The world isn’t on track to achieve its 2030 energy goals on energy efficiency (EE). To be able to get anywhere close to these goals, government leaders and those in key financial positions must coordinate on a closer node to come up with a robust investment policy aimed to attract more investment towards clean energy.
Globally, investors are looking at energy efficiency projects with keener interest and investing in various energy infrastructure upgrades including renewable energy, energy-efficient buildings, and green transportation as an opportunity to make more money. Unfortunately, in Pakistan, things are quite different. The country still lacks a clear vision and adaptation of comprehensive energy policy. While successive governments have invested in specific energy efficiency projects like the solar farm in Punjab or windmills in Sindh, these efforts are mostly discreet and without any consistent policy.
National Energy Efficiency Conservation Agency (NEECA), in Pakistan was created in ENERCON in 2016, perhaps the most concrete step towards creating a homogenous and comprehensive energy conservation policy for implementation at the national level. This also opens up doors for financial institutions to assess the massive potential of an entirely untapped market.
Why should financial institutions start considering opportunities to invest capital into the energy efficiency sector in Pakistan? Here’s a few reasons why:
A large potential market
While Pakistan currently does not have the exact figures for the energy efficiency market, however, if we compare the numbers globally, we can safely predict them to be in millions of dollars. For example, the global investment for demand-side energy efficiency was over USD 300 billion in 2017, and is growing.
In this respect, there are two categories for financial institutions to invest in Pakistan’s energy efficiency sector including;
- Developing new investment lines for specific EE projects, like creating a dedicated line of mortgages or funds for energy efficiency projects
- Extend the general line of investment to finance projects where EE isn’t the primary goal. For instance, upgradation of the production facility or building refurbishment
Also, it is interesting to note the energy efficiency projects generally have a shorter payback period. According to the DEEP database, the average payback period for energy efficiency projects range between 5 to 2 years for buildings and industrial projects respectively. However, even with this attractive economics of the investment, there aren’t many EE projects in Pakistan. This is either due to the other priorities of the project host or due to a shortage of investment capital.
Nonetheless, the opportunities are massive and return lucrative for financial institutions to start exploring the energy efficiency industry as a preferable investment sector.
A huge opportunity for impact
The benefits of investing in energy efficiency go beyond financial gains. By investing in energy efficiency, financial institutions will be contributing positively towards local, national, and global benefits and help avoid two of the most crucial crisis of our time;
Firstly, energy efficiency is recognized as the most cost-effective source of energy conservation. Pakistan is a country that has faced chronic energy shortages for decades. The country has been facing massive electricity shortfall on a daily basis that doesn’t only impact the domestic users but also jeopardize the economic activity, putting further stress on the already stressed national economy. By investing in energy conservation projects, financial institutions won’t just be making huge monetary gains, but also strengthening the country’s economy by alleviating some pressure from the stressed national grid.
Secondly, energy conservation is the key to the fight against global climate change. Again, Pakistan is amongst the world’s worst-hit countries by climate change; frequently hit by long episodes of dry spell followed by torrential rainfalls that lead to countrywide flooding. By investing in energy conservation projects, financial institutions will be playing their Corporate Social Responsibility (CSR) role in the fight against climate change and serving a huge responsibility for the stability and development of the country.
Conclusion
Traditionally, central banks and other financial authorities would have no business in dealing with climate change and other environmental challenges. Even though the mandates of regulatory authorities differ from country to country, environmental considerations are usually not included. However, there are good reasons for central banks and other regulatory authorities to tackle the combined challenges of mitigation, adaptation and sustainable development.
With the implementation of Green Banking Guidelines, the State Bank of Pakistan seeks to nudge banks and financial institutions towards the development of green and climate-friendly strategies. The aim is to provide a holistic approach on how to adapt to climate change, take the necessary precautionary measures and envisage new business opportunities. The State Bank of Pakistan’s Green Banking Guidelines provide minimum standards for green banking and cover, apart from guidelines for environmental risk assessment of new financing and existing portfolio, adequate financial instruments to support green investments and resource efficiency measures to reduce the carbon footprint of bank operations. NEECA is actively working with SBP to ensure that these regulations are adopted by retail banks.