Accreditation to Increase the Credibility of Energy Service Companies in India

The Bureau of Energy Efficiency (BEE) in India initiated an accreditation process to encourage the adoption of more energy efficiency projects through Energy Service Companies (ESCOs).

The accreditation initiative aims to increase the credibility of the ESCO industry among potential clients such as government offices, building owners, and enterprises and among financial institutions who would consider providing capital to ESCOs. CRISIL (Credit Rating Information Services of India Limited) and ICRA (formerly Investment Information and Credit Rating Agency of India Limited) carried out this accreditation process. CRISIL and ICRA are two of the premier agencies in India that present independent credit ratings, capital market information, and industry analysis.

A total of thirty-five ESCOs were given ratings between “Very High” and “Poor” based on criteria involving the ESCO’s success in implementing energy efficiency projects, the ability of its technical manpower, and its financial strength to invest in such projects. Twenty-five ESCOs received ratings of “Good” and above, while ten ESCOs received ratings of “Below Average” and below. This accreditation is valid for two years, after which a fresh accreditation from CRISIL or ICRA will be required once again.

Overall, this accreditation process will be beneficial for the entire ESCO industry. First, it will provide potential clients with a fairly credible selection tool which will provide them information about an ESCO’s technical and financial capability. Second, it will give ESCOs the incentive to improve so that they could attain higher ratings on the next accreditation round. Finally, this ESCO accreditation also serves as a guide for financial institutions when making decisions regarding the creditworthiness of an ESCO. In fact, WRI has been able to use this ESCO accreditation in its current work with financial institutions in India to increase investment into the ESCO industry and overall energy efficiency space.

Earlier this year, WRI shared with various Indian banks the findings of its publication Powering Up: The Investment Potential of the Energy Service Company Industry in India. Its analysis shows that there are attractive investment opportunities to fund ESCOs, especially among debt investors such as commercial banks in India. One of WRI’s recommendations is for these banks to pilot financial products targeted at ESCOs and their energy efficiency projects. In fact, WRI is currently in talks with several national Indian banks to explore this option. WRI has utilized the BEE’s accreditation scores during its conversations with the banks at times when the banks need a good sense of the overall capacity of a particular ESCO. In the end, WRI’s findings and analysis give an overall view of the whole industry’s potential, while the BEE’s accreditation gives more information on an individual ESCO.

All in all, the BEE’s accreditation has been a complementary tool to achieve WRI’s objectives of increasing investment into and ultimately the growth of the ESCO industry and energy efficiency space.