OPERATIONALIZING ENERGY EFFICIENCY (EE) FOR SMES THROUGH CO-CREATION

Coverage Report from IIES Workshop

28th Jan 2011

Co-chair:

Rahul Bagdia, Co-founder pManifold, Head Energy Practice, Rahul.Bagdia@pManifold.com

Milind Chittawar, Founder SEE-Tech, mchittawar@yahoo.com

3/16/2011C

op

yright (c) p

Man

ifold

1

enabling sustainable growth..

professional people perspire partners

persevere prepare policy process plan price

project potential profit pursue performance

promote progress preserve plural planet

SU

PP

OR

TERS

3/16/2011

2

Co

pyrigh

t (c) pM

anifo

ld

Industrial Association Partner

Workshop Speakers

Workshop Sponsors Workshop Organizer

www.iies.in

ENERGY EFFICIENCY (EE) FOR SMES – WORKSHOP

OBJECTIVES & STAKEHOLDERS

Objective of Workshop

•Raising Engagement Platform for B2B stakeholders of ESCO model – SME, ESCO, EAs & EMs, Vendors, Bankers (SIDBI etc.), Agencies (BEE, SEAM etc.), Industrial Associations (VIA, BMA, MIA etc.) to:

1. Create awareness for true Value Proposition of EE interventions to SME Business Performance & ROI

2. Design a good ESCO delivery model and financing loan product for EE in SMEs by attending to all stakeholders risks & rewards

3/16/2011

3

Co

pyrigh

t (c) pM

anifo

ld

EE FOR SMES – WORKSHOP CONTENT AND SPEAKERS3/16/2011

4

Co

pyrigh

t (c) pM

anifo

ld

Activities/Topic Speakers

Topic 0: Supply Chain Gaps in EE for Industries

pManifold Rahul Bagdia(Co-chair)

Co-founder

Topic 1: Energy Audit results from SMEClusters

MSMEFoundation

Sanjeev Kumar Business Head

Topic 2: EE savings impact on Balance Sheet

SEE-Tech Milind Chittawar

(Co-chair)

Founder

Topic 3: Financing Energy loans for SMEs –Risk mitigations

DRA Dinesh Rathi Founder

Topic 4: Best practices in EE - HeatingProcesses

SEE-Tech Milind Chittawar Founder

Topic 5: Best practices in EE – Ventilationand Air Conditioning

Air Technics Shankar Ghime Founder

Topic 6: LED Lighting Solutions Ecozen Sumeet Gattewar Co-Founder

Topic 7: EE Equipment selection and Sourcing

Libra Agencies

Udayan Shrouti Founder

Topic 8: Banks willingness on EE projectFinancing

SIDBI Bhanu PrakashVerma

DGM, Nagpur

EE FOR SMES – GAP ANALYSIS

5

Elements Dimensions of framework Rationale

1EE Value

Proposition

• Absence of clear Business Value proposition of EE

• Missing Awareness

• Why SMEs when could invest in their Business, could not invest additional Capex in EE equipments to drive better Returns Missing customized Design and Services from ESCO players

2EE Delivery &

Performance

• Low confidence on Performance of EE products

• Vendors hesitation to take Performance Guarantees

• Why ESCOs hesitate to offer monetary tied Performance Guarantees to Industries Challenges in Monitoring savings with SMEs

3Finance

Linkage

• Absence of easy accessible EE loan product from bank

• Why banks does not give focused Energy loans to SMEs (same as established Appliance loan for AC) Looking for transferring performance risks to the equipment suppliers and ESCO agency

• Is finance a real constraint for SME to invest in EE SMEs looking to transfer EE performance risk to the lender by separating it from the “normal” credit lines

4Risks from

SMEs

• Dynamic Business risks keep Energy Optimization low priority

• Low Contractual enforcement

• Why ESCO efforts not focusing on SME scattered & small ticket size, financing risk & perceived low contractual enforcement, involved operations & marketing

4 key gaps for scale-up of EE in SMEs – Missing value proposition, No turn-key performance

backed delivery & after services, Easy EE escrowed loan, Low contractual enforcement

Excerpts from Rahul Bagdia’s @ pManifold presentation @ IIES 2011

IMPACT OF EE SAVINGS ON BALANCE SHEET3/16/2011

6

Co

pyrigh

t (c) pM

anifo

ld

Value Proposition and impact of EE on Bottom line

Sr

Company% Energy Cost

in 2010

ROI of

Buisness

ROI of Energy

Conservation

ROI of New

buisness

Scenario

1 One of biggest

Cement Industry24.74% 9% 50% 11%

2 One of biggest

Sanitaryware

company

5.13% 14% 50% 14%

3 Steel Major

14.45% 4% 50% 6%

4 One of largest Corn

Processor9.87% 18% 50% 19%

5 Ceramics Industry13.38% 4% 50% 5%

6 Polyester Group

7.35% 21% 50% 22%

Assuming optimistic 10% EE savings w/ payback of 2 years

New way of marketing value proposition from EE

•Project EE impact on overall business KPIs

•Change the pitchline from climate/mandate to business and profit

•Check interfaces to see if EE delivery risks the normal business performance and address those in the pitch

•Good value proposition could be not cost optimization, but a new line of business investment

Excerpts from Milind Chittawar’s @ SEE-Tech (mchittawar@yahoo.com) presentation @ IIES 2011

CLUSTER APPROACH TO SME EE REALIZATION3/16/2011

7

Co

pyrigh

t (c) pM

anifo

ld

Huge Opportunity and missing Service Providers

•Turn key EE Service Package – Energy Audit, EPC, Financial Linkage and Performance Guarantee

•SME Stats: 26.1 million SME units in India; 45% of Total Industrial output of India; 40% of Export of India; 60 Million jobs; 17% of GDP as on 2009 which was estimated to be 22% by 2012

Sample Opportunities

•Divided Blast Cupola (DBC) retrofitting costs Rs. 35K with annual savings of Rs. 3.5 lacs. Less than 100 in use in foundaries in India, when potential is of 4500+

•Min. of MSME, GOI has a grant of Rs. 25lacs to support cluster (min 25 companies) based EE audit and low interest rate project financing

Learning Forward with Clusters

•Broader Cluster Development approach could work better in tapping EE potential at SMEs

•Operational intensive to demo & sustain value proposition. Association with a supporting local Industrial agency as facilitator will work better

•Proper Incentives alignment from EE of all stakeholders internal to a company – Owner, Management, Labor. Special care with engagement of contractual labor.

•Outside dynamics like illegal coal trading, low price black mkt procurement of fuels, power theft etc. could dissuade projections. Include such dynamics and make a clear pitch to Owner

•Create good leadership and ownership of the EE project internal to the company

Excerpts from Sanjeev Kumar’s @ MSME Foundation (sanjeev.kumar@msmefoundation.org) presentation

PARALLEL DELIVERY MODELS: HOW TO STRENGTHEN EE DELIVERY & CREATE TRUST?

3/16/2011

8

Co

pyrigh

t (c) pM

anifo

ld

Missing Trust for EE amongst Industries

• Missing Trust on Service Providers and Investments

• Professional services missing for SMEs

• Access, flexibility & ease similar to Consumer Finance missing in EE

• SME volatile Business dynamics challenge attention to EE - SMEs are either making lot of profits and hence not interested in cost optimization from EE; the other segment making lot of losses and hence EE is not their priority

• Existing isolated EA and no performance based guarantees while implementation will not scale up with SMEs

Learning from other Sectors – Institutionalizing cash flows

• Toll collections and Road O&M – how certain cash flows from collection is becoming attractive for banks to finance

• Micro Finance – Securitization of cash inflows of the aggregators and bringing investments from structured capital markets

• Water Franchisee for Muncipalities – Escrowed account and Service Provider being paid from savings from baseline

Growing ESCO Industry

• Around 80 ESCOs registered with BEE

• PFC, EESL, etc. growing support system for ESCOs in India

• Ratification of ESCO companies by Crisil, ICRA and CARE

Excerpts from Dinesh Rathi’s @ DRA (dinesh.nagpur@gmail.com) presentation @ IIES 2011

INSTITUTIONALIZING EE DELIVERY ESCO MODEL3/16/2011

9

Co

pyrigh

t (c) pM

anifo

ld

ESCO Delivery Model

•ESCO model will drive start of Measurements and Benchmarking practices

•ESCO will provide turn key services and give guaranteed savings on baseline

•ESCO is paid for performance -proportion of the savings realised

•Bank do the credit rating of the SMEs and give loan for EE. SME is liable to pay regular installments to banks. Bank in turn pay the ESCO.

•This bank interfacing will derisk ESCO from non-payment from SME for its value services

•ESCO will give bank guarantee for performance of EE and hence regular cash inflows from SME to bank

•Payment from SME equivalent to Energy savings from baseline will be escrowed by bank for its interest payment and also ESCO services

Excerpts from Rahul Bagdia’s @ pManifold presentation @ IIES 2011

BEST PRACTICES - HEATING PROCESSES3/16/2011

10

Co

pyrigh

t (c) pM

anifo

ld

Melting Furnaces Saving Potential – Atleast 20%

•Ferrous:

•Induction Furnace: 650 to 700 KWh/MT to 500 to 575 KWh/MT; PF = 0.999 (1): 7% Saving in Energy Charges, LF = 0.85+: 6 to 10% Saving in Energy Charges (15% max with LF of 92.5%)

•Cupola (Normal to Divided blast) : 15 to 18% savings in coke consumption

•Non Ferrous

•Aluminum Melting: 90 to 125 Lit/MT to 75 to 85 Lit/MT

•Brass Melting: FO 135 Liters/MT to 110 to 115 Liters/MT

•Use of Gasifier: Coal/Biomass gasification (50% Saving in Energy Cost as compared to FO, Payback period = 6 months to 1.5 years)

Heat Furnaces Saving Potential – Atleast 20%

•Rolling Mill Furnace:

•FO Fired: 55 – 65 Lit/MT to 45 to 55 Lit/MT (F/c length, Recuperator, F/c Insulation, continuity of usage)

•Coal Fired: 125 Kg/MT to 135 Kg/MT to 115 to 120 Kg/MT and even lesser (Recuperator, Pulverized coal, continuity of usage)

•Gasifier for full or partial (>80%) substitution of FO: 40 to 45% saving in energy cost

•Heat Treatment Furnace:

•FO Fired: 55 – 65 Lit/MT to 45 to 55 Lit/MT (Recuperator, F/c Insulation, continuity of usage)

•Gasifier for substitution of FO: 40 to 45% saving in energy cost

Energy Audit and Measurements

•Available good real-time data loggers for Energy consumption & effectiveness

•Need cost effective & mass deployable type Measurement Equipments & Data Loggers for easy Energy Monitoring

Excerpts from Milind Chittawar’s @ SEE-Tech (mchittawar@yahoo.com) presentation @ IIES 2011

BEST PRACTICES – AIR CONDITIONING & VENTILATION3/16/2011

11

Co

pyrigh

t (c) pM

anifo

ld

EE Opportunities in Air Conditioning & Ventilation – 50% load in AC in commercial buildings

•Optimize process heat exchange

•Maintain heat exchanger surfaces

•Multi-staging systems

•Matching capacity to system load

•Capacity control of compressors

•Multi-level refrigeration for plant needs

•Chilled water storage

•System design features

New Concepts in EE in AC & Ventilation

• District Cooling Concept - Load Diversity, Optimised Operations, Advanced Technologies, Better Staff Economies, Customer Risk Management, Capital Cost & Annual Cost

• Radiant Control Coatings – Reflect, Refract & Dissipate; can lower roof temp by 10degC

• Occupancy sensors - built in relays which can switch the light or air conditioner on directly.

• Adapting comfort levels - Some countries have started to define room set temperature for the sake of Energy saving. Like Japan has set the temperature of 27 deg C & Thailand as 26 deg C

Indicative TR Load Profile

• Small office cabins: 0.1 TR/m2

• Medium size office (10 –30 people occupancy) with central A/C: 0.06 TR/m2

• Large multistoried office complexes with central A/C: 0.04 TR/m2

Optimize Process & Heat Exchange in AC

Impact of Poor Maintenance of ACs

Excerpts from Shankar Ghime’s @ AirTechnics (sgghime@gmail.com) presentation @ IIES 2011

BEST PRACTICES - LIGHTING3/16/2011

12

Co

pyrigh

t (c) pM

anifo

ld

OutDoor Lightings – Valuation & Cost Benefits

InDoor Lightings – Valuation & Cost Benefits

Lighting Opportunities

LED LightingOPPORTUNITIES:

CHALLENGES:

Excerpts from Sumeet Gattewar’s @ Ecozen(devendragupta001@gmail.com) presentation @ IIES 2011

EE EQUIPMENT SELECTION & DECISION MAKING – LOOK

INTO LIFE CYCLE COST (LCC)3/16/2011

13

Co

pyrigh

t (c) pM

anifo

ld

Compressor selection – System thinking is MUST

• Problem Specifications: Size air compressor, optimize capital cost as well as operational costs - Main plant supplier specification sheet mentions compressor capacity as 600 cfm at 7 bar.

• System Solution: Split total air demand to reduce the no load power consumption which is power waste without generating compressed air. 25% is no load power consumption. 90 KW X 2 Nos. Instead 45 KW X 3 Nos. offered.

Water Treatment Plant reduces Furnace Oil Consumption & other Maintenance Issues

•Problem Specifications: Water scare region. Maintenance issues with boiler and Chiller namely of perpetual break downs and high maintenance costs. Desire to eliminate / reduce water related problems with improvement in equipment availability

•System Solution: RO plant water quality reduces blow down loss of boiler avoids scale formation. Achieved energy conservation and environment conservation associated with fuel savings. RO water reduces boiler water consumption.

•RO water usage in chiller reduces make up water requirement of chiller. Reduction in electrical energy consumption of chiller is achieved as it operates scale free.

Lessons for EE Equipment Selection

•Heat value at point of use at the lowest cost. Cost of heating/Kg of product.

•Zero gap in required size and procured size. (DO NOT EXCESSIVELY OVERSIZE)

•Proper configuration of equipment.

•Superimposition of process sequence alteration in optimal sizing of equipment.

•Add on benefits of equipment pollutants for process improvements to be considered. ( Example : CHP (Combined heating and power system, water / air heating from air compressor,)

•Educating customer ensures good and consistent business

2 x 90KW1 Working1 Standing

3 x 45KW2 Working1 Standing

Excerpts from Udayan Shrouti’s @ Libra Agencies (udayan.shrouti@gmail.com) presentation @ IIES 2011

BANK WILLINGNESS ON EE PROJECT FINANCING3/16/2011

14

Co

pyrigh

t (c) pM

anifo

ld

Challenges with ESCO Model for SMEs as seen by bankers

• Cash flows not certain with SMEs because of inherent business volatility & risks

• Measurements prone to tampering to set baseline

• Turnkey realisation of savings and overall positive business improvement with strong performance monitoring & after-service from ESCOs will help banks open up more to ESCO led financing

SIDBI Support for EE

• Concessional loans @ 9.5%

• Credit Linked Capital Subsidy Scheme (CLCSS) with 15% capital good subsidy until Rs. 1cr. for approved technologies

• Combined cost of loan with concessional interest rate and capital subsidy amounts ~5% for 5-6 years loan period making EE adoption simpler and better viable

• SIDBI internal leveraging of credit line from International financial organizations like KfW, World Bank, Japan’s JFC to support EE loan

Excerpts from Bhanu Prakash Verma’s @ SIDBI (bhanup@sidbi.in) presentation @ IIES 2011

Bundling of EE with other financing needs for MSMEs @ SIDBI

• Provides all Banking services to MSME units

• Equity support to growth oriented SME units

• Collateral free assistance upto Rs.100 lakh under CGTMSE Schemes

• Flexible and innovative credit products – direct credit scheme for setting-up new projects and for technology up gradation, diversification, expansion etc. of existing SMEs

• Working capital assistance to existing as well as new Small & Medium Scale Enterprises [SMEs] and Service Sector units for meeting their working capital requirements under SIDBI-IDBI WC arrangement

• Energy saving schemes could be well bundled with other business financing needs of SMEs

• CGTMSE extends guarantee cover upto 75% of collateral free credits, subject to maximum credit of Rs.100 lakh per borrower - helping Micro & Small enterprises in accessing institutional credit, both term loan and WC facility, without collateral security / or third party guarantee

PMANIFOLD – GROWTH SOLUTIONS FOR EMERGING BUSINESSES

RESEARCH, ONLINE/OFFLINE STAKEHOLDER ENGAGEMENT & CONSULTING3/16/2011

15

Co

pyrigh

t (c) pM

anifo

ld

• Rahul.Bagdia@pManifold.com (+91 95610-94490)

• Vinit.Taori@pManifold.com (+91 99234-46100)

www.pManifold.com

Thank You

pManifold Energy Practice Team

• Smart Distribution

• Energy Conservation

• Green Generation