Energy efficiency for Indian manufacturing MSMEs: where to start

Where an MSME's energy goes

Heat dominates in micro, small and medium enterprises (MSMEs). The Center for Study of Science, Technology and Policy (CSTEP) found that more than 80% of their energy goes to thermal processes such as boilers, furnaces and kilns. It estimates that MSMEs account for 20% to 25% of India's industrial energy use, and 150 to 200 million tonnes of carbon dioxide equivalent (MtCO₂e) a year.

The cost is large too. According to The Energy and Resources Institute (TERI), fuel makes up 20% to 30% of the total cost of production in many MSME units. TERI also finds that better energy management and efficient technology can cut industrial energy use by 10% to 20%.

The split between fuel and power varies. CSTEP studied 66 units in seven clusters over two years. In four of the clusters, fuel rather than electricity caused 45% to 95% of a unit's emissions, because of coal and pet coke use and heavy heat demand. Units in the same sector also differed: die casters in Delhi NCR used more gas-fired furnaces, those in Bengaluru more electric ones. So the right measure depends on which source dominates in your unit.

Step 1: measure before you change anything

Monthly fuel and power per tonne of product is the simplest proof that a change worked. It is also what buyers and lenders ask to see. Start these records now, even if they are rough.

• Weigh or meter fuel by boiler or furnace where you can, and log it against production each day.
• Keep every electricity bill, with units used, sanctioned load and tariff.
• Record production each month in tonnes or pieces.
• List major equipment (boilers, furnaces, motors, compressors) with age and rating.
• Note the emission factor you use for each source, such as the Central Electricity Authority's grid factor for electricity.

Choose a baseline year with complete records and normal production, not a shutdown or a spike. Every later saving is compared with it. For the wider method, see carbon accounting basics.

Step 2: boilers, furnaces and kilns

Before buying new equipment, make sure what you have is run and maintained well. Check that:

• combustion is tuned, with no excess air and no black smoke
• steam traps, valves and flanges are checked for leaks
• hot pipes, valves and furnace walls are insulated
• furnace and oven doors stay closed during firing
• firing matches production, rather than full heat between batches
• condensate returns to the boiler feed

The Carbon Trust's guidance for manufacturers shows why these basics count. A poorly maintained boiler can use 10% more energy than a well-maintained one. Around 10% of the heat from a steam boiler can be lost through poor insulation on the distribution pipework. At least 50mm of insulation on a heated tank can save up to 90% of its heat energy. These are general figures from UK guidance; your own audit decides what applies.

Step 3: motors, pumps and compressed air

Motors drive pumps, blowers, conveyors and machines, and many run when nothing is being made. The Carbon Trust estimates that motors use about a quarter of the electricity on manufacturing sites. For fans and pumps, cutting a motor's speed by 20% cuts its power need by about half. That is why a variable speed drive can save up to 30% of running costs.

• Switch motors off when machines are idle, including at breaks.
• Fit variable speed drives on fans and pumps with varying loads, and remove throttling valves and dampers.
• Replace failed motors with high-efficiency ones rather than rewinding them again and again.
• Check belts, bearings and alignment regularly.

Compressed air is one of the most expensive forms of energy in a unit. According to the same Carbon Trust guidance, industrial sites can lose up to 30% of their compressed air through leaks. An idling compressor can still draw up to 40% of full load, and up to 90% of a compressor's heat can be reused to warm water or air.

• Find and fix leaks regularly: listen when the unit is quiet, then tag and log each one.
• Switch compressors off when production stops.
• Generate air at the lowest pressure your most demanding tool needs.
• Stop using compressed air for cleaning or cooling where a brush or blower would do.

Grid electricity is Scope 2, so savings here cut both the bill and the emissions you report. Once demand is down, look at rooftop solar or open-access renewable power.

What published studies found

The Bureau of Energy Efficiency (BEE) installed energy-efficient technologies as demonstration projects in 21 units across four MSME clusters. They saved more than 1,100 tonnes of oil equivalent a year, with an estimated replication potential of 74,824 tonnes across those clusters. A second programme, run by BEE with the United Nations Industrial Development Organization (UNIDO) and funded by the Global Environment Facility (GEF), has worked in 12 MSME clusters since 2011. It reports several hundred energy-saving and renewable energy installations in MSME units, and has set up energy management centres in its clusters.

CSTEP modelled what efficiency, renewable electricity and advanced technologies could do across the seven clusters it studied.

Across the seven clusters, CSTEP estimated that an initial investment of about INR 90 crore could save about 137,000 tonnes of CO₂e and INR 37 crore a year. In its model, decarbonisation would also cut energy costs in six of the seven clusters. The exception was an electric tunnel kiln for refractories, where electricity would cost far more than the coal it replaced.

Two lessons follow. Efficiency alone has technical limits for heat, so fuel switching and electrification need planning alongside it. And energy and emissions do not always move together: electrifying heat saves energy, but may not cut emissions while India's grid factor stays high. Switching to biomass or bio-CNG (compressed biogas) cuts emissions with low investment, if the fuel supply is reliable.

Step 4: paying for improvements

Many of the steps above cost little or nothing. For the rest, look at these routes, and check current terms with each body because schemes change and many are cluster-specific.

• BEE runs the National Programme on Energy Efficiency and Technology Upgradation in SMEs, with cluster studies, demonstration projects and energy mapping.
• The Ministry of Power and BEE run ADEETIE, a scheme supporting energy-efficient technology in MSMEs.
• SIDBI and commercial banks offer lines of credit for energy-efficient equipment, some backed by international climate finance.
• The Ministry of MSME runs Zero Defect Zero Effect (ZED) certification, covering quality and environmental impact.
• Your state designated agency and cluster association know which local programmes are open.

Lenders often ask for an audit and a baseline to size a loan. That is one more reason to start the records in step 1. NITI Aayog has also proposed a national programme with subsidies and service companies; see what the MSME green transition roadmap means for your unit. ESGen is not affiliated with any of these bodies.

How ESGen helps Indian manufacturers

A saving you can show is worth more than one you describe. The ESGen platform holds your energy figures by site, with the bill or invoice behind each one, data checks and a calculation log. Its BRSR lens can arrange the same figures in SEBI's format for a listed customer's value chain questions, and our team can help you complete the questionnaires buyers send.

One limit to know. The platform's built-in emission factors are the UK government's, published by the Department for Energy Security and Net Zero (DESNZ). It does not yet calculate Indian electricity emissions with the Central Electricity Authority's grid factor, so ask us how your emissions figures will be handled.

ESGen is not an energy auditor or equipment supplier. A certified energy auditor should confirm which measures suit your unit; we help you keep the records that prove what changed. Read more on our manufacturing page, or book a demo and bring a year of fuel and power bills.