What will it take to mainstream financing for industrial energy efficiency?
Industrial energy efficiency can deliver incredible returns in relatively short time frames. While return on investment for energy efficiency is less predictable than other energy financing projects, in UNIDO’s experience the internal rate of return can range anywhere from 50 per cent to 170 per cent. Payback times can be as little as one month. However, despite all of this promise, financing for energy efficiency in many energy intensive countries is still significantly misunderstood.
Over the past month the Industrial Energy Accelerator spoke with several national experts to get their take on how to mainstream financing for industrial energy efficiency. One of the biggest takeaways from these interviews is the need to tailor dedicated financing solutions for specific country contexts. Particularly important is the need to break down often simplified and long-held assumptions among policymakers, investors, development organizations and the industrial sector with real world demonstration projects. Making use of existing financing incentives and investment products is also considered critical.
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Invest in quality monitoring and evaluation
“Energy savings, emissions and other related data monitoring may cost your business more upfront. But provided that you have the cash flows, if you balance that upfront investment with the tax savings you will make, it simply comes down to good business decision making in the long-run. Without accredited and reliable data it’s very difficult for industrial organizations to attract and apply for financing incentives.” –Nadia Rawjee, Executive Director of Uzenzele Holdings, South Africa
Don’t limit financing to dedicated ‘energy efficiency’ products
“Why not use the financing infrastructure that already exists such as equipment financing and leasing agreements? Why not connect with stakeholder groups who are already working in this space, such as local financing facilities, which are already focusing on equipment financing? For industrial energy efficiency to be successfully scaled-up it must be able to attract mainstream finance.” – Milind Chittawar, SEE-Tech Solutions, India
Seeing is believing when it comes to banks
“The issue is not a lack of finance. There is plenty of capital available. However, among the key challenges when it comes to financing industrial energy efficiency is a lack of awareness, especially among banks. This is coupled with skepticism around the rapid return on investment these projects can actually provide. By demonstrating what’s possible we aim to drastically change this perception and unfold the potential of the industrial energy efficiency market.” – Serhiy Porovskyy, UNIDO Energy Efficiency Financing and Policy Expert
The finance sector needs capacity building too
“Practical capacity building in this field is key. It’s all well and good to deliver lectures, workshop’s and content, but it’s also equally very important to directly support banks as they consider real world case studies for financing. This builds confidence among the finance sector and eventually contributes to the banks actually marketing and pitching dedicated products designed for industrial energy efficiency projects. From there the market can grow organically. ” – Hoda Sabry, banker and finance consultant, Egypt