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Interaction | January 2018

EESL, the biggest 'Make in India' story by far

Saurabh Kumar's eyes light up the moment one starts talking to him about his favourite passion, energy efficiency. An Indian Revenue Service (IRS) officer of the 1992 batch, Kumar took charge as Managing Director at the Energy Efficiency Services Ltd (EESL) in May 2013. In an exclusive interaction with <span style="font-weight: bold;">POWER TODAY's Pratap Padode and Manish Pant, Kumar </span>outlines the broad strategy that the provider of diversified energy efficiency services is implementing in order to radically alter the way energy is consumed in India and globally. <p></p> <p> <span style="font-weight: bold;">How would you describe EESL?</span><br /> I would say that it is an innovative finance company. We add value by creating an innovative business model and doing things right. Implementation has been our forte; if we have a deadline, we meet it.</p> <p> <span style="font-weight: bold;">What is the strategy that has made EESL a household name in the country?</span><br /> It's basically the business model that has incentives for all stakeholders. Let's start with a very simple example of the Unnat Jyoti by Affordable LEDs and Appliances for All (UJALA) scheme. At the heart of the model is the concept called 'pay as you save.' If you are replacing a CFL in Delhi or Mumbai, you save `13 to 15 per month. If you are replacing an incandescent bulb, then it's three to four times that number. We said that you take the bulb at `10 and a line atom will get inserted in your electricity bill, and every month the discom will collect and pay us `10. Nothing changes for you as you have not paid anything upfront. This has also changed the relationship that discoms have with consumers as it helps manage their load, albeit in a small amount, between 6-10 pm, when the demand peaks. Finally, and the most important thing, discoms don't have to pay for anything. Which means we procure, we distribute and we give them all the data. This has incentives for everyone. We started our first project in Pondicherry in February 2014. The cost of the LED bulb was Rs.310. We procured six lakh bulbs. </p> <p>Honestly speaking it was a calculated risk that we had to take because it was important to demonstrate that energy efficiency works. Again, we chose the bulb because it is a visible product as with energy efficiency the problem is that it is not visible. The moment this project happened it had a political capital around it, because you were giving out something to people at no cost to exchequer. Andhra Pradesh sent a team to Pondicherry and that 6-lakh order became a 60-lakh order, and the price of a bulb came down from Rs.310 to Rs.149 and from a ten-year contract we came down to a five-year contract. Thereafter, a few other states started coming in and we procured 1.6 crore bulbs. All this happened in about seven months' time. The price of one bulb came down to Rs.100 and our lock-in period became three years. Presently, the bulb is going at Rs.70 everywhere in the country. The year that ended March 2017, we distributed about 13 crore bulbs and the industry 27 crore. Today LED is about 45-50 per cent of the lighting market. This has never happened at such a fast pace and we have the best technical specifications and perhaps the lowest price in the world. Now we have started a similar exercise in LED tube lights and fans. In October 2014, in the aftermath of Cyclone Hudhud, we were asked by the minister of Municipal Administration and Urban Development of Andhra Pradesh if we could replace all street lights with LED in four weeks. Before that the maximum number of lights that we had installed in an urban local body was 250. However, we somehow managed that. We didn't do it in four weeks, but in six. That gave confidence to the Andhra government to ask us to replace five lakh lights in the entire state. We have completed Rajasthan, Andhra Pradesh, Himachal and Tripura and Gujarat to make them 100 per cent LED. They are saving more than 55 to 60 per cent of their energy costs. Today, we are doing 20,000 street lighting installations every day.</p> <p> <span style="font-weight: bold;">Did the government play any role in the expeditious decision making at EESL?</span><br /> There is no government involved, there is a board. I have not taken a single paisa from the government. I have equity from the four promoters, all of which are government companies. In fact, I dislike subsidy because, simply put, many sectors are not scaling up because of that. Solar rooftop and solar pumps are its prime examples. The moment you blend in subsidy, I will have wait for the government to buy the product for `90 before I give it to you for Rs.10. But energy efficiency pays for itself. If there are requirements, they are about developing capacity, technical assistance and maybe the business model.</p> <p> <span style="font-weight: bold;">So, your mandate was to venture into areas of energy efficiency across the board? </span><br /> Anything that saves energy has an inherent business model in it. For example, in your office, you may not have the time nor the expertise to do an energy audit or patience to procure items. So, we come in and say that you let us do the audit, make the presentation on energy savings and make the investment, while you repay me over a period of five years. That's our strategy for the buildings programme. We are doing 3,000 buildings in Maharashtra itself. It has really become a movement encompassing various sectors. Street lighting has become so much better today, as the central and state governments are able to know about the exact number of lights, electricity consumed and billing. Our failure rate is 0.48 per cent.</p> <p> <span style="font-weight: bold;">Also, with the whole exercise on in buildings, what with the building codes etc. it may involve retro-fitting, like for example fixing leakages in windows. How would you handle such aspects?</span><br /> We try and make things simple. There are two parts to making a building energy efficient. One is carrying out the civil work like putting insulation between walls. It is very difficult to standardise all these things. You don't know what might be the investment required and impact of changes made. But we have limited ourselves to equipment because windows are non-standard. Again, disputes may arise. You might say that this window is not good and I will say that I spent Rs.one lakh on it and need to recover my investment. Therefore, it is important to make a start. In any case, new buildings have an energy conservation code. </p> <p>A few years ago, former Secretary of Energy for the US, Steven Chu pointed out that green buildings seldom perform near to their certified levels. One-time certification never really helps. That is why our model also keeps us on toes because we also have a dashboard for buildings based on the actual information delivered by smart meters. We have covered that gap by putting ourselves in the public domain; if we don't perform then don't pay us! We have just started the buildings programme and it will get populated as we move ahead.</p> <p> <span style="font-weight: bold;">What were your apprehensions personally, when you embarked on this?</span><br /> There were no apprehensions. I was very clear that this was the way to go. You have to modify and be flexible in your approach because as I said, there is no benchmark or background to refer to.</p> <p> <span style="font-weight: bold;">When you have this kind of a street lighting programme in cities, the crime rate also drops...</span><br /> We do a social audit in all the places that we are involved in street lighting projects. It comprises of a set of questions. It started-off with Marine Drive in Mumbai. But it is not just the crime rate, the safety and security of women also becomes over 90 per cent and hawkers and small shop owners say their sales have increased since more people visit in the evening.</p> <p> <span style="font-weight: bold;">What have been the collateral benefits as far as the Indian power sector is concerned?</span><br /> Let me start with saying what are the benefits to the overall economy. Again, I will start with Pondicherry, because that is a very special project for us. If that hadn't happened, we wouldn't be sitting here and talking. At that point in time there was hardly any manufacturing, but today I think it is nine-crore bulbs per month. About five lakh new jobs have been added in the manufacturing sector alone in the last two-and-a-half years. We have added direct employment too because our distribution agencies employ nearly 40,000 people.</p> <p>This growth might have also reflected in your suppliers' balance sheets.<br /> Of course! As I mentioned, the main growth has happened in the private sector. In a year's time or so EESL should exit the market. There is no need for us to continue to sell bulbs. We have achieved what we wanted to achieve. People now expect LED lights at reasonable price and quality. Obviously, if you look at our UJALA dashboard nearly 7,000-megawatt (MW) of peak demand has been reduced. That's a direct benefit to the distribution or power sector because you don't need that capacity. </p> <p> <span style="font-weight: bold;">Has the LED market evolved to the extent that prices will continue to remain competitive without EESL's intervention?</span><br /> That is why I said that we will be around for a while so that there is no rebound. With the competition increasing, the number of players in the market is going up every month. The market will automatically attain equilibrium. </p> <p>If a company raises prices, the demand for its products will go away.</p> <p> <span style="font-weight: bold;">What other things are you doing?</span><br /> Cooling. We have launched a district energy initiative with the United Nations Environment Programme (UNEP). They have identified a place in Thane and they have also looked at four other cities. It's a green field area development. We are looking at putting up a district energy system. The system is extremely efficient, and the best part is that the cooling starts the moment you reach office and switch it on. You don't have to worry about replacing your AC or getting it serviced, as it is being given to you as a service. It's all modular because it doesn't make sense to have a very large installation. But you can add more plants as the area develops. </p> <p> <span style="font-weight: bold;">What about EESL's expansion plans?</span><br /> We have also gone abroad and have setup offices in the UK using exactly the same business model. There are two reasons behind the value add. One, we have a better specification LED bulb than what is required in that markets simply for the reason that the voltage fluctuation specified there is 220 to 240 volts, while ours is 100 to 300 volts. Secondly, it is the cost; a 9-watt LED bulb in the UK costs about ú9. Then there is the pay as you save model that hasn't been implemented anywhere in the developed world. We have signed an agreement with Malaysia's Malacca state where we will replicate the UJALA scheme and change three million lamps. Also, we are looking at acquiring strategic technologies for our district energy system. </p> <p> <span style="font-weight: bold;">What's the team size at EESL?</span><br /> Now we have almost a thousand people. In 2015-16 we were some 300 people. The average turnover of a PSU employee is about Rs.1 crore per year. Last year it was at about Rs.1.5 crore at EESL and this year it will go to about Rs.3 crore. This year our turnover itself will be about Rs.3,000 crore. The total business plan that we are working on is about Rs.20,000 crore and we have targeted to become a Rs.10,000-crore company by 2020.</p> <p> <span style="font-weight: bold;">How do you propose to make your e-vehicle procurement programme for the government viable? Any challenges that you foresee along the way?</span><br /> It's already viable and we have already completed procurement of 10,000 vehicles. Tata Motors won the tender. We have proposed to all the government departments that we will take Rs.40,000 a month and give them cars with drivers. </p> <p> <span style="font-weight: bold;">But what about the charging infrastructure for e-vehicles? Experts aver that there are 900 points all over the country, while Delhi alone would require some three lakh charging stations.</span><br /> There is something called a range anxiety in the electric mobility parlance. If you and I have to decide on which car to buy, we might probably pay a couple of lakh more if we know that its operational cost will be lower. At the current tariffs, an electric car will do about Rs.1.5 per km as against Rs.6.5 for petrol, Rs.5 for diesel and Rs.4 for CNG, which will only increase over time. Of course, the cost of maintaining an electric vehicle will also increase, but not in that same proportion. If there are no charging stations, I will not buy an electric car. The problem is that as per The Electricity Act, today only a distribution company (discom) can sell electricity. We thought this over and decided that there would be no regulatory infringement if we put up charging points in government offices and pay the electricity bill since we won't be reselling anything. There are estimated half a million cars, which are used by the government. We would like to replace them in a phased manner. That will create an ecosystem that attracts global manufactures to set-up facilities here, attracts battery manufacturers and attracts establishment of charging stations. </p> <p> <span style="font-weight: bold;">Any plans to raise capital?</span><br /> Since we pay over 13 per cent dividend every year, our promoters have no hesitation in providing capital to us. We might go public in a year's time. We have issued corporate bonds twice to raise Rs.1,000 crore and got an excellent rate of 7.8 per cent on our last offering. We also have almost a $ one billion line of credit from multilateral institutions such as the World Bank, ADB and KfW, and continue to look for more. Fund raising has never really been a challenge as we are in a 'green' business. In fact, in October, we secured a $454 million funding with the Global Environment Facility (GEF). Although GEF has provided loans for renewable energy projects worldwide, but these loans have never exceeded a few million dollars.</p> <p> <span style="font-weight: bold;">Are all the products that you outsource domestically manufactured?</span><br /> This is the biggest 'Make in India' story that at least I know of! One of the biggest advertisers of LED products in India is SYSKA. We have procured over 30 crore bulbs and 45 lakh street lights. However, SYSKA did not participate in a single tender. We, therefore, got in touch with the company to find out the reason. It said that it can't match our price because it is simply importing bulbs from South Korea. Philips did some of the supplies from China, but 99 per cent were made here. When we did a tender for procuring solar panels, everybody complained that the Chinese would come in. But L1 is Adani, L2 is BHEL and L3 is Tata Power. Similarly, the tender for electric cars was floated internationally. We mention in all our bid documents that ours is a service and not a supply model. We don't just supply equipment to you and leave, we also provide service and maintenance. </p> <p><span style="font-weight: bold;">What are some other business lines that you are looking at?</span><br /> A World Bank study has assessed the untapped potential of energy efficiency market at Rs.1.5 lakh crore. Agriculture is one of the areas where we are putting our heads together because there is no tariff on the sector. It does not matter to a farmer whether he is getting a 20-year old or a brand-new water pump. So, there is a big challenge of pricing. The only way of doing this long-term is solarisation of all pumps. According to me, there is no other way. We have to figure out how to do it. </p> <p> <span style="font-weight: bold;">What about your plans for the beleaguered power loom sector?</span><br /> It's the same model. The power loom owner does not understand procurement, benefits and aggregation. Now when you buy one power loom and I buy one lakh power looms, there will be an enormous difference in the per unit cost. We are doing energy audits in Surat and two other clusters. We will conduct demonstrations thereafter, because it is important for people to see solutions on the ground. We have got a small amount of $4 million from the GEF for putting up five to ten demonstration units in each cluster and then aggregating the demand. For the power loom owner, it will again be a pay as you save model. We will replace the loom while he makes repayment over a two to three-year period.</p> <p> <span style="font-weight: bold;">- Pratap Padode &amp; Manish Pant</span></p> <p> <span style="font-weight: bold;">EESL - Areas of activity</span><br /> UJALA scheme-LED lighting and fans<br /> LED street lights<br /> Buildings Programme<br /> Electricity meters<br /> Cooling systems<br /> e-vehicle procurement <br /> Solar panels<span style="font-weight: bold;"><br /> </span></p> <p><span style="font-weight: bold;">Future Plans</span><br /> Agriculture pump sets<br /> Power looms (Textile Sector) <br /> </p>
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