German engineering major Bosch wants to position itself as an ‘energy services company’, or ESCO — an area it feels is beginning to take off in India.
An ESCO typically executes energy-efficiency measures in other units for a fee, under a ‘performance contract’.
Mostly, the fee is paid out of the savings achieved, but there could be other payment models, too.
Bosch is a Grade I ESCO, meaning ‘very high’ in a joint rating system of the agencies ICRA and CRISIL and the state-run Bureau of Energy Efficiency. The company is in advanced discussions with three entities — an IT company, a steel mill and a hotel group — to provide energy services, said CM Venugopalan, who heads Bosch Energy and Building Solutions.
ESCOs have been talked about in India for quite some time. A 2008 ADB study put the ‘performance contract’ market in India at ₹14,000 crore, and said the country could save up to 54 billion units of electricity. (Today, India consumes about 1 trillion units of electricity.)
Venugopalan believes ESCOs are picking up now. Bosch has been receiving many business enquiries, he said, adding that one of the main reasons is that banks are now getting more comfortable with the idea.
Providing ESCO services is an extension of Bosch’s existing businesses.
The company supplies water heating systems for industrial and commercial establishments, and recently came up with a product that combines a solar and heat pump. (Heat pumps, common in Europe, use both cooling and heating effects. The principle is like making good use of the heat produced by a refrigerator or the outdoor unit of an air-conditioner.)
Since April, Bosch has sold 20 such units, to five hotel and hospital customers. Bosch officials said a typical installation would cost about ₹40 lakh, and would be paid back in two years.
Huge potentialEnergy services is a business where the returns are typically as high as 20-25 per cent, said S Raghupathy, Executive Director, CII-Godrej Green Business Centre, and an expert in the field.
Raghupathy noted that while the potential for ESCOs has always been high, the model has not taken off well, despite the presence of companies such Siemens, Schneider and Johnson Controls.
The issues typically relate to baseline, or the benchmark over which improvements in energy efficiency is to be measured, changing conditions (such as a building meant to house, say, a 100 people ending up with twice the number), legal verification of achievements which could take exasperatingly long and clients not paying the ESCO on time by hiding behind some technicality or the other.
Raghupathy calls ESCO a “big national need”, but does not see a clear trend of the movement taking off. Nevertheless, if an ESCO does not shy away from investing in technology, it is bound to succeed, he said.