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MICROFINANCE

Microfinance institutions are organizations that provide loans to low-income clients, including micro-companies and the self-employed, who traditionally lack access to mainstream sources of finance from banking institutions. The loans are typically for small amounts (as little as US$ 100 or even less) targeting borrowers in developing countries and usually for a short term (a year or less). The loans are not secured by collateral assets as would be the case for Banking Institutions and require repayment in weekly installments rather than on a monthly basis.

Inherently, microfinance usually addresses economic, social and sometimes environmental issues. For example, electricity is a basic need that allows small businesses to make or process products. Microfinance can provide a rural community with access to electricity through development of renewable energy projects, such as small hydro or photovoltaic (PV) panels. Microfinance institutions have been pursuing environmental business opportunities for decades because they are integral to their business.

Read more:

Microfinancing Solar Panels in Jordan
Financing Small Hydro Schemes in Peru

LEASING

A leasing company provides a physical asset or service for use by a commercial client or individual for an established period of time (sometimes with provisions to purchase asset at the end of the contract) in return for regular payments, known as financial leasing. The lessee is the receiver of the assets or services under the lease contract and the lessor is the owner of the assets or provider of services. Leasing assets include passenger vehicles, light duty trucks, furniture, office equipment, appliances, and heavy equipment, such as earth movers, large machines, industrial equipment, ships, heavy duty trucks, and airplanes. In some cases, a leasing company both owns and services the leased physical asset and is responsible for installing and operating the asset, which is known as operational leasing.

A leasing company can lease all types of energy efficiency and renewable energy equipment including boilers, compressors and heating / cooling equipment or solar panels, solar hot water heaters etc. Leases can be combined with installation and maintenance contracts and performance contracts.

Read more:

Turkish Leasing Company Enters Energy Efficiency Financing Case Study

PRIVATE EQUITY FUND

Private equity funds make equity investments in companies (although sometimes other financial instruments may be used) for a longer term, with the goal of later selling the equity stake at a profit at the time of exit. A Private Equity Fund usually consists of a partnership with investors who are limited partners in the Fund, which is controlled by a general partner. Limited partners commit to provide funding when the general partner has identified an opportunity for investment, such as acquiring a controlling stake of a company. A Fund will typically make separate investments in several companies or projects over the life of the partnership. Investee companies or projects can encompass microfinance institutions, small and medium enterprises, and corporations and large-scale projects.

Private equity funds can strengthen the value of investee companies by investing in energy efficiency upgrades and technology replacements.. Alternatively, PE funds can invest in companies that manufacture or offer environmental related products or services. For example, some PE funds exclusively target energy efficiency or renewable energy equipment manufacturers.

Read more:

TunInvest Enhances Performance Through Sustainability Case Study
Axxess Capital Invests in Energy Efficiency Case Study

ENERGY SERVICE COMPANIES (ESCOs)

Energy Service Companies (ESCOs) provide customers with a means to reduce their energy use and demand through performance based contracting. The ESCO serves as a general contractor using standard overhead and profit margins and is capable of financing and guaranteeing its performance if it serves as a design/builder. The below list ranges from full-service/high risk contracts to low service/risk.

Full-Service ESCO: The ESCO designs, finances and implements the project, verifies energy savings and shares an agreed percentage of the actual energy savings over a fixed period with the customer. This is also referred to as the ‘Shared Savings’ approach in the U.S.

End-Use Outsourcing: The ESCO takes over operation and maintenance of the equipment and sells the output (e.g., steam, heating/cooling, lighting) to the customer at an agreed price. Costs for all equipment upgrades, repairs, etc. are borne by the ESCO, but ownership typically remains with the customer. This model is also sometimes referred to as Chauffage or Contract Energy Management.

ESCO w/ Third Party Financing: The ESCO designs and implements the project but does not finance it, although it may arrange for or facilitate financing. The ESCO guarantees that the energy savings will be sufficient to cover debt service payments. This is also referred to as Guaranteed Savings in the U.S.

ESCO Variable Term Contract: This is similar to the full-service ESCO, except that the contract term can vary based on actual savings. If actual savings are less than expected, the contract can be extended to allow the ESCO to recover its agreed payment. A variation is the ‘First Out’ model, where the ESCO takes all the energy savings benefits until it has received its agreed payment.

Equipment Supplier Credit: The equipment supplier designs and commissions the project, verifying that the performance/energy savings matches expectations. Payment can either be made on a lump-sum basis after commissioning or over time (typically from the estimated energy savings). Ownership of the equipment is transferred to the customer immediately.

Equipment Leasing: Similar to supplier credit, the supplier receives fixed payments from the estimated energy savings. However, in this case the supplier owns the equipment until all the lease payments, and any transfer payments, are completed.

Technical Consultant (w/ Performance-based Payments): The ESCO conducts an audit and assists with project implementation. The ESCO and customer agree on a performance-based fee, which can include penalties for lower energy savings and bonuses for higher savings.

Technical Consultant (w/ Fixed Payments): The ESCO conducts an audit, designs the project and either assists the customer to implement the project or simply advises the customer for a fixed, lump-sum fee.

Read more:

Optima Energia Case Study


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