Key Details
The Asian Development Bank brief, De-risking Products and Solutions for Energy Efficiency Investment, compares two ways to protect an energy-efficiency project when it fails to deliver promised savings.
Instrument | How It Works |
|---|---|
Energy savings insurance (ESI) | An insurer-backed performance guarantee supports a technology provider’s savings commitment. If the provider does not compensate the customer for a covered shortfall, the guarantor can pay and seek recovery from the provider. |
Energy efficiency insurance (EEI) | Insurance can cover equipment damage, business interruption and savings shortfalls. Under the model examined, the insurer does not recover a claim from the energy-service company. |
Both differ from a credit guarantee, which protects a lender against borrower default. The brief identifies potential application in India, where consultations under the OECD’s Clean Energy Finance and Investment Mobilisation programme have considered ESI for micro, small and medium enterprises (MSMEs). It does not report an Indian ESI scheme already in operation.
The Financing Problem Is Uncertain Performance
Efficient motors, cooling systems and other equipment can reduce running costs, but customers and lenders may be reluctant to finance a higher upfront price without confidence that the savings will materialise. A credit guarantee can address repayment risk; it does not establish that the equipment will perform as promised.
ESI tackles that separate risk through a savings commitment, independent technical validation and financial cover. These elements give a customer a way to assess the claim before purchase and seek compensation if covered savings are not achieved. EEI offers a different insurance structure that can also protect against equipment failure and interruption.
India Has an Opening, Not an Announced Rollout
The brief points to India’s large MSME market and enabling energy-efficiency policy environment. It reports that energy savings insurance emerged in consultations on financing Indian efficiency projects, particularly for smaller businesses. This is an assessment of potential and programme-development work, rather than evidence of widespread use or a new government decision.
Experience cited from Europe and Latin America puts the additional insurance and validation cost of ESI at 2–5% of project investment. Whether that cost is worthwhile in India will depend on project size, credible measurement of savings and the financing terms offered in return.
Policy Relevance
For India, the useful distinction is which risk prevents an upgrade. Where a sound business cannot borrow, a credit guarantee may help. Where customers or lenders doubt the supplier’s savings claim, independent validation and performance cover may be more relevant. Some projects may need both.
A workable Indian model would have to make savings measurable and claims enforceable without letting verification and premiums overwhelm smaller projects. Testing it across similar equipment purchases could reveal whether standardised contracts and pooled projects bring costs down—and whether lenders actually offer better terms.
Follow the Full Brief Here: De-risking Products and Solutions for Energy Efficiency Investment