Scope of Energy Efficiency in MSMEs

Interview: Shri Milind Deore, Director, BEE

India, the third-largest consumer of primary energy, faces the twin challenge of fulfilling its economic aspirations at the same time to protect its environment and meet climate change objectives. A potent strategy for India that can help in achieving both these objectives is that of energy efficiency. The Government of India has adopted various policy measures to enhance the energy efficiency of its industrial and household sector.

Employment News spoke with Shri Milind Deore, Director, Bureau of Energy Efficiency (BEE), Ministry of Power, Government of India, about the government's roadmap for the MSME's transition to efficient and clean energy while ensuring higher global competitiveness.

Question: India has the second largest MSME community globally after China with an ambitious and impressive growth trajectory. Where does this sector figure in India's energy conservation agenda?

Milind Deore: Micro, Small and Medium Enterprises (MSMEs) account for 28% of India's GDP and 45% of the country's manufacturing output. After agriculture, the MSME sector provides the largest employment in India. The total energy consumption of the industrial MSME clusters was estimated to be 68 mtoe in 2017 which is expected to increase to more than 170 mtoe by 2031. As a result, MSME has been at the forefront of energy conservation agenda of the Government of India. Several programmes have been undertaken over the years by the Bureau of Energy Efficiency and the Ministry of MSME to promote energy conservation and technology upgradation of MSMEs. These initiatives include National Manufacturing Competitiveness Programme (NMCP), Credit Linked Capital Subsidy for Technology Upgradation (CLCSS), Technology and Quality Upgradation Support to MSMEs (TEQUP), BEE SME Programme, GEF-UNIDO-BEE Program, GEF-World Bank-BEESIDBI Project and Energy Mapping of MSME clusters among others. The adoption of energy efficient technologies in MSMEs can lead to 14% reduction in annual energy demand of the MSME sector. This will translate to MSMEs becoming more globally competitive with improved quality of production.

Question: What are the major challenges faced by small businesses in identifying, adapting and adopting better technologies and operating practices to ensure energy efficiency?

Milind Deore: The small businesses have limited accessibility to modern efficient technologies and weak linkages with suppliers. Consequently, they use the conventional technologies used by other units in the cluster and which have established operating practices. They lack the knowledge about modern energy efficient technologies. Further, they also have limited capability to understand the complexity related to energy saving features of the technologies related to evaluating their cost-benefit. The force of habits also leads to resistance to any change which is exacerbated by the unavailability of training the labour. The high upfront cost of EE technologies and rigid lending policy of banks and FIs also proves to be a major challenge for access to financing for MSME units.

Question: What is the main focus of BEE's MSME energy efficiency programme? Financial incentives, energy pricing,or technical solutions?

Milind Deore: Building a shortand long-term roadmap of interventions with specific sectoral focus is presently among the key areas of orientation of the BEE's MSME energy efficiency programme. The roadmap would be carefully designed to holistically include the various aspects related to energy efficiency in the MSME sector including technical solutions like promoting common facility centers and technology demonstrations; financial incentives to promote EE technology adoption and skill development and awareness creation aspects.

Question: Kindly elaboratethe outcomes of the Energy and Resource Mapping of MSME Clusters.

Milind Deore: The Energy and Resource Mapping study resulted in establishment of energy benchmarks for the MSME clusters through the energy audits. Benchmarks for the key process stages and comparisons among different process technologies has been better enabled than in the past. One of the other key outcomes of the energy and resource mapping study has been the development of a comprehensive roadmap for promoting energy efficiency in the energy intensive MSME sectors. The roadmap holistically covers energy efficiency in the MSME sector including technical solutions like promoting common facility centers and technology demonstrations; financial incentives to promote EE technology adoption and skill development and awareness creation aspects. Under this study, BEE is also assessing the readiness of the sector for adoption of identified EE technologies. The bench-marks and EE roadmap has been refined through multiple industry interactions and consultations as part of the study. The workshops conducted across clusters were crucial for dissemination of the EE technologies and best operating practices for individual units to evaluate their performance and scope for energy savings. The consultation with MSME stakeholders resulted in identification of the several technical, financial, and regulatory barriers to adoption of EE technologies. In addition, policy recommendations and plan for their implementation were made to address the identified challenges.

Question: MSMEs have been struggling for long to reduce their input costs to make their products viable in the competitive market. Does energy management constitute a strategic area for cost reduction and is it a sustainable approach?

Milind Deore: The MSME units have three major costs - raw material, labour and energy. The raw material costs are dictated largely by the market forces. The labour costs, on the other hand, are dictated by the labour laws and minimum wages in addition to the labour market trends. Furthermore, as the work environments in MSMEs are often harsh, they are facing labour shortages as the workers are moving towards better work environments in cities in malls and commercial establishments. The energy cost can vary from 5 to 25% depending on industrial MSME sub-sectors. The energy conservation measures (ECMs) can reduce these costs and are often the first measure under the unit's direct control. Further-more, these measures often also lead to additional benefit of reduction in raw material consumption and associated costs. Some of the ECMs can also improve the working environment by reducing noise and improving safety for the workers as well as improve their overall productivity. Thus, energy conservation apart from being a sustainable approach for production, can also improve the global competitiveness of the MSME units.

Question: Do you see capital limitations as the main reason behind the slow progress in MSMEs adopting energy efficient technologies? What are the specific financial assistance programmes and subsidies available for technological upgradation of MSMEs?

Milind Deore: Yes, energy efficiency investments usually do not generate additional tangible revenues, but rather contribute to the earnings through a reduction in energy expendi-tures. This can make it difficult for banks to identify and capture cash flows from such projects and treat energy savings as assets of sufficient market value to justify a loan, despite the overall benefits which will accrue if implemented.

Following programmes have provided financial assistance to MSMEs for technology upgradation:

• Credit Linked Capital Subsidy for Technology Upgradation (CLCSS) provides 15% subsidy for additional investment up to INR 1 crore for technology upgradation by MSMEs. Technology upgradation would ordinarily mean induction of state-of-the-art or near state-ofthe- art technology.
• National Manufacturing Competitiveness Programme (NMCP) is the umbrella program for MSMEs which aims at increasing competi-tiveness of the MSME sector by addressing issues of access to technology, high share of energy cost due to technological obsolescence, product design, IPR issues, market penetration, quality certification, etc.
• Technology and Quality Upgradation Support to MSMEs (TEQUP) scheme advocates the use of energy efficient technologies (EETs) in manufacturing units to reduce the cost of production and adopt clean development mechanism

Question: How important is knowledge sharing in the promotion of clean energy technologies and practices? In this context, kindly elaborate on SAMEEEKSHA - the collaborative platform of BEE and Ministry of MSME

Milind Deore: EE investments are usually considered risky because of the uncertainties associated with the performance of technological interventions and the difficulty in demonstrating savings. Limited availability of EE technologies in clusters, limited knowledge on best operating practices and weak linkages with suppliers are also the main reasons for lack of technology upgradation in the clusters. The knowledge sharing platforms can provide the individual MSME units or industry associations the primary understanding of the host of energy efficient technologies and practices available. The knowledge sharing can also enable them to evaluate and improve their performance.

SAMEEEKSHA is one such platform for knowledge and experience sharing of various organizations regarding energy efficiency. However, there is potential for wider dissemination of the platform so that the relevant MSME stakeholders and industry associations are better aware about the information available to them. The platform has the potential to become the hub for dissemination of findings of the long-term studies undertaken by the BEE and other organizations. Hence, there is a critical need to promote the SAMEEEKSHA platform through resources such as newsletters and periodicals of the industry associations as well as mass media and social media platforms.

Question: What kind of international/multilateral collaborations has the BEE facilitated/become party to in mitigating climate change through energy conservation?

Milind Deore: BEE collaborated with World Bank under WB-GEF program to promote adoption of the EE and resource efficient technologies in the MSME sector. Considering the success of the Phase-I interventions carried out in five clusters during 2011- 2015, this programme was extended to 25 clusters across India during phase-II and phase-III of the project. Interventions carried out under the project have led to total energy savings of 2 million tonne of CO2 emissions and has supported implementation of over INR 330+ crore of EE investment across 25 MSME clusters across 13 states and union territories.

Bureau of Energy Efficiency along with UNIDO is executing a Global Environment Facility funded national project "Promoting energy efficiency and renewable energy in selected MSME clusters in India". The programme has an objective to develop and promote market environment for introducing energy efficient technologies and enhancing the use of renewable energy technologies in process applications. The project was operational in 12 MSME clusters across India in five sectors, respectively: Brass (Jamnagar); Ceramics (Khurja, Thangadh and Morbi); Dairy (Gujarat, Sikkim and Kerala); Foundry (Belgaum, Coimbatore and Indore); Hand Tools (Jalandhar and Nagaur). The project has now scaled-up and expanded its activities to 11 new clusters, to reach out to MSME's at national level. Under this project more than 1250 MSME units are getting benefitted. More than 1500 EE interventions are implemented under this project which has led to total monetary energy savings of Rs 112 Crores per year with investment of Rs 232 Crores.

BEE in association with Energy Conservation Centre of Japan (ECCJ) has developed EC Guidelines for MSME sectors in India for 25 energy intensive SME sectors of India. The adaptation of EC guidelines will make the units as best energy performer SMEs in their respective sector/cluster, motivating other SMEs in the cluster/sector for enhancing its competitiveness.

Question: What role does awareness and outreach programmes play in achieving sustainable development through energy efficiency?

Milind Deore: The awareness and outreach programmes help the MSMEs understand new and upcoming technologies and promote collaboration and knowledge sharing among the MSME units. These can lead to behavioural changes among the management and staff of the MSME units to adopt the best operating practices and shift their view towards energy efficient technologies. In order to develop the confidence of entrepreneurs and staff at MSMEs on the applicability, practicality and feasibility of new state of the art EE technologies in the MSME clusters, the pilot implementation in sample MSME units can be undertaken. The awareness and outreach programmes can be used as a platform to share the experience and testimonials of these sample MSME units to the stakeholders across clusters. These programmes can also arrange visits to these units to get first-hand information on the benefits achieved.

Interviewed by EN team

The interviewee is Director, Bureau of Energy Efficiency, Ministry of Power, Government of India.

Views expressed are personal.