A background note can be accessed here: India’s Energy Savings Insurance Roadmap Could Unlock the Next Phase of Industrial Energy Efficiency
The OECD roadmap argues that the principal barrier to industrial energy efficiency is no longer the availability of proven technologies, but the financial and performance risks associated with adopting them. To what extent should India's energy-efficiency strategy shift from promoting technologies to reducing investment risk?
Technology, finance and bankable business models are equally important for accelerating the adoption of energy-efficiency measures across micro, small and medium enterprises (MSMEs) in India. Low returns on investment, coupled with limited awareness among MSMEs, make energy efficiency a low priority for many enterprises.
MSMEs are highly diverse in terms of their manufacturing processes, and aggregating them into clusters that use standardised equipment can be challenging. Small-ticket-size loans and the poor credit profile of many MSMEs may not entice banks and financial institutions to participate. The cost of undertaking independent measurement and verification (M&V) for geographically dispersed MSMEs can further inhibit adoption.
MSMEs feed into a larger industrial ecosystem. Their typical offtakers are large industrial plants that must undertake energy-efficiency measures to comply with the Perform, Achieve and Trade (PAT) scheme, the Carbon Credit Trading Scheme (CCTS), and export-related requirements arising from the Carbon Border Adjustment Mechanism (CBAM). These larger industries can help accelerate energy-efficiency adoption in their ancillary units through financial support and technical handholding. Alongside this, awareness campaigns similar to UJALA and PM Surya Ghar can be launched, complemented by easier access to credit through non-banking financial companies (NBFCs) and risk-guarantee funds facilitated under the proposed Energy Savings Insurance (ESI) framework.
Voluntary carbon markets can also be tapped to incentivise participating MSMEs. Lessons can be learnt from the erstwhile Bachat Lamp Yojana (BLY) scheme, which monetised carbon revenues to support the transition from incandescent lamps to compact fluorescent lamps (CFLs).
The proposed Energy Savings Insurance (ESI) framework combines insurance, standardised contracts, independent measurement and verification, and blended finance to create a market for energy-efficiency investments. How should policymakers ensure that these financial innovations evolve into a self-sustaining market rather than remaining dependent on public support?
The government can facilitate an enabling ecosystem involving MSMEs, industrial associations, energy service companies (ESCOs), verifiers and financial institutions. Dependence on government support should diminish gradually as the proposed Energy Savings Insurance (ESI) framework gains traction. The renewable energy sector offers a useful precedent. The sector gradually transitioned from long-term support mechanisms such as generation-based incentives (GBI), feed-in tariffs and subsidies to sunset-based measures including viability gap funding (VGF), the Production Linked Incentive (PLI) Scheme and Inter-State Transmission System (ISTS) charge waivers, allowing stakeholders time to adjust to market conditions. Similar phased support can be adopted for the ESI framework.
The government can also initiate a hub-and-spoke model, aggregating MSMEs based on manufacturing processes and location, with regional industrial associations playing a central role. Branding and labelling schemes, similar to the Bureau of Energy Efficiency (BEE) Star Rating Programme, can be developed with support from the Bureau of Indian Standards (BIS). MSMEs can be graded on indicators such as specific energy consumption and greenhouse gas (GHG) intensity, akin to Eco-Mark labelling, with higher-rated firms receiving preference in government procurement and public contracts.
In the age of artificial intelligence (AI), user-friendly digital platforms can support the onboarding of MSMEs, equipment suppliers and ESCOs, while verifiers deploy low-cost sensors to verify energy savings in real time. Popular e-commerce platforms can help MSMEs showcase energy-efficient products to global buyers, and insurance models similar to those adopted by ACKO can support the delivery of standardised products at scale. Together, these measures can strengthen commercial viability and accelerate wider market acceptance of the scheme.
The roadmap positions industrial energy efficiency as a means of improving productivity, strengthening energy security, and supporting India's decarbonisation goals, particularly for MSMEs. How can India leverage this financing ecosystem to enhance industrial competitiveness while advancing its clean energy transition?
MSMEs are immensely important for the Indian economy and society. They create employment opportunities across the spectrum, including for semi-skilled and unskilled workers, contribute significantly to economic output and export earnings, promote entrepreneurship, and operate through a decentralised production architecture. Improving energy efficiency among these enterprises can deliver multiple benefits, including stronger energy security, lower greenhouse gas (GHG) emissions and greater market competitiveness.
Improved energy efficiency reduces carbon intensity, enhancing the sustainability credentials and market acceptance of Indian MSMEs and their products and services. Access to global climate and sustainability finance, supported by stronger monitoring and real-time performance assessment, can further build confidence among investors, funding agencies and industrial offtakers. Branding and labelling of MSMEs, drawing on frameworks such as Eco-Mark and ISO certification, using indicators such as specific energy consumption and GHG intensity, can further strengthen their domestic and international market outreach.
The proposed roadmap can also be aligned with initiatives such as Make in India, the Production Linked Incentive (PLI) Scheme and export promotion programmes to improve the market position of MSMEs in both domestic and global markets. It should also be dovetailed with the ongoing programmes of the Ministry of New and Renewable Energy (MNRE), Ministry of Environment, Forest and Climate Change (MoEFCC), Ministry of Heavy Industries, Ministry of Steel, Ministry of Mines, Ministry of Ports, Shipping and Waterways, and Ministry of Electronics and Information Technology (MeitY), to create a coordinated financing and implementation ecosystem.