Structuring Government Guarantees for Energy Efficient Investment to Reduce Global Green House Gas Emissions
In partnership with the Ministry of Environmental Protection, the Milken Innovation Center completed report on Financial Models to Accelerate the Adoption of Energy Efficiency Technologies in Israel. The report was part of the joint venture with the Ministry on accelerating the use of energy efficient technologies in various sectors. The report identifies best practices for program design and implementation for the use of guarantees pursuant to the Government Decision in 2016 to provide support for business investments in green building/energy efficiency solutions.
The research identified key issues and policy and program directions for the use of government guarantees:
- Efficient leverage – With current collateral and guarantee requirements by commercial lenders, projects are unable to efficiently leverage their equity. The guarantees can be used to lower the demand for pledge of guarantees and cross collateral on other company assets, increasing the leverage capacity and efficiency of the company’s equity.
- Beta sites – While there are breakthrough energy efficiency technologies in labs, there is insufficient capital available fill the financing gap through commercialization or to integrate these technologies into commercial solutions. The guarantees can be used to support additional research and development and beta testing and sites.
- Technology assurance – There is a resistance to the adoption of new technologies in the energy efficiency value chain – from technology to installation. Along with the use of guarantees, the program should include the development of a certified database and standard qualifications for technologies. The guarantees can also be used to provide financial performance assurances.
- Regulatory flexibility – While the main resistance and barriers to the adoption of energy efficiency technologies is found in the market value chain, government approvals are also an obstacle. The research identified ways to streamline processes at all permitting levels, including land use, planning, building, and compliance. This includes integrating vertical (suppliers and customers) and horizontal (competitors) networks with knowledge sharing and throughput.