Energy Efficiency at Micro Small and Medium Enterprises, the way forward for India to grow

The world is beginning to realize that energy efficiency can be a weapon to address the issue of
energy crisis and also be employed as a compelling and cost-effective means to attain
sustainability in business. The micro, small and medium enterprises (MSMEs) in India play a
significant role in employment creation and economic growth. The Indian government is
accordingly encouraging energy efficiency measures in the MSME sector for a balanced and
sustainable growth.
The Panchmahal Dyestuff Pvt Ltd (PDPL), situated at Ankleshwar in Gujarat, is one of the
progressive enterprises that has shown other micro, small and medium enterprises (MSMEs) the
benefits of energy efficient technologies. Earlier, PDPL was using the Natural Gas based hot air
tray dryer technology, wherein hot air was used to supply the heat for evaporation and to carry
away the evaporated moisture from the product. Depending on the dyes characteristics, to dry 1
ton of wet material, the hot air tray dryer would require a drying time of 24-48 hours and
around 8-9 SCM of natural gas per hour.
The unit witnessed a significant change when it decided to shift to Rotary Vacuum Dryers (RVD)
technology, a system that is more efficient in terms of saving in energy and time. The trails on
three major dyes manufactured at pilot plant has shown drying time reduction of 25-55%
whereas the reduction in energy cost is in the range of 33 70%. Other benefit includes
enhanced production capacity due to reduction in drying cycle; better product quality, improved
working condition and reduction in CO2 emissions.
The happy owner, Mr. Asif says, we knew that RVD works for pharma and agriculture
intermediateries but never thought it can be used in the dye stuff industries also, the reason
simply was no one has done it before and we too were skeptic of the results. The savings have
made me think how much I have lost till date. Now I am pretty sure that energy efficiency can do
wonders for the small scale industries in India.
MSMEs & Energy Efficiency
In todays context, to address the issues of climate change and energy security, one of the prudent
avenues available is energy efficiency. The manufacturing sector in India, constituting 80% of
MSMEs, forms an important segment to achieve sustainable growth patterns.
In India, MSMEs compliment to large scale industries as ancillary units and this sector
contributes enormously to the socio economic development of the country. As observed, the
industrial practices and the technology deployed in these units vary widely. This is owing to the
fact that the particular unit is a Tier 1 supplier or falls below in the supply chain. Further,
MSMEs have their own set of problems including market uncertainty, technological
obsolescence, sub-optimal scale of operation, lack of funds, etc.

Cost of energy is considered a vital component for manufacturing units and warrant judicious use
of energy. Amid spiraling power costs, energy efficiency assumes utmost importance for the
sector to remain competitive. In line with the international community, India too has been
working on the goal of attaining sustainability by encouraging energy efficient practices in the
MSME sector.
A large number of MSMEs spread across India offer immense opportunity for transition towards
energy conservation by adopting energy efficient technologies. These are mostly located as
clusters with the cluster size varying between 50 to a few thousand. On an estimate, 26 million
MSME units are operating in India, contributing significantly to Indias GDP numbers and
providing jobs to approximately 80 million people. A significant chunk of these MSMEs are
energy intensive, where energy cost forms a major part of production cost. Despite huge
potential and scope of saving money, the MSMEs are not able to tap this opportunity due to lack
of awareness and information asymmetry. Furter, huge upfront cost and lack of conducive
financing mechanism as some of reasons for not shifting to efficient technologies.
Initiatives & Challenges
Since, most of the MSMEs are family run businesses, generally using old age technologies, it
becomes important to conduct focused awareness programmes including professional guidance
on energy efficiency to facilitate the change. Over the last few years, a lot has been done to
create awareness among MSMEs stakeholders. The Bureau of Energy Efficiency (BEE) under
the Ministry of Power and the Ministry of MSME have been working in that regard for quite
some time. One of the important programmes under the Government of India was initiated
during the 11th Five Year Plan named the BEE National programme on Energy Efficiency for
SMEs.
Despite these efforts, the challenge still lies in implementation of the audit reports or DPRs as
they call it. The major hurdles include lack of performance guarantee by the energy
professionals, availability of local service providers and financing in case of high capital
investments.
Financing EE at MSMEs
The MSME sector in India has not adopted the energy efficiency measures readily due to various
problems, the prominent one being technology facilitation and financing barriers for big ticket
investments. The industry has often demanded timely financing on competitive terms,
particularly longer tenure loans, collateral free loans, capital loans, etc. As per statistics from the
Reserve Bank of India (RBI), the year-on-year growth rate of local Indian bank credit to SMEs
fell from 35.6 per cent in 2007 to 7.4 per cent in 2008. However, the overall growth rate of bank
credit to industry, including large corporations, increased from 24.9 per cent to 30.2 per cent
during the same time period.

Barriers for financing EE at MSMEs

Gap in understanding of energy efficiency knowhow among various stakeholders.

Inadequate information about energy efficiency technologies in the MSME sector.
Higher cost of transaction
Lack of information among banking sector about energy efficiency.
Lack of performance guarantee of energy efficient technology.

A majority of entrepreneurs in the MSME sector complain about the financing options available
to them. Apart from that, the extra upfront cost involved in adopting energy efficient technology
makes the situation even more worrisome. The industry players complain that banks and
financial institutions do not show interest in providing funds for energy efficient technologies
citing inadequate financial status of the companies. Experts are of the opinion that the banking
structure meets barely 10 per cent of MSME sectors credit needs warranting special schemes
and financial packages that may suit both industrial units and financial bodies towards
investment in energy efficiency.
Gauging the need for creating an enabling environment with these set of challenges, a project,
namely Financing Energy Efficiency at MSMEs was launched in 2010. This project is a part of
the Global Environment Facility (GEF) Programmatic Framework (2010-14) for Energy
Efficiency in India. The implementation agency for this project is the World Bank (WB), while
the Bureau of Energy Efficiency (BEE) and the Small Industries Development Bank of India
(SIDBI) are the joint executing agencies.
Objective & Approach
In line with the Govt. of Indias development goals for the MSMEs, particularly with respect to
energy use, the project focus has been to increase demand for energy efficiency investments in
target MSME clusters and to build their capacity to access commercial finance, states Vishal
Aggarwal, Energy & Environment specialist-SME, BEE project management unit..
The whole system involves systemic and sustainable mechanism for identifying, preparing and
financing energy efficiency projects at the local cluster level. This programme, implemented as
part of the larger MSME energy efficiency programme of the BEE, aims to engage in focused
efforts in 5 targeted clusters Ankleshwar, Faridabad, Kolhapur, Pune and Tirunelveli-- to
increase demand for energy efficiency products and services and mobilise various stakeholders
for greater adoption of energy efficiency.
Under this programme, the implementing agencies are working towards creation of energy
efficiency demands and linking them with lending programmes of various financial institutions
in the specific clusters. Project-supported energy audits are carried out, and based on the findings
support is extended to the identified units for preparing bankable Detailed Project Reports

(DPRs). Also, hand holding support is provided for implementing the measures and presenting
the case to financial institutions if required. Broadly speaking the GEF-WB project consists of
three main components-- building capacity & awareness, increased investment in energy
efficiency, and knowledge management & sharing.
Aggarwal states that the project is adopting a cluster based approach to facilitate the
development of customised EE products and financing solutions, and is doing capacity building
of MSMEs and identified apex organisation to assist MSME units in identifying EE projects in
future, aiding to widespread replication. He adds that capacity building of both project
developers and financial Institutions to help shrink the gap between project identification and
successful delivery of commercial finance as well as knowledge management & sharing is being
carried out for maximizing benefits.
GEF-WB MSME project components
Components

Building Capacity and Awareness

Increased Investment in Energy Efficiency

Knowledge Management & Sharing

Specific features
--Marketing & outreach effort to clusters
--Capacity building of industry associations
--Technical assistance to energy professionals
--Support to financial institutions
--Support to MSMEs in accessing finance
--Vendor outreach, enlistment & support
--Support for Energy Audits / DPR preparation
--Performance linked grants for demonstration
of energy efficient technologies
--Knowledge portal
--Helpline
--Success stories & case studies
--Policy inputs on knowledge management

To mobilise energy efficiency in commercial lending, the GEF-EB project launched two key
initiatives namely: i) Energy Efficiency Revolving Fund, which is fully integrated into SIDBI
lending products; ii) Integration of EE parameters into MSME credit rating modules to boost
additional investment in the long run.
Training programmes: Training and awareness creation about energy efficient technologies is in
the priority list of this project. Specialized training programmes are being conducted by
National and International experts for shop floor workers, middle management and energy
professionals.. Financial institutions and financial consultants are considered important
stakeholders in the overall MSME ecosystem and close to 1,000 officers from various banks and
financial institutions have undergone training activities for better understanding of financing
proposals for energy efficiency projects coming to them.

Awareness and outreach efforts: The project intends to enhance the awareness about energy
efficiency in the MSMEs and has been making full use of social media, SMS campaigns,
mailers, e-newsletters, etc. Through these measures, stakeholders are apprised of experience of
the industries, latest happenings, success stories and other related information. Awareness
workshops and industrial site visits are organised to give first hand information to the
stakeholders and to discuss the most feasible technologies that could be adopted for maximum
savings.
Vilas Jadhav, Chairman, IIF Kolhapur chapter, states that the awareness generation and training
activities under the GEF-WB project have been very useful for foundry operators and unit
owners alike in enhancing their understanding and importance of energy efficiency. The project
bought international foundry expert who shared the latest happening from around the globe in the
foundry sector and where are the saving opportunities. These kind of interaction helps to get
solution locally as visit to national/international seminar or program might not be feasible every
time.
Business continuity is another challenge for the MSMEs, therefore it is observed that energy
efficiency measures requiring moderate investment, least production interruption and getting
services of technical experts are a prerequisite. To facilitate this, focused hands on technical
exhibitions are organised in the clusters wherein MSMEs get opportunity to meet various
technology suppliers at one place. This also allows technology providers to assess the type and
quantum of services required in a particular cluster so that they can also plan business
expansions accordingly. This forms a win win situation for both the sides.
Achievements
It is strongly felt that merely preparation of DPRs is not going to help the case, untill there is
cluster level support services available. The GEF-WB projects is trying to address this issue by
providing the required support at every level. The project has entered a phase where more than
1,400 out of committed 3,200 energy efficiency implementation measures (EEIMs) have been
accomplished in 500 MSMEs spread across the five clusters. It is estimated that the
implementation of these EEIMs will leverage direct investment of approximately Rs 980 million
from the market. These investments will not only bring down electricity bills and lead to profits
for MSMEs, but will also achieve lifetime emission reductions of about 1 million tonne of CO2.
The project, through its various activities, has been able to demonstrate the energy efficiency
potential in MSMEs and the benefits thereof. During the process, the project has also been able
to restore the faith of MSMEs in energy audit process which was otherwise lost due to reasons
such as sub-standard quality of DPRs and Lack of performance guarantee from energy
professionals, states Aggarwal. As part of the project activities, the energy auditing agencies
appointed were also made responsible for providing all the support required for implementing
the agreed energy efficiency measures. The support provided includes finalisation of technical

specification, vendor selection and presenting the case to financial institutions, wherever
required. The project has also engaged an independent agency for measurement and verification
of implementation results, he adds.
The GEF-WB project has been successful in scaling up existing technologies for MSMEs which
are restricted or limited to large scale industries and have not been exploited in the MSME sector.
Some of the technologies mad available for MSMEs include veneering in heat treatment furnaces
to minimise heat losses; Rotary Vacuum Drier (RVD) in chemical industries; Radiant Heat
Generator in Chemical industries, etc. The project is also working to establish Knowledge
Management Center on motors involving local industry associations where one may just walk in
and get expert advice on the latest trends.
D Chatterjee, GM, Venus Industrial Corporation, Faridabad, says that the project team has helped
them in understanding the appropriate technology. We have reduced over 25 per cent of our
energy consumption in compressed air network without any significant investment. This has
reinforced our confidence to adopt energy efficiency in all our operations, he remarks.
The project has achieved significant result on capacity building for energy efficiency in the
MSMEs. Some of the key achievements include streamlining the process of financial
institutions; hands on training of 750 energy professionals; EE awareness for more than 2,000
MSME entrepreneurs & the commercial Banks & FIs; establishment of vendor linkages through
cluster level vendor exhibitions involving more than 500 vendors.
Commenting over the positive impact of energy audit, Tushar Viradia, partner, Shree Gayatri
Chemicals at Ankleshwar, says, Natural gas had been the fuel of choice for running steam boiler
at our plant. It was through the detailed energy audit conducted at our plant under the GEF-WB
project that we could identify the benefits of switching over to biomass fired boiler. We are very
happy with reduction of 50 per cent in our steam generation cost!
Way Forward
The GEF-WB project aspires to address the current gap in understanding between energy
auditors and bankers, and demonstrate a viable mechanism of a synergic tie up between MSMEs,
energy auditors, financial consultants/chartered accountants, Industrial Associations and local
bankers. Dr Ajay Mathur, Director Genral, BEE gives a thumbs up to the work done under the
project till date that has been successful in making an impact in the clusters of their operation.
However, he states that the bigger challenge now lies in replication of this success to other units
and clusters for achieving desired goals.
The success of any programme is based on the implementation progress and the support provided
through inputs coming from experts involved in the various stages of the project.. Policy plays an
important role, the present government is doing a lot of intitiatives to further align the various

requirements coming from these MSME stakeholders so as to propel towards a more energy
efficient nation that can be a showcase to other nation.
The GEF-WB project management unit now plans to take forward this clean and green
ecosystem to the other manufacturing community. However, to take forward the project
initiatives in the long run, the MSME stakeholders need to champion the cause of EE by
integrating the same into Cleaner Production initiatives, working jointly with various
government and development agencies. One of the primary objectives is to integrate these
concepts into Prime Minister Narendra Modi led governments Make in India campaign.
As of now, the project has taken up parallel initiatives to replicate the fruitful outcomes and the
implementing agencies are looking forward to cluster level replication of technologies. Aggarwal
informs that the project is in process of identifying six new clusters wherein these project
learnings can be utilised.