Small and medium enterprises benefit from Energy Savings Insurance

Context

Small- and medium-sized enterprises (SMEs) may benefit greatly from the energy cost savings that result from the installation of new, more efficient technology. This new technology is particularly relevant for boilers, air conditioning, solar power, and lighting infrastructure.

Problem

• SMEs are hesitant to invest in power saving technologies due to the unproven nature of these technologies and uncertainties surrounding the exact savings that will be made (i.e. performance risk).
• There is limited financing capacity for new energy-saving technologies in developing markets.
• Verification of technology providers can be expensive.

Innovation

• Energy Savings Insurance (ESI) addresses investment barriers for energy efficiency upgrades by providing insurance payouts if the projected value of energy savings is not met. The technology provider must source the insurance.
• The technology solution provider pays the insurance premium, with coverage for SMEs that purchase energy-efficient technology solutions.
• Bancoldex, the state-owned bank of foreign trade, offers preferential financing for SME projects and provides standard contracts and technical validation services for technology providers.

Stakeholders involved

• SURA: The Colombian insurance company that pioneered the provision of ESI
• Bancoldex: The state-owned bank of foreign trade provides preferential loans for SMEs that qualify for the ESI program
• IDB: Helped develop the ESI program in cooperation with the Government of Denmark

Timeline

Results and impact

• ESIs have resulted in greater investment into energy efficiency and power generation projects. The project now supports 104 SMEs (90 hotels and 34 clinics/hospitals), delivering cost savings and reducing C02 emissions by approximately 14,000 tonnes per annum.
• Total investment is greater than USD19.2 million, in the areas of boilers, air conditioning, solar power, and lighting.
• The program’s success in Colombia led to its adoption throughout South America by 11 development banks, 7 validating entities, and 5 insurance companies. It is now also offered in European markets.

Key lessons learnt

• ESI can encourage SME investment in energy saving installations or upgrades they would previously not consider by guaranteeing the performance of the project in terms of energy savings.
• Standardisation of contracts between SMEs and technology providers can lead to faster adoption of insurance policies by reducing compliance costs.
• Government procurement agencies can expedite sustainable project development by creating clear guidelines for project approval and financing a project’s technical validation for the insurance program.