Financing Lighting Market Transformation

January, 2011

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 Structure
• WHAT
• WHY
• HOW
• WHEN

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WHAT?

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Current Market Scenario

• India and other South Asia are amongst the fastest

growing regions in the world
• Fast growing population, urbanization and
industrialization require additional installation of power
generation facilities
• Their increased demand will put a further strain on these
power generation facilities.
• C
Currently
tl lilighting
hti consumes 18% off ttotal
t l power
generated in the country.

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Current Market Scenario (contd.)

• Majority of the market is dominated by ICL and

fluorescent lamps. The market share by lamps
manufactured is given below -
– Incandescent Lamp – 63%
– Fluorescent Lamp – 14%
– CFL – 21%
– Other Lamps (LEDs) – 2%

• Technologies that are slated to replace conventional

lighting are CFLs and LEDs.

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CFL lighting in India

• The CFL lighting story is often seen as a success story by the

GOI, where policy interventions led to increase in CFL production
from 20 million lamps in 2003
2003-04
04 to 255 million in 2009-10.
2009 10.

• The GOI was also successful in reducing the cost by almost 50%

• It led to the establishment of major CFL manufacturing

companies and other support infrastructure in India. Some of the
major companies that have production facilities in India are
Osram, Phillips, Havells.

• D
Due tto a strong
t manufacturing
f t i base
b in
i IIndia,
di CFL manufacturing
f t i
would enjoy significant economies of scale, and increasing
manufacturing capacity would further bring down the price of CFL
lamps.

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CFL lighting in India (contd.)

• Therefore, CFL lighting is amongst the fore-runners to replace

ICLs in India.
• Disadvantages
Di d t - However,
H one off th
the major
j disadvantages
di d t off
CFLs is the generation of toxic waste in their disposal as they
contain mercury. The average mercury content in CFLs is 4mg.

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LED lighting in India

• Currently all the demand for LED lighting is imported into

y
the country.

• There are around 10 million street lights in India that can

be replaced with LED lights*.

• A few pilot projects have been setup to explore the

feasibility of LED street lighting, however very few visible
efforts
ff t have
h b
been d
done iin th
the iindoor
d LED lilighting
hti market.
k t

*Lighting industry Report

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LED - Challenges

• Technology
– The technology to manufacture the LED chip is possessed by
only a few companies
companies, who are reluctant to setup manufacturing
bases in South Asia to protect their intellectual property rights.

• Cost
– This exclusivity of the technology along with existing import taxes
leads to the high cost.

• Standards
– Absence of national technical standards for testing and
verification of LED technology and specifications , which apart
from constraining its penetration, lends itself to import of sub-
standard LED devices.

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LED - Opportunities

• Safety
– LEDs do not generate toxic waste with their disposal
• Efficiency
– LEDs have a higher luminous efficacy as compared to CFLs;
hence they consume less electricity, reducing costs and GHG
emissions. (An estimate from LED street lighting projects in
other countries p
puts the estimated reduction in electricity
y at
50%)
• Life
– LEDs typically have operating lives of 50,000-60,000 hours as
compared to 10,000 hours for CFLs, thereby reducing Life
cycle costs.
• Strength
– LEDs are sturdier and can withstand mechanical shock and
rugged conditions unlike their fragile CFL counterparts.
counterparts This is
quite suited to conditions of rural India and South Asia where
damage and losses can occur typically due to rough handling

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LED – Action Items

• Implement a standard for quality testing and verification of LED

products in India; presently due to a lack of such standards some
manufacturers state unrealistic specifications of their products.

• Given the potential of the Indian market, for LEDs to become cost
effective it is important for local manufacturing to start on a large
scale. Significant investments will be needed in R&D and in
reducing packaging and manufacturing costs.

• The Government of India imposes overall duties close to 30% for

LEDs imported into India. Reforms will be needed in the tax
structure to ensure a favourable pricing mechanism for LED
lamps.

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LED – Government Stimuli

• Due to lack of standard monitoring and verification of LED

standards, the GOI suggests initially focussing on high use and
bulk commercial applications like public lighting like streets and
stadiums.
• Large coordinated retrofit projects are more economical than
small-scale projects.
• To integrate LED lamps in households, the government has
suggested integrating LED lighting under the second phase of
the Rural Electrification programmes, where 5 million BPL
households will be provided with one free LED sourcesource, as against
one CFL lamp. This will require additional funding of Rs 300
crore.
• Also it is expected that at first majority of the growth of the LED
lighting market in India will take place in the commercial lighting
sector, as the savings made will be larger owing to the higher
tariff as compared to the domestic lighting tariffs.

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WHY?

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Why do we need energy efficient lighting

• Reducing power consumption/energy efficiency

• Reducing green house gas emissions

• Employment
– The GOI has earmarked numerous schemes that have set
ambitious targets to replace ICL in India. These projects can
provide substantial employment and opportunities for
development for Indian industries.

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Predicted savings in electricity by employing energy
efficient lighting

2016 2021 2026 2031

Current Scenario GWh/yr 73676 91092 107890 125601

Scenario by
employing energy – GWh/yr 48874 53656 60618 70073
efficient lighting

Savings in electricity GWh/yr 24,801 37,437 47,272 55,528

Ref:Residential consumption of electricity in India: Documentation of data and 
methodology (2008)
methodology (2008)

*Assuming that sale of ICL and magnetic ballasts is prohibited from 2015
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 Street Lighting Technology Landscape
Technology Mercury  High‐ Induction Cosmopolis LED
Vapor Pressure 
Sodium
Commercialized in 1940s 1970s 1980s 2000s 2000s

Description Older, very  Most prevalent  White‐light  White‐light  White‐light, 

common white‐ HID light source  electrodeless  metal halide  directional, 
light HID
light HID  for SL; orange
for SL; orange  fluorescent HID
fluorescent HID  HID source
HID source solid‐state light
solid‐state light 
technology light light source source
Color Rendering High Low High High High

Initial Cost
Initial Cost Low Low High High High

Lamp Life 24,000 hours 24,000 hours 100,000 hours >24,000 hours >50,000 hours

Lamp Efficacy <60 lm/watt ~120 lm/watt ~65 lm/watt ~120 lm/watt 100‐120 

lm/watt
Fixture Efficacy <17 lm/watt <54 lm/watt <54 lm/watt <86 lm/watt <90 lm/watt

Contains Mercury? Yes Yes Yes Yes No

Price Range (per 
Price Range (per $100 ‐ $200
$100  $100 ‐ $200
$100  $300 ‐ $600
$300  $300 ‐ $600
$300  $250 ‐ $1,000
$250 
Savings Potential:
unit)
Fixture Only 68% 50%
Fixture + CMS 76% 63% 16 CONFIDENTIAL DRAFT FOR DISCUSSION
Why is financing of energy efficient lighting important

• Growth - Ambitious government projects and steady demand by

private sector
– These are driven by y both need for reduction in GHG emissions and
energy efficiency targets.
– To integrate LED lamps in households, the government has suggested
integrating LED lighting under the second phase of the Rural
Electrification programmes, where 5 million BPL households will be
provided with one free LED source.
source This will require additional funding
of Rs 300 crore.
• Focus on local manufacturing
– This calls for major increase in local manufacturing capacity. Example,
a governmentt scheme
h aims
i to
t replace
l 400 million
illi incandescent
i d t lamps
l
with CFL lamps (the current domestic production is at 255 million
lamps)
• Social focused projects
• Government Subsidy
– An important feature of government schemes is to provide
lamps at a significantly lower price, the subsidy provided will
have to be financed byy bank loans or other ggovernment
fi
financing
i schemes.
h

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HOW?

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Areas for Financing

• Project Financing
– Many Planned Street Lighting Projects will require financing from
either the Central or state governments or external financers.

• R&D
– Financing for support infrastructure like testing and
standardisation facilities.

• Manufacturing
– Companies will also require funding to setup production facilities
in India.

• CDM
– Banks and financial institutions will also have a major role to play
in carbon trading
g if indoor LED distribution p
projects
j are modelled
along the lines off the “Bachat
“ Lamp Yojana”. ”

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A government lighting scheme

The “Bachat Lamp Yojana”(BLY)

• Under this scheme the GOI aims to replace 400 million incandescent
l
lamps with
ith CFL
CFLs.
• This is expected to save 6000 MW of electricity (potential cost
savings of INR 24000 crore/annum), and an estimated CO2
reduction of 20 million tonnes.
• Households will procure CFLs which cost Rs 100 for Rs 15 (the
normal cost of an ICL).) The balance cost is covered byy investors
who invest in this project. They are provided with CER certificates
under the CDM which can be sold to developed countries who fail to
meet their emission targets.

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Opportunities for financial institutions
under the BLY

• Provide financial support to manufacturers to increase their

production capacity

• The current market price of a CFL is Rs 100 while consumers will

be p
procuring g them for Rs 15,, the balance amounts to more than
USD 750 million which will be paid for by investors in the Bachat
Lamp Yojana. These investors will be looking to financial
institutions for support.

• Facilitate in the trading of CER certificates under CDM.

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How can these projects be financed
Source
Central and State government
funds
External Financing through
agencies and banks
Description
Stimulus funds, state/provincial
programs, municipal programs.
Assistance could include
partnership in government
programs like the Bachat Lamp
j
Yojana, subsidies to
manufacturers, reduction in
excise and other indirect financial
assistance
Structured loans from institutional
investors and private equity firms
can provide for the capital
investment required for major
infrastructure projects.
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Remarks
There are government financing
programs for both indoor and
outdoor lighting. This includes
schemes to make CFLs available
at affordable rates to partnership
in street lighting programs
In addition to infrastructure
projects, these sources can
provide for funding where the
cost of the government subsidies
are borne by lighting equipment
distributors.
Source Description
Carbon Finance The resulting GHG emission
reductions are used to obtain
CER certificates under the CDM,
they can then be sold to Annex –
1 countries that fail to meet their
emission targets.
Remarks
Carbon finance can be a steady
source of income to p provide for
the cost of projects. It is already
being implemented in a few
government schemes and can
be applied to both indoor and
outdoor lighting projects.
Banks would have a major role
to play in facilitating the trade of
carbon credits

Microfinance/microcredit Microfinance loans can be Numerous Microfinance

provided to rural entrepreneurs institutions operate in India and
to sustain
susta their
t e business.
bus ess E.g- g tthe
e South
Sout Asian
s a Region.
eg o
Women entrepreneurs who rent
out solar lanterns on a daily
basis.
Further, loans can also be
Further
provided to people for whom
lighting equipment is essential to
their business, e.g. – Night
fishermen artisans like weavers,
fishermen, weavers
carpenters, etc.

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 Source Description Remarks
Utility Company Utility-based rebates, incentives, and on-bill
finance programs

Debt Equipment leases, including:

•Capital
C i l lleases
•Operating leases
•Tax-exempt lease purchases
Structured finance
•Medium-term structured loans from commercial
banks or other third party financiers

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Project E
Example:
ample Los Angeles
• 140,000 city streetlight fixtures replaced  CCI Role
with LED fixtures, and installation of remote 
CCI assisted the City of Los 
CCI assisted the City of Los
monitoring system
Angeles in:
• $57 million project cost
• $10 million energy and maintenance savings  • Developing and 
(per r)
(per yr) communicating the business 
i ti th b i
• 40,500 t/CO2/yr in annual CO2 savings case for the project
• 7 year payback • Soliciting informal financial 
• 5 year installation period to allow city to
5 year installation period to allow city to  proposals for “off
proposals for  off balance 
balance
tender in small, discrete increments sheet” solution; proposals 
• Project ultimately funded with combination  demonstrated strong project 
of 7‐year, $40 million
y ,$ loan at 5.25%  economics which eventually
economics which eventually 
provided by LADWP; $3.5 million from  led LA to “self‐fund” project
Street Lighting Maintenance Assessment  • Convening stakeholders
Fund and $0.24/kWh incentive • Bringing attention to the 
• Project currently ongoing, with savings project
greater than anticipated and project costs
lower than anticipated 25 CONFIDENTIAL DRAFT FOR DISCUSSION
 A Mechanism where energy savings pays
for the cost of the equipment

• A financier enters into an agreement with an ESCO/project

implementer to provide energy efficient equipment to a customer
and future repair and maintenance
maintenance.
• The financier covers all equipment and project maintenance
costs.
• The customer repayment is based on the energy savings and
reduced operating expense
• After the expiration
p of the agreement.
g The customer has the
option to purchase the equipment.
The 3rd party covers
ESCO designs Customer the entire project cost.
cost
and installs the The customer repays
equipment him on the basis of
energy savings

The 3rd party and the ESCO enter 3rd Party

ESCO into a contract to pay for all
installation and maintenance costs Financer
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WHEN?

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