Innovative Approach to Financing Energy Conservation Investments in Developing Countries

A common barrier to undertaking conservation measures in developing countries is the limited ability or the reluctance of energy users to acquire and deploy the capital needed to develop these opportunities. Industrial firms, for example, have had frequent opportunities in recent years to benefit from the use of new, more energy‐efficient production technologies, but insufficient internal cash, combined with an ability to raise debt or equity capital under favourable terms, have often prevented firms from funding these investments. Confronted with such impediments to mobilizing capital for conservation investments, some financiers and entrepreneurs in industrialized countries have recently implemented five innovative arrangements for financing conservation and other energy‐related investments. These five financing arrangements are discussed. For each arrangement, the structure and operation, the distribution of risk between the energy user and the creditors/external investors, and the financial benefits that accrue to the energy user are described.