Energy consumption can account for up to half the cost of doing business for small and medium-sized enterprises (SMEs). These businesses of 250 or fewer employees make up 95 percent of enterprises across the world; they also account for approximately 60 percent of all private sector employment. Globally, there is great potential to reduce their energy costs and carbon emissions.
But SMEs generally have been slow to improve or replace their old heating, cooling, lighting, and power systems, or to insulate their buildings, because the cash outlay is too great and credit is not available. Many banks lack the technical knowledge to calculate sensible energy-upgrade loans for these small firms.
The Poland Sustainable Energy Finance Facility (PolSEFF) and other facilities in Eastern Europe are proving that commercial banks can bridge this gap. In Poland, for example, SMEs have submitted nearly 2,000 applications to five PolSEFF partner banks since 2010 to finance energy efficiency projects; these banks, in turn, have disbursed €180 million in loans. In all, the European Bank for Reconstruction and Development (EBRD) has provided more than €2 billion and the International Finance Corporation (IFC) €3.8 billion in sustainable energy financing via PolSEFF and other credit lines.
Importantly, most of these well-designed energy finance projects are showing positive cash flows quickly. For SMEs, this often means paying off their energy investments and loans in three to five years.
While impressive, this lending marks only the beginning for energy efficiency financing. The International Energy Agency (IEA) estimates that implementing efficiency measures can reduce the global need for primary energy by 900 million tons of oil equivalent through 2020. Most of these savings would occur in sectors such as transportation, construction, and agriculture—industries well populated by SMEs.
Making Energy Financing Viable
Depending on the investment, a...