Designing Credit Lines for Energy Efficiency
Many economically attractive opportunities to invest in energy efficiency are forgone because of various market barriers, notably the limited availability of commercial financing for energy efficiency projects. Once a government decides, as a matter of policy, to scale up energy efficiency, it typically must engage commercial banks to provide financing to the private end users who will carry out the energy efficiency projects needed to make the national policy a reality. Credit lines help banks establish an energy efficiency business line by mitigating the perceived high financial risk of energy efficiency projects and of the energy service companies that carry them out, and sometimes by building into the credit line a technical assistance component to improve understanding of the fundamentals of energy efficiency projects. Energy efficiency credit lines make funds available to participating financial institutions (including local banks). The success of a credit line depends to a great extent on the selection of competent and committed financial institutions. A technical assistance component built into the credit line helps lower the technical and financial risk of projects.