Two-day International Conference on " ESCO Opportunities in India" Organised by Petroleum Conservation

1. Successful Case Studies for Capacity Building Two-day International Conference on " ESCO Opportunities in India" Organised by Petroleum Conservation Research Association New Delhi 2nd June 2005

2. Background • Announcement made by the then Honorable Prime Minister on 23 August 2002 “All government organizations to reduce energy consumption by 30% in 5 years by contracting for guaranteed levels of energy efficiency improvements involving ESCOs” • In pursuance of the announcement, BEE initiated the energy auditing of Central Govt. buildings and establishments

3. Energy Audit Route (business as usual) Host entrusts energy audit of facility with energy auditing firm through competitive bidding process. Energy Auditor, after a detailed study provides an energy audit report, which essentially provides energy saving measure it’s cost benefit analysis. Host identifies a set of energy saving projects, prepares detailed specifications and procures the equipment paying the vendor upfront at their own risk. Energy Auditor does not guarantee the energy savings. Credibility of energy auditing agencies?

4. Energy Performance Contract • Implementation through performance contract (defining performance indices like lighting levels, comfort conditions, air quality) would result in better savings with more comfort. Energy Service Companies (ESCO), undertake a energy audit study of a facility to identify: • the areas for energy savings, • its economics and cash flow statements over its lifetime and for 10 years. • establish a baseline for energy consumption • guarantee a minimum energy savings, • agree on a monitoring and verification protocol for quantification of energy savings and • signs performance contract with the facility owners,

5. ESCO on signing the performance contract: • bring in finance, procure equipment, implement and maintain the agreed energy saving projects; • train facility personnel on maintenance aspects and transfer the equipment installed to the facility on agreed salvage value. • ESCO recover professional fees, interest on investment and the investment from energy savings achieved after verifying same through agreed M & V protocol. • any shortfall in guaranteed savings would be made up by ESCO. • Here all risks wrests with the ESCO.

6. Monitoring & Verification of energy savings Single point Electricity Billing for the entire building was adopted for Monitoring & Verification of the energy savings on the following considerations - • Easy to account for savings • Maximum credibility on system performance • Easier to define cash flow and hence project bankability • Difficult to monitor impact of load changes • Higher running cost for ESCOs for monitoring load changes

7. Progress • Consortium of Energy Auditors and ESCOs formed for conducting building energy studies. • These energy audit studies are more than energy audit and in addition to identifying EEM and their economics, the study covers base line determination, energy saving monitoring and verification protocol. • Capacity built in energy audit companies such as TERI, NPC, Energy Audit Services & CPRI to under take energy studies. • Energy studies completed in 9 buildings: • Rashtrapathi Bhawan, Prime Minister’s Office, Rail Bhawan, Sanchar Bhawan, Shram Shakti Bhawan & Transport Bhawan, R&R Hospital, Delhi Airport, and AIIMS.

8. Building particulars Annual Energy Consumption ( Lakh kWh) Annual Energy Savings ( Lakh kWh) % Savings (KWh) Annual Energy Savings (Rs. Lakhs) Investment (RS. Lakhs) Payback period (Years)  PMO 8.3  2.7  32  16.9  50.5  3 Rashtrapathi Bhawan 34.1 7.8 23 49.9  51.2  1 Sanchar Bhawan  25.6  11.9  46  76 147.1  1.9 Shram Shakti & Transport Bhawan  20.4 8  39  42.9  157.5 3.7  RR Hospital  100 28.8 28  88.3  44.9  0.5 Air Port  713  145 20  586  810  1.5  Rail Bhawan  23.5  6  25  40  163  4.2 AIIMS  369  93.1  29  712 1070 1.5 ENERGY AUDIT RESULTS

9. Structuring Performance Contract • BEE initially drafted the energy performance contract based on other countries experience adapting to Indian conditions. • Under the chairmanship of Chief Engineer CPWD and members from host institutions (Railways, Telecommunications, Defence, etc.) the contract was discussed and improved for implementation. • Finally Ministry of Law vetted the contract from the contract law. • The contract is fully ready for implementation.

10. Structuring Financing Mechanism • Payment security mechanism addresses following concerns: • Energy saving cash flow does not have a separate revenue head and hence does not provide comfort levels to financial institutions • Ensure payment is made for services actually rendered by ESCO. • Payment is made to party who is rendering services. • Payments to be made are linked to physically verifiable milestones. • Create cash flow so that ESCO could make up for any shortfall in guaranteed savings to Facility.

11. Debt Service Retention Account ESCO & lenders to the ESCO open a Trust Retention Account (TRA) in a nationalised Bank Shortfall in debt service ESCO Trustee Bank shall allocate all payments in accordance with a Payment Trust and Retention Agreement. HOST TRA Host will pay the energy saving payments as required under the Energy Services Contract after the energy savings are verified as per the agreed M & V protocol. Statutory dues Operating expenses Debt Service Excess flows to ESCO Cash Flows Financing Mechanism

12. Results achieved so far • Energy audit studies completed in 9 buildings • Savings potential between 20 to 46 % identified in the above buildings. • Model documents developed for facilitation of project implementation through ESCO mode • Dully vetted Performance contract • Bid evaluation criteria, • Request for proposal

13. Results achieved so far ( Continued) • Request for Proposal prepared for Rashtrapathi Bhawan, Prime Minister’s Office, Shram Shakti Bhawan & Transport Bhawan, Rail Bhawan, AAI, Sanchar Bhawan and AIIMS have invited tenders. • Core Group Training: All building owners trained with the following module: • Comparison of energy efficiency approaches and why the performance contracting route is preferred • Concept of ESCO • Elements of the legally wetted performance contracting document • Base line data and Monitoring & Verification protocol • Preparation of Request for Proposal / Bid document • Bid evaluation criteria • Payment mechanisms

14. Results achieved so far ( Continued) • Rashtrapathi Bhawan, Rail Bhawan, Shram Shakti Bhawan & Transport Bhawan have awarded the contract. Other buildings are expected to award the contract soon. • Monitoring of implementation

15. Next Steps • Monitoring & Verification of energy savings • Expansion of programme in Central Government establishments & PSU to other Metros and States.

16. Expansion of programme in Central Government establishments • 12 additional central government buildings identified • Based on the lessons learnt: • CPWD engineers are now trained to collect data, undertake performance measurements, evolve base line, and prepare document for Bid. • The tender documents are being simplified • Other programme components are in order.

17. Expansion of programme to State Government establishments • IREDA to fund replication of the programme in • Gujarat • Maharastra • Andhra Pradesh • training shall be imparted at two levels with a view to improve chances of replication with in the State. • Level 1 shall be decision-makers (Executive Engineer and above) in PWD and designated state agency • Level 2 shall be Maintenance Personnel (below Executive Engineer). • Implementation

18. Contents of Training • Level – 1 training • Comparison of energy efficiency approaches and why the performance contracting route is preferred • Concept of ESCO • Elements of the legally wetted performance contracting document • Elements of collation of base line data • Monitoring & Verification protocol • Preparation of Request for Proposal / Bid document • Bid evaluation criteria • Level – 2 training • Introduction to Lighting, HVAC • Measurement of Energy Consumption of Lighting, HVAC • Analysis of data and arriving at baseline and energy saving potential assessment along with investment levels • Preparation of Request for Proposal • Bid evaluation criteria

19. Thank You