Soft loans, often as special-purpose energy-efficiency funds, are the most common form of finance. Other mechanisms include credit lines, revolving funds, publicly backed guarantees and project loan facilities. Most of these financial instruments are backed by multilateral financial institutions; some include technical assistance.


Public finance can leverage and stimulate commercial finance, but for industrial energy-efficiency projects, care is needed to ensure that public finance does not deflect businesses from seeking commercial finance. Commercial finance has to be the main source of energy-efficiency financing.


To be effective, public financing mechanisms must address both supply and demand constraints, ensure that projects are technically viable and financially profitable and leave room for local financial institutions to offer accessible and affordable financing. The transaction costs of industrial energy-efficiency projects are high because many are small and technically complex. Financing mechanisms should accompany technical assistance programmes for financiers and project developers and implementers. Many financing mechanisms for small to medium-scale projects require financial intermediaries. Financial institutions also need to be educated about industrial energy-efficiency financing.