Why the country is expanding energy efficiency investment?

Global demand for energy continues to rise, led by developing countries such as India and China, which indicates an expanding global economy.  In was in this connection that India signed a $250 million loan deal with the Asian Development Bank (ADB) on December 16, 2019.

The $250-million loan to Energy Efficiency Services Limited (EESL) to expand energy efficiency investments in India will benefit agricultural, residential and institutional consumers. In addition, $46 million financing will be provided from the Clean Technology Fund (CTF), to be administered by ADB.

ADB previously approved a $200 million loan to EESL, a public sector energy service company, in 2016 for Demand Side Energy Efficiency Sector Project that focused on efficient lighting and appliances. The signatories to the loan agreement were Sameer Kumar Khare, Additional Secretary (Fund Bank and ADB), Department of Economic Affairs in India’s Ministry of Finance, and Kenichi Yokoyama, Country Director of ADB’s India Resident Mission, signed the agreement for EESL.

Khare said after the loan signing that the project is expected to contribute to the mission of Government of India to promote energy efficiency and meet Government’s commitments to reduce energy intensity of the economy. Further elaborating on the issue, he said, introduction of energy-efficient technologies in eligible states including smart meters, distributed solar photovoltaic systems and electric vehicles will help reduce electricity network losses and reduce greenhouse gas emissions.

Talking about the deal, Yokoyama said that this is one of the few ADB projects specially focused on demand-side energy efficiency targeting upstream efficiency opportunities and business models that can be scaled up in India and other ADB developing member countries. The project’s smart metering component will help address billing and collection inefficiencies. EESL will also explore business models to generate greater public demand for e-vehicles to support India’s current push for electric vehicles.

Promoting awareness of the benefits of using energy efficient technologies is another feature of the project. Awareness campaigns will engage local organizations in knowledge-sharing and training, with a focus on women electricity consumers. Capacity building for electricity distribution, regulatory agencies, and other government bodies will also be carried out.

Accompanying the loan will be a technical assistance (TA) of $2 million to support EESL in implementing the project, including a gender action plan, mobilizing private sector participation in energy efficiency services, identifying new business opportunities, and transferring knowledge about successful models.

The TA will also support the identification and development of new subprojects and pilot test some technologies. The grant comes from the Clean Technology Fund, to be administered by ADB. The ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. In 2018, it made commitments of new loans and grants amounting to $21.6 billion. Established in 1966, it is owned by 68 members — 49 from the region.

How a silent revolution is sweeping India could be understood from the Government’s UJALA (Unnat Jyoti by Affordable Lighting for All) scheme that cut LED bulb prices to 38 a piece from around 310 in 2014. This gave India’s efforts to cut energy use a shot in the arm, and helped dissipate doubts over the country’s ability to run the world’s largest energy efficiency programmes.

The federal think tank NITI Aayog’s draft national energy policy that focuses on decarbonization through energy efficiency and renewable energy observed “Energy efficiency, which entails using less energy for the same service, is an important element in energy policy. For example, the recent campaign by the government to replace regular bulbs by LED bulbs has the potential to cut energy load by 20 Giga Watt and save nearly 100 billion Kilowatt hour worth of energy each year”. 

The Energy Efficiency Services Ltd (EESL), a government-owned energy services company has been offering large procurement contracts such as those for LEDs in the energy sector, enabling businesses to leverage scale and achieve economy to bring down prices. India’s energy efficiency market is estimated at $23 billion (around 1.5 trillion) with a vast potential to grow.

Climate change

India is now the biggest emitter of greenhouse gases after the US and China, and is among countries most vulnerable to climate change. India plans to reduce its carbon footprint by 33-35 per cent from its 2005 levels by 2030, as part of its commitments to the United Nations Framework Convention on Climate Change adopted by 195 countries in Paris in 2015. However, the road hasn’t been easy. Apart from technological risk aversion, energy efficiency measures also faced financing challenges, impeding any large-scale intervention.

This was primarily driven by the government’s target of 38 per cent share of renewables in its energy mix by 2020. The perform, achieve and trade (PAT) programme, a market-based energy efficiency trading mechanism for moving towards cleaner cooking fuels has been set in motion. Other measures in the works include redefining India’s mobility architecture through EVs, improving energy efficiency of electrical appliances, motors, agricultural pumps and tractors, and even buildings.

A growing market

A Energy and Resources Institute (TERI) conducted a study and according to its report titled Transitions in Indian Electricity Sector, “A competitive power market is evolving and there is increased focus on access, efficiency, quality, and affordability of supply and on decarbonizing the sector.” This, in turn, is throwing up different business models which are bound to disrupt the conventional energy landscape.

The thermal power sector emissions are significant in India. Of the installed power generation capacity of 334,399.83 megawatts, 58 per cent is fuelled by coal. According to Centre for Science and Environment, of the total emissions from the industrial sector, the power sector alone contributes 60 per cent of the PM (particulate matter), 45 per cent of sulphur dioxide, 30 per cent of nitrogen oxides and 80 per cent of mercury emissions. 

Early favourable signs are there. With an investment of $4.07 billion, the first phase of the PAT programme resulted in $1.46 billion savings. This comes at a time when the Rs16,320 crore Pradhan Mantri Sahaj Bijli Har Ghar Yojana (Saubhagya) launched last year will provide the architecture through which the government seeks to reduce import of fossil fuels, promote induction cooking and heating, and charging EVs, apart from the initial target of providing lighting.

Given the impediments, NITI Aayog has pitched for an “overarching energy efficiency policy”, along with making energy efficiency as a priority-lending sector for banks and financial institutions. Also, it has underlined the importance of enforcement of the existing codes as the key to the success of India’s energy services companies model. Though India is leading from the front to usher in new investment in energy efficiency, still the ambitious target of 175GW of clean energy capacity by March 2022 seems a tall order, given that most states are yet to align their renewable purchase obligation trajectory with that of the Centre.