15 - Pradeep Nair

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Financing Lighting Market TransformationJanuary, 2011

CONFIDENTIAL DRAFT FOR DISCUSSION


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Structure

WHAT

HOW

WHEN



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Current Market Scenario

India and other South Asia are amongst the fastestgrowing regions in the world

Fast growing population, urbanization andindustrialization require additional installation of powergeneration facilities

Their increased demand will put a further strain on these

power generation facilities. urrent y g t ng consumes o tota power

generated in the country.



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Current Market Scenario (contd.)

Majority of the market is dominated by ICL andfluorescent lamps. The market share by lampsmanufactured is given below - Incandescent Lamp 63%

Fluorescent Lamp 14%

CFL 21%

Other Lamps (LEDs) 2%

Technologies that are slated to replace conventionallighting are CFLs and LEDs.



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CFL lighting in India

The CFL lighting story is often seen as a success story by theGOI, where policy interventions led to increase in CFL productionfrom 20 million lam s in 2003-04 to 255 million in 2009-10.

The GOI was also successful in reducing the cost by almost 50%

It led to the establishment of major CFL manufacturing

companies and other support infrastructure in India. Some of the

Osram, Phillips, Havells.

ue o a s rong manu ac ur ng ase n n a, manu ac ur ngwould enjoy significant economies of scale, and increasingmanufacturing capacity would further bring down the price of CFLlamps.



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CFL lighting in India (contd.)

Therefore, CFL lighting is amongst the fore-runners to replaceICLs in India.

sa van ages - owever, one o e ma or sa van ages o

CFLs is the generation of toxic waste in their disposal as theycontain mercury. The average mercury content in CFLs is 4mg.



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LED lighting in India

Currently all the demand for LED lighting is imported intothe countr .

be replaced with LED lights*.

A few pilot projects have been setup to explore thefeasibility of LED street lighting, however very few visible

e or s ave een one n e n oor g ng mar e .


*Lighting industry Report


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LED - Challenges

Technology The technology to manufacture the LED chip is possessed by

,

bases in South Asia to protect their intellectual property rights.

This exclusivity of the technology along with existing import taxesleads to the high cost.

Standards Absence of national technical standards for testing and

,from constraining its penetration, lends itself to import of sub-standard LED devices.



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LED - Opportunities

Safety LEDs do not generate toxic waste with their disposal

LEDs have a higher luminous efficacy as compared to CFLs;hence they consume less electricity, reducing costs and GHGemissions. (An estimate from LED street lighting projects inother countries uts the estimated reduction in electricit at50%)

Life

LEDs typically have operating lives of 50,000-60,000 hours as

cycle costs.

Strength LEDs are sturdier and can withstand mechanical shock and

.quite suited to conditions of rural India and South Asia wheredamage and losses can occur typically due to rough handling



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LED Action Items

Implement a standard for quality testing and verification of LEDproducts in India; presently due to a lack of such standards somemanufacturers state unrealistic s ecifications of their roducts.

Given the potential of the Indian market, for LEDs to become cost

scale. Significant investments will be needed in R&D and inreducing packaging and manufacturing costs.

The Government of India imposes overall duties close to 30% forLEDs imported into India. Reforms will be needed in the taxstructure to ensure a favourable pricing mechanism for LED

amps.



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LED Government Stimuli

Due to lack of standard monitoring and verification of LEDstandards, the GOI suggests initially focussing on high use andbulk commercial a lications like ublic li htin like streets andstadiums.

Large coordinated retrofit projects are more economical thansmall-scale projects.

To integrate LED lamps in households, the government hassuggested integrating LED lighting under the second phase of

the Rural Electrification programmes, where 5 million BPL,

one CFL lamp. This will require additional funding of Rs 300crore.

lighting market in India will take place in the commercial lightingsector, as the savings made will be larger owing to the highertariff as compared to the domestic lighting tariffs.



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Why do we need energy efficient lighting

Reducing power consumption/energy efficiency

Reducing green house gas emissions

Employment

The GOI has earmarked numerous schemes that have setambitious tar ets to re lace ICL in India. These ro ects canprovide substantial employment and opportunities fordevelopment for Indian industries.



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Predicted savings in electricity by employing energyefficient lighting

Current Scenario GWh/yr 73676 91092 107890 125601

Scenario byemploying energy

efficient lightingGWh/yr 48874 53656 60618 70073

Savings in electricity GWh/yr 24,801 37,437 47,272 55,528

Ref:ResidentialconsumptionofelectricityinIndia:Documentationofdataand


*Assumingthat

sale

of

ICL

and

magnetic

ballasts

is

prohibited

from

2015


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Street Lighting Technology Landscape

Technology Mercury

Vapor

High

Pressure

Sodium

Induction Cosmopolis LED

Commercializedin 1940s 1970s 1980s 2000s 2000s

Description Older,verycommonwhite

Mostprevalent

HIDlightsource

Whitelight

electrodeless

Whitelight

metalhalide

Whitelight,

directional,

technology

light

lightsource

source

ColorRendering High Low High High High

Initial Cost Low Low High High High

LampLife 24,000hours 24,000hours 100,000hours >24,000hours >50,000hours

LampEfficacy


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Why is financing of energy efficient lighting important

Growth - Ambitious government projects and steady demand byprivate sector These are driven b both need for reduction in GHG emissions and

energy efficiency targets.

To integrate LED lamps in households, the government has suggestedintegrating LED lighting under the second phase of the RuralElectrification programmes, where 5 million BPL households will be

.of Rs 300 crore.

Focus on local manufacturing This calls for major increase in local manufacturing capacity. Example,

a governmen sc eme a ms o rep ace m on ncan escen ampswith CFL lamps (the current domestic production is at 255 millionlamps)

Social focused projects

Government Subsidy An important feature of government schemes is to provide

lamps at a significantly lower price, the subsidy provided willhave to be financed by bank loans or other government


nanc ng sc emes.


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Areas for Financing

Project Financing Many Planned Street Lighting Projects will require financing from

either the Central or state overnments or external financers.

R&D

standardisation facilities.

Companies will also require funding to setup production facilitiesin India.

CDM Banks and financial institutions will also have a major role to play

in carbon tradin if indoor LED distribution ro ects are modelled


along the lines of the Bachat Lamp Yojana.


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A government lighting scheme

Under this scheme the GOI aims to replace 400 million incandescent

The Bachat Lamp Yojana(BLY)

amps w s.

This is expected to save 6000 MW of electricity (potential costsavings of INR 24000 crore/annum), and an estimated CO2reduction of 20 million tonnes.

Households will procure CFLs which cost Rs 100 for Rs 15 (thenormal cost of an ICL . The balance cost is covered b investorswho invest in this project. They are provided with CER certificatesunder the CDM which can be sold to developed countries who fail tomeet their emission targets.



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Opportunities for financial institutionsunder the BLY

Provide financial support to manufacturers to increase theirproduction capacity

The current market price of a CFL is Rs 100 while consumers willbe rocurin them for Rs 15, the balance amounts to more thanUSD 750 million which will be paid for by investors in the BachatLamp Yojana. These investors will be looking to financial

institutions for support.

Facilitate in the trading of CER certificates under CDM.



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How can these projects be financed

Source Description Remarks

Central and State government

funds

Stimulus funds, state/provincial

programs, municipal programs.

There are government financing

programs for both indoor and

Assistance could include

partnership in governmentprograms like the Bachat Lamp

Yojana, subsidies to

outdoor lighting. This includes

schemes to make CFLs availableat affordable rates to partnership

in street lighting programs

manufacturers, reduction in

excise and other indirect financial

assistance

External Financing through

agencies and banks

Structured loans from institutional

investors and private equity firms

can provide for the capital

In addition to infrastructure

projects, these sources can

provide for funding where the

investment required for majorinfrastructure projects.

cost of the government subsidiesare borne by lighting equipment

distributors.



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Carbon Finance The resulting GHG emission

reductions are used to obtain

Carbon finance can be a steady

source of income to rovide forCER certificates under the CDM,

they can then be sold to Annex

1 countries that fail to meet their

emission tar ets.

the cost of projects. It is already

being implemented in a few

government schemes and can

be a lied to both indoor and

outdoor lighting projects.

Banks would have a major role

to play in facilitating the trade of

Microfinance/microcredit Microfinance loans can be

provided to rural entrepreneurs

to sustain their business. E. -

Numerous Microfinance

institutions operate in India and

the South Asian Re ion.

Women entrepreneurs who rent

out solar lanterns on a daily

basis.

,

provided to people for whom

lighting equipment is essential to

their business, e.g. Night


, ,

carpenters, etc.


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Utility Company Utility-based rebates, incentives, and on-bill

Debt Equipment leases, including:

Capital leases

Operating leases

Tax-exempt lease purchases

Medium-term structured loans from commercialbanks or other third party financiers



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x : 140,000 citystreetlightfixturesreplaced

withLEDfixtures,andinstallationofremoteCCIRole

monitoringsystem

$57 millionprojectcost $10 millionenergyandmaintenancesavings

Angeles

in: Developingand

peryr

40,500 t/CO2/yrinannualCO2 savings

7 yearpayback

commun ca ng e us ness

casefortheproject

Soliciting

informal

financial

tenderinsmall,discreteincrements

Projectultimatelyfundedwithcombinationof7 ear 40million loanat5.25%

sheetsolution;proposals

demonstratedstrongproject

economics which eventuall

providedby

LADWP;

$3.5 million

from

StreetLightingMaintenanceAssessment

Fundand$0.24/kWh incentive

ledLA

to

self

fund

project

Conveningstakeholders Bringingattentiontothe


Project currently ongoing, with savingsgreater than anticipated and project costs

lower than anticipated

project

25


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A Mechanism where energy savings paysfor the cost of the equipment

A financier enters into an agreement with an ESCO/projectimplementer to provide energy efficient equipment to a customer

.

The financier covers all equipment and project maintenancecosts.

The customer repayment is based on the energy savings andreduced operating expense

After the ex iration of the a reement. The customer has theoption to purchase the equipment.

The 3rd party covers

and installs theequipment

.

The customer repayshim on the basis of

energy savings


3rd Party

Financer

ESCOThe 3rd party and the ESCO enter

into a contract to pay for all

installation and maintenance costs


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