WRI Stories Feed: UNUSED: Accelerating Clean Energy Markets in India

Accreditation to Increase the Credibility of Energy Service Companies in India

Ella Delio — Wed, 19 Aug 2009 15:22:33 -0400

The Bureau of Energy Efficiency (BEE) in India initiated an accreditation process to encourage the adoption of more energy efficiency projects through Energy Service Companies (ESCOs).

The accreditation initiative aims to increase the credibility of the ESCO industry among potential clients such as government offices, building owners, and enterprises and among financial institutions who would consider providing capital to ESCOs. CRISIL (Credit Rating Information Services of India Limited) and ICRA (formerly Investment Information and Credit Rating Agency of India Limited) carried out this accreditation process. CRISIL and ICRA are two of the premier agencies in India that present independent credit ratings, capital market information, and industry analysis.

A total of thirty-five ESCOs were given ratings between “Very High” and “Poor” based on criteria involving the ESCO’s success in implementing energy efficiency projects, the ability of its technical manpower, and its financial strength to invest in such projects. Twenty-five ESCOs received ratings of “Good” and above, while ten ESCOs received ratings of “Below Average” and below. This accreditation is valid for two years, after which a fresh accreditation from CRISIL or ICRA will be required once again.

Overall, this accreditation process will be beneficial for the entire ESCO industry. First, it will provide potential clients with a fairly credible selection tool which will provide them information about an ESCO’s technical and financial capability. Second, it will give ESCOs the incentive to improve so that they could attain higher ratings on the next accreditation round. Finally, this ESCO accreditation also serves as a guide for financial institutions when making decisions regarding the creditworthiness of an ESCO. In fact, WRI has been able to use this ESCO accreditation in its current work with financial institutions in India to increase investment into the ESCO industry and overall energy efficiency space.

Earlier this year, WRI shared with various Indian banks the findings of its publication Powering Up: The Investment Potential of the Energy Service Company Industry in India. Its analysis shows that there are attractive investment opportunities to fund ESCOs, especially among debt investors such as commercial banks in India. One of WRI’s recommendations is for these banks to pilot financial products targeted at ESCOs and their energy efficiency projects. In fact, WRI is currently in talks with several national Indian banks to explore this option. WRI has utilized the BEE’s accreditation scores during its conversations with the banks at times when the banks need a good sense of the overall capacity of a particular ESCO. In the end, WRI’s findings and analysis give an overall view of the whole industry’s potential, while the BEE’s accreditation gives more information on an individual ESCO.

All in all, the BEE’s accreditation has been a complementary tool to achieve WRI’s objectives of increasing investment into and ultimately the growth of the ESCO industry and energy efficiency space.

Living Up to Potential: India's Energy Savings Companies

Ella Delio — Tue, 30 Jun 2009 12:11:50 -0400

The market potential for energy savings companies (ESCOs) in India is great, yet barriers still stand in the way of the industry’s growth.

Listen to the full podcast interview:

Download (MP3, 3.0 Mb)

In April 2009, WRI released “Powering Up: The Investment Potential of Energy Service Companies in India,” a study that examined the potential of India’s Energy Service Company (ESCO) industry. The authors found that with an investment of US$10 billion dollars in energy efficiency improvements, India’s economy would see benefits of up to 183.5 billion kilowatt hours in energy savings. The publication is part of ongoing research on Accelerating Clean Energy Markets in India.

In this interview, WRI Ella Delio gives some background on ESCOs in India, and describes how this industry can overcome its most significant barrier to growth–a lack of access to finance:

Full transcript:

Q: How big is the potential for energy savings through energy conservation efforts in India?

A: The potential for energy savings in India is tremendous. With an investment of $10 billion dollars, India can realize 183.5 billion kilowatt hours of savings annually. That is 36% of their annual electricity consumption. And a key element of realizing this potential is the Energy Services Company industry.

Q: What is an energy service company?

A: An Energy Service Company, or an ESCO, is a company that provides energy efficiency related services, and operates on an energy performance contract. Which means that their revenues are earned based on the amount of energy savings that they produce for the client. The majority of ESCO projects have payback periods of two years, and on average, the clients of ESCO’s save around 20-25 percent of their baseline energy costs.

Q: How big is the ESCO Industry in India?

A: In India, the ESCO industry has grown tremendously over the past five years. From 2002-2007, the compounded annual growth rate was 96%, and it is estimated that in 2008 the growth rate was 62%. This high growth rate is due to rising energy costs, to the desire of enterprises to increase their cost competitiveness, and due to the greater procurement of energy services from government agencies in India. Despite this high growth, though, in the past five years, India’s industry is still relatively small to other emerging economies such as Brazil and China. In India, in 2007, the annual revenues of the industry was $18 million US dollars, while in Brazil, for the same year, the industry revenue was $280 million US dollars – which is 15.5 times more than that of India’s.

Q: What are the barriers to growth of the ESCO industry?

A: One of the primary barriers to the growth of the ESCO industry is the lack of access to financing for the energy service companies. WRI’s analysis shows that there are attractive investment opportunities to fund ESCO’s, especially among debt investors such as commercial banks in India, and one of WRI’s recommendations is for these banks to pilot financial products targeted at ESCO’s and their energy efficiency projects. In fact, WRI is currently in talks with several national Indian banks to explore this option. And we hope that by the end of June 2009 we will have an agreement with at least one of these banks to pilot such a financial product.

There are other barriers to the growth of the ESCO industry, such as the lack of a strong national industry association for ESCOs, as well as the lack of confidence of the prospective clients in the ESCOs. And we provided recommendations to address these barriers in our new report called “Powering Up,” and we hope that all those who have listened to this video today, and are interested in learning more about the investment potential of the ESCO industry in India will download the report from the WRI website.

Smart Policies Can Cut Emissions by Delivering 24/7 Solar Energy

Jessica Forres — Wed, 17 Jun 2009 10:10:25 -0400

Concentrating solar thermal (CST), a renewable energy technology that can provide electricity around-the-clock, has the potential to replace traditional fossil fuel-based power sources and become a central part of the U.S. power supply.

“Now, while Congress works on climate and energy legislation, is a good time to focus on CST and what is needed to fully realize the potential of this attractive renewable energy option,” said Britt Staley, the lead author of a new report by the World Resources Institute (WRI). “State and federal support for developing renewable energy sources and increased federal oversight of the transmission grid are needed.”

The authors of Juice from Concentrate argue that CST is different from many renewable energy technologies that provide power intermittently. When combined with thermal storage, CST can generate electricity on demand, not just when the sun is shining. It can also be integrated with other kinds of backup power.

Electricity from other renewable sources can be stored in batteries, but these are inefficient and expensive. CST power can be stored as heat in tanks - like coffee in a thermos - and used to produce electricity when needed. CST’s ability to provide electricity on demand and around-the-clock could enable utilities to meet baseload power instead of relying on coal-fired power plants.

If CST displaced new coal plants built in the United States today until 2030, carbon dioxide emissions could be reduced by 5 billion tons cumulatively - offsetting the annual emissions from electricity consumption of 35 million homes over that period.

“Even though there are 9,000 megawatts on the drawing board worldwide, several barriers exist to solar thermal power development,” Staley said. “Up-front investment for CST is high compared to that associated with coal plants. Federal and state policy support can help bring down costs over time to make CST competitive with coal.”

For instance, a 30 percent Investment Tax Credit for CST projects constructed before 2017 has helped spur investment in the U.S. Generous feed-in-tariffs have supported development in Spain, where electric utilities are obligated to purchase solar thermal power at a fixed, above-wholesale price for the electricity.

Water usage is another barrier highlighted in the report. One CST plant uses roughly the same amount of water per kilowatt hour of output as a coal plant. This can create a problem in arid regions, such as the Southwest U.S., where solar conditions are favorable, but water resources are scarce.

“Alternative cooling systems are available and can reduce water requirements, but these systems can increase project costs,” Staley added. “Creating investment incentives for plants to incorporate these technologies will be important to the long-term sustainability of CST.”

Truly taking advantage of CST’s potential will mean building a more complete infrastructure to bring power from sunny deserts to urban centers. The authors suggest that greater federal oversight of the electricity grid and improved coordination between grid operators are necessary.

Investment Potential in India for Energy-Efficiency Companies is Ripe, WRI Report Finds

Paul Mackie — Fri, 24 Apr 2009 00:00:00 -0400

With an investment of US$10 billion dollars in energy efficiency improvements, India’s economy would benefit from its potentially vast annual energy savings of 183.5 billion kilowatt hours.

“India’s energy demand is expected to more than double by 2030. There is a dramatic need for domestic and international energy efficiency technology providers, service providers, and equipment manufacturers to develop innovative ways to conserve energy,” said Robin Murphy, WRI vice president of external relations.

A key element in realizing this potential is the energy service company (or ESCO) sub-sector, conclude the authors of a new World Resources Institute report.

ESCOs operate on the basis of energy-performance contracts, wherein revenue is earned based on the amount of energy cost savings produced. In India, the ESCO industry had an annual growth rate of 96 percent from 2002 to 2007 and is estimated to have grown by an additional 62 percent in 2008, according to financial information provided by these companies to WRI.

WRI’s report is entitled Powering Up: The Investment Potential of Energy Service Companies in India and is being released here today as part of the New Ventures India Investor Meet, a gathering of leading investors and other stakeholders interested in the intersection of environment and enterprise.

Chandan Singh, one of the authors of the WRI report, added, “Our cross-country comparison and market analysis show that the investment potential of the ESCO industry in India going forward is tremendous, especially for debt investors.”

The majority of ESCO efficiency projects have payback periods of less than two years, and ESCOs save clients an average of 20 to 25 percent of baseline energy costs.

For example, the large and energy-intensive Lilavati Hospital in Mumbai hired Sudnya Industrial Services, an ESCO, to undertake an analysis. The results showed that the air-conditioning system comprised 60 percent of the hospital’s energy usage and that an upgrade was necessary. The entire investment of the hospital to do this upgrade was US$12,000, the annual savings are US$17,000, and the payback time was nine months.

Peter A. D’souza, chief engineer of Lilavati Hospital and Research Centre, said, “We are extremely satisfied with the performance of the ESCO, and are now in the second phase of implementing energy-efficiency activities.”

Though the Indian ESCO industry has grown rapidly over the past five years, compared to similar industries in the U.S., Brazil, and China, it is relatively small. One of the factors holding back the Indian ESCO industry has been a lack of access to financing.

“With the growing demand for ESCO services from all sectors of the Indian market, financing solutions need to be developed and pursued for ESCO projects,” said Shashi Shekhar, director of PTC India Limited, the leading provider of power trading solutions in India, which is looking into investing around US$50 million into ESCO projects.

To reach their conclusions, the authors conducted an extensive survey of more than 90 percent of the ESCOs in India, as well as interviews of various investors, government officials, and clients of ESCOs. Using the findings from this study, WRI is currently working with various banks in India to develop a financial product that will help build investments in energy-efficiency projects performed by ESCOs.

&quot;WRI has created a strong case for the Indian ESCO industry that shows the enormous potential for energy savings and the role the ESCOs can play in realizing this potential. There are clear win-win opportunities for banks, ESCO clients and India,&quot; said Shri T.R. Bajalia, chief general manager of the Industrial Development Bank of India (IDBI).

Energy Efficiency in India: Part 2

Chandan Singh — Fri, 10 Apr 2009 17:35:16 -0400

In India, Energy Service Companies and local governments are teaming up to increase energy efficiency and save money.

With India’s energy demand expected to more than double by 2030, there is a pressing need to develop innovative ways to conserve energy. As major energy consumers, local governments in India are key players in promoting and implementing energy conservation measures and technologies.

Enter Energy Service Companies (ESCOs), which provide energy efficiency-related services on a performance contracting basis, instead of the traditional fee for service model. Municipalities in several states across India are partnering with ESCOs to implement energy conservation measures. The trend for municipalities to use the ESCO model began within the last decade as a way to save both energy and money without the up-front costs of typical energy efficiency investments.

For instance:

In 2001, DSCLES, one of the first ESCOs in India, worked with the New Delhi Municipal Council on a high-efficiency electrical lighting pilot project that now saves 252,000 kWh per year. The project produces savings of INR 20 (50,000 $US) and 149 million tones of avoided CO2 emissions per year. DSCLES financed the initial investment of IRN 30 lakhs (75,000 $US), which means the project’s payback period is approximately 18 months.
Asian Electronics replaced approximately 12,000 tube lights at Sachivalaya Complex for the government of Gujarat, Gandhinagar, which reduced the lighting load by 64% without sacrificing illumination levels.
The Gujarat Urban Development Company (GUDC) intends to implement energy efficiency programs in street lighting and water pumping systems in 150 municipalities across the state through performance contracts. In response, ESCOs from throughout India have submitted project proposals, which will be evaluated based on the ESCO’s capabilities and the total energy savings. GUDC is requiring a minimum energy savings of 20% for both water pumping and street lighting projects.
In the state of Tamil Nadu, a municipal energy efficiency program partnering with ESCOs is underway in 29 cities.

ESCO projects follow either a guaranteed savings model and/or a shared savings model. In a guaranteed savings model, the customer provides financing and the ESCO guarantees the performance of a project. The ESCO is paid a fixed fee if the guaranteed savings is achieved through the upgrade. In the shared savings model, an ESCO provides financing through its own funds or a loan, and the client and ESCO share the energy savings based on a predetermined ratio. For municipalities, the shared savings model offers an avenue for energy efficiency projects without the upfront investment. In the end, the savings from these projects lead to a payback period of 18 to 24 months.

The appeal of the shared savings model for government energy conservation projects is clear. ESCOs guarantee a percentage of savings, thus taking away the performance risk from the municipality. And since ESCOs provide project financing, municipalities avoid financial risk as well.

State and municipal government efficiency projects so far are just the tip of the iceberg. According to data from the Indian Ministry of Power, the investment potential for energy savings in municipalities amounts to 325 million $US with annual savings of 3.7 billion kWh.

As part of the Accelerating Clean Energy Markets in India (ACEM) project, WRI is analyzing the ESCO industry in India. Powering Up: The Investment Potential of Energy Service Companies in India gives a comprehensive overview of the Indian ESCO industry and its investment potential. The report will be released later this month.

Energy Efficiency Opportunities in India

Saurabh Lall — Mon, 23 Mar 2009 10:18:49 -0400

Forthcoming WRI research hopes to help overcome barriers in India’s burgeoning ESCO market.

India’s energy demand is expected to more than double by 2030, and there is a pressing need to develop innovative ways to conserve energy. Energy efficiency measures such as the efficient lighting installation, motor control technologies and co-generation systems can reduce energy consumption and consequently, lower operating costs.

According to data from the Indian Ministry of Power, the investment potential for energy savings amounts to USD 9.8 billion with annual savings of 183.5 billion kWh. Those energy savings would mean 148.6 million tons of avoided CO2 emissions per year.

In recent years, domestic and international energy efficient technology providers and equipment manufacturers have recognized the market potential of energy efficiency products and services.

The growth of this industry has led to investor interest in funding the energy efficiency sector. In 2007, ICICI Bank, India’s second largest commercial bank, provided $1.25 million in debt funding to HMX Sumaya, a New Ventures India finalist company that manufactures energy efficient Heating, Ventilation and Air Conditioning (HVAC) systems. In 2008, Tribi Embedded Technologies, another New Ventures India finalist company, received $2.5 million in equity funding from Sequoia Capital, an international Venture Capital firm with close to 60 investments and $1.8 billion capital under management in India.

The Energy Service Company (ESCO) industry is a sub-sector within the energy efficiency industry that can play an important role in realizing energy savings and financial returns in India. An ESCO is a company that provides energy efficiency-related services on a performance contracting basis, unlike energy auditing or consulting firms who use a traditional fee for service model. ESCOs develop and implement projects that result in energy savings for their clients, and assume the risk that the project will save the guaranteed amount of energy. ESCOs measure, monitor and verify the energy savings and are paid on the basis of the actual savings realized.

The concept of performance based contracting is what sets ESCOs apart from consulting firms and equipment contractors, since the compensation for the ESCO is directly linked to the amount of energy actually saved by the client over a specified period of time. This mechanism gives ESCOs a strong incentive to maximize energy savings through the implemented measures. In the traditional contractor model, payment is only for the specific equipment and services provided, and contractors are not accountable for the actual amount of energy saved once the project is implemented.

Compared to similar industries in US, Brazil and China, the Indian ESCO industry is relatively small, but has grown quickly over the past five years. One of the factors holding back the Indian industry has been the ESCOs’ lack of access to financing.

As part of the Accelerating Clean Energy Markets in India (ACEM) project, WRI has analyzed the investment potential of the ESCO industry in India. The resulting report will be released in April, and in it, WRI seeks to address the lack of market information about this high growth industry.

The ACEM project is working with financial institutions to establish innovative funding mechanisms for clean energy market expansion in India. The project aims to leverage US$ 125 million or more in committed investment to clean energy by 2010, and bring investment to over 20 clean energy enterprises.

WRI started the research by consulting various stakeholders in the Indian investment community on promising clean energy sectors that would benefit from new financing mechanisms. Investors expressed interest in the ESCO concept, but cited the lack of market information and analysis as a barrier to investing in the industry.

To address the gaps in information, WRI conducted a survey of the Indian ESCO industry and interviewed various banks, government officials, ESCOs, and ESCO clients to develop a market profile of the sector. Using findings from this research, the ACEM team aims to work with Indian banks on ways to increase investment capital for ESCOs and their projects, and substantially increase the opportunity for energy efficiency gains.