Financing the Energy Transition 2025

4.5 Involving and stimulating SME participation SMEs play a crucial role in the energy transition due to their agility, innovation and ability to reach underserved markets. While large corporations have the budget to develop and test new energy technologies, SMEs can move more quickly, helping to accelerate the commercialization of these technologies. They also have the flexibility to focus on smaller markets that large corporations may overlook and can be more responsive to local needs and priorities. This includes initiatives such as electrifying remote areas, thereby providing energy access to regions that are often energy deficient. However, SMEs face several challenges, such as limited access to financing, regulatory barriers, lack of manpower and technological constraints. Governments can support SMEs by offering innovation funds and access to subject-matter experts to assist in the development of new technologies. One example is the Danish Energy Technology Development and Demonstration Programme (EUDP), which “funds work by enterprises and universities on demonstration of new green technologies.”42 The programme also provides development support in the form of expertise, project management, engineering and other resources. Another example comes from India, where the government has taken a significant step to increase SME participation in renewable energy projects by mandating that insurance security bonds (ISBs) be treated as equivalent to bank guarantees for all government procurements. ISBs are provided by insurance companies and act as a guarantee that contractors will fulfil their obligations. They are similar to traditional bank guarantees but do not require collateral. The use of ISBs is relatively common in other industries, such as construction and machinery. By not tying up a company’s credit line with a bank, this mechanism frees up liquidity, allowing renewable energy companies to participate more actively in government auctions and projects. Expanding support for energy transition projects and specifically targeting SMEs can help build a more diverse and resilient energy sector. To create a more inclusive and sustainable investment ecosystem, export credit agencies should focus on increasing their support for projects in least developed countries (LDCs) and low-income countries, while ensuring that SMEs have greater access to these opportunities. Governments can support SMEs by offering innovation funds and access to subject-matter experts to assist in the development of new technologies. Financing the Energy Transition: Meeting a Rapidly Evolving Electricity Demand 25