Lessons from two decades of energy efficiency programmes for India's steel MSMEs

India's secondary steel sector accounts for around 47% of the country’s steel production and emits 50 million tonnes of carbon dioxide (MtCO₂) annually, making it a critical focus of India's green steel transition efforts. To enable decarbonisation of this sector, the government has proposed the INR5,000 crore National Strategy for Sustainable Secondary Steel. As the policy is rolled out, reviewing the status and lessons from existing and past energy efficiency (EE) measures — that will again be part of the scheme — can help avoid past mistakes, adopt successful best practices, and eliminate redundant benefits, particularly on the EE front specific to steel MSMEs.

Earlier programmes have established that energy-efficiency technologies can deliver meaningful savings. However, successful demonstrations alone are not enough to create a self-sustaining market. Large-scale adoption depends on project preparation, micro, small, and medium enterprises (MSME)-appropriate finance, implementation support, and lasting institutional capacity.

Over the past two decades, government and development partners have supported steel MSMEs through demonstration projects, concessional finance and technical assistance. The United Nations Development Programme (UNDP)-Ministry of Steel scale-up project increased the number of energy-efficient small steel units from 34 to 321 in 30 months. During this period, another programme by United Nations Industrial Development Organization-Global Environment Facility- Bureau of Energy Efficiency (UNIDO-GEF-BEE) supported 603 energy-efficiency and renewable-energy measures in 345 enterprises across 12 MSME clusters.

These results demonstrated the value of technical and financial support, but wider replication often remained programme-dependent. Successive evaluations identified many of the same structural barriers, offering four important lessons for the future of policy interventions.

Lesson 1: Immediate business priorities often outweighed energy efficiency

Efficiency investments competed with working-capital needs, production targets and capacity expansion, even when they offered attractive payback periods.

The GEF-UNDP-Ministry of Steel programme on steel re-rolling mills found that industry participation remained limited during initial years, as MSMEs viewed investments to increase production capacity as more urgent than those to improve efficiency. Uptake improved when efficiency was actually observed as a productivity and profitability investment.

Lesson 2: Limited technical capacity hindered project preparation and implementation

Awareness and training alone did not produce investment-ready projects. MSMEs needed support to identify suitable technologies and vendors, prepare bankable proposals and implement projects without disrupting production.

The evaluation reports of the Ministry of Steel’s programme on steel re-rolling mills and its scale-up project highlighted that MSMEs lacked the ability to prepare bankable proposals and the technical expertise to implement technologies, such as furnace automation.

Lesson 3: Financing mechanisms did not align with MSME realities

Most programmes assumed that MSMEs would access formal bank credit to finance energy-efficiency investments. In reality, they relied on informal financing or had limited access to institutional credit.

The programme on steel re-rolling mills illustrates this challenge. Its original interest subvention mechanism saw limited uptake because many MSMEs relied on informal sources of finance. Even after the programme was redesigned to provide a capital subsidy, cumbersome documentation and disbursement procedures continued to delay the implementation.

Similar challenges emerged in the scale-up project: MSMEs struggled to access commercial finance because financial institutions were reluctant to lend due to the project’s small scale, weak credit profiles, and perceived investment risks. 

The UNIDO-GEF-BEE Programme sought to address these constraints through the energy service company (ESCO) and pay-as-you-save-based financing models, yet uptake remained constrained by weak awareness of implementation pathways and high transaction costs.

Therefore, the appropriate response is not always a larger subsidy. Depending on the barrier, projects may require better preparation, aggregation, partial risk-sharing, longer loan tenors or credible assurance of technology performance.

Lesson 4: Sustained adoption requires durable institutions

Earlier programmes created networks of auditors, vendors, consultants, industry associations and local service providers but sustaining them after programme funding ended proved difficult.

The Ministry of Steel’s steel re-rolling project assumed that technology demonstration would be self-sustaining but building that ecosystem proved harder than piloting the technology. Similarly, the terminal evaluation of the UNIDO-GEF-BEE scheme found that its Energy Management Cells lacked a confirmed self-financing model to sustain advisory capacity for industry associations, thereby limiting support for MSMEs.

Lessons from international experience

International experience suggests that scaling industrial energy efficiency requires more than concessional finance. Successful programmes combine financial incentives with technical assistance, project preparation and institutional support to reduce investment risks and make projects bankable.

China's International Finance Corporation (IFC)-supported China Utility-Based Energy Efficiency (CHUEE) programme combined risk-sharing facilities with advisory services for banks, increasing their capacity to finance industrial energy-efficiency projects. Latin America’s Energy Savings Insurance (ESI) model combines commercial lending with independent technical validation, standardised contracts and insurance guarantees, reducing technology and performance risks of energy-efficiency projects

India’s ADEETIE scheme the next test

The Assistance in Deploying Energy Efficient Technologies in Industries and Establishments (ADEETIE) scheme, launched in July 2025, covers 14 energy-intensive sectors, including steel re-rolling mills. The scheme combines interest subvention with investment-grade energy audits, preparation of bankable detailed project reports, technology selection, capacity building and implementation support for MSMEs. While the scheme offers a promising implementation model, its effectiveness is yet to be tested. Its success should be measured by energy use, yield, reliability and product quality. The scheme should track whether proposals reach installation, deliver verified savings, attract repeat lending and sustain local technical services.

India’s experience over the past two decades has shown that energy efficiency can work in steel MSMEs. As the upcoming National Strategy for Sustainable Secondary Steel takes shape, these lessons offer a ready-made checklist for designing a programme that can move beyond pilots and subsidies to sustained adoption, retaining what has worked while addressing persistent gaps in project preparation, financing, implementation support, and institutional capacity.

This article was first published in ET EnergyWorld.