90 percent of Mongolian businesses are Micro, Small and Medium-Sized Enterprises (MSMEs). The majority of these enterprises use outdated and inefficient equipment – resulting in relatively large emissions of greenhouse gases.
The major barriers preventing MSMEs from investing in renewable energy or more energy efficient equipment are the high upfront costs of such equipment, lack of familiarity or trust in such technologies, competing investment priorities, and the lack of accessible and locally appropriate financing options.
Due to the extreme climatic conditions in Mongolia – electricity for heating and is essential and is hence heavily subsidized. While Mongolia encompasses unique challenges, it also presents interesting business opportunities for sustainable energy that can be tapped into by enabling the market conditions for sustainable energy projects for MSMEs.
In 2016, XacBank was granted funding from the Green Climate Fund to implement an MSME business loan programme for greenhouse gas emissions reduction in Mongolia.
BASE is supporting XacBank to identify business opportunities, and define a strategy aimed at motivating clients to invest in renewable energy and energy efficiency. The strategy includes developing the Energy Savings Insurance (ESI) model, which includes risk performance coverage via a surety insurance product, a standardised contract, independent technical valuation and a monitoring, reporting and verification system. Together these elements create trust between clients and technology providers, and ensure projects are quality. Implementation is due to start in 2020.
The Energy Savings Insurance (ESI) model can help to mobilise investments and develop energy efficiency markets by reducing investment risks and building trust between key actors. The ESI strategy targets SMEs to upgrade their old inefficient technologies to new energy efficient technologies, for example, replacing an old compressed air system with a newer, more efficient one. These new efficient technologies are able to generate the operational cost savings to allow an end-user to recover their investment in a reasonable period of time, while also improving the productivity and efficiency of their business, and reducing greenhouse gas emissions.
The strategy is based on previous experiences in Latin America, where the ESI program has been successful in mobilising investments in energy efficiency and engaging SMEs and technology providers.
