FINANCING INDUSTRIAL ENERGY EFFICIENCY IN INDIA: LESSONS LEARNED AND DIRECTIONS FOR THE FUTURE Asia Clean Energy

Forum Manila 4-8 June 2012

OUR MISSION
To significantly reduce greenhouse gas emissions by giving business leaders and policymakers access to effective practices, technologies and tools to advance industrial productivity

Background and Rationale

Need for improving industrial energy efficiency (IEE):

Increase productivity and competitiveness Reduce supply shortages Increase energy security Reduce GHG emissions
Many initiatives and projects undertaken in India but implementation has been short of potential both for SMEs and large industry Major financial barriers still remain

Need to define new initiatives to scale up IEE

Major Tasks
Review prior and current industrial energy efficiency (IEE) projects and reports Identify barriers & proposed solutions Establish Bank Working Team Interview industrial EE experts Define potential innovative financial products and possible actions to scale up IEE Review and discuss with Stakeholders (Country Working Team) and define action plan

Suggested Initiatives
Experts ranking high priority initiatives: Request RBI to designate EE as priority sector lending Establish a Technical Performance Guarantee Facility (Savings Insurance Facility) Encourage large industrial borrowers to implement EE measures when financing expansion/modernization Introduce a financing program for Greening the Supply Chain Cluster finance scheme for SMEs and technology providers (manufacturers, suppliers, vendors) Establish a risk-sharing and credit enhancement facility for MSME EE projects Enhance capacity of bank loan officers & risk managers Mobilize the National Energy Efficiency Fund for financing EE projects

Achieving Suggested Initiatives

What can we do to convince RBI that energy efficiency loans should be designated as priority sector lending? Would a Technical Performance Guarantee Facility (TPGF) that essentially provides savings insurance help reduce the risk perceptions of industrial decision-makers and bankers regarding EE projects? Can we encourage Indian banks to adopt an EE program for large industrial borrowers similar to the model of the European Bank of Reconstruction & Development (EBRD)? How can banks support the greening the supply chain programs of large industrial enterprises by developing financing products for suppliers of major companies?

Energy Efficiency as PSL Category

The IIP team made formal representation to the Nair Committee to include Energy Efficiency as a PSL with following rationale:

NAPCC & NMEEE support EE targets for industries (PAT)

MSMEs have lesser access to finance Status

RBI open to suggestions from industry associations, Banks and other stakeholders
Question: What can we do to encourage RBI to designate EE loans as priority sector lending

Host is Borrower with Insurance Facility

Financial Institution
Repayment of Loan from Net Savings Savings Insurance Payment for Insurance Host or ESCO Payment upon Successful Performance

Insurance Facility

Loan

Host
Performance Guarantee

ESCO

Performance Verification

M&V Agency

ESCO is Borrower with Insurance Facility

Financial Financial Institution Institution
Loan Repayment Savings Share Loan

Savings Insurance Facility

Loan Repayment Non-performance

Escrow Account
Payment to ESCO Payment Successful Performance Performance Guarantee

ESCO

Host M&V Agency

Performance Verification

IEE at European Bank for Reconstruction and Development (EBRD)

Industrial Borrower
Investment Project
Loan Application X

EBRD
Classify EE Status Enter into Database Preliminary Evaluation by EE Officer Coordination w/Banker

Meeting with CFO Accept EE Recommendations

Walk-through EE Investment options ( Y) Loan - (X+Y)

Package Loan (X+Y)

Thank you Dilip Limaye Mahesh Patankar B Anil Kumar