assessment of energy efficiency financing mechanisms, ipeec

ExCo 05 // 20-22 September 2011

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Amit Bando,Executive Director

Assessment of Energy Efficiency Financing Mechanism (AEEFM)


Energy efficiency is recognized as one of the nation’s most valuable untapped energy resources. Investing in energy efficiency presents a unique combination of advantages: Increasing energy security, economic sensitivity, and bettering the environment.

According to IEA, the implementation of EE policies could result in nearly 36% of avoided GHG emissions by 2050 (IEA,2009), more than two-third of these GHG reductions could come from demand-side(end-use)EE interventions across different sectors in developing countries.

Despite the numerous advantages offered by investments in energy efficiency a significant potential remains untapped due to the underdeveloped state of energy efficiency investment delivery mechanisms.

Traditional investment delivery mechanisms operated by local banks and other financing organizations often have played useful roles in the energy efficiency business, but still only a fraction of the potential has been tapped.

Renewed and strong efforts are required to assess the energy efficiency financing mechanisms and provide appropriate fiscal instruments that may supplement the efforts of the government for creation of energy efficiency market.

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Financing mechanism• Definition of financial mechanism: Method or source through which funding is made available, such as bank

loans, bond or share issue, reserves or savings, sales revenue. Financing mechanisms are now becoming more sophisticated and easier to

use and new sources of capital are becoming available due to which creative financing programs are building up which offer a way to overcome some of the critical barriers to realize full potential of financing programs.

• The five primary types of energy efficiency financing mechanisms that are currently being employed are given in the figure below:

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Step by step description of different approaches adopted in respective financing mechanisms is a below:

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Type of Financing mechanism Approaches

Tax incentive Accelerated depreciation, Tax deductions, Tax credits, Tax reductions

Subsidies Grant, Subsidy etc

Lending programs Bank window, Low interest lending, Collateral free lending etc

Performance contracting Guaranteed savings, Shared savings etc

Carbon Financing CDM funding


There are six building blocks in any financing programs which include lender, borrower, credit enhancement, source of funds, security and repayment mechanism. The details of the components are discussed below:

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Major components of financing programs


The various lending agencies or funds providers include:

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Financing Agency Types

1. Banks National Banks, Regional banks,

2. Credit Unions Non Profit organizations, Defined group of people

3. CDFI (Community development financial institutions)

Non profit lenders (Dissipate govt, foundation, private funds to target groups)

4. Utilities Public utilities, Private utilities

5. Government lenders Central government lending, State government lending

6. Specialized lenders Non banking finance companies

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