Partial Risk Guarantee Fund (PRGF)
The partial guarantee is a risk-sharing mechanism that will provide commercial banks with partial coverage of risk exposure against loans made for energy efficiency projects to mitigate the risk perception associated with the lending for new technologies and new business models associated with energy efficiency projects. This will be in addition to the risk cover available from the Credit Guarantee Trust of India – lending institutions need to be made aware about this organisation. The guarantee will directly support financing of energy efficiency projects by:
- Addressing credit risk and transaction structuring barriers to energy efficiency finance,
- Engaging and building capacities of commercial financial institutions to provide financing for energy efficiency projects on a commercially sustainable basis.
The PRGF will act as a first loss, subordinated recovery guarantee and will be placed in a guarantee reserve account and will be paid out to participating banks in the event of a loss or default. The amount paid out will be equal to the amount of outstanding principal times the guarantee percentage, and will not cover accrued interest or other fees owed to the bank. The lending banks will also pursue recovery procedures in the event of default, and will pay to PRGF any monies recovered after first satisfying its own receivables.
Venture Capital Fund for Energy Efficiency (VCFEE)
While debt capital is being secured through a host of interventions like the EEFP, the PRGF and the Credit Guarantee Trust of India, there is also a requirement for venture capital investment as equity in these projects. This will ease a significant barrier from the viewpoint of risk capital availability to the ESCOs. Further, this fund, set up with initial seed capital from Government under the EEFP, can be expanded by contributions from other agencies as well. The Ministry of Power recommends that the Government must promote a corpus of funds from its budget for setting up the VCFEE as well as the PRGF. To begin with, it is recommended that these two instruments may be used for promoting energy efficiency in government buildings through the ESCO route. In order to do so, a fund size of Rs. 170 crores has been estimated. This fund can be managed by the institutional framework of EESL that is also been recommended herein. International experiences surveyed by the Ministry indicated government leadership in promoting such funds to promote markets for energy efficiency. These funds have been used for both risk capital as well as for guarantees.