By Vandana Gombar, BloombergNEF editor. This article first appeared on the Bloomberg Terminal.
The Indian company that is the world’s largest provider of street lighting says it has taken a “leap of faith” in preparing to install 10,000 electric vehicle charging stations in its home country in the next two years.
Saurabh Kumar, managing director of Energy Efficiency Services Ltd., or EESL, told BloombergNEF in an interview that the charging rollout is needed to push electric mobility: “This is an opportunity for the country to leapfrog from ICE [internal combustion engine] vehicles to clean transportation. Vehicle ownership in India is only 8% today, and it will grow to 30%-40% in the next decade. The first vehicle of new owners can be electric.”
“We feel that the best places where charging would work would be parking lots in commercial areas, and all these are owned by municipal bodies. Most of these municipal bodies have a very good working relationship with us through the lighting program, so we are a natural partner as of now,” he added.
Many companies, such as NTPC Ltd. and Bharat Heavy Electricals Ltd., have announced plans to roll out electric vehicle charging infrastructure, though the number of actual charging slots in the country remains limited to a few hundred for now.
EESL is a joint venture of four government-owned companies: NTPC, Power Finance Corporation, REC Ltd. and Powergrid Corporation of India. Dismissing speculation about an initial public offering for its shares, Kumar said EESL would be seeking a strategic equity investor “who can take up to a 26% stake, with a long-term view on investments.”
BNEF: EESL has emerged as the world’s largest street lighting company. Was this the plan when you started the lighting program?
A: We were clear that there is an enormous potential in the market. We needed to be patient and have a product that we could sell in the market and gain attention from all stakeholders.
There are very few people who understand the energy efficiency sector, unlike oil and gas or the power sector, where you have experience of hundreds of years. The biggest challenge is that you cannot measure efficiency so easily. Since data was not easily available, we used an EESL methodology of ‘demonstrated and deemed savings’. On a street light pole with two arms, we changed one to LED, and then requested various municipal units to measure the energy savings. We offered a minimum 50% saving, after making all the upfront investment, and an annuity payment over seven years. This pay-as-you-save model clicked.
We have worked with more than 1,000 urban local bodies to replace almost 9 million street lights in the country, making us the largest street lighting company in the world. There are smart meters installed on each street light so that they can be remotely managed and monitored. Prior to that, we had the Ujala program, where 350 million LED bulbs were distributed across the country in the last four years.
The next big step is a village lighting program. We have replaced nearly 2 million lights in Andhra Pradesh. We estimate the lighting requirement of villages at about 32-33 million across the country.
Q: EESL tried to carry the formula of bulk procurement to the electric vehicle space, and it has perhaps not worked so well there. What is the status on EESL’s 10,000 electric vehicle tender?
A: If you only go by numbers, we have not realized the target that we set out. At the moment, 1,000 cars are running. Another 1,000 are under various agreements and registrations, and we have aggregated demand for another 1,500 cars.
Q: When you launched the tender in 2017, I thought you had aggregated demand for 10,000 electric cars?
A: The total we were looking at was almost half a million cars used by the government. The process of aggregation was not as easy as we thought. Government departments have their own decision making process which tends to be time consuming. Though we did not reach the numbers we wanted to, it triggered several things which otherwise were not moving. We can take some credit for resolving some issues like vehicle charging, and whether it involves trading of power or selling of power.
Q: Are all the running vehicles from the Mahindra Group? I believe there were some issues with the Tata vehicles?
A: No, both Tata and Mahindra. Tata’s had some teething troubles. Those are behind them now. Certainly Mahindra’s product was more mature. The 3,500 vehicles that are set to be on the road soon will be provided half and half by both the groups.
Q: In hindsight, do you think you should have structured the 10,000 electric vehicle tender differently? Maybe gone for more efficient, longer-range cars?
A: Before December 14, 2018, the charging standard that India had (DC001) could only get the vehicles that we got. In most of the world, these standards are now outdated, as it takes about 90 minutes to charge a small car.
The first batch of cars triggered a debate, which resulted in updated charging guidelines six months ago. It is only after they have been published that we know of at least six manufacturers, including the likes of Nissan, Kia and Hyundai, who are planning to launch their electric cars in India by March 2020.
Q: How do you view the FAME II 100-billion-rupee subsidy program for electric mobility?
A: It is on the right track. There are no incentives for personal mobility, a limited incentive for shared mobility and up to a 100% subsidy for public charging stations, which is very significant.
The kind of car that can come into the Indian market will depend on the charging specifications. In December 2018, the power ministry said that every public charging station should have all three ‘guns’ [charging connections], which means it would cater to a U.S. car or Japanese car or European car or Indian or Chinese car. It is very much like the petrol pump experience, where you can drive in and get petrol or diesel or other premium fuels.
The subsidy support for 35,000 cars promised under the plan will trigger the shared mobility market. As you know, a taxi from Ola or Uber makes money if it runs 250 kilometers a day. Assuming you need 1 liter for every 10 kilometers, you need 25 liters of diesel, which would cost about 1,400 rupees per day. You can run the same car on 25 units of power, which, even at 10 rupees a unit, would cost 250 rupees. Given the daily savings, the additional upfront travel cost can be received in less than two years. What they need is public charging stations.
Q: What is EESL’s plan for charging stations?
A: My objective is to have at least 10,000 charging stations over the next two years.
We are putting up public charging stations in Delhi, knowing the early adopters will be in this city. We have installed 35 of them already. In a month’s time, we will have another 150 public charging stations at all prominent places in Delhi. These would be 122-kilowatt charging stations which will have all three ‘guns’:
- *Combo charging system (CCS) – 50 kilowatts [European standard]
- *CHAdeMO – 50 kilowatts [Japanese standard]
- *DC001 – 22 kilowatts [Global standard]
We have taken a leap of faith and we feel that this can work without subsidy. We have taken a 10-year horizon for our investment recovery, assuming 10% utilization in the first year, and rising up to 40% only in the 10th year.
The offer we have given to taxi operators and aggregators is to take the vehicle from us on dry lease [without the driver], and pay us 6,000 rupees per month with 3,000 kilometers free charging at any of our public charging stations in Delhi. Instead of paying 1,400 rupees for diesel, they would spend 200 rupees per day. We feel demand will pick up very quickly.
We will look at [FAME II] subsidy in future tenders.
We feel that the best places where charging would work would be parking lots in commercial areas, and all these are owned by municipal bodies. Most of these municipal bodies have a very good working relationship with us through the lighting program, so we are a natural partner as of now.
Q: What is driving EESL’s interest in the vehicle charging business?
A: This is needed to push electric mobility, and this is an opportunity for the country to leapfrog from ICE vehicles to clean transportation. Vehicle ownership in India is only 8% today, and it will grow to 30%-40% in the next decade. The first vehicle of new owners can be electric.
Q: So you want to do to charging stations what you have done to LEDs? Flood the market?
A: The difference is that in the case of charging stations, we are not replacing old technology but leapfrogging. We also know that 10,000 charging stations is a very small number for India.
Q: What is happening to EESL’s super-efficient air conditioners plan?
A: Almost 50,000 efficient ACs have been installed in government buildings. For the next 50,000, we have partnered with a utility (BSES Rajdhani) and a municipal corporation (Thane), and we are trying to sell directly to consumers. The AC would be 30% more efficient than the most efficient AC available in the market, and will be priced lower than the most efficient AC in the market.
Q: What about the other things on EESL’s table, such as small-scale solar plants?
A: Through the acquisition of a company [operating] in the U.K. [Edina Power Services], a market leader in combined heat and power, we have signed a 100-megawatt tri-generation contract recently, which would use city gas to generate power, provide heat and cooling as well. The project will be in an industrial park in Hyderabad. The first small tri-generation project (800 kilowatts) in Mumbai will be commissioned by end of August.
Our focus is now on tri-generation, charging, smart meters and rural lighting.
We have already installed 250,000 smart meters in Delhi, and are working in a few other states.
We have started developing mini-solar plants to meet the agricultural load, to begin with, in Maharashtra. They have given us spare land in their rural substations, where we are putting up solar plants of between 0.5 and 2 megawatts, depending on the size of the land, and feeding the agricultural grid. We have given them a levelized tariff of 3 rupees per unit for 25 years. About 40 megawatts have already been installed, and we plan to reach 500 megawatts by the end of this year in the state.
Q: What do your numbers look like? There are always reports of a planned IPO? Is that on the cards?
A: Our turnover in 2017-18 was 14 billion rupees, with a profit (before tax) of 620 million rupees. Last year, turnover increased to 24 billion rupees while profit (before tax) went up to 1.35 billion rupees. This financial year (ending March 2020), we are expecting turnover to rise to 45 billion rupees. We are expecting net profit to go beyond 1 billion rupees this year.
Smart meters, tri-generation and electric vehicle charging will present new income streams. We are not thinking of a public listing, but will be looking for a strategic investor who can take up to a 26% stake, with a long-term view on investments. We have appointed an arranger (Investec). We are looking at institutional investors like sovereign wealth funds or pension funds, or private sector financing arms of multilateral entities like Asian Development Bank or World Bank. We are seeing a lot of interest and hope to close this transaction by the end of this calendar year.