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Energy efficiency is a highly efficacious and economical way to reduce global greenhouse gas (GHG) emissions and accelerate the transition to a low-carbon future.
Energy use constitutes a substantial proportion of production costs for many enterprises, particularly in energy-intensive sectors that rely on heating or cooling for their processes or the provision of their services, presenting a significant market opportunity for increasing end-use efficiency and improving the integration of renewables in the energy system. However, high upfront costs, uncertainty about perceived risk, lack of trust in new technologies, competing investment priorities, and limited financial resources and access to credit – especially in the case of Small and Medium sized Enterprises – continue to bear heavy on the minds of decision-makers in their considerations of embracing new energy-efficiency upgrades. Many of these challenges can be overcome, at least in a significant part, with well-designed financing mechanisms.
Given this backdrop, the Energy Savings Insurance (ESI) model was designed to facilitate investments by enterprises into efficient technologies. In 2013, BASE conceptualised and implemented the ESI model in collaboration with the Inter-American Development Bank (IDB). Since its inception, it has evolved into a tried and tested market-based solution to leverage resources from multilateral development or governmental agencies, helping spur demand for and stimulate private investments in energy efficiency. Its holistic approach to tackling the investment barriers and underperformance risk facing energy efficiency won the model the recognition as being one of the most promising instruments for mobilising private sector finance for the cause by the Global Innovation Lab for Climate Finance in 2015.
Under the ESI model, financial and non-financial elements work in conjunction with each other to mitigate project risk, and create trust and credibility among key market actors in energy efficiency. The ESI consists of four core ingredients: a) a standardised contract sets clear expectations to reduce risks involved in energy efficiency projects, distribute the risk across relevant actors, and foster trust among them; b) an energy savings insurance to provide enterprises access to risk coverage by a third party against the technology provider failing to fulfil its contractual obligations regarding energy savings; c) a validation process led by an independent validation entity experienced in energy project certification to check the project’s capacity to deliver the savings, attenuating the technical risk of energy efficiency projects ; and d) a financing structure that might contain competitive credit conditions, favourable loan tenors, and support in accessing collateral encouraging enterprises to invest in energy-efficient solutions.
Currently, the ESI model is being implemented in several countries adapted to the local context. The IDB with the support of BASE and other partners is developing and operationalising the ESI model in Argentina, El Salvador, Chile, Brazil, Nicaragua, Paraguay, and Peru. In the pioneer countries of Colombia and Mexico, ESI has already helped enterprises in the healthcare and hospitality sector rein in energy consumption by up to 70% and reduce the environmental impact of their economic activities. Over 80 projects with a diversified focus on solar photovoltaics, cooling, solar thermal, air conditioning, and other energy-efficient technologies have been rolled out in the region, drawing investments to the tune of USD 18.4 million.
Meanwhile, in Europe, BASE’s ESI model is being implemented with funding from the European Commission’s Horizon 2020 Research and Innovation Programme in Italy, Portugal and Spain. A new brand identity, GoSafe with ESI, was set up to consolidate standardised contracts adapted to the legal context of each country, validation processes by a Europe-wide validation entity, local insurance companies, and financial institutions under one umbrella. As a way to further build trust, the ESI Europe implementation incorporates blockchain-based management information systems, guaranteeing traceability and reliability of energy efficiency projects. The project also involves dissemination efforts to promote the model more broadly across Europe, the development of long-lasting training tools such as the “ESI Europe toolkit” to enable the roll-out of the model in other interested countries and sectors.
In 2021, BASE is expanding the ESI Europe project and the GoSafe with ESI solution to Croatia, Greece and Slovakia with additional funding from the Horizon 2020 programme.
Read more about the ESI solution at gosafe-esi.com and esi-europe.org
