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Carbon financing for energy efficiency in Indian SME clusters


At the time of the project, there were more than 380 clusters of micro, small and medium-sized industrial enterprises (MSMEs) in India, and industry accounted for more than a third of the country’s electricity consumption. These industrial MSMEs operate in a rapidly involving and uncertain market and generally lack access to financing, which means that most are unable to invest in equipment to increase energy efficiency. This REEEP-supported project aimed to build the capacity of SME industrial clusters to improve their energy efficiency as a measure to increase their financial sustainability.

The pilot project worked with an SME cluster of rice mills. Its goals were to involve the local trade association or the Chamber of Commerce and the Indian Renewable Energy Development Agency (IREDA) to explore options for financing energy efficiency equipment by pooling the cluster’s demand, to use a carbon financing mechanism and then to disseminate this model to other nearby clusters.

Photo: H K Singh



In the early stages of the project, the implementing partner realised that the rice-mill owners showed a lack of confidence in the effectiveness of the proposed energy efficient equipment. In response, a demonstration project was set up at one of the mills in the cluster, which greatly helped in promoting the project. Another important factor in the success of the project was the fact that the implementing partner was regarded as a neutral agency, without financial interest in promoting a certain make of equipment. This meant the mill owners were more receptive to its ideas. The neutrality of the implementing partner also helped because MSMEs can be reluctant to open their doors to outsiders for fear of being reported for infractions of labour or safety rules.

It was found that setting up a carbon trading system to benefit mill-owners post-switch was not viable mainly due to the small size of the companies.

Overall, the project created confidence among MSMEs, local banks and energy efficiency technology companies in the use of a bulk-procurement model for carrying out energy efficiency projects in the SME sector. A handbook was prepared for rice mill MSMEs which contains detailed information on technical options and financing mechanisms for energy efficiency projects so that the success of the pilot can be replicated elsewhere.

Programme Sector
Energy Efficiency / Business and Finance
2009 - 2011
€ 99,981
Implementing Agency
Alliance to Save Energy
REEEP grant funded by
United Kingdom
REEEP grant funded by