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The World Scenario

It is increasingly evident that the growth in demand will place stress on the physical resources of the world, creating energy shortages as well as environmental problems. Exclusive dependence on imported energy supplies would aggravate the risks posed by disruptions and heightens energy security as a major issue to be addressed through alternatives such as energy efficiency and renewable energy. Benefits from renewable energy initiatives accrue in the long term whereas energy efficiency programs can produce substantial gains in the short to medium term itself.

Several studies by the World Bank and bilateral agencies such as USAID, GTZ and DFID have indicated that the same level of service can be provided by alternate means requiring considerably less energy. Moreover, electricity shortages are endemic in the country. End-use electricity efficiency improvement through DSM measures offers the least expensive way to reduce these electricity shortages. The major areas where efficiency in energy use can make a substantial impact are mining, electricity generation, electricity transmission, electricity distribution, pumping water, industrial production, transport equipment, mass transport, building design, construction, heating ventilation & air conditioning, lighting and household appliances.

The World Bank supported a pilot effort to promote energy efficiency in three industry "clusters"—areas where like industries are located—through the 3 Country Energy Efficiency project. The three industries were steel re-rolling, pulp and paper, and glass. The pilot project identified potential projects and developed financing products to implement the efficiency investments in each cluster. The idea was to try to replicate a large number of basically identical projects throughout the cluster. Projects tended to be small, US$100,000 or less, an amount that could discourage some companies from spending the time and effort to get a loan. However, the actual energy savings realized in each case was high.

Energy supply in the World

Largely, people across the world derive their energy needs by way of consumption of traditional/ fossils fuels like coal, crude oil, gas, nuclear etc. Off-late, due to scarcity of resources, nations are looking at alternative sources of energy like hydro, solar etc. but still a lot needs to be done before we can get over our reliance on the conventional sources of energy to meet our total energy requirements. Nevertheless, energy will continue to be a scarce and measures are needed to conserve it.

Market driven approach for sustainable results:

The challenge now in India is to foster the demand and growth of the energy efficiency business and services through the introduction of tailored, market driven approaches and thus build on the excellent base established by the Government of India over the past three decades.

The energy consumption pattern can also be seen in the light of the share of each of the prime sources of energy i.e. thermal, nuclear, hydro and others.

If one looks at the way energy generation is divided geographically, large discrepancies are highlighted since some places are having the conventional sources of energy in abundance while on the other hand, rest are dependent on others even to meet the most basic of their energy requirements.

Nevertheless, if we have to arrive at a logical conclusion, we have to look at the creeping demand/ supply gap persisting in the world and then we can look at finding for measures to overcome the same.

Energy consumption in India

Indian industries pay some of the highest energy costs in the world. Many use expensive backup diesel generators because the supply of power from the grid is unreliable and of poor quality (fluctuation). Aggregate demand for energy is expected to more than triple in the next two decades, much of it met by plants powered by poor-quality local coal.

India's potential energy efficiency market is estimated at more than US $3.1 billion. "There's a huge unrealized potential for energy efficiency, despite the direct financial incentives for making these investments," says Jeremy Levin, a co-author of Financing Energy Efficiency. But unlike Chinese industry, with its "mega-sized industrial units", India's industrial structure has a larger number of small and medium enterprises (SMEs)—some 3 million which contribute 60 percent of the country's GDP. Reaching these numerous decision-makers and implementing energy efficiency projects is a very different proposition in India than China, says Levin.

Pilot Effort in 3 Industries

The World Bank supported a pilot effort to promote energy efficiency in three industry "clusters"—areas where like industries are located—through the 3 Country Energy Efficiency project. The three industries were steel re-rolling, pulp and paper, and glass. The pilot project identified potential projects and developed financing products to implement the efficiency investments in each cluster. The idea was to try to replicate a large number of basically identical projects throughout the cluster. Projects tended to be small, US$100,000 or less, an amount that could discourage some companies from spending the time and effort to get a loan. However, the actual energy savings realized in each case was high.

"There still needs to be intense technical work to unlock and move this market," says Levin, including seeking out "local champions" to help garner support for energy efficiency among associations, chambers of commerce, state nodal agencies and other organizations in the clusters. "We want to ramp up the effort in many more clusters to do significant levels of pipeline development and project identification work, linked with locally available financial products.

" India's sophisticated financial sector is eager to try energy efficiency lending as a new kind of product to market to SMEs. As part of the Three Country Energy Efficiency Project, five local banks¹ have developed and launched special lending schemes for SMEs that are seeking loans for energy efficiency investments. The World Bank is backing the Bureau of Energy Efficiency's efforts to support increased lending to SMEs through development of a new Global Environment Facility project to scale up previous success in reaching the SME market.

Energy Efficiency Potential in India

1. The Industrial Sector consumes about half of the total commercial energy available in India, 70 % of which is in energy-intensive sectors - fertilizers, aluminium, textiles, cement, iron and steel, and paper - 15-25% of this is avoidable.

2. 5 - 10% energy saving is possible simply by better housekeeping measures

3. Another 10-15% is possible with small investment like low cost retrofits, use of energy efficient devices and controls etc. (TERI. 1996, Bhattacharjee, S.2000)

4. The quantum of saving is much higher if high cost measures are included (major retrofit, process modifications etc.)

5. Industry and transport sectors have the highest potential for energy savings.use of energy efficient devices and controls etc. (TERI. 1996, Bhattacharjee, S.2000)

6.The quantum of saving is much higher if high cost measures are included (major retrofit, process modifications etc.)

7. Industry and transport sectors have the highest potential for energy savings.

Barriers to Energy Efficiency Improvement:

There has been a great interest in energy efficiency improvement since the first oil price shock in the early seventies, and recently interest has heightened further because of the global warming effects of high energy use. This three decade long experience in implementing energy efficiency projects in the OECD countries has provided substantial documentation of both the economic and the environmental benefits of adopting energy efficiency improvement measures. Yet, even in these developed economies, there remain a number of barriers to more widespread application of energy efficiency measures. Those associated with energy efficiency related work in India will identify similar barriers here. These include:

1. Customer inertia: Many facility owners and managers realize that opportunities to save energy and lower costs may exist, but they never move forward with them. Others do not perceive the need, or feel a sense of urgency, to implement energy efficiency measures. It is a low priority compared with other mission objectives.

2. Lack of technical resources: Managers often lack detailed energy consumption information about their facilities to help them understand their own energy and infrastructure needs as well as to identify and implement more beneficial energy savings choices. They also may lack the analytical tools to determine whether their facility is a good candidate for an energy efficiency retrofit and the technical expertise to implement a retrofit using existing staff.

3. Absence of focus: Energy efficiency is not a core functional area. Many organizations have competent and knowledgeable technical staff that can successfully implement energy efficiency improvement programmes. However, their core functions and responsibilities are quite different: maintenance, or production. Given this emphasis they do not have the time or other resources necessary to successfully develop and implement energy efficiency improvement projects.

4. Poor understanding of project synergies: Most facility owners and managers are not aware that comprehensive energy efficiency projects can meet multiple objectives. Energy efficiency retrofits not only decrease energy use and costs; but they also improve the facility infrastructure, lower operating and maintenance costs, reduce environmental impacts and improve comfort levels. In many instances energy efficiency helps a facility owner to improve its competitiveness by lowering operating costs.

5. Capital Constraints and Unattractive Hurdle Rates: Often, facility owners are leery of taking on long-term debt. Because of this, they are unwilling to undertake energy efficiency projects even though the debt required to finance the projects would be paid out of the energy savings. Additionally, many facilities, particularly in the commercial and industrial sectors, expect a higher rate of return on capital invested in energy efficiency projects than that of projects undertaken as a part of the facility’s core mission. In many cases this means an energy efficiency project will be rejected outright, though the financial returns on the investments are similar.

6. CEOs & CFOs are not interested in Energy Efficiency Improvement: Perhaps the greatest barrier to energy efficiency improvement in India is that this is still considered to be the engineer’s domain, and CEOs and CFOs are not yet aware of the potential that energy efficiency improvement has to improve the profitability of their companies.A study in the late 1990s showed that the average energy cost of companies listed on the Bombay Stock Exchange was 5% on sales; the average profit before tax of these companies was also about 5% on sales! It is possible to reduce energy costs by 25% or more through concerted efforts. This translates as a 25% (or greater) improvement in the profit before tax without assuming market and financial risks associated with introduction of new products or attempting to increase market share.

The Indian cement industry, where CEOs have been interested in energy efficiency because of business reasons, in 20 years has transformed from being one of the world’s most inefficient cement businesses, to one where international benchmarks are Indian companies.

Energy audits may draw the attention of management to areas that might qualify for improvement and investment, but they do not ensure (for reasons mentioned above) that measures are actually implemented to save energy. Some solution other than in-house development and implementation of projects is necessary if the Indian economy is to become energy efficient. (Presently the energy intensity of the Indian economy is about 50% more than the world average, and India being a large energy user in absolute terms, contributes significantly to the world average.) One answer is an ESCo.

There is an urgent need to accelerate the pace and direction of energy efficiency in India through a comprehensive approach that establishes and promotes a national energy conservation ethic while maximizing the participation of the private sector in the implementation of energy efficiency activities.

The importance of energy efficiency and Demand Side Management (DSM) has clearly emerged from the various supply scenarios projected by the Planning Commission, Govt. of India (GoI) and is underlined by the current hardening of oil prices. It is increasingly evident that the growth in demand will place stress on the physical resources of the country, creating energy shortages as well as environmental problems. Exclusive dependence on imported energy supplies would aggravate the risks posed by disruptions and heightens energy security as a major issue to be addressed through alternatives such as energy efficiency and renewable energy. Benefits from renewable energy initiatives accrue in the long term whereas energy efficiency programs can produce substantial gains in the short to medium term itself.