CONTEXT

Energy efficiency presents enormous investment opportunities for businesses with significant potential to reduce greenhouse gas emissions, especially in developing countries. However, many development programmes targeting energy efficiency have struggled to catalyse the market, which is one of the main reasons is that energy efficiency is not a priority for many businesses, such as hotels or agribusinesses.

The concept of “energy efficiency” can be challenging to sell: it requires providers of technologies like air conditioning or boilers to change the way they approach businesses. Instead of merely selling new technology, a provider needs to sell a promise of future energy savings that should be high enough to justify the investment.

ESI PROGRAMME

In order to motivate small and medium-sized enterprises (SMEs) to invest in energy efficiency and generate a continuous pipeline of bankable projects, it is fundamental to build trust and credibility among key actors and reduce the risk-return tradeoff perception.

With the support of the Inter-American Development Bank (IDB) and the Danish Government, BASE developed the energy savings insurance (ESI) model that comprises financial and non-financial mechanisms designed to work together to overcome barriers, create trust and reduce the perceived risks for stakeholders.

The model consists of risk mitigation instruments including insurance, standardised contracts, and a simplified validation process, which together help to mobilise financing. BASE has also developed an ESI Toolkit that offers step-by-step instructions on how national development banks can establish a program that can catalyse the energy efficiency market.

OUTCOME

The ESI model is being planned, developed or rolled out, with different partners in various countries across Latin America, Africa, Asia and Europe. In the case of Colombia and Mexico USD 40 million were put in place to support SMES. The funds have already been dispersed and extended.

The ESI model was recognised by the Global Innovation Lab for Climate Finance as one of the most promising instruments to mobilise private sector investments in energy efficiency. The A.M. BEST insurance rating agency featured it as one of the most innovative insurance products of 2015, and the Clean Energy Finance Forum at the University of Yale identified ESI as a winning idea and a successful financial vehicle for climate change mitigation. The ESI model has been featured in the G20 Energy Efficiency Investment Toolkit, published in 2017.