Demand for cooling is expected to increase rapidly in India as temperatures rise. As per the India Cooling Action Plan (ICAP), drafted in 2019, demand across India is projected to rise at a rate of 15-20% annually and aggregated cooling demand will grow to around eight times by 2037-38, as compared to the 2017-18 baseline. Space cooling (for residential homes and buildings) has the largest current and projected cooling demand, the plan notes.
A 2022 World Bank report, titled ‘Climate Investment Opportunities in India’s Cooling Sector’, said that 45% of the country’s peak electricity demand in 2050 is expected to come from space cooling alone. The study estimates that the market potential and investment opportunity in space cooling will be $1.5 trillion by 2040.
Alternate business models, such as cooling-as-a-service (CaaS) can help push for energy efficient models while bringing down costs and can be a huge incentive for industry players. CaaS is a model where customers pay for the service (cooling in this case) as opposed to purchasing the equipment.
Smart Joules is a startup working in the commercial cooling space in India which offers two business models aimed at making saving energy simple, substantial and profitable. The company aims to prevent the release of at least 29 million tonnes of carbon dioxide into the Earth's atmosphere by 2030. It has partnered with giants like Apollo Hospitals, ITC, Max Ventures and Industries and more and has so delivered Rs 142 crores in monetary savings, saved 20.62 crores kWh of energy, and eliminated 1,25,243 tonnes of CO2 emissions.
The Core spoke to the company’s co-founder and CEO, Arjun Gupta, about how CaaS works, how they plan to scale up operations in the country and whether the business model could work in the residential space in India.
“Selling as a service is really good because you are taking accountability for the outcome. Especially in India, with the poor service levels that are prevalent, if there is a company that comes along and says I'll take accountability for the outcome, and based on the outcome, you pay me then people are going to be very, very open to that,” Gupta said. “However, in India, we have a challenge – just like anywhere else in the world – that nobody wants to be first.”
“The advantage is that once you do have very high-profile early adopters with success stories, then everybody wants to be first to be second,” he said.
Here are edited excerpts from the interview:
Smart Joules offers two models – pay-as-you-save and cooling-as-a-service. How do the two models differ?
The lifecycle cost of ownership of energy intensive utilities such as cooling, heating and compressed air consists of capital cost, manpower and maintenance costs, and energy cost. The prevalent dominant business model through which utility projects and services are currently delivered focus on the first three elements while ignoring energy – which is by far the largest share of lifecycle cost – upwards of 70%.
Both our business models ‘pay-as-you-save’ and ‘cooling as a service’ put energy at the centre of attention. Also, both of these models are aimed at making saving energy simple, substantial and profitable for our customers. They have the same objective - to fight against the same market imperfection which is that although energy is the number one cost, it is nowhere focused on. Both of them deliver assured, no capex, handsome benefits in terms of reduced cost, improved sustainability, improved quality of service and enhanced convenience of operations to our clients.
‘Pay-as-you-save’ is focused on existing buildings and factories. It looks at the customer's current energy bills and gives them a guaranteed reduction against those. Cooling-as-a-service is focused on new construction. It looks at a benchmark efficiency of cooling, which is the prevalent industry best practice and gives the customer something even better than that.
In one of your interviews, you talk about the importance of tech and automation in this energy saving infrastructure. What kind of an ecosystem does India have currently to support this, and have you faced technological challenges while implementing these models?
India currently imports most of the products required for building automation from North America and Europe, despite having highly skilled engineers. This is a lost opportunity for domestic value creation and is putting further pressure on our significant trade imbalance, devaluing our currency.
The good news is that the skill sets exist in India to be able to make world class automation technologies, leveraging the latest advancements in IOT and AI. We have capitalised on this latent talent by going directly into universities and structuring innovative partnerships with them such as our JouleLabs program.
Which sectors is Smart Joules focusing on and how do you plan to scale up operations?
We are focused on the most cooling intensive sectors, sectors that consume energy 24/7 that pay very high tariff rates for their energy and where cooling is a significant portion of their cost. These include hospitals, hotels, pharmaceutical sector and data centers as a primary end use, however our solutions are applicable beyond that as well.
Our scale up strategy can be encapsulated by two ideas. One is portfolio wide engagements. We target customers that have multiple facilities because once they taste working with us, they get convinced about the benefits that we bring in terms of reduced cost, improved sustainability, better quality and more convenience. Once they experience that, they do not want to go back. So, with similar sales effort, we can capture large number of facilities and drive a lot of savings.
The second idea is land and expand. We have a number of solutions. Our clients may want to start with one solution or another. We have a wide range of options based on the comfort of the client. They may start with JoulePAYS (pay-as-you-save) for an existing facility or JouleCOOL (cooling-as-a-service) for an upcoming facility, or they may just opt to buy our product DeJoule. Whatever they buy, we are very convinced that they are going to buy the others as well. So that is the second strategy, land with whatever is acceptable for the client based on their pain points today and expand across the portfolio with all our other solutions as well.
Apart from the commercial and industrial sectors, would the cooling-as-a-service model work at a residential level too? What would be challenges in expanding in that space?
India’s cooling demand is projected to increase to add an additional 800 gigawatts or more of power demand over the next 25 years. This is more than the entire renewable energy capacity target of 500 gigawatts that has been announced by the government. This is an urgent and critical problem to solve. Most of this additional demand is going to come from the residential sector, because less than 8% of Indian households today own air conditioners. This number is set to dramatically increase in the coming decades because of increased purchasing power, increased heat stress and improving standards of living.
So, the residential sector is extremely important and it has the same characteristics as the commercial and industrial sectors. The capital cost is only a small portion of the lifecycle cost of ownership of even a residential cooling system and everybody wants things to be easy, cheap, good quality, reliable and sustainable.
So, the cooling-as-a-service model is definitely going to work. However, the focus is going to be on large residential developments. Because this model does not work if you have to sell it in a distributed manner to millions of people directly. This model will definitely come in, and it will come in at the township level, where developers are building lots of residential real estate. The developers will themselves offer cooling as a part of the offering to the clients and specialty cooling companies like ours will be doing the work.
Today, if you look at developers, they are already providing hundreds of services to the residents, they are providing security services, housekeeping services etc. by subcontracting to other companies. Tomorrow, if a cooling company comes and says I'll put up the infrastructure, it is a win for the developer too, they will also make money. Ultimately all parts of the ecosystem will benefit from reduced energy waste and we are currently planning and envisioning who could be the right first partner for us.
As a business model, ‘selling-as-service’ seems to be as good as they come. Do you believe India is slow in adopting it? Lastly, do you face any logistical/cultural challenges when it comes to selling this model to businesses?
Yes, selling as a service is really good because you are taking accountability for the outcome. Especially in India, with the poor service levels that are prevalent, if there is a company that comes along and says I'll take accountability for the outcome, and based on the outcome, you pay me then people are going to be very, very open to that. That is a fact.
However, in India, we have a challenge - just like anywhere else in the world - that nobody wants to be first. People want to see who has done this before. And as a smaller company, you don't have that kind of brand power that some of the larger people who have been working in this industry have. So, you have to find those early adopters. The advantage is that once you do have very high-profile early adopters with success stories, then everybody wants to be first to be second. We are great at looking up to and trying to copy the leaders. For instance, our portfolio wide engagement with Apollo Hospitals has accelerated demand for our solutions in the healthcare space.