In an exclusive interview with Climate Samurai , Mahua Acharya, MD & CEO, Convergence Energy Services Ltd. shared about the company , carbon credits, business models around the second life of batteries and more. Here is the excerpt
- You started heading CESL at a time when most of the companies were facing COVID 19 heat and economic turbulence that wrecked the spine of many firms, how has been the journey for CESL during this timeframe and how did you manage to float through?
The disruptions around Covid 19 were both good and bad, from a business point of view. CESL was formed in November 2020 and the year-end slowdown, plus slowdowns from Covid 19 gave me the time to learn about the parent company EESL and the two projects that CESL inherited from the parent. It also gave me time to build a business plan, speak with people, plan the organization and its structure, develop a strategy and its business offerings. We hit the ground running, finding little cracks in the travel openings and meeting slots to pitch CESL offerings to Government clients.
Things picked up speed very quickly in the new year, and we managed to crack businesses in two wheelers, move ahead on a 110MW project in Goa, build out a business in e-mobility for the Governments of Goa and Kerala, and also earn mandates for places like Leh/Ladakh.
Wherever and whenever possible, CESL continued to work on the ground to enable quality and timely delivery of commitments.
We made sure that our team’s physical and mental health continued to stay strong. We used whatever time we had to reach out to people, understand their needs, help organize for vaccines, and encourage people to take time out if they needed to take care of their families, many of whom were affected by Covid 19. I have been fortunate to have a team that is dedicated and hardworking.
- How CESL is bringing together India’s green sectors and initiatives to deliver on its goals? Can you please elaborate how the carbon credits being used by a government company? And, what is the current scenario, the development, plan, engagement in the carbon market and supply of this carbon credits?
The energy sector and the electricity sector, in particular, are transitioning in an unprecedented way. It is estimated that energy demand in 2040 in India will rise by 250%, largely due to population growth and urbanisation. More than 40% of the energy supplied will be from renewable sources, as solar and wind reach grid parity, the cost of storage becomes affordable, and countries pursue decarbonisation pathways. Concerns around climate change are likely to make coal, a less preferred option for baseload power and issues related to proliferation and safety may not allow nuclear power to fill the baseload gap. In a further unprecedented way, overlaps with electric mobility have started to take place through multiple uses of batteries for charging cars and selling power to the grid. Against this backdrop, the convergence of three traditional “sectors” namely- power, energy storage, and transportation is set to take place. As the world (and India) moves towards electric mobility, battery storage solutions at charging stations will get widely adopted and will be commercially viable. Climate finance, utilised and designed properly, will play an important role in enhancing the commercial viability of solutions as many are currently sub-commercial.
On carbon credits, CESL is developing a base of carbon credits for all of its programs. Take the case of Gram Ujala – a lighting replacement program where LEDs are sold at Rs 10 only to consumers in rural India. The efficiency gains are significant as these LEDs replace old filament lamps, and the ten rupee price makes it affordable to rural homes. This program is based entirely on revenue from carbon credits.
Carbon finance has been integrated into all our models and based on the economics, it plays either a catalytic role or a binary role – i.e., make or break an investment because carbon revenues are the only source of income. In decentralised solar, carbon finance will be used to offset the cost of replacing old pumpsets. Carbon finance is a crucial source of revenue to enable the shift to E-Mobility.
- Renewable Energy, Electric Vehicles and storage are pushed by the governments across the globe for larger scale adoption. However, afterlife of all these have serious and adverse impact on the environment and climate both. These together set to create urgency for immense recycling and afterlife management services. Does CESL have any plan to dive into this recycling segment, how does it plan to solve the upcoming massive environment crunch and how geared up is the organization?
CESL is actively investing in energy storage solutions by associating with technical partners to redesign solutions. CESL is also at the forefront of policy development and recommendations to enable energy storage solutions for the Indian markets. With regards to electric mobility, our goal is to provide an impetus for Indian car/bike manufacturers, charging infrastructure companies, fleet operators, service providers, etc., to gain efficiencies of scale and drive down costs, create local manufacturing facilities, grow technical competencies for the long-term growth of electric mobility in India.
There is considerable overlap between e-mobility and battery storage, through multiple uses of batteries for charging cars and selling power to the grid. Secondly, the used batteries from EVs can be repurposed for a second life, with potential off-grid and residential applications. With the decentralised solar programme, we provide affordable clean energy to households in remote areas where proper power supply has been a problem. While DISCOMs benefit from cheaper power and better serviceability, governments save on subsidy costs. Farmers and consumers benefit from access to renewable energy and save up on electricity bills.
We are exploring business models around the second life of batteries. We want to promote a circular economy – make sure the material is still usable after their transportation life is completed. There is no market in India – and in most places across the world – for second-life batteries. This is still very new – only a few companies are investing in pilot solutions, and we want to be one of them – because we would like to build an environmentally responsible business.
In our businesses, we urge and sometimes require companies to have a take-back or buyback scheme, require and monitor the safe destruction of old material and so on. And we remain open to new ideas.
- Since 2005 the emissions trading for climate change has been going on and today, according to World Bank over 64 carbon pricing initiatives has been implemented. The total value of global carbon markets jumped 20% last year to a record 229 billion euros ($277 billion). Can you share with our readers how crucial is the design of trading programmes for their success and what are the design principles that needs to be considered?
The current carbon market is valued at USD 277 Bn and the average price of allowances in the European Union is Euro 35/ton. The design of trading programme is critical to their success, as they determine the transaction costs as well as the uncertainty and risk inherent in the trading system. There are plenty of learnings to use—from regulators, scheme operators, participants, auditors, and financiers. There are five design principles that are worth considering:
- Design for maximum reach: Deciding whether a scheme is an allowance trading or a credit trading scheme, or both. Credit trading allows emissions reductions above and beyond business-as-usual to be certified as tradable. Allowance trading works by defining an aggregate emissions cap and authorizes tradable quantities of emissions under the cap. Generally speaking, schemes that have allowed both have been the most successful, though care ought to be taken to reduce the regulatory barriers to credit trading. Allowing opt-ins would be a good idea. This is a provision that allows otherwise uncovered sources to enter the program once their uncertainties have been resolved with the regulator. When the time is right, allow for international linkages. Permitting linkages with other international schemes will allow for the discovery of the lowest transaction costs, increase liquidity and options for participation. All this will eventually maximize the scope of scheme coverage, and provide other benefits—such as international markets, access to other forms of capital, and so on. All these mechanisms will ultimately result in maximizing the total quantity of greenhouse gas emissions capped and reduced.
- Design for flexibility: Since the carbon price can vary, costs to participants can be unknown. Allowing mechanisms such as banking of emissions reductions, or the use of offsets gives participants the flexibility to decide which option to use. Banking of credits over a (regulated) period of time allows industries the flexibility to decide things like the price of acquisitions, timing of major investments, or their (degree of) competitiveness in the marketplace. Depending on the scheme, fungibility with other environmental commodities, such as energy efficiency certificates, can be used to meet compliance needs, at least to the extent it is not detrimental to environmental performance, i.e., it does not dilute the cap.
- Keep it dynamic and in sync with the economy: Carbon credit prices in the EU emissions trading scheme fell from Euro 30 each to an all-time low of Euro 3 in 2013. Chief amongst the reasons that led to this drop was the economic recession that preceded it, and the subsequent drop in emissions—and hence a (reduced) need for allowances. It was not until 2015 that the EU introduced a corrective measure, and not until 2018 where appropriate revisions were made that allowed prices to come back up again. (This was done by adjusting the supply of allowances to be auctioned). Prices have since been on the rise—deliveries on March 29, 2021, closed at 42 euros.
- Think long, think stable: One of the shortcomings of the Kyoto regime is that the commitment period was not long enough. By the time companies started to integrate the notion of a carbon price into their decision-making and discussions reached boardrooms, there were only a few years of the market left. For clean energy projects where gestation periods were long, the lack of a long enough runway triggered discussions around market continuity barely a few years after the scheme started. In contrast, the EU emissions trading scheme had/has compliance periods that progressively increased—giving companies enough certainty to plan, integrate and make investment decisions knowing regulators treated the carbon price seriously and the market was there to stay. Businesses need long time horizons to plan, make investments and decide corporate strategy. Institutions and policymakers need to design accordingly; the climate problem is a long-term issue, anyway.
- Keep it simple and transparent: The transaction costs associated with implementing and managing an emissions trading scheme rise with the number of rules, exceptions to rules, and constraints. As transaction costs rise, the number of trades falls—and as the number of trades falls, the cost savings achieved by the program also decline. Deviations from simplicity should only be allowed when such deviations further climate goals.
- Gram Ujala is a new scheme launched by CESL that will be supported by carbon finance, can you please share more about the scheme, the progress and it’s reach in terms of area covered. Will the LED Bulbs be available throughout the year in the villages and what will be the savings in terms of electricity units? How and when do you plan to cover all the villages in the country with this scheme?
Under the Gram UJALA scheme, CESL is offering rural households to exchange their incandescent bulbs with energy-efficient LED bulbs at an affordable cost of INR 10 per bulb. Consumers can exchange their 60 watt incandescent bulb with a 7 watt LED bulb and 100 watt incandescent bulb with a 12 watt LED bulb for INR 10 per bulb. The bulbs being offered under the Gram Ujala initiative are energy efficient LED bulbs that consume 88% percent less electricity as compared to incandescent bulbs. Switching to LED bulbs will lead to energy savings, monetary savings, and a marked reduction in carbon emissions. We have recently resumed distribution after the second wave of the pandemic in Arah and Buxar districts of Bihar; and Varanasi, Prayagraj, Kaushambi, Pratapgarh, Newadhiya, Pura Raghunathpur, and Bhadohi districts in UP. As on date, we have distributed more than 14 lakh LED bulbs. As much as INR 69.12 crore have been saved because of this programme. Additionally, the scheme has helped in avoiding peak demand of 55.84 MW. The number of bulbs distributed, savings made, etc. can be tracked on the dashboard: http://gramujala.ceslindia.co.in/
After Bihar and Uttar Pradesh, Gram Ujala will be taken to Andhra Pradesh, Maharashtra, Telangana and West Bengal. The total potential across the county is an additional 300 million bulbs, and is implementable, provided a sufficient level of carbon finance is achieved.
- What will be the major highlights of growth for your company in 2021-22?
- Electric Mobility (1st in the country offering all kinds of vehicles to different sets of clients – Individuals, institutional bodies, ULBs, DISCOMs, STUs etc.)
- Launch of major tender for Electric bus procurement basis Grand Challenge document and directions from NITI/DHI.
- Launch of Battery Energy Storage system program offering a host of multofold benefits to the DISCOMs
- Company will increase its solar capacity – as a milstone of minimum assets of 500 MW on ground in decentralised solar space (which no one else in the country has)
- Completion of Solar project in Ladakh (Solar Power plant and a very innovative Solar powered carport)– achieving a milestone to the road of “Carbon Neutral Ladakh” set by Hon’ble PM of India
We are attempting to bring together independent sectors such as renewable energy and energy storage to ramp up areas like domestic lighting, energy efficient cooking, and e-mobility. Business models focus on optimising assets, monetising, stacking multiple values, and using innovative financial structures to deliver at scale. As of now, we have partnered with governments in the states of Maharashtra, Kerala, Goa, Andhra Pradesh, the northeastern state of Meghalaya, and even Ladakh in the extreme north. We look forward to intensifying these partnerships both qualitatively and quantitatively.
We look forward to achieving greater milestones by enhancing our research and implementing Internet of Things (IoT) to make our offerings more energy-efficient, cost-efficient, and definitely, futuristic. A lot of this can be achieved by shifting our thinking from a damage-reducing perspective to regenerating and enhancing one.
- The global economic turbulence and pandemic has almost paralyzed the auto and renewable energy industry globally, what do you think is the need of the hour to help the industry get back to the track and help meet the Government’s renewable energy and electric vehicle targets?
India is still at a very nascent stage of EV transition and the path to implementation is ridden with challenges. While the government is prioritizing the shift towards clean mobility with a series of reforms under the FAME II scheme, there is still scope for improvement to establish a seamless EV ecosystem in India. The industry requires a standalone and focused approach towards EVs, including funds for research and the setting up of a manufacturing base. Additionally, there is a tremendous need for incentives to kick-start the production of lithium-ion cells in India. The Government should emphasize on materials like lithium, manganese, nickel, cobalt, and graphite to help reduce costs, and help in the indigenisation of battery packs.
As India embarks on its journey to become a manufacturing hub by 2026, e-mobility presents a massive opportunity for growth. Indigenous manufacturing is the only solution to resolve and reduce the cost parity existing in the current regime. The next few years will be crucial in driving the EV narrative in India. Hence, the OEMs and government need to ensure on-ground implementation of the new and existing schemes to facilitate ease of sourcing, manufacturing, and financing in the EV value chain, further encouraging the buyers to purchase EVs.
- How will you make batteries affordable? Is the battery swapping – the key to sustainable environment?
While battery storage is technologically the most superior solution to energy savings, its costs are too high for applications in formative stages. The union government has undertaken concerted steps and has set up the National Mission on Transformative Mobility and Battery Storage, which seeks to establish large-scale, export-competitive integrated batteries and cell-manufacturing giga-plants in India through a Phased Manufacturing Programme (PMP). This will enable a decrease in the prices of energy storage in the country and also boost indigenous manufacturing. Issuance of Preferential Market Access (PMA) guidelines for battery procurements is another potential measure that can bring down the cost. This would also encourage the domestic manufacturing of batteries in India.
Through partnerships with key technical partners, we are making way for opportunities to redesign solutions with battery storage capacity. CESL is at the forefront of policy development and recommendations to enable energy storage solutions for the Indian markets.
Battery swapping has the potential to considerably reduce the wait time of charging by mimicking the experience of fuel pumps. It can also optimise Total Cost of Ownership (TCO), reduce resource intensiveness, act as demand responsive units for DISCOMs, and in the future, become an enabler for smart grid, among others. However, we are currently still in the nascent phase of exploring its utility and will be able to gauge its full potential with increased adoption.
- CESL has been playing significant role in implementation of EVs, however the motive to implement these green vehicles are not complete until there is green charging infra in the country. Can you please share with our readers about and if the company is working towards developing green charging infrastructure, how many has been developed and the roadmap.
CESL has recently entered into agreements and MoUs with state governments of Goa, Kerala and AP to procure over 30,000 two- and three-wheelers. This is the first entry into the 2W and 3W segments in the country, with solutions uniquely designed to deliver affordable financial solutions to buyers. In addition, we have signed an agreement with Andhra Pradesh to provide 25 thousand electric 2 wheelers in the state. These electric vehicles will be provided to state government employees of Andhra Pradesh. Electric 2-wheelers will boost energy and financial savings and hopefully, more and more people will also make a shift to EVs.
CESL will also invest in establishing the requisite electric vehicle charging infrastructure and monitor the use of the assets. This customer-oriented approach is designed to deliver good ease of use and better accessibility.
We have also entered into strategic relationships with Bharat Electronics Limited (BEL), TVS Motor Company, JBM Renewables Pvt Ltd., and Fortum India. Under these agreements, CESL and the companies will jointly undertake the expansion and adoption of the EV ecosystem through knowledge sharing and experimentation. This will entail setting up public charging infrastructure, better technological adoption in charging, exploring best practices and business models as also the availability of potential customer segments for demand augmentation. These agreements will also include the development of highway and expressway Charge Point Operators. The feasibility of the park and charge facility to customers across all EV segments will also be explored as part of the project.
- How CESL is trying to coordinate and deliver on India’s energy plans by deploying de-centralised solar and energy efficient products?
We are building upon our decentralised solar development experience in under-served rural communities in India, and over time, using battery energy storage, looking to deliver renewable energy solutions to power agricultural pumps, street lighting, domestic lighting, and cooking appliances in villages.
In that vein, we recently partnered with Meghalaya and the Union Territory of Ladakh to expand our decentralised solar portfolio in the country. With Meghalaya Power Distribution Corporation Limited (MePDCL), CESL signed an MoU worth 60MW, which entails finding synergies in business development to implement various sustainable solutions like pump sets, LED lighting, and solar power stations for agriculture, etc in the north-eastern state of Meghalaya. With Ladakh, CESL is implementing various clean energy and energy efficiency programmes including decentralised solar power in the Zanskar region worth 5MW. These are in addition to our 100 MW decentralised solar project that we are implementing in Goa.
Decentralised and off-grid solutions will help expand solar energy’s benefits to all corners of the country. Our projects are to reinforce the country’s ambitions and to deliver clean, affordable, and reliable energy solutions. Combined efforts will consolidate India’s position as a global green power and contribute to the clean energy footprint in the country.