfil their RPO. RECs were launched for the first time in November 2010. RECs are issued to the renewable power producers who sell power at a cost which is at par with or below the average power purchase cost (APPC) of the distribution licensee. These RECs get traded on power exchanges, namely, Power Exchange India Limited (PXIL) and Indian Energy Exchange (IEX), within a price band (floor price and forbearance price) as decided by Central Electricity Regulatory Commission (CERC) from time to time. The floor and forbearance prices for RECs till 2017 are as given in Table 4.

Table 4: Floor and Forbearance Price of RECs valid till 2017 as Stipulated by CERC

Price

Non-Solar REC

Solar REC

Forbearance Price

3.3

13.4

Floor Price

1.5

9.3

Source: CERC

Figures 1 and 2 present the trend of REC trading at both the energy exchanges since their inception.

Around 408 renewable energy projects with an aggregate capacity of 2496 MW have been registered with the National Load Dispatch Centre for sale of RECs. In recent times a few projects have been financed based on RECs, mainly in the non-solar space, where revenue realization from the RECs is being considered when sanctioning loans to developers.

However, financing of projects purely on the basis of REC revenues is yet to take centre stage because of some obstacles like skewed trading mechanism

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In India this source of financing is mainly prevalent for solar energy projects, since most of the equipment for these plants is imported. It has been observed that EXIM Bank of the United States is showing active interest in financing solar projects in India for equipment imported from the United States (see Table 3).

REC-based financing

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financing to domestic exporters for their international activities like export of equipment, technology and so on. Many banks, including EXIM, provide financial assistance for projects that import a substantial part of the project. In situations where the main technology providers are from a foreign country, a good option is to go for financing through ECA. Developers can tap this source of financing for lower interest rates. However, one should also take into account hedging costs while availing such a facility.

innovative financing approaches: evolving, but a long way to go

Figure 1: REC Trading at IEX

Figure 2: REC Trading at PXIL

As an alternative to reducing carbon emission in their own countries, these countries may pay for greenhouse gas emission reduction in other countries which primarily include the developing countries. This can be done through purchase of certificates of emission reduction (CERs) from them. This mechanism is called clean development mechanism (CDM).

CERs, which are traded through energy exchanges, are issued by the CDM executive board to projects in developing countries to certify the amount of reduction in greenhouse gases emission, expressed in tonnes of CO2 equivalent (tCO2 - e).

Renewable power plants can be registered as CDM projects, and the CERs obtained can provide an additional stream of revenue (see Figure 3), which has been proven to be essential for the viability of such projects.

Figure 3: Project Structure for CER Assets

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towards the end of the financial year, dependency of RECs' benefits on APPC, and smaller control period for stipulated floor and forbearance prices in comparison to the life of the power plant. Meanwhile, credit enhancement in some form or financing with sponsor support seems to be the option preferred by the lenders for REC-based projects.

CDM-based financing The main objective of United Nations Framework Convention on Climate Change (UNFCCC) is to stabilize greenhouse gas concentration. Under UNFCCC, the Kyoto Protocol was mandated which legally binds the major developed countries, who have historically contributed the most to climate change, to reduce their carbon emission to the level decided under the protocol.

CERs, which are traded through energy exchanges, are issued by the CDM executive board to projects in developing countries to certify the amount of reduction in greenhouse gases emission, expressed in tonnes of CO 2 equivalent (tCO2 - e).Renewable power plants can be registered as CDM projects, and the CERs obtained can provide an additional stream of revenue, which has been proven to be essential for the viability of the projects.

Even though CDM is an additional source of revenue, in India this route of financing is still not very popular, and majority of lenders and other financial institutions are not willing to take exposure on CDM. There are various issues with CDM like the CDM project registration process being slow, fluctuating CER prices and so on. Also the commitment under the Kyoto Protocol exists only up to December 2012, and there is uncertainty with regard to the future.

Once the renewable power project is operational, the project could be refinanced with a more favourable debtequity ratio and longer maturity period.

The refinancing could be done with longterm mezzanine capital, which can come from pension funds or mutual funds, as they require regular dividend flow.

innovative financing approaches: evolving, but a long way to go

Various financial institutions securitize the future cash flows of existing renewable energy projects, which can be utilized for future business expansion in renewable energy and energy efficiency sectors.

Currently the renewable energy market is a niche, and it is expected that going forward this market will experience high growth considering the increasing cost of conventional sources of energy. However, much would depend on government policies and initiatives such as monitoring renewable purchase obligations (RPO), improving financial capability of distribution companies (discoms) and continuing the must-run status of renewable energy projects.

Although the cost of conventional power is increasing and the cost of renewable power is showing a decreasing trend, grid parity is still to be achieved.

Due to grid disparity, presently the renewable projects are supported by various government schemes like depreciation benefit and generation-based incentives, and by financial institutions (ADB/Word Bank) by way of partial credit guarantee, lower interest rates and so

At present the conventional sources of financing are more prevalent in the renewable energy space, but going forward, the renewable energy space has to rely more on non-conventional sources of financing like ECA and revenue realization from RECs and CERs. ECA is becoming very popular, particularly in the solar space. Also developers, instead of delaying projects, may finance the projects during their development phase (where the commissioning period is 6-9 months as compared to 4-5 years for conventional power) through funds borrowed at market-determined interest rates and, at a later stage, resort to refinancing at reduced interest rates when the cash flows are established for the project.

Moreover, with the appetite of lenders for financing renewable energy projects improving, based on their past experience, it is expected that more nonconventional structures will find their place in the market. However, these markets still seem to be in the developmental phase, and further changes are necessary for them to be more effective.

(Mr. Ojasvi Gupta is Assistant Vice President in Project Advisory and Structured finance services at SBI Capital Markets Limited in Mumbai.

Mr. Arvind Mohta is Manager in Project Advisory and Structured finance services at SBI Capital Markets Limited.)

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Once a renewable power project is operational, the project (especially wind and solar, which are immune to fuel risk) could be refinanced with a more favourable (high) debt-equity ratio and a longer maturity period. This refinancing could be done with long-term mezzanine capital, which can come from pension funds or mutual funds, as they require regular dividend flow.

on, but the sustainability of such supports cannot be ensured.

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Securitization

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on-bill financing

may address barriers to

energy efficiency Kenneth J. Anderson

On-bill financing (OBF) is a strategy for achieving higher energy efficiency by means of an upfront loan to the customer for implementing energy-saving measures, which is to be repaid from the energy cost savings and collected through the customer's bill either from the electric distribution utility or from a real-estate tax agency. Over the years OBF has been tested in many countries. Even though utilities have generally preferred the easier approach of giving rebates to cover part of the cost of energy efficiency upgrades, the current economic situation has sparked a major resurgence of total upfront financing including on-bill financing strategies. Both property tax agencies and electric distribution utilities could offer OBF; it is likely that the distribution utility version will reach a larger audience.

In 2005 a new approach called 'property assessed clean energy' (PACE) was developed to finance energy efficiency and renewable energy improvements in residential and small commercial properties. In this approach, capital is generally supplied by a bank but the loan payments are added to the property tax bill. Even though PACE was lauded by former US President Clinton and supported by the US Department of Energy, it is not without issues.

In December 2004 Bangalore Electricity Supply Company (BESCOM) ran a programme called 'Bangalore Efficient Lighting Programme' (BELP). BELP was charged with installing energy-efficient lighting in homes. BESCOM made a bulk purchase of compact fluorescent lamps (CFLs). They sold up to four CFLs per customer at a discounted price. The customer could either pay for the CFLs upfront or make nine monthly payments as part of their electricity bill. BELP served 50,000 customers, saved 24.3 GWh and reduced peak load by 13.4 MW. Even though not currently being used, OBF is not totally new to India. In December 2004 Bangalore Electricity Supply Company (BESCOM) ran a programme called 'Bangalore Efficient Lighting Programme' (BELP). BELP was charged with installing energy-efficient lighting in homes [10]. BESCOM made a bulk purchase of compact fluorescent lamps (CFLs). They sold up to four CFLs per customer at a discounted price. The customer could either pay for the CFLs upfront or make nine monthly payments as part of their electricity bill. BELP served 50,000

on-bill financing may address barriersbut to energy efficiency innovative financing approaches: evolving, a long way to go

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OBF began in 1988 when this author came up with 'meter loan' at the US investor-owned electric utility PacifiCorp. Approved in seven states, the utility raised its own capital to cover the entire upfront cost of installing energy-saving improvements in commercial and industrial facilities. Loan repayment was added to the customer's electric bill as an 'energy service charge' that remained on the property, passing on to future owners, until 120 payments were collected [3].

In 1999 PAYS (Pay as You Save) was created and implemented by municipal utilities primarily in New Hampshire and Hawaii [4]. Although both of these early utility-based OBF programmes were phased out, in January 2012 a new variation of OBF was introduced by the Environmental Defense Fund (EDF) with a new name on-bill repayment (OBR) [5]. In February 2012 the California Public Utility Commission (CPUC) held a 3-day public hearing where OBR was considered as a statewide programme for investor-owned electric distribution utilities [6]. OBR was also discussed in the March 2012 issue of Forbes Magazine [7].

In 2005 a new approach called 'property assessed clean energy' (PACE) was developed to finance energy efficiency and renewable energy improvements in residential and small commercial properties. In PACE, capital is generally supplied by a bank but the loan repayments are added to the property tax bill. Even though PACE (www.pacenow. org) was lauded by former US President Clinton and supported by the US Department of Energy, it is not without issues. In July 2010 the US Federal Home Financing Agency (FHFA) essentially killed PACE for residential energy loans due to a perceived risk to government-backed mortgages [8]. Property tax liens have a superior position over a mortgage, meaning that a tax agency can foreclose on the home. Until such issues are worked out, PACE will be limited to commercial properties. In April 2012 Building Energy Performance Assessment News (www.bepanews.com) released a paper on financing commercial energy investments explaining how PACE and energy service companies (ESCOs) can work together [9].

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O

n-bill financing (OBF) is a strategy for achieving higher energy efficiency by means of an upfront loan to the customer for implementing energy-saving measures, which is to be repaid from the energy cost savings and collected through the customer's bill either from the electric distribution utility or from a real-estate tax agency. Over the years OBF has been tested in many countries including India, Sri Lanka, Australia, China, Nova Scotia, Canada, France, UK and the USA [1,2]. Even though utilities have generally preferred the easier approach of giving rebates to cover part of the cost of energy efficiency upgrades, the current economic situation has sparked a major resurgence of total upfront financing including OBF strategies.

on-bill financing may address barriers to energy efficiency

customers, saved 24.3 GWh and reduced peak load by 13.4 MW [11].

As the world seeks to rapidly expand energy efficiency (EE) and renewable energy production as a way to reduce the use of fossil fuels, it is important to determine what barriers are in place and to see if OBF might be able to help overcome some of these barriers. In December 2011 the International Energy Agency (IEA) published a document entitled, 'Joint Public-Private Approaches for Energy Efficiency Finance, Policies to Scale-up Private Sector Investment' [12]. The IEA quoted from an article written by D. R. Limaye and E. Limaye in the May 2011 issue of the Energy Efficiency Journal: "The combination of high project development costs, limited access to long-term and low-cost project financing, high equity requirements for project financing, and lack of credibility with customers has led to what may be considered a 'market failure' with respect to the ESCO industry's ability to implement EE on a large scale." [13,14] The IEA document goes on to list five market barriers suggested by the above-mentioned authors:

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1. Availability of funds for investing in EE projects (since income and business book value are not increased, EE investment is undervalued by bankers) 2. Information, awareness and communication (bankers do not understand EE projects) 3. Project development and transaction costs (too many soft costs and very small loans) 4. Risk assessment and management (bankers often do not trust the estimated benefits) 5. Insufficiency of funds (loans cover only 70% to 75% of the investment) How Can OBF Help with these Barriers and Which Version Would be the Best?

Though both property tax agencies and electric distribution utilities could offer OBF, it is likely that the distribution utility version will reach a larger audience.

Not all buildings are operated by the owner who pays the property taxes, and a reduction in energy cost does not offset the amount of taxes paid. Perhaps, more importantly, there is still the issue of the energy efficiency loan impacting the mortgage loan risk.

The following paragraphs discuss how utility-based OBF may help overcome or at least reduce the impact of each of the five barriers.

A key benefit is the goodwill of the utility's customers and other stakeholders. This could be important when the utility has to request approval for rate adjustments. Of the various demand side management (DSM) investments that a utility might be asked to make, a loan with on-bill repayment has the benefit of recovering its cost from participating customers rather than having to recover from all customers including non-participants, who get no direct benefit.

Barrier 1 - A distribution utility may open more avenues for raising energy efficiency capital including the utility's own capital from bonds or equity. Utilities usually have a good credit rating and an excellent working relationship with their financial institutions, so they should be able to arrange for lower-cost money than can be arranged by an ESCO or a local bank.

The utility could recover its capital by aggregating many small OBF loans into a package that is sold to a bank, a socially conscious investment fund or possibly the World Bank. While energy efficiency will reduce the utility's revenue from electricity sales, an OBF loan will create new revenue from interest payments or from loan servicing fees. Energy efficiency could create other benefits for the utility such as delaying upgrades to the distribution system, reducing the need to buy expensive on-peak power or, possibly, delaying the construction of a new power plant. A key benefit is the goodwill of the utility's customers and other stakeholders. This could be important when the utility has to request approval for rate adjustments. Of the various demand side management (DSM) investments that a utility might be asked to make, a loan with on-bill repayment has the benefit of recovering its cost from participating customers rather than having to recover from all customers including non-participants, who get no direct benefit. Finally, the utility will be able to track, document and possibly sell the environmental benefits associated with the reduction in burning fossil fuels.

Barrier 2 - Because the distribution utility understands energy, they can easily add energy auditors and engineers to expand their knowledge of energy efficiency. Utilities already have a working relationship with their customers, so they are in a good position to increase awareness by providing trustworthy

The cost for the utility to add a line item to a customer's bill would be much smaller than that incurred by an ESCO or a bank for creating and servicing a new customer account. An energy efficiency loan would be in place only for a short time, so the ESCO or bank will also have accountclosing costs. The utility has a long-term relationship with the customer, so they can simply remove the line item from the bill when all of the OBF payments are collected.

Barrier 4 - The risk associated with a single line item that is 10% to 20% of the total bill is insignificant when compared to the risk of an ESCO or a bank creating a brand new relationship with a stranger. The risk to the utility is even smaller since the loan repayment will be equal to or smaller than the reduction in total energy charges. Because the customers are used to paying their electric bill, they automatically make the OBF payment. If they have two separate bills they are more likely to make the electricity payment and not the energy efficiency loan payment. To reduce the utility's risk, the government could extend a 'credit guarantee trust' to the electric distribution company. Risk can also be mitigated by collecting a small fee to fund an escrow account or insurance pool.

on-bill financing may address barriers to energy efficiency

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information. The distribution utility has immediate access to customer's energy use data, so they can create benchmarks and help particular customers understand how they are wasting energy. The highly trained technical staff of a utility can review the qualifications of ESCOs and new energy-saving technologies. Utilities can assure both their customers and the banks that the ESCOs will deliver quality and stand behind their services. Since utilities are usually regulated by the government, they have experience communicating energy information to multiple, diverse stakeholders.

The risk to the utility is even smaller since the loan repayment will be equal to or smaller than the reduction in total energy charges. Because the customers are used to paying their electric bill, they automatically make the OBF payment. If they have two separate bills they are more likely to make the electricity payment and not the energy efficiency loan payment.

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Barrier 3 - Utilities have professional project managers who can develop new energy efficiency programmes that meet the needs of their customers.

They also have professional billing systems that already handle many thousands of small transactions.

Therefore, the cost for the utility to add a line item to a customer's bill would be much smaller than that incurred by an ESCO or a bank for creating and servicing a new customer account. An energy efficiency loan would be in place only for a short time, so the ESCO or bank will also have account-closing costs. The utility has a long-term relationship with the customer, so they can simply remove the line item from the bill when all of the OBF payments are collected. If an ESCO is unable to manage its costs and goes out of business, the vendors of the energysaving equipment may not be paid and the energy efficiency programme may have to be shut down.

However, a utility could adjust its billing fees or even get regulator permission to make a slight increase in rates to assure that the energy efficiency programme continues to provide a net benefit to society.

on-bill financing may address barriers to energy efficiency

Barrier 5 - Because utility-based OBF reduces risk there should be sufficient capacity to cover the entire energy efficiency investment. A utility can treat the energy efficiency investment inside the building the same why it treats its investment in electrical wires, poles, transformers, and meters on the outside of the building. Dues get transferred to succeeding customers at the same electricity delivery address until they are all collected. Utilities record easements associated with the title of real-estate properties, so prospective buyers know that the utility has the right to have a pole or transformer on the land. In the same way a utility would record the OBF payment contract, so a prospective buyer would know that they are buying an energy-efficient building and that the electric bill will have an OBF payment.

In summary, the author believes that utility-based OBF could help rapidly expand energy efficiency and customer-owned renewable energy. However, it is recommended that the readers use the links given in this article to obtain copies of the original documents, so they can evaluate in detail the pros and cons of on-bill financing.

References 1.

2.

Taylor R.P., Govindarajalu C., Levin J., Meyer A.S. and Ward W.A. (2008) "Financing Energy Efficiency: Lessons from Brazil, China, India, and Beyond", Energy Sector Management Assistance Program, The International Bank for Reconstruction and Development/The World Bank. http://www.idconline.com/technical_references/pdfs/electrical_engineering/Fina ncing_energy_efficiency.pdf.

3.

Large Commercial Energy FinAnswer, PacifiCorp, IRT Profile #46. http://www.ecomotion.us/results/46.htm.

4.

Pay As You Save, http://www.paysamerica.org.

5.

Copithorne B. and Fine J. (2011) "On-Bill Repayment: Unlocking the Energy Efficiency Puzzle in California," Environmental Defense Fund. http://www.edf.org/sites/default/files/On-Bill%20RepaymentUnlocking-the-Energy-Efficiency-Puzzle-in-California.pdf.

6.

Presentations by Stakeholders on State-wide On-bill Repayment Proposal, California Public Utility Commission, Finance Workshops Notes, 8-10 February 2012. Prepared by Chris Lee, Itron and Heather Braithwaite, Harcourt Brown & Carey. http://www.cpuc.ca.gov/NR/rdonlyres/E1AE7454-BD57-4227A1452046DE946876/0/NotesCPUCEEfinanceworkshopsFebruary81020 12.pdf.

7.

"California Poised to Launch Program Eliminating the Upfront Cost of Energy Efficiency and Solar Upgrades," Forbes Magazine, 28 March, 2012.

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"International Survey of CFL Program Experience," USAID Report, Presented at the regional workshop: Confidence in Quality: Eliminating Shoddy CFL Products within ASEAN Countries, Bangkok, Thailand, October 2007. http://www.efficientlighting.net/doc/20071114(10).pdf.

http://www.forbes.com/sites/justingerdes/2012/03/28/californiapoised-to-launch-program-eliminating-the-upfront-cost-of-energyefficiency-and-solar-upgrades/.

8.

Letter to Alfred M. Pollard, Federal Housing Finance Agency, from David L. Ledford, Senior Vice President Housing Finance and Regulatory Affairs, National Association of Home Builders, 26 March, 2012. http://www.fhfa.gov/webfiles/23771/339_National_Association_of_ Home_Builders.pdf.

9.

Buonicore A.J. (2012) "Emerging Best Practice for Underwriting: Commercially-Attractive Energy Efficiency Loans," Paper No. 12002, Critical Issues Series Energy Efficiency in Commercial Real Estate Industry, Building Energy Performance Assessment News, Buonicore Partners.

10. Summary of Results for BESCOM (Bangalore Electricity Supply Company) Efficient Lighting Program, BELP Program Note, USAID India, BESCOM, IIEC and BEE. (no date) http://www.esmap.org/esmap/sites/esmap.org/files/10.%20BELP_ Program_Note.pdf 11. "Preparing a Roadmap for Implementing Energy Efficiency Portfolio Obligation in India", Final Report prepared for Climateworks Foundation USA by Mercados - Energy Markets India Pvt. Ltd., 21 December, 2010. http://www.shaktifoundation.in/cms/uploadedImages/productDSM.pdf.

12. "Joint Public-Private Approaches for Energy Efficiency Finance, Policies to Scale-up Private Sector Investment," International Energy Agency, IEA Publications, December 2011. http://www.iea.org/papers/pathways/finance.pdf.

13. Limaye D.R. (2010) "Scaling-Up Energy Efficiency: The Case for a Super-ESCO", Presentation slides for Asia ESCO Conference 2010, New Delhi, January 2010. http://www.asiaesco.org/pdf/presentation/2-2.pdf.

14. Limaye D.R. and Limaye E. (2011)Scaling Up Energy Efficiency: The Case for a Super ESCO, Energy Efficiency Journal 4(2): 133144. http://rd.springer.com/article/10.1007/s12053-011-9119-5.

15. On-bill Financing (OBF) - Discussion paper prepared for High Meadows Fund, Sleeping Lion Associates, January 2012. http://www.highmeadowsfund.org/storage/research-and-learningdocuments/energy-related-documents/01-1512%20OBF%20FINAL%20report.pdf.

16. Bell C.J., Nadel S. and Hayes S. (2011) "On-bill Financing for Energy Efficiency Improvements -A Review of Current Program Challenges, Opportunities, and Best Practices", Report Number E118, December 2011. http://www.highmeadowsfund.org/storage/research-and-learningdocuments/energy-relateddocuments/ACEEE%20Financing%20Study.pdf.

(Mr. Kenneth Anderson is a professional engineer with over 30 years of experience working with architectural and engineering design firms, a US DOE funded solar energy regional centre, Pacific Power and Light, Northwest Energy Efficiency Alliance and Portland Energy Conservation Incorporated.)

a solution with a few problems, or a problem with few solutions?

innovative financing approaches: evolving, but a long way to go

the United Kingdom's Green Deal:

Julian Miller

April - June 2012

The Green Deal is the UK Government's latest attempt to encourage energy efficiency and reduce CO 2 emissions across the built environment. It is a scheme whereby its participants will be able to invest in approved technologies that will improve a building's energy performance, and the cost of this investment is to be paid back (with interest) over a period of up to 25 years through the building's electricity bill. It has at its core a single simple principle known as the 'golden rule', which states that "the expected financial savings must be equal to or greater than the costs attached to the energy bill". This is the key; it sounds simple enough, but may throw up some questions of its own.

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the United Kingdom's Green Deal: a solution with a few problems, or a problem with few solutions?

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he Green Deal is the United Kingdom Government's latest attempt to encourage energy efficiency and reduce CO2 emissions across the built environment. The United Kingdom has set itself some very stringent long-term targets for reducing carbon emissions, which have been enshrined in the law: 90% reduction by 2050 from a 1990 baseline. The challenge for any government therefore is how the UK is going to meet these long-term targets. Even though the Green Deal is not the sole answer, it was a major part of the coalition platform between the Conservatives and the Liberal Democrats on energy/environmental issues; it, therefore, has a good deal of political capital behind it, so right now is seen as a major part of that answer. The question that many people in the UK energy industry are asking is "will it work?" There is a considerable amount of dialogue going on in various 'chat rooms' and the blogosphere. So, what are the arguments for and against it? And will it work?

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The interesting point here is that the debt will be with the building (paid back via the electricity bill) and not with the individual who owns it. When a house or commercial building with a Green Deal debt is sold, 18 the debt will pass on via the electricity account to the new owner. And if the electricity supplier changes, the task of debt recovery will move to the new supplier.

First, it is worth briefly outlining what the Green Deal actually is: Green Deal is a scheme whereby its participants will be able to invest in approved technologies that will improve a building's energy performance, and the cost of this investment is to be paid back (with interest) over a period of up to 25 years through the building's electricity bill. The interesting point here is that the debt will be with the building (paid back via the electricity bill) and not with the individual who owns it; so when you sell your house or commercial building and if there is a Green Deal debt, it will pass on via the electricity account to the new owner.

In order to establish a positive net value to the scheme, it has at its core a single simple principle known as the 'golden rule', which states that "the expected financial savings must be equal to or

greater than the costs attached to the energy bill".

This is the key; it sounds simple enough, but may, as we will see, throw up some questions of its own.

There will be a considerable amount of regulation around the whole Green Deal, pertaining to how buildings are assessed (Green Deal assessors) and the measures approved for inclusion in the Green Deal (Green Deal providers), as well as the installers who actually deliver the final product (Green Deal installers). These people or companies may all be the same, that is, the same company may assess, produce and install, or they may be separate. If the latter case, which is the most likely scenario, there is already a good deal of uncertainty about how the Green Deal assessor (who has to be independently objective) will be paid for his work.

The cost of the Green Deal measures for a building are packaged into a debt that is added to the electricity bill, and the electricity supply company will recoup this for the debt owner over a period of up to 25 years. If the electricity supplier changes, the task of debt recovery will move to the new supplier - a process in itself that may sound simple, but is fraught with complexity, not to mention the additional costs and risks.

I am sure that you are already getting the idea that the Green Deal is not a simple scheme, but one littered with potential pitfalls. To put its complexity into some sort of perspective, the initial consultation for the Green Deal went to over 1900 pages, with 26 further supporting documents totalling well over 1000 pages - most government consultations by comparison run to 20-50 pages. However, based on the brief outline here, it is possible to ask some pertinent questions, even if the answers at this stage are purely speculative prior to the formal legislation being approved.

What Went Before?

There have been a number of initiatives designed to improve energy efficiency, the principal one being the Carbon Emissions Reduction Programme (CERT), which made cavity wall and loft insulation available at a subsidized (or no) cost to domestic properties and gave away a huge number of compact florescent (low-energy) light bulbs. It certainly made an impact, and millions of homes had their insulation improved on the basis of CERT and its predecessor the Energy Efficiency Commitment scheme (EEC). There are many differences between these schemes and the Green Deal, but principally under CERT and EEC the main energy suppliers are committed to delivering (and paying for) the measures and the costs are to be

the United Kingdom's Green Deal: ainnovative solution with a few approaches: problems, or evolving, a problembut with few solutions? financing a long way to go

Another significant difference is that under CERT only domestic buildings were included; now with the Green Deal all buildings are eligible, although, as we will see, it is debatable how much effect this will actually have on its likely success.

The Government would see it as an opportunity to reduce greenhouse gas emissions and help meet their targets, create employment (some 100,000 jobs in their estimate) and improve the quality of the United Kingdom's building stock, which is old and much of it in need of

What Problems Does the Green Deal Solve?

The answer probably lies in two areas, depending on where you are looking at it from: the Government would see it as an opportunity to reduce greenhouse gas emissions and help meet their targets, create employment (some 100,000 jobs in their estimate) and improve the quality of the United Kingdom's building stock, which is old and much of it in need of improvement. From the consumer's perspective the Green Deal is intended to reduce energy bills, based on the 'golden rule'. Very few consumers in reality are altruistic enough to undertake 'green' measures for the sake of it; the motivation in 99% of cases is financial.

In order to solve a problem, first you have to recognize that you have that problem in the first place, and it is unclear what the awareness level of

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So the key difference from the consumers' perspective is that they now need to pay for their energy efficiency, whereas before it was at least subsidized, even though the cost for CERT was inevitably passed on to the consumers in the form of higher energy bills.

improvement. From the consumer's perspective the Green Deal is intended to reduce energy bills, based on the 'golden rule'. In reality, very few consumers are altruistic enough to undertake 'green' measures for the sake of it; the motivation in 99% of cases is financial.

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borne by the property as part of the electricity bill.

Also there are many more products that will be approved for inclusion in the Green Deal than were there in the previous schemes, including, for example, air source heat pumps, but interestingly not ground source ones.

the United Kingdom's Green Deal: a solution with a few problems, or a problem with few solutions?

energy issues relating to homes is and what can be done about it, but probably it is not very high.

What are the Barriers to Improving Energy Efficiency?

Complexity: Given the extent of the consultation document mentioned above, make no mistake, this is a complicated opportunity, and to be fair, though all the details are yet to be confirmed, it is unlikely to get any simpler. There are many specifics being discussed online right now, and we wait to see what the final deal will look like.

Inertia: Is there enough incentive for people to actually be motivated to do anything? At this stage we simply do not know, but given that some of the major utility companies had difficulty giving free insulation away under CERT, it doesn't look particularly encouraging.

Cost: Although the cost of the credit is yet to be confirmed, it is likely to fluctuate with the market, and despite there being the 'golden rule', the actual savings at current cost levels are unlikely to be that significant. Will it be enough to motivate the masses to do anything?

Another significant question is will people be happy to be tied into a 25-year finance deal on their property?

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The commercial property market won't touch it for two fundamental reasons: First, they will be able to get much cheaper finance elsewhere, so it does not make any commercial sense for them to participate.

Second, they will not be happy with a debt hanging over their estate should they wish to sell. The likely scenario in the commercial-property market is that should there be a Green Deal debt on a site it will have to be paid off as a condition of sale, so why take one in the first place? It will also be interesting to see how the conveyancing layers deal with the Green Deal.

Small and medium enterprises (SMEs) are typically too busy getting on with running their businesses to have time to devote to the likely complexities of the Green Deal. Experience from the Carbon Trust suggests that when offered free energy surveys there was quite a strong uptake among this market segment, but implementation of the survey's recommendations was very poor, even when paybacks were considered good.

Distrust in the Government's energy initiatives: This is an issue based on recent experiences with the Government changing the rules pretty much as they go along. There are two recent examples: first, the

'feed in tariff' (FiT), where the Government introduced a scheme to pay approximately 4 times the prevailing rate for electricity to people who installed PV panels, guaranteed for 25 years, and then suddenly halved the rate with very little warning, putting many installations and installers in jeopardy. True they will honour the schemes already installed and registered, but gave very little time to those who were in the process of installation based on the high FiT rate to complete and register their schemes.

Second is the changes to the carbon reduction commitment (CRC), initially conceived as a 'zero sum gain' scheme, where participating organizations are ranked in a league table for success in reducing energy consumption. Initially a levy of ÂŁ12 per tonne of CO2 e was raised and recycled disproportionately to those higher up in the table, thus rewarding success and penalizing failure. Suddenly, in order to simplify the scheme, the recycling element was removed leaving behind in effect a 'tax' on carbon emissions.

The league table remains, but it is purely a publicrelations issue now.

This has created a good deal of ill feeling towards government-backed energy schemes and eroded trust in the Government's commitment to improving the energy and environmental situation. Without the necessary trust and clarity, many companies and individuals are finding it very difficult to invest in the potential of the Green Deal opportunity.

Job creation: This is potentially a 'good news' story.

The Government's assessment is that the Green Deal will create 100,000 jobs in the United Kingdom within 5 years. If so, this would be a great boost to many of those currently unemployed, and on the basis of this prospective employment boom there is again a considerable amount of political capital riding on its success.

The principle of the 'golden rule' is simple enough; however, when you delve into the detail, some issues start to emerge. Much of the savings estimates made for the previous schemes and the basis on which the previous subsidies have been made, though hypothetically correct and supported by complex research, quite possibly have never actually been delivered.

In larger, more complex buildings, where there are multiple Green Deal installations, there may be a requirement for additional metering (at additional cost) to confirm adherence to the golden rule. How will it otherwise be known if one element is failing to deliver, or which one is not working as well as the others, without the necessary telemetry to measure it?

Will it work?

The answer to this potentially lies in a number of areas and is dependent on how you define success.

As a piece of legislation, it is complex and bureaucratic, but it is probably enforceable. But the more pertinent question is whether it will deliver the results. At this stage, it is too early to say with any degree of certainty; the consultation is still out, so the final version of the Green Deal is yet to be published.

However, from where we are right now it looks very complicated and fails, in my opinion, to overcome one of the great issues in improving energy efficiency: inertia.

One potential bright spot for the Green Deal is local authorities: they have been handed down targets by the central Government to reduce emissions, but with the United Kingdom's current austerity drive they have limited funds to do much about it. They are considered a good credit risk, because they are government-backed and would have no issues about incurring debt, particularly as it is both government sanctioned and will help to meet the same government's targets. I suspect that local authorities will be keen to take up all the opportunities that they can under the Green Deal.

(Mr. Julian Miller has been in the energy efficiency business for over 10 years, and heads the energy services of Matrix Energy Solutions, one of the United Kingdom's leading demand-side energy services companies.)

the United Kingdom's Green Deal: a solution with a few problems, or a problem with few solutions?

Interestingly perhaps Ed Davey, the newly appointed Government Minister responsible for the Green Deal, has recently been quoted as saying, "the Green Deal plan for business would be so radical that it would be hated by some". The tone of the reporting at least sounds slightly threatening: is the Government concerned that the Green Deal will not be taken up by business for the reasons outlined here and perhaps more? Only time will tell what this actually means: a bigger stick to hit business with? Greater penalties for failure to improve energy efficiency? We will have to wait and see.

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Measuring the effect of the Green Deal on energy efficiency and hence verifying the golden rule should be simple enough in small domestic situations where the kilowatthour consumption and cost can be compared before and after. But will the general public understand, let alone agree with, degree day normalization of these results? If we should have a particularly cold winter, bills may go up regardless, even if they go up less than they may have done without the Green Deal measures.

One potential bright spot for the Green Deal is local authorities: they have been handed down targets by the Central Government to reduce emissions, but with the United Kingdom's current austerity drive they have limited funds to do much about it. They are considered a good credit risk, because they are governmentbacked and would have no issues about incurring debt, particularly as it is both government sanctioned and will help to meet the same government's targets.

April - June 2012

The principle of the 'golden rule' is simple enough; however, when you delve into the detail, some issues start to emerge. Much of the savings estimates made for the previous schemes and the basis on which the previous subsidies have been made, though hypothetically correct and supported by complex research, quite possibly have never actually been delivered. The reason for this is that an increase in insulation (a large majority of the previous schemes were insulation-based and the majority of Green Deal schemes will probably involve insulation of one sort or another) can either reduce the energy required to deliver the same temperature net result, or use the same amount of energy to produce a warmer net result. There is a strong suggestion that an increase in insulation leads not to a reduction in total consumption, but an increase in the temperatures available to householders for the same energy input.

It is still creating greater energy efficiency, albeit not quite in the way that was anticipated!

April - June 2012

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state of the market in environmental finance

Murali Kanakasabai and Fang Yu Liang

The term 'environmental finance' is broadly used to define market-based emission and environmental products. Today the field has grown to include many innovative tradable financial products such as emission credits, renewable energy credits, green equity indices, green bonds and other hybrid financial instruments that serve as valuable hedging tools and allow for environmental mandates to be met efficiently and with greater flexibility.

The term 'environmental finance' is broadly used to define market-based emission and environmental products. The term was first formally used in a similarly titled course offered by Dr. Richard Sandor at Columbia University in 1992. Today the field has grown to include many innovative tradable financial products such as emission credits, renewable energy credits, green equity indices, green bonds and other hybrid financial instruments that serve as valuable hedging tools and allow for environmental mandates to be met efficiently and with greater flexibility.

The US Environmental Protection Agency experimented with a cap-and-trade model among coal-burning power plants to reduce sulfur dioxide and nitrous oxide emissions, identified as the main causes for acid rain. The programme has proved to be a huge success both from an environmental and from an economic perspective. With the exception of a few hot spots, the programme has largely eliminated the environmental threat from pollutants causing acid rain. With estimated economic benefits of $122 billion and costs of $3 billion, a 40 to 1 benefit-cost ratio, the programme proved to be one of the most successful programmes ever implemented by a US federal Agency.

Although economists have long argued the efficiency in employing flexible market-based instruments to

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In this article we discuss the growth of environmental finance, current state of the markets and areas of future growth.

Birth of Environmental Finance

April - June 2012

T

his April 22nd, as we celebrated Earth day it marked 42 years since what many consider the formal beginning of the environmental movement that witnessed dedicated groups of environmental activists flooding the streets and academic campuses to voice their environmental concerns. Today their concerns are increasingly being addressed through financial tools and market mechanisms. Since the large-scale environmental markets were established in the mid-1990s to solve the acid rain pollution problem in the eastern United States these markets have been hosting a variety of financial products that address multiple pollutants and environmental attributes as well as environmental risks. The last two decades witnessed a rapid convergence of the environmental and the financial sectors, leading to the emergence of a new field popularly known as 'environmental finance'.

of the market in environmental finance innovative financing state approaches: evolving, but a long way to go

Since the large-scale environmental markets were established in the mid1990s to solve the acid rain pollution problem in the eastern United States these markets have been hosting a variety of financial products that address multiple pollutants and environmental attributes as well as environmental risks. The last two decades witnessed a rapid convergence of the environmental and the financial sectors, leading to the emergence of a new field popularly known as 'environmental finance'. The environmental financial markets have helped corporates in better hedging and managing in the long term the business risks in meeting the mandates. In addition, as the market matures, we have the opportunity to use these financial tools as a catalyst for motivating numerous environmentally sustainable social development goals for the rural poor around the world.

state of the market in environmental finance

April - June 2012

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correct externalities such as environmental pollution, the first large-scale practical application came through the US Clean Air Act Amendments in 1994 to manage the acid rain problem in eastern United States. The US Environmental Protection Agency experimented with a cap-and-trade model among coal-burning power plants to reduce sulfur dioxide and nitrous oxide emissions, identified as the main causes for acid rain. The programme has proved to be a huge success both from an environmental and from an economic perspective. With the exception of a few hot spots, the programme has largely eliminated the environmental threat from pollutants causing acid rain. With estimated economic benefits of $122 billion and costs of $3 billion, a 40 to 1 benefit-cost ratio, the programme proved to be one of the most successful programmes ever implemented by a US federal Agency. It is important to note that in addition to providing a transparent pollution price and flexibility in meeting environmental mandates for regulated entities, the programme promoted entrepreneurship, job creation and market incentives for new technology. These intangibles clearly demonstrated the huge societal benefits that can be accrued through well-designed environmental markets.

Interestingly, the idea that the cap-and-trade model could work to combat a much larger problem - global warming - was proposed even before the acid rain programme was implemented. In 1992 during the Earth Summit in Rio, Dr. Richard Sandor, widely regarded as the father of carbon trading, presented a framework for a global emission trading system at a side event. The idea was received then with great skepticism, its implementation being complicated by international negotiations establishing binding reductions on GHG emissions. The adoption of the Kyoto Protocol in December 1997 and its coming to force in February 2005 triggered a positive signal to the growth of environmental financial markets. The Kyoto protocol allowed trading in emission credits through international emissions trading, clean development mechanism (CDM) and joint implementation (JI) based on the economic rationale that the marginal costs of reducing pollution vary among countries. An international mandate to reduce GHG emissions and provision of a flexible market mechanism were the early catalysts for environmental financial markets.

Emissions Trading Programmes Within the last decade, the environmental markets have seen plurilateral growth with mandatory markets growing alongside voluntary markets. These developments provided the basis for introduction of a

host of financial derivative products to implement and manage compliance measures for programme participants. We discuss these sequentially.

In anticipation of the Kyoto Protocol, the European Union established its own emissions trading scheme, the EU-ETS, in 2005. The underlying rationale of the programme was that burden-sharing among EU nations to comply with their individual Kyoto targets could be more efficiently achieved through the trading of emission allowances within the European Union.

The EU-ETS initially comprised 25 EU nations (now 30 countries) and over 10,000 regulated installations and sought to reduce collective EU emissions by 8% from the 2000 levels. A second phase of the EU-ETS seeks to reduce EU emissions by 6.5% from the 2005 levels and to be implemented from 2008 through 2012.

Today, in its second phase, the EU-ETS has grown to be the largest and the most mature of all environmental markets in existence. The EU-ETS boasts an active market with a notional value exceeding US$126 billion. The European Union has also remained the main demander for certified emission reductions (CERs) and emission reduction units (ERUs), which represent the emissions trading instrument of the CDM and the JI mechanisms, respectively.

Absence of federal action in the United Stated has not stopped these markets from emerging. A host of state-level or regional mandatory programmes are being implemented to reduce GHG emissions, most notably Regional Greenhouse Gas Initiative (RGGI) and California Climate Action Program (CCAP). RGGI, established by nine northeastern states of the United States, began trading RGGI credits in 2008. It seeks to reduce CO2 emissions from the power sector by 10% by 2018. CCAP, which was enforced by legislation AB-32, includes an ambitious target to reduce Californian GHG emissions to 1990 levels by 2020. This widely anticipated programme is expected to commence in 2013.

The world's first multi-sector GHG emissions trading scheme was established as early as 2003, through a voluntary corporate action called the Chicago Climate Exchange (CCX). The programme sought to reduce GHG emissions by an ambitious target of 6% through a legally binding commitment among its members, which spanned large corporates such as IBM, Dupont, Ford and American Electric Power.

Emissions-related Financial Products Moving the discussion from programmes to products, the financial and commodity markets have been quick to respond by offering a host of environmental financial products. These largely have included products targeting spot trading and futures contracts.

As of writing of this article, 10 regulated futures exchanges worldwide offer environmental and emission products. Of these, the most popular marketplace has been the InterContinental Exchange (ICE) accounting for more than 85% of regulated exchange traded volumes. ICE currently offers futures and options products for the European Union allowance (EUA), CER and ERU markets. The ICE EUA futures contract has emerged among the top 10 traded futures contracts in the world even surpassing Brent Oil futures. Other prominent exchanges offering climate products include the Chicago Mercantile

In recent years, the lack of policy directive on climate change has taken its toll on emission markets.

Notably, uncertainty on global commitments post2012; lack of federal action in the United States curbing GHG emissions; contentious negotiations and uncertainty on large emitters from the developing world taking on GHG restrictions; and some market irregularities all had a significant negative impact on emission markets. In spite of these challenges, the global market for emissions transacted over 6.8 billion metric tons valued at $124 billion in 2010. A vast majority of this was in the regulated EUA markets (81%) followed by the CDM market place (16%).

However, the voluntary market had a small but significant role by meeting the customized and diverse needs of voluntary participants. In 2010, the latest available data, there were 131 metric tons of voluntary credits, indicating a 34% increase from the 2009 levels and comparable to the market volumes in 2008. However, due to the aforementioned market conditions, the transaction value fell from its peak of $750 million in 2008 to $424 million in 2010. Figure 1 and Table 1, respectively, present a breakdown of voluntary markets and the overall emissions market transactions in 2010.

In addition to derivatives of emissions products, a small set of financial products, including climatebased exchange traded funds, carbon and clean energy indexes and structured financial instruments, have emerged.

Figure 1: Market Share of Voluntary Carbon Market Standards

state of the market in environmental finance

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In India, the Multi-commodities Exchange (MCX), in partnership with CCX, pioneered the launch of climate products through a rupee-based EUA index, and later a CER index, as early as 2006. However, the listing, ahead of its time, faced approval delays as Indian futures regulation was in the midst of reforms and did not allow intangibles such as carbon credits and cash settled futures to be listed.

Exchange through its GreenX venture, European Electricity Exchange based in Germany, Norwaybased Nordpool and NYSE Euronext environmental venture, Bluenext. In India, the Multi-commodities Exchange (MCX), in partnership with CCX, pioneered the launch of climate products through a rupee-based EUA index, and later a CER index, as early as 2006.

However, the listing, ahead of its time, faced approval delays as Indian futures regulation was in the midst of reforms and did not allow intangibles such as carbon credits and cash settled futures to be listed.

April - June 2012

Parallel to these developments was the emergence of voluntary environmental markets. In fact, the world's first multi-sector GHG emissions trading scheme was established as early as 2003, through a voluntary corporate action called the Chicago Climate Exchange (CCX). The programme sought to reduce GHG emissions by an ambitious target of 6% through a legally binding commitment among its members, which spanned large corporates such as IBM, Dupont, Ford and American Electric Power. The CCX programme involved over 400 corporates and had an emissions baseline surpassing that of Germany, the largest emitter within the EU-ETS. Other voluntary emissions programmes in existence include the Verified Carbon Standards (VCS), California Climate Action Reserve and the Gold standard. These programmes targeted emission reductions from GHGoffsetting projects such as renewable energy, agriculture and forestry.

state of the market in environmental finance

Table 1: Transaction Volumes, Market Value in Carbon Markets - 2010

Market Voluntary Over-the-Counter (OTC)

Volume (MtCO 2)

Value ($ million)

128

414

4

10.2

Total Voluntary Markets

131

424

European Union Emissions Trading Scheme (EU-ETS)

5529

106,024

Clean Development Mechanism (CDM) (Primary & Secondary)

1099

17,229

19

265

Others

Kyoto Assigned Amount Unit (AAU) Regional Greenhouse Gas Initiative (RGGI)

45

436

Total Regulated Markets

6692

123,954

Global Markets

6823

124,378

Source: Peters-Stanley M., Hamilton K., Marcello T. and Sjardin M. (2011) Back to the Future: State of the Voluntary Carbon Markets 2011. A report by Bloomberg New Energy Finance and Ecosystem Marketplace, June 2011. New York, Washington, DC: Bloomberg New Energy Finance & Ecosystem Marketplace.

Beyond Emissions

April - June 2012

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The article has thus far focused on emissions markets, while in fact, as stated earlier, environmental finance includes a host of other environmental market innovations. These include financial products targeting other environmental attributes as well as pollutants. We will now discuss some of these markets.

The first category involves innovations in the environmental index products space. The most notable and the most mature in this arena is the Dow Jones sustainability index (DJSI). Though not strictly a climate product, DJSI tracks the financial performance of selected companies identified as leaders in corporate sustainability. The index, therefore, helps financial analysts pick companies based on their corporate sustainability performance and assess risks under the belief that long-term returns are correlated with corporates' sustainability ratings. Ratings of corporate performance with respect to their carbon footprint, water usage and energy efficiency are now publicly available through organizations such as CERtification of Environmental Standards (CERES), Carbon Disclosure Project (CDP) and CDP Water Disclosure.

Other early environmental financial markets include event-based markets in weather and futures on

catastrophic events. These markets provide a means to hedge against weather risks and risks from catastrophic events such as hurricanes and earthquakes. Weather derivative markets were valued at $11.8 billion in 2010, growing at 20%. Active weather contracts for several international cities are currently hosted by the Chicago Mercantile Exchange.

The second category involves trading in environmental attributes. We group a large number of financial innovations under this category. One of the interesting innovations in the power markets is the Renewable Energy Certificates (RECs). RECs, also known as green certificates, green tags or tradable renewable certificates, represent the environmental attributes of the power produced from renewable energy projects and are sold separate from the commodity, namely, electricity. RECs may be traded among regulated entities that have a mandate to include renewable power as a portion of their generation mix, or by retail and corporate customers who wish to include renewable power in their consumption mix. Already, national and regional REC markets are operational in many countries including the United States, the United Kingdom and Australia.

Specifically, in the Unites States about 27 states and the District of Columbia require utilities to include a certain percentage of renewable energy within their power generation mix. This mandatory Renewable Portfolio Standard requirement is aided by a tradable RECs compliance market. Besides this, there is also a growing voluntary market for RECs as well as a retail demand from individuals for green power. RECs are often sold in the wholesale market and are frequently used by utilities and marketers who bundle RECs with commodity electricity to sell 'green' power to retail customers. The total size of the compliance and voluntary REC market in the United States is about $700-900 million. The government of India launched a renewable energy mandate along with a trading programme in 2011. Currently, both of India's national power exchanges offer auction markets for REC credits.

The market has been small but is rapidly growing.

Programs Emissions Name

Region

Commodity

Start Date

Value (2010 unless otherwise indicated)

Stage

European Union Emissions Trading Scheme (EU ETS)

European Union

GHG

Phase I: 200507, Phase II: 2008-2012

$119.8 billion1

Mature

South Korea Emissions Trading Scheme

South Korea

CO2

2013-15

N/A

Proposal

China Emissions Trading Scheme

China

CO2

2013

N/A

Proposal

Regional Greenhouse Gas Initiative (RGGI)

Northeastern states of the US, and eastern regions of Canada

CO2

2003

$436 million2

Mature

Regional Clean Air Incentives Market (RECLAIM)

CA, USA

SO2 and NOx

1994

$1 billion3

Mature

California Emissions Trading Program

CA, USA

CO2

2013

$2.5-7.5 billion

Water Quantity Trading: Australia Water Trading

Australia

Water Quantity Allowances

1980-90

$1.5 billion5

Mature

Water Quality Trading: Chesapeake Bay Nutrient Trading

PA, US

Water Quality Credits

$45-300 million6

Nascent

Temperature Credits, e.g., Temperature TMDL (Total Maximum Daily Load)

OR, US

N/A

2008

$3,208,8007

In Progress

Perform, Achieve, Trade (PAT)

India

Energy Efficiency

2011

$144 million8

Development

The CRC Energy Efficiency Scheme

UK

Energy Efficiency

$19/CO2

Mature

Reducing Emissions from Deforestation and Forest Degradation (REDD)

Global

Offsets

2009

$85 million9

Nascent

Certified Emissions Reductions

Global

Offsets

1997

$1.5 billion

Voluntary Carbon Standard

Global

Offsets

2007

$1.7 billion

Developed

Weather Derivatives

Global

Weather-related events, e.g., CME Hurricane futures

late 1990s

$12 billion11

Mature

Insurance-Linked Securities, e.g., Catastrophe bonds

Global

Catastrophes

Mid-1990s

>$14 billion12

Mature

Solar securities, e.g., Solar Bonds

Global

Renewable energy - Solar

USA

Biofuel

4

state of the market in environmental finance

Table 2: Examples of Environmental Financial Products in Existence

Nascent

Water

2010

Energy Efficiency

10

Mature

Others

Renewable Identification Numbers (RINs)

Nascent

2005

$1.47 billion13

Mature

Notes: 1

State and Trends of the carbon market 2011, Carbon Finance at the World Bank Environment Department.

2

This number indicates the value, in US$, of transactions occurring in 2010, provided by State of the Voluntary Carbon Markets 2011, Ecosystem Marketplace, June 2011.

6

This is an estimate for how much the programme can generate per year, provided by How Nutrient Trading Could Help Restore the Chesapeake Bay, World Resources Institute, Working Paper, February 2010.

7

State of Watershed Payments, Ecosystem Marketplace, June 2010.

8

Estimated market value by 2015.

State of the Forest Carbon Markets 2011 - From Canopy to Currency, Ecosystem Marketplace, September 2011.

3

Annual RECLAIM Audit Report for 2010 Compliance Year, 2 March, 2012.

9

4

Estimates for the first year of the programme, i.e., 2012. Market value is predicted to increase to $21.9 billion by 2020 (Designing the Allocation Process for California's Greenhouse Gas Emissions Trading Program: The multi-billion dollar question, Next 10, December 2010).

10 State and Trends of the carbon market 2011, Carbon Finance at the World Bank Environment Department.

5

Australian water markets: trends and drivers, Australian Government National Water Commission, December 2011.

12 Aon Benfield, March 2012.

11 PriceWaterhouseCoopers, 2011.

13 Figure as of April 2012.

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Offsets

27

April - June 2012

2007

state of the market in environmental finance

Other evolving environmental attribute markets include trading of energy efficiency credits both in India and in China. In India, the Perform-Achieve-Trade (PAT) scheme allows for trading of energy efficiency credits, ESCerts, among mandated industries in India. It is expected to have a significant impact on curbing GHG emissions and improving energy efficiency.

Other evolving environmental attribute markets include trading of energy efficiency credits both in India and in China. In India, the Perform-AchieveTrade (PAT) scheme allows for trading of energy efficiency credits, ESCerts, among mandated industries in India. It is expected to have a significant impact on curbing GHG emissions and improving energy efficiency.

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Other commodities such as water quality and quantity constitute a nascent, yet promising, market around the world. The most mature of these markets are in Australia. However, given the inherent regional nature of water, the social and political aspects surrounding this asset have made it a complex commodity to deal with. The development of creative regional markets regulating riparian water temperature in western United States to protect local fishery resources (see Table 2) serves as a reminder to the fact that many environmental outcomes can be achieved through properly designed markets.

Emerging markets in biodiversity conservation and tropical forests preservation are also notable. REDD, which stands for reduced emissions from deforestation and degradation, represents carbon credits from preserving rain forests. These markets usually include other social and biodiversity goals for project eligibility, thereby promoting comprehensive health of the tropical forest ecosystem.

Emerging markets in biodiversity conservation and tropical forests preservation are also notable. REDD,

which stands for reduced emissions from deforestation and degradation, represents carbon credits from preserving rain forests. These markets usually include other social and biodiversity goals for project eligibility, thereby promoting comprehensive health of the tropical forest ecosystem. Imperatively, these environmental markets help promote carbonabsorbing land-use practices, especially reforestation and the conservation management of agricultural soils. These GHG mitigation options, which were cited by the Intergovernmental Panel on Climate Change as both viable and multi-beneficial in 2007, also offer the chance to improve water quality, support biodiversity and establish the framework for long-term sustainability in land use management.

Table 2 provides examples of environmental markets in existence today. The list indicates the vast array of financial innovations that have spawned in a relatively new field.

We conclude this article by highlighting that growth in environmental markets has assisted in integrating corporate climate and environmental risks and liabilities into financial balance sheets of businesses.

Climate risks and pollution are no longer just the subject of the environmental health & safety departments but also of finance and accounting. The environmental financial markets have helped corporates in better hedging and managing in the long term the business risks in meeting the mandates. In addition, as the market matures, we have the opportunity to use these financial tools as a catalyst for motivating numerous environmentally sustainable social development goals for the rural poor around the world. Just as it is critical for corporates to evolve their business models in response to the climate challenge, it is crucial for us to inform and incentivize cities and villages around the world to adapt their local environments to a carbon-friendly mode. The best is yet to come.

(Dr. Murali Kanakasabai is the Managing Director and Dr. Fang-Yu Liang is a researcher with Environmental Financial Products (EFP). Dr. Kanakasabai previously served as Senior Vice President with the Chicago Climate Exchange.

Dr. Fang-Yu Liang was a Research Assistant with the University of Chicago Booth School of Business.)

solar farming

potential in India Darshan Goswami

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April - June 2012

The newest crop in India could be electricity from the sun. Solar farming can help change India's energy economy by turning to clean and efficient renewable energy during the day, when it is needed the most; create millions of jobs; and help India to achieve energy independence and energy security.

solar farming potential in India

I

magine a crop that can be harvested daily, on the most barren desert and arid land, with no fertilizer or tillage and that produces no harmful emissions.

Imagine an energy source so bountiful that it can provide many times more energy than we could ever expect to need or use. Imagine that an hour's worth of sunlight bathing the planet holds far more energy than humans worldwide could consume in a year. You don't have to imagine that - it is real and it is here.

Solar energy is an abundant enormous resource that is readily available to all countries throughout the world and covers all the space above the earth. It is clean - no waste comes from it - and it is free.

This free source of electricity can be used to supply the energy needs of homes, farms and businesses.

Through the use of photovoltaic (PV), concentrated photovoltaic (CPV) or concentrated solar power (CSP) technologies, sunlight is converted into electricity that can provide power to businesses and homes, and drive motors. Solar power is increasingly being recognized as an important element in the energy supply planning and customer energy management of utilities worldwide.

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I firmly believe that, to meet all its energy needs, India should diversify its energy mix by accelerating the use of all forms of renewable energy technologies (including PV, thermal solar, wind power, biomass, biogas and hydro) and more proactively promote energy efficiency. However, this article will only focus on the solar farming potential in India.

you could sell some of your electricity to your neighbours, local businesses or even the local utility company.

What is Solar Farming?

On a solar farm, large amounts of power are generated from sunlight. Since solar energy is collected from a wide area, it is important to view the process as 'farming', to harvest renewable energy from the sun. Solar farming is an opportunity for those in the agricultural sector to view solar energy as a 'replacement harvest' and create cleaner forms of energy by transforming vacant or even underused land into farms that produce electrical energy. Solar farming lets individuals possessing non-income producing or otherwise useless acreage to generate a really great rate of return on investment. Imagine making 12% to 15% or more assured return on investment for 30 years without any upfront money. If you have a farm or ranch, even if smaller than an acre, in a location that gets direct sunlight consistently throughout the day and round the year, you might consider installing a solar energy system as an alternative source of power. Having a solar energy system would allow you to produce your own electricity. In addition, you could sell some of your electricity to your neighbours, local businesses or even the local utility company. This is a brand new approach to the solar energy business.

Solar energy farms, especially larger ones, can be connected to the electricity grid and contribute significant levels of electricity offsetting traditional sources of generation. In this way, large-scale solar power generation has the potential to help meet India's enormous energy needs.

Courtesy: Arizona Solar Farm

If you have a farm or ranch, even if smaller than an acre, in a location that gets direct sunlight consistently throughout the day and round the year, you might consider installing a solar energy system as an alternative source of power. Having a solar energy system would allow you to produce your own electricity. In addition,

Courtesy: SolFocus - A CPV Installation at the Nichols Farm Pistachio Processing Facility in Hanford, California

Solar energy provides a new kind of experience to farmers in growing their crops. New commercial solar technologies enable farmers to capture solar energy to produce electricity, heat and hot water to enrich their farms, businesses or homes. Solar power provides economic development and energy independence to farmers.

Successful implementation of solar farming requires feed-in tariffs. This allows farmers to invest with the security of 20- to 25-year government grants. The energy from these farms is purchased directly by utilities, who often sign 10- to 20-year energy purchase contracts with solar farm owners/operators thereby securing lowcost energy for the end user.

Courtesy: Howbery Business Park's 3000 Solar Panels Will Generate a Quarter of Its Needs. This solar energy farm - the UK's biggest - is connected to the national grid

Successful implementation of solar farming requires feed-in tariffs. This allows farmers to invest with the security of 20- to 25-year government grants. The energy from these farms is purchased directly by utilities, who often sign 10- to 20-year energy purchase contracts with solar farm owners/operators thereby securing low-cost energy for the end user.

Solar farms will also play a vital role in reducing greenhouse gas emissions that contribute to global warming. Just like many other traditional farming activities, solar farming is truly environment-friendly.

By installing solar farm equipment, you will also considerably boost the value of your property - it is a great selling point should you decide to sell your farm.

The Future of Solar Farming in Modern India India is blessed with a vast solar energy potential.

About 5000 trillion kWh of solar energy is incident over India every year. Each day most parts of the

solar farming potential in India

Solar Energy has the advantage of permitting decentralized distribution of energy, particularly for meeting rural energy needs, thereby empowering people at the grassroots level. Solar electricity could also shift about 90% of your daily trip mileage from gasoline to electricity by encouraging increased use of plug-in hybrid cars. For drivers in India this means that the cost per mile could be reduced by onefourth (at today's prices).

A new technology that also holds promise is that of concentrated photovoltaic (CPV) cells. First put into commercial operation in 2008, CPV uses a concentrating optical system that focuses a large area of sunlight onto the individual photovoltaic cells. This feature makes CPV panels 2-3 times more efficient (approximately 40%) at converting sunlight to electricity as compared to silicon-based PV (15% to 20%) and thin films (9% to 13%).

A decline in solar panel prices over the last 2 years also has contributed to an exponential increase in solar power deployment worldwide and resulted in lower project costs. These factors have allowed developers to offer solar energy at prices comparable to those of wind and fossil fuel power. A new technology that also holds promise is that of concentrated photovoltaic (CPV) cells. First put into commercial operation in 2008, CPV uses a concentrating optical system that focuses a large area of sunlight onto the individual photovoltaic cells. This feature makes CPV panels 2-3 times more efficient (approximately 40%) at converting sunlight

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Some governments are providing huge grants or subsidies to fund community solar farm projects as part of their energy programmes. Solar farming can help advance India's use of renewable energy and assure achievement of economic development goals.

country receive 4-7 kWh per square meter of land area. India's deserts and farm lands are the sunniest in the world, and thus suitable for large-scale power production. India can lead the world by embracing the power of the sun, if smart business models and realistic policies can be developed and implemented nationwide as quickly as possible. The Indian Government should embrace favourable tax structures and consider providing financial resources to fund projects to put up community solar farms as part of their energy development programmes. India has the potential to become the 'Saudi Arabia' of clean Solar Energy.

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How to Implement Solar Farming

solar farming potential in India

to electricity as compared to silicon-based PV (15% to 20%) and thin films (9% to 13%). (For details see Figure 1.)

renewable energy by 2050, if deployment is backed by the right enabling public policies.

Figure 1: Efficiency Comparison of Solar Technologies

Harvesting solar power from space through orbiting solar farms sounds extremely interesting. The concept of solar panels beaming down energy from space has long been thought as too costly and difficult.

However, in view of the current global energy crisis and concerns about the environment, Japanese researchers at the Institute for Laser Technology in Osaka have developed the technology and produced up to 180 W of laser power from sunlight. Scientists in Hokkaido have completed tests of a power transmission system designed to send energy in microwave form to Earth. Mitsubishi Electric Corp., a manufacturer of solar panels, has decided to join hands with a $24 billion Japanese project to construct a massive solar farm in space within three decades.

Courtesy: SolFocus

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Major cost reductions will be realized through mass manufacturing. The steep increase in system efficiency, combined with decreases in manufacturing costs, could stabilize the cost of energy from CPV at around $0.10 per kilowatthour by 2015. Various incentives by central and state governments, including tax credits and feed-in tariffs, can further reduce the cost. Also, the 'free fall' in solar panel prices has been driven by the growth of solar installations, which is no longer a small business - but an over $100 billion industry worldwide. Cost reductions are so dramatic that Bloomberg recently reported that solar energy could soon rival coal. The cost has become so competitive during peak times in Japan and California that the US Department of Energy's SunShot goal of $1 per watt for large projects by 2017 may be achieved a lot sooner.

Courtesy: Windorah Solar Farm

Courtesy: Nellis Air Force Base Solar Farm panels, USA

Solar farms are becoming massive - for example, the Castilla La Mancha solar farm in Spain occupies an area the size of 70 football pitches and will have 100,000 solar panels when fully operational; capable of generating 30 million kilowatts an hour.

Distributed nature of the next generation solar farmed renewable energy will provide a strategic advantage it will make the present utility companies and infrastructure obsolete. All new energy production in India could be from renewable sources by 2030 and all existing generation could be converted to

Farming Solar Energy in Space

Japan has already started working towards its goal by developing the technology for a 1 gW solar farm that would include 4 km2 of solar panels stationed 36,000 km above the earth's surface. The energy that will be produced by the solar farm would be enough to supply power to nearly 400,000 average Japanese homes.

Sometime before 2016, Solaren Corp. plans to launch the world's first orbiting solar farm. Unfurled in space, the panels would bask in near-constant sunshine and provide a steady flow of electricity day and night. Receivers on the ground would take the energy - transmitted through a beam of electromagnetic waves - and feed it into California's power grid.

California's next source of renewable power could be a set of orbiting solar panels, high above the equator, that would beam electricity back to earth via a receiving station in Fresno County. Sometime before 2016, Solaren Corp. plans to launch the world's first orbiting solar farm. Unfurled in space, the panels would bask in near-constant sunshine and provide a steady flow of electricity day and night. Receivers on the ground would take the energy - transmitted through a beam of electromagnetic waves - and feed it into California's power grid. Pacific Gas and Electric Co. has agreed to buy power from a start-up company that wants to tap the strong, unfiltered

solar farming potential in India

fossil fuels. "Solar PV will be a game changer," says James Prendergast, IEEE Senior Member and Executive Director. "No other alternative source has the same potential. As the cost of electricity from solar continues to decrease compared to traditional energy sources we will see tremendous market adoption, and I suspect it will be a growth limited only by supply. I fundamentally believe that solar PV will become one of the key elements of the solution to our near- and long-term energy challenges."

Solar farming is a renewable source of energy and the greenest form of commercial energy. Solar energy has become the leading alternative to the costly eco disasters associated with fossil fuels. Hence the Government of India is urged to accelerate the country's solar energy expansion plans and policies by implementing government subsidies for residential solar power through renewable energy rebates and feed-in tariffs. Solar farming is a great concept for efficient use of otherwise barren lands.

Solar energy represents a bright spot in India's economic front. If India makes a massive switch from coal, oil, natural gas and nuclear power plants to solar power, it is possible that 70% of India's electricity and 35% of its total energy could be solar powered by 2030. This would require the creation of a vast region of photovoltaic cells in the southwest and other parts of the country that could operate at night as well as during the day. Excess daytime energy can be stored in various forms such as molten or liquid salt (a mixture of sodium nitrate and potassium nitrate), compressed air, pumped hydro, hydrogen and battery storage, which would be used as an energy source during night hours.

It is time to recognize that our energy must ultimately come from renewable resources and hasten the deployment of renewable energy. India must ramp up its efforts to develop and implement utility-scale solar energy in conjunction with its private partners to bring solar energy to market as quickly as possible. Large utility-scale solar energy farms are part of the answer to utilizing energy generated from the sun to meet India's economic development goals.

The Institution of Electrical and Electronic Engineering (IEEE) says solar PV is poised to compete with fossil fuels within the next 10 years because PV systems have the potential to be the most economical form of generating electricity, even as compared to traditional

April - June 2012

Solar energy will be competitive with coal as improved and efficient solar cells, CPV technology and CSP enter the market. It can be predicted that solar farming advancements and growth would empower India's rural economies. To take advantage of low-cost renewable solar energy, companies will move their operations from urban areas to rural areas, for cheaper land and labour, within the solar belt.

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sunlight found in space to solve the growing demand for clean energy.

For example, Google is investing $168 million in the biggest solar farm ever. When completed in 2013, the Mojave Desert-based Ivanpah Solar Electric Generating System will send approximately 2,600 MW of power to the grid, doubling the amount of solar thermal power produced in the United States and generating enough electricity to power 140,000 California homes when operating at full capacity.

Courtesy: Bright Source Energy - Mojave Desert-based Ivanpah Solar Electric Generating System to Supply 2,600 MW of Power to the Grid.

solar farming potential in India

There are no obvious technological or economic barriers to supplying almost 100% of India's energy demand through the use of clean renewable energy from solar, wind, hydro and biogas by 2050. India needs a radical transformation of its energy system for the efficient use of renewable energies, especially solar power.

India must accelerate and encourage the domestic development of renewable energy now. It is a question of whether we have the societal and political will to achieve this goal to eliminate our wasteful spending and dependence on foreign sources of energy and save our planet.

The Indian Government should formulate favourable government policies to ease the licensing process and provide start-up capital to promote the growth of solar energy.

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Solar Energy is a game-changing programme for India. India must accelerate and encourage the domestic development of renewable energy now. It is a question of whether we have the societal and political will to achieve this goal to eliminate our wasteful spending and dependence on foreign sources of energy and save our planet. The Indian Government should formulate favourable government policies to ease the licensing process and provide start-up capital to promote the growth of solar energy.

Policy changes can go a long way towards reducing costs. In the coming years, state and central governments should provide initiatives and other support in order to increase solar power plant

capacity. India could potentially increase gridconnected solar power generation capacity to over 200,000 MW by 2030, if adequate resources and incentives are provided. Shifting to solar energy is a win-win situation for both the industry and the environment, and has the potential to power India's economy, create millions of new jobs and change the face of India to make it a 'green' nation.

Courtesy: Sunpower: Ground-mounted Solar Farm Supplying Power to the Grid

Relevant Websites 1.

Ministry of New & Renewable Energy, Government of India (http://www.mnre.gov.in).

2.

US Department of Energy (www.doe.gov).

3.

SolFocus (http://www.solfocus.com/en/).

4.

Solar Industry (http://www.solarindustrymag.com).

5.

Jawaharlal Nehru National Solar Mission - Towards Building SOLAR INDIA (http://india.gov.in/allimpfrms/alldocs/15657.pdf).

Bibliography 1.

Goswami D. (2010) "How Concentrated Solar Power (CSP) Technology Can Meet India's Future Power Needs", Triple Pundit, 24 February, 2010; (http://www.triplepundit.com/2010/02/rajasthan-desert-solar/).

2.

Hartsoch N. (2011) "Concentrated Photovoltaics Technology Carving a Compelling Niche", Solar Industry Magazine, 11 June, 2011; (http://www.solarindustrymag.com).

3.

Fahey J. (2011) "Google invests $280 million to spur home solar", AP - Energy Writer, 14 June, 2011.

4.

"Farming Solar Energy in Space", Scientific American Magazine, July 2008.

5.

"Solar Energy Applications for Farms and Ranches". US Department of Energy - Energy Efficiency and Renewable Energy, (http://www.energysavers.gov/your_workplace/farms_ranches/inde x.cfm/mytopic=30006).

(Mr. Darshan Goswami has over 35 years of experience in the energy field. He is presently working for the US DOE as a project manager in Pittsburgh, USA. He retired as Chief of Energy Forecasting and Renewable Energy from the United States Department of Agriculture in Washington, DC.) Courtesy: A 2.2 MW UMES Solar Farm, MD, USA

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energy management -

the intelligent response to environmental issues

Ram Sinha

Energy management means precisely identifying the systems and energy flows and optimizing them appropriately. Measuring devices like energy meters measure the values, which are processed, monitored and archived by intelligent software. The gathered data can be displayed in a structured and customized manner, which makes power distribution transparent.

Based on the identified system parameters, powerful software tools calculate the precise cost-saving potential for the specific application and the cost effectiveness of possible measures. The processing of the data received from the meters is done by the EnMS software.

w Increase in energy requirement, which results in increased combustion of fossil fuels and hence an increase in CO2 emission (Figure 1)

Figure 2: Requirements to be met by a company: Energy Management Standard EN 16001

Figure 1: An Overview of Emission

Global greenhouse gas emissions* Industry (electricity)

Industry (direct primary energy consumption)

11 %

22 %

Buildings (electricity)

13 %

Forestry

40Gt CO2e

14 %

Buildings (direct primary energy consumption)

8% Agriculture/ waste

18 %

energy management – the intelligent response to environmental issues

D

A typical EN16001/PDCA (Plan-Do-Check Act) cycle of energy management is illustrated in Figure 2.

ue to rapid urbanization and industrialization we are facing a considerable challenge today:

Transportation

14 %

w Deforestation, leading to reduction of CO2 absorption by the atmosphere Climate change and rising energy costs are resulting in new decisions w by the government

The solutions to the above environmental issues can certainly be found with responsible use of resources and switching to renewable energy. Efficient use of energy can slow down climate change and preserve the planet for future generations. Hence we should view this as our primary responsibility. Intelligent products and systems provide an essential contribution towards saving energy worldwide and utilizing the existing raw materials as efficiently as possible.

Whether for industrial applications, infrastructure or buildings, energy efficiency can only be achieved through effective energy management. Energy management means precisely identifying the systems and energy flows and optimizing them appropriately.

The results are processes and workflows with greater energy efficiency.

Energy is becoming an increasingly valuable resource on account of higher sensitivity towards environmental issues and rising energy costs. Also with the introduction of the new EN16001/ISO 50001 standards, companies will now be able to obtain energy management certification. These standards provide a framework for systematic management of energy and help to identify and implement potential energy saving measures.

Through constant monitoring of power distribution, it is possible to detect problems that could lead to a failure, so that corrective steps can be taken. This helps improve the availability of power supply. The measurement and visualization of electrical power flows and the initiatives derived from them provide opportunities for energy cost savings.

Transparent Energy Flows Measuring devices like energy meters measure the values, which are processed, monitored and archived by intelligent software. The gathered data can be displayed in a structured and customized manner, which makes power distribution transparent.

Through constant monitoring of power distribution, it is possible to detect problems that could lead to a failure, so that corrective steps can be taken. This helps improve the availability of power supply. The measurement and visualization of electrical power flows and the initiatives derived from them provide opportunities for energy cost savings.

Let us understand what an energy management system (EnMS) is:

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w by individuals

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w by industries/infrastructure

energy management – the intelligent response to environmental issues

A typical energy management system is based on the following phases (see Figure 3): Figure 3: Continuous Energy Management Creates Enormous Savings Potential

Thus the key to managing energy reliably is to measure it with precision. We could thus conclude that if we can't measure the energy precisely we will not be able to manage it reliably. Monitoring of energy flow is critical as it lays the basis of an efficient energy management system.

For implementing energy management, we need to understand the importance of the involved necessary components. w Multi-function meters: for collation of electrical parameters

w Identify w Evaluate w Realize Identify energy flows - Make energy flow transparent Optimum hardware should be used to make the energy flow transparent, which means that the process can be optimally configured from an energyrelated perspective. This forms the basis of intelligent and efficient energy management. a quarterly magazine of the society of energy engineers and managers / India

Power monitoring devices and e-counters detect and document energy values of infeeds, outgoing feeders or individual loads in a precise, reproducible and reliable manner. They also provide important measured values that can be used to analyze the switching status of the system and power quality.

Based on the identified system parameters, powerful software tools calculate the precise cost-saving potential for the specific application and the cost effectiveness of possible measures.

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motors and variable frequency drives, to realize the identified energy- and cost-saving opportunity.

This evaluation facilitates users to identify the energy guzzlers in their premises and thereby work out measures for reducing consumption and avail cost savings.

w Physical communication network: for reliable communication between energy meters and the EnMS software w EnMS software: for remote monitoring, archiving, reporting and controlling Multi-function meters In general, selection of multi-function meters is based on the following requirements: w Accuracy (as per IEC61557-12 & IEC62053-22/23) w Parameters to be monitored (like V, I, Cos phi, kWh, THD etc.) w Dual source requirement w Maximum demand calculation w Import/export, storage of readings w Power quality analysis etc.

Compatible hardware and software components provide efficient energy management that meets all requirements, from standard solutions to customized applications.

A range of latest-generation energy meters is shown in Figure 4. Depending upon the requirements of a particular feeder, the user selects the right device for his application.

Evaluate - Precisely determine the cost-saving potential

Figure 4: The Latest-Generation Energy Meters

Realize - Fully utilize the optimization potential Based on the above evaluation, users can choose the correct device to be used, such as energy-efficient

The serial network topology has the following limitations: The efficient performance of meters connected in serial network topology is dependent on -

the number of meters connected in one loop behind a gateway (protocol converter). There is a limitation to the number of meters (only 6-8) that can be connected in one loop; else it will result in a delay in real-time data communication from each meter (average baud rate 9.6 kbps).

Although the least importance is given to selecting meters, it is the most critical component when we talk of EnMS. While selecting an energy meter we usually forget that these meters are going to be part of an EnMS and hence we have to communicate the data measured by these meters to the EnMS software.

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the number of variables to be transmitted from each device. Data traffic will be very high even if one wants to monitor only the basic parameters like voltage, current, power, power factor, energy, harmonics etc in each polling cycle. Hence the refresh rate over the PC is poor (up to 10 min)

Conventionally, the requirement of meter communication is met by adding an RS485 communication port to the meter which uses the Modbus RTU Protocol to send the data to the EnMS Software.

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the physical cable length. Increase in cable length may lead to data transmission losses. Wire breakage between two meters will stop the meters from communicating instantaneous parameter values, thus leading to data loss.

As we know, in communication data transmission, speed plays a very important role in deciding which type of communication network has to be used.

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Physical communication

Serial Network Topology In Figure 5, a typical communication architecture is shown: Figure 5: Yesterday - Meters with RS 485 Connected to EnMS Software

the RS232/RS485 converter. Reliability of the communication is dependent on the converter. In case of any converter failure, the whole communication is lost.

An Ethernet-based system uses energy meters having an Ethernet port onboard.

That means, there is a LAN port available on the meter, which can be connected to a PC directly, without any converter. Hence, these meters have IP addresses, instead of Modbus addresses, and can be hooked on the company's Ethernet network for easy integration with the EnMS Software.

Reliable Ethernet-Based Communication Medium An Ethernet-based system uses energy meters having an Ethernet port onboard. That means, there is a LAN port available on the meter, which can be connected to a PC directly, without any converter (see Figure 6).

energy management – the intelligent response to environmental issues

w An RS232/RS485 converter will be used to exchange data between the meter and the PC having the EnMS software

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All the meters having an RS485 port for Modbus w RTU Communication will be serially connected on the bus.

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Energy meter is the most critical component when we talk of EnMS. While selecting an energy meter we usually forget that these meters are going to be part of an EnMS and hence we have to communicate the data measured by these meters to the EnMS software.

Conventionally, the requirement of meter communication is met by adding an RS485 communication port to the meter which uses the Modbus RTU Protocol to send the data to the EnMS Software.

energy management – the intelligent response to environmental issues

Figure 6: Today - Meters with Ethernet Port Connected Directly with the EnMS Software

buildings and Industrial facilities (see Figure 7).

Figure 7: An EnMS Software

Hence, these meters have IP addresses, instead of Modbus addresses, and can be hooked on the company's Ethernet network for easy integration with the EnMS Software.

The Ethernet-based communication network has the following advantages:

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- the default port on the meters is an Ethernet port (LAN). Since, the meters are now having Ethernet port onboard, we can connect them in star topology; that is, each meter can be independently connected to the PC, resulting in the elimination of unwanted converters on the network.

- data availability at the EnMS software increases.

Over Ethernet, the data exchange rate from the meters to the software would be 10-100 Mbps which will ensure real-time data monitoring over the EnMS (in few seconds).

Since this is a PC-based system, no automation is required; that is, automation and power distribution are kept separate.

The software should meet the following requirements (Figure 8): Figure 8: Evaluation of Metering Data in EnMS

- No new communication network is required. Unlike the conventional RS485 communication network, here user can use the existing IT network, which eliminates the need for extra Modbus RTU cabling and minimizes the downtime of the network.

EnMS software The processing of the data received from the meters is done by the EnMS software.

The basic function of the software used for energy management is to -

record

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evaluate

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report and

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monitor all necessary parameters that contribute to energy consumption.

The energy management software - as a stand-alone solution - is suitable for application in commercial

1) Online display of measured values and detection of load peaks by evaluation of load curves 2) Energy consumption data in terms of pre-defined reports for cost centre allocation and billing 3) Pre-configured and freely configurable archiving of measured values for analysis of energy consumption and necessary actions 4) Integration of the software with switching devices

Figure 9: Overview of Important Data

Requirement In the industry and in buildings, undesirable load peaks may occur, which lead to additional payments to the power supplier. These can be prevented by modifying the processes or by turning off non-critical loads.

Implementation Measuring devices with communication capability are installed in all feeders. Set points of timelines for demand limits, tariff (counter) and calculation intervals can be set up (see Figures 10 and 11). The EnMS software defines the limit values. If these are exceeded, a warning notification is sent. There are alerts/warnings for 'no switch', 'switch on', 'switch off' and 'switch soon'. Alerts can be linked to digital outputs of meters, and the respective segment of the system can be shut down.

energy management – the intelligent response to environmental issues

Through online reporting, EnMS facilitates precise allocation of energy costs to cost centres and benchmarking between them and users, thus saving time as compared to manual reporting. Each product, for example, a metal bar or a newspaper, manufactured at different times of the day may have different costs; that is, in the night the tariff maybe different from that in the day.

Figure 10: Monitoring to Keep Power Demand Under Limits

Benefits of EnMS to users Refer to Figure 9. The EnMs Figure 11: Set Points of Timelines for Demand Limits

3) improves performance and productivity of the plant and system through transparency of the momentary conditions and through comprehensive power assignments and evaluations 4) through online reporting, facilitates precise allocation of energy costs to cost centres and benchmarking between them and users, thus saving time as compared to manual reporting. (Each product, for example, a metal bar or a newspaper, manufactured at different times of the day may have different costs; that is, in the night maybe the tariff is different from that in the day.)

Let us now go through some of the benefits realized by customers implementing EnMS: w Load Monitoring w Increase in Plant Safety Load monitoring Load monitring essentially involves controlling of maximum demand by avoiding load peaks.

Benefit By reducing consumption when the power limit is exceeded, it is possible to reliably comply with the provisions of the agreement entered into with power supplier and thus avoid additional payments.

Continuous consumption monitoring allows for longterm process adjustments.

Result -

Adaptation of consumption behaviour through load peak identification

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Early intervention in case of exceeded-limit values

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No additional payments due to non-compliance with contract conditions

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2) facilitates reduction in power costs via a structured approach to identify, measure and manage energy consumption.

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1) helps identify saving potentials

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Increasing plant safety

Figure 13: Power Quality Analysis

This results from monitoring of critical electrical values like harmonics.

Requirement Facilities such as data centres, banks, or hospitals have to protect sensitive components from critical conditions like overload or harmonics, which, in extreme cases, can lead to shutdowns or fire.

Implementation The measuring devices and the circuit breakers monitor the characteristics of the electric power distribution. The EnMS software checks the data for limit values and processes them accordingly.

Limit values of critical characteristics such as cable load, on the basis of movingcurrent averages and individual harmonics, are defined and entered into the EnMS Software. At the same time, a notification concept, for example, notification via text message, is selected.

This way, critical equipment values are monitored, and, if necessary, a warning is issued. Thus, power distribution failures and the associated damages can proactively be avoided.

Benefit Limit values of critical characteristics such as cable load, on the basis of moving-current averages and individual harmonics, are defined and entered into the EnMS software. At the same time, a notification concept, for example, notification via text message, is selected. This way, critical equipment values are monitored, and, if necessary, a warning is issued (see Figures 12 and 13). Thus, power distribution failures and the associated damages can proactively be avoided.

Figure 12: Display of Characteristic Curves

Highlights w Prevents system failure. (e.g., overload alarm will facilitate the user to take necessary action before tripping). w Sensitive devices are protected from harmonics. w Notifications, for example, via text messages, facilitates early intervention

As every kilowatthour of power that is not generated reduces operating costs and keeps about 578 g CO 2 out of the environment, we can conclude that companies that are more ecological are more economical.

The need for an EnMS is not only to realize efficiency and cost savings within (e.g., in plants, buildings) but also to contribute to the betterment of the environment by. w Lowering energy costs: Obtaining better quality of power, achieving better cost allocation w Lowering operating costs: Supportive measures for predictive maintenance and service, resulting in high plant availability. w Reducing CO2 emissions: Achieving operational environment targets (EN16001) As every kilowatthour of power that is not generated reduces operating costs and keeps about 578 g CO2 (source: IEA) out of the environment, we can conclude that companies that are more ecological are more economical.

(Mr. Ram Sinha is responsible for business development of energy management systems in IC LMV division of Siemens India Ltd. He has more than 8 years of experience in low-voltage power distribution systems.)

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harmonics -

causes and effects David Chapman

Harmonic load currents are generated by all non-linear loads. Harmonics originate as currents but generate harmonic voltages as they flow through the impedances in the system, and these harmonic voltages propagate through the installation. Clearly, customers cannot be allowed to add pollution to the system to the detriment of other users, so in most countries the electrical supply industry has established regulations limiting the magnitude of harmonic current that can be drawn. A range of design strategies and mitigation techniques is available to mitigate the effects of harmonics in installations and to comply with any harmonic pollution regulations. Each successful strategy to prevent future problems will be a combination of good design practice, the right electrical equipment and good maintenance.

harmonics – causes and effects

Harmonic currents have been present in the electricity supply system for many years. Initially they were produced only by the mercury arc rectifiers used to convert AC to DC current for railway electrification and industrial DC variable-speed drives, and by direct half-wave rectification used in radio and television sets. More recently, the range of types and the number of units of equipment causing harmonics have risen sharply, and will continue to rise.

Designers and specifiers must now consider harmonics and their side effects very carefully to ensure the safety and resilience of installations and to meet harmonic emission limits.

What are Harmonics?

Harmonic frequencies are integral multiples of the fundamental supply frequency: that is, for a fundamental of 50 Hz, the third harmonic would be

150 Hz and the fifth harmonic would be 250 Hz; these are referred to as the third order and fifth order harmonics, respectively. Figure 1 shows a fundamental sine wave with third and fifth order harmonics.

Figure 1. Fundamental Frequency with Third and Fifth Harmonics.

Figure 2 shows a fundamental waveform with 70% third order and 50% fifth order harmonics added. In practice, most distorted waveforms will be much more complex than this example, containing many more harmonics with a more complex phase relationship.

This waveform is clearly not a sine wave, and that means that some everyday measurement equipment, such as average-reading rms-calibrated multi-meters, will give inaccurate readings. There are six zero-

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armonic currents and voltages cause many problems in electrical installations, including overheating of equipment and cabling, reduced energy efficiency and reduced functionality due to loss of electromagnetic compatibility. Harmonic currents from installations flow back into the network and propagate as voltage harmonics, distorting the supply waveform, increasing network losses and reducing the reliability of equipment.

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harmonics – causes and effects

crossing points per cycle instead of two, so any equipment that uses zero crossing as a reference may malfunction.

Figure 2. Distorted Composite Current Waveform.

Harmonics originate as currents but generate harmonic voltages as they flow through the impedances in the system, and these harmonic voltages propagate through the installation. It is important to clearly differentiate between voltage and current distortion measurements; conventionally, current distortion measurements are suffixed with 'I' and voltage distortion figures with 'V'.

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When investigating problems that may be due to harmonics, it is necessary to know the harmonic spectrum because the effects depend on the harmonic order. Simple total harmonic distortion (THDI, THDV) measurements are of little use for diagnostic purposes.

Types of Equipment That Generate Harmonics Harmonic load currents are generated by all nonlinear loads. These include: Single-phase loads, for example, w Switched mode power supplies (SMPSs) - virtually all electronic devices w Electronic fluorescent lighting ballasts w Small uninterruptible power supply (UPS) units

a reservoir capacitor from which the direct current for the load is derived by a method appropriate to the output voltage and current required. The advantages are that the size, cost and weight are significantly reduced and the power unit can be made in almost any required form factor. The disadvantage is that, rather than drawing continuous current from the supply, the power supply unit draws pulses of current, which contain large amounts of third and higher order harmonics and significant high-frequency components (see Figure 3). A simple filter is fitted at the supply input to bypass the high-frequency components from line and neutral to ground but it has no effect on the harmonic currents that flow back to the supply.

Figure 3. Harmonic Spectrum of a Personal Computer.

For high-power units there has been a recent trend towards the so-called powerfactor-corrected inputs. The aim is to make the power supply load look like a resistive load so that the input current appears sinusoidal and in phase with the applied voltage. It is achieved by drawing input current as a high-frequency triangular waveform, which is averaged by the input filter to a sinusoid.

Three-phase loads, for example, w Variable-speed drives w Large UPS units Single-Phase Loads Switched mode power supplies The majority of modern electronic units use SMPSs. These differ from older units in that the traditional step-down transformer and rectifier are replaced by direct, controlled rectification of the supply to charge

Single-phase UPS units exhibit characteristics very similar to those of SMPSs. For high-power units there has been a recent trend towards the so-called powerfactor-corrected inputs. The aim is to make the power supply load look like a resistive load so that the input current appears sinusoidal and in phase with the applied voltage. It is achieved by drawing input current as a high-frequency triangular waveform, which is averaged by the input filter to a sinusoid.

Figure 5. Harmonic Current Spectrum of a Typical Six-Pulse Bridge.

Fluorescent lighting ballasts Electronic lighting ballasts have become popular in recent years, claiming improved efficiency. Their great disadvantage is that they generate harmonics in the supply current. At higher ratings, the so-called powerfactor-corrected types are available, which reduce the harmonics problem, but at a cost penalty. Smaller units usually go uncorrected. Compact fluorescent lamps (CFLs) are now being sold as replacements for tungsten filament bulbs. A typical harmonic current spectrum is shown in Figure 4.

Figure 4. Harmonic Spectrum of a Typical Compact Fluorescent Lamp.

harmonics – causes and effects

This extra level of sophistication is not yet readily applicable to the low-cost units that make up most of the load in commercial and industrial installations.

reduction depends on the matching of the converters and is typically by a factor between 20 and 50. The 12n harmonics remain unchanged. Not only is the total harmonic current reduced, but also those that remain are of a higher order, making the design of the filter much easier.

A further increase in the number of pulses to 24, achieved by using two 12-pulse units in parallel, with a phase shift of 15 °between them, reduces the total harmonic current to about 4.5%. The extra sophistication increases the cost, of course, so this type of controller would be used only when absolutely necessary, to comply with the electricity supplier's harmonic emission limits.

Three-Phase Loads Variable-speed controllers, UPS units and DC converters in general are usually based on the threephase bridge, also known as the six-pulse bridge because there are six pulses per cycle (one per half cycle per phase) on the DC output. The six-pulse bridge produces harmonics at an order of 6n ± 1, that is, at one more and one less than each multiple of six. In theory, the magnitude of each harmonic is the reciprocal of the harmonic number, so there would be 20% fifth harmonic and 9% eleventh harmonic and so on. A typical spectrum is shown in Figure 5.

The magnitude of the harmonics is significantly reduced by the use of a 12-pulse bridge. This is effectively two six-pulse bridges fed respectively from a star and a delta transformer winding, providing a 30° phase shift between them. The 6n harmonics are theoretically removed, but in practice, the amount of

In an ideal, clean power system, the current and voltage waveforms are pure sinusoids. In a simple circuit containing only linear circuit elements resistance, inductance and capacitance - the current that flows is proportional to the applied voltage (at a particular frequency), so that if a sinusoidal voltage is applied, a sinusoidal current will flow.

Any cyclical waveform, such as the nonsinusoidal current waveform, can be deconstructed into a sinusoid at the fundamental frequency plus a number of sinusoids at harmonic frequencies. Thus the distorted current waveform can be represented by the fundamental plus a percentage of second harmonic plus a percentage of third harmonic and so on, possibly up to the 30th harmonic.

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These lamps are being widely used to replace filament bulbs in domestic properties and especially in hotels, where serious harmonic problems have suddenly become common.

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Theoretical Background - How Harmonics Are Generated

harmonics – causes and effects

In practice, non-sinusoidal currents result when the current flowing in the load is not linearly related to the applied voltage. An example is where the load is a simple full-wave rectifier and capacitor, such as the input stage of a typical SMPS. In this case, current flows only when the supply voltage exceeds that stored on the reservoir capacitor, that is, close to the peak of the voltage sine wave.

Any cyclical waveform, such as the non-sinusoidal current waveform, can be deconstructed into a sinusoid at the fundamental frequency plus a number of sinusoids at harmonic frequencies. Thus the distorted current waveform can be represented by the fundamental plus a percentage of second harmonic plus a percentage of third harmonic and so on, possibly up to the 30th harmonic. For symmetrical waveforms, that is, where the positive and negative half cycles are of the same shape and magnitude, all the even order harmonics have a magnitude of zero.

Even order harmonics are now relatively rare but were common when half wave rectification was widely in use.

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Source impedances are very low, so the harmonic voltage distortion resulting from a harmonic current is also low and often 48 hardly above the network background.

This is misleading because it gives the impression that a harmonic problem is not likely to be there when in fact large harmonic currents are present. Whenever harmonics are suspected, or when trying to verify their absence, it is the current that must be measured.

trying to verify their absence, it is the current that must be measured.

Problems Caused by Harmonics Harmonic currents cause problems both on the supply system and within the installation. The effects and the solutions are very different for both these cases and need to be addressed separately; the measures that are appropriate to controlling the effects of harmonics within the installation may not necessarily reduce the distortion caused on the supply and vice versa.

Harmonic problems within the installation There are several common problem areas caused by harmonics: w Problems caused by harmonic currents o

Overloading of neutrals

o

Overheating of transformers

o

Nuisance tripping of circuit breakers

o

Overstressing of power factor correction capacitors

o

Skin effect

w Problems caused by harmonic voltages o

Voltage distortion

o

Additional losses in induction motors

o

Zero-crossing noise

w Problems caused when harmonic currents reach the supply Each of these areas is discussed briefly in the following sections.

Problems Caused by Harmonic Currents Neutral conductor overheating

Harmonic generators are sometimes shown as voltage generators; if this were true then the source impedance would have no influence on the magnitude of the harmonic voltage across the source. In reality, however, the magnitude of this voltage is proportional (over a limited range) to the source impedance indicating that the generator behaves as a current source. Source impedances are very low, so the harmonic voltage distortion resulting from a harmonic current is also low and often hardly above the network background. This is misleading because it gives the impression that a harmonic problem is not likely to be there when in fact large harmonic currents are present. Whenever harmonics are suspected, or when

In a three-phase system, the waveform of the voltage in each phase to the neutral star point is displaced by 120 ° from the voltage waveforms of the other phases, so that when all the phases are equally loaded, the combined current in the neutral is zero. When the load is not balanced, the net out-of-balance current flows in the neutral. In the past, installers (in accordance with the standards) had taken advantage of this fact by installing half-sized neutral conductors in three-phase circuits. However, although the fundamental currents cancel out, the 'triple-N' harmonic currents - those with an order that is an odd multiple of three - do not. In fact these harmonic currents add in the neutral as shown in Figure 6. In

Figure 7. Cable Derating for Triple-N Harmonics.

harmonics – causes and effects

this diagram, the phase currents, shown at the top, are introduced at 120 ° intervals. The third harmonics of all three phases are identical, being at a frequency 3 times the fundamental and one-third of a (fundamental) cycle offset. The effective third harmonic neutral current is shown at the bottom. In this case, a 70% third harmonic current in each phase results in a 210% current in the neutral. Case studies in commercial buildings generally show neutral currents of magnitude between 150% and 210% of the phase currents, often in a half-sized conductor.

Figure 6. Triple-N Harmonic Currents Add in the Neutral.

In practice, for a fully loaded transformer supplying a load comprising IT equipment the total transformer losses would be twice as high as for an equivalent linear load. This results in a much higher operating temperature and a shorter life.

In fact, under such circumstances the lifetime would decrease from around 40 years to more like 40 days!

Multi-core cables are rated assuming that three cores only are loaded - that is, the load is balanced and the neutral conductor carries no current. (For examples see IEC 60364-5-523 Table 52 and BS 7671 Appendix 4.) Since a cable's current-carrying capacity is determined solely by the amount of heat that it can dissipate at the maximum permitted temperature, it follows that cables carrying triple-N currents must be derated. In the example illustrated above, the cable is carrying five units of current - three in the phases and two in the neutral - whereas it was rated for three units. It should be derated to about 60% of the normal rating.

IEC 60364-5-523 Annex C (Informative) provides a table giving the derating factors for various levels of triple-N harmonic current present in the phase currents. Figure 7 presents this data in graphical form, together with the derating factor derived from thermal considerations.

Transformers are affected in two ways by harmonics.

First, the eddy current losses, normally about 10% of the losses at full load, increase with the square of the harmonic number. In practice, for a fully loaded transformer supplying a load comprising IT equipment the total transformer losses would be twice as high as for an equivalent linear load. This results in a much higher operating temperature and a shorter life. In fact, under such circumstances the lifetime would decrease from around 40 years to more like 40 days! Fortunately, few transformers are fully loaded with PC loads, but the effect must be taken into account when selecting plant equipment. The second effect concerns the triple-N harmonics. When reflected back to a delta winding they are all in phase, so the triple-N harmonic currents circulate in the winding. The triple-N harmonics are effectively absorbed in the winding and do not propagate onto the supply, so delta wound transformers are useful as isolating transformers. Note that all other, non-tripleN, harmonics pass through. The circulating current has to be taken into account when rating the transformer.

Nuisance tripping of circuit breakers Residual current circuit breakers (RCCB) operate by summing the currents in the phase and neutral

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In the case of circuits wired using single core cables, it is a simple matter to use a neutral cable with a larger cross-section. However, since the current, and therefore the heat dissipation, in the cable environment is higher than for a standard phase circuit, some derating is appropriate based on standard grouping factors.

Effects on transformers

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There is some confusion as to how designers should approach the sizing of the neutral conductor for a three-phase circuit feeding single-phase loads.

harmonics – causes and effects

conductors and, if the result is not within the rated limit, disconnecting the power from the load.

Nuisance tripping can occur in the presence of harmonics for two reasons. First, the RCCB, being an electromechanical device, may not sum the higher frequency components correctly and therefore trips erroneously. Second, the kind of equipment that generates harmonics also generates switching noise, which must be filtered at the equipment power connection. The filters normally used for this purpose have a capacitor from line and neutral to ground, so leak a small current to earth. This current is limited by standards to less than 3.5 mA, and is usually much lower, but when a lot of equipment is connected to one circuit the leakage current can be sufficient to trip the RCCB. The situation is easily overcome by providing more circuits, each supplying fewer loads.

Nuisance tripping of miniature circuit breakers (MCB) usually occurs because the current flowing in the circuit is higher than that expected from calculation or simple measurement due to the presence of harmonic currents. Many portable measuring instruments do not measure true rms values and can underestimate non-sinusoidal currents by up to 40%.

Over-stressing of power factor correction capacitors

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Power factor correction (PFC) capacitors are provided in order to draw a current with a leading phase angle to offset a lagging current drawn by an inductive load such as induction motors. The impedance of the PFC capacitor decreases as frequency rises, whereas the source impedance is generally inductive and increases with frequency. The capacitor is therefore likely to carry quite high harmonic currents and, unless it has been specifically designed to handle them, damage can result.

A more serious problem is that the capacitor and the stray inductance of the supply system can resonate at or near one of the harmonic frequencies (which, of course, occurs at 100 Hz intervals). When this happens very large voltages and currents can be generated, often leading to a catastrophic failure of the capacitor system. By adding an inductance in series with the capacitor the resonant frequency can be controlled in such a way that resonance is avoided while also acting as a low-impedance path - a shunt passive filter - for harmonic currents.

Skin effect is normally ignored because it has very little effect at power supply frequencies, but above about 350 Hz, that

is, the seventh harmonic and above, skin effect will become significant, causing additional losses and heating. Where harmonic currents are present, designers should take skin effect into account and derate cables accordingly.

Skin effect Alternating current tends to flow on the outer surface of a conductor. This is known as skin effect and is more pronounced at high frequencies. Skin effect is normally ignored because it has very little effect at power supply frequencies, but above about 350 Hz, that is, the seventh harmonic and above, skin effect will become significant, causing additional losses and heating. Where harmonic currents are present, designers should take skin effect into account and derate cables accordingly. Multiple cable cores or laminated bus bars can be used to help overcome this problem. Note also that the mounting systems of bus bars must be designed to avoid mechanical resonance at harmonic frequencies.

Problems Caused by Harmonic Voltages Because the supply has source impedance, harmonic load currents give rise to harmonic voltage distortion on the voltage waveform (this is the origin of 'flat topping').

Figure 8 shows a final circuit feeding a linear and a non-linear load. The distorted current drawn by the non-linear load causes a non-sinusoidal voltage drop in the circuit impedance, resulting in a distorted supply voltage waveform. This distorted voltage waveform causes distorted current flow in linear loads, which may affect their performance or efficiency.

Figure 8. Voltage Distortion Caused by a Non-linear Load.

Figure 9. Separation of Linear and Non-linear Loads.

always distorted. In reality, the voltage distortion seen in the installation will be the complex sum of the distortion on the supply and that generated in the installation. Source impedance of the supply network is very low, so distortion levels are also relatively low.

However, if the load is transferred to a UPS or a standby generator during a power failure, the source impedance and the resulting voltage distortion in the installation will be much higher.

harmonics – causes and effects

The solution is to separate the circuits supplying harmonic generating loads from those supplying loads that are sensitive to harmonics, as shown in Figure 9. Here separate circuits feed the linear and non-linear loads from the point of common coupling (PCC), so that the voltage distortion caused by the non-linear load does not affect the linear load.

Where local transformers are installed, they should be selected to have sufficiently low output impedance and sufficient capacity to withstand the additional heating; in other words, an appropriately oversized transformer should be selected. Note that it is not appropriate to select a transformer design in which the increase in capacity is achieved simply by forced cooling - such a unit will run at higher internal temperatures and have a reduced service life. Forced cooling should be reserved for emergency use only and never relied upon for normal running.

Induction motors

Zero-crossing noise Many electronic controllers detect the point at which the supply voltage crosses zero volts to determine when loads should be turned on. This is done because switching reactive loads at zero voltage does not generate transients, thus reducing electromagnetic interference (EMI) and stress on the semiconductor switching devices. When harmonics or transients are present on the supply, the rate of change of voltage at the crossing becomes faster and more difficult to identify, leading to erratic operation.

There may in fact be several zero-crossings per half cycle.

Harmonic Problems Affecting the Supply When a harmonic current is drawn from the supply it gives rise to a harmonic voltage drop proportional to the source impedance at the PCC and the current.

Since the supply network is generally inductive, the source impedance is higher at higher frequencies.

The voltage at the PCC is already distorted by the

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

Harmonic voltage distortion causes increased eddy current losses in motors in the same way as in transformers. However, additional losses arise due to the generation of harmonic fields in the stator, each of which is trying to rotate the rotor at a different speed either forwards or backwards. High-frequency currents induced in the rotor further increase the losses. Where harmonic voltage distortion is present motors should be derated to take account of the additional losses.

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Note that the voltage distortion at the PCC is assumed to be zero in these figures. This is far from the truth; the supply network has impedance and carries distorted currents so the supply voltage is

harmonics – causes and effects

harmonic currents drawn by other consumers and by the distortion inherent in transformers, and each consumer makes an additional contribution.

Clearly, customers cannot be allowed to add pollution to the system to the detriment of other users, so in most countries the electrical supply industry has established regulations limiting the magnitude of harmonic current that can be drawn. Many of these codes are based on the UK Electricity Association's G5/4 (2001), the first version of which was developed in the 1950s. Limits are placed on the absolute current that can be drawn for each harmonic order as well as the contribution the site will make to voltage distortion on the supply.

Meeting the requirements usually necessitates the application of one or more mitigation measures.

Sometimes it is necessary to design a more complex filter to increase the series impedance at harmonic frequencies and thus reduce the proportion of current that flows back onto the supply.

w Improve resilience of equipment by reducing voltage waveform distortion

The use of multiple shunt filters in a single installation can be problematic and is usually avoided.

Some mitigation measures have already been mentioned: correct sizing of neutral conductors and transformers will eliminate the risk of overheating, whereas careful circuit separation will help minimize voltage distortion. These are wise and necessary steps to take to protect the installation, but they do not help to meet the local emission limits for which further steps are necessary.

Passive series filters

w Meet local harmonic emission limits

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Passive filters are used to provide a low-impedance path for harmonic currents so that they flow in the filter and not in the supply. The filter may be designed for a single harmonic or for a broad band depending on requirements.

w Reduce overloading of, for example, cables and transformers

Harmonic mitigation measures are required to

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Passive shunt filters

Shunt filters reduce the harmonic current flowing back on to the supply, but do not reduce (and may increase) the effect of harmonic current in neutrals or the effect on transformers. Usually, shunt filters are designed to control a few lower order harmonics and are integrated with the power factor correction equipment.

Harmonics Mitigation Measures

52

Mitigation methods fall broadly into three groups: passive filters, isolation and harmonic reduction transformers and active solutions. Each approach has advantages and disadvantages, so there is no single best solution.

For large infrastructure items, for example, a large variable-speed ventilation fan, it could be advantageous to select a unit with built-in harmonic reduction in the form of a filter or an 'active front end'.

Since this particular load is now electrically nearly linear, it causes no problems in the installation and has no effect on the supply.

This is also a practical approach if the installation is made up of a large number of similar items, such as a data centre, where there is now a wide choice of equipment with low-distortion power supplies and carefully controlled maintenance and purchasing policies are in place. However, generally, it is not practical to rely solely on equipment selection because purchasing and replacement cannot be sufficiently controlled and therefore other mitigation measures are needed.

Simple series band stop filters are sometimes proposed, either in the phase or in the neutral. A series filter is intended to block harmonic currents, rather than provide a controlled path for them, so there is a large harmonic voltage drop across it. This harmonic voltage appears across the supply on the load side. Since the supply voltage is heavily distorted, it will no longer be within the standards for which equipment was designed and warranted. Some items of equipment are relatively insensitive to such distortion, but others are very sensitive. Series filters can be useful in certain circumstances but should be carefully applied; they cannot be recommended as a general-purpose solution.

Isolation transformers As mentioned previously, triple-N currents circulate in the delta windings of transformers. Although this is a problem for transformer manufacturers and specifiers - the extra load has to be taken into account - it is beneficial to system designers because it isolates triple-N harmonics from the supply.

The same effect can be obtained by using a 'zig-zag' wound transformer. Zig-zag transformers are star

Because the AHC is a digital device, it is very flexible and can be programmed as required. It is, for example, possible to set the device to reduce specific harmonics or all harmonics. Since the harmonic current is continuously measured, the conditioner quickly responds to changes in the nature of the load.

Active harmonic conditioners The active harmonic conditioner (AHC) is a shunt device. A current transformer measures the harmonic content of the load current and controls a current generator to produce an exact replica, which is fed back onto the supply on the next cycle. Since the harmonic current is sourced from the active conditioner, only the fundamental current is drawn from the supply. In practice, harmonic current magnitudes can be reduced by 90% and, because the source impedance at harmonic frequencies is reduced, voltage distortion is reduced.

Virtually all modern electrical and electronic equipment involves some form of power control and thus becomes a non-linear load. Linear loads are comparatively rare - undimmed filament bulbs and uncontrolled heaters being the only common examples.

A range of design strategies and mitigation techniques is available to mitigate the effects of harmonics in installations and to comply with any harmonic pollution regulations. Each successful strategy to prevent future problems will be a combination of good design practice, the right electrical equipment and good maintenance.

(David Chapman was the Electrical Programme Manager for the Copper Development Association in the UK where his main interests included power quality and energy efficiency.

He is an author and Chief Editor of the LPQI Power Quality Application Guide and maintains his long term interest in electrical design.)

This article is brought to you as a part of APQI educational series.

...continued in page 03

implemented. Non implementation of these schemes would attract heavy penalties. However such schemes are less transparent. b) Through Market Based mechanism: Setting targets and those who achieve the efficiency over and above the target are issued certificates and those who under achieve are required to buy certificates to the extent of shortfall. Thus market for the Energy Efficiency certificates are created, and the price of these certificates is determined by the market. Such schemes are transparent and require less supervision as compared to the command and control mechanism. c) Partial credit risk guarantee fund: The importance of this fund is that the project gets evaluated under this scheme which gives additional comfort to Bankers. d) Performance contracting model wherein savings are shared or savings are guaranteed by the service company.

harmonics – causes and effects

Several AHCs can be installed within an installation each measures and responds only to its own output current, so there is no risk of mutual interference.

Of the above referred schemes apart from other mechanism, Performance Achieve and Trade (PAT) mechanism under which Energy Saving Certificates (ESCerts) would be traded on the Power Exchanges. It is felt that the market based mechanism would address most of the issues mentioned above. First compliance cycle of PAT mechanism has already been announced which would be for the period 2012-15. However, ESCert trading mechanism will become useful for valuing any Energy Efficiency project, only if there are price signals available to the financing agencies so that they can use these for evaluation of a project. Therefore it is important that cycle for issuance of ESCerts can be made short and also the compliance targets under this scheme are broken down at least on yearly basis. This will kick start trading of ESCerts even before the end of first compliance period and pricing of ESCerts would start.

Countries' experience in trading of Renewable Energy Certificates gives a lot of hope, that the ESCert trading mechanism would also be a great success, and would help in financing of new Energy Efficiency projects.

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

Delta and zig-zag transformers reduce only triple-N harmonics.

Because the AHC is a digital device, it is very flexible and can be programmed as required. It is, for example, possible to set the device to reduce specific harmonics or all harmonics. Since the harmonic current is continuously measured, the conditioner quickly responds to changes in the nature of the load.

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configuration autotransformers with a particular phase relationship between the windings, which are connected in shunt with the supply.

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resilient and reliable power supply in a modern office building: case study Angelo Baggini and Hans De Keulenaer

his paper presents a design approach to assure resilient and reliable power supply in an electronics-intensive office building. The document is a case study of a 10-floor office in Milan, Italy, (hereafter referred to as 'the building' for confidentiality reasons). The building is the head office of a major financial institution and is occupied by 500 employees using information technology equipment intensively.

After a description of the current status of the electrical installation in the building, accompanied by the results of power quality measurements, two design proposals are presented that assure a resilient

and reliable power supply. A cost analysis completes this report.

Description of Existing Situation Distribution scheme The building is connected to the 23 kV mediumvoltage public grid. The medium-voltage main power supply consists of two 800 kVA transformers, 23/0.4 kV, 50 Hz. The low-voltage side of the installation is designed as a TN-S system.

The load is subdivided into standard, preferential and privileged loads, according to the requirements for continuity of supply (this is discussed in greater detail

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T

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This application note describes the design of the electrical infrastructure for a modern 10-story head-office building in Milan, Italy, housing 500 employees using IT intensively.

It demonstrates how concern for resilience and reliability at the design stage can save high maintenance and renovation costs at later stages. Two design approaches are discussed and compared, including a cost comparison. Attention goes to choice of the electrical distribution scheme, choice of the earthing configuration, how to cope with harmonic currents, coordination of the many different protection devices, and how to ensure power supply for mission-critical loads.

resilient and reliable power supply in a modern office building: case study

later in the text). There is a second point of common coupling (PCC) to feed a small portion of the standard load. The two PCCs are fed from the same grid point and so are not independent.

Figure 2. Present Distribution Flow Chart. Dark lines indicate standard distribution. Light lines indicate privileged distribution.

To assure continuity of power supply, two UPSs (80 + 200 kVA) and a motor-generator (250 kVA) are installed according to the scheme in Figure 1. Note that in such a scheme, it is imperative that the neutral conductor be connected to the earth only once, at the main earthing terminal, and not at each transformer.

Otherwise, the benefits of the TN-S wiring configuration - improved EMC and power quality - are lost.

Figure 1. The Present Distribution Scheme.

Lines

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The three-phase distribution is carried out with multicore copper cables. Where the phase conductor cross sections were greater than 35 mm2, half-sized neutral conductors had been used.

Load The rated load for the office building is typical and consists of The primary distribution is a compromise between radial (wherein each LV panel at each floor has a dedicated connection with its corresponding switchgear at the main LV distribution panel in the basement) and shunt (wherein a rising bus bar or power line is shared for all floors; at each floor, a connection is made to the LV panel at the floor) schemes. This is a direct result of the many changes in power requirements experienced during the building's lifetime. Two distribution panels feed each floor. Each panel has two sections (standard and privileged) corresponding to the standard and privileged sections of the main LV power panel (Figure 2). Final distribution uses a single radial scheme.

-

Elevators (approx. 80 kVA)

-

Services (approx. 100 kVA)

-

Air-conditioning (approx. 600 kVA)

-

Horizontal distribution for lighting and power in the open office space (approx. 35 kVA per floor)

Rather high permanent currents are detected in the ground conductor. This is a typical indication that the TN-S configuration has not been preserved, that is, there are multiple connections between the neutral conductor and earth. It must be ensured that there is only one main

Figure 4. Waveform and Harmonic Content of Phase Current (Phase L1) in the 80 kVA Line to the Uninterruptible Power Supply - UPS (Open Office Space).

Power quality To evaluate the quality of the power supply, current harmonic content was measured at the main electrical lines feeding each floor and at the distribution panels for building services.

Figures 3-6 give examples of the measured current and voltage waveforms and their harmonic content.

With reference to these, the following points need to be highlighted:

resilient and reliable power supply in a modern office building: case study

earthing point with a connection between neutral and ground. On-site personnel need to be briefed to avoid making any connection between the neutral and ground in the LV distribution.

Figure 3. Waveform and Harmonic Content of Phase Current (Phase L1) at Main LV Power Panel in the Line Feeding Elevators 1 and 2.

Figure 5. Waveform and Harmonic Content of Neutral Current in the 80 kVA UPS Line (Open Office Space)

-

Some phase conductors, particularly those for lighting circuits, have over 75% total harmonic current distortion (3rd, 5th and 7th harmonics) see Figure 6. There is significant 3rd harmonic current distortion in circuits serving IT and lighting equipment - see Figures 4, 5 (neutral conductor) and 6. In some neutral conductors, the harmonic currents are more than twice the phase current.

Both UPSs show current distortion in phase and neutral conductors - see Figures 4 and 5.

-

Even-order harmonics appear in more than one measurement (approx. 30% in Figure 5). This means that the waveform of the current does not have the usual symmetry.

-

In some cases, the waveform undergoes more than two zero crossings per cycle of the sine wave (Figure 5).

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resilient and reliable power supply in a modern office building: case study

Figure 6. Harmonic Content of Phase L2 Current at Main LV Distribution Panel in the Line Feeding Ground Floor Distribution Panel (Mainly Lighting Circuits)

Distribution scheme The distribution scheme is neither systematic nor rational, probably due to the numerous modifications since the original installation.

Line overheating The high density of information technology equipment such as PCs, servers and so on, and electronic lighting, produces high levels of harmonic current in many lines.

-

Rather high permanent currents are detected in the ground conductor. This is a typical indication that the TN-S configuration has not been preserved, that is, there are multiple connections between the neutral conductor and earth. It must be ensured that there is only one main earthing point with a connection between neutral and ground. On-site personnel need to be briefed to avoid making any connection between the neutral and ground in the LV distribution.

The instrument that was used to make these measurements was a Fluke 43 single-phase, 0-600 V, CT 600 A/1 mV/A power quality analyser.

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point of view for a building with mission-critical functions.

Events The building occupant experienced a high and increasing number of events and faults principally related to the overheating of lines and nuisance tripping of protection devices.

The current installation lacks organization and rationality in its approach. Some elements are not in conformance with the current standards. Even full compliance to standards does not guarantee adequate performance from a power quality and EMC point of view for a building with mission-critical functions.

Analysis of the Existing Situation The current installation lacks organization and rationality in its approach. Some elements are not in conformance with the current standards. Even full compliance to standards does not guarantee adequate performance from a power quality and EMC

Coordination among protection devices and lines The current capacities of some lines are not coordinated with the rating of their overcurrent protection devices. The large number of lines running in the same trunking makes the problem more critical because the operating temperature is higher.

Analysis of a faulty line showed that prolonged overheating was the cause of failure, due to overheating in the trunking.

Neutral status In the case of such a multiple feed with TN-S configuration, the neutral current needs to be brought back right to the main earthing terminal. Procedures must be in place to avoid making any additional connection between neutral and ground.

Design Approach The building occupant, operating in the financial sector, needs to upgrade the installation since reliable power quality is considered mission-critical. The problems revealed by the analysis of the current situation and the PQ measurements suggest consideration of an update of the electrical system at different levels: -

Rationalization of mains distribution

-

Renewal of the electrical installation on the floors

Load classification The flow chart of activities involved in the mains distribution rationalization procedure is shown in Figure 7. The first step is classification of the loads.

All loads are classified into three groups: -

Standard

-

Preferential

-

Privileged

Standard loads are used for daily business. A simple

- voltage and frequency quality - power availability - uninterrupted supply

- public grid - self generation

Option: users less sensitive to voltage quality

ELEMENTS AFFECTING SCHEMES (Redundancy needs) -

personnel availability of spare parts service conditions, environment,‌ stoppage consequences (programmed, occasional): economic losses, production losses, faults, danger to people, plant, community

Type of load Standard

49%

Preferential

13%

Privileged

38%

Table 2. Dependability Statistics of the Electrical Components Used in the MV-LV Distribution Installation

Component type

AVAILABLE OPTIONS FOR REDUNDANCY - totally redundant grid - sparse approach / single user or group of users

DISTRIBUTION STRUCTURE - simple redundant scheme - machinery selection - device, line, etc. selection

COST-BENEFIT ANALYSIS OF ALTERNATIVE SOLUTIONS

radial circuit suffices for the supply, and relatively long intervention times can be tolerated.

Percentage

MV/LV transformers MV and LV circuit breakers

Number of Number of Failure Outages Outages Rate per 1000 per Components Component per Year per Year 1-2 0.2-1

Disconnect switches

1-4

Electronic relays (single)

5-10

Electronic relay systems

30-100

Standby generators

20-75

Failure to start

Privileged loads are mission-critical. Loss of service means grave danger to personnel or severe damage to the organization's business processes. At the very least, these loads must be supplied from two independent feeders with automatic switching.

Preferential loads need a redundant power supply, for example, as provided by a dual radial scheme, starting either from the risers or at the level of intermediate connections.

Privileged loads are mission-critical. Loss of service means grave danger to personnel or severe damage to the organization's business processes. At the very least, these loads must be supplied from two independent feeders with automatic switching.

In cooperation with the building occupant, all loads have been classified as shown in Table 1.

Dependability statistics of the electrical components used in the MV-LV distribution installation is presented in Table 2.

resilient and reliable power supply in a modern office building: case study

POWER SOURCES

0.5-2%

Continuous generators

0.3-1

UPS inverter

0.5-2

UPS rectifier

30-100

Underground cable (1000 m)

13-25

Cable terminations

0.3-1

Cable joints

0.5-2

Source: Bollen M. H. J. (1993) Literature search for reliability data of components in electric distribution networks, Eindhoven University of Technology Research Report 93-E-276, August 1993.

Mains distribution schemes To avoid the existing bottleneck at the LV main bus bar, primary distribution must be modified as a dual radial distribution (Figure 8 left).

Figure 8. The New Mains Distribution Scheme.

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

USER REQUIREMENTS

Table 1. Classification of Types of Load

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Figure 7 . Flow Chart of Activities for Selecting the Right Distribution Scheme.

resilient and reliable power supply in a modern office building: case study

The rating of the transformers TR1 and TR2 must ensure that each can carry the full load. Considering that the load current waveform will be highly distorted (because of the nature of the loads), the transformers must be sized to take account of the harmonic content.

Figure 9. Solution with Radial Scheme. Ten floors with three types of load means 30 dedicated rising lines. Dark lines indicate standard distribution; grey lines, preferential distribution; and light lines, privileged distribution.

To reduce short-circuit currents, the system is normally managed with the main bus bar-breaker open, but parallel operation of the two main transformers is possible for a short time.

To feed the thermal and HVAC services, the transformer section shall be modified as shown in Figure 8 with a new 800 kVA transformer, TR3, in addition to the existing two. The new transformer has been selected in accordance with the series A0Ak of the standard EN 50546-1 to minimize the losses.

Standard loads are supplied from a single grid point.

The same grid power cable, riser and radial distribution also supplies preferential and privileged loads.

Figure 10. Solution with Unique Riser Lines. Three types of load means three rising lines/bus bars, shared by all floors. Dark lines indicate standard distribution; grey, preferential distribution; and light, privileged distribution.

Two generator groups supply the preferential and privileged loads. The standard loads are switched off through the breakers at the extremity of the mains bus bar.

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Two UPSs supply the privileged loads, in case of failure of the normal and backup power supplies.

The second LV PCC has been removed in Figure 8.

Each floor is still supplied by two distribution panels, each having three sections (standard, privileged and preferential) corresponding to the same sections of the main LV power panel.

Final distribution could be done using a shunt (Figure 9) or single radial (Figure 10) scheme.

The shunt scheme (a shared line feeding all floors for each type of loads) is cheaper and more flexible in the case of load growth. Unfortunately, it is limited by poor resilience to faults in the main line and the risers.

The single radial scheme (one line for each floor for each type of load) ensures -

minimum interference and voltage drop caused by loads

-

that, in case of a fault, only the loads supplied by the faulty line are out of service

-

reduced maintenance problems

The radial scheme is therefore the preferred scheme.

Line sizing Table 3 shows the power-considered sizing of all the main sections of the system.

The total installed load (Columns 2 and 3) is multiplied by utilization and contemporary factors (Columns 4 and 5) to calculate the power requirements of the load (Columns 6 and 7). As a margin for future load growth, lines are sized (Columns 8 and 9) considering an additional factor equal to 130% and 115% for the power and lighting circuits, respectively.

Considering the measured waveform of the current, all the new lines have been sized to take into account the harmonic profile and resilience requirements: -

Neutral cross section equal to that of phase

-

Derated cables

Utilization & Contemporary Factors

Power requirement (kVA)

Installed power (kVA)

Power (1)

Light (2)

Power (3)

Light (4)

Power (5)

Light (6)

Power (7)

Light (8)

7

10

0.7

1

5

10

6.5

11.5

First underground

114

15

0.7

1

80

15

104

17.25

Ground and general services

43

15

0.7

1

30

15

39

17.25

First floor

50

17

0.7

1

35

17

45.5

19.55

Second floor

50

17

0.7

1

35

17

45.5

19.55

Third floor

50

17

0.7

1

35

17

45.5

19.55

Fourth floor

50

17

0.7

1

35

17

45.5

19.55

Fifth floor

50

17

0.7

1

35

17

45.5

19.55

Sixth floor

50

17

0.7

1

35

17

45.5

19.55

Seventh floor

50

17

0.7

1

35

17

45.5

19.55

Eighth floor

29

12

0.7

1

20

12

26

13.8

Ninth floor

3

2

0.7

1

2

2

2.6

2.3

Thermal Central

29

0

0.7

--

20

0

26

0

HVAC main station

843

0

0.7

--

590

0

767

0

Boxes

14

5

0.7

1

10

5

13

5.75

Elevators

114

0

0.7

1

80

0

104

0

TOTAL

1546

178

--

--

1082

178

1407

204.7

Second underground

Special attention should be paid to neutral and phase conductor sizing to avoid overheating and faulty tripping of protection devices. The adoption of a UPS or motor generator is not useful if a line fault occurs after it.

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Table 4. Cost If Selected at Initial Design Stage

Item

Existing (k€)

Solution 1 Solution 2 (k€) (k€)

Main LV panel

62,949

68,850

88,522

Cost Analysis

Risers

59,015

68,850

118,029

The cost of the existing installation is compared with those of the two possible alternative solutions. These alternatives differ only with regard to the risers, and hence in terms of the cost of the main LV panel.

Horizontal distribution

210,485

265,565

265,565

Generator groups

171,142

210,485

210,485

UPS

108,193

206,551

206,551

Motive power

698,339

737,682

737,682

Lighting

983,576

1032,754

1032,754

2293,698

2590,738

2659,589

Total Absolute difference

--

297,040

365,890

Total Relative difference

--

13%

16%

The cost comparison is presented for the two alternative solutions both for adoption at the initial design stage (Table 4) or for implementation as an upgrade (Table 5). Solution 1 is the shunt scheme, and Solution 2 is the simple radial scheme, which is preferable for new buildings, but difficult to implement as an installation upgrade.

Total

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Installed load (kVA)

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Load

resilient and reliable power supply in a modern office building: case study

Table 3. Peak-Rated and Actual Sizing of the Primary Distribution System.

resilient and reliable power supply in a modern office building: case study

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Table 5. Cost for Installation Upgrade

Solution 1 Solution 2 Total absolute difference (k€) Total relative difference (%)

830,138 1068,163 36

46

Regarding cost analysis, the following points need to be highlighted: -

The percentages are with reference to the cost of the existing installation.

-

The extra cost of the better solutions is low if considered at the initial design stage.

-

The cost of the best technical solution (i.e., Solution 2 - single radial scheme at final distribution) differs only by 3% from that of Solution 1 if considered at the initial design stage, but the difference is much larger if considered at the refurbishment stage only.

-

Cost basis is 2011.

-

The cost of the UPS considers only purchase and installation costs. The additional costs of maintenance must be taken into account.

Even if the evaluation of average costs related to a system designed according to good PQ practices is difficult, we have to recognize that -

the cost estimates include the costs related to the practical difficulties of installing and renewing a building located at the centre of a major city;

-

modification of the mains distribution scheme is the most important and useful action to undertake.

-

be paid pack by a productivity increase of 10 min per week. Once paid back, all the rest is profit.

the solution with unique riser lines is very difficult to install with the building in operation.

Initial low cost does not necessarily mean good value.

A PQ-compliant system, though initially more expensive, can save a great deal of money during its life. The case study analysed in this article shows that an electrical installation designed without attention to PQ issues results in a considerable amount of unnecessary expenditure, whether to resolve the issues or to simply live with the inconvenience and downtime they cause.

Expensive though it may seem, the highly resilient solution would typically add only about 1% to the cost of the building. For commercial buildings, where the running costs amount to initial construction costs after 7-8 years, this initial investment will

The cost-benefit analysis shows that resilience should be carefully considered at design stage. An increase of a mere 16% in the installation cost (1% of the building cost) provides -

Three lines of defense against power cuts for mission-critical loads (dual panels at each floor, generator, UPS)

-

A highly resilient system, with each floor supplied by two distribution panels. Each panel is independent of the other, as well as of all panels on the other floors.

-

A highly flexible electrical system for future load growth.

Expensive though it may seem, the highly resilient solution would typically add only about 1% to the cost of the building. For commercial buildings, where the running costs amount to initial construction costs after 7-8 years, this initial investment will be paid pack by a productivity increase of 10 min per week. Once paid back, all the rest is profit.

Bibliography 1. IEC 364-5-523 - Electrical installations of buildings - Part 5-52: Selection and erection of electrical equipment - Wiring systems.

2. Baggini A. (2008) Handbook of power quality. Chichester, UK: John Wiley and Sons.

3. Silvestri A. and Tommazzolli F. (1991) Schemi per gli impianti di energia: semplicità, affidabilità, risparmio, ridondanza dove e come", Corso "Il progetto degli impianti elettrici di energia. Le norme e la regola dell'arte, Dipartimento di Ingegneria Elettrica dell'Università degli Studi di Pavia, AEI, CNR, Pavia, 10-13 giugno 1991.

4. Baggini A. and Granziero M. (2011) Static UPS: A Practical Guide to Selection, Installation and Maintenance, Amazon.

(Mr. Angelo Baggini is currently Aggregate Professor of Electrical Engineering at University of Bergamo and international consultant in the energy sector specializing in energy efficiency, power quality and renewables.

Mr. Hans De Keulenaer is programme manager ‘Electricity & Energy’ at the European Copper Institute (ECI). He has over 25 years of experience in running international campaigns for companies and organisations in the industrial sector. His current interests are energy efficiency, renewable energy systems, elearning, quality of supply, building installations and energy regulation.

This article is brought to you as a part of APQI educational series.

a rare case of low leading power factor Dalip Singh

April - June 2012

Although low lagging power factor (PF) cases are common, this case pertaining to a military station is about a low PF (0.5-0.6) problem that remained unresolved for years mainly because the leading PF went undiagnosed. When diagnosed, it was startling, as there was no connected capacitive load. Subsequent analysis revealed that the long network of lightly loaded 11 kV underground cables was acting like a capacitor resulting in a leading PF. Hence it was advised to add inductive reactance in the network by installing suitably sized shunt reactors on the LT side of six of the twelve distribution transformers. On commissioning of the shunt reactors, the PF improved much higher above the threshold value of 0.90, enabling MES to get rid of low-PF penalty payments.

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a rare case of low leading power factor

P

ower factor (PF) is an attribute of power quality (PQ), and like most PQ problems, low PF also originates at user premises, much akin to human sufferings which are mostly self-inflicted. Low PF penalty, which gets added to electricity tariff, is one of the major negative consequences of low PF besides increased I2R loss and voltage drop. Lagging PF is a common incident, as the net impedance of common loads is generally inductive.

This case is about a military station in Rajasthan having a PF in the range of 0.40-0.70. The Military Engineering Services (MES) Department, which is responsible for management of electricity supply, was paying heavy penalties for low PF since long, as the problem was defying solution. On invitation by the MES department the author visited the facility in January 2008 and came to the conclusion that the low PF problem was a case of leading PF as indicated by the symbol of capacitance below the PF reading on the utility's tri-vector energy meter. Being a case of uncommon nature, this fact might have escaped the attention of most MES functionaries and resulted in absence of diagnostic clues to solve the problem.

April - June 2012

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The author's advice for reactive compensation with inductive reactors was accepted by MES, though after initial hesitation, and its implementation resulted in solution of the problem.

The Facility and Its Electrical System The facility is an army station with residential and non-residential buildings having lighting and other appliance loads. For meeting the power requirement of the station, MES receives 33 kV bulk power at the main receiving station (MRS) from Jodhpur Vidyut Vitran Nigam Ltd (JdVVNL).

Load surveys on the LT side of the distribution transformers indicated that the transformers were substantially underloaded (below 10%) and that the PF was in the range of 0.80-0.93, which was a lagging PF as expected since incandescent lamps, FTLs and fans were the main loads.

The 33 kV power is stepped down to 11 kV, which is distributed over the entire station through underground cables of 70 mm2 in size and about 25 km in length, terminating at 12 distribution

transformers of 11 kV/400 V, which feed the lighting and appliance loads in various pockets.

Load surveys on the LT side of the distribution transformers indicated that the transformers were substantially under-loaded (below 10%) and that the PF was in the range 0.80-0.93, which was a lagging PF as expected since incandescent lamps, fluorescent tube lamps (FTLs) and fans were the main loads.

It is noteworthy that the kVA/kVAh billing system, instead of kW/kWh billing, already includes higher charges for lower PF. On top of it, the low-PF surcharge, which adds a heavy penalty to PF below 0.90.

The energy bill for the 12 months from December 2006 to November 2007 amounted to Rs 40 Lakh, which included Rs 28 Lakh for energy, Rs 3.50 Lakh for demand and Rs 8.50 Lakh as PF surcharge.

Bill Analysis The applicable tariff schedule, HT ML-4, includes a heavy PF surcharge for PF below 0.90 and 75% of the contracted demand as the minimum billable demand.

The rates of energy and demand charges for 2007-08 were Rs 3.75 per kVAh and Rs 80 per kVA per month, respectively. It is noteworthy here that the kVA/kVAh billing system, instead of kW/kWh billing, already includes higher charges for lower PF. On top of it, the low-PF surcharge, if PF falls below 0.90, adds a heavy penalty to PF below 0.90.

The energy bill for the 12 months from December 2006 to November 2007 amounted to Rs. 40 Lakh, which included Rs. 28 Lakh for energy, Rs. 3.50 Lakh for demand and Rs. 8.50 Lakh as PF surcharge.

The recorded demand and PF during the 12 months from December 2006 to November 2007 are summarized in Table 1.

The first saving opportunity of revising the contracted demand to the lower side is apparent, but MES decided not to reduce the contracted demand so as to cater to future expansion. The next saving opportunity is to eliminate PF surcharge, which is discussed in the next section.

Demand (kVA)

PF

Month

Demand PF (kVA)

Dec 2006

153

0.61

Jun 2007

167

0.73

Jan 2007

177

0.65

Jul 2007

196

0.68

Feb 2007

200

0.65

Aug 2007

305

0.62

Design of Shunt Reactors

Mar 2007

200

0.61

Sep 2007

229

0.53

Apr 2007

230

0.40

Oct 2007

226

0.52

May 2007

205

0.60

Nov 2007

195

0.53

The first point for consideration was whether to plan the reactors on the 11 kV side at the MRS or to go for distributed reactive compensation on the LT side of the distribution transformers. It was felt that provision of a distributed system would be more economical and maintainable. It was assessed that 150 kVAR inductive reactors would be adequate to meet this requirement. Accordingly, six LT reactors of 25 kVA each were proposed to be installed across the bus bars on the LT panels of six of the distribution transformers to improve PF at the MRS. The detailed design specifications obtained from EPCOS India, Bangalore, for incorporation in MES tenders are given in Table 2.

The first clue on this tricky issue was obtained when the concerned junior engineer (JE) stated that his attempt to improve PF by installing PFC capacitors worsened the PF situation. It was an indication that the PF was a leading PF. A look at the reading of the JdVVNL's trivector meter confirmed leading PF as seen from the capacitor sign below the PF reading. But it was perplexing, as there was no capacitive load and the PF on the LT side was lagging as revealed by the load survey.

PF Improvement The hefty amount of Rs 8.50 Lakh paid as PF surcharge, which could be saved by improving PF to a value of 0.90 or above, is a strong driver for PF improvement. In addition, PF improvement would also yield some savings because of reduction in kVA and kVAh values. But the necessary PF improvement had not been achieved despite repeated attempts in the past by MES. The author got the first clue on this tricky issue when the concerned junior engineer (JE) stated that his attempt to improve PF by installing PFC capacitors worsened the PF situation. It was an indication that the PF was a leading PF. A look at the reading of the JdVVNL's tri-vector meter confirmed leading PF as seen from the capacitor sign below the PF reading. But it was perplexing, as there was no capacitive load and the PF on the LT side was lagging as revealed by the load survey. The utility bills did not indicate whether the PF was leading or lagging.

While brooding over the matter, it occured that the 11 kV underground cable might be acting as a capacitive network. This conjecture was confirmed by referring

The report containing the proposal for PF correction with shunt reactors was submitted in March 2008. The MES authorities were hesitant to implement it, as leading PF and shunt reactors had never been encountered in the history of MES. However, the TINA (There Is No Alternative) factor drove the authorities to implement the proposal by finalizing the contract in September 2008.

a rare case of low leading power factor

Month

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

to some electrical engineering handbooks and other resources that talked about the capacitive nature of lightly loaded underground cable networks. Now it became clear that inductive reactors would have to be added in the network to compensate for the leading PF.

April - June 2012

Table 1: Demand and PF for the 12 Months (December 2006 to November 2007)

a rare case of low leading power factor

April - June 2012

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Table 2: Extracts of Design Details of Shunt Reactors for PF Correction

Sl. No Parameter

Unit

Value

1

Rated power at rated voltage

kVA

25

2

Rated voltage

V

415

3

Voltage variation

%

-10% to +10%

4

Max. continuous voltage

V

455

5

Rated system frequency

Hz

50

6

Variation in frequency

Hz

48 - 51

7

No. of phases

Nos

3

8

Configuration

-

DELTA

9

Rated reactance/phase

Ohms

20.667

10

Rated inductance/phase

mH

65.8

11

Tolerance on inductance

%

-5% to +10%

12

Rated phase current

A

20

13

Linearity #1

-

Up to 130% of the rated voltage

14

Rated current of reactor

A

35

15

Continuous over-current capability

A

42

16

Short-time over-current capability

A

50 (for 30 min with 50% duty cycle)

17

Core

-

Iron core (CRGO)

18

Conductor

-

Copper

19

Max. permissible power loss (core + copper) #2

W

625

20

Noise level

dB

<65

21

Cooling

-

AN

22

Installation

-

5 indoor & 1 outdoor

23

Ambient temperature (Max)

0

C

50

24

Insulation type

-

Dry, resin impregnated/resin cast

25

Temperature class of Insulation

-

F

26

Max. permissible temperature rise above ambient

0

90

27

Test voltage (coil to core)

C

3 kV, 50 Hz, AC for 60 s

Implementation

Acknowledgement

The report containing the proposal for PF correction with shunt reactors was submitted in March 2008. The MES authorities were hesitant to implement it, as leading PF and shunt reactors had never been encountered in the history of MES. However, the TINA (There Is No Alternative) factor drove the authorities to implement the proposal by finalizing the contract in September 2008. The shunt reactors were commissioned in January 2009, and the PF improved to a value much above the threshold value of 0.90.

The author acknowledges the administrative support received from the MES authorities and the technical support from Dr Venkatesh Raghavan, EPCOS, India, in finalizing the design and specifications of the shunt reactors.

(Mr. Dalip Singh, former President of SEEM, has vast experience in projects and maintenance of Electrical & Mechanical Engineering services in MES Department of Government of India from which he retired as Chief Engineer. He has conducted energy audit in more than two hundred facilities/installations including commercial buildings and industrial plants with diverse energy systems.)