Energy Savings Insurance: A Design (2014)

AUTHOR:Fiorello H. LaGuardia Foundation Consultores en Energia - Coenergia

DATE:September, 2014

TOPICS: energy savings insurance, ESI, Risk Insurance Instruments, NDBs, EE, energy efficiency

SUMMARY: Mobilizing public and private finance for energy efficiency (EE) is a priority, due to EE’s potential to keep the door open to the 2 °C target through to 2020 at no net economic cost. IEA analysis, however, shows that although solutions and technology are readily available, more than half of the potential in the buildings and industry sectors will not be realized by 2035. According to expert consensus, this failure stems, in large measure, from banks’ lack of familiarity with the energy efficient technologies, and their consequent exaggeration of their risks and underestimation of their benefits. Further, loans to individual energy efficiency projects are often seen as too small to support the costs banks must incur in their evaluation, processing, and monitoring, i.e., their transaction costs. On the end-user side, company financial decision makers are characterized as either unaware of EE savings potential or skeptical of engineers’/vendors’ claims for the size of that potential. The Danish Government, in cooperation with other governments and international partners, wishes to address this key barrier to the adoption of EE by small and medium-sized enterprises (SME) and has requested that consultants explore the design of an insurance mechanism to remove energy savings performance considerations from the EE financial calculus on the basis of initial piloting experience by the Inter-American Development Bank (IDB). The results are presented here: -A generic business model for developing an energy savings insurance instrument to be underwritten by major reinsurance companies. -A guide for implementation of such an instrument. -A roadmap for a pilot program in Mexico intended to provide proof of the concept.