Q&A with Lalit Jain, CREDAI Chairman: How India Can Accelerate Energy Efficient Buildings in the Nation's Booming Cities
Posted September 12, 2013
Q&A with Lalit Jain, CREDAI Chairman How India Accelerate Energy Efficient Buildings in the Nation’s Booming Cities
Mr. Lalit Jain is chairman of the Confederation of Real Estate Developers Association of India (CREDAI) and chairman and managing director of Kumar Urban Development Limited, a large award-winning real estate developer in India. Mr. Jain has nearly three decades of experience as a developer and he has built a growing business based on energy efficient buildings.
In your view as a developer, what are the drivers for energy efficient buildings in India?
A developing nation is also a growing nation and India is growing at a rapid pace. India’s energy needs are expected to more than double by 2030. In the wake of this growth, energy efficiency becomes more important to alleviate the financial burden of oil imports, reduce coal, oil and back-up diesel generation investments, and make the best use of existing supply capacities to improve access to energy. A recent study by the World Resources Institute calculated that India could reduce its annual electricity usage by 183.5 billion kilowatt hours by investing $10 billion (Rs 59,720 crore) in energy efficiency improvements. These savings are more or less equivalent to 25 nuclear power plants, which would cost India $50 billion (Rs 2,98,600 crore) in investments – five times more expensive than the cost of energy savings.
How can the Indian market shift to more energy efficient buildings, especially given that 70 percent of buildings in 2030 have yet to be built?
To enable India’s commercial and residential building industry to adapt and accelerate energy efficiency, the Energy Conservation Building Code will eventually have to be made mandatory. This will give the market the signal it needs to incorporate more energy efficient features in the design and construction of buildings, and drive more professionals to become experts in these much needed areas. Developers are also weary to invest that extra bit in energy efficiency when they are unsure about the returns on their investment. In addition to making the building efficiency code mandatory, it is necessary to create market incentives and policy mechanisms to show the benefits from energy efficiency.
You mentioned that the building efficiency code should be made mandatory. What are important factors that will lead to its success?
Governmental coordination is very much required to make the building energy efficiency code a success. Both Governments, at the centre as well as state, have to take serious initiatives to allocate higher level of financial and professional resources. And to accelerate energy efficient building construction, the code should be made mandatory along with an incentive system that rewards and recognizes exemplary work.
As a building owner, do you consider increasing building energy efficiency a strong investment?
Yes! The economics work this way: As a building owner, I can have a higher initial cost due to the higher prices of the “green” materials like insulation and energy efficient lighting. But, this is a one-time fixed cost. The maximum impact I am going to have is a nominal higher monthly loan payment. However, this higher expenditure is offset by the continuous savings in the form of lower electricity costs over the lifetime of the building.
In your view, what are consumer attitudes toward green buildings in India’s rapidly growing cities?
There’s a growing shift toward the concept of green buildings not only in the minds of developers but also in the mindset of our ultimate stakeholders, “consumers”. Cities today have on one hand upgraded the glamour quotient, but on the other have negatively impacted the health and well-being of their residents by rapid and unplanned development. India’s limited natural resources have been overused, which has led to increasing scarcity. Consumers are now more aware of how this change is affecting them in terms of the quality of their environment. As a result, consumers are willing to pay more for better environmental quality. Any value additions, especially those which have a long term benefits like green buildings, are always welcomed.
As a developer, how do you overcome the “split incentive” barrier?
Leases are usually “net leases”, meaning building tenants pay their own utility bills. Therefore, there is hesitance on the developers’ part to implement expensive energy efficiency measures – the “split incentive” barrier. Global studies have shown that developers are able to charge higher rents for green buildings because tenants are willing to pay more for benefits, such as electricity cost savings and better environmental quality. In addition, energy efficiency helps us strengthen our company brand.
Why are banks important to scaling up energy efficiency in buildings in India?
Banks play a major role in making energy efficiency a true success because nearly all the players in the market utilize financing from banks for their operations. Real estate is capital intensive and has high input costs, even in conventional projects. In the case of an energy efficient project, initial costs may be even higher. In addition, today’s global financial scenario is very weak. As a result, we need banks to help industry to go that extra mile to achieve energy efficiency. Larger developers have benefited from overseas investments, but the smaller ones still rely on domestic financing. Banks also have the opportunity to add value, in terms of credit creation, as real estate is a fast-growing sector with high yields. In India, 70 percent of new buildings that are expected to be built by 2030 have yet to be built. The demand-supply gap is huge, which has an impact on our economy. Real estate contributes anywhere between 6.5 and 10.6 percent to our economy, so growth in this sector will have a positive impact on our nation’s wealth.
What would encourage banks to offer more loans for energy efficient buildings?
If the Indian government is able to give the adequate push by making the building efficiency code mandatory and make the benefits of energy efficiency visible by creating market incentives, then there should be no hesitation for the banks to fund energy efficient building projects.
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About the series: With support from the Shakti Sustainable Energy Foundation, the Administrative Staff College of India (ASCI) and the Natural Resources Defense Council (NRDC) partner with leading developers, government officials and experts to advance energy efficient buildings. ASCI and NRDC are interested in the building industry’s perspective on energy efficiency in buildings as states adopt mandatory efficiency building codes, such as Rajasthan, Karnataka and Andhra Pradesh.
Photo: Courtesy of Lalit Jain