Energy Efficient Technology Adoption in MSMEs: Lessons learned from India on Financing Industrial Energy Efficiency

Conference on ‘Stimulating Industrial Competitiveness through

Energy Efficiency and Innovation in the SADC Region’

By

Debajit Das

(National Project Coordinator)

d.das@unido.org

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MSME ENERGY

OUTLOOK

There are 19.6 Million in Manufacturing Manufacturing MSMEs in India (Annual Report MSME 2017-2018)

Estimated MSME energy consumption would be somewhere around 90 MToE

Energy Share of Production Cost ranges from 12-50% and Saving potential stands 15 to 25%. Profitability bottom-line impacted from 7.5 to 30%

India’s MSME energy efficiency market has an investment potential of USD 1722 Million. (International Association of Engineering and Management Education (IAEME))

Past intervention reaches only to mere 0.1 million industries. UNIDO’s three prong approach

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Strengths:

• Creates large scale employment:

• Wider market place due to exposure to digital platforms

• Encourages Inclusive Growth:

• Affordable Labor and minimum overhead:

• Spread across the county

Weakness

• 400 major MSME clusters are characterized as energy intensive

• Many units uses outdated technology

• Lack of knowledge and skilled manpower

• Lack of access to new technologies

• Challenge to access affordable finance

• No appreciation of energy efficiency

Opportunities:

• Significant potential for becoming energy efficient and cost competitive

• Potential for technology upgradation

• Simple Management Structure for Enterprises

• Plays an important role in making “Make in India” possible

Threats:

• Lack of energy management standards

• Units using older technology lacks to competency

• Lack of support from Banks and Financial Institutes

• Scarcity of skilled manpower to run new technologies

SWOT Analysis

Source: Adopted from BEE MSME Summit presentation, 2017

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2 Crore MSMEs Consuming 90 MToE

Past and present intervention has tried to touch around 55,000

MSMEs

Potential of Energy saving is at least 9 MToE

• Long term hand-holding

• Financial and technical risk mitigation

• Robust and sustainable support mechanism

MSME Energy Efficiency Status

What is Required?

150 million LED Bulbs distributed within 18 months

INDIA’s Biggest EE Success Story : LED Programme

LED Programme (UJALA) : India Success Story

No of LED lights to

be replaced by March

2019: 770 million

Expected annual

energy savings: 105

billion kWh

Expected reduction

of installed load:

20,000 MW

Estimated capital

investment

(excluding O&M):

1.23 billion USD

Annual estimated

GHG emission

reductions: 79 million

tonnes of CO2

Demand Aggregation

Large Scale Procurement

Consumer Outreach Program

Distribution

Warranty

2 to10 (9 W) LEDs given at price $

1.2 to 1.3 reduced to $ 0.8

Payment upfront or through easy

instalment for 8-10 months

Distribution points near to

consumers

Awareness about the benefits

Free replacements for 3 years

against defects

Success Factors

Major Attributes in Indian LED Model

Market Transformation Approach for MSMEs

MSME Units

ESCO

Upscaling

Media

News articles

Workshops

Training programs

Bulk procurement

Economic of Scale

Implementation and

vendor

management

Pay as you save

Payment security BG or others (mutually decided)

Energy Audit of Cluster represented units

Survey of MSME units in the cluster

Unit selected for DEMO

Sharing of

DEMO results

Technology identification

Brain storming with Experts

Technology Selection

Spec finalization

Innovative Industrial Energy Financing Model

Project Cost

Goods & Services

Max 80% Support (Rs. 12 lakh)

Project Admin Charge (0.9 Lakhs)

9% interest 0.027 lakhs

MSME Contribution

(20% = 3 lakhs)

Project Period = 2 Years

Quarterly Instalments1.61 Lakhs x

8 = 12.9 Lakhs

AB

Additional Monetary saving

(0.772 Lakhs per

instalment)

• PAYMENT SECURITY

• ESCROW ACCOUNT

• BG

Energy Saving(Rs. 11 Lakhs per

year)

Repayment

Investment

MSME Contribution

(0.378 Lakhs per

instalment)

Rs 16.17 Lakhs

Less capital cost1

Tax/GST benefit2

AMC for 2 to3 yrs3

Less paper work4

Online monitoring your project5

Innovative financial

model

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ESCO is a long-term contract, that’s why it is highly affected by “Enforcement of Contracts and Ease of Doing Business ”.

Congenial Policy Environment

Strong ESCO Association

A shift from Shared savings to Guaranteed Savings Contracts

Holistic Approach taking care of complete ESCO business cycle (not only empanelment & financing)

Effective ESCO Models

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Lessons Learnt

Providing Access to ESCOs to serve MSME clusters to improve ticket

size (business):

Financing to MSME units instead of ESCOs

A shift from EE Technologies to Aggregation to Basket of specific EE

Technologies for Specific Clusters (first demand generation and then

aggregation)

MSME works on “Seeing is believing” and replicates very fast if its

really working for them

Holistic Approach is required to care of complete supply chain

ESCOs to position themselves as technology up-gradation agency to

specific clusters than merely addressing energy cost

Integrated approach with resource efficiency makes more sense to

industries

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Thank You

Debajit DasNational Project CoordinatorUnited Nations Industrial Development OrganisationPromoting Market Transformation for Energy Efficiency in MSMEs------------------------------------------------------------------------------------55 Lodhi Estate, New Delhi 110003