NEXANT CONSULTING

Report on
ENERGY PERFORMANCE
INSURANCE
Submitted by:
Anit !"i#edi
$%&%'()*
TA+LE OF CONTENT
1
o A,no"-ed.ement
o E/e,uti#e 0umm1ry
o Introdu,tion
o Ener.y e22i,ien,y Initi1ti#e
o C31--en.e0 in EE 1nd re10on 2or poor e22i,ien,y
o Go#ernment po-i,ie0 122e,tin. Ener.y E22i,ien,y 0e,tor
o 431t i0 ener.y e22i,ien,y per2orm1n,e in0ur1n,e 1nd it50 ,31--en.e0
o Ro-e o2 IR!A in in0ur1n,e 0e,tor
o !o,ument intern1tion1- e/perien,e "it3 ESI 6,10e 0tudie07
o EESL8PE! pro9e,t de0,ription:6 Pi-ot te0t "it3 ESI7
o Stru,ture 1nd 2e1ture0 o2 Ener.y E22i,ien,y per2orm1n,e In0ur1n,e produ,t
o 41y to 2or"1rd
i7 Identi2y t3e potenti1- or.1ni;1tion 1nd m1y be ,1p1b-e o2 pro#idin. in0ur1n,e:
ii7 !e2ine te,3ni,1- 100i0t1n,e 1nd ,1p1bi-ity bui-din. need0:
iii7 E0t1b-i03 t3e 21,i-ity
i#7 Anne/ure )<'<=<*
#7 Att1,3ment0:
AC>NO4LE!GEMENT
2
I take this opportunity to express my profound gratitude and deep regard to my college guide Dr. B.
S.K Naidu emeritus, GLI Gurgaon for his exemplary guidance, monitoring and constant
encouragement throughout the tenure of this pro!ect. "he constant, help and guidance gi#en $y him,
time to time shall carry me a long %ay in the !ourney of life on %hich I am a$out to em$ark.
I also take this opportunity to express a deep sense of gratitude to company mentor r. B. Natra!an
and r. &onnie Khanna 'Dy. (hiefs Nexant (onsulting) for their cordial support, #alua$le information
and guidance, %hich helped me in completing this task through #arious stages.
I am also o$liged to r. Dinesh Ba$u and iss Ka#ita Khanna 'Nexant consulting), for the #alua$le
information pro#ided $y them in their respecti#e fields. I am grateful for their cooperation during the
period of my assignment.
Lastly, I thank almighty, and friends for their constant encouragement %ithout %hich
his assignment %ould not $e possi$le.
EXECUTI?E SUMMARY
*e currently face a set of serious challenges %ith regard to the Indian energy system. +nergy demand
continues to gro% despite historically high energy prices and mounting concerns o#er energy security
and independence as %ell as air pollution and glo$al climate change. "he decisions %e make no%
3
regarding our energy supply and demand can either help us deal %ith these challenges more effecti#ely
or complicate our a$ility to secure a more sta$le, economical energy future.
Bringing more energy efficiency into the nation,s energy mix to slo% demand gro%th in a %ise, cost-
effecti#e manner.one that $alances energy efficiency %ith ne% generation and supply options.%ill
take concerted efforts $y all energy market participants/ customers, utilities, regulators, states,
consumer ad#ocates, energy ser#ice companies '+S(0s), and others. 1tilities,

regulators, and partner
organi2ations need to impro#e customer access to energy efficiency programs to help them control
their o%n energy costs, pro#ide the funding necessary to deli#er these programs, and $ring a
mechanism %hich can guarantee the performance of +S(0s. +xamine policies go#erning energy
companies to ensure that these policies facilitate.not impede.cost-effecti#e programs for energy
efficiency.
"he partnership to ad#ance clean energy '34(+) is a flagship program under the 1.S - India energy
dialogue. 34(+ focus on lo% car$on inclusi#e de#elopment $y supporting research and deployment of
clean energy technologies. It is playing the role of catalyst to accelerate the deployment of clean
energy through institutional strengthening, capacity $uilding of stakeholders, inno#ati#e financing
mechanism and increasing the a%areness regarding energy and rene%a$le energy technologies.
+nergy 3erformance insurance is a mechanism %hich could $ring confidence of in#estors in clean
energy pro!ects. "he inno#ati#e and ro$ust structure of +3I %ould $e $est possi$le solution to
stimulate the market and $ring $ack the confidence of energy ser#ice companies. 5arious countries
including 1.S, Germany and (hina ha#e already functionali2ed performance insurance in energy
sector and %itnessing the $enefits of +3I. "his document co#ers $oth +nergy +fficiency and
&ene%a$le +nergy part of performance insurance and further explains the present industry scenario,
ma!or risk and challenges %hich could $e mitigated through implementation of +3I. By seeing the
present industry regulations and financial constraints faced $y #arious energy ser#ice companies in
India, recommendation part includes most suita$le structure of +3I facility.
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@It "i-- not be po00ib-e to m1n1.e ener.y dem1nd "it3out ener.y e22i,ien,y:55 M:S A3-u"1-i1
6!eputy C31irm1n< P-1nnin. Commi00ion< Indi17:
"he increasing cost of po%er generation and encum$rance in fuel linkages for con#entional po%er
generators are creating $ig troughs $et%een $ase load and peak load. +nergy +fficiency '++) and
demand-side management 'DS) tools can $e the most #ia$le solutions to fill the gap $et%een peak
demand and supply. 4s per a recent report $y the (entral +lectricity 4uthority '(+4) all India po%er
supply position indicates that the country is expected to experience a peak shortage of 6.78 and energy
shortage of 9.:8, despite #ery high shortages likely to $e experienced $y Southern &egion, %hich is
expected to gro% in coming ;<s. India has a huge potential of cost effecti#e in#estments in ++. In a
recent report '67:=) 4DB estimated that India needs in#estment of 1S >?.9 $illion per year to meet the
national energy sa#ing target.
Sa#ing 3otential 4cross selected sectors in 677@-677A 'in $illion k*h)
Se,tor Con0umption S1#in. potenti1-
4griculture pumping B6.== 6@.@B
commercial
$uildingsC+sta$lishments
%ith connected
loadD977k*
B.B6 :.BA
unicipalities :6.?9 6.AA
Domestic :67.B6 6?.:E
Industry'Including
S+s)
6E9.=A :A.9@
Tot1- A() BA:=&
India has a significant energy efficiency and sa#ings potential ho%e#er the financial institutions ';Is)
are facing challenges and do not consider it as a high focal area and shy a%ay from in#esting in ++
pro!ects.
"his is largely due to lack of a%areness, risk calculation and appeti2ing mechanism in ++ pro!ects.
0ne %ay to mitigate the risk of interested ;Is could $e energy sa#ing insurance '+SI
:
) mechanism. +SI
%ill facilitate energy ser#ice companies '+S(0s) $y pro#iding performance guarantee insurance of
energy efficient eFuipments. "he +SI mechanism has $een successfully used in North 4merica and
Germany as a supplement to typical contracting models such as guaranteed and shared sa#ings.
1
+SI/ +nergy sa#ing Insurance is a risk sharing mechanism %hich %ould reduce risk of +S(o $y in#ol#ing Insurance (ompany as a partner.
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Ener.y e22i,ien,y initi1ti#e0 :
"he G0I launched the National ission on +nhanced +nergy +fficiency 'N+++) in Gune 67:7 %ith
an outlay of IN&6.=9 $illion. By 67:9, the mission is expected to result in sa#ings of nearly 6= million
tons oil-eFui#alent of fuel in coal, gas and petroleum products.
>ey initi1ti#e0:
H "he 34" scheme is a market-$ased mechanism to enhance energy efficiency in large, energy-
intensi#e industries 'kno%n as Idesignated entitiesJ). "he designated entities are gi#en energy intensity
impro#ement targets.
H "he arket "ransformation for +nergy +fficiency '"++) aims to promote and accelerate the shift
to%ard energy-efficient appliances in the designated sectors through #arious methods.
H "he energy-efficiency financing platform focuses on creating mechanisms to help finance demand-
side management 'DS) programs in all of the select sectors $y capturing energy sa#ings.
H Bureau of +nergy +fficiency is promoting energy efficiency measures in the country under the
+nergy (onser#ation 4ct, 677:. B++ took up an exercise of short listing of +S(0s %hich in turn
%ould help in taking up energy efficiency impro#ement pro!ects in their existing $uildingsC facilities.
"he empanelment exercise %ould help in pro#iding the technical due diligence and reduce transaction
cost of the go#ernment sector as they %ill $e reFuired to only call for price $ids from the empanelled
+S(0s.
H In order to create a sense of credi$ility amongst the prospecti#e agencies that are likely to secure the
ser#ices of an +S(0 as %ell as the financial institutions, B++ has undertaken a process of rating these
applicants in terms of success in implementation of energy efficiency pro!ects $ased on performance
contracting, a#aila$ility of technical manpo%er, financial strength, etc. "he rating exercise %as done
through S+BI accredited agencies of (&ISIL and I(&4.
H "he results of the exercise are that AB +S(0,s has $een identified and $eing graded. "hose results
$eing made a#aila$le in pu$lic domain and to the #arious States, Go#ernmentsCSD4s, so as to
facilitate them in implementing +nergy +fficiency programs in their respecti#e states.
C31--en.e0 in Ener.y E22i,ien,y Pro9e,t0 :
H States lack in managerial and financial capacity to implement pro!ects.
H Lack of metering K monitoring systems - difficult to esta$lish $aseline.
H Connected load energy consumption doesnLt match %ith the actual energy $ills.
H No existing Go#ernment policy on reducing energy consumption in household le#el.
H Lo% confidence in 333- ;air deals take time to set-up.
H Procurement is $ased on Mfirst cost, 'L:) N0" on Life (ycle (ost.
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Re10on0 2or Poor E22i,ien,y
H 0#er design in #ie% of catering future need or unrealistic use of factor of safety margin.
H (hanges in operating practicesCschedules.
H +fficient component N0" installed andCor operated properly.
H InadeFuate metering and monitoring facilities.
Go#ernment Po-i,ie0 A22e,tin. Ener.y E22i,ien,y in Indi1:
Six ma!or policies %ere implemented in industrial energy efficiency policies in India from :BA7 to
6779.
:) !isclosure of company-le#el energy efficiency informationN
6) Accelerated depreciation for energy efficiency eFuipmentN
=) Esta$lishment of the +nergy anagement (enter under the inistry of +nergyN
?) Remo#al of price and output controls to promote industrial competiti#enessN
9) Energy price reforms to guide energy efficiency initiati#es and encourage international
competiti#enessN
E) Passage of the +nergy (onser#ation 4ct of 677: and the +lectricity 4ct of 677=.
"he +nergy (onser#ation 4ct resulted in the creation of the Bureau of +nergy +fficiency 'B++), a
statutory $ody under the inistry of 3o%er. B++ acti#ely promotes, manages, finances, and monitors
energy conser#ation efforts in the economy through energy audits. It also has the statutory authority to
implement mandatory energy efficiency standards.
N1tion1- 1,tion P-1n 2or Ener.y E22i,ien,y 1nd It0 Re,ommend1tion:
National 4ction 3lan for +nergy +fficiency is a call to action to $ring di#erse stakeholders together at
the national, regional, state, or utility le#el, as appropriate, and foster the discussions, decision-making,
and commitments necessary to take in#estment in energy efficiency to a ne% le#el. "he o#erall goal is
to create a sustaina$le, aggressi#e national commitment to energy efficiency through gas and electric
utilities, utility regulators, and partner organi2ations.
"he 4ction 3lan %as de#eloped $y a Leadership Group composed of more than 97 leading
organi2ations representing di#erse stakeholder perspecti#es. Based upon the policies, practices, and
efforts of many organi2ations across the country, the Leadership Group offers fi#e recommendations
as %ays to o#ercome many of the $arriers that ha#e limited greater in#estment in programs to deli#er
energy efficiency to customers of electric and gas utilities. "hese recommendations may $e pursued
through a num$er of different options, depending upon state and utility circumstances.
4s part of the 4ction 3lan, leading organi2ations are committing to aggressi#ely pursue energy
efficiency opportunities in their organi2ations and assist others %ho %ant to increase the use of energy
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efficiency in their regions. Because greater in#estment in energy efficiency cannot happen $ased on the
%ork of one indi#idual or organi2ation alone, the 4ction 3lan is a commitment to $ring the appropriate
stakeholders together.including utilities, state policy-makers, consumers, consumer ad#ocates,
$usinesses, +S(0s, and others.to $e part of a colla$orati#e effort to take energy efficiency to a ne%
le#el. 4s energy experts, utilities may $e in a uniFue position to play a leading role.
"he reasons $ehind the National 4ction 3lan for +nergy +fficiency, the process for de#eloping the
4ction 3lan, and the final recommendations are summari2ed in greater detail as follo%s/
H Recogni2e energy efficiency as a high priority sector.
H Make a strong, long term commitment to implement the cost effecti#e energy efficiency as a
resource.
H +roadly communicate the $enefits of and opportunities for +nergy efficiency.
H Promote sufficient, timely and sta$le program funding to deli#er energy efficiency %here cost
effecti#e.
H Modify policies to align utility incenti#es %ith the deli#ery of cost effecti#e energy efficiency and
modify ratemaking practices to promote energy efficiency in#estment.
431t i0 Ener.y E22i,ien,y Per2orm1n,e In0ur1n,eC
H ++3I is a formal insurance contract $et%een an insurer and a ser#ice pro#ider 'such as an +S(0)
under %hich the insurer agrees to guarantee the technical performance and pays any shortfall in
energy sa#ings relati#e to the +S(0,s performance guarantee.
H ++3I is currently practiced in the 1.S. and has $een used for existing $uildings that are retrofitted
to achie#e sa#ings.
H +S(0 pays the insurance cost as a percentage of energy sa#ings o#er the life of the contract %ith
the premium paid once, in the first year of operation.
H Such policies are non-cancela$le, so the o%ner is guaranteed to ha#e access to the insurance for
the originally agreed contract term.
Ad#1nt1.e0:
H E+3I can $e helpful for the t%o $asic performance contracting models - Guaranteed Sa#ings
'pro!ect host as $orro%er) and Shared Sa#ings '+S(0 as $orro%er).
H The insurance facility pro#ides risk protection to the lender regarding the loan repayment and
comfort to the pro!ect host regarding technical performance of the pro!ect.
H Enhances +S(0,s a$ility to o$tain $ank financing.
C31--en.e0 in Ener.y E22i,ien,y Per2orm1n,e In0ur1n,e:
H !ue to fee$le $alance sheet of +nergy Ser#ice (ompanies, ;I,s are considering this risk prone
sector.
8
H Lack of a%areness a$out +nergy efficiency.
H Pro!ects are small and scattered.
H Technical content is di#erse.
H Energy +fficiency pro!ect may appear less tangi$le.
H Policies and &egulations related to +nergy +fficiency are not apparent and properly documented.
H Client,s interest and a%areness in +nergy Sa#ing.
H EFuipment suppliers are not acti#ely participating in ++ program.
Ro-e o2 IR!A in Indi1n In0ur1n,e Se,tor:
"he Insurance &egulatory and De#elopment 4uthority 'I&D4) %ere constituted to regulate and
de#elop insurance $usiness in India. 4s a key part of its role, it is responsi$le to protect the rights of
policyholders. In order to create a%areness a$out I&D4, its role, duties and responsi$ilities are stated
here under/
H It can call for information from undertake the inspection of , conduct enFuiries and in#estigations
including the auditing of insurers, intermediaries, insurance intermediaries and other organi2ations
connected %ith the $usiness of life insuranceN
H It specifies the form and manner in %hich $ooks of account should $e maintained and statements
of accounts should $e rendered $y insurers and other insurance intermediariesN
H It regulates the maintenance of margins of sol#ency
H It regulates the in#estment of funds $y insurance companiesN
H It ad!udicates disputes $et%een insurers and intermediaries or insurance intermediariesN
H It specifies the percentage of premium income of the insurer to finance schemes for the promotion
and regulation of certain specified professional organi2ationsN
H It specifies the percentage of life insurance $usiness to $e undertaken $y an insurer in the rural or
social sector.
Pro.r1m0 O22ered by Comp1nie0:
+nergi,s energy efficiency program +nergy Sa#ings *arranty '+S*) program insures energy sa#ings
guarantees issued $y high Fuality energy efficiency contractors %ho perform energy retrofits. +nergi,s
%arranty product ser#es as a strong insurance $ackstop to the energy sa#ings guarantees pro#ided $y
contractors to end customers, %ho may range from schools and other municipal $uildings to
commercial facilities.
H Non8,1n,e--1b-e Gu1r1ntee: 3roperty 0%ner and ;inancial institution listed as ILoss 3ayeesJ onto
the policy. 3remium is collected up front, allo%ing the policy to $e non-cancella$le in the e#ent of
sa#ings shortfall.
9
H In,re10e poo- o2 e-i.ib-e ,ontr1,tor0: *ith +S* $ackstop, greater amount of contractors are a$le to
pro#ide an in#estment grade guarantee on pro!ect performance.
H En.ineerin.82o,u0ed Under"ritin.: +nergi,s in-house energy engineers re#ie% pro!ect specific
information including design layouts, sa#ings pro!ections and technology.
H Contr1,tor Credibi-ity 1nd True Gu1r1ntee/ By recei#ing insured energy sa#ings guarantees from
a recogni2ed %orld-leading insurance company, property o%ners can ha#e peace of mind and faith in
credi$ility and ser#ice pro#ided $y I+S* 4ppro#edJ (ontractors.
H C-1im0 M1n1.ement/ +nergi,s experienced claims handling team, as %ell as our engineering
experts, %ill continually monitor reali2ed sa#ings in order to pre-empt and remediate any claims that
may arise.
Intern1tion1- E/perien,e : C3in1
"he 4sian De#elopment Bank is acti#ely de#eloping ne% energy efficiency pro!ects. 4mong the
#arious (hinese $ank programs, (hina Industrial Bank has de#eloped an acti#e ne% Sustaina$le
;inance Department, Shanghai 3udong De#elopment Bank has recently ramped up its energy
efficiency lending %indo% %ith a series of ne% products and the Bank of Bei!ing has de#eloped a
energy conser#ation lending program as part of its ne% S+ Onancing initiati#e.
Pro.r1m Di.3-i.3t:
H (hina National In#estment and Guaranty (ompany 'IKG) enter another year of commercial
operation of its special energy efficiency loan guarantee program.
H "%o ma!or Onancial leasing companies in Shandong are !ust $eginning implementation of
energy efficiency pro!ect programs using a ne% *orld Bank loan.
H Loan guarantee companies operate in (hina, especially at local le#els pro#ide loan repayment
guarantees to $anks on $ehalf of Fualified $orro%ers for a fee.
H ;ees can range from :8 of guaranteed loan principal per year 'on top of $ank loan interest), to
?-E8 for more commercial and risky transactions.
Structure of (hina performance guarantee program
10
any guarantee companies target S+s. "he guarantee companies reFuire counter-guarantees from
enterprises %hich can $e tough, although there may $e more Pexi$ility on the types of counter-
guarantees accepted, compared to $ank loan reFuirements. Guarantee companies often ha#e Pexi$ility
to design inno#ati#e products, in addition to traditional loan guarantees. In addition to IKG, the
country,s largest Onancial guarantee company, a num$er of guarantee companies ha#e $acked energy
efficiency pro!ects, including $ank loans to +S(0s. +nterprises sign t%o legal agreements---the loan
agreement %ith the $ank and the guarantee agreement %ith the guarantee company.
Intern1tion1- E/perien,e: T31i-1nd
"he "hailand +nergy +fficiency &e#ol#ing ;und '"++&;) %as esta$lished $y the Go#ernment of
"hailand and managed $y the inistry of +nergy, Department of 4lternati#e +nergy De#elopment and
+fficiency 'D+D+). "he o$!ecti#e of the "++&; is to pro#ide access to capital for energy efficiency
pro!ects, increase a%areness of energy efficiency opportunities and impro#e procedures and
implementation of the pro!ects.
Pro.r1m Di.3-i.3t0:
H "he "++&; recei#es re#enues from a petroleum tax, yielding approximately 1S>97 million per
year and in 6779 ha#ing an accumulated $alance of approximately 1S>=97 million.
H "he "++&; pro#ides credit lines to participating "hai $anks on a full-recourse $asis and at 2ero
interest rate.
H "hese funds further lent to pro!ect de#elopersC$orro%ers at an interest rate of no more than ?8.
H Six ma!or "hai commercial $anks are participating in the program. "he ;und initially '677=-677@)
pro#ided up to 978 of on lent capital, %ith the remaining coming from the $ank,s o%n resourcesN
in its second phase, the ;und is reducing its share to =78.
"he pro!ect de#elopers are responsi$le for identifying the energy efficiency pro!ects or opportunities,
and conducting the initial feasi$ility studies reFuired to apply for a loan from the fund. "he application
is made to the participating $ank, %ho %ill then re#ie% the technical and financial #ia$ility of the
pro!ect. If the results of the analysis and re#ie% are accepta$le, the 3articipating $anks apply for the
loan from the fund to D+D+. 0nce a loan is appro#ed $y D+D+, the participating $anks su$mit
dis$ursement and repayment plan to D+D+. 3ro!ect de#elopers make repayments of principal and
interests to the participating $anks, %hich %ill pay the principal amount to D+D+ %ithin se#en days.
D+D+ then returns the funds to the "++&;.
Intern1tion1- E/perien,e: ?ietn1m
"he main $arriers pre#enting 5ietnamese enterprises 'especially S+s) to%ards cleaner and more
efficient production practices are access to finance, and access to Fuality and afforda$le technical
ser#ices. In addition, local $anks often lack the necessary in-house technical capacity to e#aluate
energy efficiencyCcleaner production pro!ects, there$y increasing their percei#ed risks.
I;( de#eloped a programmatic approach that com$ines selected in#estments in first mo#er $anks, and
ad#isory ser#ices. "he first in#estment has $een a 1S>69 million senior loan to "echcom$ank, to
support the de#elopment of its sustaina$le energy lending $usiness. "he loan %ill $e on-lent to eligi$le
pro!ects across 5ietnam, in sectors including steel, cement, textile, pulp and paper, plastics, chemicals,
metal processing, food processing, and agri-processing.
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Intern1tion1- E/perien,e: Turey
;inancial intermediaries in "urkey do not typically ha#e the expertise and technical capacity to
e#aluate or identify sustaina$le energy pro!ects. "hey also ha#e limited access to the long term funding
needed to finance rene%a$le energy pro!ects. 4s a result of these hurdles, financial intermediaries are
hesitant to pro#ide financing to energy efficiency and rene%a$le energy pro!ects.
*ith the support of the (lean "echnology ;und '(";), I;( pro#ided 1S>@9 million in loans to t%o
"urkish leasing companies, to encourage energy efficiency and rene%a$le energy lending, in order to
esta$lish a track record of successful in#estments, %hich is expected to promote uptake of similar
in#estments $y other financial intermediaries.
St1tu0 o2 In0ur1n,e Se,tor in Indi1:
*ith =E million policies, IndiaLs life insurance sector is the %orld,s largest. "he life
insurance industry in the country is forecasted to increase at a compound annual gro%th rate '(4G&)
of :6Q:9 per cent in the next fi#e years. "he industry aims to hike penetration le#els to fi#e per cent $y
6767, and has the potential to touch 1S> : trillion o#er the next se#en years.
Life insurance density expanded from 1S> :=.? in ;<7? to 1S> ?6.@ in ;<:= at a (4G& of :=.@ per
cent. (ap on foreign direct in#estment ';DI) also looks likely to $e increased from 6E per cent to ?B
per cent. "he Insurance Bill %hich has $een appro#ed $y the Go#ernment of India and %ill in all
possi$ility $e cleared $y the 3arliament is expected to increase ;DI inflo%s to 1S> :7 million in the
short term.
"he total market si2e of the insurance sector in India %as 1S> EE.? $illion in ;< :=. It is pro!ected to
touch 1S> =97Q?77 $illion $y 6767.
Information technology 'I") ser#ices, the $iggest spending segment of India,s insurance industry at &s
?,777 crore '1S> EEE.@A million) in 67:?, is expected to continue en!oying strong gro%th at :E per
cent. (ategory leaders are $usiness process outsourcing 'B30) at 69 per cent and consulting at 6: per
cent.
arket share of ma!or companies in terms of total life insurance premium collected LI( is still the
market leader, %ith @6.@ per cent share in ;<:=.
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*ith a share of 6.7= per cent, India ranked :7
th
among :?@ countries in the life insurance $usiness in
;< :=. "he life insurance premium market expanded at a (4G& of :E.E per cent from 1S> ::.9
$illion to 1S> 9=.= $illion during ;< 7=Q;< :=. "he non-life insurance premium market also gre% at
a (4G& of :9.? per cent, from 1S> =.: $illion in ;< 7= to 1S> :=.: $illion in ;< :=.
"he insurance sector,s future looks $right, on the $ack of India,s fa#ora$le demographic, greater
a%areness, supporti#e regulatory en#ironment, policies that impro#e customer-centric products, and
practices that help $usinesses gro%. IndiaLs insura$le population is pro!ected to touch @9 million in
6767, %ith life expectancy reaching @? years. Life insurance %ill continue to supplement
household financial sa#ings, and is pro!ected to $e =9 per cent of total sa#ings $y the end of this
decade, as against 6E per cent in 677BQ:7. '+xchange &ate 1sed/ IN& : R 1S> 7.7:E@ as on ay A,
67:?)edia &eports, 3ress &eleases, I&D4 Gournal).
IR!A Guide-ine0 on Tr1de Credit In0ur1n,e:
Po-i,y 3o-der:
H A 3olicy holder cannot take more than one trade credit policy either %ith the same insurer or any
other insurer in respect of the same $uyer nor can the insurer issue more than one trade credit
policy.
H The policy holder cannot not $e offered indemnity for more than A78 of the trade recei#a$les
from each $uyer or B7 per cent of the cost incurred $y the seller for pre#ious years %hiche#er is
lo%er.
H The policy holder shall $e o$liged under the policy to notify ad#erse information a$out the $uyer
to the insurer.
H A policy holder shall not $e co#ered for $uyer,s nonpayment of trade recei#a$les on account of
dispute %ith the policy holder or supplier of the good or ser#ices until the dispute gets resol#ed.
H A policyholder shall file the insurer a statement of the credit policy, credit management and
procedures for monitoring of implementation of credit policy as part of the proposal to seek
insurance co#er.
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Pi-ot Te0t: EESL8Pondi,3erry E! Pro9e,t on Ener.y E22i,ien,y:
3ondicherry +lectricity Department '3-+D) and +nergy +fficiency Ser#ice Ltd. '++SL) took an
initiati#e to $ring energy efficiency in households and to promote energy efficiency through standard
offer program 'S03). "he DS $ased +nergy efficiency program 'D+L3) launched $y 3-+D is a
remarka$le approach to%ards energy sa#ing at household le#el. D+L3 aims replacement of
incandescent $ul$ $y pro#iding L+D lamps to households at the price similar to the incandescent $ul$.
"his pro!ect %ill $e implemented $y the ++SL. 4ll risk inherent %ith performance and energy sa#ings
%ill $e $orne $y the ++SL.
Pro9e,t +1,.round
+lectricity Department of 3ondicherry '3-+D) is a deemed licensee under section :? electricity act
677=.
*ith all the to%ns and #illages 3ondicherry is :77 percent electrified. 3ondicherry has extensi#e
net%ork of po%er transmission and distri$ution system spread along %ith the $reath and %idth of all
four regions of 1nion territory. "he $usiness of generation of +lectricity in the 1nion "erritory of
3ondicherry is $eing carried out $y the 3ondicherry 3o%er (orporation Limited, an undertaking
%holly o%ned $y the Go#ernment of 3ondicherry.
"he electricity consumers are di#ided into t%o $road categories lo% tension 'L") and high tension
'S")."he L" consumers are made of fi#e categories namely domestic, commercial, agriculture, street
lighting and industrial. "he largest num$er of consumers is in the domestic consumers. "hey comprise
of @=8 of total num$er of consumers and consume 698 of the total consumption. In spite of $eing the
second largest consumers, domestic consumers account for :78 of total re#enue. "he a#erage cost of
po%er purchase for 3-+D is =.:A &s. %hereas %eighted a#erage cost of tariff reali2ation from domestic
consumers is only :.@E per unit. 3-+D purchase trend sho%s that the domestic sector is fast gro%ing
sector at ?8 follo%ed $y industry at =8 and others except agriculture %hich has remained constant at
6 percent. In 67:=-:? 3ondicherry has a daily po%er demand of =97 * and a peak deficit of @ *.
Sence the inefficiencies in the domestic segment contri$ute to higher $udget deficit. +nergy efficiency
%ould $e a $est possi$le measure to address and mitigate the rising energy deficit pro$lem in domestic
sector.
Pro9e,t Di.3-i.3t0:
++SL proposes D+L3 as standard offer program, an inno#ati#e approach to mainstream energy
efficiency and Demand Side anagement 'DS).3ro!ect offers are follo%ing
H @* L+D to replace E7* incandescent $ul$.
H A yrs replacement %arranty on lamps against technical fault.
H Distri$ution of three L+Ds to each households on getting $ack the %orking I(Ls.
H 4%areness and outreach in the pro!ect area.
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H onitoring of pro!ect as per international standards methodology appro#ed $y (D executi#e
$oard for BL<.
S03 is a mechanism under %hich utilityCgo#ernment purchases the energy sa#ings andCor demand
reduction using predetermined rates.
+nergy sa#ing contract
3ay$ack to ++SL
3o%er purchase
4 S03 treats energy sa#ing pro!ects as analogues to customer generation of electricity. "he demand
reduction is considered as resources for that utility %ill pay, in lieu of the a#oided peak po%er
procurement. S03 is compara$le to the feed in tariff ';I") utili2ed to promote rene%a$le energy
resources. D+L3-S03 is an aggressi#e and clear approach to%ards energy efficiency implementation
at house hold le#el. "his program consist all ma!or $enefits of energy efficiency although it has risk
associated %ith the performance of ++SL.
Ri0 100o,i1ted "it3 t3e pro9e,t:
H 3ro!ect (ost increment
H 3er consumer increment in energy consumption
H &eFuirement of huge L+D lamp distri$ution net%ork due to demand Increment
H 3-+D,s po%er purchase cost %ould increase due to load increment
H Sa#ing unit cost is eFual to generation cost
Pro9e,t Met3odo-o.y:
3ondicherry +lectricity Department and ++SL %ould launch a D+L3 QS03 pro!ect on L+D lighting in
domestic sector. "argeting household %ith a #ie% to o#ercome the peak deficit and also to ser#ice ne%
potential ne% connections load reFuest from higher tariff customers like industry and commercial
sector . "he proposed initiati#e aims to reduce peak demand, from households, pro#ide energy sa#ings
and there$y reduce (SG emission. "hese o$!ecti#es are also in consistent %ith o$!ecti#es set out $y
go#t. of India as part of N+++ for the country and National +lectricity 3olicy of the country.
Sa#ing calculation sheet attached 'attachmrnt=)/
15
P-ED
Generation
Comp.
EESL
ESCRO
a!!o"nt
Sr: no: >ey p1r1meter ?1-ue
): No of household 6?9777
': No of L+D @=9777
=: I(L %attage E7*
*: L+D %attage @*
A: 1sage per day =.9hrs
&: 0pening per day =77days
B:
Impact on households and DIS(0s /
Ye1r-y ener.y Con0umption Ye1r-y TE! Lo00e0
4it3 ICL0
4it3 LE!0
FB per,ent redu,tion in AB==((( 43 o2 redu,tion in
Con0umption TE! -o00
Sour,e: EESL8!ELP 0,3eme do,ument:
3er unit price of energy sa#ing $y ++SL %ould $e considered as, per unit po%er procured $y DIS(0
from open market. (ost of energy sa#ed $y 3+D due to implementation of S03 pro!ect is taken as
$enefit of S03. 4 certain percentage of re#enue, %hich %ould augment due to energy sa#ing program
%ould $e paid to ++SL. 3+D %ould pro#ide payment to ++SL on periodic $asis as per energy sa#ing
agreement and as per +S(&0*C 3ayment security mechanism $uilt to reduce re#enue risk to ++SL.
"here is no security for ++SL in case performance of ++SL affected due to non predicted risk +x.
Demand increment %hich %ould reduce sa#ings, huge distri$ution net%ork, consumer consumption
increment due to use of other appliances. &isk could $e mitigated $y the use of performance guarantee
insurance mechanism, %hich %ould reduce re#enue risk due to appalling performance of a ser#ice
company.
In0ur1n,e Produ,t Re,ommend1tion 2or Indi1:
16
882000 #$
6615000 #$
6174000 #$
46305000 #$
+nergy-sa#ings insurance is a formal insurance contract $et%een an insurer and either the $uilding
o%ner or third-party pro#ider of energy ser#ices. In exchange for a premium, the insurer agrees to pay
any shortfall in energy sa#ings $elo% a pre-agreed $aseline, less a deducti$le.
3ricing is typically expressed as a percentage of energy sa#ings o#er the life of the contract, although
it is sometimes expressed as a percentage of pro!ect cost.
"he premium is paid once in the first year of operation. "hese policies are non-cancela$le, so the
o%ner is guaranteed to ha#e access to the insurance for the originally agreed contract term. +SI
typically insures annual sa#ings expectations 'a M#olumetric, approach). +SI appears to $e most %idely
practiced in (anada and the 1S, %ith examples also in Bra2il and alaysia.
Stru,ture o2 In0ur1n,e F1,i-ity:
+nergy sa#ing performance Insurance stipulates energy efficiency. 4n insurance firm could use more
descripti#e term M+nergy (onser#ation Sa#ings (ontractual Lia$ility Insurance, to descri$e the
product. By $acking up the +S(0Ls performance guarantee and pro#iding risk protection to the $ank
regarding the loan repayment, application of an +SI scheme in India can enhance the a$ility of +S(0s
to o$tain $ank financing.
"his insurance product %ould $e launched %ith the help of pre identified insurance firms. Both pu$lic
and pri#ate insurance firms ha#e sho%n their interest in performance insurance product for clean
energy pro!ects. "he likelihood of losses is reduced through #arious technical strategies, including the
completion of an engineering design re#ie% and metering plan prior to construction 'and the issuing of
insurance), and of M4cceptance "ests, and #erifications of efficiencies specified in the design
document, conducted under a commissioning protocol.
+SI can $e helpful for the t%o most common performance contracting models - Guaranteed Sa#ings
'3ro!ect host as $orro%er) and Shared Sa#ings '+S(0 as $orro%er).
In t3e 2ir0t mode- o2 Gu1r1nteed S1#in.0, the host finances the pro!ect using its o%n funds or $ank
financing.
Loan sa#ing
&epayment insurance 3remium 3ayment
Loan ;rom sa#ing for insurance
3ayment on
Successful performance

+nergy performance contract
Fe1ture0 o2 Produ,t:
17
%inan!ia&
'n(tit"tion
'n("ran!e)*"arante
e +irm
ESCO( ,o(t
"he terms of the performance guarantee, and the K5 scheme, are specified in the energy ser#ices
agreement $et%een the host and the +S(0.
H "he +SI pro#ides a performance guarantee to the host regarding the technical performance of the
pro!ect.
H "he +SI %ill pay a specified amount to co#er the deficiency 'or the loan ser#ice, if the host facility
has $orro%ed funds from the $ank).
H "he facility reFuires K5 to $e conducted $y an independent third-party agency. In this manner, the
facility pro#ides comfort and risk protection to the host regarding the technical performance of the
pro!ect and there$y facilitates the hostLs decision to undertake the pro!ect.
In t3e 0e,ond mode- o2 S31red S1#in.0, the +S(0 signs a contract %ith the host facility to
implement the ++ pro!ect and pro#ides an appropriate performance guarantee.
Loan Loan
&epayment &epayment
Sa#ing share non performance
Loan
3ayment 3ayment on
"o +S(0 successful performance
3erformance contract
ME? 1.en,y per2orm1n,e #eri2i,1tion
Fe1ture0 o2 Produ,t:
Such a scheme %ould enhance the +S(0Ls a$ility to o$tain $ank financing. "he insurance facility thus
$acks up the +S(0Ls performance guarantee and pro#ides risk protection to the $ank regarding the
loan repayment.
H "he +S(0 $orro%s funds from the $ank to implement the pro!ect
H Installation and performance is #erified as per the specified independent K5 agency.
H "he host makes payments into an +scro% account at the $ank
H "he loan repayments to the $ank are made from the escro% account and the remaining amount is paid
to the +S(0.
H By recei#ing insured energy sa#ings guarantees from a recogni2ed %orld-leading insurance
company, property o%ners can ha#e peace of mind and faith in credi$ility of product.
18
%inan!ia&
'n(tit"tion
'n("ran!e)G"arante
e !omp
ESCO(
ESCRO a!!o"nt
,o(t
T3e "1y 2or"1rd:
Nexant consulting is in talks %ith International finance (orporation 'I;() %hich is a %ord $ank
su$sidiary, to get support for clean energy performance insurance program in India. I;( has sho%n its
interest in this program, further clarification %ould come %hen a $asic research and market study
%ould $e completed.
In order to make the +SI financing mechanism %ork, there is a need to identify an organi2ation, or
organi2ations, %illing to pro#ide the energy sa#ings insurance. Since this is a ne% concept in India,
some go#ernment support %ill $e essential in esta$lishing the first +SI facility.
0ne option %ould $e to encourage an existing pu$licCpri#ate insurance agency already pro#iding
industrial and commercial risk insurance, such as the Ne" Indi1 A00ur1n,e Comp1ny Limited<
D!FC ERGO< ICICI Lomb1rd. So%e#er, initially, these organi2ations %ill need su$stantial
technical assistance and support for assessing the risks of ++ technologies.
REFERENCES
:) %%%.%orld$ank.orgCenergyCrefine
6) 3D;/ Bureau of +nergy +fficiency as on '6:.:7.:7)
=) http/CC%%%.irda.go#.inC4DIN(SCcmsCfrmGuidelinesTList.aspxUmidR=.6.6
?) http/CC%%%.maxlifeinsurance.comCinsurance-explainedC&ole-0f-I&D4.aspx
9) http/CC%%%.cea.nic.inCreportsCyearlyClg$rTreport.pdf
E) http/CC%%%.rff.orgCdocumentsC&;;-D3-:7-67.pdf
7- http/CC%%%.i$ef.orgCindustryCinsurance-sector-india.aspx
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