the new business switch

The New Business Switch

September 2011

Energy | Sustainability | Strategy

About Us1


About Us

Established in 2004, Emergent Ventures is the pioneer in the areas of Environment consulting

and climate change mitigation solutions. EVI is one of the largest integrated climate and clean

energy firm in the world. The company’s core objective is to enable the financing of clean

technology and demonstrate the viability of market based solutions to mitigate climate change

and achieve sustainable development.

EVI works with customers to maximize the value of carbon assets and reorient business

practices in a carbon constrained world. EVI acts as a strategic partner to develop implement

and execute profitable business models that enhance renewable energy, clean technologies

and promote sustainable development.

Currently EVI has more than 120 consultants working on over 300 client engagements in over

15 countries across 5 continents.

Forward 2


Foreward

Sustainable Development is amongst the biggest challenges facing our

planet. Despite sluggish progress on a global climate change treaty, this issue

is foremost in the minds of governments and corporates around the world.

Corporates are taking significant mitigation actions, often voluntarily.

Governments have launched ambitious programs, despite the global

economic turmoil. This gives hope that we will together develop a path to a

more sustainable future.

The journey is going to be long however. We need to cut GHG emissions by

80%+ by 2050. We need to solve problems of water, waste, food , health and

energy in a sustainable manner. We need to reduce disparities of access to resources. Innovation will

be the key. Innovation in technologies, business models, supply chains and policies. We will also need

to cohesively bring various stakeholders together.

The New Business Switch is a magazine dedicated to building a momentum for such a significant

shift. It will present new insights and information for decision makers in the corporate sector,

governments as well as other stakeholders. We hope to do this in a collaborative manner. We seek

active participation from its readers, to challenge us, or to contribute useful viewpoints to evolve our

shared thinking.

I am very excited to present the first volume of the magazine to you. And hope you enjoy it.

Vinod K Kala

Managing Director

Inside3

Inside

Energizing the Energy ChangeEnergy Efficiency is not only a technology issue but an organization wide challenge as

well. In order to expand and accelerate the adoption of energy efficiency practices

across the board, organizations need to follow a consolidated approach with a focus on

building the underlying belief architecture and augment it with reinforcing processes, more

similar to a change management process.

Financial Planners ConundrumWhat issues make financial planning for energy efficiency projects with longer payback

periods difficult and how can the planned policy interventions by Indian government

address those issues ?

Cleantech ReviewWater and Industrial flue gas processing sector - A snapshot of the Business Strategy of

Green Tech Aqua, an innovative Cleantech enterprise.

The Big Trouble with the Big SolutionHow data centres, central to our IT revolution, are posing an enormous business

challenge in form of their energy consumption. What are the solutions beyond the

obvious technology upgrades?

The Curious Case of Venture Capital in Energy Efficiency Despite VC in Energy Efficiency considered to be a 'Low Hanging Fruit', why has VC

funding dried up in this sector ? How are emerging macro-economic factors effecting

the flow of funds into Energy Efficiency projects ?

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SF23

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Emergent Ventures

Publisher

Yash Saxena

Yashvardhan Kher

Editorial Team

Madhur Prabhakar

Marketing

Akif AhmadDesign/Graphics

W

Energizing the Energy Change 4

What will an investment opportunity of US$ 10 billion with a return of over 100% involving no

technological complexities or dependence on regulatory environment sound like? A gold rush? 1

Quite likely. Yet the US$10 billion investment opportunity in the energy efficiency sector in India

continues to fail to take off on its own. The situation is not limited to India; it has parallels in other

geographies too. In US, $450 billion of investments in energy efficiency with an average financial 2return exceeding 38% across US are waiting to be explored . Most of these US$ 450 billion

investments involve simple technologies centering on cooling, heating, lighting etc. Neither the

profitability nor technology in these cases is a challenge. Yet energy efficiency strangely

continues to be on the back burner. But what comes across as most interesting is the fact that

contrary to popular perception, financial viability is not the greatest barrier to its adoption.

This really brings us to one of the most pertinent facts about energy efficiency; if neither the

profitability nor the technology is a challenge then what continues to hamper its adoption? Why

do companies still find simple efficiency measures hard to implement and fail to unlock the value

in energy efficiency?

The clues to the problem probably lie in the way energy efficiency is perceived, handled and

implemented. For very long energy practices have been looked at as a technology issue

whereas any change in organization wide energy practices cannot be achieved by just patching

it with a technology fix. It needs- as we see in the following discussion- a much more potent

driving force in order to bring change at all levels. Without a fundamental change in the belief

around the energy practices of an organization, organizations may continue to find unlocking

the value in energy efficiency difficult to realise. This difficulty in unlocking the value in energy

efficiency is one of the reasons why most profitable investments in energy efficiency also remain

unlocked.

As we further trace the architecture of change management and energy efficiency, we also see

why organizations need to target energy practices, and many organizations already do with a

much wider inventory of tools much like a change management process.

Energizing the Energy Change

1POWERING UP, The Investment Potential of Energy Service Companies in India, Delio E, Lall S, Singh C, WRI2DOE



The Disconnect Between The Action & The Result

Infact many of the inherent impediments to energy efficiency are of similar nature as those

encountered in change management.

Change management in itself is a challenging process and it is often the apparent disconnect

between the process and the outcome that increases its complexity. The link between the

process and outcomes is often difficult to decode. Outcomes are achieved over a long period of

time and when achieved, could also be diffused through the organization. Perceiving outcomes

in the making in such a situation would require a keen vision. Such a view of organization is not

generally available to lower/middle management ranks, who are the most important action

agents of the process. Without a clear link between the results and action, the understanding of

the 'change' process and therefore its significance remains low with the employees. This hinders

the participation of the employees in the process leading to its ineffective implementation.

The lack of a clear link between the action and the outcome is also inherent in energy efficiency

plans. When an employee working at the shop floor takes a certain step that saves energy, the

benefit is reflected in the accounts department in terms of lower energy bill. An employee has no

direct visibility of this benefit. At other times an employee cannot gauge the result of his action at

an individual level in the overall results from that of action/inaction at the organizational level. If

an employee has no idea how much his actions count, he will have no motivation to

make them count. The end result is simple; unless an employee is a staunch believer of the

process, he will loose the zeal to continue efforts at the individual level. Infact companies are

trying to bridge this gap by greater information dissemination. A major Indian oil & gas company

continuously provides data to its employees by regular dissemination at the plant site.

Action Agent: Employee at the shop floor saving energy

savings pile up over the year into a significant quantum. The overall

significance emerges only after several years

The challenge of keeping employees convinced/engaged during the process implementation

Long time period spent during

'process' phase convincing results

are achieved;

Time Distance

OutcomeProcess

Action Agent: Employee at the shop floor saving energy

Results: Employee in the accounts department able

to see the outcome in terms of lower energy bills

Organizational Distance

OutcomeProcess



Therefore in such situation it is important to decouple the necessity of action during the process

from the expectations of outcome. Therefore in essence the employees must engage in the

process irrespective of their expectations of outcome. This requires that the employees believe

in the process. If they believe in the process, lack of visibility of outcomes will not threaten the

process. In order to create this belief an organization can take a string of

mandatory/incentivization/capacity building/communication programs.

Therefore establishing or nurturing a powerful, underlying belief among the employees for the

process itself is central to the whole process.

What are the most important drivers of change? ‘Change’ whether political, social or

organizational is driven by the belief behind it. There are other factors that are important to cause

change like technology but none of them are as important as the belief. If change is about

people then they must believe in it. Much of that is a no brainer. But secondary facilitators like

technology cannot be confused with the primary change agents like belief.

Creating a ‘belief’ in contrast to technology Is a more involved and a continuous process, and is

therefore challenging. It requires an organization to approach this task from a change

management point of view and bring it to a level of sophistication and planning, which we’re not

witnessing currently within the companies.

Energy efficiency may have failed to take off on its own but integrated programs that brought

with themselves the sufficient ‘belief’ tools and focus on people rather than just technology have

been much more successful. ‘Energy Star’ program has been one of the most successful

voluntary programs for achieving energy efficiency in the US. Achieving “energy efficiency

culture through executive leadership” and “business transformation opportunities: energy as a

lever for positive growth and change within the business” are some of the fundamentals of this

program. It underlines the need to establish ‘energy efficiency’ as an active belief within the

organization before technological measures can be successfully implemented. The program,

as a successful initiative on energy practices had also developed itself as a brand of good

energy practices. This belief in the ‘Energy Star’ brand allowed organizations to achieve change

in their energy practices which would have been difficult otherwise.

Belief as A Driver Of Change

Relevance of Change Architecture to Energy Practices



The lesson of creating the belief is also crucial to energy efficiency programs. Energy efficiency

programs are very dependent upon employee participation. Many energy efficiency

opportunities require employee training/action to realize savings from technology

improvements. For e.g. Use of variable frequency drives (VFDs)- known to be a very cost

effective energy efficiency opportunity- requires the employee to be trained in the operation of

VFDs in order to realise the savings potential, or on the automobile assembly lines, compressed

air systems can realise energy savings only if operators use them at the right pressure. In 2006

Sainsbury realized appointing motivated employees as ‘energy efficiency champions’ in a store 3

can save 5% energy, just through housekeeping measures .

Implementation of enterprise wide IT systems cannot be seen simply as a

technology issue. It is also an organizational issue, as the technology may

be implemented across the organization, and will require a fundamental

change in the way people operate in the organization. "When you move to

SAP, you are changing the way people work, You're challenging their

principles, their beliefs and the way they have done things for many, many

years" said Dunn, the CIO of Nestle when Nestle decided to implement an 4enterprise wide resources planning system . Such systems are also long term

projects. It took Nestle six years to implement this project and even longer to

show its benefits. Such long implementation time periods require that the

process be decoupled from expectations of outcomes, as explained earlier. Such situations

commonly require effective change management for success.

In case of energy efficiency, the situation is no different. Not only do such programs take time to

show their accumulated benefits but such programs also require people to change their work

behavior. Much like Nestle's case cited above, energy efficiency programs need the same kind

of change management perspective for success as do other processes, including building the

'belief' within the organization for energy efficiency.

Building the belief in the employees for the 'process of change' is a challenging task. It requires

a fine balance among a number of elements in order to be achieved. A number of existing well

known frameworks are available that can be used to plan the 'belief' building process. We would

explore the change process in context of energy efficiency and a mix of our own approach and

available frameworks.

Building the belief: creating a convincing idea

3Sainsbury Carbon Saving, Solution Case Study-CTS083, carbon Trust, 20094Nestlé's Enterprise Resource Planning (ERP) Odyssey, Ben Worthen, 2002,

http://www.cio.com/article/31066/Nestl_eacute_s_Enterprise_Resource_Planning_ERP_Odyssey?page=1&taxonomyId=3009

Sustain the Belief

Build the Belief

Seed the Belief



In 2009, Carolyn Aiken and Scott Keller of McKinsey & Co., gave a change management

framework involving four basic elements for managing change- a) a compelling story, b) role

modeling c) reinforcing mechanisms d) capacity building.

We begin with the 'story' part. A 'story' of change is often a simplistic explanation of the entire

process. It communicates to all stakeholders of the process including the employees about the

'reason to change?' Creating a convincing story lies at the core of the process to create a 'belief'

behind the change; a change that employees can believe in.

However it is not as straightforward as it may sound. It is often the most complex part. As Aiken

and Keller further explain that a good story must build into a process wide range of motivation

factors. This is to address the variations in motivation factors across employees. Some are

concerned most with the impact on society, some with the impact on customers and so on.

Therefore a convincing story must address the widest possible range of stakeholders -

customers, employees, shareholders and the society.

For energy efficiency planning it is advisable for companies to

consider energy in a wide perspective. A story of change in

energy practices must place the change in context of all

stakeholders - shareholders, employees, customers,

suppliers and society. Addressing the societal context of the

story, in particular, will require a story much broader in

perspective. It will need to emphasize the challenges that

society faces in relation to energy practices -like climate

change & sustainability. A broad story like that of sustainability

that starts with addressing the societal context of energy at the

highest level and comes down to enhanced competitiveness due to

energy savings will address all strata of employees in the organization.

Firms may tend to favor crisper and focused stories like one that says that “we must reduce our

energy costs in order to create greater competitive advantage for our firm in market place”.



Yet such a story likely to be attractive to the people in higher management, may not work for

lower management of shop floor employees. They might find a story that puts this in context of

how this benefits the society more attractive. For e.g. during the course of an

energy efficiency drive, management at the Indian subsidiary of an global

chemical major found that to motivate the lowest rung of employees,

social messages for advocating change work very well. As in this case

the rationale of saving energy at the factory so as to make more

electricity available for residences worked very well. This may imply

that stories can be more broadly focused.

A story must not only set itself to engage with stakeholders but also

put that into practice. That is what Wal-Mart set to do in 2007 when it

introduced its “Sustainability 360” program that aimed to take Wal-Mart's

sustainability program beyond the organization and engage with its associates, suppliers, 5

communities and customers .

The story of this change as put into words by its CEO, Scott Lee, “We all have an opportunity

to be more sustainable. But even more, we have a responsibility. We need to be

sustainable companies and countries made up of people who live sustainable lives. If

we do that, if we do it throughout the coming decades, I believe we will make

sustainability, sustainable. And this generation will leave a healthier humanity and a

healthier planet to future generations”. Notice the broad focus of the story. Not to our

surprise energy efficiency was a part of this overall strategy. And the program has delivered too; 6

Wal-Mart has achieved its 20% energy efficiency target set for 2012 in 2007 already .

Infact many companies that have achieved success in energy efficiency have focused on larger

aspects of sustainability and used them to address a number of related sustainability

challenges–like waste and water and other opportunities like revenues in green products along

with energy. A story of sustainability that addresses all stakeholders, holds a simple message

and is elegant. Products under Ecomagination- GE's sustainability focused program - grew to 7

$18 billion in 2009, slated to grow at twice the rate as compared to the corporate sales growth .

5Wal-Mart CEO Lee Scott Unveils "Sustainability 360" , Walmart, 2007, http://walmartstores.com/pressroom/news/6237.aspx 6Walmart Global Responsibility Report 20117Ecomagination, GE



Seeding the belief in the employees

For people to start believing in something they need to see it in practice at close quarters and be

engaged actively in shaping the belief. Something we might call seeding the ‘belief’ close to the

employees as well as giving employees the choice to be actively or passively involved with the

process from there on.

For example, one very common practice of creating task forces of employees to champion

change objectives within the organization, achieves not only seeding of change

at close quarters to employees but also allows a certain number of employees

to directly shape the activities. E-bay as a part of its sustainability agenda has

created a number of 'green' teams in their employee ranks across all

geographies. It has allocated close to 15% of its workforce to these teams and

empowered them to take up greening projects within the organization in 8

entrepreneurial mode . The program gives employees freedom to make

their choices in attaining sustainability. The coffee plantation subsidiary of

a major Indian business group created small teams that cut across the

cross-section of employees in order to achieve energy and water savings.

The shaping of process by the employees also gives ownership of the change to the employees.

This ultimately increases the acceptability of change. As Aiken and Keller wrote “when we

choose for ourselves, we are far more committed to the outcome”.

Through such efforts employees can also see this 'change' at close quarters through their peers.

This creates role-models of change within the organization. Such teams must and generally do

incorporate participants from all levels of management. For different people different role

models might click. Inclusion of people from all strata of management will provide role models of

different types - those who work at your level as well as those who are higher above. Role-

modeling in essence achieves in showcasing, or what we earlier referred to as 'seeding' the

'change' in operation to employees.

Novartis has instituted 'energy excellence' awards wherein the company awards its employees

for best energy practices. Through the process the company has been able to identify

significant energy efficiency projects with returns exceeding 100%. One such project reduced

energy consumption at their Kundl facility by 10%. According to Novartis, “The Energy

Excellence Awards are very effective in mobilizing our associates' creativity to contribute to this

global effort. These initiatives help accelerate our efforts and these efforts are showing a

genuine impact. ”

8Ebay, 2009, http://www.ebaygreenteam.com/press-releases/20090921005487



Beyond rolemodels, to further intensify employee exposure to change, companies could

institute programs wherein the employees can engage with the elements of 'change' beyond

their work place. For example, to accelerate its energy efficiency programs, Sainsbury has

designed and provided hybrid electrical cars for each of its employees along with incentives to

install house insulation. What this achieves is that when employees engage in sustainability or

energy efficiency in their personal lives, their acceptance for 'change' in energy practices

increases.

While creation of belief or seeding is the most important part of any change process; reward

programs, transformation in work processes are other factors that facilitate the change. These

are reinforcing agents. The basic science of reinforcement mechanism in perspective of change

management has been previously explored by a number of experts, including Aiken and Keller.

However, as we take the discussion forward we will explore the issue in light of the changes in

energy practices. Incentivization programs could include both monetary and non

monetary incentives. However Aiken and Keller would suggest not to tip the

balance of incentives towards the monetary side. Infact if there is a strong 'belief'

acting as the undercurrent of the process, the role of monetary incentives could

be minimized. A possible way could be to integrate the energy efficiency

responsibilities into the key responsibilities of key employees. Dr. Ram Sai at

Bayer India told us about the difficulties he faced in commissioning an energy

efficient building at its processing and manufacturing plan in Greater Noida. He told

us that the energy efficiency goal was not incorporated into the KRA of many employees

required to contribute to the project.

The inherent challenge in any such process is to arrive at a metric to benchmark performance. A

number of energy efficiency opportunities are a result of behavioral changes of the employees.

Such energy efficiency potentials while easier to capture on paper are more difficult to capture in

actual working. Infact, as argued in much of the earlier text, the human component to achieve

energy efficiency is so widespread that arriving at strict performance metrics to which

employees are committed is challenging. Which is why there is significant merit in basically

working to change the 'belief' regarding the energy practices and supporting it with changes in

the work process rather than the other way round.

Sustaining the process



Additionally, some examples discussed earlier like those of constituting energy practices

awards can provide both non monetary and monetary incentives. The honor associated with the

reward being the non monetary component while award money could be the monetary part.

Another aspect to be looked into closely is not to overburden a few employees with ‘change’

responsibilities. Energy efficiency practices require significant effort and therefore it cannot be

sideloaded to employees already handling responsibilities. Appropriate adjustment must be

made while deputing responsibilities of energy efficiency with due

consideration given to the effort required in energy efficiency

implementation. If possible full time employees must be dedicated

for the task. A fortune five hundred Indian oil & gas company had

constituted a full time sustainability and energy team to further their

efforts in energy and carbon management. The company also elevated

the group head to CXO in order to empower the team.

Other factors to be looked into are the training of employees to deal with changed

energy practices. Unless the employees feel capable of adapting to change, they are

unlikely to welcome it. Capacity building can create confidence in employees of

adapting to 'change'.

What remains central to the discussion is the fact that energy efficiency is an organization wide

challenge. It needs to be looked at with the same perspective as other change management

processes. Infact, in addressing the energy practices, organizations are employing a variety of

change management practices. But a vast number of organizations are still considering energy

efficiency as primarily a technology issue and are pursuing efforts in a disconcerted manner

rather than the consolidated approach it requires. However, in order to expand and accelerate

the adoption of energy efficiency practices across the board, organizations need to follow a

consolidated approach with a focus on the underlying 'belief' architecture and augment it with

reinforcing processes.

Authors - Yash Saxena & Yashvardhan Kher


Financial Planner’s Conundrum13

WWhether to invest in energy efficient equipment for the upcoming manufacturing facility or

whether to retrofit the existing facilities is often not an easy decision. Mainly because it is not easy

to evaluate the cost benefit equation of such an investment option and therefore most

companies proceed without exercising one. Most corporates may have come across

the situation sometime when they had to decide upon the energy efficiency levels of

their equipment in which they are doing significant capital investment but yet

did not have sufficient information at times to clearly evaluate this equation.

In general more efficient equipment may have higher initial cost but lesser

operating cost. And therefore profitability of investment in more efficient

equipment will be dependent on will investing in more efficient equipment

be more profitable will be dependent upon, among other things, the level

of activity/production that you're going to engage the equipment. To make informed decisions

on these investments one would require your likely production forecasts or the market trend in

coming years. While forecasts and decisions based on such forecasts are made at least for the

short term, the forecasts beyond that cannot be very accurate. Therefore the profitability of such

investments over a longer period is contingent upon market forecast. Such market forecasts are

often not certain enough to throw convincing answers to decide upon energy efficiency projects.

Therefore the industry tends to have a tendency to stick to those energy efficiency investments

whose worthiness can be proved within short term period. In simple words energy efficiency

investments with a payback period of two years are fine but those beyond this are not. In one of

our conversations with a major Indian paper manufacturer who was increasingly looking forward

to taking steps that would reduce their energy bills, this was the case. The decision maker clearly

drew a line at two years in terms of payback for any project to be acceptable to the management.

And this is where typically many energy efficiency projects get stuck.

Financial Planner’s Conundrum

Variables Production level forecast

Technology trend for retrofits Company's business strategy pertaining to some production

facilities

Requirement reason

To ascertain the activity level and hence the opex saving

To determine whether the present technology is the best retrofit or a better retrofit option can be available in near future

To determine if the company is looking forward to continue the production line/facility in question or could it be closed/sold off

Possible mitigation

To create micro-economic incentives to push projects with higher than two year economic payback into the two year payback envelope



Further, it is not just the market forecast that may stymie some of these decisions. In the age of

Moore's law, it is quite natural for better technology to be available in short succession for the

same retrofits. So even if forecast certainty can be achieved in terms of production trend the

technology trend can still spring up surprises. The expected production or the technology trends

are just some of the few variables that might fog decision makers' minds. More variables could

be centered around the company's medium to long term strategy like what if the company is

contemplating if it should close down some production lines or what if it might find outsourcing

production more attractive two years from hence? Without certainty on many of these

parameters we can see why only short term projects may find favor within the firms.

It is this kind of an uncertainty that an energy efficiency regulation can do

away with. ‘If’ there are mandatory compliances then the decision is not

really about if but more about when or how. Regulations will introduce

additional economic incentives of adopting energy efficiency

equipments. By selling energy efficiency credits under the PAT scheme,

as explained later, revenue stream of energy efficiency projects can be

improved. Therefore the energy efficiency regulation in India -

PAT(Perform Achieved Trade)- will in theory be able to push more

projects into the two year payback window. Hence increase incentives

and acceptability for the firms who intend to take up efficiency projects.

PAT mechanism will create energy efficiency targets for the large companies in a few selected

sectors. Those exceeding the targets will receive energy efficiency credits and those performing

below the target will be required to buy credits form the over performers. Energy efficiency

credits in this case will be traded in markets and their price will be market determined.

Little is known about how the market will play out in early days. There is no indication of future

demand and supply. Currently large number of cost effective energy efficiency

practices/technologies exist in the market. It is possible that we may see companies adopting a

large number of technologies to achieve or exceed the goals. This could lead to a crash of EE

certificate prices resulting to a loss of faith in market in the early phase or it could happen the vice

versa. This uncertainty will not allow the financial planners to take into account the revenues that

might accrue due to the sale EE certificates, and hence arrive at a better payback for energy

efficiency projects. This will impede planning at the corporate level.

In this case how should a company plan for its PAT compliance for implementing energy

efficiency projects or credit based compliance. How can a company possibly compare which of

the two options - complying through purchase of credits or implementing internal projects - will

make a greater financial logic as the cost of compliance through externally purchased credits is

not known.



Moreover, if a company should decide to exceed its targets how should it determine the financial

upside of such an action as the monetary value of EE credits is not determined? What will be the

revenue inflow from the sale of EE certificates when a company intends to evaluate an energy

efficiency project? Without this information the return of the project cannot be calculated. If this

additional project payback cannot be monetarily accounted for; then the additional

microeconomic incentives that the PAT regulation aims to introduce also cannot be accounted

for. The monetary value of EE credits if neglected, takes us back to the business as usual

situation i.e. pre-PAT era where the projects were not seeing the light of the day because the

energy savings in itself were not enough to prove the project's viability.

One possible solution in the case could be to stipulate the minimum floor and ceiling prices for

the EE credits. Some other market mechanisms like the Renewable Energy Certificates (REC)

trading have stipulated such limits to the movement of the RE credits.

A minimum guaranteed value of EE credits will allow its inclusion into the cashflows of a project

and improve its return. This will possibly improve its payback periods and push many projects

into the bracket of short payback

However, mere stipulation of floor and ceiling prices will not enforce the price band. As it is the

basic of the financial markets, in order to enforce the prices of financial commodities there must

be regulating authorities who can intervene as a market player to monitor the price bands. For

e.g. Reserve Bank of India which frequently may absorb or release capital into the system to

regulate the monetary system. In the case of Bureau of Energy Efficiency, the regulating

authority for EE Credits such a market intervention role seems unlikely. It seems unlikely that BEE

would be able to absorb any supply of EE credits to keep their minimum price above the floor

price.

Alternatively maintaining the sacred price limits of EE credit through policy architecture is a

tough task, as there is very little understanding of this market. Therefore, even if the price bands

are introduced their function cannot be fulfilled unless some additional features are introduced

along with the price bands to maintain the bands in future. One possible option is to fix targets

which are reasonably high so as not to be over achieved massively and then protect the

industries against the price escalation of credits.

This protection of price escalation could be done through creation of a strategic EE credit

reserve that will be auctioned prior to yearly compliance dates at a reasonable price within the

stipulated price band. This would protect the market from escalating the price of EE credits. The

price at which this strategic credits reserve would be auctioned would become a good proxy for

EE credit price and help the companies to factor this into their energy efficiency project returns.

Therefore this would maintain a good expected price of EE credits that would further attract more

and more companies to over achieve their targets and enter the market for monetization of such

returns.

Author - Yash Saxena


The Big Trouble With The Big Solution16

IIn 2010, QTS opened the world's largest data centre that spanned 1.2 million square feet in area,

an area that exceeds twenty one soccer fields combined. It was yet another mega data centre on

the block surpassing the one Microsoft had built just an year ago, spanning 700,000 sq. feet.

The trend only reiterated the fact that data centres form the backbone of our

information technology era. From data storage for large corporations to clouds or

social networks, information technology sector depends upon larger and larger

data centres as solutions in their quest for providing better and wider service.

They form the competitive muscle behind the pretty looking web interfaces that

make billions of dollars for web based enterprises. In that context it is hard to

underestimate the crucial role data centres play in the strategy of large internet

enterprises.

Yet the enormous size of the data centres is as much as a solution as it is a challenge for the IT

industry. Data centres are not only capital intensive investments but they also incur massive

operational expenditure. They span over thousands of square feet of real estate on which

perches expensive computing/storage and cooling equipment that gobble up large amounts of

energy quietly. In 2006 data centres in the US alone consumed 61 billion units of electricity 9

annually at the cost of $4.5 billion representing roughly 1.5% of the total energy consumption in 10US . There in lies another challenge- the energy cost.

The data centres require energy for two purposes- Cooling & Computing/Storage and in

massive quantum. As the server technology is advancing, the equipments are getting denser.

This allows for greater computing power on per unit space basis. But this also increases the total

input power that goes through the equipment and that inevitably generates more heat leading to

massive cooling requirements. Infact by 2010, one study estimated that the lifetime cost of 11

running a typical server would surpass the capital cost of server by 2010 . Therefore the real

estate costs and energy costs are central to the management of a data centre.

To manage their costs of running data centres companies have typically pursued three types of

strategies. The first option for cost management lies in consolidating data centres, which

explains the trend towards mega server farms. This typically brings in economies of scale. The

option for cost cutting lies in procuring space efficient equipment. This helps in reducing the real

estate cost.

The Big Trouble with The Big Solution

9Report to Congress on Server and Data Center Energy Efficiency Public Law 109-431, EPA, 200710Ibid11Belady, Christian L. 2007. In the Data Center, Power and Cooling Costs More Than the IT Equipment it supports. Electronics Cooling.

vol. 13, no. 1. http://electronics-cooling.com/articles/2007/feb/a3/



However as a result of saving on space, servers get more dense and they also require more

cooling and hence more energy. Therefore there is always a tradeoff between saving more

space and saving more energy. The data centres are already reaching limits of incremental

space efficiency in terms of cost effectiveness and therefore focus of further cost management

at the data centres is shifting to data centre energy efficiency.

While the energy costs have climbed in the last five years, (33% for US industrial sector between 122005 and 2020 ), the real estate costs have not. Infact the real estate

values have slumped in the last five years by 25% between 2005 13and 2010 . This perhaps provided firms a reason to focus on

cutting energy costs rather than the real estate costs. Perhaps in

the trade-off between saving more space and using more

energy, the balance is now tilting towards saving more energy.

This is the third and most recent front for data centre cost

minimization- energy efficiency.

There is evidence that the industry is making progress on this third front. While the energy

demand from the data centres had doubled in five years between 2000 and 2005, it only grew by 14

56% between 2005 and 2010 globally and this has occurred inspite of growth continuing in

computing services. Companies are beginning to deploy a range of management and

technology options to reduce energy consumption at their data centres.

Data centres are typically rented. The industry practice for many small and mid size firms is to

rent data centres on the basis of number of servers or space. Only the largest of the internet

companies build their own server farms. Therefore the rented data centre spaces tend to pack

maximum possible number of servers in a given space and their focus is providing more number

of servers rather than reduce their operational costs. This tends to make many of the rented

server spaces inadequately designed to address energy efficiency. Therefore companies

providing rented data centres must move towards rental agreements that bring the energy costs

into the play and help them provide energy efficient data centres. Microsoft adopted this 15

practice to good effect to see its energy efficiency at data centres go up by 22% .

There is also a tendency to stockpiling server capacity or underutilization of data centres. 85% of

the data centre capacity is idle on average according to IDC. And there are multiple factors at

work for the underutilization or stockpiling of server capacity.

12Energy Information Administration, US13Based on S&P Case Shiller US National index as a proxy for US housing sector14GROWTH IN DATA CENTER ELECTRICITY USE 2005 TO 2010, Jonathan G. Koomey, Ph.D., 201115Employee Engagement Best-Practices for Energy Efficiency, QUAKING ASPEN LLC



Data Centre supply is very tight, maybe even short of supply. Therefore many companies may

tend to decide to own and operate their own data centres or rent data centres in anticipation

rather than wait for supply to become available in the market when they need it. Last year saw

facebook aggressively acquiring data centres in order to cater to anticipated demand. Acquiring

capacity in anticipation or otherwise leads to underutilized data centres. Underutilized data

centres use high amounts of energy most of which converts to little value for the organization.

There are a range of reasons why companies may end up with over capacity: anticipative

buying, difficulties in pinning down market growth and company's

requirements precisely - reasons that can’t be entirely avoided.

Therefore the pertinent question then is not how to avoid

underutilization but how to minimize it. Therefore

underutilization can be addressed at two levels. At one level

the company can plan its server capacity as efficiently as

possible and minimize building/renting additional capacity but at

another level if they plan to keep their capacity, they can plan to use their

capacity in the most efficient possible manner.

Apart from investing more efforts into forecasting and planning to minimize overcapacity,

companies can look at other options too with respect to their needs and risk perception. Some

companies with very large data centre needs and high risk perception can opt for internal data

centre management team. Others can outsource their data centre operations entirely.

Outsourcing inevitably brings efficiency that smaller companies can’t match. Companies like

Google who have mastered the art of data centre management use less than 1% of the world's 16

server capacity . Companies ranging from banking to retail firms, whose core business is not

running data centres, among these are renting large amounts of global data centres capacity to

handle their internal IT operations. Companies who have lower risk perception i.e. lower data

confidentiality risks can outsource their data centre operations. Infact recently, a banking major

based in Africa realized that their data centres were massively underutilized. They were using

only 8% of their data centre's capacity. The bank realizing that its core competence lies not in

running data centres but banking,therefore it is planning to hire a third party to run its data 17

centres .

While other companies who may not want to outsource their data centre operations can’t just

depend upon centrally administered energy efficiency planning. For a variety of reasons- such

as changes in business structures (for e.g. acquisition of a new company or divestiture of a

business unit), changes in product portfolios (dropping a product or restructuring product lines)

or expanding new market channels- the business needs change and hence data centre needs

also change quickly.

16Jonathan Koomey. 2011. Growth in data center electricity use 2005 to 2010. Oakland, CA: Analytics Press. July.

<http://www.analyticspress.com/datacenters.html>17http://af.reuters.com/article/investingNews/idAFJOE73J0NE20110420; Accessed 9 Aug 2011



Companies must equip the employees at data centre level or employees functionally close to

data centre levels to respond quickly to changes in business strategies to manage costs at data

centres. A dynamic and on-ground energy management agenda led by the personnel stationed

at or functionally close to the data centre cannot be understated in favor of a centrally

administered energy efficiency program.Rather than just purchasing the right technology,

building the right design, the companies must also equip the people on ground to act in the right

fashion in realtime.

To effectively train or atleast influence your employees to factor in energy efficiency at data

centres, firms can deploy a range of options. The practice of making your data centre’s energy

efficiency data public can help you communicate the importance of energy efficiency at data

centre across your organization. The importance of energy efficiency needs to be driven home

as not just as a cost argument but also as a sustainability argument.The emissions from data

centre operations globally in 2007 were 80 megatons 18

co e . The significance of this number can be gauged 2

from the fact that if all the world's data centres were

a country, their emissions would be more than

three-fourths of the world countries. Data centre

efficiency is also a more sustainable practice and

therefore is likely to generate more enthusiasm

among employees when also exercised as a

sustainability option. Google that runs the most efficient

data centres on earth not only makes it data centre’s efficiency data public but also drives it in

consonance with its sustainability agenda. It has adopted a much wider approach that looks at

the problem as not just cost but also a sustainability challenge and its efforts are achieving

remarkable success at their data centres.

Organizations running/renting large data centres must therefore address energy efficiency at

their data centres by relying on a mix of management options and technology fixes. A mix of both

options as discussed above would achieve improved results at lower costs.

16Jonathan Koomey. 2011. Growth in data center electricity use 2005 to 2010. Oakland, CA: Analytics Press. July.

<http://www.analyticspress.com/datacenters.html>



The Curious Case of Venture Capital in Energy Efficiency20

EEnergy efficiency has always been considered a 'low hanging fruit'- the quickest and the most

cost effective option to attain greater sustainability. It has been one of the most important pieces

of sustainability planning globally - at both firm and state level. Unlike the clean energy segment,

energy efficiency investments can be profitable without regulatory or government support and

energy efficiency is often looked at as a viable option to accelerate action on the sustainability

agenda. As energy commodity prices continue to rise globally, the investment in energy

efficiency is also growing. A recent Pike Research report indicated that the building energy 19

efficiency market is growing . In the US consumers-led spending on energy efficiency 20programs will increase 4 times by 2020 to $12.4 billion from $3.1 billion in US . Prima facie this

should drive greater venture capital investments into energy efficiency.

Yet inspite for some reasons as we explore further, this has not

turned out to be true. In 2010, only 20% of the cleantech venture 21

capital went into energy efficiency ventures . Instead the bulk of

the venture capital went into clean energy generation. The

average deal size for energy efficiency venture capital investments

was also lower at $10.13 million per deal as compared to $13.3

million for overall cleantech average. The investments energy

efficiency segment declined by 9% as compared to 2009 even

though the total investments in cleantech sector increased by a

whopping 66% in 2010 over 2009.

Inspite of potential for energy efficiency the flow of venture capital towards the clean energy

segment can be explained by the way the cleantech market has developed. Clean energy

projects have received generous government support around the world. Most government

support has been declared for mature technologies like solar, wind energy technologies. This

support has led most venture capitalists to seek investments in firms that are built around mature

technologies and are also sufficiently organizationally mature to participate in government

supported clean energy programs. While that has inevitably helped in accelerating the

deployment of clean energy technology it has also influenced the way venture capital is

operating in the cleantech market. Government policy seems to be attracting venture capital

away from cleantech segments like energy efficiency.

The curious case of Venture Capital in

Energy Efficiency

19Building Efficiency: Ten Trends to Watch in 2011 and Beyond, Wapner M, Wheelock C, 201120The Shifting Landscape of Ratepayer-Funded Energy Efficiency in the U.S., G Barbose, CGoldman, and JSchlegel, 2009, Lawrence

Berkeley National Laboratory21Based on Analysis of Data from NVCA and Dow Jones Venturesource



These later stage cleantech venture deals into also tend to be large investments. Something that

is evident by the fact that the average cleantech deal size in US in first two quarters in 2011

reached $14 million. This is not only the largest across all venture capital investment sectors but

it is also nearly double the size of an average venture deal in web enterprises, the current market

favorite. Since the late stage venture deals in more established technologies expend more

venture capital, it also reduces the amount that is available for other cleantech segments.

This also brings us to the point that if the cleantech market

structure was indeed the reason that was keeping the

energy efficiency market on the back burner then

would that trend change now given the growing global

debt crisis., the crisis has diminished the ability of the

governments to support large clean energy subsidies.

There are early indications that this is happening. Energy

efficiency emerged as the biggest investment segment in

Q2 2011, globally among all the cleantech 22segments as per the data from Cleantech LLP

both by the number of deals and the total amount

invested.

The growing debt crisis is leading to lower prices for renewable

energy equipments in the market and are bearing heavily on the revenues of

clean energy technology companies. This is possibly cooling the venture

capitalists' interest in clean energy deals, which is perhaps freeing up some

venture capital for energy efficiency segment.

Additionally as the as the risk perception increases, VCs may want

smaller deal sizes that can mature faster in the market. Energy efficiency

deals tend to be smaller in size. Inspite of energy efficiency being the largest venture capital

investment segment in Q2 2011, the average deal size was still smaller than those from other

sectors at $ 11.2 million. Some venture investors believe that energy efficiency venture deals will 23

return to vogue in 2011 .

22http://www.businesswire.com/news/home/20110706005804/en/2Q-2011-Global-Cleantech-Venture-Investment-33; Accessed 5 Aug

201123http://www.kachan.com/cleantech-greentech-predictions-2011-forecast-trends



While the current global debt crisis may have shifted the focus back to energy efficiency. the

concern still is that debt crisis cannot be the lasting reason why energy efficiency investments

must receive more VC attention. Alternatively it is the policy evolution in cleantech space that

must spur energy efficiency venture deals. Perhaps direct government intervention in

supporting early stage energy efficiency companies can play a vital role in ushering in the next

generation energy efficiency technologies.

Infact policy makers are beginning to include features that address this need. Special venture

capitalist funds focused at venture capital for energy efficiency can be helpful in moving

investments into high risk and early stage energy efficiency technologies. India has already seen

progress being made by the Bureau of Energy Efficiency (BEE) by constituting a venture capital

fund of energy efficiency.

It is often the state funded programs that become the source of some of our greatest

innovations. The internet emerged from a defence R&D program supported by US government.

Perhaps who knows if our next great energy efficiency idea shall spring from another state

funded venture.



A Business Strategy Snap Shot of Green Tech Aqua23

WWater is undoubtedly one of the most major problems that the developing economies will face

going forward and that applies to India in no less a measure. With its burgeoning population

progressively moving to food consumption with patterns that require higher water inputs, the

challenge of ensuring continuous water supply for its citizen is acute. Needless to say water is

also emerging as a major sector for innovation.

Before we proceed further however we would also like to swoop down on another area for

cleantech innovation as this is also important for our subsequent discussion. The sector is 'Flue

Gas' pollution control or more technically referred to as flue gas desulphurisation systems. India

burns over 500 million tonnes of coal every year, most of which is consumed at power plants,

steel and cement industries. Burning of coal produces emission that contains oxides of sulphur

which are also known to cause acid rain. As the number of coal plants in India increases, many of

these coal plants are required to install flue gas cleaning systems, especially in the areas where

the plants are situated close to communities. Recently this market has seen good investments

with orders worth Euros 40 million being cornered by an engineering firm in India and south-east

Asia.

Greentech Aqua Private Limited has with their technology brought forward a solution that will

address both these areas- water and industrial flue gas pollution. They have tested two pilot

projects that use a technology which generates high purity water from seawater by utilizing

waste heat present in coal fired thermal power plant i.e. flue gas. The company has filed a patent

for the technology.

It is estimated that the market potential for this patented technology is approx. Rs. 4000 crores.

This potential market size includes 381 projects that are there in the pipeline (existing as well as

under development). Some important aspects of their business plan have been stated below:

The customer segments for Greentech Aqua are likely to be of three types-

1) Customers with high need of water only (e.g. Food, textile, Paper)

2) Customers with high need of flue gas desulphurisation only (e.g. Steel Plants)

3) Customers with high need of water and flue gas desulphurisation (e.g. Power plants)

Greentech Aqua will target the steel plants or customers in category 3.

Customer Base

Cleantech Review: Water & Industrial flue gas processing sector

A Business strategy snap shot of Green Tech Aqua

Special Feature

1. Industries:(Food, Textile,

Paper)Households

Customer for only desulphurisation

component / Water could be marketed outside the industry

3. Powerplants

2. Steel plants

Customer for integrated system

Flue Gas Desulphurisation Need

Wate

r N

eed

Customer for supply of desalinated water

SF


A Business Strategy Snap Shot of Green Tech Aqua24

Applications

Technology

Profitability

Packaged Drinking Water

Beverage bottling

Potable water for other edible products

Pharmaceutical water

Drug manufacturers

Hospitals and Dialysis centres

Water generation system

Quenching & saturation process

Flue gas cooling & cleaning

Power Plant Specificaation: 210 MW

Capital Cost: Competitive with the capital costs of FGD systems being installed commercially pegged at 100 crore

Crore

Benefit to Power plant (Revenues/Savings)

Scrubbing/ Desulphurisation capital cost avoidance*

Crore (one time capital cost)

Potable water generation

200,000 -300,000 Litre/hour**

Value of water estimated @ Rs. 1/Litre, PLF : 63%

11-16 Crore annually

The management has a cumulative experience of 70+ years in the sugar, paper, IT consulting, engineering, and banking sectors. The founders of the company have developed green technologies and published patent for the technology underlying the venture.

Authors - Yashvardhan Kher & Yash Saxena


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