ENERGY SAVINGS INSURANCE (ESI)

Problem to be addressed

Constitutes the performance risk associated with investment projects in energy efficiency (EE) measures so that: i) potential private sector investors feel confident that their EE projects will generate enough energy savings to pay for the loans assumed to make the investments and eventually make a profit; and ii) local financial institutions become more aware of the real risk and returns associated with these projects and hence increase their willingness to finance them.

CMF’s innovative solution

The key innovation of the solution is to provide for an insurance product covering projected energy savings for specifically defined and verifiable EE measures as agreed upon in a standard contract between small & medium businesses (SMEs) and energy efficiency services and technology providers. Compensation would be paid to a firm in the event that promised financial flows associated with EE savings are not realized. The participation of local insurance companies and international reinsurers in the Program is secured by the fact that the solution integrates third party verifiers and energy efficiency services and technology providers, standardized forms, methodologies and protocols for the structuring of projects, their monitoring, reporting and verification, as well as a dedicated credit lines at adequate terms and conditions to promote a pipeline of EE projects.

Countries where the solution has been implemented

  1. In Colombia, through Bancóldex, to promote and scale up investments in selected EE technologies by hotels as well as clinics and hospitals (i.e. EE in buildings);
  2. In Mexico, through FIRA, to promote and scale up investments in selected EE technologies by agro-industrial firms.

Sources of blended funding

In the case of Colombia, IDB resources were blended with resources from the Clean Technology Fund (CTF) to establish a concessional line of financing for private sector investment projects in EE. In addition, the CTF granted non-reimbursable resources to support the development of: i) a standard contract for EE projects; ii) the forms, methodologies and protocols required for the structuring of projects as well as their monitoring, reporting, and verification; iii) an insurance product; and iv) the active promotion of the program among relevant stakeholders.

For more information see: CO-L1124, CO-T1332 and CO-T1328

In the case of Mexico, IDB resources were blended with non-reimbursable resources from the CTF to establish a concessional line of financing for private sector investment projects in EE. In addition, the CTF and the Danish government granted non-reimbursable resources to support the development of: i) a standard contract for EE projects; ii) the forms, methodologies and protocols required for the structuring of projects as well as their monitoring, reporting, and verification; iii) an insurance product; and iv) the active promotion of the program among relevant stakeholders.

For more information see: ME-L1145, ME-T1265, ME-T1266 and ME-G1006

In the case of El Salvador, the Green Climate Fund (GCF) approved the funding proposal to establish a concessional line of financing for private sector investment projects in EE. This resources are destined to blend with the Danish government’s grant in order to support the development of: i) a standard contract for EE projects; ii) the forms, methodologies and protocols required for the structuring of projects as well as their monitoring, reporting, and verification; iii) an insurance product; and iv) the active promotion of the program among relevant stakeholders.

The Program is also being implemented in Brazil and Peru, currently taking into consideration 5 beneficiary institutions aiming to support a considerable pipeline of EE projects.

Results to Date

• The solutions are in the process of being implemented in Colombia, Mexico, El Salvador, Brazil and Peru.

• Nonetheless, they have already received a lot of recognition by international think tanks, bilateral donors, and specialized publications, including:

  • The Global Innovation Lab for Climate Finance, which endorsed it as one of the most promising instruments to mobilize private sector investments in EE.
  • The Danish Government, which not only provided FIRA with technical assistance resources to support the implementation of the solution in Mexico, but also has granted the Bank with funds to replicate it in other sectors in Colombia and Mexico, as well as in other countries of the Region. For more information see: ME-X1025 and RG-X1258
  • The A.M. BEST insurance rating agency featured it as one of the most innovative insurance products of 2015.
  • ESI was featured in an article about The Lab in Development Finance Magazine.
  • The Clean Energy Finance Forum of the University of Yale has identified ESI as a winning idea and a successful financial vehicle for climate change mitigation.

 

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