Energy Efficiency Business Models

On 11th September, I attended the USAID-India and BEE’s workshop on Capacity Building for Financing Energy Efficiency Projects in Mumbai.

The workshop did prove to be an eye-opener in terms of on-ground realities in India’s energy efficiency market.
Mr.Gaur, GM [EE], Small Industries Development Bank of India and Mr.Jaisingh Dhumal, Chief General Manager, ICICI Bank spoke on the kind of energy efficiency projects their banks had supported in India. These banks have a focused department and understanding of the energy efficiency concept and have managed to come up with innovative financial solutions to address the needs of the Indian market.

Not surprising because…

According to the World Bank Study, the estimated potential of energy efficiency in India is ~50 billion kWh, with investment potential of INR 140 billion.

Some of the more focused sectors within the Indian economy are:
1. Agriculture
2. Municipal Pumping
3. Commercial Buildings
4. Street Lightning
5. SMEs

This potential has given a boost to the Energy Services Market in India with the rise of:
1. Energy Service Companies [ESCO]
2. Energy Auditors
3. Equipment manufacturers
4. Engineering firms
5. Contract Energy Management Companies

Energy Services Agreement= ESA
Financing Agreement = FA

The Energy Service Business Models are:
1. Shared Savings— ESA between ESCO and host. ESCO finances project and receives share of actual measured cost savings.
FA is between ESCO and financial institution. ESCO finances project with equity and debt from financial institution. ESCO then pays from the % savings shared with host.

2. Guaranteed Savings — ESA is between ESCO and host. ESCO implements project and guarantees cost savings. Host pays ESCO. If savings are lower than guaranteed, ESCO pays the difference; if higher ESCO gets bonus
FA between financial institution and the host; equity from host and debt from financial institution. Host makes repayment plans from the energy savings guaranteed by ESCO.

3. Deemed Energy Savings—ESA between ESCO and host with a fixed price for services provided.
FA is signed between ESCO and financial institution. ESCO repairs loan from payments received from host for the energy management/services rendered.

4. Outsourced Energy Management —-also called Energy Supply Contracting. Agreement between ESCO and host under which ESCO takes over O&M of energy-using equipment in host facility. ESCO sells output to host at an agreed price.
ESCO is expected to invest in all equipment upgrades, repairs, etc to improve energy efficiency.
The ownership of the equipment typically remains with the host facility; however the recent times have seen ESCO assuming ownership.

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3 Responses to Energy Efficiency Business Models

  1. Karan says:

    Interesting write-up Bharat, thanks for sharing your experience.
    Is there a webpage where i can find further info on this ? Thanks


    • Hello Karan,

      Thank You for reading my blog.

      I am not sure if there is any website with this information. The above information is from the workshop I attended. So kindof exclusive insights.

      If I come across any website, I will surely let you know.


  2. praveen says:

    Also keep a tab on the sustainability, guarantee on yearly basis, work shop load or no order period, failure of such models in USA / Germany or such places shall also be highlighted. Infosys experience can be taken note, likewise, TCS etc… What is more bothering is the installation of high cost LEDs and its recovery period and after cost recovery the Guarantee, we do not have references of further sustainability… We need to first work on Energy Balance for each entity which wants to adopt the Energy Efficiency with a vision and committment from the Owner and the ESCO with guidelines with penal clauses to ESCO etc…….


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