Green Government

ADB funds green projects in India

By Amelia Kwok | 26 November 2008

The Asian Development Bank (ADB) is to help set up a fund that will mobilize financing for energy efficiency projects in the Indian state of Madhya Pradesh.

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The planned Energy Conservation Fund (ECF) will complement an ongoing ADB investment programme in Madhya Pradesh’s power sector which is focused on reducing the gap between power supply and demand, and improving efficiency in transmission and distribution.

ADB will provide a US$1.7 million technical assistance through the Second Danish Cooperation Fund for Renewable Energy http://www.adb.org/projects/project.asp?id=41681 and Energy Efficiency in Rural Areas. The government of Madhya Pradesh will contribute an equivalent of US$400,000.

The technical assistance will support the ECF by financing the initial operational expenditures. The ECF will be used to implement programmes through technical and financial assistance, benefiting all stakeholders including the Government of Madhya Pradesh, power sector companies, and consumers.

The technical assistance will also include outreach and awareness programmes to create an environment conducive to the ECF and establish credence among the diverse group of stakeholders whose involvement in energy efficiency is crucial to the success of the ECF - including commercial building owners, utilities, industries, policy makers, energy auditors, energy service companies, energy efficient equipment manufacturers, and banks and financial institutions in the state.

Although the benefits of energy efficiency are well-recognised in the past, several barriers have impeded investments in energy conservation and efficiency projects such as risk aversion, lack of resources, and the high cost of financing when available.

Under its power sector investment program with the Madhya Pradesh state, ADB has been asked to provide a loan of US$5 million as initial seed capital for ECF. The Government of Madhya Pradesh will complement this with funds collected from a special electricity sales levy. ADB’s technical assistance will support ECF to ensure it has adequate operational resources for its first five years in operation, after which it is expected to become financially independent.

“The Energy Conservation Fund will facilitate the financing of revenue-generating energy efficiency projects implemented by public and private sector entities and it will develop a modality that could be replicated in other states of India,” said Neside Tas-Anvaripour, Principal Energy Specialist, for ADB’s South Asia Department.

The sustained support for the ECF in its start-up years will encourage interest from commercial banks and other private financial institutions which are typically reluctant to finance energy efficiency projects mainly because of the requirement of collateral security for loans.

The potential for energy savings in India is enormous, as energy efficiency projects alone could create nearly 25,000 megawatts of capacity, and energy conservation projects could save 23 per cent of total generation. India has vowed to make power available to all its citizens by 2012.

“With proper policies, awareness and training, energy conservation and efficiency could ensure better supply of energy to needy customers and reduce the burden on power sector companies during peak supply hours,” said Anvaripour.