India and China face financing barriers for energy efficiency projects

October 11, 2012

As the world sharpens its focus on cutting emissions, industry in India and China is facing multiple barriers to getting finance for energy efficiency initiatives, according to studies by the Institute for Industrial Productivity (IIP).

The studies, which provide new insight into the financing landscape for industrial energy efficiency projects in these complex markets, found that the biggest barriers were the risk perceptions of bankers, a lack of authoritative information on energy efficiency technologies, and limited access to finance - particularly for small and medium companies (SMEs) and Energy Services Companies (ESCOs).

Patrick D'Addario, IIP's Financial Products Director, said that the reviews identified potential partners and approaches for smart solutions to remove the barriers and help energy efficiency initiatives realize their potential.

"Both Chinese and Indian governments have bold goals for improving energy efficiency in order to cut emissions, gain a competitive edge and improve productivity. But broadening and deepening access to financing for viable industrial energy efficiency projects continues to be a challenge. Our reviews document a number of promising approaches to widening access," Mr. D’Addario said.

"The main reason companies are finding it difficult to get finance for energy efficiency (EE) projects is the difficulty of establishing cost-effective mechanisms to provide access to authoritative technical and financial information that allow banks and companies to routinely negotiate EE loans. By identifying and promoting mechanisms to give both parties in the transaction better access to this information, we hope to clear the path for financially-viable projects that can help cut greenhouse gas emissions."

The China Energy Efficiency Financing Landscape Report provides a literature review on energy efficiency project financing for SME companies and ESCOs, supported by personal interviews with selected bank officials.  Financing Industrial Energy Efficiency in India describes the history of initiatives to overcome the barriers to financing, reviews current and proposed initiatives, and presents insights from local stakeholders on how the barriers can be overcome. Both reports were developed with support and input from the banking sector and energy efficiency experts in those markets.

The reports are available on IIP's website, along with a suite of other reports and best practice advice on financing energy efficiency projects: