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A policy toolkit for global mass heat pump deployment

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Heat pumps, a critical technology for clean energy systems, are poised to become the most important technology for heating decarbonisation. Currently, the vast majority of heat is provided by fossil fuels. In order to promote and encourage heat pump installations across the globe, the Regulatory Assistance Project, CLASP and the Global Buildings Performance Network have developed this heat pump policy toolkit, which provides a suite of tools, and advice on how to use them, for policymakers interested in promoting this critical technology.

The structure of the toolkit is loosely based on that of a Greek temple, with foundations and pillars, supporting a rapidly growing heat pump market. The interactive toolkit (which includes clickable links throughout) also features short videos that give an overview of each relevant element of the toolkit. These videos make up a short series which complements this document.

This toolkit works as a synthesis of policy approaches to heat pump deployment and a guide to designing the best packages of policies. As you’ll see in the toolkit (and in the graphic below), a complete policy package needs to consider foundational elements and must also take account of each pillar. We provide details, examples and potential issues, and solutions within the various policy elements discussed.

Heat Pump Toolkit temple

Foundational elements of this toolkit recognise the need for coordination and communication around heat pump policy efforts and strategies.

Pillar 1 considers economic and market-based instruments. These instruments are fundamentally associated with balancing the economics of heat use towards clean options, such as heat pumps, so that their lifetime costs are cheaper than fossil-based alternatives.

Pillar 2 considers financial support. Within this pillar, we identify three key elements of financial support for heat pumps — grants and tax rebates, loans and heat-as-a-service packages.

Pillar 3 considers regulations and standards. We look at buildings codes and standards, appliance standards and heat planning and zoning.

To build an effective heat pump policy package, policymakers must consider foundational elements as well as each of the pillars. And even within each pillar, combinations of elements may be appropriate.

Facilitating Distributed Energy Resources Requires Policy Actions

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Distributed energy resources can provide key opportunities that would empower India’s retail customers to improve system efficiency, lower costs, and reduce emissions. In the first part of our DER series, we laid out the arguments for how deploying distributed energy resources (DER) in scale provides a key opportunity to empower customers.

DERs include elements such as energy efficiency, demand response, storage resources, distributed generation closer to load (such as rooftop solar), and more. DERs help customers modify their electric usage in ways that will save them money, offer reliability products to electric wholesale system operators and discoms to increase reliability and efficiency of the system, and help reduce emissions. The promotion of DERs, however, requires affirmative action by utility regulators and policy makers.

In the second part our series, we outline policies that will facilitate the entry of DER providers.

Empowering Retail Customers: Improve Efficiency, Lower Costs and Reduce Emissions

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As a tool in combating greenhouse gas emissions, India is aggressively adding renewable energy resources to its electric system resource mix to displace fossil fuel and meet future electric load growth. Much of this is being accomplished using competitive procurement processes and private capital for investment needs. At the same time the country is also rapidly implementing wholesale competitive electric markets to improve the efficiency of the electric system.

Deploying Distributed Energy Resources (DER) in scale provides another key opportunity to improve electric system efficiency and combat emissions. DERs empower customers to modify their electricity usage and help reduce emissions, as well as offer reliability products to electric system operators. The promotion of DERs, however, requires action by utility regulators and policy makers. There is a real need to allow private sector participants to assist customers and bring private capital in implementing DERs. Applying advanced metering, while not mandatory, would also be very helpful to facilitate full utilization of DERs. Advanced metering and sophisticated tariffs would allow customers to react to granular wholesale granular price signals, help reduce distribution utility operating and capital costs, and improve efficiency and system reliability.

This paper will be the first in a series about the benefits of DER. The first part describes the benefits of deploying DER and advanced metering for customers and the electric system, discusses different business models that can be used, and recommends key actions regulators and policy makers must take.

Future papers will delve into more detail on the specific regulatory actions that would be required to:

  • allow customers to participate in DER programs;
  • motivate utilities to actively facilitate and promote DERs; and
  • facilitate the entry of DER providers that would allow them to deploy their technical expertise and private capital in the space.

Making sense of India’s fast-changing policy landscape: Integrated modelling to inform decision-making

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With several notable recent economic reforms, India is one of the fastest-growing emerging economies. The country aspires to become a $5 trillion economy by 2024-25 and a $10 trillion one by 2030. There is ample evidence that India’s growth has been highly unequal in the past. Therefore, transforming this vision of growth into reality will require a comprehensive approach based on a multitude of policies targeting multiple domains. Further, the development trajectory should also be capable of tackling the key environmental challenges that India faces.

In the fast-changing policy landscape of a country as diverse as India, striving for equitable growth will not be possible without gauging regional implications of policy shifts. Equally important will be to understand the direction and distributive impacts of ongoing policies consistently and on a regular basis in conjunction with various decarbonisation goals recently endorsed by India.

A book released in December 2021, Economy-Wide Assessment of Regional Policies in India, takes on these questions. Making use of the outputs from the integrated energy-economy regional model called E3-India, it provides hopeful insight and offers powerful recommendations for India’s energy, economic and environmental policymaking at the national and state levels.

The book (edited by the lead author of this post) is a compilation of articles describing how various ongoing and announced sector-specific policies will, or will not, advance India’s social, economic and climate ambitions in both the near and longer terms nationally and across different states. The focus is largely on recent policies implemented in the primary, secondary and services sectors, including agriculture, capital goods, automobiles, electronics, information technology (IT-ITeS) and energy. The analyses also account for the effects of the COVID-19 pandemic and evaluate the impacts of different policy choices — especially with respect to environmental consequences and energy use — at the national and subnational levels.

The book takes a realistic look at the economic sensitivities and interdependencies at the national and state levels across India. Its aim is to broaden the scope of future action by reducing ambiguity and uncertainty in achieving the key policy targets — that is, by giving policymakers greater confidence that desired outcomes can be achieved. The major policies evaluated against a business-as-usual scenario include: the Agriculture Export Policy 2018; National Capital Goods Policy 2016; National Steel Policy 2017; Electrical Equipment Mission Plan 2012-2022; National Policy on Electronics 2019; Digital India initiative; National Software Policy 2019; Automotive Mission Plan 2026; and several subnational initiatives in a variety of sectors. In addition, the book evaluates regional impacts of national energy targets, along with economic impacts of existing Nationally Determined Contributions for India and economic impacts of Delhi’s airshed management. The book also takes a closer look at impacts of liquidity infusion in the context of COVID-19 through the Atmanirbhar package.

Sector-specific impact analyses of national policies reveal critical regional insights. For instance, the existing policy regime will lead to Gujarat state becoming a leader in international agricultural exports. Maharashtra, Karnataka and Haryana perform exceptionally well in the capital goods sector. With appropriate incentives in place, Haryana also emerges as a leader under the Automotive Mission Plan 2026 along with Tamil Nadu.

Tamil Nadu exhibits diversified leadership by outperforming in the electronics and IT-ITeS sphere along with Delhi and Uttar Pradesh. The state emerges as a front-runner in renewable capacity installation as well, along with Maharashtra, Karnataka and Andhra Pradesh. In contrast, the resource-rich and income-poor states like Chhattisgarh, Odisha and Jharkhand show a greater growth potential only in the capital goods sector.

We find that the more advanced states, like Maharashtra and Tamil Nadu, are already in a position to take up diversified policy action in the short run and direct resources to expand their markets through further integration in the global value chains. Most other Indian states still rely on few specialised sectors and will be able to diversify in the medium to long run only if sustained policy support in terms of investment in both infrastructure and capacity-building is provided. In a country as large as India, with different states endowed with distinct economic and geographic characteristics, formulating policies to strengthen regional value chains is critical for equitable growth of states across all regions.

Regional analysis of sector-specific policies highlights the nuances of regional variations in a particular sector, but in reality, various sectors are highly interconnected. The implementation of a policy in one region therefore has direct and immediate effects in its implementation in other regions and sectors. An integrated analysis that captures the essence of multiple policies simultaneously working together in diversified sectors and development areas is demonstrated in the final synthesis of this book. The comprehensiveness and granularity of the modelling outputs will enable readers (and other researchers, who can download and use the E3-India model free of charge) to derive nuanced and more informed policy insights.

By clearly outlining the short-run as well as the medium- and long-run priority sectors at a regional level in conjunction with impacts of ongoing energy transitions, this book intends to serve as a comprehensive guide for evidence-based economic and energy policymaking in India. Shaping these regional insights into deliverable policy actions ultimately lies in the hands of the policymakers. The book and the E3-India model serve as a primer and a tool to facilitate evidence-based policymaking at the regional level, enabling policymakers to leverage and strengthen India’s unique socioeconomic and geographical diversity, while moving toward national economic growth targets equitably and with a lower carbon footprint.

The E3-India model: It’s come a long way

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In 2016, the Regulatory Assistance Project approached Cambridge Econometrics about building a new macroeconomic modelling tool for India. The rationale for the model was simple: India needed to reduce its greenhouse gas emissions, but much of the policy to do so is set at the state level. A model that could identify the impacts of policies to boost state-level sustainable growth was therefore required.

Years later, the outputs of this work are presented in the book Economy-Wide Assessment of Regional Policies in India, edited by professor Kakali Mukhopadhyay. The book covers a range of topics relating to sustainable economic development in India, always with a focus on realistic (i.e., feasible) policy at the state level.

The model that was built came to be known as E3-India — “E3” for energy-environment-economy. It was developed by experts at Cambridge Econometrics, Professor Mukhopadhyay and former RAP colleagues Ranjit Bharvirkar and Surabhi Joshi. Without this collaboration, it is unlikely the model would have advanced to its present state.

The foundations of the model follow the Cambridge tradition, drawing on the demand-driven framework originally developed by Michal Kalecki and John Maynard Keynes. This approach provides several advantages over the more common equilibrium approach to modelling; it does not make assumptions about perfect information, rational behaviour or frictionless markets. In addition, it models labour markets, including involuntary unemployment — matters of particular importance to policymakers.

This demand-driven approach requires that behavioural parameters be informed by econometrics — that is, it requires, among other things, time-series historical data. With the model disaggregating India’s economy into both states and economic sectors, a substantial exercise in data collection and processing was required. Professor Mukhopadhyay led this herculean effort, yielding a tool that researchers today can download and use free of charge.

Another important feature of the model is its tight integration of energy consumption and greenhouse gas emissions within the wider economy. The model ensures consistency between physical and economic measures of energy consumption and prices — something that is critical for effectively assessing sustainability.

The power sector, which will play a crucial role in decarbonising India’s economy, is modelled in additional detail using an advanced framework developed by Jean-Francois Mercure. This allows the user to test policies such as feed-in tariffs, renewable subsidies and coal phaseouts, along with the standard energy and carbon tax policies that other models typically examine.

Each chapter of the book is dedicated to a different sector of the economy. A set of scenarios is used to explore different possible outcomes by implementing combinations of policies. The demand-driven nature of the model allows the analysis to start from a position in which the Indian economy has been set back by COVID-19; many of the scenarios look at ways to restore jobs and prosperity.

Eleven authors, experts in their respective fields, were involved in the production of the book. They put the E3 model to rigorous use, testing its capabilities and performance, and with it have revealed some important truths about the Indian economy and good news about its ability to transform itself into the sustainable, low-carbon powerhouse that it aspires to be.

The book is by no means the end of the E3-India project; in many ways, it is just the beginning. E3-India is a tool that policymakers can use for many years to come as they embark on the journey of promoting sustainable development. The model will continue to be updated. We encourage readers of the book to work with the model themselves, to challenge its conclusions and to examine other scenarios, all with the aim of developing public policies dedicated to improving the long-term welfare of Indian society and the environment. If India is to contribute to meeting global climate targets, much work remains to be done.

Indian power sector has opportunities to create value for the discoms and their consumers by mainstreaming behind-the-meter resources

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The electricity sector in India has experienced an evolution of sorts throughout the years. Since the early the 1990s, the sector has grown from a vertically integrated monopoly with generation, transmission, and distribution all under one roof, to the current structure in accord with the Electricity Act of 2003 where the three have been unbundled and now operate separately. The Bureau of Energy Efficiency (BEE) has made substantial progress towards promoting end-use efficiency with more than 15% savings demonstrated in the appliance-level energy use with its labelling and standards plans. The Indian power sector has created a conducive environment for renewable energy generators: as of 31 January 2022, renewables constituted 26.8% of the nation’s total installed capacity of 370 GW. The politics of subsidised or free electricity to a certain category of consumers, a legacy practice followed by the distribution companies (discoms), puts undue pressure on the entire power sector’s financial health.

The four charts below show Average Billing Rate (ABR),* Aggregated Revenue Requirement (ARR),** revenue gap (difference between the average cost of supply (ACS) and ARR, and Aggregated Technical and Commercial (AT&C) losses for discoms in major states.*** 

The distribution sector in India is also struggling. As of March 2021, the sector owes over INR 85,000 Crores (approx. U.S. $12 billion) to the generation companies. Discoms depend on the commercial and industrial (C&I) consumer base to subsidise the agriculture and the low-volume domestic customer classes, as seen in the difference between energy sales and revenues in the figure below.

Source: PFC, 2019

The C&I consumers will continue to provide the lion’s share of discom revenues, even if they take advantage of “open access” (the freedom to buy power from sources other than the incumbent discoms), because they are nevertheless required to pay high cross-subsidy surcharges and wheeling charges (power distribution charges). It’s important to retain such consumers within the incumbent discoms with key objectives of promoting higher renewable energy shares in the power mix, as well as reducing the electricity use with a deeper portfolio of energy efficient end-use practices. The discoms’ heavy dependence on C&I consumers to generate sufficient revenues creates significant barriers to decarbonisation investment opportunities among these consumers.

C&I consumers have an intrinsic need to reduce their power costs. Open access is a powerful opportunity for these consumers. So too are on-site efficiency and distributed resources, but such behind-the-meter investments are not encouraged by the discoms, given the threat of reduced revenues that they pose. Along those same lines, behind-the-meter generation (rooftop photovoltaic) within the consumer base is not easy to implement without on-site storage options or net metering/renewable energy export opportunities provided by the discoms. In several states, net metering policies do not favour the consumers creating large capacities to be exported to the grid beyond their diurnal requirements. It’s also opportune to deepen the behind-the-meter renewable energy and energy efficiency portfolio, combined with the storage solutions, at the consumer categories that are heavily subsidised.

One key opportunity to be explored in creating a substantive renewable energy, efficiency and storage portfolio on both sides of the meters is the possibility of discoms doubling up to become new energy service providers as much as legally possible. We hypothesise the possibility of developing a stronger efficiency, renewables, demand-responsive, end-use consumption, with adequate thermal and battery storage solutions at the consumer-side of the meter amongst all the customer categories.

Our team is currently exploring the efficacy and benefit-costs of discoms and consumers co-investing in behind-the-meter efficiency, dispersed solar, storage and demand-responsive end-use consumption patterns. We’re also researching in detail the regulatory regime that allows such investments, the benefit-costs of making investments in the behind-the-meter efficiency and renewables assets, and existing enhanced power sales opportunities through the possibility of selling saved energy for newer uses, such as electric vehicles. Other key benefits of enhanced renewable energy assets on the customer side of meter is the possibility of exporting renewable energy sources to other regions through an aggregated sale on the exchanges. More to come.

*ABR is calculated as ABR = Revenue expected from all categories million Rs /Approved sales in MU. The data has been obtained from the latest ARR of the respective utilities.

**This is the approved ARR for the upcoming year for the respective utilities. 

***Discom key:

  • Maharashtra: MSEDCL
  • Punjab: PSCPL
  • Gujarat: UGVCL; PGVCL; MGVCL; DGVCL
  • Karnataka: BESCOM
  • Tamil Nadu: TANGEDCO

Raj Addepalli

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2021 Year in Review

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As we stepped into the new year, my colleagues and I took time to reflect on the influence of our collective work at RAP in 2021. I share the following sample of our global impact in hopes that it inspires new ideas or opportunities to engage. Don’t hesitate to reach out to me or one of my colleagues if something sparks your interest!

RAP’s thought leadership drives progressive policy decisions

In 2021, decision-makers around the world adopted policies consistent with RAP’s thought leadership. We’re excited to see uptake of effective policies that meet the urgency of the moment and advance an equitable and efficient energy transition.

  • China’s powerful National Development and Reform Commission announced a mandatory time-of-use electricity pricing policy for nearly all retail customers. The policy is a major step forward for engaging citizens in the energy transition, integrating renewables into the grid and advancing innovations like flexible charging of electric vehicles. It will put China at the forefront of this effort internationally.
  • The European Commission’s “Fit for 55” legislative package lays a solid foundation for implementing the Green Deal climate goals. Key policies include a near doubling of Member States’ energy efficiency obligations, exclusion of fossil-fueled appliances from counting toward those energy savings, strong equity provisions to direct energy savings programs to people experiencing energy poverty, and faster rollout of smart charging for electric vehicles.
  • The UK’s Heat and Buildings strategy is a roadmap that calls for phasing out fossil fuel heat systems by 2035, reforming energy tariffs to make heat pumps more cost competitive, and funding to accelerate heat pump uptake. RAP was appointed to the Business, Energy and Industrial Strategy Committee, delivering expert testimony and briefing government officials, advocates, industry, and the media.
  • At least a dozen U.S. states have distribution system planning policies to encourage the use of clean distributed energy and build a more resilient, flexible grid. They are a crucial piece of the decarbonization puzzle, especially as building and transportation electrification takes off.

Debunking fossil fuel myths to shift the debate

RAP confronted the myths around the gas transition head on and equipped policymakers to challenge conventional wisdom. We made the case against the widespread use of hydrogen for heating in many different fora, including written analysis for Energy Monitor (the most read article since the launch of this outlet) and One Earth.

Our team published Under Pressure: Gas Utility Regulation for a Time of Transition, a toolkit with practical options for facilitating a smooth and fair transition off gas. We’re bringing together utility commissioners and staff from nine leading states for direct, behind-the-scenes conversations on navigating the challenging and sensitive issues of the gas transition. Through peer-to-peer engagements, decision-makers are finding the courage and tools to take action, even when confronted with misleading industry narratives.

We set the record straight on causes of the massive Texas outage—namely, the failure of natural gas generation and production and regulators’ inaction on prudent weatherization measures. Our article on the lessons learned established RAP as the source for accurate information on this consequential event. We published our analysis in Dutch, German, and Chinese – taking our messages on the need for more efficiency and demand flexibility global.

Electrifying buildings for equity and resilience

In partnership with the Global Buildings Performance Network, we launched a project to demonstrate how affordable housing developments can provide energy access and play a leading role in India’s energy transition. These grid-interactive, efficient buildings — housing for low- and middle-income families — will provide much needed demand flexibility to absorb high amounts of renewable energy and ensure vulnerable customers can participate fully in the energy transition.

Building a strong organizational foundation

In 2021, we made two commitments: to grow our organization to respond to the urgency of our mission and accelerating demand from government; and to increase diversity. We began an intentional update of the full range of our employee practices (values, hiring, advancement, and retention) to ensure they reflect RAP’s goals for justice, diversity, equity, and inclusion. We also crafted an engagement plan that centers storytelling to increase our impact.

For a downloadable and printable version of this summary, click here.