Financing the Pot of Gold: Problems and Solutions with Energy Efficiency Finance in Eastern Europe

Panel: Panel 1: Policy and Programmes - Who can deliver DSM?

Author:
Peter M Hobson, International Institute for Energy Conservation

Abstract

As reform in central and eastern Europe progresses, attention is increasingly being focused on the need to address the extreme energy wastage characteristrc of the region. Industry and municipal authorities are working with emerging private sector energy service companies and some utilities to develop technical solutions. These solutions require capital to finance a range of efficiency investments. However, traditional financial institutions find these investments to be largely unacceptable, and there is currently a significant gap between the technical and economic potential for energy efficiency and that being realised in the region.

Domestic banks are unwilling to lend long term finance and international financial institutions (IFIs) prefer lending amounts significantly larger than required for most energy efficiency projects. Further difficulties arise through IFIƒs requirements for sovereign guarantees for local government lending and uncertainty over the future of many potential private sector borrowers, which adversely affects credit ratings. On the other side of the gap, efficiency project developers often fail to structure their projects to address the basic requirements of traditional lending institutions. Concerns such as establishing a revenue stream from energy saving projects and securing these payments are fundamental to a fundable project.

This paper provides an overview of both the fundersƒ and developersƒ perspectives on energy efficiency. It then discusses potential solutions to these problems and addresses steps towards bridging the fundmg gap that results from this pervasive disconnect between funders and efficiency developers. A range of practical solutions, some already underway in the region, are outlined and discussed.