Tamil Nadu is investing in energy efficiency in the state’s water services and street lighting in 29 of its 45 city authorities. Power bills typically represent 40-60% of the total costs of running urban water plants.
In response to this, the Tamil Nadu Urban Development Fund (TNUDF) which invests in infrastructure projects, the Renewable Energy and Energy Efficiency Partnership (REEEP) and the Alliance to Save Energy (the Alliance) are promoting the concept of Energy Service Companies (ESCOs).
The underlying idea is simple: ESCOs finance the installation of new motors, pumps and pipelines for municipalities, replacing antiquated, energy-consuming machinery. The ESCO guarantees that the municipalities will have 30% reductions in their energy bills. Three ESCOs selected through a tender process will run the project on the condition that efficiency targets are met and maintained. Local administrators are receiving training on the new, intricate financial arrangements called performance-based contracts.
“One of the main challenges of the project has been the adoption of a new procurement process in the form of energy performance based contracts for both street lighting and water pumping. In this type of contract, the services and energy efficiency equipments costs are bundled into the project's cost and are repaid through the generated savings in Rupees,” says Sudha Setty, South Asia Program Manager at the Alliance.
As India’s most urbanised state, Tamil Nadu’s electricity problems are well known. It is home to the largest number of businesses – from car manufacturing to textiles to electronics. With a population similar to France, Tamil Nadu produces only 9.5 gigawatts (GW) of power each year, compared to France’s 118 GW.
As the pilot phase develops, the financial and energy savings identified are substantial. According to Raj Kumar, Senior Manager at TNUDF, they will amount to approximately 40.9 million rupees per annum, or US $800,000 – including the parallel street light energy saving project. To this are added major savings in operational and maintenance costs. If that is reproduced through a rollout all over the state, as he and his colleagues hope, it will make a significant contribution to increased services.
The region’s electricity utility has been supportive of the project from day one as the state has a power crisis. Sudha Setty explains: “The electricity board is a part of the project committee and they are a willing part of this project. They can also use the freed up energy to supply to other needy customers or add new customers.”
The project and its scale-up are part of REEEP’s international mandate to replicate successful energy efficiency models. REEEP and the Alliance previously worked together on energy efficiency in the water sector in South Africa. REEEP also previously funded an ESCO street lighting project in Madhya Pradesh. “We are pleased to contribute to the transfer of successful energy saving models to cities in Tamil Nadu,” states Dr. Marianne Osterkorn, Director General of REEEP. “We look forward to the day when other Indian States can benefit from the learnings generated in this important project.”