Mexican delivery landscape relevant to SME energy efficiency

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A Transformational Energy Efficiency SME

Advice and Loans Program for Mexico

Carbon Trust participation in the workshop on Financial Instruments to

Promote Sustainability and Climate Change Mitigation-The Experience from

Financial Institutions in Latin America and the Caribbean

Morelia, Michoacán, México, 29 November 2012

Daniel Buira

Senior Manager, Innovation

Daniel.Buira@carbontrust.co.uk

+44 7801 817532

Agenda

Carbon Trust is an independent company that helps partners and clients find the opportunities and face the challenges brought about from combating climate change

– We advise governments, businesses and public sectors

– We measure and certify products and organizations

– We help deploy and develop low carbon technologies

We have stimulated and financed SME EE investment for over 10 years

– Good project economics, but known barriers hold back investment

– Our proven advice programmes have overcome these barriers to catalyse investment

– Our loans programmes have lent over £120m, and our awareness campaigns have transformed the

UK market

This year we collaborated with INECC and the British Embassy on a study to identify the SME

EE opportunity in Mexico and design a programme to exploit it

– Large opportunity with human capital, information, and capital barriers holding back uptake

– Fragmented delivery picture, with sub-scale support for the opportunity

– However coordination, extended advice, national awareness, and additional capital can transform the landscape

Setting up an SME programme in Mexico

– Identifying roles and partners

– Coordinating detailed design and planning rollout

– Launch, expansion, and ongoing delivery

We have developed a number of approaches to overcome these barriers. For example our advice programmes have catalysed UK SME investment

Carbon Trust advice and support activities of £32m in FY2009/10 helped our customers save 5m tonnes of CO cost” of under £7/t

2 as well as create value for their companies, resulting in a “policy

716

432 in £m

(2009/10)

(32)

Catalysing ratio >13:1

Policy cost

Annual policy cost

(252)

Capital investment

Investment required to get the energy savings

Lifetime energy savings

Present value of total energy savings

Total cost savings

Lifetime project cost savings

Carbon Trust has also run two separate loans schemes, demonstrating that Energy Efficiency loans work

0% loans for the UK Treasury, lending over £120m to 3,500 SMEs between 2003 and 2010

– All projects which received funds had a strong business case based on energy savings, with paybacks of 4 years or less. In addition they had to meet a “carbon threshold” of CO

2 emissions reduction per £

– The risk profile of the companies that got a Carbon Trust low was, at a portfolio level, better than that of the general population of companies

£550m commercial loans programme launched in 2011 in partnership with Siemens Financial

Services

– During 2010, Carbon Trust sought out a financial partner to leverage the operational know-how, supplier networks, and strong brand already in place into a new scheme

– Partnership launched after discussions with a number of potential finace partners, including banks

– Carbon Trust provides the business case to ascertain cost, energy and carbon savings

Lessons learned

– Significant marketing effort, as well as advice, was needed to drive uptake

– Using equipment suppliers as main route to market greatly increased uptake and reduced costs

– As a group, SME applicants for energy efficiency financing have a lower credit risk than the average population of SMEs

– The Carbon Trust assessment of project savings gave customers confidence that their monthly energy savings would exceed loan repayments, ensuring positive cash flow impact from the start.

After the repayment period, projects yield significant cash benefits

And we have carried out national awareness raising campaigns to stimulate interest and demand

Theo Paphitis, well-known businessman and member of the “Dragon’s Den” television serial, fronted one of our print marketing campaigns

In Mexico, cost-effective SME energy efficiency measures could save MXN$28 billion (12%) and reduce emissions by 10MtCO

2

(14%) per year

Sector

Commerce / services

Industry

Other inc. agriculture

Total

Total carbon emissions

(ktCO2e)

Total energy costs

(millions MXN)

Potential carbon savings

(ktCO2e)

Potential cost savings

(millions MXN)

10,587

50,447

14,098

75,131

$71,237

$107,588

$46,432

$225,257

Other benefits:

Strengthening competitiveness

Sales of ‘greener’ products

Employee motivation

Indirect job creation though the energy efficiency sector

Mitigation against the impact of future regulation

1,669

6,488

2,618

10,775 (14%)

$8,659

$11,765

$7,857

$28,283 (12%)

Source: GIZ (2012) “Recomendación estratégica sobre tecnologías y subsectors como orientación para sustentar acciones de eficiencia energética en el sector PyME”

BMZ for Ministerio Federal de Cooperacíon Económica y Desarrollo March 2012. Assumptions: average electricity saving of 19% for commerce/services, 11% for industry and 30% for agriculture (average of 17% across all sectors), and thermal energy savings of 10% across all sectors.

Many EE projects pay back quickly, yet despite the compelling project economics, a number of barriers stop many companies from investing

$

Human capital

– Lack of awareness about the commercial benefits of energy efficiency

– Lack of knowledge and expertise to identify and quantify costs and benefits of opportunities e.g. understanding energy consumption and knowing which technologies are appropriate.

– Lack of time and resource to manage implementation e.g. select suppliers, run feasibility studies etc.

Information

– Lack of data about energy consumption for own business or poor visibility of energy costs

– Lack of benchmarking data to understand relative performance

– No sharing of best-practice approaches to energy management

Finance

– High purchase costs for equipment (new or replacement) (in Mexico, partially due to import tariffs)

– High financing costs, (in Mexico, FIDE loans incurring 14% interest rates)

– Limited access to finance due to risk-adverse commercial banks that don’t understand energy efficiency projects (the nature of returns through energy savings)

While a number of effective programmes offering advice and finance already exist, they are fragmented and sub-scale

CCE

Gobierno Federal

SEMARNAT

CESPEDES

CONCANACO

SERVYTUR

CONCAMIN

PEMEX

CFE

FIDE

CRE

SENER

CONUEE

INECC

SHCP

SE

COMPITE

BANCOMEXT NAFIN

Mexico GHG

Program

GHG emissions reporting & sectorial analysis

CFEctiva Empresarial

Funds for power factor correction (<90%) & voltage optimisation (low to medium voltage)

Energy efficiency education for equipment operators, obsolete equipment replacement, & specialist advice for process improvement

Eficiencia Energética

Advice and technical assistance – with or without funding - to modernise facilities and apply new technologies in productive sectors

Programa de Ahorro y

Eficiencia Energética

Empresarial (PAEEEM)

Financing to replace obsolete equipment (with

Sello FIDE equipment)

Funding for refrigeration,

AC and LEDs ($MN200k);

10% scrappage bonus for other efficient equipment such as motors

Mi Tortilla

$MN150k for tortilla manufacturers

Training & advice to improve efficiency financial advisor (via

SE) to help access funds

Programa Nacional

Educación para el Uso

Racional y Ahorro de la

Energía Eléctrica

(EDUCAREE)

Dissemination activity

Awareness workshops

Training developers

Implementation support

(elements for an energy assessment)

• paral el

Aprovechamiento

Sustentables de la

Energia (PRONASE)

Electrical substitution

(Motor replacement)

Normas Oficiales

Mexicanas (NOM) /

Normas Mexicanas

(NMX)

Fondo PyMES

Targets SMEs to improve competitiveness through business management and access to finance:

National Guarantee System

Financial advisors network business centres (189)

Technological Innovation

Fund (SE-CONACYT)

Projects for innovative products, processes, services or materials

Training & business consulting

SME Library

8

To be transformational, a co-ordinated Program is proposed to raise awareness, deliver advice and provide finance in a cost-effective manner

COORDINATION & PROMOTION

Strategic coordination

Program marketing

Program management & Quality Assurance (QA)

ADVICE

Website & publications

Advice centre (calls/emails)

Training & events

FINANCE

Loans

Investment support

On-site energy audits

$2/tonne

10 employees

Cost effectiveness of delivering service

SME size and therefore saving potential

$20/tonne

250 employees

9

The Programme will reach at least 150,000 SMEs over 5 years, delivering more direct support to

10,000 larger SMEs, lending $100m and reducing emissions by 1MtCO2 at programme cost of $6.1/t

5-year reach

All

SMEs

Annual activities

Access to website and

20-30 new publications each year

Service Carbon saving lifetime

(tCO2)

Energy saving lifetime

(MWh)

Cost saving

- lifetime

(US$m)

Cost

US$/tCO2 lifetime

150,00

0

30,000 calls and emails handled each year

Website & publications

303,902 876,658 114 2.2

4,000

100 events each year, with 40 SMEs at each

Advice

Centre

Training & events

203,540

143,822

587,144

414,879

76

54

2.2

2.2

10,000

2,000 audits for larger

SMEs each year

Site audits 266,950 732,499 95 10.4

Loans 99,262 159,530 21 20.4

6,265

660 loans in year 1, up to 1,900 by year 5

Total

1,017 ktCO2 2,771 GWh 360 6.1

10

The total cost of the SME Programme, including loans capital is ~US$134M over 5 years

Service element

Co-ordination

Advice

Finance

Total

Set-up cost

Local

($m)

Consultancy

($m)

Operational cost (5-years)

Local

($m)

Consultancy

($m)

Total cost

($m)

0.57

0.30

0.23

1.10

1.03

0.17

0.07

1.27

5.41

7.08

7.17

19.67

3.63

7.89

-

11.52

10.65

15.44

7.48

33.57

Capital for loans 100.00

Agenda

Carbon Trust is an independent company that helps partners and clients find the opportunities and face the challenges brought about from combating climate change

– We advise governments, businesses and public sectors

– We measure and certify products and organizations

– We help deploy and develop low carbon technologies

We have stimulated and financed SME EE investment for over 10 years

– Good project economics, but known barriers hold back investment

– Our proven advice programmes have overcome these barriers to catalyse investment

– Our loans programmes have lent over £120m, and our awareness campaigns have transformed the

UK market

This year we collaborated with INECC and the British Embassy on a study to identify the SME

EE opportunity in Mexico and design a programme to exploit it

– Large opportunity with human capital, information, and capital barriers holding back uptake

– Fragmented delivery picture, with sub-scale support for the opportunity

– However coordination, extended advice, national awareness, and additional capital can transform the landscape

Setting up an SME programme in Mexico

– Identifying roles and partners

– Coordinating detailed design and planning rollout

– Launch, expansion, and ongoing delivery

A Transformational Energy Efficiency SME

Program for Mexico

Carbon Trust presentation for the Financial Instruments to Promote

Sustainability and Climate Change Mitigation-The Experience from Financial

Institutions in Latin America and the Caribbean workshop

Morelia, Michoacán, México, 29 November 2012

Daniel Buira

Senior Manager, Innovation

Daniel.Buira@carbontrust.co.uk

+44 7801 817532

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