Post on 06-Dec-2021
Identifying challenges in the implementation
of LED based street lighting system in
Municipal Corporations
Prepared by
The Climate Group under BHC supported project on LED
street lighting
Acknowledgement: The Climate Group is thankful to the British High Commission and all the other
stakeholders for their support in the preparation of this report.
Disclaimer: This publication has been prepared for general guidance on matters of interest only, and
does not constitute professional advice. You should not act upon the information contained in this
publication without obtaining specific professional advice. No representation or warranty (express or
implied) is given as to the accuracy or completeness of the information contained in this publication,
and, to the extent permitted by law, the authors and distributors do not accept or assume any liability,
responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in
reliance on the information contained in this publication or for any decision based on it. Also, the BHC
had supported the effort that had gone in while completing this study. However the views expressed
under this study are not entirely the views of the BHC, these are only the views of The Climate Group and
any query should be addressed to The Climate Group.
© 2015 The Climate Group. All rights reserved. (UK charity number: 1102909).
Cover Image: A night view of LED installation in Haldia. Picture taken by The Climate Group
TABLE OF CONTENTS:
CHAPTER 1: EXECUTIVE SUMMARY ..................................................................................................................... 5
1.1 OBJECTIVE OF THE PROJECT ................................................................................................... 5
1.2 CASE SPECIFICS-INDIA IN TERMS OF EE GAINS ............................................................................. 6
1.3 KEY DRIVERS OF ENERGY EFFICIENCY IN INDIA ............................................................................. 6
CHAPTER 2: BARRIER & CHALLENGES ................................................................................................................ 7
CHAPTER 3: MUNICIPAL DEMAND SIDE MANAGEMENT- SCENARIO ...................................................................... 9
3.1 STREET LIGHTING AS CASE STUDIES ......................................................................................... 10
3.2 CURRENT MARKET SCENARIO ................................................................................................ 11
3.3 LED LIGHTING SCENARIO IN INDIA........................................................................................... 11
3.4 ENERGY CONSERVATION MEASURES ......................................................................................... 12
3.5 KEY CHALLENGES TO MARKET PENETRATION ................................................................................ 14
3.6 CRITICAL AREAS FOR LED FINANCING IN INDIA ............................................................................ 15
CHAPTER 4: THE ESCO CONCEPT ....................................................................................................................... 17
4.1 KEY ADVANTAGES OF DEALING WITH AN ESCO ............................................................................. 17
4.2 ESCO - ONE STOP SHOP SOLUTION .......................................................................................... 18
4.3 GENERAL PERSPECTIVE OF AN ENERGY SAVINGS COMPANY................................................................ 18
4.4 THE CONCEPT OF SHARED SAVINGS .......................................................................................... 19
4.5 ESCO METHODOLOGY FOR STREET LIGHTING ............................................................................. 20
4.6 BARRIER & CHALLENGES FOR INVESTMENT THROUGH TRADITIONAL PERFORMANCE CONTRACTING ................ 20
CHAPTER 5: CASE STUDIES OF MUNICIPAL LIGHTING IN INDIA ........................................................................... 22
5.1 CASE SPECIFIC EXAMPLE OF ENERGY SAVING VIA LED STREET LIGHTING IN AN OVERSEAS LOCATION ............... 23
5.2 PROCEDURAL MECHANISM FOR RECOVERY OF CAPITAL COST ............................................................ 24
CHAPTER 6: INDIAN LED LIGHTING MARKET 2010-2015 (ESTIMATE) ................................................................... 25
6.1 OVERVIEW ..................................................................................................................... 25
6.2 ROLE OF GOVERNMENT AGENCIES .......................................................................................... 25
CHAPTER 7: SUMMARY OUTLOOK ON POLICY INITIATIVES FOR ENERGY EFFICIENCY IN INDIA ............................... 26
7.1 NATIONAL MISSION ON ENHANCED ENERGY EFFICIENCY (NMEEE) ................................................... 26
7.2 PERFORM ACHIEVE AND TRADE (PAT) ..................................................................................... 26
7.3 MARKET TRANSFORMATION FOR ENERGY EFFICIENCY (MTEE) ........................................................ 27
7.4 FINANCING OF ENERGY EFFICIENCY ........................................................................................ 28
7.5 POWER SECTOR TECHNOLOGY STRATEGY ................................................................................. 28
7.6 NATIONAL MISSION ON SUSTAINABLE HABITAT (NMSH) ............................................................... 29
7.7 12TH FIVE YEAR PLAN ....................................................................................................... 30
7.8 GREEN BUILDING RATING SYSTEMS AND RELATED INITIATIVES ......................................................... 30
7.9 BARRIERS TO ENERGY EFFICIENCY IN INDIA ............................................................................... 30
7.10 OUTLINED FINANCIAL BARRIERS ............................................................................................ 31
CHAPTER 8: ENERGY-EFFICIENCY FINANCING INSTRUMENTS IN INDIAN CONTEXT .............................................. 32
8.1 EQUITY FINANCING FOR ENERGY-EFFICIENCY IN INDIA .................................................................. 33
8.2 CASE SPECIFIC EXAMPLES OF PRIVATE EQUITY FUNDS .................................................................... 33
8.3 ENERGY SAVING PERFORMANCE CONTRACTING (ESPC) IN INDIA ....................................................... 34
8.4 BEE-PUBLIC SECTOR ESPC APPROACH .................................................................................. 34
8.5 CASE SPECIFIC EXAMPLE-MUNICIPAL ESPC PROJECTS ................................................................ 35
8.6 BEE VENTURE CAPITAL FUND FOR ENERGY EFFICIENCY (VCFEE) ..................................................... 35
8.7 PARTIAL RISK GUARANTEE FUND FOR ENERGY EFFICIENCY (PRGFEE) ............................................... 36
8.8 NATIONAL CLEAN ENERGY FUND ........................................................................................... 38
8.9 USAGE OF FUND ............................................................................................................... 39
8.10 OTHER WINDOWS OF OPPORTUNITY ......................................................................................... 40
CHAPTER 9: OTHER FINANCING INSTRUMENTS ................................................................................................ 42
REFERENCES ............................................................................................................................ 44
LIST OF TABLES
TABLE 1: PERCENTAGE CONTRIBUTION TO ELECTRICITY CONSUMPTION .................................................................. 9
TABLE 2: BREAKUP FORMATION OF ULBS ................................................................................................ 10
TABLE 3: MARKET SHARE BY LAMPS MANUFACTURED IN INDIA (2011) ................................................................ 11
TABLE 4: CATEGORIZATION OF ROADS FOR STREET LIGHTING AS DEFINED IN THE NATIONAL LIGHTING CODE (NLC) ............. 13
TABLE 5: OVERVIEW OF THE OPPORTUNITIES PRESENTED BY LED’S .................................................................... 15
TABLE 6: KEY PROCESS FOR ESCO PROJECT DESIGN ................................................................................... 20
TABLE 7: A CONSOLIDATED OUTLOOK ON THE UNDERLYING CONSIDERATIONS AND EE GAINS TO THE MUNICIPALITIES .......... 22
TABLE 8: BANKS INVOLVED IN ENERGY EFFICIENCY LOAN FINANCING SCHEMES ..................................................... 33
TABLE 9: KEY ASPECTS OF THE VCFEE ................................................................................................... 35
TABLE 10: KEY FEATURES OF THE PRGFEE .............................................................................................. 37
TABLE 11: KEY CHARACTERISTICS OF NCEF .............................................................................................. 38
Chapter 1: Executive Summary
Energy is a key driver of our national economy for several reasons. It is thus critical to bring in
energy efficiency within each end-use application, for instance lighting. Accordingly, the
investments in Energy Efficiency (EE) are being widely deemed as the most cost effective options
in the short-to medium term. Pivotal objectives are to deliver a) enhanced economic
productivity and market competitiveness, b) increase security and mitigate emissions of
greenhouse gases. Several studies have been carried out to bring out the importance of energy
efficiency measures within core sectors of our energy economy. The Asian Development Bank
(ADB) estimated that 1-4% investment in EE as a share of an overall energy sector investment can
meet as much as 25% of the projected increase in primary energy consumption in developing
Asian countries by 2030 (ADB 2013).
1.1 Objective of the project The objective of the study is to preparation of a framework document pertaining to financial
options and opportunities in the area of large scale LED street lighting technology. It will be
based on various commercial models available like BOOT, BOT and other financing models like
shared savings and guaranteed savings modalities and others. The main tasks include:
1. Identification of available project financing opportunities and funding mechanisms
from government and other financial institutions which include:
Financing opportunities under NMEEE of NAPCC (partial risk guarantee fund and
venture capital fund)
Clean Energy Fund
Energy Efficiency Schemes/credit lines of various banks
Funds/credit lines available from bilateral/multilateral funding organisation
such as WB,IFC,ADB other private financial institutions
chemes like risk guarantee fund and others form Bureau of Energy Efficiency
2. Financing opportunities and schemes available from leading commercial banks and
financial institutions from public/ private sector and Bureau of Energy Efficiency.
1.2 Case specifics-India in terms of EE gains Sizeable potential exists in India for making cost-effective investments in energy-efficiency
area. The Planning Commission in its 2011 report has estimated the energy-saving potential to
be in the range of 124-155 billion kWh. This transforms into a value of nearly USD 11-22 billion at
average tariffs. India will need to invest about USD 4.5 billion per year through 2020 in order to
meet its established national energy-saving targets (ADB 2013). However, in spite of the vast
potential coupled with the need for EE investments, the rate of investment in EE technologies
and projects is far behind its assessed potential. The silver lining is that both the national and
state policy makers are laying heightened importance on energy efficiency measures.
1.3 Key Drivers of Energy Efficiency in India Today energy efficiency is emerging as a viable solution for rapidly developing economies such
as India and China. These two countries are witnessing an unprecedented economic growth at
present. India in particular has taken several initiatives in EE in terms of the formation of
working groups, enactment and amendments to legislation and setting up of public and private
organisations that focus on promoting energy efficiency. The cornerstone of such
developments is the creation of India’s National Plan on Climate Change which comprises of
eight national missions. One of these is the National Mission on Enhanced Energy Efficiency
(NMEEE) (NAPCC, 2008). The NMEEE seeks to upscale efforts to create a market for EE, which is
estimated to be around USD 12.4 billion (NMEEE, 2010). The implementation plan for NMEEE,
prepared jointly by the Ministry of Power (MOP) and Bureau of Energy Efficiency (BEE), was
released in 2010.
The energy portfolio of India is dominated to a significant extent by fossil fuels. The country is
confronted with several challenges concerning climate change and energy security. However,
these challenges also function as drivers for enhanced market penetration of EE technologies.
Globally, India occupies fourth place in terms of its primary energy consumption after US, China
and Russia. The average energy and peak power deficits in the country stood at 8.7% and 9%
during 2012-2013 according to the Central Electricity Authority (CEA). Nearly 90% of India’s
commercial energy supply is met by fossil fuels marked with a high enough dependence on
imports. As per the twelfth Five Year Plan (2012-2017) of GOI, the domestic production of energy
sources is expected to increase with continued dependence on imports. For example, around
78% of the demand for crude oil in the country is met via imports. This places a heightened
concern to bridge the supply-demand gap and reduce the import dependence.
Chapter 2: Barrier & Challenges
A wide range of barriers related to energy end-users and project developers hinders the
implementation of energy efficiency measures and technologies. These mainly include the
following few:
High cost of energy efficient products: Energy efficient products and appliances
generally have a high initial capital cost. This becomes a stumbling block to adopt them
readily. Take for instance the use of energy efficient light emitting diodes for street
lighting in municipal areas. The end-users normally do not carry out a life cycle analysis
of the products and their costs during the product purchase. Secondly, awareness
levels about the likely benefits of installing energy efficient products are also subdued.
There is also a limited availability of potential financing mechanisms for energy
efficiency.
Limited technical knowledge of EE: Most project developers have limited technical
knowledge about the various aspects of EE. Therefore, they hesitate to implement such
technologies.
Lack of internal funds for EE: Internal funds are generally not readily available for
procurement of the equipment or products needed for EE project implementation, both
in the public and private sectors in the country. As such, the uptake of EE is very limited
due to the need for external financing, which is often difficult to obtain. Finance plays a
key role in facilitating large-scale implementation of EE projects and energy efficient
technologies. There is a growing adoption of energy efficient measures in India;
however, several barriers continue to stall sufficient financing of such projects and
technologies. Some key barriers to financing EE projects include:
Lack of non-recourse finance for EE projects - A large number of FIs do not perceive EE
measures as a separate project. Thus, they are unwilling to provide loans without any
lien on assets of the parent entity. This makes it difficult for the implementing
organization to raise finance for such projects, as most organizations utilize their
borrowing limits for their core businesses.
Perceived difficulty in evaluating financial returns of EE projects - Banks and FIs may
have difficulties in evaluating financial returns from EE projects. This hinders the
availability of both debt and equity finance for EE projects.
High transaction costs due to small project size - EE projects are relatively small in size
and have a high transaction cost, compared to other conventional lending by banks and
FIs. This not only makes EE projects less attractive for conventional bank financing, but
also limits the interest of international FIs (such as multilateral and bilateral donor
organizations) to whom the scale of financing is important.
Risk perception of EE vis-à-vis conventional projects is briefly summed up as under:
1. Traditional projects receive priority over the energy efficiency projects even when they
do not offer the best business case or may not offer the best return. Those advancing
loans are more familiar with the conventional energy projects.
2. The energy efficiency project developers in turn seem to be less aware about the project
packaging and presentation requirements of the financial community say banks etc.
There is also a lack of standardised contracts, agreements and project proposal
templates that could facilitate such communication.
3. The energy efficiency service providers possess limited capacity at times. These service
providers have limited capacity vis-à-vis technical, business and project and risk
management skills. These skills are quite important for efficient project development
and execution and can enable EE service providers to develop bankable projects.
4. The formal measurement and verification (M&V) procedures and protocols for Energy
Saving Performance Contracts (ESPCs) have neither been sufficiently developed nor
widely accepted in India. This also limits the capacity of ESCOs to effectively deliver EE
projects.
5. The project proponents or hosts lack the capacity to understand the basic concepts of
ESPC. They also do not fully understand the need for appropriately structuring energy
services and financing arrangements for EE projects. Thus, they are unable to develop
bankable proposals for projects implemented by ESCOs.
6. The ESCO industry in India is still at a nascent stage and lacks financial strength. This
greatly limits the adoption of the ESCO mode of financing. This poor financial strength
further limits ESCOs' ability to find funding sources.
7. The lenders usually require high levels of collateral or strong borrower balance sheets
to provide financing. ESCOs, however, often lack such collateral or strong balance
sheets (or may not be willing to commit their available collateral for EE projects). Banks
and FIs also lack experience in lending to ESCOs and consider the ESPC business to be
risky.
Chapter 3: Municipal Demand Side Management-
Scenario
The municipal sector consumes around 4% of total electricity generated in India. Amongst the
key areas of municipal DSM are a) Street lighting, b) Water pumping system, c) sewage pumping
system and d) municipal buildings. Table 1 presents the percentage contribution to electricity
consumption below:
Table 1: percentage contribution to electricity consumption
S. No Categories % contribution
1 Industrial 36%
2 Domestic 26%
3 Irrigation 22%
4 Commercial 8%
5 Water works 3%
6 Public Lighting 1%
Figure 1:% contribution of electricity consumption
3.1 Street lighting as case studies As per reliable estimates, public lighting accounts for more than 1% of the total energy
consumption in the country. Savings potential to the tune of over 60% exists in case of street
lighting segment. It is widely perceived that energy efficiency in street lighting is easy, non-
critical and the fastest path to implement via a smoothly networked association of
stakeholders. The agency under whose direct purview lies the implementation of street lighting
is commonly referred to as the, “Urban Local Bodies”. As per the 1991 census, following is the
breakup formation of ULBS:
Table 2: Breakup formation of ULBS
S. No Particulars Nos.
1 Total number of urban local bodies 3255
2 Number of Municipal Corporations 55
3 Number of Municipalities 1808
4 Number of Townships 620
38%
27%
23%
8% 3%
1%
Percentage Contribution of electricity consumption
Industrial Domestic Irrigation
Commercial Water works Public Lighting
5 Number of Town Panchayats 453
Estimates suggest that the size of municipalities has almost doubled during the last 10 years.
Majority of the urban local bodies have either inadequate or poor street lighting thus leading to
high cost on maintenance. Further, the city based ULB’s spend about 5-7% of their revenue
expenditure on street lighting as against a spending of as much as 20% by ULB’s in towns. This
indicates to a high enough concern for energy conservation to the best possible extent.
3.2 Current market scenario India and other South Asian countries happen to figure amongst the fastest growing regions in
the world. Additional installation of power generation facilities is the need of hour while taking
into account a) fast growing population, b) urbanisation, c) industrialisation. As of now, lighting
consumes just around 18% of total power produced in the country. Today majority of the market
is dominated by ICL and fluorescent lamps. The market share by lamps manufactured in India
(2011) is presented in Table 3 below:
Table 3: Market share by lamps manufactured in India (2011)
Type of lamp Type of lamp Percentage contribution
1 Incandescent lamps 63%
2 Fluorescent lamps 14%
3 Compact Fluorescent lamps 21%
4 Other lamps (LED’s) 02%
Technologies which are expected to fast replace the conventional lighting are CFL’s and LED’s.
The CFL lighting penetration in India is often perceived as a success story by the Govt. of India.
Favourable policy interventions resulted in a phenomenal increase in CFL production from 20
million lamps in 2003 -2004 to more than 255 million in 2009-10. Additionally, the cost of CFL’s
also came down by around 50%.
3.3 LED lighting scenario in India Light emitting diodes also known as the small lighting wonders are mostly imported into the
country till date. As per the available estimates there are around 10 million street lights in India
which can be replaced with the new generation LED lights. Selective few LED street lighting
projects have already been launched so as to explore the feasibility of street lighting.
3.4 Energy conservation measures The incandescent lamp (GLS) is used as a major light source in India. These lamps have an
efficacy of 10 to 20 Im/W and a life of 1000 burning hours, There are varieties of gas discharge
lamps with efficacies ranging between 50 and 200 Im/W and having a life between 5000 and
15000 burning hours. These gas discharge lamps are:
a) Tubular fluorescent lamps;
b) Compact fluorescent lamps (CFLs);
c) High pressure mercury vapour lamps (HPMV);
d) High pressure sodium vapour lamps (HPSV); and
e) Metal halide lamps.
CFL lamps are available in lumen packages, so that they can replace GLS lamps of equivalent
lumen output. The fluorescent lamps have been made further energy effective with the use of
triband phosphors instead of the conventional fluorescent powder. The luminous efficacy of this
new family of lamps is 35 percent higher. There is another area, which can give good energy
saving. "Every gas discharge lamp needs a ballast, Today, most of these ballasts are the
conventional electromagnetic type.
All these ballasts, when the lamp is in operation, consume electric power known as ballast loss.
With proper design, the ballast loss can be substantially reduced. Use of such "low loss ballasts
can result in a lot of energy saving.
However, the best solution in this area is to gradually introduce electronic ballasts. These
ballasts, not only have very low losses because of electronic components, but increase the
luminous efficacy of fluorescent lamps because of high frequency operation. The overall
luminous efficacy of an electronic ballast and high frequency fluorescent lamp combination is
25 percent higher than that of a conventional ballast and fluorescent lamp combination.
Even the best lamp and ballast combination may not give the ideal result if used in luminaires
which are poorly designed. A lot of light will be wasted in such luminaires.
It is imperative- today to look into all the aspects of application and select the most optimum
solution for all lighting installations. For example, luminaires with mirror optics" and
widespread light distributions saves approximately 25 to 33 percent energy for the same lighting
level in offices. Similarly, road lighting luminaires using pot optics and tubular HPSV lamps
achieve the same lighting parameters with 30 percent less number of poles and luminaires than
the conventionally designed luminaires. The associated energy and material savings are
enormous.
There are enormous saving opportunities in almost all the sectors of lighting if following steps
are taken:
a) Incandescent lamps replaced with fluorescent lamps, retrofit compact florescent lamps and
non-retrofit compact fluorescent lamps;
b) Conventional" fluorescent lamps replaced with T5 fluorescent lamps;
c) Electronic ballasts installed in place of electromagnetic ballasts;
d) High pressure sodium vapour lamps and ballasts used instead of high pressure mercury
vapour lamps and ballasts; and
e) Metal halide lamps used in place of high pressure mercury vapour lamps and tungsten halogen
lamps. With proper implementation of energy-effective lighting design and good engineering
practices, it is possible to conserve energy.
Street Lighting
In road and street lighting the following aspects are considered:
a) Energy saving through selection of efficient lamp technologies and design practices;
b) Capital cost saving using proper spacing and placement;
c) Maintenance cost 'saving using lamps with longer life and optimum spacing;
d) Reduced glare and improved visibility by careful selection of luminaires and lamps;
e) Improved sense of security by selection of efficient systems and incorporating proper
design. This can make an area appear safer and more secure.
f) Improved sense of economic development of communities; and
g) Improved safety of motorists, cyclists and pedestrians, improved traffic guidance and a
pleasant environment.
Table 4: Categorization of roads for street lighting as defined in the National Lighting Code (NLC)
S.
No
Classification
of Lighting
Installation
Type of Road Average IL
luminance
Uniformity
Ratio
Transverse
Uniformity
on Road
Services
1 Group A1 Important traffic routes carrying fast
traffic 30 0.4 0.33
2 Group A2
Other main roads carrying mixed traffic
like main city street, arterial roads and
throughway roads
15 0.4 0.33
3 Group B1
Secondary road with considerable traffic
like principle local traffic route and
shopping
8 0.3 0.2
4 Group B2 Secondary roads with light traffic 4 0.3 0.2
Sl. No Junction Type Lux (Eav) Uniformity Ratio
1 Key Junction & Complex Flyover interchanges 50 0.4
2 Main City Junctions without any interchanges 20 0.4
3 Other smaller junctions 15 0.4
4 Pedestrian Crossings 50* -
5 Bus Bays 5 -
3.5 Key challenges to market penetration Primary issues in the smooth enhanced penetration of LED’s are along the following few
considerations mainly:
Technology
The technology to manufacture the LED chips is possessed by just a few companies. They are
reluctant to set up the manufacturing bases in South Asia mainly to protect their intellectual
property rights (IPR).
Cost
Such an exclusivity of technology along with existing import taxes leads to the high cost of LED’s.
Standards
Absence of national technical standards for testing and verification of LED technology and
specifications which apart from constraining its penetration lends itself to import of sub-
standard LED devices. Table 5 gives a brief overview of the opportunities presented by LED’s as
under:
Table 5: Overview of the opportunities presented by LED’s
Efficiency Higher luminous efficacy as compared to CFL’s
Consume less electricity at reduced costs and GHG emissions
Safety Do not produce any toxic waste upon disposal
Life Typical operating life span of 50000-60000 hours as compared to 10000
hours for CFL’s thereby reducing life cycle costs
Strength Can withstand mechanical shock and rugged conditions unlike the
fragile CFL’s
Well suited to the rural conditions in rural India
3.6 Critical areas for LED financing in India Multi-pronged approach is needed as far as financing of LED’s is concerned. The same can be
briefly mentioned as under:
Project financing
Several planned street lighting projects will need financing from either the central or state
governments or external financers.
Research and Development
Financing for support infrastructure like testing and standardisation facilities is required.
Manufacturing
Companies that are inclined to set up manufacturing facilities will also need the flow of funds.
Clean Development Mechanism
The banks and financial institutions are expected to have a major role to play in carbon trading
if, indoor LED distribution projects for example are modelled along the lines of ”Bachat Lamp
Yojana”.
Chapter 4: The ESCO Concept
An energy services company initiates the identification, study, conception, financing,
implementation and follow-up of the energy saving measures using a contractual engagement
between the ESCO and the client (be it a discom or a user) through an Energy Performance
Contract or simply EPC.
In turn, EPC deals with the following few aspects:
Financing of the projects from energy savings
Permits the realisation of the project for which money may not otherwise be available.
Mobilises the private capital
Ensures that the savings will be realised within a certain time frame
EPC is also known as third party financing and is widely regarded as a sustainable mechanism of
innovative financing. Amongst the key characteristics of an ESCO is that it arranges the finance
and does not always finance through its own funds. Simply put, an energy services company is
not a bank by itself.
4.1 Key advantages of dealing with an ESCO It is of interest to know as to why a municipal corporation for example should deal with an ESCO.
Well it may be on account of the following few reasons mainly:
offers a single platform
ideal source for project realisation
happens to be a proven method of financing over the last 20 years
project realisation is undertaken by experts drawn from energy-efficiency area
Easy Financing
o Does not need any capital investment
o Enjoys access to off-balance sheet financing
o Availability of capital for other priorities
There are several other reasons for striking a relationship with ESCO. The most important one’s
are briefly indicated under:
Financial impact
o Quick and assured savings
o New capital equipment
o Utility cost reduction
o Cost control instead of cost enhancement
ESCO route offers a low risk in terms of monitoring of the implemented measures. Additionally it
leads to skill enrichment of the employee workforce besides resulting in improved working
conditions. The gainful thing is that it adds an overall value to the enterprises. The energy
services company has specialised experience in the packaging and implementation of energy
projected risks. As for the payment, it is based on successful completion and obtaining of energy
savings in actual. The ESCO performance contracting guarantees energy savings within the
client’s organisational framework. Financing allows the realisation of the projects in respect of
which funds would otherwise not be available.
4.2 ESCO - one stop shop solution In totality, an ESCO offers the unique set of following few attributes and can be regarded as one
stop solution for all energy efficiency requirements be it related to street lighting or water
pumping etc.
General contracting
Energy analysis
Consulting engineering
Project management
Project financing
Training
Performance guarantees
Energy monitoring
Savings maintenance
Risk management
The ESCO approach is inherently of the following nature:
a) The client enters into an arrangement with an ESCO
b) The ESCO brings in the contractors, equipment manufacturers, government agencies,
financial institutions, professional consulting engineer and energy suppliers.
c) Guarantees (analysis, concept, installation, financing, monitoring and training)
In totality, an ESCO offers performance based projects wherein the compensation is tied to the
amount of energy actually saved. Thus the ESCO compensation is at a full risk.
4.3 General perspective of an energy savings company An ESCO may normally have its involvement in the key areas of Demand Side Management (i.e.
study, implementation, management and evaluation), Indoor air quality improvement,
Renewable energy and cogeneration, technology transfer etc. The demand side management
options generally include the following few:
Building energy efficiency and design of energy efficient buildings
Efficient lighting
Efficient motors
Efficient power suppliers
Efficient appliances
The project development process for an ESCO generally revolves around the following few things:
Opportunity assessment
Preliminary energy audit
Investment grade audit ( engineering analysis, economic analysis)
Project proposal
Project implementation
Commissioning and training
Monitoring and verification
Success of an ESCO project involves the breakdown of the following few costs:
Cost of work and equipment
Interim financing
Engineering fees for study, drawings, specifications and supervision
Project management
ESCO administration, overhead and profit
Thus the total project cost is on account of a) energy management, b) monitoring and c) capacity
building (i.e. personnel training). The simple payback is the ratio of total cost and annual savings.
Design attributes of business model at guaranteed savings
1. ESCO guarantees that energy savings will cover debt service.
2. Energy savings are measured against a baseline established by the contractor in
advance.
3. ESCO pays any shortfall.
4. The customer pays debt service to the bank.
4.4 The concept of shared savings ESCO business model usually hinges around a shared savings model with the following few key
characteristic features:
It is not paid solely from the share of the savings.
Generally found in such a market that faces little or no competition at all.
It usually takes higher risk in a new market and tries to introduce a more profitable
scheme.
In case ESCO provides financing, it will normally take a large portion of the savings (i.e.
up to 90%) for a fixed period (corresponding to a notional repayment of the debt).
4.5 ESCO methodology for street lighting Municipal lighting is a significant end-use application provided by the municipal corporations in
urban areas. Table 6 highlights the key process attributes as per the following manner. The
overall cost (i.e. energy and O&M) savings accrue to the municipalities.
Table 6: Key process for ESCO project design
Memorandum of Understanding Signed between municipalities and the energy services company
Preparation of Detailed Project Report/Revalidation
Detailed walk through energy audit for data validation of DPR and joint verification
Technology Demonstration Assesses actual savings, determination of annuity payments, technical specifications
Agreements Agreement between municipalities and ESCO for implementation
Payment mechanism The payment security mechanism to be finalised Implementation ESCO will implement the project based on its own
resources M& V Deemed savings approach used
4.6 Barrier & Challenges for investment through traditional
performance contracting The primary requirement for a successful engagement on performance contracting basis is the
need to have a baseline that is close to actual reality; adequate data on consumption patterns
that could normalize the seasonal and other variations; and the equipment installed meet the
required standards. If this is not the case, it is extremely difficult to deliver a guaranteed savings
unless the pre-project baselines are reset. The non-performance of the ESCO delivery system
can be attributed to the following reasons.
Baseline Challenges -Data of number of lights & number of functioning lights provided by
MCs was inaccurate
Inaccurate Billing- This grossly affected bidders in guaranteeing the minimum level of
cost savings
Conforming of BIS standards- Current streetlights, in most cases, do not comply
with standards
Detailed M&V
Payment to ESCOs was contingent on a detailed M&V plan. Absence of a clear baseline & manual
operations of street lighting were big challenges
Chapter 5: Case Studies of Municipal Lighting in
India
The Bureau of Energy Efficiency (BEE) is playing a pivotal role in reducing energy consumption in
street lights that currently use highly inefficient lamps. BEE has been providing grants to
municipalities in India to undertake the pilot LED street light projects. Till date, more than 30
such LED based street lighting projects have been identified in 23 states for which, BEE has
already disbursed Rs. 90 million. Some of the projects have been completed by now in Arunachal
Pradesh, Assam, Maharashtra, West Bengal and Nagaland etc. Several such projects are under
execution while others are in the initial stages of project conceptualisation.
Nasik Municipal Corporation earned an enviable distinction of having the first duly approved
project by Board at an EESL investment of Rs. 400 million. The financial closure for this project
was achieved via a loan component from a nationalised bank i.e. Union Bank of India. Further
EESL methodology was developed following successful completion of the Nasik project. Key
outcome of this project was disseminated to all states and municipalities across the country.
EESL engaged with 24 municipalities spread over 9 states in India. Total estimated investment
to the tune of Rs. 1500 crores (USD 250 m) estimated within the next 2 years as against an
expected investment of $ 500 million over the next 3 years. Table 7 presents a consolidated
outlook on the underlying considerations and EE gains to the municipalities as under:
Table 7: A consolidated outlook on the underlying considerations and EE gains to the municipalities
Repair & Maintenance Cost Savings S.No. Name of the
Municipality Existing Electricity Cost (INR in Lacs)
Present O&M Cost (INR in Lacs)
Total (before LED Retrofit) INR in Lacs
Annuity (inclusive of O&M) INR in Lacs
Electricity Cost with LED INR in Lacs
Total (after Project) INR in Lacs
Annual Savings
1. Nagpur Municipal Corporation
2053 300 2353 1585 590 2175 177
2. Jabalpur Municipal Corporation
371 63 434 295 107 403 32
3. Kolkata Municipal Corporation
8754 1911 10697 7405 2398 9802 895
4. Sangli Municipal Corporation
596 58 654 432 190 623 32
5. Solapur Municipal Corporation
693 110 803 543 218 762 41
6. Ludhiana Municipal Corporation
3235 240 3475 2273 982 3255 220
7. Faridabad Municipal Corporation
767 37 804 519 253 773 31
8. Trichur Municipal Corporation
417 26 443 288 123 411 32
9. Hyderabad Municipal Corporation
13205 163 13368 8181 1001 12484 883
10. Bikaner Municipal Corporation
322 19 341 221 102 323 18
5.1 Case specific example of energy saving via LED street
lighting in an overseas location Los Angeles is a classic example of as to how LED use for street lighting resulted in huge savings.
A total of 140,000 city street light fixtures were replaced with LED fixtures besides installation
of a remote monitoring system. Following few are the salient features of this LED project:
Total project cost of $ 57 million
$ 10 million energy and maintenance savings on a per annum basis
40500 tons of carbon dioxide/year in annual CO2 savings
Simple payback period of 7 years
Installation period of 5 years to allow city to tender in small, discrete increments
Project ultimately funded with combination of 7-year, $ 40 million loan at 5.25% provided
by LADWP; $3.5 million from street lighting maintenance assessment fund and
$0.24/kWh
5.2 Procedural mechanism for recovery of capital cost LED market penetration in India is still in a nascent stage. A slew of financial and fiscal measures
are needed to enhance the visibility of LED’s like for example through municipal lighting etc.
Indicative route of LED financing is along the following few considerations mainly:
A financier enters into an agreement with an ESCO/Project implementer to provide
energy efficient equipment to a customer and future repair and maintenance
The financier covers all the equipment and project maintenance costs
The customer repayment is based on the energy savings and reduced operating
expenses
Following the expiration of the agreement, the customer has the option to purchase the
equipment as per the following:
a) Energy savings company designs and installs the equipment
b) The 3rd party and the ESCO enter into a contract to pay for all installation and
maintenance costs
c) The 3rd party covers the full project cost and the customer repays him on the basis of
energy savings
Chapter 6: Indian LED Lighting Market 2010-2015
(estimate)
6.1 Overview Estimated at USD 73.3 million in 2010 and expected to reach USD 470 million by 2015
Street lighting to account for nearly 60% of the LED market in 2015
Higher acceptability by the government and energy efficiency are expected to be a
crucial success factor for quick adoption
The Indian LED lighting market is estimated to grow at more than 40% till 2015. Following is a
quick glance at the growth drivers:
Investment by the government in energy efficient lighting systems
Decline in the average prices of LED’s
Quick ROI to drive adoption
Improvement in technology addressing new applications
Global mandate to combat global warming and migration to technologies like LED
Energy efficiency is the top driver
Lighting consumes about 17% of the total energy
More than 80% of current lighting is based upon antiquated technology and thus use of
more efficient LED technology will not only save energy but also lead to reduction in the
emission of greenhouse gases.
As of now overall LED penetration in India is low but it is gaining momentum rapidly in certain
applications like down lighting, accent lighting and to a certain extent in low wattage street
lighting.
6.2 Role of Government agencies It is widely perceived that the support of government agencies will be a key determinant for
enhanced penetration of LED lighting products. Several pilot scale projects have already been
kick-started in some states in India. Some tenders for low wattage street LED street lighting are
also awarded. However, lack of proper standards can lead to concerns about the reliability;
standardisation activity has already begun at the Bureau of Indian Standards (BIS). Guidelines
from BEE are already in a circulation phase and stakeholder comments have been sought. Low
wattage street lighting LED solutions designed and developed in India are by now deployed for
A2, B1 and B2 category roads.
Chapter 7: Summary outlook on Policy Initiatives
for Energy Efficiency in India
The Government of India has developed and implemented several policy and institutional
initiatives to encourage adoption of energy efficiency (EE) in the country. These include enacting
laws and amendments to legislations, announcing the NAPCC and the NMEEE etc. Following are
the most important:
Energy Conservation Act 2001
The Electricity Act 2003
Energy Conservation Building Code
7.1 National Mission on Enhanced Energy Efficiency (NMEEE) GOI released the National Action Plan on Climate Change (NAPCC) in June 2008. It comprises of
eight key national missions to guide the country through the climate change challenge. National
Mission on Enhanced Energy Efficiency (NMEEE) is an Indian government initiative proposed to
address national problems of inefficient energy use. It is one of eight proposals created by
India's National Action Plan for Climate Change and is based on the Energy Conservation Act of
2001. The Mission will enable about Rs. 75,000 crore worth transactions in energy efficiency. In
doing so, it will, by 2015, help save about five per cent of our annual energy consumption.
The NMEEE is one of the eight missions that focus on Indian government’s increased and
renewed emphasis on achieving energy efficiency in the national economy (NMEEE, 2010). Key
initiatives under NMEEE are as under:
Perform, Achieve and Trade (PAT)
Framework for Energy Efficient Economic Development (FEEED)
Market Transformation for Energy Efficiency (MTEEE)
Energy Efficiency Financing Platform (EEEP)
7.2 Perform Achieve and Trade (PAT) The Perform Achieve and Trade scheme is a market-based mechanism to enhance energy
efficiency in the ‘Designated Consumers’ (large energy-intensive industries and facilities).
The scheme includes the following project steps:
Goal setting: Set a specific energy consumption (SEC) target for each plant,
depending on level of energy intensity (specific energy consumed = energy use /
output) of that plant. The target will specify by which percentage a plant has to
improve its energy intensity from the base line value in a period of three years.
Reduction phase: Within a three-year period (2011-2013) the designated
consumers try to reduce their energy intensity according to their target.
Trading phase: Those consumers who exceed their target SEC will be credited
tradable energy permits. These permits can be sold to designated consumers who
failed to meet their target.
Designated Consumers who fail to achieve their target have to compensate this failure by buying
permits. If they fail to do either of this, they may have to pay penalties.
The energy consumption reported by designated consumers is based on audit by any of the BEE
accredited agencies. The BEE may verify correctness of reported values.
7.3 Market Transformation for Energy Efficiency (MTEE) Accelerated shift to energy efficient appliances in designated sectors will be enabled through
innovative measures. These products would be made more affordable. This target would be
achieved by DSM measures, supported with CDM financing wherever possible.
The initiative includes the following activities:
National CDM Roadmap
Programmatic CDM: BEE is exploring undertaking CDM Programme of Activities for
the following sectors: lighting (Bachat Lamp Yojana), Municipal DSM, Agricultural
DSM, SME sector, Commercial Building sector and for Distribution Transformers.
Standards and Labelling: Step by step notification for mandatory labelling for
Equipment & Appliance for Domestic Sectors, Hotel Equipments, Office
equipments, Industrial Products, Transport Equipments.
Public procurement: Amendment of procurement rules to explicitly mandate
procurement of energy efficient products for all public entities.
Technology program: Replacement of inefficient appliances by efficient products
such as efficient lighting, ballasts, AC, refrigerators in domestic sector. Reduction
of Transmission & Distribution (T&D) losses :
Energy Conservation Building Code (ECBC): Mandate maximum energy consumption
norms (per square feet) for new commercial buildings and existing buildings
(through retrofit).
ESCos Promotion: Assuring ESCo quality through accreditation. Promoting their
capacity through set of 1200 bankable efficiency retrofit demonstration projects
covering all sectors and the entire country.
Capacity building and information: Creating a pool of trained manpower in states,
government agencies, banks and financial institutions. Continuing the training of
Energy Auditors and Energy Managers.
Policy transparency
7.4 Financing of Energy Efficiency The initiative focuses on the creation of mechanisms that would help finance demand side
management programmes in all sectors by capturing future energy savings. The initiative
includes the following activities:
• Fiscal instruments: Tax exemptions for the profits and gains made from energy
efficiency projects by ESCos and Venture Capital funds. Reduction of VAT for energy
efficient equipment (e.g. CFLs)
• Revolving fund: To promote carbon finance
• Partial Risk Guarantee Fund: To provide commercial banks with partial coverage of risk
exposure against loans made for energy efficiency projects. The fund will charge a small
fee on all projects seeing the risk guarantee.
7.5 Power Sector Technology Strategy This strategy is aimed to enhance energy efficiency in power plants.
• Adopt energy efficient generation technologies in new plants including supercritical
boilers
• Enhance energy efficiency in existing plants
• Roadmap for IGCC demonstration plants
• Development of know-how for advanced super-critical boilers
• Road map for fuel shift
Other initiatives In addition to the above mentioned activities, following activities will
supplement the overall plan.
• Set up Energy Efficiency Services Ltd.: A public sector company is planned to be set up to
facilitate the progress and to address all the issues / barriers which impede investments
in energy efficiency projects. This company will be an implementing agency, while BEE
will concentrate on its quasi-regulatory role. In addition to being an implementing body;
this company will also function as consultancy organization, resource centre and an
ESCo
Strengthening of State Designated Agencies (SDAs): The scheme seeks to build
institutional capacity of the newly created SDAs to perform their regulatory and
facilitative functions in the respective states.
Strengthening of BEE: Government funding for infrastructure creation that is necessary
for BEE to implement 8 new projects/ schemes through the country with an allocation
from the XIth plan.
Awareness Programs: Information campaigns in schools, industry, commercial,
agriculture and domestic sector. National painting competition, Energy Award,
publication of Manuals and Codes for energy efficiency etc.
7.6 National Mission on Sustainable Habitat (NMSH) The NMSH focuses on sustainable buildings and is also a national mission under NAPCC. It aims
to make the habitat (i.e. living environment of humans) sustainable through enhancement of EE
in buildings etc.
The National Mission on Sustainable Habitat which is a component of the National Action Plan for
Climate Change will broadly cover the following aspects:
Extension of the Energy Conservation Building Code, which addresses the design of new and
large commercial buildings to optimize their energy
Better Urban Planning and Modal Shift to Public Transport. Making long term transport plans to
facilitate the growth of medium and small cities in such a way that ensures efficient and
convenient public transport.
Recycling of Material and Urban Waste Management A special area of focus will be development
of technology for producing power from waste. The National Mission will include a major R&D
programme, focusing on bio-chemical conversion, waste water use, sewage utilization and
recycling options, plasma conversion of waste of biological origin to liquid fuels that can
substitute for petroleum based fuels wherever possible.
Figure 2: National Mission on Sustainable Habitat
Strategies for Mitigation the objective
Promoting Efficiency in the Residential and Commercial Sectors
Water Supply, Wastewater and Solid Waste Management
Strengthening of Public Transport System through a Combination of Promotional,
Regulatory and Fiscal Measures
Reducing the Fuel Consumed per Passenger Travel through Modal Shift
A total fund requirement to complete the objective will be around 45,221 Cores.
7.7 12th Five Year Plan The 12th Five year plan calls for the use of energy–efficient technologies across the diverse
sectors of our energy economy. This also includes bringing in the concept of energy-efficient
lighting etc. on the roads.
7.8 Green Building Rating Systems and related initiatives This is specifically targeted at the building sector which is growing at a fast pace. The BEE has
developed a rating system based on the ”Star Labelling Program”, and the Indian Green Building
Council together with The Energy and Resources Institute (TERI) have introduced green building
rating system known as the Green Rating for Integrated Habitat Assessment Griha.
7.9 Barriers to Energy Efficiency in India There is a dire need for deploying energy efficient technologies and measures across all the
sectors in India. However, adoption of such measures and technologies remains limited largely
because of the barriers to large scale implementation of energy efficiency. Following is a brief
overview of these barriers:
Policy barriers
Institutional barriers
Barriers related to energy end-users and project developers
o High cost of energy efficient products
o Issue of split incentives
o Limited technical knowledge of energy efficiency
o Lack of external funds for energy efficiency
7.10 Outlined Financial Barriers Beyond doubt, finance plays a pivotal role in facilitating large scale implementation of energy
efficiency projects (including municipal lighting) and energy-efficient technologies. There is a
growing adoption of energy-efficient measures in India; however several barriers continue to
hamper sufficient financing of such projects and technologies. A brief overview of the key
barriers to financing energy efficiency projects is as under:
Lack of non-recourse finance for EE projects
Perceived difficulty in evaluating financial returns of EE projects
High transaction costs due to small project size
High project development cost
Risk perception of energy efficiency in comparison to conventional projects
Communication gap between financiers and project developers
Lack of knowledge and awareness of conventional lenders
Limited capacity of EE service providers
Lack of capacity of project hosts
Financial strength of ESCO’s
Experts believe that ESCO industry in India is still at a nascent level and lacks the necessary
financial strength. This limits the adoption of ESCO mode of financing to a significant extent.
Such a poor financial strength further limits ESCO’s ability to find funding sources. ESCO’s
more often than not lack collateral or strong borrower balance sheets to offer financing. On
the other hand, the banks and financial institutions also lack experience in lending to ESCO’s
terming the business as risk prone.
Chapter 8: Energy-Efficiency Financing
Instruments in Indian Context
Several financial instruments have been used to address the existing barriers to EE financing in
India. Some of these instruments have been introduced recently and some are still in a design
phase. Some of the existing instruments were introduced for implementing policies such as the
NMEEE, the EC Act and regulatory directives introduced at the local level. The existing
instruments and mechanisms for EE can be broadly classified as follows:
Debt based financing mechanisms for EE
During the last several years, bilateral donors and multi-lateral institutions have
supported the creation of innovative financing options for EE projects in India. This
support has largely been in the form of debt via specific lines of credit through Indian
banks and FI’s. Some of it has also been in the form of technical assistance.
JICA-SIDBI Financing Scheme for Energy saving projects in the MSME sector
IREDA Energy efficiency Financing Scheme
IREDA implemented a scheme for financing RE and EE projects via soft loans during
the earlier years with the support of the World Bank (USD 0.97 billion). The credit line
offered equipment financing, project financing and loans for RE/EE manufacturing
in the industrial, commercial and municipal sectors. However, the take-up of
financing for EE projects was quite limited.
ADB supported project on Industrial energy efficiency
Energy Conservation Commercialisation (ECO-I) Program of USAID
USAID provided funds to the ICICI bank to on-lend EE projects. Finance was offered
for up to 50% of the project costs at a commercial interest rate. The first ESCO
shared savings project for energy-efficient municipal street lighting was
satisfactorily completed way back in 2005.
ICICI Bank lending for Energy Efficiency
KfW Credit line for Energy Efficiency (for MSME’s)
GOI supported EE-debt-financing-Technology Innovation fund (for MSME’s)
Commercial EE Financing Programs
There is not a clear demarcation of specific EE lending by banks and the financial
institutions is not available. Normally banks include EE projects in their overall
portfolio and use general lending criteria and requirements to evaluate EE projects.
Table 8 gives a brief mention of the banks involved in energy efficiency loan financing
schemes:
Table 8: Banks involved in energy efficiency loan financing schemes
Name of Bank EE Programme State Bank of India
Energy efficiency loan scheme for MSME’s
Green Home loan scheme
Canara Bank Energy saving loan scheme for SME’s
Union Bank of India
Energy efficiency loan scheme for small and medium enterprise
Yes Bank EE Lending for SME’S, agriculture, commercial and industrial
sectors
8.1 Equity Financing for Energy-Efficiency in India In general, equity funds are offered by venture capital or private equity funds to finance
entrepreneurial endeavours for development and/or deployment of new EE technologies. There
are some instances of equity funds set up by the public sector for financing ESCO project or
investments in ESCO’s. Public equity funds are designed to partner with private sector venture
funds to leverage their expertise and resources. A good example of this is the proposed BEE
Venture Capital Fund for Energy Efficiency (VCFEE).
8.2 Case specific examples of private equity funds Green India Venture Fund Green India Venture Fund (GIVF) has been set up with a prime objective of investing in the
companies setting up the CDM projects and other commercially available viable
projects/businesses. The fund capital is around USD 53.33 million with a Green Shoe option. The
IFCI venture capital fund will contribute a sponsor contribution of 10% towards the fund capital.
The balance would be raised from other FI’s/banks/companies/multi-lateral agencies including
foreign investors. Lighting is included as one of the key segments for investments under GIVF
along with Renewable energy, energy storage etc.
Global Environment Fund It is basically a private investment fund that invests in businesses providing cost-effective
solutions to the environmental and energy challenges. The fund is dedicated to clean
technology, emerging markets and sustainable forestry. Global environment fund has
satisfactorily raised the USD 104 million South Asia Clean Energy Fund (SACEF). Following are the
key investors in this fund:
Asian Development Bank (USD 16 million of seed capital)
US Overseas Private Investment Corporation (OPIC)
International Finance Corporation (IFC)
Wells Fargo
Japan Bank for International Cooperation (JBIC)
8.3 Energy saving performance contracting (ESPC) in India ESPC’s and ESCO’s came into being in US during the late 1970’s as a result of energy crisis and the
rapid increase in oil prices. An ESPC involves providing an energy consumer or host facility a
range of services related to adoption of energy efficient products, technologies and equipment.
The services provided may also include financing of the EE upgrades so that the host facility has
to put up little or no capital. In turn, the host facility pays for the services from the money it saves
from reduced energy consumption. In several cases, the compensation is dependent on the
demonstrated performance i.e. in terms of EE improvement etc. Hence it creates a system
where the services and equipment can be paid from the actual energy cost savings. The ESPC is
usually implemented by the service providers more commonly known as ESCO’s.
Specific approaches to ESPC Within the ESPC, there exist two basic types of agreements i.e. shared savings and guaranteed
savings. In both these models, the ESPC offers a complete range of implementation services and
generates energy and cost savings.
For the shared savings model, the ESCO finances the project with a bank loan. The host facility makes no investment and shares the achieved savings with the ESCO as per a prescribed formula.
In case of the guaranteed savings model, the ESCO offers a performance guarantee and the host facility provides the project financing –at times with a bank loan. Following which, the ESCO is paid for the services offered upon the satisfaction of the performance guarantee.
8.4 BEE-Public Sector ESPC Approach The Bureau of Energy Efficiency (BEE) in cooperation with Asian Development Bank (ADB)
launched the Energy Efficiency Enhancement Project (EEEP) in 2003 to create innovative
approaches to encourage the development of a sustainable EE market in India. It mainly involved
the development of a financial mechanism to encourage participation of ESCO’s in
implementation of EE projects in the public sector. Thus EEEP developed an approach for
applying the ESPC model in the public sector. Following few are the salient features of ESPC
approach by BEE:
The financing model involves an ESCO, a financing institution, equipment suppliers and the host public agency.
Payment security mechanism is in place
8.5 Case specific example-Municipal ESPC Projects Municipalities in India known as urban local bodies (ULBs) spend over 50 percent of their
operating budgets towards energy costs. Reducing these costs through implementation of EE
measures can thus contribute significantly to the financial viability of such bodies. A number of
studies and energy audits have pointed out the large potential for improvement in EE and
reduction of energy costs by the ULBs through optimum pumping systems design, upgrading or
replacement of street lighting, and improved operational procedures. However, the
implementation of such measures by ULBs has been constrained by their limited technical
knowledge about EE options and lack of available capital.
A number of municipal street lighting projects have also been implemented by ULBs using the
ESPC process. These have either involved replacement of existing mercury vapour lamps with
efficient fluorescent tube lamps (T-5 lamps), or installing controls on lighting circuits. Municipal
street lighting programs have resulted in significant energy savings by using a shared-savings
model.
8.6 BEE Venture Capital fund for Energy Efficiency (VCFEE)
Venture Capital Fund for Energy Efficiency The VCFEE is part of the Energy Efficiency Financing Platform (EEFP), which is being established
under the NMEEE. It aims at creating a market for EE in India by making innovative policy and
regulatory regimes, launching financing mechanisms, and business models. Following is the
eligibility criteria for projects for funding under the VCFEE mechanism:
The project should seek to achieve demonstrable energy savings and mitigate emissions
of the greenhouse gases and project sponsors/participants must offer a viable method
to monitor and verify the same.
It should be a new project and not takeover of an existing project.
It should use viable technologies to be developed after energy audit/feasibility studies.
The investment part of the fund shall be up to five years with the option of an early exit.
Table 9 sums up the key aspects of the VCFEE as under:
Table 9: Key aspects of the VCFEE
Program Title Venture Capital Fund for Energy Efficiency
Sponsoring Agency Bureau of Energy Efficiency (BEE), Ministry of Power
Type of Program Venture Capital Fund
Implementing Agency
BEE
Objectives To provide equity financing for EE projects or companies specifically
related to the following:
Financing for incubation of the new EE technologies
Technology transfer leading to local manufacturing
Project financing for the last mile equity
Sectors Targeted Industrial, Commercial and municipal
Barriers addressed
High risk of new technologies
Perceived low return on investments
Limited equity availability for EE projects
Financing mechanisms
Co-invest in companies or projects.
Fund will provide last minute equity support to specific EE projects.
Limited to a maximum of 15 % of the total equity required, via special
purpose vehicle or USD 0.32 million, whichever is less.
Total Funding USD 15.37 million
8.7 Partial Risk Guarantee Fund for Energy Efficiency (PRGFEE) The Partial Risk Guarantee Fund for Energy Efficiency (PRGFEE) has been set up under the NMEEE,
with the key objective of leveraging commercial financing for EE in the country. This fund is
expected to promote EE financing by commercial banks by providing a risk sharing facility that
will offer partial risk guarantee to Participating Financial Institutions (PFIs). It will guarantee a
maximum of 50 percent of the loan (only principal) provided by a PFI. In case of default, the fund
will cover the first loss up to a maximum of 10 percent of the total guaranteed amount, and cover
the remaining default (outstanding principal) amount on a pari-passu (equal footing) basis up to
a maximum guaranteed amount. Following is the basic eligibility criteria for participating in the
PRGFEE:
Any commercial bank, FI or bank-owned leasing company in India may participate.
Eligible borrowers for individual projects include BE-empanelled ESCO’s or joint ventures
including ESCO’s.
Eligible projects under the PRGFEE for which PFIN can apply for a guarantee, it could be
credit facilities extended by PFI to ESCO’s for EE projects.
Support under PRGFEE will be limited to the government buildings and municipalities in
the first place.
The guarantee will not exceed US 0.49 million per project or 50% of the loan amount
whichever is less. Table 10 sums up the key features of the PRGFEE as under:
Table 10: Key features of the PRGFEE
Program Title Partial Risk Guarantee Fund for Energy Efficiency (PRGFEE) Sponsoring agency
Bureau of Energy Efficiency, Ministry of Power
Type of Program
Risk Sharing Fund
EE/GHG goals Part of the overall implementation strategy of the NMEEE
No specific targets for GHG goals specifically for PRGFEE are
available
Expected savings of around 23 million tons of oil equivalent of fuel
Estimated avoided capacity addition of over 19000 MW
Estimated Reduction in emissions of carbon dioxide by 98.55 million
tons per annum
Sectors targeted
Government buildings and municipalities
Barriers addressed
Limited commercial EE financing
Perception of high risk associated with EE projects
Lack of collateral or guarantees to eliminate repayment risk
Major Activities
Organising and coordinating the competitive bidding process for the
selection of the project
Coordinating the signing of the guarantee
Project appraisal unit
Agreement between the PFI’s and BEE
Preparing progress reports and statement of accounts on the
operation of the fund and providing these to the fund’s steering
committee
8.8 National Clean Energy Fund The National Clean Energy Fund (NCEF) is a fund created in 2010-11 using the carbon tax - clean
energy cess - for funding research and innovative projects in clean energy technologies of public
sector or private sector entities, upto the extent of 40% of the total project cost. Assistance is
available as a loan or as a viability gap funding, as deemed fit by the Inter-Ministerial group,
which decides on the merits of such projects.
Upon recommendation by NCEF, the final approval is given by the Minister of the concerned nodal
Ministry (which initially approved and decided to take the project submitted by the public or
private entity to NCEF) if the project cost is below Rs. 150 Crore; by Minister of Finance and the
Minister of the concerned nodal Ministry if the project cost is between Rs. 150 Crore and 300
crore; and by the Cabinet Committee on Economic Affairs if the project cost is above Rs. 300
Crore.
The National Clean Energy Fund (NCEF) is a non-lapsable corpus under the Public Accounts of
India. It is created through a levy of clean energy cess of INR 0.50 per ton on coal produced
domestically and imported into India. The formation of NCEF was announced in the Union Budget
2010-11, and the cess came into effect in July 2010. As of March 31, 2012, NCEF had collected
cumulative revenues of INR 43.15 billion (USD 698 million), and is expected to collect a further INR
38.64 billion (USD 625 million) in FY 2012-13. The NCEF was created for funding research and
innovative projects in clean energy technologies. As per the guidelines, NCEF assistance cannot
exceed 40 present of the total project cost. Under this fund, the participating organisations
need to make a minimum financial commitment of 40% of the project cost. Till now, projects in
excess of USD 56.63 million have been sanctioned. Table 11 presents the key characteristics of
NCEF as under:
Table 11: Key characteristics of NCEF
Program Title National Clean Energy Fund Sponsoring agency Ministry of Finance Type of Program Fund Implementing Agency
Ministry of Finance
Start date/end-date
July 2010-ongoing
Key Objectives Funding research and innovative projects in clean energy technologies Type of Technologies targeted
Integrated community energy solutions, smart grid technology,
renewable applications with solar, wind, tidal and geothermal
Advanced solar technologies, wind energy technologies etc.
Barriers addressed Availability of financing both grants for demonstration and soft
loans for large projects for faster diffusion of RE and EE
technologies
Financing Mechanism (s)
Viability gap funding or loan up to 40% of the project cost
Eligibility Criteria Individual/consortium of organisations in the
government/public/private sector
Project must be sponsored by a ministry/department of the
government
Project should not have availed any other benefits
8.9 Usage of fund Any project/scheme relating to Innovative methods to adopt to Clean Energy technology and
Research & Development are eligible for funding under the NCEF. An indicative list of such
projects is as follows:
Projects supporting the development and demonstration of integrated community
energy solutions, smart grid technology renewable applications with solar, wind, tidal
and geothermal energy;
Projects in critical renewable energy infrastructure areas such as Silicon
Manufacturing;
Projects which result in replacing existing technology in energy generation with more
environmentally sustainable approach;
Projects related to environment management, particularly in the geographical areas
surrounding the energy sector projects;
Renewable/Alternate Energy: This would include advanced solar technologies,
geothermal energy, bio-fuels from cellulosic biomass/algae/any waste, offshore Marine
Technologies (Wind, Wave & Tidal) & Onshore wind energy technologies, Hydrogen & fuel
cells.
Clean Fossil Energy: This would include power, oil, gas and coal technologies including
coal gasification, shale oil/ gas, lignite/Coal Bed Methane, advanced turbine and
technology for IGCC power plants, methane hydrates, enhanced recovery from
unconventional resources and fossil energy advanced research, carbon capture and
sequestration as also carbon capture and reformation.
Basic Energy Sciences: This would include energy storage for hybrid and plug-in electric
vehicles, solid state lighting, catalysis, biological and environmental research,
advanced computing, high energy and nuclear physics etc.
The Fund may also support pilot & demonstration projects for commercialization in the
relevant field.
Mission projects identified in the National Action Plan on Climate Change (NAPCC) and
projects relating to R&D to replace existing technologies with more environment friendly
ones under National Mission on Strategic Knowledge for Climate Change (NMSKCC).
The projects relating to creation of power evacuation infrastructure for renewables.
As at the end of September 2014, NCEF has recommended projects worth Rs. 18577 Crore.
Financial Year Projects recommended by NCEF (Project cost in Rs. Crore)
2011-12 573.05 2012-13 3276.11 2013-14 1477.65 2014-15 ( Uptil Sep 2014)
13250 (after certain sanctioned projects of previous years were downsized to include another project)
8.10 Other windows of opportunity Rajiv Awas Yojana The Ministry of Housing and Urban Poverty Alleviation of GOI put in place a Scheme known as,
”Rajiv Awas Yojana” (RAY) for the slum dwellers and the urban poor. Primary aim is to evolve a
slum free city plan with the following type of admissible components:
Development/improvement/maintenance of basic services to the urban poor- including
water supply, street lighting, sewerage, solid waste management and creation of
livelihood centres etc.
Convergence with health, education and social security schemes etc.
Specific set of guidelines have been formulated under this flagship scheme and street lighting
constitutes an important end-use requirement from several key considerations.
Jawaharlal Nehru National Urban Rural Mission (JNNURM) Significant objective of this mission driven scheme is to encourage reforms and fast tracked
development of identified cities. Pivotal thrust is to be on efficiency in urban infrastructure and
service delivery mechanisms, community participation and accountability of urban local bodies
etc. The main thrust of the sub-mission will be on the following few aspects:
Infrastructure projects related to water supply and sanitation Street Lighting Sewerage Solid waste management Urban transport and redevelopment of old city areas etc.
Financial Assistance under JNNURM The GOI has proposed substantial assistance via JNNURM over a seven year period. During this
period, funds shall be provided for proposals that would meet the mission’s requirements.
Following few are its core elemental considerations:
Financial assistance to be made available to the urban local bodies etc. which could
deploy these funds for implementing the projects by themselves or via special purpose
vehicles
Assistance under JNNURM is additional central assistance, which could be provided as a
grant (100% central grant) to the implementing agencies
Implementing agencies in turn are expected to leverage the sanctioned funds under
JNNURM so as to attract greater private sector investments through PPP mode that
enables sharing of risks between the private and public sector.
Street lighting is one of the identified sectors under this flagship scheme and such projects are
eligible for financial assistance under the sub-mission directorate for basic services to the
urban poor.
Chapter 9: Other financing instruments
Syndicated loans It is granted to such companies that wish to borrow more money than a single lender is prepared
to lend in a single loan with a syndicate of banks each lending a portion of the principal sum.
Bond financing These are basically debt securities issued by the companies or governments with a fixed
lifetime. It entitles the holder to the repayment of the principal plus interest (repaid at the end
or in regular instalments during the lifetime of the bond). A bond is thus a debt security in which
the issuer is the borrower (debtor), the holder is the lender (creditor) and the coupon is the
interest. A good example of bond financing relevant to the energy efficiency is issuing municipal
bonds in procuring funding for municipal energy efficiency.
Forfeiting finance It is an innovative financing option which is primarily a form of transfer of future receivables
from one part (cessionary-an ECSO) to another (buyer-a FI). The original creditor (the ESCO) cedes
his claims and the new creditor (the FI) gains the right to claim future receivables to an FI in
return for a discounted onetime payment. Importantly, a cession of future receivables is not a
stand-alone financing option, but can serve as additional collateral for the FI.
Energy Saving insurance It is a formal insurance contract between an insurer and either the building owner for instance
or a third party provider of energy services. In exchange for a premium, the insurer agrees to pay
any shortfall in energy savings below a pre-agreed baseline. In totality, energy-savings insurance
can reduce the net cost of energy savings projects by reducing the interest rates charged by the
lenders and by increasing the level of savings through quality control. ESI is in wide use in Canada
and the US. However, in Europe, the global market of risk transfer is slowly growing up, but
insurance products like ESI are still limited.
Subordinated Debt Financing (mezzanine finance) The Subordinated debt financing at time known as Mezzanine financing is capital that sits
midway between senior debt and equity and enjoys features of both types of financing. Following
few are its important features:
Subordination refers to the order or priority of repayments and the subordinated debt is
structured so that it is repaid from the project revenues after all operating costs and
senior debt service has been paid.
Substantially more risky than senior debt since it is generally subordinate to senior debt
in terms of collateral rights and rights to cash flow.
Subordinated debt financing is generally made available from the insurance companies,
subordinated debt funds or finance companies etc.
Carbon Financing It generally refers to the purchase of project based greenhouse gas emission reductions. The
emission reductions are generally purchased through a carbon fund on behalf of the contributor
or by an Annex-I entity regulated under the UNFCCC’s Kyoto Protocol. Emission reductions are
purchased within the framework of the Kyoto Protocol’s Clean Development Mechanism (CDM)
or Joint Implementation (JI). In totality, the carbon finance provides a means of leveraging new
private and public investments into projects that reduce the greenhouse gas emissions.
Summary outlook on Energy Efficiency Energy efficiency is not a single market. Instead, it covers measures in a diverse range of end-
user sectors, end-use equipment and technologies. It comprises of a very large number of small,
dispersed projects with a dispersed range of decision makers. In cumulative terms, many EE
technologies are proven and economic: if, a) properly financed, b) the investment costs are paid
back over short periods from energy cost savings.
References 1. Low Energy Street lighting: making the switch-a market report by the UK Green
Investment Bank (February 2014)
2. Public-Private Partnership Stories India: Bhubaneswar Street Lighting-a report by International Finance Corporation (2013)
3. Same Energy More Power, Accelerating Energy Efficiency in Asia-a report by Asian Development Bank, 2013
4. Several Documents released by the Govt. of India Ministries/Departments/Autonomous Organisations on Lighting initiatives, production scenarios, programme dissemination etc.
5. Financing Energy Efficiency in India-a report by USAID under Asia Pacific Partnership on
Clean Development and Climate 2010
6. Framework for Implementing Energy Efficiency at utility level through ESCO-a presentation by EESL 2012
7. Financing Lighting Market Transformation-a report by Clinton Foundation under Clinton
Climate Initiative, 2011
8. EESL Toolkit for Street Light Energy Efficiency-EESL Report 2013
9. Energy Efficiency and the Finance Sector-a survey on lending activities and policy issues- report by UEP Finance Initiative 2009
10. LED Lighting Scenario in India-a report by Philips Lighting on behalf of ELCOMA 2013
11. Innovative Approaches to Financing Energy Efficiency in Asia- a report by USAID 2009
12. Numerous websites dealing with LED lamp dissemination, programme outreach etc.
13. Websites of Municipal Corporations implementing LED Street Lighting Programmes
14. Several Business magazines and newspapers