As carbon prices plunge, the business model supporting India's energy efficient lighting programme has evaporated ? but its backers have some new ideas
HYDERABAD, India (AlertNet) – When U.S.-based carbon investment firm C-Quest Capital first came to India in August 2010 to distribute energy-efficient lighting at scale, it did not anticipate suspending operations less than two years later.
But with carbon prices at an all-time low, the company has had to put operations on hold and explore alternative funding models in an attempt to keep its goals alive.
C-Quest is one of three key distributors of compact fluorescent light bulbs (CFLs) under the Indian government’s Bachat Lamp Yojana (BLY) programme.
With a growing national power deficit and increasing concern about the impacts of climate change, the lamp programme was launched in 2009 under the U.N.’s Clean Development Mechanism. Its aim is to catalyse the widespread replacement of conventional incandescent light bulbs with CFLs, which cost more but consume only one-fifth as much electricity.
Using funding from the international carbon market, implementers of the lamp programme purchase the efficient bulbs at the market price of 120 Indian rupees (about $2.20) each and sell up to four of them per household at the subsidised rate of 15 rupees (about $0.30), taking the used incandescent bulbs in exchange.
The programme was set up to make this money back for its investors by selling the carbon credits reaped from reducing emissions.
“With price being one of the principal barriers to scale for this technology, this model was designed to support its widespread distribution by removing that chief barrier for consumers, especially those who are low and middle-income,” said Mahua Acharya, managing director of C-Quest and its former head in India.
When the lamp programme was launched, it was estimated that the scheme could lead to the replacement of up to 400 million incandescent bulbs, which could reduce the country’s annual electricity consumption by up to 6,000 megawatts and its carbon dioxide emissions by 24 million tonnes, for a savings of 240 billion rupees ($4.4 billion).
But the carbon market didn’t behave as predicted.
CRASHING CARBON
By the end of 2012, carbon prices had dropped from 8 euros per tonne when C-quest entered the Indian market—high enough to make its business model profitable—to below 20 cents a tonne. The drop was precipitated by the global economic crisis and an oversupply of carbon credits in Europe.
“The business model just crashed,” said Acharya, standing in front of one of C-Quest’s last distribution stalls in the Hyderabadi suburb of Attapur, filled with boxes of bulbs.
The fall meant that the lamp programme no longer made financial sense for investors, and that has significantly affected its implementation. According to officials at India’s Bureau of Energy Efficiency (BEE), only 28 million bulbs have been replaced so far, well short of the goal of 400 million.
“Implementers are just not interested to invest in the programme as it is, as they can no longer attain the necessary returns,” said Pravati Samal, an assistant energy economist at the bureau.
Lighting and electronics company HPL, which in 2011 distributed some 3.7 million CFL bulbs in Karnataka state, has stopped all operations.
“Right now, the situation is completely adverse,” explained Mahesh Sharma, an HPL project manager.
Another lamp programme implementer, state energy body EMC Kerala, is continuing its work supported by government loans in the hope that the carbon market will revive, said BEE energy economist Milind Deore, adding that this funding may be converted into a subsidy if necessary.
HUGE IMPACT
Despite these challenges, C-Quest is exploring ways to continue its work, citing its immense potential impact, both locally for individual users and globally in terms of carbon emission reductions.
“For those of our customers who have one or two lights...and possibly a fan in their home, making a replacement like this can reduce their monthly bill by more than half,” said L.S. Reddy, project manager for C-Quest’s Hyderabad-based distribution partner, Nirmala Green Ventures Reddy. “That’s enough to buy their week’s vegetables, just by changing their light bulbs.”
Acharya notes that lighting accounts for 20 percent of India’s electricity consumption. “If we want to avoid carbon emissions while delivering better energy access to our population, efficiency is a vital part of the solution”.
ALTERNATE FUNDING?
While C-Quest hasn’t given up on its long-term hopes for the carbon market, it is exploring alternative financing options in the meantime, Acharya said.
Topping the list of ideas is one whereby distribution companies would share their energy savings with the investor.
“In a country that (has a huge) power deficit while distribution companies struggle with losses, any initiative that frees up kilowatts should be encouraged,” says Ken Newcombe, C-Quest’s founder and CEO.
The BEE is yet to offer an alternative funding model, and hopes instead that the carbon market will revive, and with it the lamp programme, says Deore, although Acharya is concerned that such a recovery may be unlikely in the coming year.
In the meantime, Deore said, the BEE is working with other states to develop a loan/subsidy model similar to that being used in Kerala.
LEDS OR CFLS?
As C-Quest seeks to develop a more sustainable business model, other questions remain, including whether CFLs are an appropriate solution for lighting efficiency. While they do offer significant efficiency gains, they can also present a waste hazard when poorly disposed of, because they contain mercury, a toxic element.
“There are not yet mandatory guidelines from the Ministry of Environment and Forests for the safe disposal of CFLs, but there are voluntary ones,” said Deore. “It is primarily the implementer’s responsibility to ensure that waste is managed properly, but we do monitor the projects.”
The bureau is awaiting approval from the government for a proposal to promote bulbs with light-emitting diodes (LEDs) through the lamp programme, said Deore. While less toxic and even more efficient than CFLs, they also are more expensive.
C-Quest says it is keen to shift to environmentally cleaner bulbs once the price of the technology comes down, and in the meantime is trying to ensure that proper disposal procedures for their projects are adhered to.
The next step for C-Quest, however, is to develop models for supporting energy efficiency at scale that will work even without a supportive carbon market.
“If this can be achieved,” Acharya said, “it should also be possible to support a transition to other solutions that are even more systemically effective over time.”
Anna da Costa is a freelance writer based in India.
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