Energy services companies and financing energy efficiency initiatives

Here is another one for the NERD magazine.

An Energy services company (ESCO) is “a company that provides energy-efficiency-related and other value-added services and for which performance contracting is a core part of its energy-efficiency services business”.

The revenues of these ESCOs are tied to the amount of energy they help their client to save. Most of the ESCO projects have a payback period of two years and typically they help reduce the energy costs by about 20 to 25%.

As an estimate, India's potential energy savings are in the tune of 180 Billion kWh annually. That is about 36% of our total consumption now.

ESCOs have a big role to play in the BRIC countries by increasing the economic viability of accelerated growth. In 2007-2008, Indian ESCOs had an annual revenue of US $ 18 million while during the same time, Brazil had an annual revenue of US $ 280 million - about 15 times larger.

ESCOs take up energy efficiency projects where they take up the charge of a plant, invest in the required infrastructure and charge the client according to the energy savings achieved. They act as a energy efficiency consultants as in they find ways to streamline the operations to reduce energy costs.

One problem that EE projects face is their financing. The fact that these projects are auxillary to the strategic plans of the institutions. In contrast Industrial restructuring projects are more planned and tend to have a higher thrust from the managers as they are directed towards the company's long term goals.

These energy efficiency projects are distinguished from industrial restructuring projects because most of the IR projects are aimed at improving the units' overall market competitiveness by process changes and product modifications. These often need larger investments and have longer payback periods. These projects need a strategic thinking by the managers about the the units' competitiveness in the changing market conditions. Improving energy efficiency is not the major reason for this activity and neither is it the most desired outcome.

EE projects on the other hand, don't change the process, neither do they change the product. It only concentrates on increasing the energy cash savings and not about the impact on future market growth of the product.


Of late, IFC has taken up some initiatives to fund purely EE projects. As banks have started understanding the short payback time that these projects tend to have, a lot of tailor-made funding options are coming up.

Smart grids and the concept of Distributed Generation

Here is something I wrote for the NERD (Notes on Engineering Research and Development) magazine. This magazine aims to motivate Indian students to write about their field of interest and research. It has got contributions form all the IITs plus a few from Indians outside India.



Distributed Energy generation typically refers to a multitude of small generators instead of having one huge generator that takes care of the entire load.

A smart grid is defined as one which integrates advanced sensing technologies, control methods and integrated communications into the current electricity grid.

So whats so different about these modern grids as compared to older grids? - The major difference is the fact that it is designed to deal with both ways power, rather than the traditional design where the grid just gives out power.

Comparing only the power delivering part, at the transmission level today’s grid is efficient, smart, intelligent. Its at the distribution level that there is a difference. At the distribution level and at the customer level, there are opportunities for automation, intelligent appliances, advanced data collection networks. This in part is because there was no need previously as there was little demand matching done. The Smart Grid makes it possible to integrate large scale intermittent generation through demand response.

The typical components of a smart grid are :-

1) SCADA (Supervisory Control and Data Acquisition), PMUs (Power Management Units), FACTs (Flexible AC transmission systems), Advanced Conductors - At the generation, transmission, substation levels. These things help in maintaining the power quality, reliability and efficiency .

2) Substation Automation. - Helps in resource utilization and demand matching.

3) Distribution Automation, MicroGrid. - Enables synchronization of distributed generators.

4) Advanced metering, Demand response, and distributed resources - at the customer end.
- Helps in demand matching at the consumer level. Ensures correct pricing as there is power both in and out of a building.(As the building also has a generator, when it is producing more than it needs, it sells power to the grid and when in deficit, it buys from the grid.)

So what does it achieve?

1) Reduce peak demand by actively managing consumer demand: The ratio of available appliances and equipment that can respond to both consumer and grid operator priorities continues to grow. Because these grids can manage power both out and in the grid, it will reduce the need for power, especially during high-use periods. like hot summer afternoons when the cost of producing and delivering power is extremely high.

2) Balance consumer reliability and power quality needs: Although some uses of electricity require near perfect reliability and quality, others are almost insensitive to these needs.
For eg- A device working on a resistor heating up or a motor rotating, does not really care a lot about the quality. But a device using electronics, needs to care more about the quality of power in. It cant afford to have a lot of frequency changes or voltage sags or swells.

Similarly, there can be some critical loads that need a very reliable power - Like a server or some central controller type thing cant afford to go off.

A smart grid will be able to distinguish the difference and adjust power reliability and quality accordingly at an appropriate cost.

3) Mine energy efficiency opportunities proactively: A smart grid will furnish consumers and utilities with accurate, timely, and detailed information about energy use. Armed with this information, one can identify ways to reduce energy consumption with no impact on our safety, comfort, and security.
This would mean that just be managing our demand and supply better, we can reduce the total amount of energy required. This will help us gain some understanding and insight into how our energy use affects our environment, and economy.

4) Improve overall operational efficiency: A smart grid is automated, and smart sensors and controls are integral to its design and operation. This will help the grid operators to easily identify, diagnose, and correct problems, and will even have the capabilities to anticipate problems before they happen.

5) Seamlessly integrate all clean energy technologies: Clean energy is so central to the idea of sustainable development that it cant be left behind, especially by a modern technology.Roof-top/side-wall solar systems, wind farms, small community hydro-plants and storage devices will become a fundamental part of the grid. These clean energy technologies will generate not only energy and power, but perhaps more importantly save on the fuel consumption.