Financing energy efficiency: lessons from recent experience with a focus on Brazil, China and India
Without gains from energy efficiency efforts, China, India and Brazil are projected to more than double their energy use and greenhouse gas emissions in a single generation, resulting in major impacts on the global energy system and climate. However, this report estimates that cost-effective retrofits and clean technologies could reduce the energy use of these countries today, and at the same time slow their energy use growth by at least ten percent.
Despite the cost benefits for corporations and a substantial reduction in greenhouse gas (GHG) emissions, the report observes that many thousands of energy efficiency projects with strong financial rates of return still remain unimplemented. Companies may be reluctant to engage in these projects because:
- there are more immediate investment and borrowing priorities
- lack of awareness/experience with newer efficient technologies
- high transaction costs for smaller sized projects that inhibit implementation
- high perceived risk by decision makers
- a lack of combined technical and financial skills at finance institutions, preventing accurate appraisal and structuring of potential efficiency projects.
The authors find the three biggest causes of operational failures in energy efficiency projects to be:
- mismatches between the solutions attempted and local institutional environments
- a lack of proper balance between and concentration upon combining financial intermediation and project development functions
- a lack of sustained effort and follow through, especially for adjusting institutional mechanisms and approaches during implementation, in response to market changes or arising operational inefficiencies.
In order to avoid these mistakes and work towards achieving the best results possible in the future, the study team makes several broad suggestions:
- project design and interventions should be adapted to in-country conditions and fit within the local institutional contexts
- mechanisms for financial intermediation aspects and project pipeline development and technical appraisal should both receive adequate attention
- incorporating periodic review and flexibility in design, so that programmes can be adjusted during implementation
- special local bank lending arrangements should be developed in order to provide energy conservation financing
- the growth of energy supply companies should be fostered.
The report concludes that the above recommendations will undoubtedly require a high labour input on the part of programme management, operation and technical support staff. As a result, high quality work and dedicated time from personnel will be essential if these new institutional energy-saving mechanisms are to be effective.