Climatic, ADB Ventures’ video series about the Asian entrepreneurs tackling the most important questions of our time, has returned with a new series about cooling and smart buildings.

Over the next three decades, rapid urbanization and greater weather extremes will lead to a skyrocketing demand for cooling. Can this increased energy need be met in a sustainable way? In this new episode, Climatic host Linh Thai explores this question and more with Asia's premiere energy-efficiency experts and entrepreneurs:

  • Priyantha Wijayatunga, Chief of Energy Sector Group, Sustainable Development and Climate Change Department, Asian Development Bank (ADB)
  • Dr. Abhinay Bollineni , CEO, KIMS Hospitals
  • Arjun Gupta, Founder and CEO of Smart Joules
  • Shikha Bhasin, Senior Program Lead, the Council on Energy, Environment and Water (CEECW)
  • Sriram Ravilla, Managing Director, Aravind Eye Hospital - India

Climatic is made possible by a grant from Climate Investment Funds' Clean Technology Fund Program.

Transcript

Linh Thai  00:10

Welcome back to Climatic, a series focusing on the Asian entrepreneurs tackling the most important questions of our time. This week, we're looking at cooling. One-fifth of all energy in buildings is used for air conditioning, with demand for cooling set to skyrocket over the next three decades. Rapid urbanization and greater weather extremes will mean a surge in energy consumption. Leading this growth is India, one of the world's most dynamic markets with an upwardly mobile and growing population. Can this energy need be met in a sustainable way? And will there be enough power for everyone? One entrepreneur is so confident in his energy saving prowess, that he's putting his money where his mouth is.

Arjun Gupta  00:50

Even if the savings are less than what we are guaranteeing to our customers, we actually pay them so that they are guaranteed a particular reduction in their energy bills.

Linh Thai  00:59

Too good to be true? Stay with us to find out. But first, I'm joined by Priyantha Wijayatunga, Chief of the Energy Sector at the Asian Development Bank. Thank you for joining us, Priyantha. Power is something that many of us take for granted, how critical is it to a country's development?

Priyantha Wijayatunga  01:21

Twenty or thirty years ago, we used to say that it's directly copper. Your energy consumption is coupled to economic growth, 1% growth in demand will result in one and a half percent growth in or 2% growth in GDP. So, that's how it used to be. Now, it's time that we as much as possible decouple it and see maximum socio-economic growth with minimum energy inputs or minimum increasing energy input in it. If you're looking at Net Zero emissions by 2050 and we expect the global economy to be 40% larger than now, and we expect the energy demand to be 7% lesser than that. Otherwise, we cannot achieve the target of 1.5 degrees as you know, by the end of the century. So, which means we have, we should try hard to decouple it as much as possible as much as energy is a critical input to economic and social development. It should not be directly one to one mapping,

Linh Thai  02:20

I see. So, energy is a whole is incredibly important for any growing economy, but there are efforts to decouple energy from development. What about cooling? Will demand continue to grow and what will be the environmental impact of this growth?

Priyantha Wijayatunga  02:32

Yeah, now, for instance, you know, overall, at the moment, as I said, about 20% of electricity used in a building if it goes for cooling. And by 2050, it is estimated that it can be as high as you know, 30% on demand, and in some countries, it can be even higher. Now, for instance, if I give you a couple of examples, now, in India, you know, the demand for cooling has gone up. Do you think 20 years by it's a 15-fold increase, 15-fold, one, five. And then in case of (the People's Republic of) China, it's even much bigger. It's about 65-fold, meaning from nine days to now. And as all all of us know, Asia Pacific region is the critical region when it comes to cutting down GHG emissions. Because our power sector, our energy sector contributes to almost 50% of the GHG emissions in the world. So, it has a huge responsibility in that sense.

Linh Thai  03:35

Yes, Greenhouse Gas Emissions are definitely a huge responsibility that we all need to share. And it's clear that there needs to be Green Energy Development throughout Asia Pacific. So what are the barriers to building and updating this essential infrastructure in a more sustainable way?

Priyantha Wijayatunga  03:51

The capital investment is high. And but if you can, you know pay for these investments, like the way you pay your electricity bills, or from savings from the electricity bills, you don't feel it that way. So then, there should be somebody who take up that capital expenditure and then, charge it from you on an annual basis. And that's what these energy service companies do. Now, for example if you take energy efficiency Services Limited India, it actually procures these equipment in bulk what is necessary for these buildings and and let's say any other energy efficiency and investment. They go to the world market and and buy it in bulk, if I give you an example, they were doing a lot of efficient street lighting, they used to buy millions and millions of efficient, you know, lamps, and then they themselves go and install these in areas, you know, municipalities and so on. And then the municipalities or the users of this will charge will be charged on an annual basis, you know, over the years, they recover this money. So you need to have a financial intermediary like that, who can provide that support?

Linh Thai  05:00

Joining us now is Shikha Bhasin, Senior Program Lead at the Council for energy, water and environment. Hi Shikha. Earlier in the show, we talked about how efforts are being made to decouple energy from development. When we looked at India, where's the majority of cooling growth happening?

Shikha Bhasin  05:15

HFCs which are hydrofluorocarbon gases, and immensely more potent as compared to carbon dioxide, you know, from a greenhouse gas perspective. So what cooling and HFCs actually do is keep the planet more and that warming planet requires more cooling, and so refrigerants the way that they are today, in India, and in many other parts of the world, are actually the Achilles heel of climate change, right, because it's heating the planet so much more. Now, when we think about HFC than how that gets broken down into countries. India is going to be one of the largest cooling markets globally, you know, with our billion plus population, and access to refrigeration based air conditioners at only 8% of households. And so, the switch away from these gases, which are in the commercial segment in India alone, going to happen eight times over from where we are today, by 2037-38. It's this growth that needs to be managed in a sustainable manner. You know, this is a market that's going to increase significantly with aspirations and incomes, and also with the increasing heat stress. So, how do we ensure that cooling access, thermal comfort access is being made available to the poorest of the poor people, right? And across all sorts of sectoral applications that are critical to India's growth and development.

Linh Thai  06:52

But from what you're saying, it seems like there's another issue. And that's how to ensure there's equitable access. When living in a hot country like India, or like Viet Nam, where I'm living, cooling can become essential to the success of a business or to the comfort of residents, customers and employees. But while living standards rise, will we be able to make sure all parts of society have access to this valuable resource and can it be achieved in a sustainable way?

Shikha Bhasin  07:17

So, when you think about applications and sectors like hospitals, or hospitality, for that matter, a lot of that built environment is yet to be put in place. So, how do we make sure that these applications are made available in an equitable manner, and yet are sustainable in nature? And that's really the cooling conundrum of India today. And of many developing and emerging economies around the world.

Linh Thai  07:44

One Indian businessman thinks he has the answer to this conundrum. Arjun Gupta is the founder of Smart Joules, Indian energy efficiency company, Arjun, what first attracted you to energy efficiency as a business?

Arjun Gupta  07:57

You know, my focus in my first job was on India and how we can reduce our greenhouse gas emissions. And my research found that if we use existing energy efficient technologies at scale, which are proven, we would be able to reduce the energy consumption equivalent to the consumption of 300 million Indians. So, this kind of area of work has the potential to lift 300 million people out of energy poverty, without building a single new power plant. So, really big potential to make more than a gigaton impact on global carbon emissions. So, I got really motivated to work on this problem statement, because of the scale of the impact that is possible. Then, I worked over the years and, ended up in a job working with a very large Indian conglomerate, managing their energy consumption and trying to make them more efficient. And what I found was that energy savings has, is not only scalable, it is also very profitable. So, investing in energy efficiency yields much higher returns than investing in renewable energy.

Linh Thai  09:02

Okay, so I heard two key words that will perk up any investors ears, efficiency and profitability. Can you explain why energy waste occurs? And what would happen if we were able to eliminate it?

Arjun Gupta  09:13

Right. So, one of the biggest opportunities for Smart Joules and the way we look at energy management is to attack all the sources of energy waste that we find in every business and every factory. The first source of energy waste is actually in the way we design our facilities. So, we hire some specialty engineering firms, and we give them a specification but I want you to design a cooling system or a heating system or my building. And this is the kind of look and feel I want. We don't really pay too much attention to the energy consumption profile of this. The second one if you think about it is equipment, right? So what consumes energy in our buildings and factories is equipment. They be the chillers or boilers or pumps or cooling towers or motors of any kind. These equipment, when we purchase these equipment, whoever purchases them, the most important thing that we look at is how much does this cost. We want to build the cheapest facility possible, the quickest available and the cheapest possible. So, this kind of emphasis on first cost, rather than the lifecycle cost of ownership of the equipment is another factor why energy waste is embedded into our facilities. So, we cover two reasons right why energy is wasted. The first one is poor design. The second one is wrong equipment selection. And the third one is the most interesting and complicated one. And this is operational inefficiency. Okay, you can call it operational waste. So imagine, now you've got a design. You've got a building or a factory that somebody has designed. You built it. You put the equipment in place. Suppose, you've done really well, right. You've got the best design possible. You've got the state of the art equipment. The demand is fluctuating. The system is complex and interdependent. And we are handing this complex system over to a team of operators with very low levels of automation, very low utility of actual real time data, which tells them what is the right way to operate, and low levels of training. So, what happens is a lot of operational energy waste, even if the equipment and the design of the system are perfectly fine. So that's where you know, there's a big opportunity to create a difference.

Linh Thai  11:23

I understand the scale of the problem. How was Smart Joules solving it?

Arjun Gupta  11:28

So, Smart Joules is the solution. When we look at this problem, our solution is one that makes energy saving simple, substantial and profitable. Essentially, we go in, and we say we will offer you a guaranteed reduction in your energy consumption compared to your historical energy consumption levels. That guarantee is more than 15% and in some cases, 20% of the total energy consumption of the facility overall. Second thing is we make it simple. We don't tell our clients that you are going to have to buy technology, and you're going to have to buy services, or you're going to have to decide between technology A and B, and C, or you're going to need to change the way you operate. We don't do any of that. We say you please leave it all up to us. We are going to come and design whatever needs to be designed. We are going to come and execute whatever needs to be executed. And we will manage the your energy dynamically, right? So, it makes things very simple for the customer. They essentially have to do nothing, right? You can't get simpler than that. We do all the work.

Linh Thai  12:31

I'm joined today by two of Arjun's customers, Dr. Abhinay Bollineni, CEO of KIMS Hospitals, and Sriram Ravila, Managing Director at Aurolab Hospitals. Dr. Abhinay, could you start by explaining how much you spend on energy in your hospitals?

Abhinay Bollineni  12:46

So, there are four categories of expenses in hospitals. There is consumables, which is the largest chunk, followed by doctor cost, followed by HR cost, and then you have other expenditure. In other expenditure, electricity accounts are almost 50 to 60% of the overall expenditure.

Linh Thai  13:04

Okay, so that's quite sizable. So to reduce that expense, is it as easy as saying that your air conditioning unit is old? It's not efficient, and you just need to get a new one? Or is it more complicated than that when it comes to a hospital and healthcare environment?

Abhinay Bollineni  13:18

It is very complicated in a hospital because there is a lot of positive pressure negative pressure. Your hospital is equipped with air conditioning every square foot and you need to maintain low temperatures in blood banks. You need to maintain very low temperatures in labs. You have to have continuous air conditioning in MRI, CT services. The consumption and the complexity is very, very high when compared to any other real estate industry, right? So in that view, it's very important to get the design right. It's very important to get the cost structure right. It's very important that it can sustain for a long period of time.

Linh Thai  13:58

Sriram talk us through what Smart Joules did when they first visited your facilities.

Sriram Ravilla  14:03

They did a thorough study of the items that we were using, like the fans, lights, pumps, and even the chiller. They clearly told that there is a scope to improve 25 to 30%. And their proposal was too good to believe. They said they will invest everything and then, whatever the savings, they will take about 70 to 75% and then leave 25% for us for a certain number of years.

Linh Thai  14:35

Well, that number sound quite meaningful. What did those percentages equate to in annual savings?

Sriram Ravilla  14:40

We were saving somewhere close to, in Indian Rupees, three lakhs which translates to $4,000 a month. So, the savings was roughly about $50,000 a year in which partly was shared by Smart Joules and then, partly it was given back to us, though we have not invested anything in the project. So, we are very happy with it.

Linh Thai  15:06

Dr. Abhinay, Smart Joules is not the only company of this type out there. What made them stand out for you?

Abhinay Bollineni  15:12

What liked about Smart Joules or what we liked about the model is the fact that they're willing to get their hands dirty. They're willing to take that risk of saying, I will optimize and only then take a certain share of the revenue. Then, there is a lot of comfort that they are giving the right solution, they're going to come up with the best technology, they will figure out the best practices are in place for the best long term durability. So that's the confidence that we get, that I have a partner, who will help me sustain this for a long period of time. Because like my goal is to focus on hospital and healthcare delivery. His goal is to focus on air conditioning design and the best delivery that it can. And I want people to get encouraged by this model. I think there's a lot of opportunity in multiple industries, not just in healthcare, where you use specially very niche, and you partner with people, you take over that problem. And you figure out a way to create a revenue model based on that.

Linh Thai  16:09

So Arjun, offering no upfront costs, guaranteed savings, and no risk. That sounds great as a customer. But as an investor, that sounds terrible. Can you talk a little bit about how you actually make a profit from your clients?

Arjun Gupta  16:24

Of course, you know, the investors only need to look at the project outcomes to feel extremely confident about the business model. So, we have operating units all across the country and a seven-year operating history in which we have actually out delivered in every single project. So, if we have guaranteed savings of 15% in our portfolio, the actual savings that we have achieved on average are more than 25%. And in some sites, it goes up to more than 40%. And in one case, more than 70%. So, how this is really interesting is our focus is totally on driving extreme energy efficiency. So, the more we save, the more profitable the projects become, right? Our investments are fixed, right? So if we are able to improve energy efficiency by 1%, 2%, 5%, 10%, more than what we have guaranteed, that's where a profit really comes from, right? So, as we get smarter about energy efficiency, as our scale grows, as our software becomes more and more intelligent, we save more and more energy. And that's how we make more and more profit.

Linh Thai  17:26

Okay, interesting. What about scaling? How do you expect to grow the business? Will it be mostly organic? Or will you work with partners to increase your pace of growth?

Arjun Gupta  17:34

Right. So, as a company, what we care about the most is to achieve scale as fast as possible, because the world can't wait for us to really make a big dent on the global greenhouse gas emissions. So, partnerships are absolutely going to play a key role in making this happen. Because some existing companies already have a lot of the things that are required to actually make a big impact on scale. For example, we have an existing partnership in place with an electric utility company. Now imagine, this electric utility company has got 40,000 customers, and they have commercial customers, and they have lots of residential customers, which we are not focused on. But they already have 40,000 commercial customers in one geography, with whom they already have a lot of trust. They have been billing and selling electricity to these customers for as long as the customer has been around. So, we partner with an electric utility company to say we are going to bring cutting edge energy efficiency solutions to your clients. I think in about a few months or years time, we will have established a successful utility and energy service company model. This model can be can be replicated across all the private electric utility companies in India and that just gives us instant scale. And the good news is that, as I mentioned, every building and factory is wasting 30% of what they consume. That's what we are after.

Linh Thai  19:02

As an investor, if something sounds too good to be true, then it probably is. But with Smart Joules, my natural caution might just be misplaced. I think it's great that there's a solution where the company, the customers, the community, the environment, we all benefit. It's clear that many more people across Asia-Pacific will need to access the range of benefits that cooling provides. But while this increased access should be encouraged, we must aim to make these technologies and the power that drives them sustainable and available to all. Thank you to our guests today, Priyanka Wijayatunga, Shikah Bhasin, Dr. Abhinay Bollenini, Sriram Ravilla, Arjun Gupta and of course, you for watching. Until next time on Climatic.

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