The FINANCIAL — The World Bank and the Government of India on March 31 signed a $43 million grant and guarantee agreement towards the Partial Risk Sharing Facility for Energy Efficiency (PRSF) project, that will help enterprises and Energy Service Companies (ESCOs) mobilize commercial finance for investments in energy efficiency initiatives.
India has substantial untapped energy efficiency (EE) potential across various sectors. This pilot operation will help address various market barriers that impede energy efficient practices and financing, by providing coverage to reduce the risks perceived by commercial institutions in financing demand side EE projects. By using innovative financial instruments, the Project has the potential to leverage funds and unlock private sector financing to over three-times of World Bank funds. It will also help build the capacity of ESCOs to structure and seek financing; and that of financial institutions to finance EE projects on a commercially-sustainable basis.
The Agreement for the Partial Risk Sharing Facility for Energy Efficiency (PRSF) Project was signed by Tarun Bajaj, Joint Secretary, Department of Economic Affairs, Ministry of Finance, on behalf of the Government of India; Kshatrapati Shivaji, Chairman & Managing Director, Small Industries Development Bank of India (SIDBI), on behalf of SIBBI; Mohit Khatri, Deputy General Manager, Energy Efficiency Services Limited (EESL), on behalf of EESL; and Onno Ruhl, World Bank Country Director in India, on behalf of the World Bank.
The $43 million project consists of a partial risk sharing facility of $37 million — funded from a Global Environment Facility (GEF) contribution of $12 million backstopped by a Clean Technology Fund (CTF) contingent guarantee of $25 million — and a technical assistance and capacity building component of $6 million funded from GEF. The PRSF project is a landmark project as it is the first guarantee operation of the World Bank in India without a financial counter-guarantee provided by the Government, according to the World Bank.
“Improving energy efficiency will not just ease India’s energy shortfalls but also save millions of tonnes of CO2 from polluting the air each year,” said Onno Ruhl, World Bank Country Director in India. “The biggest potential for these savings lies with small and mid-tier users such as MSMEs, town municipalities and even individual building owners, who are unable to access finance for EE projects. This innovative project will ease this constraint in the EE eco-system, leading thus to an EE transformation in India.”
The project will benefit a range of institutions and stakeholders that comprise the EE eco-system: namely, micro small and medium enterprises, large industries, commercial entities, building owners, municipalities responsible for providing street lighting; the banking sector responsible for financing EE; and the ESCO industry responsible for implementing EE projects. The PRSF consists of the following components:
Partial Risk Sharing Facility: This component supports establishing and operating the Facility to provide Sub-Guarantees to Sub-Financiers. The partial risk sharing facility for energy efficiency is managed by SIDBI and totals US$37 million. This facility would provide partial credit guarantees to cover a share of the default risk that financial institutions face in extending loans to eligible EE sub-projects.
Technical Assistance and Capacity Building: The technical assistance and capacity building component of US$6 million, is funded by GEF and to be managed by SIDBI and EESL. This component supports technical assistance, capacity building, and operations support comprising, market development, management and information systems, and standard documentation systems.
“While contributing to India’s National Mission for Enhanced Energy Efficiency, PRSF project will demonstrate innovative modality of energy savings performance contracting through ESCOs to catalyze large scale EE market transformation,” said Ashok Sarkar, Senior Energy Specialist and Task Team Leader, World Bank. “ The lessons learned in similar EE initiatives, such as from China’s successful ESCO industry, were used to design PRSF, while adapting it to address the barriers for scaling up ESCO-driven EE investments in India.”
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.
Discussion about this post