1. ExCo 05 // 20-22 September 2011
CEM02 February 15, 2011
Presentation
Assessment of Energy
Efficiency Financing
Mechanism (AEEFM)
Author
Amit Bando,
Executive Director

2. ExCo 05 // 20-22 September 2011
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.
1

3. ExCo 05 // 20-22 September 2011
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:
2

4. ExCo 05 // 20-22 September 2011
 Step by step description of different approaches adopted in
respective financing mechanisms is a below:
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
3

5. ExCo 05 // 20-22 September 2011
Major components of financing programs
 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:
13

6. ExCo 05 // 20-22 September 2011
 The various lending agencies or funds providers include:
S. no 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
5