Saurabh Kumar, Managing Director, Energy Efficiency Services

If converting facilities to become more energy efficient is so lucrative, then why is the adoption so low?

India faces a formidable challenge in meeting its energy needs. At the very least, India needs to increase its primary energy supply by 3 times, and electricity generation capacity by about 6 times to meet the energy requirements of all its citizens.

Energy efficiency can play a key role in supporting this target, given the cost of saving energy is only one-third of what it costs to generate that energy.  The major segment for potential energy-efficiency projects is the industry, which accounts for 48% of the total energy consumed and 25% of which can be saved. The market for energy efficiency in India is estimated to be about Rs. 74,000 crore. But how does one tap it?

Reason for Low Adoption
Energy efficiency is an intangible asset, and the use of energy is highly dependent on human behavior and natural factors like the weather conditions. This makes it very difficult to measure the real impact of energy efficient solutions. This is precisely one major reason why energy efficiency projects have not picked up. There is also a lack of understanding and an information gap among the Financial Institutions (FIs) and potential hosts about the importance of energy efficient technologies, their benefits and their measurability.

Barriers for energy efficiency projects
Energy service companies (ESCOs) and building owners lack adequate access to project finance to meet their up-front costs of energy-efficiency retrofit projects. The number of ESCOs is limited. Further, most of the ESCO’s are service companies and do have strong balance sheets to secure funding. Non-recourse finance is also not easily available as such projects are perceived to be high-risk projects. Most banks require collateral of at least 100% of the loan value which, in light of the above, is difficult for ESCOs to provide. Most banks are yet to initiate comprehensive or long-term lending programmes for energy-efficiency projects. Moreover, domestic financial institutions are generally not familiar with or adept at analysing the financial aspects of energy-efficiency projects and hence even less willing to extend credit for these projects. Some banks are interested in the performance-contracting model offered by ESCOs, but in most cases ESCOs lack adequate assets to offer comfort to the bank. Owners of buildings focus on a minimum first-cost and hence confine themselves only to rudimentary levels of energy efficiency.

Bridging the Gap

Energy Consultants
One of the primary roles of an energy consultant is to help convert energy efficiency into a measurable tool so that it can then be monetized, and in turn, be accepted by the industry. Under the Energy Conservation Act, 2001, the Perform, Achieve, and Trade (PAT) initiative was proposed, which is a market-based mechanism to enhance cost effectiveness of improvements in energy efficiency, energy-intensive large industries and facilities, through certification of energy savings that could be traded. 

"One of the primary roles of an energy consulant is to help convert energy efficiency into a measurable tool so that it can then be monetized and in turn be accepted by the industry"

The energy saving certificates (ESCerts) have converted the intangible nature of energy savings to a tangible one. An energy consultant needs to keep this certificate relevant and for this he has to ensure the following mentioned below:

• That there is a constant demand for the commodity (ESCerts)
• Supply of the commodity (issuing ESCerts)
• Monitoring and verification (for ESCerts)
• Creating a platform for satisfactory and transparent pricing (trading ESCerts)
• Setting up systems to record and track transactions (registry of ESCerts)
• Creating a mechanism to resolve disputes (dispute resolution for ESCerts)
• Capacity-building and training (creating awareness about ESCerts)

EESL – Consultant and an Investor
Energy Efficiency Services Ltd (EESL) seeks to unlock energy efficiency market in India by way of innovative business and implementation models. It doubles up as a consultancy and an investor. EESL attempts to fulfil the following expectations:

• Create a partial risk guarantee fund to help ESCOs in lowering their risks
• Leverage bilateral and multilateral agencies in finance-related measures
• Enter into partnerships and joint ventures with other implementing partners such as ESCOs and the industry to promote energy efficiency
• Help leverage BEE’s expertise in offering consultancy services to the private and the public sectors on energy efficiency, CDM, and other relevant fields
• Act as the resource centre for capacity building

Long-term strategy 

As India intends to make massive investments in the infrastructure, urban development and industrialization while striving to ensure access to energy for an additional 400 million people, a targeted strategy to improve market infrastructure and increase access to the carbon market is recommended, consisting of the following elements:

• Requirement of all public investment and, over time, all public operations be assessed for carbon finance potential
• Promote Programme of Action to reduce transaction costs and aggregation of small energy-efficiency projects
• Promote market access of small industries to energy-efficiency projects
• Promote transparent pricing
• Make the legal status of Certified Emission Reductions clear to avoid disputes related to taxation
• Encourage capacity-building and training