Slug: Cover storyEE in manufacturing

Headline: A leg-up for the MSMEs

Intro: The world is beginning to realise 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 businesses. 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. Energy Next takes a look at the initiative of energy efficiency in various
MSME clusters
Story
The Panchmahal Dyestuff Pvt Ltd (PDPL), situated at Ankleshwar in Gujarat, has shown other
micro, small and medium enterprises (MSMES) the benefits of energy efficient technologies.
Earlier, PDPL was using the tray dryer technology, wherein hot air is used both to supply the heat
for evaporation and to carry away the evaporated moisture from the product. A Natural Gas
based hot air generator was used to raise the temperature of ambient air to around 130 0C. The
material to be dried would have 50-55 per cent moisture by weight and be reduced till there was
2-3 per cent moisture in final product. For drying 800 kilogram of wet material, the hot air tray
dryer would require a drying time of 24-36 hours and around 100-110 SCM of natural gas.
The unit witnessed a significant change when it decided to shift to Rotary Vacuum Dryers
(RVD), a system that is more efficient in terms of saving in power and time. The blades of this
RVD are so designed that they sweep the entire internal surface and at the same time turn the
material so that all the particles are come in contact with the heated surface. The unit usually
dries and processes three chemicals, and has helped in significant energy savings of around 5060 per cent. Other benefits have included enhanced production capacity due to reduction in
drying process time, enhanced product quality, improved working condition and and reduction in
carbon emissions.
MSMEs & Energy Efficiency
Recently, governments across the world are laying a lot of emphasis on adopting energy efficient
technologies and solutionsright from a domestic level to high end industries. The MSME
sector has been acknowledged as the engine of growth promoter of equitable development
globally. The same holds true for India, where the MSMEs constitute about 80 per cent of the
countrys total industrial enterprises.
Despite being an essential component in industrial production of the country, an employment
generating sector and a vehicle for economic development, the MSME sector is struggling with
its own set of problems. The MSMEs have to continuously battle market uncertainty,

technological obsolescence, supply chain inefficiencies, 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 states offer immense opportunity for transition towards
energy conservation by adopting latest efficient technologies. These are mostly located as
clusters with the cluster size varying between 50 and 500. On an estimate, approximately 26
million MSME units are operating in India, contributing significantly to Indias GDP numbers
and providing jobs to approximately 70 million people. A significant chunk of these MSMEs are
energy intensive, where 40 per cent of the production cost is due to energy usage. Despite huge
potential and scope of saving money, the MSMEs have not taken up energy efficiency measures
primarily due to lack of awareness and information about the concept. Those who know both cite
huge upfront cost and lack of conducive financing mechanism as reasons for not shifting to
efficient technologies.
Initiatives & Challenges
Since most of the MSMEs are owned and run by entrepreneurs and small businessmen, running
awareness programmes can make them aware of the benefits of energy efficiency. Over the last
few years, a lot has been done to promote energy efficiency in MSMEs. 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 BEE-SME programme.
Although this sector offers significant energy saving potential and a number of energy efficiency
programmes are being run, the implementation has been far from being satisfactory. The major
hurdles include lack of data on energy consumption, long payback periods, absence of easy
financing mechanism, inadequate information about technology, and infrastructure bottlenecks to
adoption to name a few.
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 financing barriers. 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 among various stakeholders.

Inadequate information about energy efficiency 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 weak 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 respect to financing, 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 BEE and the Small Industries Development Bank of India (SIDBI) are the executing
agencies.
In line with the Govt. of Indias development goals for the MSMEs, particularly with respect to
energy use, the project objective 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. He is overseeing the BEE-GEF-World
Bank Programme on energy efficiency.
Objective & Approach
The primary objective of the GEF-WB project is to increase demand for investments in energy
efficiency in targeted MSME clusters and to build their capacity to access commercial finance.
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 enlisted units for preparing bankable Detailed Project Reports (DPRs)
or application documentation to avail loan under current or new lending schemes. Also, hand
holding support is provided for reaching financial closure for identified investments in energy
efficiency. 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 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: Training and awareness creation about energy efficiency technologies is a basic
component of this project. Focused teams are engaged in training of supervisors and operators of
MSMEs to unlock the energy efficient potential. Hands-on training and awareness workshops are
organized from time to time in the clusters where all the stakeholders are invited. 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 management of financing proposals for energy efficiency
projects.
Awareness building: 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. Technology exhibitions and 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.
Business continuity is another challenge for the MSMEs, therefore it is observed that energy
efficiency measures requiring moderate investment, least production interruption and having
local service provider are implemented first. To facilitate this, numerous 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 plan accordingly.
Achievements
Several experts feel that merely preparation of DPRs with regard to energy efficient technologies
is not going to help the case, unless and until there is cluster level support services, and the GEFWB projects is trying to address that issue. The joint effort of BEE, WB, GEF and SIDBI has
started to show positive signs, even as more and more people are made aware about the changing
landscape of energy usage and the benefits that the energy efficient technologies can be to their
businesses.
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 I million tonnes 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, 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, if required. The project has also
engaged an independent agency for measurement and verification of implementation results,
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 has also established Centers of Excellence on
commercial basis involving cluster level industry associations.
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 & all 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 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 completely on the implementation programme and the
support provided through policy and financial support. Policy plays an important role, there is
need to revamp the policy structure for the MSME sector so as to propel it towards adopting
energy efficiency systems.
The GEF-WB project management unit now plans to put forward a clean and green ecosystem to
the global 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.
By helping MSMEs adopt appropriate and efficient technology, the project allows them to
improve the sustainability of their business and make them aware of the benefits. The replication
benefits are proposed to be assessed during the year 2015 followed by a detailed assessment at
the end of the projects closure during 2016.

Blurbs:
1. A large number of MSMEs spread across states offer immense opportunity for transition
towards energy conservation by adopting latest efficient technologies. These are mostly
located as clusters with the cluster size varying between 50 and 50

2. The primary objective of the GEF-WB project is to increase demand for investments in
energy efficiency in targeted MSME clusters and to build their capacity to access
commercial finance

3. the project is adopting a cluster 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

4. 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