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GEF Funds Reduce Risk of Energy Efficiency Investments in India

April 6, 2015

Energy Efficiency
India launches the first ever risk sharing facility for energy efficiency in the country

On March 31st, the Government of India and the World Bank as implementing agency signed a $43 million grant and guarantee to launch the first ever risk sharing facility for energy efficiency in India. The Partial Risk Sharing Facility for Energy Efficiency (PRSFEE) project will help enterprises and energy service companies mobilize commercial finance for investments in energy efficiency initiatives.

The $43 million project consists of a partial risk sharing facility of $37 million funded by a GEF contribution of $12 million, and backstopped by a Clean Technology Fund (CTF) contingent guarantee of $25 million. The GEF funded an additional technical assistance and capacity building component of $6 million.

This pilot operation will help address various market barriers that impede energy efficient practices and financing in India, by providing coverage to reduce the risks perceived by commercial institutions in financing demand side energy efficiency projects. By using innovative financial instruments, the project has the potential to leverage funds and unlock private sector financing for up an estimated $127 million in the short-term, with additional private sector financing in the long-term as energy efficiency projects become more appealing. It will also help build the capacity of energy service companies to structure and seek financing, and that of financial institutions to finance energy efficiency projects on a commercially-sustainable basis.

"The use of GEF funds, blended with CTF funds and supported by the Government of India, will be used as a catalyst to unlock investments from commercial banks in India" said GEF CEO Naoko Ishii. "That investment can be directed to very cost-effective energy efficiency investments that not only reduce consumer energy bills but also harmful greenhouse gas emissions. Without GEF funding providing partial risk protection against losses, banks would be less likely to invest in energy efficiency projects."

The project will benefit a range of institutions and stakeholders that comprise the energy efficiency eco-system: micro small and medium enterprises, large industries, commercial entities, building owners, and municipalities responsible for providing street lighting, the banking sector responsible for financing energy efficiency, and the energy service industry responsible for implementing energy efficiency projects.

The PRSF project has two components: the establishment and operation of the Partial Risk Sharing Facility and a technical assistance and capacity building component. The Facility will provide partial credit guarantees to cover a share of the default risk that financial institutions face in extending loans to eligible energy efficiency sub-projects. The technical assistance component of US$6 million supports capacity building, and operations support comprising market development, management and information systems, and standard documentation systems.

The PRSF project would close by 2022. However the CTF Facility could continue with Funds available for up to 20 years. It is estimated that the program for risk-sharing coverage through partial credit guarantees will last for 15 years. Furthermore, the targeted emissions reductions from energy efficiency could yield as much as 5.6 million tons CO2e direct, and 1.4 million tons post-project direct over the twenty year lifetime of the investments. Indirect emissions benefits are estimated to be 3.7 million tCO2e, for a total emissions benefit of 10.7 million tCO2e.