Time For Energy Efficiency Has Come: EESL CEO Vishal Kapoor

Under the recently unveiled government initiative, PM Surya Ghar: Muft Bijli Yojana, introduced by Prime Minister Narendra Modi last week, up to one crore beneficiaries will now receive up to 300 units of complimentary electricity per month through rooftop solar installations. The project would have an investment of over Rs 75,000 crore. 

Among the eight central public sector undertakings (CPSUs) appointed to implement the scheme, one is the Energy Efficiency Services Limited (EESL). “There is so much space available on Indian roofs that the solar rooftops have to be installed as a measure of supply-side interventions for mitigating climate change,” said Vishal Kapoor, chief executive officer of EESL. “Now, with the increase in subsidies, I think the case for ownership of solar rooftops has just become very good.” 

Started in 2009, EESL has grown into an almost Rs 2,400-crore turnover company in 14 years. The joint venture company of four CPSUs was set up to push ground-based interventions for energy efficiency. “The government makes the policies along with the Bureau of Energy Efficiency (BEE), and EESL per se is the central government arm to usher in the ground-based interventions of energy efficiency,” Kapoor said. 

Although the company has primarily focused on the institutional sector, such as aiding distribution companies in distributing LED lamps in retail spaces or advocating for smart meter implementation, now they are making interventions in the retail space, “recognising that the best bang for the buck for greenhouse gas (GHG) emission reduction per unit of investment lies in the retail and domestic space along with the industry,” Kapoor said. 

Kapoor said that renewables pertain to the supply side, whereas energy efficiency concerns the demand side of the equation. “We have seen a lot of work on renewables on the supply side, but energy efficiency is the demand side of things. What energy efficiency does is reduce the demand itself,” he said. Kapoor said that while there are numerous challenges in promoting energy efficiency, the domestic sector remains largely untapped. This is because consumers prefer to buy products that are cheaper in most cases over energy-efficient appliances. What EESL does is create value out of demand aggregation by reducing the prices.

For The Core Report: Weekend Edition, Kapoor spoke to financial journalist Govindraj Ethiraj about what EESL does, what they are working on now, and the challenges with energy efficiency. 

Edited excerpts: 

Tell me about Energy Efficiency Services Limited (EESL). What does it do, why was it set up and what are its broad mandates? 

We are relatively a new company. We were set up in 2009…in a short span of time. We were set up with a mandate to usher in energy efficiency interventions on the ground. The government makes the policies along with the Bureau of Energy Efficiency (BEE), and EESL per se is the central government arm to usher in the ground-based interventions of energy efficiency. So over a short period of time, 14 years, we have grown from a zero to almost Rs 2400 crore annual turnover company. 

We have been doing a significant job in ushering in energy efficiency, especially in terms of ground-based interventions like solar, which is distributed, then smart metering, street lights, and the major programme of LED lamps. We socialised the LED lamps to such an extent that now it's a household item. As opposed to in 2014, it used to be an item, which was a luxury item. So all these interventions we have made. 

Okay, two broad questions first, or let me try and bring that into one between institutional interventions and retail interventions. So what you described just now, for example, LED and smart metering are more retail and institutional. Where does EESL spend most of its time and energy? 

So I would not say we have done much in retail, except the LED lamps. It was not exactly retail, but we have predominantly been institutional. And we helped the discoms socialise the LED lamps in the retail space, by aggregating demand, reducing the prices, and using discoms and other DA agencies as vehicles to proliferate it amongst the common people. 

Otherwise, all the interventions, let's say about streetlights, which is one of our biggest programmes, or distributed solar, again, the counterparties are discoms; in streetlights, it's the municipalities, or let's say, even in smart metering, when we got into it, the counterparties are actually discoms, even though the smart metres are provided at the end of the consumer. So we work predominantly in the institutional space.
 
And now we are actually making interventions in the retail space, recognizing that the best bang for the buck for greenhouse gas (GHG) emission reduction per unit of investment lies in the retail and domestic space along with the industry. So these are two sectors. So we believe that there is a lot to be done in the retail space. And that is why we have been working to expand our business in the retail space to provide both public and shareholder value

And I'll come to the business or the revenue side of it in a moment. I think you've defined your strategy by saying that greenhouse gas emissions are best addressed by a greater focus on retail as opposed to anything else. But can you build on that a little bit and how that's playing out as a strategy, not necessarily on the ground? 

Okay. So it said that almost 40% to 45% of the climate mitigation efforts are going to come from energy efficiency, which is basically the demand side of the equation. We have seen a lot of work on renewables on the supply side, but energy efficiency is the demand side of things. What energy efficiency does is reduce the demand itself. And then that demand is reduced, that has to be provided through renewable. So these are two sides of the coin. We have to work in tandem with the supply side. Now, there are several challenges in energy efficiency. 

Number one, because energy efficiency traditionally lies in every single house, and every single industry, it is very disaggregated. The ticket size, if I look at a home, will be very low. It'll be disaggregated. So as a project, dealing with energy efficiency is very difficult. Secondly, it doesn't get saliency because of the simple fact that the projects are completely spread out, it is very difficult to aggregate them. The finances don't come into the picture very easily because it's very easy to get financed for, let's say, a Rs 200, 300, 400 crore project. But the disaggregated energy efficiency, it's a challenge. 

Then it operates on the cost side of the equation. In the normal course, when you put in investments, you get the leverage on the revenue side, whereas here, if you put in some investment, that is the cost side, you will get a cost saving and not on the revenue side. So basically, it's not very salient. 

Building on the 40% to 45% opportunity that I mentioned, I believe that there are estimates that say that the best bang for the buck in various sectors lies only in two major sectors today. One is domestic and the other one is industry. Now, on the industry side of things, I think the big industries, normally are very conscious about that because energy efficiency is basically cost efficiency. So they do make their investments on the cost side and derive benefits, reducing their costs. So it's a no-brainer. So it is the MSMEs where the challenge lies because the investments become a problem in MSMEs. 

But the most untouched space, I believe, is the domestic segment, for a simple reason. And I'll just give you an example. I mean, take the example of a humble fan. A fan will cost you about Rs 1,000 and a conventional fan consumes 78 watts. Now, there are fans available in the market for Rs 2,000 plus, which consume only 28 watts. And now what does a consumer do? He will go into the market, he'll buy a cheaper fan, which is Rs 1,000. But the way the fans are, and we know, I mean, we don't change fans every day. The consumer who's buying a conventional fan today, we are losing that consumer for the next 7-10 years minimum. 

The same is the case with air conditioners, for example. We are an aspirational society. Our income levels are rising. And people, as and when they reach that level where they can afford air conditioners, would like to go in for a comfort solution, air conditioning comfort solution, at a cheaper price. So that's why a five-star AC, which is expensive, it'll not be bought. And in case if you buy an unstarred or a lower-star AC, you're losing that consumer for the next seven years. So we identify ourselves as a company or an institution with the government mandate to reduce energy consumption. And we believe that there is a lot of scope, especially in the domestic sector, to reduce. Now, how do you do that? There are various strategies that we are working on, but long and short of it, I believe that in the domestic sector today, the maximum latent potential lies there. 

Right. And since you mentioned the star system, could you broadly tell us, that a lot of our listeners may not be in India, for example, they may not know what it means. I too have been a fan of the star system buying five stars. But the thing that I've not done is try and compute it backward and say, okay, if I were to buy a four-star instead of a five-star air conditioner, what is the real saving I could get? So in my case, I think it's the appeal that's working more than the actual savings that I'm computing. 

Yes, and that's a very valid point because basically star rating is determined by the Bureau of Energy Efficiency, which comes out with a few appliance ratings in terms of energy efficiency — the five-star is the maximum efficient rating and the three-star is the lower one. And as the stars reduce, basically they are more energy guzzlers. So obviously, because the technology is higher in the five-star, and as the stars increase, the cost also definitely goes up.

Now, the whole issue is about the total cost of ownership. If you're buying a three-star AC, it may cost less initially, but it'll guzzle electricity more. If you buy a five-star AC, then the upfront cost will be more, but the energy efficiency will be high and your operational costs will be low. So in our experience, the highest of the five-star ACs today, as compared to the three-star conventional ACs of, let's say, 2018, and 2019 vintage, will be able to save almost 30% of the energy. And if you do the calculations of incremental upfront costs and try and analyse it on the total cost of ownership basis, I think the additional cost of a five-star, good five-star AC, you can recover that cost in the next two, two and a half years on the maximum side. 

The more you use the AC, like, for example, ATMs, they use ACs 24 hours. I believe that if five-star, or even super-efficient ACs, even much beyond five-star, which probably may not be in the market and on which we are working are done, the payback time will be less than a year, year and a half. Basically, the concept is the total cost of ownership. The issue is that when we, as consumers, go out and buy any kind of equipment, we only generally look at the price. 

And the other thing is the social norm that you said. I mean, there are two ways. Either you use a price as a point, or the other thing is basically a social norm, or kind of something that makes you feel proud that, yes, you are a good energy efficient, energy-less, energy-consuming consumer. So these are the two aspects. The second aspect, as you said, is very little. It requires knowledge and understanding. And not everyone is from this field, the power side or appliances side. The real thing is the total cost of ownership. And this is what we need to socialise amongst the people. 

If you were to look at all the strategies that have played out in either street lights or the entire LED programme, which was perhaps the world's largest of its kind, as it was rolling out, and I'm sure still is, what do you think if you were to look at the lessons? In many of these cases, you're providing some kind of subsidy to, in a way, tempt people to do something that's right for them. Now, this is fairly standard, I'm assuming, when it comes to social or economic policy, but what is your learning from this world as we've kept rolling out? 

Well, I would say that we have never worked on government subsidies, so we always work on demand aggregation and creating value out of demand aggregation, reducing the prices. So that has been the model predominantly, let's say even in street lights or even in LED lamps. There was no element of subsidy and that was the engineering done by EESL that demand aggregation as you do, you give a visibility of demand to the market for products that are not very much available or are not being manufactured. Then the industry responds with this basic supply-demand economics. So this is what we have done so far. 

Predominantly, there have been a few programmes that have been government programmes that we have implemented, but they have been at a lower scale. So even in terms of electric mobility, if you see electric mobility is something that our EESL germinated in India in 2018. There were no electric cars in India then and we put out a demand for a bid for 10,000 electric cars and the industry responded within a period of six to nine months. They came out with their vehicles. So, energy-efficient equipment does not make much financial sense. They do make a lot of economic sense. 

Our role has been to try and bridge this gap between the financial as well as the economic viability by reducing the cost of ownership and trying to tell people that, yes, number one, we are trying to reduce the original cost of acquisition. And the other thing is that this is going to give you savings. So this is a double mechanism, to reduce the cost of ownership and at the same time ensure that the savings further… can tell you that, yes, you can save money by being more efficient. 

And tell us about rooftop solar. How does it fit into this chain? 

Well, yes, I think this is a very exciting development. The government has recently increased the subsidies to the extent of Rs 30,000 per kilowatt (kW) to 2 kW, Rs 18,000 for the third kW. I think rooftop solar in India has been predominantly institutional. There have been pockets of residential adoption as well, but the total capacity that has been added is 11 to 12 gigawatts. I believe that there is so much space available on Indian roofs that solar rooftops have to be installed as a measure of supply-side interventions for mitigating climate change. Now, with the increase in subsidies, I think the case for ownership of solar rooftops has just become very good. 

Because let's say even if we go in for a 1 kW solar rooftop, I believe if we get about subsidies of Rs 30,000, I think the project can be done for Rs 20,000 per consumer. And now to add to it, the government has come out with a statement that concessional financing will be provided. If you can achieve concessional financing to the extent of maybe around 8% or even lesser, or around, then it will become very easy for every consumer to own a solar rooftop. So we are very excited and we are looking at ways and means. 

We are in talks with several providers. We want to be a part of this and we do not want to implement it. We do not want to compete with anybody, but we want to be facilitators in reducing costs. We are looking at mechanisms to standardise this kind of solar rooftop system so that it can be easily installed by anyone. We imagine that even a person who can install a Dish TV on your roof should be able to go and just install it. Because today there are about 5,000 EPC (engineering, procurement, and construction) players available. And if we can increase this base, if we can provide the standardised equipment which just can be rolled out on the roof easily, I think this will make a lot of difference. 

And if we do it at scale we reduce the demand and we are people who have the maximum distributed solar experience, at least on the feeder level. And we believe we have that acumen to understand, and we understand the market also. And we have the acumen to be able to reduce prices without compromising on quality. And we will be able to convince the consumers that, yes, if the product is coming from this company, the product will be good. 

Right now there is a lot of confusion amongst consumers as to which product they should go to. So we believe that we will be able to advertise, we'll be able to make partnerships with various EPC players and allow them to create new ones, also give them opportunities to go to market and install more and more solar rooftops. 

I believe that there is so much space available on Indian roofs that solar rooftops have to be installed as a measure of supply-side interventions for mitigating climate change. Now, with the increase in subsidies, I think the case for ownership of solar rooftops has just become very good.

We don't call them projects, they're appliances. We have restructured our company in a way that we have created a completely different dedicated appliances division recently which will only deal with appliances. The new appliances that we are looking at are induction cookstoves. Because again, induction cook stoves are almost 20-25% more efficient than conventional cooking methods. So induction cook stove, it's a relatively cheap item and we are aggregating demand. We have recently carried out two bids. 

When you say conventional, do you mean wood fired or do you mean gas? 

I think wood-fired is too inefficient. But I'm just comparing it with the gas stoves also. I mean, induction cooking is definitely much more convenient as well as efficient as compared to gas stoves. 

That's running right now. The other thing that we are looking at is fans. So fans industry, and I'll give you some numbers here. About four crore fans market exists every year out of which we believe our estimates suggest that energy-efficient five-star fans are only twelve lakh. Now four crore are sold. Twelve lakh only the BLDC energy efficient fans. 

And if we can increase this, then increase the uptake of this through institutional purchases as well as retail purchases, by driving down costs… I think that's one big thing we are looking at. And we have recently come out with a 20 lakh bid. Now the current annual market for BLDC (brushless direct current fans) is twelve lakh and we have taken out a bid for 20 lakhs. So this we believe will be a very good intervention. We are seeing a lot of traction from various state-designated agencies and various institutions, both private as well as government. And we believe that this will definitely usher in a major revolution.

Super efficient air conditioners and subsequently five-star air conditioners. I think again, these are two items where we'll be very, very bullish.  Electric cycles, electric mobility, and micro-mobility are very, very important. We have been working with various institutions over the last six, to seven months. Recently there was a lot of interest that came out in the Bihar conclave of electric mobility which was recently held. There is a lot of interest coming in from Kerala. We are also in talks with certain government institutions, where we believe that the electric cycles can be used very effectively. And I think we are on the verge of creating a market for a huge market for electric cycles. We have visibility of at least around 8000-10000 cycles as of now. This demand, if we are able to aggregate, will also help the small industry that exists today, which predominantly sells these cycles in urban areas to rural areas. 

We'll focus on rural areas because we believe that there is a lot of opportunity for e-commerce. And if there are people who can own electric cycles that can run on a captive area of 30 km, which cost a fraction of even electric scooters, but yet provide mobility with carriers and are very amenable to e-commerce, I believe even e-commerce will be going ahead in a big way. 

We are trying to socialise it amongst the self-help groups because if we are able to create an ecosystem where the self-help groups and various local produces if they have to be moved in and around a 30-kilometre radius, then electric cycles are very good. And the good part about electric cycles is that you can also pedal them. You can reduce your pedalling effort and you can use it in a complete throttle without effort mode. So these are some things that we're looking at. 

I was talking to the president of the Federation of Automobile Dealers’ Association of India and he told me just a few days ago that almost half of three-wheelers sold now in India are electric. And that's the fastest-growing segment amongst all EVs (electric vehicles). And I don't know about cycles, but cycles sound interesting and I guess one must follow through with that with you. 

Tell us about your revenue composition. Today you said about Rs 2,400 crores. So where does that come from and how does all of that ensure that you are sustainable? Independently? 

Yeah. So basically, we are built on a completely market business model, revenue model out of this Rs 2,400 crores. I think EESL as a holding company has almost Rs 1,700 crores. And rest of it predominantly comes from our step-down entity in the UK, which we own, which is into the business of trigeneration. And that's doing very well. 

And now beyond trigeneration, they have also started diversifying into battery energy storage systems and they have started developing, and deploying such systems in the UK and we want to use them to bring such systems in India also. So this is Rs 1,700 crores and the rest of it comes from Edina (Edina Power). 

And then our step-down entity, the CESL, the Convergence Energy Services Limited. This is a mobility, dedicated company and we are doing the electric buses for all the states. We have done almost 12,000 buses so far. The latest bid under the BME Bus Seve scheme is also under process. Right now it's closed and it's under process for 3,800 buses. We do electric vehicle leasing. We are trying to germinate a market for EV as a service and EVCI as well. So this is what our business is.
 
As you look ahead, Mr. Kapoor, what are you seeing in the next couple of years, or literally a year or two, in terms of the mean, all of what you've done so far, in contrast to what maybe might change or not change as you look ahead? 

Well, as a company that believes more in creating public value, not to mean that we don't want shareholder value as well, we work at the intersection of these two spaces.

I believe that owners are listed, right, NTPC is a listed company, and so on. 

They are a listed company. But we have to strike a balance between shareholder and public value. So to that extent, I think going forward, I think electric buses are going to be very big. Recent announcements in the media, about eight lakh buses coming out and the government looking at socialising these many electric buses. This is extremely important. 

We also feel bold by the very announcements in COP28 and G20, about doubling the rate of energy efficiency. And that's something which is extremely important that has brought and launched energy efficiency to the global centre stage. That, yes, we have to work on energy efficiency in a big way. 

So I believe energy efficiency will continue getting a huge impetus as we move forward from here. The government is also, every time it's being talked about that, yes, energy efficiency has to usher in. And that's why we are trying to, whatever we have done is in the institutional, public space now. We are trying to look very closely at the domestic retail segment and also B2B, large bulk deals for ushering in energy-efficient appliances as well as energy-efficient solutions as we go forward. The time for energy efficiency has come now.