Credit Enhancement and Insurance

Credit enhancements and insurance make it easier to borrow money and are akin to having someone co-sign a loan. There are many types of credit enhancements, such as loan guarantees, loan loss reserves, and insurance. A credit enhancement improves a borrower’s ability to take on debt through some sort of risk mitigation mechanism, such as a loan guarantee, loan loss reserve, or insurance.

A development bank, green bank or other government institution may provide credit enhancements at a below-market rate to encourage uptake. Credit enhancements have been used to support the development of a variety of clean energy markets, including residential and commercial solar and energy efficiency programs.

Energy savings insurance can be a means of catalyzing a nascent energy services market. In the event that the energy savings projected by an energy services company (ESCO) do not come to fruition, the insurance provides compensation to the end user for those energy expenditures. This in effect provides a guarantee for the ESCO and helps reduce risks, thereby enabling their entry to the market.