A Joint Initiative of logo logo

Views on financing models for energy efficiency in India

2017-06-19-PHOTO-00000002

Ms. Vineeta Kanwal
Joint Director
Bureau of Energy Efficiency, Ministry of Power Government of India

Financing needs of the sector to meet energy efficiency targets

In view of Nationally Determined Contributions (NDC) of India there is an investment potential of Rs. 16,25,000 crore out of which in Energy efficiency there is investment potential of more than Rs. 1,60,000 crore. These days when GDP is looming between 5-6% it is being widely accepted that there is a need to push industries for increasing their output and this requires huge investment as well as finance.

On international arena the technological innovation is creating new opportunities for progress on efficiency. Digitalization is beginning to have a significant impact on the energy sector and energy efficiency is emerging as a key arena for innovation. It is creating exciting new opportunities for integrated solutions where efficiency and renewable energy work together to deliver clean energy outcomes at the lowest cost.

Financing facilities available for energy efficiency in different PAT sectors viz. Banks and FIs servicing the sector

It has been quoted by IEA in their Energy Efficiency market report 2017 that Global investment in energy efficiency increased by 9% to USD 231 billion in 2016, maintaining the upward trend of recent years. The issuance of green bonds for energy efficiency investments worldwide more than doubled in 2016 to USD 18 billion. The global energy service company (ESCO) market expanded by 12% to USD 26.8 billion in 2016. Over 1 million people are now employed by ESCOs around the world. Energy efficiency has become a highly valuable and tradable commodity in several countries. In 2016, changes in policy substantially increased the market value of energy savings in France and Italy, the world’s two biggest markets, where savings in the form of white certificates are traded. The Italian white certificate price went up by 150% between early 2016 and mid-2017 and the French price doubled from mid-2016 to mid-2017.
In India, the Energy Saving Certificates (ESCerts) under Perform, Achieve and Trade (PAT) programme started getting traded in September 2017. One ESCert is equivalent to one metric ton of oil and more than 10 lakhs ESCerts got traded till end of December 2017 whose value is approx. Rs. 90 crore. Now, Indian markets are maturing and moving towards trading of energy saving certificates which itself shows a huge sign of transformation in energy efficiency market. However, if ESCerts market is compared with Renewable Energy Certificates market then it will be noted that in whole one year trading of RECs (solar and non-solar) more than 95 lakh RECs were sold at a cost of more than Rs. 1443 crore. But in span of 4 months only 57.64 lakh RECs were sold on the cost of more than Rs. 800 crore, which may be compared with ESCerts market which is also approx. 4 months old.

Status of Business models, if any, deployed by the industry for achieving energy efficiency

In Indian industry there is huge potential for investment in energy efficiency. It may be seen that in PAT cycle I (2012-2015) the large industries invested approximately Rs. 25000 crore for meeting the energy savings targets. In PAT cycle II there is investment potential of Rs. 30000 crore. It is seen that most of the industries have used the business models of balance sheet funding for investment in these projects else they have made investment by booking the cost in their O&M account.

However, BEE has established the Partial Risk Guarantee Fund for Energy Efficiency (PRGFEE) for facilitating Financial Institutions to lend for EE projects in industries too through ESCO business models. Through various ESCO business models available in the market such as guaranteed savings model, shared savings model and deemed savings model the industries can be benefitted by avoiding the initial investment in EE projects to a large extent. Although large industries have not yet shown any significant interest in such performance contracting models/ ESCO business models.

There is a similar facility available with the name of Partial Risk Sharing Facility implemented by World Bank in India. SIDBI is like Fund Manager for PRSF and in past two years has guaranteed projects with total cost of approx. Rs. 40 crore. These projects are mainly falling under the category of buildings and municipality, thus, industries are yet to show their demand for ESCO projects to be implemented on performance contracting mode.

What are the key gap areas in the area of financing and business models, the reasons of the same and the strategies for dealing with them?

From the financing side there are no major issues as there are various banks empanelled with both PRGFEE and PRSF who can lend for EE projects. In addition to this BEE has also conducted capacity building programme for FIs on EE financing through which more than 250 banking officials have been trained on EE financing across India. Otherwise too it has been noticed that most of the Banks/NBFCs lend for EE projects which are financially and technically viable, without support of any guarantee funds. But in the present scenario the key issue is that industries and other establishments have to come forward and participate in developing the EE projects and approaching these FIs for funding. Unless this demand for new EE projects implementation comes out from industries the existing financing mechanisms available for supporting EE projects cannot support the funding of such projects.

At the same time, financial institutions may be asked to come out with new financing schemes for the EE projects with less requirement of collateral and less documentation requirement – so that easy loans on easy repayment schedule may benefit EE projects, and subsequently contribute in boosting up development of EE market.

*Views expressed in this article are personal to the author

Leave a Reply