Financial Instruments

Energy efficiency has grown more prominent in the Indian energy consumer’s conscience over the last decade – the nation’s energy intensity declined by 58 percent between 2005-06 and 2015-16 (as per analysis of data provided by MoSPI), and is projected to decline a further 37 percent by 2040 (projections by BP Energy Outlook 2018). However, with energy consumption in India also expected to increase by 165 percent by 2040, the intervention potential for energy efficiency is significant. India is capable of addressing this potential is evidenced by the 2.6x growth in the energy efficiency market between 2010 and 2016 (World Bank estimates). Effective financing will play a pivotal role in taking the energy efficiency market in India to the next level, harnessing the market potential of diversified technologies.

However, perceptions about risk returns have traditionally inhibited financiers from lending and/or investing to this sector. Renewed and strong efforts are therefore necessary to provide innovative fiscal instruments that can drive market transformation. Below are few instruments and models which have been / are being used in India and elsewhere. The challenge is how we design it to enable market transformation in energy efficiency in India.

Loans for Residential Energy Efficiency: Pennsylvania’s Keystone Home Energy Loan Program (HELP) began with an initial capitalization of $20 million over a three-year period from the State Treasury. The Colorado Clean Energy Finance Program began operations with a $4 million annual capital pool from the State Treasury. The treasury offices that capitalized these loan programs did so not because they were specifically focused on supporting energy efficiency or renewable energy, but rather because the loan program met the criteria for three critical factors: liquidity, risk and return.

Qualified Energy Conservation Bonds (QECBs) are federally subsidized bonds available to qualified states, local, and tribal issuers in USA. It is not a grant, but is among the lowest-cost public financing available for eligible energy efficiency, renewable energy, and mass commuting projects

Private Activity Bonds (PABs) is a bond issued by or on behalf of local or state government for the purpose of financing the project of a private user. PABs are typically used to support projects that benefit lower income borrowers and are allocated to states and local governments on the basis of population. For instance, in Colorado, Boulder County‘s municipal financing for energy efficiency and solar energy is capitalized in part through PABs.

The White Certificate (WC) scheme in France mandates the suppliers of electricity, natural gas, LPG, oil (now including automotive fuels) and heat (district heating) to undertake energy efficiency measures for the final user to achieve a pre-defined percentage reduction in their annual energy delivery. WCs are given to the energy suppliers whenever an amount of energy is saved. If energy suppliers do not meet the mandated target for energy consumption they are required either to buy WCs to other stakeholders or to pay a penalty. WC‘s are tradable documents certifying that a certain amount of energy savings has been achieved. Suppliers can use the certificate for their own target compliance or WC can be sold to other parties who cannot meet their targets

The Sustainable development Tax credit for EE equipment purchase in France is aimed to encouraging the private individuals to undertake work resulting in saving energy. The principle of the sustainable development tax credit is to offer to the taxpayer, according to the type of energy efficient equipment bought, the ability to recover a part of the investment in the form of an amount deductible from the income tax. Each taxpayer can profit from this facility. If the amount of the tax credit exceeds that of the tax amount due, the surplus is refunded to the household.

Challenge-1:

Develop instruments of securitization to create liquidity to support energy related innovation.

Challenge-2:

Develop instruments to be issued by entities for low cost and long tenure loans.