Promotion of Energy Efficiency in Small and Medium Enterprises (SMEs): Role of Financial Institutions

Abstract

This study aims to identify how financial institutions espouse Small and Medium Enterprises to adopt energy efficiency practices and to reduce GHGs/CO₂ emission; do energy-saving practices enhance the value of the firm in long run through a sample of 50 manufacturing units in India. The study starts with a depth discussion on the need for financing energy efficiency projects of SMEs and evaluates prevailing financial mechanism for improving energy efficiency in India. Using the regression model, the study found that financial assistance has a significant role in reducing the GHGs/CO₂emissionsfrom SMEs and to reduce consumption of energy uses, particularly electricity consumption. Further, it is also found that energy saving and reduction of GHGs/CO₂emission helps to improve the financial value (net worth) of the firm in the long run. Hence, the study concludes that financing of energy efficiency not only address the issues of energy scarcity and environmental pollutions but also strengthen the financial position of the firm, it will be a competitive advantage in the long run. Thus this study provides new insight to financial institutions in lending energy efficiency funds and encourages SMEs to adopt energy-saving technologies as not only for minimization manufacturing cost but also to improve the value of the firm.