Selling below cost no loss for ‘green’ bulb makers

May 3rd, 2009 - 2:40 pm ICT by IANS  

By James Jose
New Delhi, May 3 (IANS) Heard of businesses making profits by consciously selling at a loss? That’s what lighting firms hope to do in India: Sell energy saving lamps at 27 percent of the cost but still make money by selling valuable carbon credits in the global markets.

Carbon credits are awarded under an international pact to projects in developing countries that reduce greenhouse gas emissions. These credits can then be sold like shares and bonds.

Back-of-the-envelope calculations show that lamp manufacturers stand to make a profit of nearly Rs.22 billion in three years even after selling compact fluorescent light (CFL) bulbs at a subsidised rate of Rs.15 - which otherwise cost around Rs.55 and retail for Rs.80.

This opportunity, being eyed by 11 companies including Osram, Philips, Surya and Wipro, has come from a government project, under which lamp makers will sell as many as 400 million CFL bulbs across the country at Rs.15 a piece to replace incandescent bulbs.

In the process, the country will earn carbon credits, which will be passed on to the lamp manufacturers. This, in turn, can be traded globally.

“CFL bulbs consume approximately one-fourth the energy and have approximately more than six times the life of incandescent bulbs,” Saurabh Gupta, convenor with The Energy and Resources Institute (TERI), a think tank on energy and environment matters, told IANS.

Project Bachat Lamp Yojana is being overseen by the Bureau of Energy Efficiency of the power ministry. “We hope to replace 400 million bulbs and have started pilot projects in Andhra Pradesh and Haryana,” said Rachit Mathur, project engineer with the bureau.

Osram, which is implementing the pilot projects, is eyeing some 630,000 households in Visakhapatnam and 465,000 in Sonepat, a top official of the company added.

How do the companies make money?

If the project manages to replace even 300 million out of the targeted 400 million, the net sales will amount to Rs.4.5 billion ($90 million) at Rs.15 a piece.

“But each CFL bulb will also generate 0.05 certified emission reductions per year,” said Mathew Job, senior director for marketing and lighting at Philips, referring to the unit for measuring carbon credits.

Thus, 300 million bulbs will generate up to 15 million CERs in a year and 45 million in three years. With one CER trading at Rs.754 April 29 on Mumbai’s Multi Commodity Exchange (MCX), 45 million CERs would fetch Rs.33.93 billion in three years.

Accordingly, these lamp manufacturers get a net return of Rs.38.43 billion, and make a profit of Rs.21.93 billion on 300 million bulbs, even though they may have sold the lamps at a conventional loss of Rs.40 each.

Industry experts link this unique opportunity to the Kyoto Protocol - an international agreement between more than 170 countries - that has set a limit on greenhouse gases (including carbon emissions) industrialised nations or even individual businesses can emit.

If countries or businesses fail to adhere to the limit, they have the option to make good the difference by buying “carbon credits” from those who have kept their emissions below the prescribed limit or employing green technologies.

It is this carbon credit, derived using a complex formula, that will not only light up India but also address the environmental concerns, even while shoring up the revenues of corporate sector.

(James Jose can be contacted at james.jose@ians.in)

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