The JSBF Report
PRGFEE Scheme: A Catalyst or Deterrent to Energy Efficient Funding?
Updated: Sep 14, 2020
By: Vedik Reddy Chittamuru
India’s energy consumption is currently growing at one of the fastest rates in the world. The commercial energy consumption itself has grown by a staggering 700% since the 1980s and the energy sector happens to account for half the country’s carbon dioxide emissions as coal continues to be the primary source of energy. Despite this, Indian banks fall far behind their global counterparts in terms of their policies on environmental factors and climate change. There is an urgent need for the nation’s financial institutions to contribute to enhancing India’s energy efficiency. The 2010 International Energy Agency’s (IEA) report vehemently establishes the potential of Energy Service Companies (ESCOs) and Energy Efficient (EE) projects to reduce CO2 emissions to half by 2050 as compared to 2005 levels.  In addition, they would also push innovation among the Indian industries by increasing competition while enhancing the nation’s energy security.  However, Indian banks and financial institutions are generally disinterested in funding EE projects thereby posing a major barrier to the success of ESCOs. Thus, disabling them to relish their full potential. Numerous reasons can be attributed to the banks’ reluctance -
· These projects generally lack assets that can be offered as adequate collateral acceptable to the banks.
· As these projects involve novel and untested innovative technologies, making them a relatively riskier investment.
· In addition, they often lack adequate resources to develop their loan applications in a manner that meets the banks’ requirements.
In order to address these challenges, the Ministry of Power (Government of India), on May 26th, 2016 launched the Partial Risk Guarantee Fund for Energy Efficiency (PRGFEE). The aim is- encouraging energy-efficient funding that would act as a catalyst towards the establishment of several EE projects and ESCOs across the country in the long run. This short piece lends a brief insight into the scheme and examines the same.
PRGFEE provides participating financial institutions (FIs) with partial coverage of risk when they lend to EE projects. In the event of a default, PRGFEE covers the first loss subject to a maximum of 10% of the total guaranteed amount and the remaining default amount on pare-pass basis up to the maximum guaranteed amount subject to certain limits. The scheme has also standardized the appraisal process. Every individual project is reviewed by the Project Appraisal Unit (PAU) under this scheme to assess its energy efficiency performance and subsequent cost benefits. This serves to reduce the technical risks that banks fear. The financial risk coverage and impartial technical evaluation are the essential features of this scheme. As the PRGFEE overcomes several of the challenges pertaining to the financing of ESCOs and EE projects, it could possibly unlock the energy efficiency market’s potential in India.
The PRGFEE scheme has enabled ESCOs to partially overcome one of their most prominent barriers – lack of financing. Till date, the Government of India has approved around 312 crore rupees for this scheme. Five banks – Andhra Bank, IDFC Bank, IndusInd Bank, Tata Cleantech Capital Ltd. And Yes Bank – have been empanelled under it. Several experts and eminent personalities in the field have touted PRGFEE as the solution to ESCOs and EE projects’ funding difficulties. However, despite its acclaim and presumed advantages, the scheme has failed to achieve the success that was expected of it. Currently, there are only 150 ESCOs empanelled under the Indian Government’s Bureau of Energy Efficiency. In comparison to the 129 that was empanelled between 2009 and 2015. India’s ESCO market continues to be a minuscule percentage compared to those of similar market sizes such as China, Brazil and Europe. ESCOs continue to be constrained by financial shortcomings, especially the smaller ones because bankers are still uninterested in such projects. Banks are sceptical as they lack the expertise to understand these projects. Further, for those ESCOs that receive funding through the PRGFEE scheme, they are still required to provide collateral for the part of the loan not covered by the guarantee. This is extremely costly or even impossible at times for ESCOs to arrange. In a study conducted by the Alliance for Energy-Efficient Economy and Shakti, a sustainable energy foundation, it was found that the lack of financing has now been reduced to a minor hurdle by PRGFEE. The primary reasons now include issues in BEE’S ESCO empanelment process, challenges in baselining and a lack of trust in the ESCO ecosystem among others. There are no drawbacks of the scheme itself. The issue lies, instead, in the lack of its promotion.
PRGFEE has the potential to scale-up Energy Efficiency investments through the Energy Savings Performance Contracting route in India. The promotion of PRGFEE and other fiscal schemes should be made a priority. Incentives can be provided to FIs in order to encourage EE project funding. A monitoring and verification protocol must be established so as to evaluate EE projects and ESCOs to ensure that banks to have a better understanding of them and therefore they will more confident in funding these projects. The Government should also encourage private financing for such projects. Clearly, PRGFEE has had a positive impact, albeit a minor one, and it was merely a small step in the long journey to achieving ensuring the nation’s energy efficiency.
Vedik Reddy Chittamuru is a 2nd Year student at JGLS.
 World Bank, ‘Project Information Document (PID) Concept Stage: Partial Risk Sharing Facility in Energy Efficiency ’ (2013)  They could potentially contribute 38% of the CO2 emission reduction.  International Energy Agency, ‘Energy Technology Perspectives 2010: Scenarios and Strategies to 2050’ (2010)  Murray Patterson, ‘What is energy efficiency? Concepts, indicators and methodological issues’ (1996) 24 EP 377  Diane Urge-Vorsatz, Sonja Koppel, Chunyu Liang, Benigna Boza-Kiss, Gireesh Nair and Gamze Celikyilmaz, ‘An Assessment of Energy Service Companies (ESCOs) Worldwide: Country Studies – India’ (2007) WEC ADEME. Also refer: Ella Aglipay Delio, Saurabh Lall and Chandan Singh, ‘Powering Up: The Investment Potential of Energy Service Companies in India’ (2009); IDFC, ‘Can ESCOs drive energy efficiency in urban services? IDFC Policy Group Quarterly Research Note’ (2011)  Bureau of Energy Efficiency (BEE), ‘Partial Risk Guarantee Fund for Energy Efficiency’ (2015)  BEE, ‘Guidelines for financing energy efficient projects in India’ (2017)  BEE, ‘Updated List of Empaneled ESCOs with BEE’ (2019)  Alliance for an Energy Efficient Economy and Shakti, ‘Transforming the Energy Services Sector in India’ (2017)