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, [email protected]
Milind Chittawar, Founder SEE-Tech, [email protected]
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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
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EE FOR SMES – WORKSHOP CONTENT AND SPEAKERS3/16/2011
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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
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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
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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 ([email protected]) presentation @ IIES 2011
CLUSTER APPROACH TO SME EE REALIZATION3/16/2011
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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 ([email protected]) presentation
PARALLEL DELIVERY MODELS: HOW TO STRENGTHEN EE DELIVERY & CREATE TRUST?
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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 ([email protected]) presentation @ IIES 2011
INSTITUTIONALIZING EE DELIVERY ESCO MODEL3/16/2011
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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
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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 ([email protected]) presentation @ IIES 2011
BEST PRACTICES – AIR CONDITIONING & VENTILATION3/16/2011
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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 ([email protected]) presentation @ IIES 2011
BEST PRACTICES - LIGHTING3/16/2011
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OutDoor Lightings – Valuation & Cost Benefits
InDoor Lightings – Valuation & Cost Benefits
Lighting Opportunities
LED LightingOPPORTUNITIES:
CHALLENGES:
Excerpts from Sumeet Gattewar’s @ Ecozen([email protected]) presentation @ IIES 2011
EE EQUIPMENT SELECTION & DECISION MAKING – LOOK
INTO LIFE CYCLE COST (LCC)3/16/2011
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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 ([email protected]) presentation @ IIES 2011
BANK WILLINGNESS ON EE PROJECT FINANCING3/16/2011
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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 ([email protected]) 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
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• [email protected] (+91 95610-94490)
• [email protected] (+91 99234-46100)
www.pManifold.com
Thank You
pManifold Energy Practice Team
• Smart Distribution
• Energy Conservation
• Green Generation
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