kfw – NHB : Programme for Promoting Energy Efficient New Residential Buildings

1. kfw – NHB : Programme for Promoting Energy Efficient New Residential Buildings Program Design and Rapid Assessment Tanmay Tathagat Prasoon Kumar Yadav New Delhi | April 1, 2014

2. Introduction Proposed Programme Design Promotional Program for Energy Efficiency in Housing

3. Promoting Energy Efficient housing • Energy Efficient (EE) housing would have improvements in • Design • Material • Shading • Equipments (ACs, Lighting and fixtures) • The major benefits would be • Electricity Savings • Better ventilation • Better Day lighting • Improved thermal comfort • Better street lighting Promotional Program for Energy Efficiency in Housing

4. EE linked loan incentives *The energy efficiency measures encompass the complete set of measures possible that would result into reduction in energy / electricity consumption during building usage. The examples would include improvement in design, material and appliances **EE is Energy Efficient / Energy Efficiency • Support from kfw (a German development bank) • Focus on a broader long term influence on market dynamics • Projects to meet minimum efficiency criterion to achieve energy efficiency label (or certification) • Labeling could be done by some government body • 50 Million Euros line of credit to NHB from kfw, to be used for refinancing • a ‘quick-start phase’ for enabling disbursement and ‘to test waters’ before long term programme Promotional Program for Energy Efficiency in Housing

5. EE houses to cost more; compensated by savings in electricity bills • *The different options can be, for instance, based on quality of material (to achieve different levels of energy efficiency performance over the minimum criterion, type of building, location and climate conditions etc • ** 20 years was chosen as it is typical loan duration without considering prepayment options • Price premium = ~7% (5% to 12%, depending upon various improvement options) • for houses costing in the range of INR 15 Lakh – 40 Lakh • Payback period = ~ 3 to 5 years (due to savings in electricity bills • IRR = in the range of ~ 25% - 45% for various options* (for a considered duration of 20** years)

6. Structure for Initial Quick Start Phase… Promotional Program for Energy Efficiency in Housing

7. Stabilized Structure in Mature Phase Promotional Program for Energy Efficiency in Housing

8. Rapid assessment Key Highlights Promotional Program for Energy Efficiency in Housing

9. Rapid Assessment Conducted to Establish Market Potential • Targeted Market Survey • Consumers / Home owners • Builders / Real Estate Agents • HFCs and Banks • Policy side stakeholders’ Discussion – Government and Semi Government • Bureau of Energy Efficiency (Ministry of power) • MoEF / MoUD • IGBC (Indian Green Building Council, CII)/GRIHA Promotional Program for Energy Efficiency in Housing

10. Survey sample chosen to ensure statistical validity and sufficient coverage • Consumer Surveys : Quantitative survey • Sample size = 300 • Across 3 locations – NCR, Mumbai, Bangalore • Builders and Real Estate Agents : Qualitative Survey • Number of interviews for each of the categories : 15 each • Across 4 locations – NCR, Mumbai, Bangalore and Pune • HFCs and Banks • 7 HFCs and Banks covered • Policy side stakeholders - Informal discussions so far to understand programme feasibility Promotional Program for Energy Efficiency in Housing

11. Consumers were probed to assess their interest Consumer profiles : Socio – economic categorization ,Income levels, Electricity and equipment usage pattern Level of awareness towards energy efficient and green housing Intended buying profile - price of housing unit, built up area of housing unit Present housing finance profiles Reactions towards proposed concept and intentions to buy Reaction towards labeling concept Promotional Program for Energy Efficiency in Housing

12. Targeted market survey – Consumers Feasibility from the consumer side found to be ‘excellent’ Key findings • A significant proportion of the buyers are looking to buy housings in the price (20-50L) • Most are looking to buy in the apartments / flats • A significant proportion of the buyers go for loans • Consumers have found the concept of EE housing as sufficiently ‘relevant’ and ‘viable • Willing to pay a premium • Keen interest in Energy Labeling Promotional Program for Energy Efficiency in Housing Source: Targeted market survey (EDS Pvt. Ltd. and Market Xcel Data Matrix Pvt. Ltd.)

13. Targeted market survey – Consumers Majority of buyers’ profile fit the programme’s target population Could you please tell me your monthly household income? Please include income from sources like rent etc What is the BHK size that you have purchased OR intend to purchase? Promotional Program for Energy Efficiency in Housing Source: Targeted market survey (EDS Pvt. Ltd. and Market Xcel Data Matrix Pvt. Ltd.)

14. Targeted market survey – Consumers ~ 83 % buyers in the market for apartments What kind of an accommodation have you purchased OR intending to purchase? Starting the programme with Apartments / Flats will help reduce overall management bandwidth, focus on programme Promotional Program for Energy Efficiency in Housing Source: Targeted market survey (EDS Pvt. Ltd. and Market Xcel Data Matrix Pvt. Ltd.)

15. Targeted market survey – Consumers Majority of buyers seeking loans for funding the property   How did you plan OR wish to plan the finance of property? A majority of the surveyed buyers opt for property financing through loans: the Indian urban home buyer is not averse to this idea Promotional Program for Energy Efficiency in Housing Source: Targeted market survey (EDS Pvt. Ltd. and Market Xcel Data Matrix Pvt. Ltd.)

16. Targeted market survey – Consumers >90% consumers have found the concept relevant … How relevant do you find this concept? The concept has found high overall relevance amongst the home buyers Promotional Program for Energy Efficiency in Housing Source: Targeted market survey (EDS Pvt. Ltd. and Market Xcel Data Matrix Pvt. Ltd.)

17. Targeted market survey – Consumers .. as well as viable How viable do you find this option for housing in future? … and has also scored on its overall viability Promotional Program for Energy Efficiency in Housing Source: Targeted market survey (EDS Pvt. Ltd. and Market Xcel Data Matrix Pvt. Ltd.)

18. Targeted market survey – Consumers ~90% of buyers are interested in purchasing EE houses … What is your likelihood of buying an energy efficient residential house* in case you are offered the same? A high percentage has shown inclination towards buying such houses – key merit mentioned was energy and corresponding electricity bill savings *As technically defined by TERI / Fraunhoffer, explained to consumer in simplified terms Source: Targeted market survey (EDS Pvt. Ltd. and Market Xcel Data Matrix Pvt. Ltd.) Promotional Program for Energy Efficiency in Housing

19. Targeted market survey – Consumers … and >80% would do so even at a higher price What is your likelihood of buying such a property, at premium rates*? Consumers showed a willingness to buy these houses at a premium rate, purely on the basis of merit even though no specific additional incentives were mentioned *Typical premium is expected to be ~7%- 12 %, depending upon EE features chosen and type of housing Source: Targeted market survey (EDS Pvt. Ltd. and Market Xcel Data Matrix Pvt. Ltd.) Promotional Program for Energy Efficiency in Housing

20. Average willing to pay ~7% premium for EE feature What premium can you pay for each? The willingness to pay for EE features is lowest in Bangalore and highest in Delhi – NCR, it increases as we move towards more uncomfortable climate zones Promotional Program for Energy Efficiency in Housing Source: Targeted market survey (EDS Pvt. Ltd. and Market Xcel Data Matrix Pvt. Ltd.)

21. Targeted market survey – Consumers >80% find the concept of Energy Labelling the houses as ‘relevant’ … Now if energy efficient houses come with such labels that gives you assurance on comfortable living, energy saving and offers you benefits of loan. How relevant do you find it? The key benefits that were associated with labels were a. Mark of confidence / trust b. Mark of approval c. verified electricity savings Promotional Program for Energy Efficiency in Housing Source: Targeted market survey (EDS Pvt. Ltd. and Market Xcel Data Matrix Pvt. Ltd.)

22. Targeted market survey – Consumers … and accept that labels would act as differentiators for making a purchase decision Do these labels act as differentiators and are they useful in the purchase process? The labels are found to act as differentiators in overall purchase decision … Promotional Program for Energy Efficiency in Housing Source: Targeted market survey (EDS Pvt. Ltd. and Market Xcel Data Matrix Pvt. Ltd.)

23. Targeted market survey – Consumers … and affirm that these labels would affect their purchase decision Would label affect your decision to purchase a particular property? The proposed concept, without mentioning the exact benefits was able to influence atleast ~64%; it is much expected that influence would have been much higher had the concept been clarified Promotional Program for Energy Efficiency in Housing Source: Targeted market survey (EDS Pvt. Ltd. and Market Xcel Data Matrix Pvt. Ltd.)

24. Targeted market survey – Builders The builders’ interviews explored their current understanding, attitude and inputs Current Level of understanding Attitude towards proposed programme Willingness to participate/invest in energy efficient establishments Associated triggers and barriers for promotion of EE housing Inputs for the proposed programme Promotional Program for Energy Efficiency in Housing Source: Targeted market survey (EDS Pvt. Ltd. and Market Xcel Data Matrix Pvt. Ltd.)

25. Targeted market survey – Builders ‘enthusiastic’ response from builders/developers • Key Highlights : • Interest level was found to be ‘extremely high’ • The programme concept was liked at the very first mention • Already indulging in such activities without any additional incentives • Driven by market forces and ‘to create value’ • Would somehow want to be associated with CDM. Recognition is more important that monetary benefits • They mention it to be the ‘need of the hour’ • Mentioned more and more projects going for these initiatives • If pay-outs are as mentioned, why not to go for these initiatives ? • There would be bill savings, thermal comfort • Also, significantly positive about the idea of ‘labeling’ • The idea of being accredited by a recognized Government organization itself was considered an incentive by many Promotional Program for Energy Efficiency in Housing Source: Targeted market survey (EDS Pvt. Ltd. and Market Xcel Data Matrix Pvt. Ltd.)

26. From the supply side, we can say that the Indian residential construction sector is warming up towards idea of ‘green projects’ An improvement in green residential landscape bodes equally well for the promotional programme, the ‘Green’ criteria are far more stringent and have Energy Efficiency as only one of the criterion * The values are approximated based on recreating the information provided as an image in the report and can vary from actual by +/- 5% approximately ** Projected based on half yearly supply Promotional Program for Energy Efficiency in Housing Source: IGBC Website, DTZ Research, EDS Analysis

27. Sufficient Supply Expected to Support EE Housing Program 1. Linear regression 2. Polynomial regression Supply in next three years (Between 2011 to 2013) ~~ 1.5 Million sq mt This transforms to ~.3 Lakh dwelling units Supply in next three years (Between 2011 to 2013) ~~ 2.5 Million sq mt This transforms to ~.5 Lakh dwelling units Based on EDS’s industry experience, the estimates can still be called extremely conservative • For the pilot phase of the programme, we need 1000 – 2000 units, so meeting the commitments by the NHB / HFIs is not seen as a problem • *The number of units have been estimated based on draft feasibility done earlier by AFC – GOPA for kfw-NHB , according to which average built up area for residential units is ~ 45 square meters (based on Govt .of India reports), we assume a built up area ~ 50 square meter • ** Linear trend assumed for 2010 reporting If we assume that all projects registered with IGBC get completed in approximately 3 years, We can expect to have a supply of ~3.62 Lakhs dwelling unitsin next three years Promotional Program for Energy Efficiency in Housing Source: EDS Analysis

28. With material supply side also maturing, the material availability to ensure minimum savings is also not a constraint(1/2) Promotional Program for Energy Efficiency in Housing Source: EDS Research

29. With material supply side also maturing, the material availability to ensure minimum savings is also not a constraint(2/2) Promotional Program for Energy Efficiency in Housing Source: EDS Research

30. Targeted market survey – Agents The Real Estate Agents’ interviews to map their reaction towards the programme Current Level of understanding Attitude towards proposed programme Inputs for the proposed programme Suggestions for the target consumer profile Promotional Program for Energy Efficiency in Housing Source: Targeted market survey (EDS Pvt. Ltd. and Market Xcel Data Matrix Pvt. Ltd.)

31. Targeted market survey – Agents The Real Estate Agents’ interviews echoed similar responses • Key Highlights : • Same level of enthusiasm as developers • Find the concept ‘very significant’ • See a huge potential in the programme • Would be more than willing to associate with the programme • Find the concept quite relevant • Find the concept ‘very significantly relevant’ • Have not faced hurdles when associated with green projects Also, significantly positive about the idea of ‘labeling’ • See minor issues due to increasing costs but not important enough when the prices are not very low Promotional Program for Energy Efficiency in Housing Source: Targeted market survey (EDS Pvt. Ltd. and Market Xcel Data Matrix Pvt. Ltd.)

32. Targeted market survey – HFIs HFCs and Banks interviewed to get an understanding of the EE Demand and associated concerns Expected potential Expected role in the programme and their expectations from the programme Idea on incentives, financial and non - financial: for them and for consumers (to create demand) Promotional Program for Energy Efficiency in Housing Source: Targeted market survey (EDS Pvt. Ltd. and Market Xcel Data Matrix Pvt. Ltd.)

33. Targeted market survey – HFIs A very positive response from Banks and HFCs • HFCs and Banks see a lot of potential due to a host of factors • Quantifiable and non – quantifiable benefits for the end user • Success of energy efficient labelled home appliances • Current level of awareness and consciousness among customers • Only a marginal increment in cost of house • Some of them already taking up or planning to take up such initiatives • PROGRAMME INVOLVEMENT: • Not different from ‘business as usual’ (like other promotional programmes) • No significant increase in management costs, infrastructure, processes etc Promotional Program for Energy Efficiency in Housing Source: Targeted market survey (EDS Pvt. Ltd. and Market Xcel Data Matrix Pvt. Ltd.)

34. Targeted market survey – HFIs A positive response towards the programme was obtained • Like to have least involvement in technical evaluations etc as it is not their core business • The concept of labeling was also appealing to them for the same reason • No problems in adhering to certification and will welcome such certificates issued by reliable agencies • Can absorb some level of technical verification needs in line of their already existing verification procedures • Since no additional efforts are anticipated, no specific expectations as of now • No specific expectations from NHB / regulatory side • Other details can only be discussed once the technicalities and loan conditions become clear Promotional Program for Energy Efficiency in Housing Source: Targeted market survey (EDS Pvt. Ltd. and Market Xcel Data Matrix Pvt. Ltd.)

35. Inputs and suggestions are sought on - Programme design Perceived level of involvement Barriers in successful implementation of the programme, incentives expected Additional incentives and other support from NHB Additional terms and conditions for the loan agreements Others … Promotional Program for Energy Efficiency in Housing

36. Tanmay Tathagat Prasoon Kumar Yadav www.edsglobal.com Promotional Program for Energy Efficiency in Housing