What is the most important responsibility of any business? It’s responsibility towards it’s shareholders. They are the people who have invested their faith and their money in a business and maximising their returns is the focus of every business. During the course of the business the management comes across several propositions which look attractive as far as reducing costs and maximising profits are concerned. A company which manufactures components for the oil and gas a railways came face to face with exactly the dilemma.
This company was approached by an energy company which installs and operates solar rooftop plants under the OPEX model. The OPEX model is a model of business wherein the energy company installs a rooftop solar power plant with its own resources. It then sells power to the entity on whose roof the power plant is installed for a contracted period. At the end of the contracted period, the plant is transferred to the rooftop owner at no cost. For example, the life of a solar power plant is 25 years. If the contracted period is 15 years, the power company sells power to the rooftop owner for 15 years and then transfers the plant to them at no cost. For the next ten years the rooftop owner has access to power without making any investment. When explained by a marketer, the proposition appears fantastic. Actually, it is, because in such cases the energy company sells power at a tariff cheaper than the public utility company and then for 10 years there is free power.
For a manufacturing company working on a 3-shift basis and operating heavy metal working machines, energy costs are a major proportion of the expenses. Any reduction in the energy bill will reflect positively on the bottom line of the company. No plant head worth his salt would let such an opportunity miss. The same was the case with this manufacturer. In addition, the company was very keen on demonstrating green credentials as they had major business dealings in Europe where green credentials are a major talking point in any marketing presentation.
Convinced by the beautiful green story spun by the energy company’s marketing team the manufacturing company decided to place order on them for installing a solar power plant. However, being a manufacturing company, they did not have experience with solar power plant. The energy company explained that the manufacturing company was benefitting through reduced energy bills and was also getting a solar power plant “Free of cost” for 10 years of operation. The prospect was too good to let go. However, there was one issue.
All the figures thrown by the energy company were for a 25 years life of the plant. Unfortunately, the manufacturing company did not have 25 years. This company was operating out of leased premises and was required to vacate after 4 more years. They were also working on a new business model wherein they would transform into a marketing company, outsourcing all the manufacturing in future. They were keen on projecting a green image and were even ready to absorb some losses on the power plant front.
Enter Adler Technnoserve as Owner’s engineers for manufacturing company for this project. We were to complete the project in two phases. A feasibility phase followed by an execution phase. Our first question was, “what is your energy consumption?” received a vague reply. We knew instantly, that the customer needs more hand holding than just owner’s engineer. We offer to start with energy requirements assessment, site potential assessment and complete feasibility of the project keeping in mind the special requirement of the client. A requirement that the energy company was keen on overlooking. They would design their model for 15 years and levy a heavy penalty for walking out of the agreement.
We, being the client’s own engineers, assessed the feasibility on a complete lifecycle cost principle including the fact that the plant may have to be shifted after a few years. The assessment gave an entirely different picture of the project. Firstly, it showed that installation under CAPEX model, ie the manufacturing company owning the solar plant was a cheaper option under these circumstances as compared to the OPEX model. It took me by surprise but recheck after recheck gave the same result.
The manufacturing company was ready to get into an expensive contract if it helped build their green credentials. However, brand building also has to pass certain RoI filters. On the request of the client we developed several scenarios but all of them led to the same conclusion. The project was just not feasible under the circumstances. As a result, we recommended “not to install” the plant. This recommendation was going to hurt our business as we would lose the second more lucrative execution phase. However, unlike the energy company, we keep our client’s interests first. We recommended not to install the plant.
This recommendation helped our client save ≈ 200 times the money they paid us in consultancy. Had they decided not to hire a consultant and listened to the energy company, they would have lost a huge amount of money.
Companies need solar energy consultants because there is huge knowledge asymmetry in the market and energy companies try to exploit this asymmetry to their benefit. An owner’s engineer is your own engineer and works for your benefit keeping your interests on top.
Adler Technoserve is a Pune, India based consultancy providing consultancy, content creation and training services in defence, solar and manufacturing. Call us at +91-9899345747, write in at email@example.com or just browse our services at www.adlertechnoserve.