The pursuit of innovation in building climate sustainability III: insights from the region

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As described in the previous part of this blog series, my AIF Fellowship project focussed on the regional dissemination and replication of innovative business models – successfully demonstrated in India – to drive the industrial energy efficiency transformation in South and Southeast Asia. The project activities constituted a part of the Energy Efficiency for Industry Alliance (E2 Alliance) Program being implemented by the Institute for Sustainable Communities, accelerated by P4G (Partnering for Green Growth and the Global Goals 2030), which aims to scale and replicate innovative interventions such as the demand aggregation model and unique financing solutions to drive the adoption of energy efficiency interventions by industry in India, South and Southeast Asia. The E2 Alliance is tackling critical barriers to energy efficiency through manufacturer engagement, affordability and financing, and policy. The project endeavours to advance the scaled adoption of energy-efficient technologies in India through the demand aggregation-based model as well as affordable financing mechanisms and ensure the dissemination of its learnings and experiences from India to address the barriers as well as replicate successful financial solutions and business models in other South Asian and Southeast Asian countries. The scope of the project, the target audience, project objectives and as well as the nature of innovative interventions can be understood in part two of this series of blogs here.

For regional dissemination and replication of these models, being the focus of my fellowship project, we strived to carve inroads into paving the way forward for industrial energy efficiency in South Asia and Southeast Asia.

As a first step, it was important to study the region, for which an “Industrial Energy Efficiency Opportunities Assessment” was conducted of the industrial energy efficiency landscape in South and Southeast Asia specifically, Bangladesh, Vietnam and Indonesia.

Taking the findings of the assessment forward we conducted stakeholder conferences in Bangladesh and Indonesia, bringing together key players in the energy efficiency ecosystem in Bangladesh and Indonesia, to examine the challenges, potential solutions and partnerships required to accelerate the take-up of industrial energy efficiency in the region.

The events brought forward the perspectives of key stakeholders in the region’s energy ecosystem, and derived solutions and innovative, deployable business models to accelerate the adoption of energy efficiency and clean energy measures in the respective countries of focus. The conferences witnessed participation from a veritable set of highly experienced and leading speakers and audience representing the various domains of industry, government, finance, the energy sector, technology vendors, international organisations and key institutions implementing energy efficiency within Bangladesh, Indonesia and the region.

Based on key insights from the stakeholder conferences as well as the findings of the opportunities assessment study, the analysis of which was supplemented with a range of key informant interviews and stakeholder consultations drawing from the experience and expertise of the practitioners on-ground, the broad challenges were identified as knowledge, financial, technical, and institutional barriers.

*Knowledge Barriers – Awareness & Capacity Building: The region requires the capacity building of each key stakeholder in the ecosystem given the limited awareness about climate-smart sustainable manufacturing practices, energy-efficient technologies, the limited capacity of technical experts and Energy Service Companies (ESCOs), as well as the limited technical knowledge at the hand of financial institutions when it comes to the evaluation of energy efficiency and conservation initiatives.

*Financial Barriers: The region and the MSMEs or industrial units therein face a lack of access to affordable and easy finance for the implementation of sustainable manufacturing practices such as energy-efficient technologies, whilst also facing a lack of commercially attractive local financing for the funding of such measures. Further, the market of Energy ESCOs (which play a vital role in driving industrial energy efficiency practices through on-ground implementation, monitoring and evaluation including the provision of much-need technical support) is not fully developed thereby leading to high transaction costs for relatively smaller projects. The perception of the energy efficiency market to the financial institutions, therefore, remains to be high-risk, time-consuming and limited or small, with high transaction costs.

*Technical Barriers: There is limited capacity for local players to showcase the success of energy efficiency measures through establishing energy and cost savings – coupled with a lack of technical support that may be provided towards that end, thereby resulting in the sub-par implementation of and dwindling motivation for energy efficiency interventions. This further contributes to the perception of high risk, specifically about the performance of energy-efficient technologies.

*Institutional & Policy-related Barriers: The aforementioned barriers are further exacerbated owing to the limited range of incentives (especially financial) offered to the industrial units and MSMEs for energy efficiency implementation as well as the weak enforcement of existing regulations and policies.

Given the range of barriers, the potential solutions thus require a multi-pronged characterisation and the implementation of innovative models that make it pursuable, attractive and viable for the industry to implement energy-efficient measures – especially at scale. The scalability of such models lies in them leveraging effective market-based solutions and strategies – critical and essential to the sustainability of any effective solution. Such models ought to be composed of a set of well-coordinated interventions, inclusive of unique financial solutions, innovative demand aggregation approaches, capacity building activities as well as institutional policy support – all of which together enable and strengthen the entire ecosystem in a manner that is sustainable and systemic rather than stop-gap or myopic.

An innovative way to overcome the key challenges identified as a stumbling block for large scale energy efficiency adoption in industrial sectors is through a Super ESCO Model approach, the concept of which is defined through an innovative demand-aggregation based system and offerings of affordable financing mechanisms. A prime example of successful implementation of this approach is India’s Energy Efficiency Services Limited (EESL), one of the world’s largest Super-ESCO’s, which has deployed this model with widespread impact in India. To achieve the large-scale adoption of industrial energy efficiency, this model leverages the competencies and experience of local ESCOs and financing institutions. Relying on the same concept, EESL has launched the National Motor Replacement Program (NMRP), jointly and closely implemented with ISC, which aims at replacing conventional inefficient motors with energy-efficient IE3 motors, and has the overall goal of bringing down the cost of IE3 motors, in order to stimulate the voluntary adoption of IE3 for new installations – the E2 Alliance, therefore, aims at scaling the adoption of energy-efficient technologies in India through the widespread implementation of this innovative model while also ensuring its regional replication and dissemination in South and Southeast Asia. Within this approach of the E2 Alliance Model, EESL holds the position as a Super ESCO that conceptualizes specific programs and aggregates demand on behalf of the industrial units (and MSMEs) nationwide and performs efficient bulk procurement selection thereby making energy-efficient technologies affordable through leveraging economies of scale. Further, in order to extend outreach and enable a conducive as well as sustainable ecosystem, the model leverages the network of mini-ESCOs within the country wherein such private players play the role of an extended arm of the Super ESCO (EESL) and given the advantage of their local presence, knowledge and outreach – the mini-ESCOs interact with industries, provide them with the required technical assistance and aggregate demand on behalf of the Super ESCO. In turn, EESL performs the bulk procurement process while also building the capacity and knowledge through training and mentoring of the mini- ESCOs. Depending upon the specific modalities, the model offers a range of innovative financial instruments coupled with de-risking strategies that allow for easy and affordable access to finance.

Given the regional context, the implementation and execution of this model vary with the social context of the different geographies. For instance, in countries without the feasibility for the functioning of a Super ESCO, the same may be replaced with a strong and active federation of ESCOs in the country. The aim is to ensure the multi-component model is able to navigate and overcome the financial, technical, information and institutional challenges facing the countries and the region – and the same may be done through modelling it in tandem with the requirement and stage of the market within the area of focus.

Arriving at the aforementioned learnings, was not a smooth drive given the unfortunate impacts of the COVID-19 pandemic and the geographically sparse nature of our being, especially in the context of navigating an expanse of a region. As I learnt at my host organization – every challenge comes with a solution which renders itself immense learning and milestone of achievement for oneself. From navigating the barrier of engagement and dissemination in times of COVID-19 to catering to the varying motivation and willingness of a range of stakeholders across a socio-politically diverse region – it made me realise the power of leveraging on-ground networks with local expertise and ensuring that one addresses the needs of each stakeholder within the ecosystem, that instead of presenting a solution that fits the bill for all – we understand what fits the bill for each and derive an all-encompassing solution.

To end with, I hope that through this three-part series of blogs, I was able to walk you through my journey, my stepping stones along the way, the broad contours of my AIF Fellowship project and the immense learning I had as I entered a nervous being into a sector I had never explored before – none of which would have been a reality or even a part of imagination to aspire towards if it were not for the constant encouragement and guidance that I received from the family I found in ISC as well as the pillar of support that the AIF Fellowship Team and cohort stood for me as, at every juncture of this ever-so exciting pathway.

About the Author:
Mehar Jauhar is serving as an American India Foundation (AIF) Clinton Fellow with Sustainable Communities India Private Limited in Pune, Maharashtra. For her fellowship project, she is developing innovative business models for accelerating the adoption of energy efficient technologies in India as well as South-East Asian countries. Growing up in various locations across India and exploring diverse cultures, Mehar believes in the importance of communication and adaptability for understanding the needs of different groups and strengthening them through sharing ideas, knowledge and creating cooperative communities. Through her interactions with vulnerable groups in conflict regions, she recognises the value of empowering communities and building their resilience to adversity by developing systems for sustainable livelihoods. Mehar began her career as a Policy Analyst at Swaniti Initiative with a focus on bridging the gap between the community, civil society organisations and parliamentarians, as well as delivering development solutions to strengthen democratic institutions. Over the past year, she has facilitated the policy engagement efforts of a network of grass-root organisations across India on issues surrounding human trafficking and protection of migrant workers. She has also conducted capacity building workshops for women artisans in North India with an aim to increase their market linkages. Her recent project gave her the opportunity to assist the State Government of Jharkhand to strengthen climate change resilience within the state and assess the absorption of returning migrant workers into large-scale employment programs such as MGNREGA. Serving as an AIF Clinton Fellow, Mehar endeavours to build her experience in the development sector as well as understand the nuances of designing and implementing scalable and sustainable projects that drive social impact. She is keen to learn and foster innovative approaches that create synergies between the goals of economic growth and environmental preservation. An avid reader, she is fond of writing poetry and enjoys playing the guitar.