Abstract
Currently, India is facing an energy crisis and lots of efforts are being put in order to reduce this widening gap between energy demand and supply. One of the most cost effective ways of reducing this gap is by implementing Energy Efficiency (EE) projects. These projects have a very high potential in India as it is estimated that it can generate energy savings worth $ 730 million per year. But, this is not being utilised properly due to various hurdles. One of the major obstacles is financing of these EE projects. Most financial institutions are not familiar with the aspects of EE projects. Also, weak credit strength of Energy Service Company (ESCOs) and perceived lack of collateral or guarantees also hinder the implementation of such projects. Added to this, financial institutions lack the appraisal capacities required for these projects. In this paper, appraising of EE projects is discussed and the benefits of financing EE projects are highlighted. Also, the paper discusses certain schemes and policies that could be implemented in order to make these projects more attractive to the Financial Institutions. Five Basic methods of appraisal i.e. promoter appraisal, technical appraisal, financial appraisal, environmental appraisal and legal appraisal are necessary when it comes to EE projects. In addition, different perspectives of different stakeholders like Promoters, Lenders, Government, ESCOs, etc. are observed and understood in this paper. Also, the paper shall discuss in the detail about new financing mechanisms i.e. PRGF (Partial Risk Guarantee Fund) and VCF (Venture Capitalist Fund) and also along with ESCOs ability to benefit from these financing mechanisms.
Highlights
As per the Energy Efficiency Service Limited (EESL) – an Energy Service Companies (ESCOs) promoted by Government of India the energy efficiency market in India is around USD 15 billion, but only 5% of market is been tapped by ESCOs
The lenders need to do this evaluation in order to predict the viability of the project. It helps determining in how income can be generated with the help of the EE project The amount of equity and debt taken by the project company
The rate of return expected due to the implementation of the project. It tells whether the ESCO has done any similar projects and how well have they implemented such project previously This is important for the lenders to know whether the company can repay the debt amount
Summary
Energy Efficiency (EE) project refers to any process, technique or equipment that helps to achieve reduction in energy consumption to perform a designated operation to achieve same or better level of output while maintaining or improving processing time, quality, performance and safety with minimal environmental impact. As per the Energy Efficiency Service Limited (EESL) – an ESCO promoted by Government of India the energy efficiency market in India is around USD 15 billion, but only 5% of market is been tapped by ESCOs. In order to accelerate the implementation of energy efficiency projects it is very important to leverage the ESCO model. Looking at the rising trend of fuel costs and energy security concerns, it is time to leverage the opportunities available for upscaling the energy efficiency project implementation by ESCOs model. To tap these opportunities, governmental institutions and various financial institutions have to play a very significant role. High proportion of project development costs Range of implementation business models with increasing interest in performance based approaches Manageable risks
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