Arjun Gupta, Founder/CEO, Smart Joules, & Executive Council Member, AEEE, shares his views on what mechanisms are needed to make the ESCO industry more robust and profitable

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Arjun Gupta, social entrepreneur, wears many hats. Apart from essaying his role as Founder and CEO of Smart Joules, which is an ESCO, he is also on the Executive Council of AEEE. At Smart Joules, Arjun focusses on eliminating energy waste in India’s buildings and factories. In 2014, Arjun was recognised by a panel of India’s top CEOs as the Economic Times Young Leader. He has been invited to a special interaction in August with the Hon’ble Prime Minister of India on the topic of “Champions of Change: Transforming India through G2B Partnerships.” Here, he shares his views on what mechanisms are needed to make the ESCO industry more robust and profitable.

Cap on Grid Electricity Availability for Large Businesses: Electricity availability from electric utilities to large business consumers (such as those with more than 1MW connected load), should be capped at 90% of their historical consumption. This will force them to waste less energy and/or opt for renewable energy, making more energy available for those who face frequent power cuts. This will automatically drive demand for ESCO services.

GST Revision: Services provided under ESCO projects are currently taxed at 18% GST. Therefore, a substantial portion of the value of energy savings goes to the government instead of to ESCOs or their beneficiaries. This additional financial burden on ESCO projects should be removed.

Government Sector Projects for Private ESCOs: Most issues limiting the growth of ESCOs can be traced to the lack of a bundle of ESCO projects. These issues include the ability of ESCOs to raise equity funding (due to lack of strong project pipelines), debt funding (one-off projects are not worth debt funders’ time and attention), and to attract top talent to the ESCO industry since the overall volume of business is low. Since projects are hard to come by, ESCOs and their financiers quickly lose enthusiasm for the sector. Other countries (such as the United States of America) sustain a bulk of their ESCO industry on government efficiency improvement projects. India can learn from their experience. Two concrete steps can be taken to immediately address this issue:

  • Open up 100 central government buildings to the private sector for comprehensive energy efficiency retrofits along the lines of EESL’s current efforts with CPWD buildings. To maximize chances of success, BEE should ensure that inputs from private sector ESCOs are taken into consideration before tenders are floated.
  • Encourage key state governments (such as AP, Delhi, Rajasthan, Maharashtra, Karnataka and Tamil Nadu) to follow the central government’s lead in project bundling. Reportedly, more than 400 state government buildings have already gone through investment grade energy audits through State Designated Agencies. This would be a great place to start and show results quickly.

Sector-based Project Bundling: Time-bound and sector-focussed (hospitals, hotels, IT parks, airports, schools and universities, etc.) building energy efficiency retrofit programs should be initiated. As part of such programs, financial incentives such as capex subsidies, GST holidays on energy services, or others should be given to ESCOs based on actual energy savings achieved and verified by independent third-parties (such as EESL, TERI or PCRA). For instance, a national program could give hospital/hotel buildings with 500 kVA+ connected loads a time period of up to 60-days to sign contracts with ESCOs to upgrade their facilities, and release financial support as and when the projects achieve min. 10% savings.

Financial Incentives for BEE Star Rated Buildings: BEE’s star rating program for buildings has not had any impact. Numerous building owners we have interacted with, including our existing customers who are otherwise committed to improving energy efficiency, have not shown any interest in the program since it is not associated with any financial benefits and is in fact, a net cost owing to the application fee. There should be some financial incentive, even if only for a few years, to encourage more buildings to participate in the program. Such a financial incentive would encourage building owners to improve their efficiency through ESCO contracts.

Remove Inactive ESCOs from BEE List: Though it was meant to support the ESCO market, BEE’s ESCO Grading mechanism only creates artificial barriers (in terms of tender requirements) and imposes undue costs on ESCOs. We have seen absolutely no advantage from securing a Grade-3 ESCO rating, and none of our customers or prospective customers has ever asked us about our empanelment with BEE.

Facilitation of Project Presentations and Site Visits: Periodic visits should be organized to project sites where ESCO projects have been implemented and are being serviced. These would be good for financiers, end users, energy efficiency professionals and other ESCOs.