Implementing Performance Contracting : DSCLES Experience

1. Implementing Performance Contracting : DSCLES Experience Stakeholder Workshop 31- March 2008 Organized by Bureau of Energy Efficiency, GOI Presentation by DSCL ENERGY SERVICES CO LTD New Delhi

2. Presentation Outline • DSCLES • Our legacy • Project Experience • Government Office • Private Hospital • Private Industry- Paper Mfg • Others • Summary

3. DSCLES Our Legacy

4. DCM Ltd established in 1889 by Sir Shriram • Restructured in 1990 into 4 separate companies • DCM Ltd • DCM Shriram Industries Ltd • Shriram Industrial Enterprises Ltd • DCM Shriram Consolidated Ltd (DSCL). DSCL – Rs 3000 Crore Conglomerate Manufacturing Platform Service Platform Windoes Energy Services DSCLES Agri Business Plastics Chemicals Fertiliser Agri-Marketing Agri-retailing Sugar Bioseed Commodity Speciality Building prod. Commodity Speciality/ Value added DCM Shriram Consolidated Ltd

5. DSCL Energy Services Co Ltd • Set up in February 1999 • Our Credo Developing partnerships for progress together thru’ delivery of tangible and measurable energy performance • Our Core Values • Service • Commitment • Innovation • Excellence in Knowledge • People Development • Empanelled with • World Bank • Asian Development Bank • Power Finance Corporation Ltd. • Petroleum Conservation Research Association Recipient of BEST ENERGY SERVICES COMPANY AWARD For 4 out of last 6 Years

6. Project Management Portfolio Consulting Portfolio Design improvement Fee Based Engineering and Project Management Energy Diagnostic Study Energy (Audit) Efficiency Eng g. & Project M gmt under Shared Savings Feasibility Study (EPSS) Service Offerings Owner/ Lender Eng g. Services Engineering, Procurement Renewable & Construction (EPC) Energy Energy Strategy & Management Perf . Measurement Knowledge Management & Verificati on (PMV) Service Portfolio We provide Energy Cost Reduction Services to Industries, Buildings and Utilities Industry Breweries and Distilleries Chemicals Edible oil Paper Power Plants Rice Mill Sugar Textiles Biomass and cogeneration Commercial Buildings Commercial Office Buildings Government Building Hospitals Hotels Data Centers Bi/Multi Lateral Projects Asian Development Bank USAID World Bank UNDP GTZ

7. Our Project Qualifications

8. PC: Track Record More Projects… PC concept is under implementation extensively in the building sector in hospitals, garment manufacturing units etc and also in chemical plants and other industries.

9. DSCLES Project Experience Government Buildings NDMC Palika Kendra

10. Pilot Project : III F Palika Kendra • Project design jointly by NDMC and DSCLES • Pilot Project Financing : NDMC • What was done • Installed electronic meters for energy measurement • Measured illumination • Changed inefficient tubes to energy efficient tubes and electronic ballasts, some re-designing of the system • PMV system as per IPMVP • Base line and post verification done jointly

11. Pilot Project to PC • Findings from pilot project discussed with steering committee and ratified • Approval of NDMC Council for Lighting Retrofit in Palika Kendra under ESCO system of performance contract • Project awarded to DSCLES under competitive bid; evaluation criteria were • Conformance to the engineering specifications • 4 years contract tenure including maintenance & savings warranty • Guarantee on savings • Sharing of savings • Bidders qualification • Cost evaluation • Project completed in 6 months including for baseline and PMV

12. Project Financing • Project investment by ESCO • Overall estimate including for engineering, financing, baseline and PMV and 4 years O&M at Rs 37 lacs • Annual savings at Rs. 21 lacs • NDMC • Investment-nil • ESCO’s share paid from savings in 48 monthly instalments

13. PMV Results Technical & Financial performance better than planned

14. Other Benefits Accrued • Future load growth of PK can be met without investment in augmentation measures • PF improved from 0.8 to 0.95 • Illumination levels improved from 40 to 70 lux to 100 to 140 lux • Distribution losses reduced-estimated at 15 kW • Reduced load on Air-conditioning plant-estimated at 40 to 50 TR • Lower maintenance of electrical equipments & systems • Annual GHG Emissions reduced by 400 T

15. Critical Success Factors • Well defined scope of work • Performance Measurement & Verification • Transparent and well coordinated M&V system • Involvement of independent verifiers from the offices of FA&CAO and CE of NDMC • Project management system followed by ESCO with supplier and contractors. • Leadership from NDMC Problems Encountered Metering Logistical

16. Project Experience Private Sector Hospital

17. Project Description • 500 bed multi specialty hospital • Energy Bill – Rs 6.46 Cr • Contract type • Fixed Fee + Share of Savings • Financing of ECMs - Host • Time Line • Energy Audit – May-Sept’05 • Negotiating the PC – Oct’05-Feb’06 • Project implementation Apr’06- Mar’07 • PMV – Apr’07- Nov’07

18. Summary of Projects Implemented Amounts in Lakh Rs

19. Savings Measured & Verified • PMV Method -Whole Facility • Guaranteed Savings - 16% • Actually Achieved - 21%

20. CEO Chief Engineer Electrical Maintenance Sr Engineer EC Mechanical Maintenance Vendors Consultants Critical Success Factors • In-house leadership and commitment to establish an environment friendly facility • Formal set-up for monitoring energy conservation • Transparent energy accounting system CHALLENGES Implementation delay Contract structuring Vendor management Cost of transaction

21. Project Experience PC Implementation in a SME Agro Based Paper Mill

22. Project Description • Agro Based Medium Sized Paper Mill • Contracting Model • Project Identification & Implementation • Financing by Client • Cascade Model (since the client was not eligible for bank financing) • Sustaining the savings achieved under shared savings contract by quarterly measuring and monitoring the savings. Improving the savings already achieved and finding new projects for energy cost reductions

23. Energy Saving Projects • Water savings and improving water pumping and distribution system • Improving boiler efficiency • Improving the steam distribution and condensate recovery system • Reducing electrical distribution loss • Reducing tariff impact by better management of loading during peak hours and also improving power factor • Improving lighting system • Reducing drives power consumption by application of variable frequency drives • Improvement in digester and paper machine operation • Instituting metering, measurement, control and automation system • Commissioning of backpressure cogeneration turbo generator unit by upgrading the operating boiler, setting right the water treatment facilities and establishing better communication and control facilities for managing power steam imbalance arising out of emergencies like paper cuts etc.

24. Results • Specific energy consumption in pumping systems reduced from 0.33 to 0.22 kWh/ cu.m • Electrical distribution loss reduced from 665 kW to 365 kW (50% savings) • Boiler auxiliary consumption reduced by 4 kWh/T (40% saving); • Reduction in rice husk consumption by 3000 T/year; • Annual financial savings > Rs 13 Million; • Individual project payback < 6 months. • Recipient of National EC Award, 2002

25. Critical Success Factor Driver : Cost Competitiveness Strategy: Scaling the Technology Ladder Main Challenge Faced Project finance

26. Project Experience Others

27. Government Office Implementation of ECM through Performance Contract Investment grade audit Energy Bill – Rs 153 L Savings – Rs 40 L Investment- Rs 163 L Energy Audit RFP for ESCO R.F.P by Railways 1.System Analysis 2.Baseline establishment 3.ECM designing 4.Arranging funds 4.Project implementation 5.PMV 6.Payment through shared savings 7.Payment security UNRESOLVED ISSUES 1.Payment Security Mechanism 2. Payment time 3. Late payment 4. Submission of B.G equivalent to savings after contract period for 5 more Yrs 5. Variable tariff instead of fixed Negotiation Scoping & Proposal

28. Value Drivers

29. Summarizing our Project Experience

30. Industry Large Conglomerates High EC awareness level Have energy cell Have sufficient funds Interested in study Small & Medium Overall awareness level is high Need financing for large investments EE financing from normal cap ex Non- intrusive PMV Building Government Mandatory audits in certain states Process Management Huge market development efforts by existing ESCOs Private Buildings Good EC awareness Drivers - Green Building and ECBC Sufficient funds Good market for ESCOs Competition from Vendor & Low cost solution provider Characterization of Market from ESCOs Perspective

31. Key Issues: Govt Sector • Market Development • Effort Vs Return • Contracting • Soft Costs • Decision process • Insurance • Project Design and Implementation • Metering • Availability of counterpart technical personnel • Procurement Policies • Operation and Maintenance • Record of Inventories

32. Key Issues: Common • Value Proposition and Scoping • Who has initiated/facilitated the entry? • Understanding of value drivers • Facilitators • Others • Type of projects • Improvement in existing • New • Information exchange • Upfront development cost • Level of Effort • At what level? • How much time? • How much part of project activity? • How much beyond? • Accounting & communication “Revelation” & “Unfolding” Major creative challenge-foundation for relationship management Value & Cost of RM vs Penalty of Non-RM

33. Thank You