Investment Potential in India for Energy-Efficiency Companies is Ripe, WRI Report Finds

With an investment of US$10 billion dollars in energy efficiency improvements, India’s economy would benefit from its potentially vast annual energy savings of 183.5 billion kilowatt hours.

“India’s energy demand is expected to more than double by 2030. There is a dramatic need for domestic and international energy efficiency technology providers, service providers, and equipment manufacturers to develop innovative ways to conserve energy,” said Robin Murphy, WRI vice president of external relations.

A key element in realizing this potential is the energy service company (or ESCO) sub-sector, conclude the authors of a new World Resources Institute report.

ESCOs operate on the basis of energy-performance contracts, wherein revenue is earned based on the amount of energy cost savings produced. In India, the ESCO industry had an annual growth rate of 96 percent from 2002 to 2007 and is estimated to have grown by an additional 62 percent in 2008, according to financial information provided by these companies to WRI. 

WRI’s report is entitled Powering Up: The Investment Potential of Energy Service Companies in India and is being released here today as part of the New Ventures India Investor Meet, a gathering of leading investors and other stakeholders interested in the intersection of environment and enterprise.  

Chandan Singh, one of the authors of the WRI report, added, “Our cross-country comparison and market analysis show that the investment potential of the ESCO industry in India going forward is tremendous, especially for debt investors.”

The majority of ESCO efficiency projects have payback periods of less than two years, and ESCOs save clients an average of 20 to 25 percent of baseline energy costs.

For example, the large and energy-intensive Lilavati Hospital in Mumbai hired Sudnya Industrial Services, an ESCO, to undertake an analysis. The results showed that the air-conditioning system comprised 60 percent of the hospital’s energy usage and that an upgrade was necessary. The entire investment of the hospital to do this upgrade was US$12,000, the annual savings are US$17,000, and the payback time was nine months.

Peter A. D’souza, chief engineer of Lilavati Hospital and Research Centre, said, “We are extremely satisfied with the performance of the ESCO, and are now in the second phase of implementing energy-efficiency activities.”

Though the Indian ESCO industry has grown rapidly over the past five years, compared to similar industries in the U.S., Brazil, and China, it is relatively small. One of the factors holding back the Indian ESCO industry has been a lack of access to financing.

“With the growing demand for ESCO services from all sectors of the Indian market, financing solutions need to be developed and pursued for ESCO projects,” said Shashi Shekhar, director of PTC India Limited, the leading provider of power trading solutions in India, which is looking into investing around US$50 million into ESCO projects.

To reach their conclusions, the authors conducted an extensive survey of more than 90 percent of the ESCOs in India, as well as interviews of various investors, government officials, and clients of ESCOs. Using the findings from this study, WRI is currently working with various banks in India to develop a financial product that will help build investments in energy-efficiency projects performed by ESCOs.

"WRI has created a strong case for the Indian ESCO industry that shows the enormous potential for energy savings and the role the ESCOs can play in realizing this potential. There are clear win-win opportunities for banks, ESCO clients and India," said Shri T.R. Bajalia, chief general manager of the Industrial Development Bank of India (IDBI).