Energy sustainability - a critical issue

The Bangladesh Bank has set a minimum  target  of  green  finance  at  5.0 per cent  of  the  total  loan  disbursement of banks but green finance as percentage of total loan disbursement from 2015 and onwards  has remained at a very lower level.  However, the Infrastructure Development Company Limited (IDCOL), a non-banking financial institution (NBFI), has already made a commendable performance in the areas of financing of renewable energy (RE) and promoting energy efficiency (EE).  Some financing models of the NBFI, supported by donor and subsidised public funds, have been contributing to supporting RE and EE. The company now stands as a market leader in renewable energy financing in Bangladesh. It is a fully government-owned development financial institution which is catalysing and promoting private sector participation in renewable energy, and energy-efficient projects. It also provides concessionary financing and grant supports, technical assistance and quality assurance, capacity development of stakeholders and arranger of carbon credits under RE and EE initiatives.
Alongside financing, financial institutions are also engaged in awareness development and philanthropic activities using corporate social responsibility (CSR) funds of banks and NBFIs. Some of these interventions are also connected with other areas of sustainability like agriculture, rural development, technology innovation, etc. Of these, financing for solar home system (SHS) benefited households in the form of ensuring access to energy, better livelihood and rural development.
Financial institutions use considerable amount of energy in their day-to-day activities. Any initiative to save electricity by banks and NBFIs would definitely contribute to the environmental and energy sustainability of the country. Some branches and ATMs of banks and NBFIs are run by solar power.
The use of the refinance scheme of the Bangladesh (BB) by the banks and NBFIs has increased in recent time.   Refinance scheme has been utilised notably during the last five years for solar energy, biogas, hybrid Hoffman kilns, effluent treatment plants, green industry, etc. Though 50 products are included in this scheme, some RE and EE products are particularly familiar amongst stakeholders.
Stakeholders' role is critical for sustainable growth, sustainable energy and green financing. In all these areas, the government, i.e., the relevant ministries and departments/authorities are amongst the key stakeholders.  The stakeholders may be broadly categorised into core policy markers, policy coordination agencies, financial intermediaries, support organisations, international community, knowledge groups, pressure and communication groups and, of course, the user groups.  To offer effective financing services to the RE and EE areas, banks require support of other stakeholders. The Bangladesh Bank and the Sustainable and Renewable Energy Development Authority (SREDA) have been appreciably carrying out policy stakeholders' responsibilities for promoting RE and EE and their financing. However, lack of integrated approach of the stakeholders and inadequate capacity are amongst the key challenges to support development of a sound green banking/financing framework to support RE and EE in the country.   
Most of the clients of RE and EE are from rural areas. It is particularly noteworthy when a very insignificant number of rural clients gets access to banks' credit as a whole. Thus, alongside meeting environmental concerns, the RE and EE interventions are expected to bring positive changes in rural livelihood. It indicates that this is one of the crucial ways by which several goals of sustainable and green growth of the country can be attained by offering access to finance and other basic services through improving rural economy and the livelihoods of the marginalised people. In several instances, renewable energy financing is contributing in the form of improving living standards, and creation of more jobs, mainly in the rural areas.
RE and EE-promoting financing is offered directly by banks or by using linkage mode, i.e., funds are channelled through an intermediary. Though 'Direct Lending Mode' has its own advantage, it is not easy for banks/NBFI to identify the right and cost-effective linkage partner. Using intermediaries to reach rural people may include service charge in terms of higher interest. Ultimately, the end user bears the cost. However, direct bank lending to end users does not seem feasible in some cases where using intermediary and partnering organisations is offering a better outcome. Especially, an integrated approach by some NGOs/MFIs (microfinance institutions) in offering ground level renewable energy services is really encouraging.
One critical challenge before RE and EE products is to maintain standards and quality. Regarding performance, generally, small panels are performing better than big panels. Moreover, after-sale service is a major issue. Bulk procurement of renewable energy equipment is limited due to the current small market for renewable energy-based modern energy services. Local manufacturing and/or assembly of renewable energy technology components are currently very limited. In some instances there are complaints of under-performance of renewable energy equipment, inadequate maintenance services, unreasonable prices of equipment, etc. Banks and NBFIs will not be interested to finance, if standard of the equipment and after-sale service cannot be ensured.
Energy sustainability is a critical issue and EE and RE must get the required focus considering their economic, social and environmental impacts. Limited knowledge and awareness of and capacity for the green interventions and products are critical challenges. Bankers must be motivated and need exposure to the enforcement of green products. It is likely that the customers do not have familiarity with products like solar power, biogas and it is also possible that they haven't heard of SHS at all. Different stakeholders are working to address the awareness challenge. So far as the green product familiarity is concerned, other than SHS and bio-gas, employees of banks/NBFIs are not very aware of all other products. For most products, financing is extremely limited. Intermediaries have very limited information/knowledge, hindering financing for most products. Also users are yet to get required orientation about the RE and EE products.
Dr Shah Md Ahsan Habib is Professor and Director (Training), Bangladesh Institute of Bank Management (BIBM).
ahsan@bibm.org.bd