EESL: Lighting the path to success

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Since May 2013, EESL’s managing director Saurabh Kumar has been successfully running the PSU, which comes under the Ministry of Power. In an interaction with Electronics Bazaar’s Abid Hasan, he shares the organisation’s growth model, current key focus areas, the pricing of LED bulbs and EESL’s ‘new kids on the block’—smart meters and electric vehicles.

By Abid Hasan

On a lazy Saturday afternoon, it’s quite unusual to see a government executive working with utmost urgency. Saurabh Kumar, managing director of Energy Efficiency Services Limited (EESL), had called some of his key team members for an important meeting in the organisation’s Noida office when I went to meet him. When asked if EESL works on a Saturday, he replies that when he was joining EESL, he was told that, “Leave is not a right, it’s a privilege.”

Well, there is no doubt that with this kind of dedication, EESL has seen a growth of more than 100 per cent over the last few years, and has also become a case study for the International Energy Agency.

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Kumar says that energy efficiency is a term that sounds attractive, but in reality, as it is invisible it’s difficult to measure it. There are also many behavioural challenges that make it difficult to calculate energy efficiency. “It’s an intangible asset and you only own the asset, you don’t operate it,” Kumar points out. In an inverter, solar rooftop project or in a generator, one can calculate how many units have been used, but in energy efficiency, whether the energy has been saved or not is a matter that has to be agreed upon between the customer and the supplier.

“Today we have replaced 3.4 million streetlights in the country. EESL is the largest streetlight owning company in the world; nobody manages so many assets within just seven years, like we have done. Yes, Philips may have done much more, but that was based on the supply model,” Kumar says.

The business model – India vs the world

The global energy efficiency market is about US$ 20 billion. China, the United Kingdom and the United States account for 90 per cent of the market, and in all these three markets, 80 per cent of the efficiency happens through subsidies. These subsidies are either given directly by the government or are given in the form of rate rebates.

“This year we are aiming to close at Rs. 30-40 billion”

Kumar says, “We don’t even use a single paisa of subsidy; we are just using the power of aggregation and the market to drive down the cost.” All of this started from LED bulbs and moved on to LED streetlights, energy-efficient fans, LED tubelights, and now to smart meters and electric vehicles.

Kumar adds that the electric vehicle programme, too, will not have the capital subsidy. Anywhere else in the world, a 30-40 per cent capital subsidy is given by the government. “We will not have any such subsidy; that is the power of this model. This is the basic ethos of our business model,” he says.

Growth at lightning speed

In May 2013, when Saurabh Kumar took over EESL as the managing director, the turnover of the company was ₹ 50 million. This fiscal year (2017-18), EESL has already touched a revenue of ₹ 12.27 billion. “This year we are aiming to close at ₹ 30-40 billion,” says Kumar. EESL has nearly 1000 employees with three offices outside India and 35 offices in the country.

So far, EESL has made an investment of around ₹ 14.4 billion in the UJALA project (calculated on the basis of ₹ 55 per bulb for 260 million bulbs) and ₹ 17 billion for the streetlight project (3.4 million streetlights at a cost of ₹ 5000 each).

The size of the investments is getting bigger as EESL is also expanding into solar, electric vehicles, inverters, ACs and smart meters.

EESL earns 23 per cent on the equity it put into UJALA. For streetlights, EESL gets a return of 21.5 per cent on the equity it has deployed.

EESL’s efficiency

Under the Street Lighting National Programme (SLNP), the conventional streetlights are being replaced with energy-efficient LED streetlights. EESL replaced half the streetlights in Puducherry, leading to a 50 per cent savings in energy. The success at Puducherry got replicated by the Andhra Pradesh government, and that was successfully followed by the other states. As of September this year, EESL has lit up the streets of India with 3,452,518 LED bulbs.

EESL is well versed with the latest LED technology, which even the prime minister raves about. Kumar is confident about the performance of these bulbs in the long run and says the chances of their failure are low. If they do fail, however, EESL will replace the bulb and the supplier has to bear the cost.

“We have a bulb that is much superior to any other in the world at a price even the Chinese can’t match,” Kumar says.

EESL has now started operations in two other countries—UK and Malaysia. Kumar feels that overcoming problems such as cost, performance and the ‘visibility’ of energy efficiency are the major successes for EESL.

The state affair

The organisation has started covering every nook and corner of the country, one state at a time. After covering Telangana, Andhra Pradesh, Maharashtra, Puducherry and others, EESL’s key focus now is Uttar Pradesh.

The Bihar government and EESL are also in talks to replace all the lights in the state with EESL’s LED bulbs, and an official contract is expected to be signed very soon. Interestingly, the Bihar government has assured the public that if there is any bulb failure, the replacement will be done within 72 hours, or EESL will pay ₹ 25 per day as a penalty.

“It’s a performance-based model, and I will charge the same penalty if my supplier fails to perform according to the contract,” warns Kumar.

Of late, Uttar Pradesh has emerged as the most promising state, where EESL has already replaced 2 million conventional lights with LED bulbs using the same model. It is in discussions with the Haryana, Jammu & Kashmir and Madhya Pradesh governments to get the work going in those states. EESL has tied up with post offices and petrol pumps across the country to sell its LED products. It has also signed an MoU this August with 150 petrol pumps in Maharashtra and UP to sell its products, and is now expanding this programme to other states.

EESL has completed replacement work in states like Gujarat and Rajasthan, too. In the next three months, it will also complete replacement of conventional lights with LED bulbs in the entire Jharkhand region.

It is estimated that the lighting sector accounts for about 20 per cent of the country’s total energy consumption. Kumar feels that the replacement of all legacy products with LED products will result in 50 per cent savings in energy. It is estimated that, till now, the UJALA scheme has saved 6.7GW of energy.

The central connection

Recently, the Finance Ministry has issued guidelines for all central government offices to retrofit energy efficiency appliances. EESL has plans to invest over ₹ 10 billion to retrofit 10,000 large government and private buildings by 2020 with such appliances. Till now, the organisation has covered more than 5000 buildings and is also covering 1500 railway stations under the same model. Kumar says that the remaining projects have started aggregating, and the costs will fall further after this order becomes mandatory. EESL is well prepared for this.

Money talks

Last year, EESL issued bonds to raise funds. The organisation is continuing with the same process along with added benefits from the UJALA scheme, for which it gets the money upfront.

Apart from UJALA, it gets the rest of its lines of credit from the World Bank, the Asian Development Bank, Agence Française de Développement (AFD), The German Development Bank (KfW), all of which adds up to about US$ 1 billion. In July this year, EESL raised ₹ 5 billion from corporate bonds and is planning to raise another ₹ 5 billion in the coming few months.

Inverter ACs, smart meters and electric vehicles

EESL claims that its latest inverter ACs use 40 per cent less energy in comparison to the normal air conditioners. When asked how would EESL deal with a situation where the Bureau of Energy Efficiency finds that the inverter ACs are not capable of matching the stated 40 per cent savings in energy, Kumar says EESL accepts the ACs from its vendors only if they have the label of the energy efficiency ratio. Second, if there is any failure, the supplier has to bear the cost.

In order to fulfil the current government’s dream of making India an electric vehicle nation by 2030, EESL has taken the first step of procuring 10,000 electric vehicles and 4000 charging stations. The bidding process was held on September 28, 2017. Indian auto giants Mahindra & Mahindra, Tata Motors and Japanese car manufacturer Nissan have bid for the car tender of 10,000 vehicles.

EESL is looking to acquire a company in UK, within this financial year

Tata Motors emerged as the lowest bidder and bagged the contract to provide 10,000 electric cars to EESL. Tata Motors quoted the lowest price of ₹ 1.02 million, in the bidding process. The vehicle will be provided to EESL for ₹ 1.12 million, which will be inclusive of GST and a comprehensive 5-year warranty. At this price, the car will cost 25 per cent less than the current retail price of a similar e-car with a 3-year warranty.

On the other hand, EESL was willing to give some portion to Mahindra& Mahindra if they match Tata’s bid.

In a recent development, Mahindra agreed to EESL’s proposal and bagged the contract to supply 30 per cent of the first phase of the total order. Mahindra will supply 150 of to 500 EVs in the first phase.

EESL is expecting the vehicles to hit the road by November 2017.Smart meters are the next new kid on the block for EESL. Kumar is keeping this project simple. Under this proposal, EESL will be replacing 4 million conventional meters with smart meters. These smart meters will increase billing efficiency and reduce the meter reading cost. “These benefits are monetised and utilities will pay us in a five-year period,” concludes Kumar.

Expanding abroad

In order to consolidate its presence in the UK market, EESL has plans to invest around US$200 million over the next two years. Aggregation of 40 million luminaire pipelines has been done and the delivery is going to start in November 2017. In Malaysia, EESL has just entered the market, and the actual distribution is planned to start from the first week of November 2017. Last year (2016-17), all of EESL’s UK operations amounted to a turnover of around US$660,000.

“We are also looking to acquire a company in the UK within this financial year. If we are able to do that, we will achieve ₹ 40 billion in revenue for the fiscal year 2017-18. It’s a private company which operates in the combined heat and power category,” says Kumar.

Passing on the leadership baton

Recently, R.K. Singh replaced Piyush Goyal as the minister of power, independent charge. When asked if there were any changes in the working environment post the new leadership, Kumar says that the momentum has remained the same and will only increase. “The current political leadership is extremely favourable towards these kinds of projects,” he says.

Ordering a large number of electric vehicles, aggregation of smart meters, and getting solar rooftops at good prices are the three key achievements for Saurabh Kumar for this financial year.

“EESL is not creating a monopoly in the LED market”

Is the Power Finance Corporation (PFC) exploring ways to fund the purchase of 10,000 electric cars by EESL?

PFC is one of the promoter companies and it has a 32 per cent stake in EESL. In a way, it is funding us because I am using its equity contribution to fund this programme. But there has been no formal discussion on financing any one of our programmes.

Is UJALA distorting the price of LED products by keeping it so low? Is that true?

This belief is not backed by facts. In 2014-15, the overall market for CFLs and bulbs was ₹ 1.2 billion and, out of this, the total size of the LED market was ₹ 3 million. We accounted for ₹ 2.5 million and the others for ₹ 0.5 million.

The following year, the share of LEDs went up from ₹ 3 million to ₹ 150 million, where EESL did ₹ 90 million and the private sector did ₹ 60 million of the business. In 2016-17, the whole market went up to ₹ 400 million, in which EESL had a share of ₹ 130 million, and the private sector had a share of ₹ 270 million.

“We have sold the concept of LEDs through UJALA”

A few years back, there was no market for LEDs, and now the LED market share is 35 per cent of the total lighting market. So to those who say and believe that EESL is disrupting the market, all I can say is, “I am sorry, but the numbers I just mentioned tell another story.”

Second, we are selling a 9-watt white LED bulb under the UJALA scheme. How many 9-watt bulbs does one person use in the house? Offices, perhaps, use not even one. So what have we sold? We have sold the concept of LEDs through this programme, so that people can now go out and buy LED products.

So you are saying that it was EESL that promoted LEDs, and private players are benefiting as a result?

When we started and did the procurement, there were only six players and now there are 60 players. Our objective was to transform the market and exit in the next one or two years. We have now achieved this market transformation. The only reason we are still in the market is that we want to ensure there is no rebound effect.

Today, many companies have reduced the prices of LED bulbs to less than ₹ 100 (though some of them have not), but what if EESL leaves the market and the prices go up to ₹ 200 after people get used to LED lighting?

Don’t you think, with this pricing, EESL is creating its own monopoly?

There is no monopoly; this is a model anybody can adopt.

EESL is procuring the LED bulbs at ₹ 38 and still, the price of these bulbs is between ₹ 80-100 in the market. What is the reason behind such a huge price gap?

This is the question I am not able to answer. In fact, the previous minister of power, Piyush Goyal, and those of us in EESL have been breaking our heads with the industry. Philips gives me a bulb at ₹ 38 but why is the same bulb sold at ₹ 150 to the consumer? Why is the arbitrage so much?

“The market share of inverter ACs is less than 10 per cent. Ideally, it should shift to 90 per cent.”

So what was the response from the industry?

They don’t have an answer. You have to ask this question to the industry. I am still looking for an answer and that is why we still want to be present in the industry, because we feel there might be a rebound. Initially, those in the industry said that they had inventories of CFL; after that they said their dealer networks require a higher premium.

Who are your suppliers for all the LED products?

Currently, we have three suppliers —Philips, LEDVANCE and Crompton Greaves.

EESL’s inverter ACs are entering the market. What kind of boost can we expect in the components manufacturing sector?

These are two different technologies. Normal ACs are fixed drive ACs. The compressor runs at a particular pace throughout the time one uses it. Inverter ACs run on a variable frequency drive. Here, the compressor switches off during the period when maximum cooling is not required —that’s how you save money. The only component which is different is the compressor, because it runs on a variable frequency.

I guess it will give a boost to the industry though it’s difficult to say anything concrete. The total number of ACs that are sold every year in the Indian market is about 5 million. The share of inverter ACs is less than 10 per cent. Ideally, it should shift to 90 per cent, but I am not sure by when that will happen. Countries like Japan, South Korea and China have already switched over to inverter ACs.

Is EESL also a buyer on the GeM (Government e-Marketplace) platform?

We are suppliers on the GeM platform. All our products are listed on this platform. It has just been launched and Indians are slowly getting to know about it. We are expecting a good response to this platform.

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