RESHAPING EFFICIENCY

The report identifies that the energy efficiency market in India is hindered by a lack of attractive financing structures and a misperception among banks that such projects are high-risk. It argues that commercial banks lack the tools to monetize energy savings as cash flows, leading to prohibitive collateral requirements. To address this, the author proposes an 'India-Adjusted Financing Protocol' to standardize how banks calculate energy savings as predictable cash flows. Additionally, the report suggests a deal aggregation business model where energy efficiency loans are pooled into a single package and securitized, potentially using Special Purpose Vehicles (SPVs) and credit enhancements like overcollateralization and excess interest spreads to attract institutional investors. The document draws on international examples such as the PACE and WHEEL programs in the United States, and discusses the roles of Indian institutions like SIDBI, ICICI Bank, and Energy Efficiency Services Limited (EESL) in implementing these models.

• Commercial banks in India are reluctant to offer attractive loans for energy efficiency projects due to a misperception that they are "risky bets with unreliable cost savings and huge performance risks."
• The primary financial barrier is that banks lack the necessary tools to recognize and monetize energy savings as predictable cash flows, which prevents them from accurately evaluating if such projects can meet loan obligations.
• The report proposes an 'India-Adjusted Financing Protocol' to provide standardized guidelines for banks to monetize future energy savings into new cash flows, noting that the existing International Energy Efficiency Financing Protocol (IEEFP) is too generic and ignores local business practices.
• A deal aggregation model is proposed to pool small energy efficiency loans into larger packages to diversify credit risk, reduce transaction costs, and create marketable securities for institutional investors.
• The use of Special Purpose Vehicles (SPVs) and credit enhancements, such as overcollateralization and excess interest spreads, is recommended to isolate assets from the originator's corporate risk and improve the credit rating of the securities.
• Public entities like Energy Efficiency Services Limited (EESL) and the Bureau of Energy Efficiency (BEE) could act as risk-absorbing entities by providing funds for credit enhancements to stabilize securitized structures.
• International models like the PACE program in the US reduced risk by linking cash flows to property tax bills, while the WHEEL program pooled unsecured loans into a warehouse for bond sales to institutional investors.
• The report notes that the Government of India's current focus on increasing energy capacity through the construction of five electrical mega-plants suggests a lack of priority for energy efficiency and smarter resource use.

APA

Ordonez, C. D. (2015). RESHAPING EFFICIENCY. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/reshaping-efficiency-financing-models-india.pdf

Chicago

Ordonez, Carlos Dominguez. RESHAPING EFFICIENCY. International Institute for Sustainable Development, 2015. https://www.iisd.org/system/files/publications/reshaping-efficiency-financing-models-india.pdf.

Wikipedia

{{cite report |last1=Ordonez |first1=Carlos Dominguez |title=RESHAPING EFFICIENCY |publisher=International Institute for Sustainable Development |date=May 2015 |url=https://www.iisd.org/system/files/publications/reshaping-efficiency-financing-models-india.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{ordonez2015reshaping, author = {Ordonez, Carlos Dominguez}, title = {{RESHAPING EFFICIENCY}}, institution = {International Institute for Sustainable Development}, year = {2015}, month = may, url = {https://www.iisd.org/system/files/publications/reshaping-efficiency-financing-models-india.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }