After handling the procurement of products as diverse as LED bulbs, electric cars and smart meters, government-owned Energy Efficiency Services Ltd
(EESL) has become the most visible face of energy efficiency programmes in India. In an interview with Jyoti Mukul
and Shreya Jai
Managing Director Saurabh Kumar
discusses how they used the same model for the procurement of bulbs and cars. Edited excerpts:
What has been the common strategy adopted in these procurement programmes?
When we started the LED programme three and half years ago, we looked at why people were not buying LED. I had worked with BEE and had the experience of similar programmes for CFL. We applied similar logic and looked at what the barriers were. Typically, across the world, efficient products face three barriers — high cost, lack of information, and consumers not being aware of the performance of energy efficient equipment. The Ujjala (LED) programme made sure that all the three were addressed. Where we really did well was large-scale distribution and reaching out to people. It may sound simple but even today we are distributing 400,000-500,000 bulbs a day.
We designed the programme and created incentives. It is not just procurement, which was the easy part, but creating a new ecosystem. The same business model was applied for e-vehicles.
It was a case of a regulatory gap since you could not set up a charging station and sell power. Therefore, Mahindra, which has an e-vehicle, could not sell it. Tata
also has a vehicle but we could not commercialise it. Therefore, we focused on the government, where the regulatory gap does not come in our way.
What impact did the LED programme create?
During the first programme in Puducherry, the LED cost was Rs 310. We said: Pay me as you save. We said that we are guaranteeing the product for Rs 10. The incentive was that the power bill came down and that the utilities could reduce their peak load without having to invest anything. The incentive for manufacturers was that they did not have to carry out a high-pitch campaign. This whole business model, which addressed all barriers and created incentives for everyone, became the fulcrum of aggregation of demand pulling together people. The order for 600,000 LEDs in Puducherry became an order for 6 million in Andhra Pradesh and then became an order for 30 million when the whole of Andhra and Delhi were covered. The price came down to Rs 104 from Rs 310. Finally, today, when we have procured more than 300 million bulbs, it has gone down to Rs 38. We have consistently passed on whatever has been the benefit of aggregation of demand in terms of reduced price to consumers.
What did this programme to do encourage LED manufacturing?
From six bidders in 2014, today there are 60 bidders because we were able to sustain procurement and enhance it. The first order of 600,000 bulbs took six months to be delivered. Within one and half years, we were distributing 600,000 bulbs daily. While whatever we did was fine, the fact is that the industry also ramped up production very quickly. When that happens, prices will go done because it is a question of distributing your capital cost across as many pieces. In 2014, the number of LED bulbs
sold stood at 3 million. Of which, 2 million were sold by us. In 2015-16, total LED sales stood at 150 million. Of which, 90 million were sold by us and 60 million by others. In 2016-17, the total LED sales was 400 million. EESL
sold 129 million LEDs and the balance was sold by the private sector.
We are close to achieving what we set out to do — LED should become the first choice of people. The CFL market is virtually finished. The incandescent market will remain because it is used by the poor who cannot afford LED. We are close to a market transformation. Maybe in a year or so, EESL
should exit the market completely. It has done what it had to do.
Since the LED price has touched Rs 38, do you think it is bad for a viable market?
Did I ask them to bid for Rs 38? I was happily procuring when the price was Rs 300. EESL
never dictated the price. It was an open and transparent process. Further, these prices have been quoted by companies
like Philips, Osram, and Crompton Greaves. The largest advertiser of LED bulbs
is Syska but it has never participated in our bids because they say we are only trading. The programme has given impetus to Make in India.
When EESL exits the market, will the price levels be sustained?
Competition will ensure it. There are now 15-20 brands in LED. Some of them are very new like Eveready. Some of them were original equipment manufacturers but are now into lighting. HPL is an example.
How did you plan the e-vehicle procurement?
The central government entities and PSUs have about 500,000 cars and most of them are leased petrol vehicles. Therefore, we went and told them that we will procure cars and lease them out to you. In return, you give us the same amount of rentals that you pay for a petrol car. The regulatory gap does not come into the way since these cars are for captive use by the government and charging stations will be at government buildings. You are not reselling electricity. The incentive remains the same. The government office gets a car and a driver for the same price. They pay Rs 40,000 a month for 80 km per day. They are for use within the city. You can use them for 130 km. You charge overnight. So if you are paying for the electricity, you can recover it.
The per km cost is Rs 6.5 for petrol cars, Rs 4-4.5 for diesel and around Rs 3-3.5 for CNG. At Rs 9 a unit (kilowatt hour), electric vehicles
cost Rs 1.5 per km. There is economic incentive and, therefore, while the regulatory pieces are plugged in, the government can take a plunge. They don't have to spend. EESL
is spending the money and earning 12.5 per cent.
What is your view on the apprehensions expressed by Mahindra, which matched the Tata bid for supplying electric cars, about the price levels?
The cost differential between Mahindra
and Tatas is almost 25 per cent. We have only issued the letter of intent for the first phase, which involves 500 cars. While whatever Mahindra
says is their prerogative and I have nothing to say, once we are closer to deploying the first lot, we will ask both the companies
whether they can supply the balance 9,500 cars at Rs 11.2 lakh each. It is up to them.
Some have cast doubts on whether Tatas will be able to supply electric cars since they are not a big player?
We are concerned with two certifications — the Automobile Research Association of India and compatibility with charging points. I have no reason to disbelieve the companies.
I would be very surprised if Tata
gets into such a prestigious thing without being prepared. Tata
or any responsible company won’t do that. What is the goal of e-mobility? It is to create enough demand for cars, batteries and charging infrastructure. For a vehicle manufacturer, it is easy to change from an IC engine to electric car. This procurement showed that. Everybody thought it is Mahindra
which will take the project. You have a chassis and an electric motor with a battery. There is no air filter and no carbonator. In an ordinary car, there are 110 moving parts. In e-vehicles, there are only 10. That is how the Tatas were able to do it so quickly.
There were talks of you having a leasing agency?
There will be an agency that will operate these cars. We don't want to get into it. Our model is outsourcing. The fleet management and provisions of drivers and running the cars – we have taken out the bid. The government will pay us Rs 40,000 per month per car for six months. Largely, this is the offer we have given, with some minor changes for states. We are aggregating demand across ministries. Maharashtra is also talking about a 1,000 cars. Andhra Pradesh has already expressed a demand for 500 and they want 100 by November 30. I am sure the list will only expand.
How is the charging ecosystem coming up? Would you enter into it?
Unless regulations allow, we won't. For the e-cars, the charging would be in government offices. These cars are for captive use by the government and charging infrastructure would be in the government office, all connected to the meter of the building. The office would be paying for the fuel. It's a lease model. I am only financing the cars. After six years, it goes to them.
What are the other products where you will use the aggregator model?
With regard to street lights, we have replaced 3.5 million. We have aggregated close to 6,000 government buildings. The same model has been used in smart meters. We have just completed a bid for 5 million smart meters. The cost that has come is half of the cost that other discoms received. We will lease it to Uttar Pradesh and Haryana. We will operate these meters for five years. It will increase billing efficiency and bring down meter reading cost. Also, the consumer can see how much electricity he is using. We are also thinking of developing a mobile application where you can see what your neighbour is using just for the sake of benchmarking.
What's the outlook for EESL now?
We want to expand in new areas. The start has been very good. We would like to expand our presence. For instance, there are 250 million houses that are yet to be connected with a smart meter. What we have started is just a minuscule amount. Similarly, there are 500,000 cars in the government that can be replaced. We will have another tender for e-vehicles
midway through the second phase. A lot can be changed here. For retail users, regulatory amendments will take time. Therefore, a structured scheme will go a long way.