Remarks at the UK India Sustainable Investing Forum 14th October 2020
- Oct 14, 2020 6:08 pm GMT
UK India Sustainable Financing Forum
First of all, having attended the inaugural event in the Guild Hall last year I am very honoured to be given the opportunity today to speak about my experience in UK-India sustainable business and finance, and briefly talk about some very exciting developments that we are working on with our Indian partners.
First of all a bit of background.
As Robin mentioned my background over 40 years is in energy efficiency and energy services. I started EnergyPro in 2012 to increase investment into energy efficiency. We advise corporates, investors, governments and multi-lateral institutions on developing policies and programmes to improve energy efficiency and bring more investment to it. We do market research, we develop energy transition strategies and we carry out DD on investments. We also incubate new energy services business models and make investments.
Energy Efficiency Services Ltd (EESL) – our partner - was established by the Indian government in 2009 to drive energy efficiency through innovative business models. It is a JV of the four large Public Service Undertakings, NTPC, Power Finance Corporation, REC Limited and POWERGRID. Since it was founded it has grown tremendously and has become recognised as a world leader in energy efficiency. Its most famous programme is UJALA which has distributed >350 million LED lamps under a pay as you save model but it has expanded much beyond that. It has installed >10 million LED street lights and has programmes covering efficient fans, appliances, pumps, smart meters and Electric Vehicles. It is the world’s largest publicly owned Energy Service Company. EESL has saved India over 47 billion kWh annually and reduced carbon emissions by over 36 million tonnes.
I should say a few words here about energy efficiency because it is widely mis-understood – it is all about doing the same or more with less energy input. For decades we have known there is a huge untapped energy resource in the form of energy efficiency potential. Efficiency is the cheapest, cleanest, quickest and most reliable source of energy services we have and over the years has contributed more than renewables - but it has always been neglected compared to energy supply options. It isn’t cool or sexy or photogenic and politicians tend to finish energy speeches by saying ‘and finally we should not forget efficiency’, but then promptly forget it. Nowadays energy efficiency covers a range of demand side technologies including local generation, energy storage, demand response and what I would call pure efficiency like insulation or LED lamps, and all of these are being combined into integrated solutions that cut operating costs for homes and organisations and cut emissions. The relative neglect of efficiency has to change if we are to meet our climate targets and I am glad to say that the situation is getting better – energy efficiency in the widest sense is being recognised as an emerging asset class. Just to support that statement, even this week a second energy efficiency fund is IPO’ing on the LSE aiming to raise £200m.
In 2016 EESL approached us to help them look at the UK market for investment opportunities. I have to say that up to that point we had had no prior contact with EESL or indeed India. Our first question to EESL was ‘why come to the UK when you are doing such great work in India?’. EESL’s rationale was around two factors; diversification and learning new technologies and business models that would be useful in India as the Indian energy efficiency market evolved.
We found some suitable investments and proposed a JV which was created in early 2017. In some ways it is a strange partnership, the two companies are very different – EnergyPro is a UK SME, EESL is a large Indian government owned entity – but we have made it work through thick and thin because we share a common purpose – improving energy efficiency.
The JV initially made a small investment into some energy efficiency contracts, then made an investment into a Canadian grid scale battery project, and then acquired a leading combined heat and power company, Edina. In all the JV has deployed more than £65m in the UK. The JV was EESL’s first international JV and the acquisitions were the first by the Indian power sector outside India and therefore naturally attracted attention, and I should say great support, at high level including the Honorable Minister of Power Mr R. K. Singh and his predecessor, and the High Commission. I am happy to say that in early 2020 the JV, EESL EnergyPro Assets Ltd or EPAL as we call it, was recognised as the fastest growing Indian owned company in the UK.
It is important to stress why EESL bought a combined heat and power company. One of the leading challenges for India, as well as many other countries and of course for all of us, is how to meet the growing need for more sustainable cooling. India developed the world’s first National Cooling Action Plan which stressed that if the market for Air Conditioners grew at the same rate as it did in China, India would need to build an additional 150 GW of generating capacity – equivalent to 2x the total generating capacity of the UK – just to meet the additional peak load from air conditioners. Essentially, if we don’t solve the sustainable cooling problem we lose the fight against climate change. One of the many more sustainable cooling solutions is trigeneration – generating power, heat and cold together, something that Edina had a lot of experience of. EESL is now using Edina’s know-how to sell financed trigeneration solutions in India. So we have a nice circularity, India invests in UK company and uses it’s know-how to address a major sustainability problem in the Indian energy transition.
So having put this together with EESL we are now working on what other energy transition technologies could we transfer from UK to India – and indeed from India to UK. Our focus is based on EESL’s priority areas of: sustainable cooling; smart metering and associated services; and e-mobility. These are the big three although we are also working on some process related technology that can reduce process heating energy use by 50-60%.
The other big and very exciting area we are working on is what EESL calls Convergence. Under the Convergence project EESL has developed new business models that break through the old silos of energy supply and energy demand, something that is made possible by the falling cost of solar and batteries. The models combine distributed PV, battery storage and demand side technologies such as efficient agricultural pumps, LED street lighting, LEDs for homes, electric induction cooking and EV charging infrastructure. These models can provide all this in a financed ‘development package’ at a cost to the DISCOM less than conventional power only supply.
The benefits are; increased use of renewable energy; higher efficiency through reduced transmission losses; reduced losses for DISCOMs; and importantly a whole range of social impacts including; improved health and safety; better agricultural output; and improved indoor air quality. These are financially attractive projects and the potential is huge, estimated at 25 GW in one state alone. We are working with EESL to develop the business models and build a financing platform to bring investment to them, funds which can come from public funds, private funds and carbon finance blended together. Because we believe in impact first the platform will include impact measurement using internationally recognised standards such as the Impact Measurement Project which will make these projects attractive to impact funds and ultimately, when enough projects are aggregated means they could be refinanced through green or social impact bonds.
‘World leading’ is a phrase that has been over-used at late in the UK but EESL really is world leading when it comes to scaling up energy efficiency and the development of these Convergence business models and projects being pioneered by EESL is the next stage in evolution of the energy transition. They are the start of remaking the energy industry into a new business model and offer a more sustainable future. As such they are a major opportunity for large scale sustainable financing. We are building upon our successful UK-India partnership – forged between two very different companies with a common purpose of increasing energy efficiency - to blend UK and Indian expertise to finance and roll-out Convergence business models at scale.
We would be happy to discuss this in more detail with any one who is interested.
Thank you for your time today.
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