Need for Energy Efficiency

During the last couple of years, the global economy has been dealing with the impact of the 'great recession', which also affected India. As the Indian economy shows signs of slowing GDP growth rate, the Indian real estate industry faces its own share of concerns. Real estate developers are reeling under high debt and FDI inflows to the sector have slowed down.

However the business of constructing energy-efficient buildings has continued to grow. Mainly because of the need to improve the energy performance of buildings for cost savings and to achieve green building certification-Green Rating for Integrated Habitat Assessment (GRIHA), Indian Green Building Council (IGBC-LEED) rating system, Bureau of Energy Efficiency (BEE), star labeling program for BPO facilities, shopping malls, office buildings, etc.

Major Trends

Some key trends that are certain to have a major impact on the energy-efficient buildings sector in 2012 and beyond are:

Demand of retrofits will increase to improve building infrastructure: It also involves major equipment upgrades to reduce energy demand and maintenance costs. The majority of office buildings in India's Central Business Districts (CBDs) are at least 3 decades old with structures that are worn out due to poor maintenance. With a severely limited supply of new office space, tenants located in India's CBDs have traditionally been forced to occupy buildings that are low on quality and high on operating costs. The recent global economic downturn has increased pressure on all businesses to reduce costs. The Indian businesses that are now growing again find it difficult to implement expansion plans in CBDs. In such a business climate, the attractiveness of high-rent, low-quality space in CBDs across India is diminishing relative to that found in neighboring micro-markets. Retrofitting is usually the preferred option for quality improvement (as compared with redevelopment) to increase the attractiveness and economic life of existing older buildings. The threat of sustained high-vacancy rates should serve as a wake-up call for the property owners who are considering retrofitting as a means to improve their competitive positioning. As per Cushman & Wakefield, recovery in office space demand in India started in 2010 and is expected to strengthen further in 2012 and beyond.

According to a Bureau of Energy Efficiency/National Productivity Council study of 2009, there exists an average energy-saving potential of between 30-50% with most commercial buildings in India. The BEE star rating program provides public recognition to energy-efficient buildings, and creates a 'demand side' pull for such buildings. Various categories of buildings such as office buildings (day use and BPO facilities), shopping malls, hotels, hospitals, and IT parks in the 5 climatic zones across India have been identified under the scheme and 123 buildings have been labeled up to September 2011.

The India ESCO Market Will Witness Rapid Growth: According to the Planning Commission of India, total primary commercial energy requirement (in terms of million tonnes of oil equivalent) is projected to grow at 6.5% per year between 2010-11 and 2016-17 from a level of 522.81 MTOE to 738.07 MTOE. Increased energy efficiency is the only way to contain energy demand without jeopardizing growth and it must therefore receive high priority in the twelfth Five Year Plan. Thus, India government and the industry leaders are highly focused on creating a more sustainable and energy-efficient economy, and these goals have intensified their attention on industry, agriculture, and buildings sectors which are the primary sources of energy consumption. Driven by this macro trend, energy-efficiency solutions have become an increasingly larger priority for enterprise decision makers.

Energy Service Companies (ESCOs) provide energy-saving systems and developing performance contracting (PC) business models to assist building owners and energy managers optimize energy use in existing infrastructure as well as greenfield projects. The India ESCO industry is relatively young but has grown steadily and significantly over the years. Increasing energy demand and rising energy cost would be lead drivers for the growth of the ESCO business in India.

In June 2010, the Union Cabinet approved the implementation framework of the National Mission for Enhanced Energy Efficiency (NMEEE), which seeks to unlock the India energy efficiency investment potential of `74,000 crore. However despite the fact that the potential for application of performance contracting in both the public and private sectors in India is enormous, the size of the ESCO industry has been particularly small as compared to the opportunity. This is mainly because of reasons like-lack of the most current technology, poor energy monitoring and verification infrastructure, a dearth of skilled human resources, low awareness levels, lack of confidence in the ESCO business model amongst governments and private customers, lack of access to project/institutional finance, etc. Going forward, these issues are being addressed rapidly, which is likely to lead to a high rate of growth for the India ESCO industry.

Important growth drivers for the India ESCO industry may be summed up as below:

#1 Financial institutions such as SIDBI, IREDA, Tata Capital, IndiaCo Ventures, HSBC, and others are showing more inclination towards financing energy efficiency projects and have announced separate funds specifically meant to address the ESCO opportunity.

#2 Bureau of Energy Efficiency (BEE) initiatives such as Energy Conservation Building Code (ECBC)-that sets minimum energy performance standards for new commercial buildings, star ratings for office and BPO buildings.

#3 Agricultural and municipal Demand Side Management (DSM) schemes-targeting replacement of inefficient pumpsets, street lighting, etc, to achieve energy saving from end-users.

#4 Energy efficiency schemes in small and medium enterprises targeting SME clusters-to adopt energy savings schemes and to cover large SME sector units; National Mission on Enhanced Energy Efficiency (NMEEE) program-targeting 9 energy-intensive industrial sectors including railways to reduce their energy consumption levels by 5% and providing the perform, achieve and trade (PAT) framework would be key market drivers for the growth of the ESCO business.

Most of ESCOs are currently focusing on the key potential customer segments such as commercial buildings, government buildings, municipalities, and agriculture sector. Majority of projects are getting executed around energy-efficient lighting, pumping, and HVAC solutions. These energy-efficient technologies are likely to get more traction in the period 2012-15.

Intelligent Building Management Systems Will Gain Traction: In India, the market for IBMS has been steadily evolving from simple integration of disparate systems such as fire safety, security, HVAC, and other utilities, to fully integrated and intelligent systems that incorporate the latest technology, applications, and features. The demand for IBMS has emerged due to the increasing need to reduce operational and maintenance costs by creating energy efficient, centrally monitored, and controlled systems; giving organizations the much needed flexibility, scalability, security, convenience, comfort, and of course good RoI. The market is being shaped by changing needs of the end-users, the competitive and performance-focused business environment, and the advent of innovative technologies whose catalytic effects offer new growth opportunities. However a few challenges and issues remain that need to be addressed to enable the end-users and industry to unlock the true potential of IBMS.

Some regulatory policies such as Energy Conservation Building Code (ECBC), LEED, green building rating system, and GRIHA building rating system are helping to define efficiency targets and norms. These efforts are increasing the adoption of technologies such as automation systems and IBMS.

Key growth drivers for the India Intelligent Building Management Systems (IBMS) market may be summed up as:

• Push from tenants/clients
• Need for greater energy conservation and higher efficiency
• Enhanced building security, safety, and fire protection preparedness
• Reduction in operating costs
• Increased productivity.