A vision that both the Indian government and the industry share, is to promote the use of LED bulbs among consumers for reasons such as energy efficiency, the long life of LEDs, etc. This push from the government will ensure the sustainable growth of the LED sector in India. Success can be achieved by implementing the ‘shared energy savings’ and ‘guaranteed energy savings’ models designed by Energy Efficiency Services Limited (EESL), a government-run energy services company (ESCO). Saurabh Kumar, managing director, EESL and industry representative Sunil Sikka, president, Havells as well as being president of ELCOMA (Electric Lamp and Component Manufacturers’ Association of India) shared their views about these models, in a conversation with Sudeshna Das, senior executive editor, Electronics Bazaar
“Our priority is to change consumer behaviour towards buying energy efficient LED lighting products and make it a national priority”
Saurabh Kumar, managing director, EESL
Introducing the ESCO model
Let me start with the energy conservation legislation landscape. The first and only legislation was the Energy Conservation Act, 2001, which was created by the Bureau of Energy Efficiency (BEE). The legislation clearly said that energy conservation is essentially a market based phenomenon. If you save energy, you save costs and you can recover investments in greener technology within a certain period of time. It is a commercially viable process. But even for that, you need to create some regulatory framework and that is why regulations were framed. Therefore, BEE has created different policies, introduced several labels, set standards, etc.
It was presumed that just as consumers purchase energy efficient products like 5 Star rated air conditioners, refrigerators, etc, similarly, institutions too need complete energy saving solutions. For example, an office requires air-conditioning, fans and lighting, which together needs an energy saving solution. That is exactly what the energy services company (ESCO) does. It conducts an energy audit of your facility, suggests adopting an energy efficient solution, makes the upfront investments for it and recovers the investment over a period of time, by way of tremendous savings in the energy bill.
This has not been happening in the country and therefore the government decided to set up EESL, in order to establish the ESCO model in India, show results and handhold the private sector through the process of adopting this model. The main objective was to establish a business model which can build confidence among all ecosystem partners including facility owners, financial institutions and suppliers of energy efficient products or solutions.
Focusing on LED lighting
We began operations about five years ago and in the last two years, we have picked up a lot of pace. Among various energy saving options, we have chosen LED lighting as our area of focus for two main reasons.
First, it is the easiest solution to implement—if I give you an LED bulb, you can just go home, fit it and switch it on. Second, it offers tangible results immediately, which is quite important for any business. So, if streetlights are changed to LEDs, suddenly, the quality of light gets enhanced and this is visible. We also focus on this area with the objective of establishing it as a mainstream business, to handhold those in the private sector and to encourage domestic manufacturing.
Facilitating an LED lighting ecosystem
We have two ongoing schemes in the lighting domain, both of which were launched by Prime Minister Narendra Modi on January 5, 2015. The schemes essentially target household consumers through the Domestic Efficient Lighting Programme (DELP) and address the need to make streetlights more energy efficient by working with different municipal areas.
Essentially, if you look at the lighting market in the country, it is very price conscious. The number of CFL bulbs sold every year is about 350-400 million, 90 per cent of which goes into the domestic sector, so in total, we are talking about a consumer market segment of 300 million CFL lighting products. The number of LED bulbs that were being sold till last year was just a few hundred thousands. The reason behind this kind of difference is again price. Moreover, even when consumers want to buy LED lights, they are not sure about the returns on investment.
We came out with the DELP to aggregate volumes across the country. We discussed the matter with various state governments and the Centre to provide a sustainable solution to price sensitive consumers, which did not involve any additional upfront investment from their side.
Under this programme, we distribute LED bulbs to consumers in a way that is affordable to them and they get attracted too. Along with this, we also create awareness by launching different campaigns on how this programme can help consumers in saving electricity. So now, LED lights are as cheap as or cheaper than incandescent bulbs. This is a painless solution and it has attracted consumers.
Consumers can pick up LED bulbs from our distribution centres by paying just ₹ 10 and the balance amount for the bulb’s price is recovered over nine to ten instalments along with the electricity bill. Since it is priced in this attractive manner while clearly demonstrating the cost savings in the consumers’ electricity bill, it will help convince those who are price sensitive to replace the bulbs currently being used at the household with LED bulbs. If a large number of domestic bulbs are replaced with LED lights, there will be a large scale reduction of load at the discoms.
Implementing DELP successfully
We first started DELP at Puducherry and got an order for about 650,000 7W bulbs. The price per bulb came to about ₹ 310 and included an eight-year warranty on the lamp. Then we went to Andhra Pradesh and distributed three million bulbs last year, in August. The price per unit came down to ₹ 204. We went on to win another tender in Andhra Pradesh for an additional three million bulbs and the price came down even further to ₹ 140. Subsequently, we procured eight million bulbs for the Delhi government, for which the price fell to ₹104. And now, we have just finished tendering for a pan-India project involving 50 million bulbs and the price has further fallen to ₹ 70 per unit.
We have completed distribution for all other projects, except the last three. Therefore, we have clubbed together the last three projects in order to pass on the benefits of the price reduction to consumers, continuously and have fixed the price of bulbs through a weighted average method. The weighted average price of each bulb is now ₹ 78.
Factoring in an extra ₹ 10 to ₹ 12 on distribution costs, state taxes, etc, we are able to distribute the bulbs at a price ranging between ₹ 93 to ₹ 105. So far, we have distributed about eight million LED bulbs in the country. Our plan is to ramp up very quickly and to distribute about 150 million LED lamps by the end of the year.
We are currently working in about 10 cities and every month from now, 10 new cities will be added. Largely, this is happening in Rajasthan, Andhra Pradesh, Kerala, Uttar Pradesh and Himachal Pradesh.
As a service agency, we designed this service model and help the distribution companies to file a petition before state regulatory commissions for approval. After the approval, the entire roll-out, including procurement, awareness generation, planning and distribution is managed by us.
We have linked the distribution with the unique consumer authentication (CA) number of the electricity bill. Only four bulbs are distributed against each bill and once you get your allotted four bulbs from any one of our centres, the centralised system will not allow any further distribution against your particular bill, from any other centre. This helps to check the propensity for unauthentic reselling of distributed bulbs.
Extending this success to street lighting
In the streetlight programmes, instead of consumers, we are dealing directly with the municipal corporations. Otherwise, the model is the same. We replace all the conventional lights with LEDs to reduce power consumption, offering a minimum guaranteed saving of 50 per cent, while increasing the illumination levels. Seven years of maintenance is provided as a part of the project. So the municipality will save on energy and maintenance costs.
50 to 70 per cent of that saving is given to us and the remaining accrues to the municipal corporation. So, in a sense, there is no need for capital expenditure. Currently, we are working with about 251 urban local bodies across the country. We intend to do about 1.5 million streetlights this year. Our target is to do about 1000-2000 streetlights per day.
Ensuring quality of the distributed LED bulbs
We have a very robust quality control system that operates at three stages. In the pre-procurement phase, bulbs are tested at NABL-accredited laboratories. This is a prerequisite for procurement. Second, we do random quality checks during procurement.
The third and the most important part is that we have found a unique way of controlling quality. With all suppliers, we keep around 50 per cent of the contract value as a bank guarantee over the warranty period. For example, if the warranty period is eight years, it is kept for eight years. If it is a one billion order, you need a bank guarantee of ₹ 300 million to ₹ 400 million. Due to this three-stage quality assurance system, the total number of failures out of 8 million distributed bulbs was only 500.
Promoting domestic manufacturing
We follow the Indian government’s guidelines to ‘Make in India’. The suppliers of LED bulbs under different EESL programmes need to have a manufacturing unit in India. In addition to that, if the wafer of the bulb is manufactured in India, the supplier will have special procurement preference. Unfortunately, no company manufactures LED wafers in India, currently.
Even the bidding price is so controlled that it is hardly possible for traders who just import and package the products here, to meet our requirements. Therefore, most of the bids are won by domestic manufacturers because companies can reduce costs only when they have a domestic manufacturing facility. For example, if the price of a Chinese product is around ₹ 60 to 65, after bearing the transportation costs, it will be difficult for an importer to supply a product at a cost of ₹ 70, which is the bidding price.
Therefore, it is very clear that only domestic manufacturers will be able to compete in this market. Moreover, in order to encourage small scale local manufacturers, in particular, 20 per cent of our orders are reserved for them. This, in turn, encourages new brands and offers new opportunities for upcoming enterprises. In fact, after following these guidelines, the number of manufacturers has doubled in the last three years.
Our programmes also help companies to enhance brand visibility among the consumers through our distribution system. As we directly reach the end consumers, the ‘brand connect’ happens.
Considering that we have been encouraging the industry for long and now the cost of LED bulbs has come down to ₹ 70, the industry should start retailing LED bulbs at the price of CFL. That is the transformation that we are looking for.
Being a true growth enabler
Our priority is to change consumer behaviour towards buying more efficient lighting products and make it a national priority. Therefore, we work more as a facilitator rather than a regular seller. We will continue distributing basic, standard LED products with standard features rather than focusing on advanced features. LED is a very progressive field and things are changing fast, for which the Bureau of Energy Efficiency (BEE) is coming out with a product labelling plan. According to that rating system, the distributed bulbs will be of 3 Star quality.
Our end objective is to save energy and to promote energy efficient technology mostly in the domestic sector. Once we achieve this in India, the entire global LED market will be open for Indian manufacturers.
This is one of the largest LED lighting promotional programmes in the world. The other large programme was in China where the government provided a subsidy of US$ 300 million. In the EESL programme, over the next two years, we aim to distribute about 200 million LED bulbs and nine million streetlights. The total investment will be US$ 1.2 billion.
This huge investment will give a lot of impetus to the local industry. Once it achieves the economies of scale in production due to the huge domestic demand created by EESL programmes, the Indian LED industry can start exporting to other countries. We encourage companies to increase their manufacturing capacity to produce high quality standard products. We have done lots of work to make sure that the concept shows promising results. So far, the results have been extremely encouraging.
