To learn more, see The Global Innovation Lab for Climate Finance: Phase 3 Instrument Reports.

Investments in energy efficiency by small and medium enterprises are mostly self-financed and limited to small investments with very short payback periods, such as lighting upgrades, rather than more capital intensive measures. This is due to:

• The lack of technical capacity to evaluate energy efficiency investments
• Small and medium enterprises’ lack of focus on these investments
• The market’s lack of trust that energy savings will materialize.
• Limited access to financing in many developing countries, where banks are reluctant to lend given the high perceived risks and the scarce information on the performance and track record of energy efficiency investments.

The energy savings insurance instrument aims to stimulate investments in energy efficiency by mitigating the risk that small and medium enterprise’s investments do not pay for themselves if actual energy savings end up being lower than anticipated. The energy savings insurance is accompanied by a package of complementary measures that address technical capacity, access to capital, and other barriers to investment in energy efficiency.

A new report (PDF) from the Global Innovation Lab for Climate Finance outlines progress made during a project underway in the agro-industry sector in Mexico in 2015, where an expected 10 projects will be selected to test the instrument initially, and plans for the instrument to then be extended to the entire sector.