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A new financial product aimed at driving investment into energy-efficiency projects performed by Indian energy service companies (ESCOs) is being launched this week by the Industrial Development Bank of India (IDBI) and the World Resources Institute (WRI).
IDBI and WRI developed this new product, which will provide loans to companies that implement energy-saving equipment, based on the findings of “Powering Up: The Investment Potential of Energy Service Companies in India,” a report released by WRI in April 2009. The report found that the high-growth Indian ESCO industry could deliver significant financial returns for investors and vast energy savings in India. With an investment of USD 10 billion in energy efficiency improvements, India’s economy would save more than 183.5 billion kilowatt hours of energy each year.
“Our ultimate aim in driving greater investment in the ESCO industry is to help companies become more energy efficient and thus reduce greenhouse gas emissions and contribute to a more sustainable development in India and across the world,” said Sanjoy Sanyal, the country director of New Ventures India, an initiative of WRI that is working on the financial product. New Ventures is WRI’s centre for environmental entrepreneurship, providing business development services to environmentally focused Small and Growing Businesses (SGBs) in emerging markets.
With Indian energy demand expected to climb by 60 percent between 2003 and 2016, there is a significant need for the development of energy conservation solutions across India.
ESCOs provide energy efficiency-related and other value-added services to companies on a performance contracting basis, instead of the traditional fee for service model. On average, the clients of ESCOs save 20 to 25 percent of their baseline energy costs. Although the ESCO industry in India has been growing rapidly, with a compounded annual growth rate of 96 percent from 2002 to 2007, the industry remains small in comparison to the ESCO sectors in countries such as Brazil, China and the United States.
WRI’s analysis indicated that a lack of access to financing is a major barrier to the growth of the Indian ESCO industry, particularly among smaller ESCOs that struggle to provide collateral to meet bank requirements. The report recommends the piloting of financial products targeted at ESCOs and other energy efficient products in order to help the ESCO industry realize its market potential.
From the conclusions of the “Powering Up” analysis, IDBI recognized the immense and untapped investment potential in the ESCO industry and its energy efficiency products, and agreed to work with WRI to develop and pilot a new financial product that will provide loans for energy-saving equipment to small and medium businesses. Industries that will benefit from this initiative include forging units, textile mills, and steel product making units, all industries where current energy use is high.
“Improved access to financing has the potential to spur growth in the Indian ESCO sector that would be similar to the growth experienced in China and Brazil,” said Ella Delio, global director of WRI’s New Ventures. “Companies will be able to borrow money for energy-saving projects, and then repay loans through the money saved by saving power.”