Access to adequate finance and investment is the first and basic prerequisite for the diffusion of EE measures. At the same time, the investment risks like geo-political, economic or regulatory are usually high in transition economies, and the lack of established financial markets and institutions make the task of attracting investment to EE projects even more challenging. There are also other factors like (a) unfamiliarity with many aspects of EE investments, especially the notion of basing financing on the realization of savings or negative cost stream; (b) weak credit strength of prospective borrowers relative to the amount of investment capital that is required and (c) requirement of a variety of resources that ought to be appraised and monitored and, thus, are judged as too costly and time consuming relative to the amount of profit and savings to be achieved.

One of the keys to obtaining financing for projects is the ability of the potential investor to make the project economically viable. In short, projects must be bankable. This is especially true of capital-intensive projects that are financed by commercial sources of capital. Project success not only requires the requisite economic conditions, but also technical, business and financial skills that help the sponsor to sell the project to a bank or other source of capital. Under these circumstances, a new business-oriented approach needs to be developed for the EE projects to progress in transition economies. The key success factor to developing the market potential of EE is increased private sector participation. Ultimately, only the private sector can finance and deliver energy services on the required scale. It is beyond any doubt that developing countries would attract more domestic and foreign investment to EE projects if the necessary financial frameworks are in place, and appropriate financial incentives were provided to the private sector to ensure adequate financial returns and offset high-risk perceptions.

Financing for EE must be managed effectively if it is to make any difference to local resource use as well as achieving global environmental goals. Efficient financial mechanisms, which are means or procedures in dispersing or utilizing funds, are of crucial importance. A good and proper financing mechanism can influence the adaptation of EE measures in several ways. For example, by contacting local utilities and promoting EE mortgages; cooperating with local builders, real-estate agents, contractors and others; establishing internal policies favouring EE, setting energy financing programme procedures and training staff who introduce the EE pro-grammes.1 From the standpoint of many individual firms, the scale of financing that is available for EE projects may be too modest. So, involving private sector can be a good idea since there may be untapped sources of project funding.

1 Martin 1997, 4.

The most useful role that financial institutions play is to demonstrate models for financing EE projects, particularly in transition economies. Here, the central challenge for these institutions is not the attitude of investors or the existence of stiff competition from conventional investments. Rather, it is to create a sustainable development strategy that takes into account existing inter-linkages between energy use, global environmental issues, and available financial mechanism and explore more effective coordination of the respective policy remedies. Furthermore, this strategy has to be implemented with the following three key goals in mind: engagement with the private sector, improving the social and environmental outcomes and identifying new financial resources.

There is a clear need to establish the viability and importance of financing as a resource-conserving approach. It also helps in mainstreaming the concept of EE financing within the larger development economic thought. This is important to create a level-playing field for EE finance. Emphasis also needs to be placed on second-tier organizations such as local banks in order to support and promote EE finance initiatives. Thus, financial institutions and the governmental agencies that support EE have to face two key challenges if EE financing is to become a viable tool for resource conservation and achieve environmental goals: First, there is a need for repackaging EE financing. It needs to 'graduate' from the dependence on grants and its charity orientation, to one of self-sufficiency and financial sustainability. Second, there is a need for mainstreaming EE finance, focusing on governance of financial institutions (FIs). These call for a facilitative and supportive legislative environment to be put in place by national and local government agencies and financial institutions. This chapter discusses important issues related to financing EE, such as its reasoning and risks, roles of institutions, mechanisms and methods of financing.

Renewable Energy Eco Friendly

Renewable Energy Eco Friendly

Renewable energy is energy that is generated from sunlight, rain, tides, geothermal heat and wind. These sources are naturally and constantly replenished, which is why they are deemed as renewable.

Get My Free Ebook

Post a comment