Promoting energy efficiency financing and ESCOs in developing countries: mechanisms and barriers

Developing countries have tremendous potential to increase energy efficiency but face several barriers before the potential can be realised. A lack of access to appropriate financing mechanisms is one of the important barriers. Energy service companies (ESCOs), a market oriented mechanism to improve energy efficiency, had successful experiences in developed countries such as the USA and Canada, and developing countries such as South Korea. ESCOs are in nascent stage in many developing countries and face several barriers that include market, finance and institutional barriers, poor energy pricing policies, high transaction costs etc. Market development through active involvement of governments as a customer, information provider, and policy maker is required to promote ESCOs. Development of specialised energy efficiency financing windows in appropriate financial institutions, development of skills for energy efficiency project appraisal and design of specialised financial products are other measures to accelerate the diffusion of energy efficiency.