Global Environment Facility (GEF)
Proposal for Funding – PDF Block B
COVER PAGE INFORMATION
1. Countries:
Core: Costa Rica, El Salvador, Panama, Nicaragua
Associated: Guatemala, Belize, Honduras
2. Focal Area:
Climate Change
3. Operational Program:
OP # 5: “Removal of Barriers to Energy Efficiency and Energy Conservation”.
Strategic Priority: CC-1: “Transformation of Markets for High Volume Products and
Processes
4. Project Title:
“Regional Program on Electrical Energy Efficiency in Industrial and Commercial Service
Sectors in 7 Countries in Central America”
5. Total Cost:
US$475,000
6. PDF B Request:
US$350,000
7. In-kind contributions:
Cash: US$75,000 (BUN-CA), $15,000 (E+Co and other financiers), in-kind: US$35,000 (local
stakeholders: chambers of industry, chambers of commerce, and others) (Total In-kind:
US$125,000)
8. Requesting Agency:
BUN-CA Central America, a regional NGO, tel. (506)-283-8835, www.bun-ca.org,
contact person: Jose Maria Blanco, Regional Director (jblanco@bun-ca.org)
9. Executing Agency:
UNDP
10. Duration:
15 months
PROJECT STRUCTURE
11. Project Objective:
The global objective of the proposed GEF project is to identify and remove the main barriers
that inhibit the implementation of energy efficiency measures in the industrial and commercial
service sectors in Central America, in order to reduce greenhouse gas emissions (GHG) in the
electricity sector.
Regionally, this Project will assist the industrial and commercial service sectors in becoming
more competitive in the global economy, by reducing operating costs of production in the short
run and decelerating the regional demand for increased electrical capacity in the long run.
Already, a few activities on energy efficiency (EE) are underway at the country level, or have
been executed in the past, without significant impact to date. A key role of this UNDP/GEF Full
Size Project (FSP) would be to create a platform for a diversity of stakeholders and tap
synergies that do not exist region-wide.
This Initiative will facilitate supply and demand of energy-efficient products and services, with
priority on air conditioning, refrigeration, lighting, and motors; where there is a potential for major
energy efficiency improvements and which represents a significant portion of energy
consumption in the concerned sectors.
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In Central America, there is a need to accelerate the shift from the existing paradigm of
inefficient energy use towards market-based approaches for energy efficiency while integrating
the goal of global sustainability. Without this Project, a few efforts, mainly in terms of policy
making for energy efficiency and isolated energy auditing actions, would continue without major
impact. The proposed Initiative will assist regional countries in meeting the obligations of the
United Nations Framework Convention on Climate Change, while promoting a market
transformation for the efficient use of electricity in the target sectors. This PDF-B is necessary to
identify cross-cutting activities at the multi-country level and niches for innovation at a national
level within the core countries, in accordance with the GEF strategic priorities for OP #5.
Expected Outcomes:
1. Successful implementation of the first regional Program in Central America to remove the
barriers that inhibit market transformation for energy efficiency products in the industrial and
commercial service sectors and to promote participatory actions that effectively implement
energy efficiency measures in the region.
2. Establishment of commercially viable markets for energy efficiency and energy conservation
with the potential for further replication and dissemination of the approach in other regions in
Latin American and the Caribbean (LAC) with a clear focus on electric motors, refrigeration
and lighting. This includes access to investment capital for energy efficiency, development
of minimum standards, market availability, and appropriate pricing conditions in the
concerned markets.
3. Significant improvements in industrial and commercial end-use energy efficiency and
reductions of GHG emissions, with a high potential for replication in the public and domestic
sectors as a long-term outcome.
4. Development of a least 2 pilot projects per core country (one for each sector and covering
electric motors, refrigeration and lighting) and promotion of similar projects in associated
countries to accelerate the momentum of the regional energy efficiency market.
5. Human and institutional capacity in place to implement a sustained energy efficiency market
outreach over the long term, including raised awareness of the benefits and possibilities of
cost-effectively implementing energy efficiency measures and approaches.
12.
Global Significance
In 2000, Central America's per capita carbon emissions were 0.3 metric tons, slightly less than the
region's per capita carbon emissions in 1999, and well below the world average. The total carbon
emissions in Central America were 10.1 million metric tons in 20001. By improving energy
efficiency in the industrial and commercial sectors, which are the highest consumers of fossil-fuel
power generation, total GHG emissions may be reduced significantly in the long run, providing
global benefits.
The Central American population currently relies heavily on imported petroleum and indigenous
hydropower generation to meet energy demand. From the supply side, the demand for electric
power in all seven Central American countries has grown at an average rate of 8% per year in
the last decade. An increased electricity supply supports the industrialization and modernization
of the region, but it also places great demands on the natural and capital resources needed for
new power capacity. Most of this additional capacity relies on on-grid thermal plants, demanding
financial investments in the order of $300 million per year region-wide, as well as accounting for
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around 25% of total GHG emissions resulting from the combustion of fossil fuels for electricity
generation.
The installed capacity in the region is increasingly based on fossil fuels, which accounted for
70% of regional energy consumption in 20002. Thermal production has increased from 485
GWh in 1994 to 1,997 GWh in 2001. In the last 5 years, about 1,300 MW were added to the
total capacity in the seven countries, of which 800 MW are based on bunker and diesel
operated plants. The additional forecasted capacity expansion for the present decade will be
largely based on commissioning fossil-fuel power plants given their short construction period.
Even though they are dependent on imported fuel, these plants are viewed by many as an
attractive alternative to adding large-scale renewable power plants, which are becoming more
costly due to the fact that the most accessible resources have already been tapped. There is
also a growing environmental concern for better management of the hydrological basins and an
ever-increasing concern about the variation in the hydrological cycles, which can impact the
reliability of hydropower generation.
BUN-CA has estimated that annual energy expenditures in Central America amount to $6.2
billion dollars, including all sectors, of which approximately $3.1 billion is accounted for by the
industrial and commercial service sectors. Improvements in energy efficiency in electricity use
provide effective alternatives to adding new capacity, bring about a global benefit by reducing
GHG emissions, and reduce losses due to transmission and distribution inefficiencies. In the
current institutional context, a major challenge is recognizing that energy efficiency from the
demand side can be seen as a resource for the electric power system, considering that
investments required to reduce consumption are generally lower than the costs of installing
additional capacity. For instance, BUN-CA has made a calculation that in Nicaragua, for every
1,000 kilowatt-hours saved, 0.65 tons of CO2, 4.76 kg of SO2, and 2.51 kg of NOx will be
reduced. In addition, for every dollar invested in energy conservation measures, savings of
$1.50 to $2.00 can be obtained within a four-year period.
13.
Background
Up to mid the 1990s, with support from multi-lateral and bi-lateral development agencies, power
sector development strategies have traditionally supported large-scale investments in new
power generation, transmission and distribution systems. This was later accompanied by
mainstream policies for energy pricing and tariffs to set prices that reflect economic costs,
system-based energy efficiency measures focused on rehabilitation of old plants, reduction of
technical and non-technical losses, and strengthening local energy institutions.
This supply-side approach has been increasingly constrained in the present decade by the lack
of public and international assistance investments, an increasing social and environmental
awareness of the impacts of large-scale power projects, and the lack of end-use energy
efficiency policies and implementation. These constraints, together with sharply accelerating
energy demand and corresponding growth in capacity requirements, have now heightened
interest in renewable energy options and energy efficiency market opportunities, while
improving economic development under a more stable socio-political environment throughout
the region.
In 1995, a re-structuring of the public sector began in Central America. While in five countries
the privatization process has reached the power industry, in Honduras it is still pending and in
Costa Rica the process has never become a reality. This privatization process in Central
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America has progressed quite rapidly in the last five years. Electric sector legal reforms were
enacted within a few years, as follows: 1996: Panama; 1997/1998: San Salvador; 1998:
Guatemala; 2001: Nicaragua, and partially achieved in Belize (51% of the Belize Electric
Company was sold to the private sector in 1993). In Nicaragua and El Salvador, the
privatization process and new power market regulations have resulted in subsidies being
gradually reduced to zero, and caused electricity prices to suffer considerable increases. The
elimination of subsidies has had a negative impact on the cost of producing goods and services,
raising prices which are passed on to the consumers and making them less competitive for
exports to international markets.
Electricity end-use in the industrial and commercial sectors in the region is inefficient, among
other reasons, due to the lack of institutional support, perceived investment risk, the use of
outdated and inefficient electric equipment, and poorly maintained electric installations.
Historically, end-use energy efficiency has been neglected because public utilities were focused
exclusively on supply-side management, which has caused energy cost to be a low priority for
consumers. In addition, operation and maintenance costs are not always considered in
outdated equipment purchases. However, there are good indications of a market potential for
energy efficiency, as is shown below from the following activities:
At the core country level:
The El Salvadorian Industrial Association (ASI) has sought the assistance of the local UNDP
Country Office to develop a demand-side management program for their associates since
electricity prices have become a significant cost of production, mostly due to the deregulation of
power markets and adjustment of electricity rates to market prices, a common trend throughout
the region. ASI has expressed interest in co-funding about US$1 million to carry out a load
management program in the industrial sector, particularly for electrical motors, compressors,
water heating, lighting, and refrigeration. According to ASI records, it is estimated that the cost
of energy has increased 30% from December, 2002 to January, 2003.
Nicaragua has developed some lessons on energy efficiency in the industrial and commercial
service sectors that would be very useful for this regional FSP. This country has the highest
energy intensity in Central America given its highest share of thermal power generation (only
10% is hydro), so an EE program is more cost-effective for each dollar of the GDP in Nicaragua
than in any other country. A practical experience identified in the Nicaraguan context, from the
financial point of view, is the presence of a local company developing an ESCO operation. The
major hurdle has been the lack of seed capital to scale-up contract performing based on energy
savings. During the FSP, activities will be conducted closely with this on-going ESCO operation,
given their desire to expand operations to other Central American countries.
In Costa Rica, a national study on energy efficiency in the power sector was conducted in 1991
by Hagler & Bailly3, which highlighted pitfalls in using isolated tools and instruments for energy
efficiency where financial facilities have neither been implemented nor developed due to lack of
knowledge, information dissemination, and capacity building. In 1996, Costa Rica passed the
Law #7447 regulating the Rational Use of Energy (URE). This Law had aimed at increasing
energy efficiency and promoting energy efficiency standards and labels. It also authorized public
enterprises and institutions to execute the URE program, but in 2001 was regretfully abolished
as part of a large package of national fiscal reforms. However, there is a high political interest at
the Ministry of Energy to re-submit a new law proposal including a mandatory labeling program
for nine products (refrigerators, freezers, room AC, electric motors, ballasts, water tank heaters,
3
Costa Rica : Power Sector Efficiency Assessment. Hagler &, Bailly, February 1991.
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electric stoves, fluorescent and compact fluorescent lights).
Panama has past experiences with specialized energy efficiency programs, such as the case of
the IDB-MIF-ECLAC sponsored “Central American Fossil Fuels Market Harmonization and
Integration Project”. Panama is also currently undertaking the second stage of a three-stage
Energy Use and Efficiency Study, under the management of the Commission for Energy Policy
(COPE) and with financial support from UNDP. The first stage, executed by consultants from
Mexico's Energy Saving Trust (FIDE), consisted of an end-use survey of the residential,
industrial, and commercial sectors in rural and urban areas. One of the main policy implications
of this survey was that a Mexico-type state-utility centered Trust is not equally suitable for
Panama's privatized energy sector. Therefore, building the case for win-win energy savings
presents greater challenges in Panama, where private distributors and brokers are not equally
positioned to gain from energy savings as a state-owned generation and distribution company
might be. The FIDE study has proposed a strategic plan for the implementation of an energy
efficiency program in the State and Private Sectors (PROEEPA), based on the following
information:
a. There are important potential savings in electric energy, both technically feasible and
economically profitable.
b. A positive trend of the country's economy is recognized, which translates into an
incremental growth in the demand of electric energy and in major investment
requirements to satisfy the growing demand.
c. By the year 2015, the generation of electric energy from fossil fuels will grow
significantly, so that the installed capacity will increase from 515 MW to 1,105 MW, and
this additional increase of 114% will have a major impact on GHG emissions.
d. There is a market for high efficiency equipment, but it requires a strong thrust to create a
greater demand and supply, until a sustainable market is established.
e. COPE has the mandate to carry out programs in energy savings and in the rational use
of electricity.
Becoming better acquainted with other GEF projects that are currently under design and/or
implementation, such as in case of the UNDP/GEF Medium Size Project EE in Honduras, will
prevent the duplication of actions at the in-country level and facilitate the sharing of technology,
information, and experiences.
At the regional level:
Identifying and establishing links with other regional initiatives that are being developed in
Central America is an essential task during the execution of the PDF-B in order to achieve
successful implementation of the FSP. A collaborative approach can be pursued with other
initiatives such as the E+Co initiative on energy efficiency and the COSUDE energy efficiency
program for Central America.
At a regional level, the Central American Commission for Environment and Development
(CCAD) has established a “Central America Network for Clean Production”. This network,
focused on developing sound-environmental practices in the industrial sector, is integrating
energy efficiency awareness through workshops and public-private dialogue. Links will also be
established with the regional Project known as "Environmental Management in the Small and
Medium Industry of Central America" (GESTA), executed also through the CCAD and with the
support of the German Technical Cooperation (GTZ), in its energy efficiency component.
14.
Project description: including implementation arrangements
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Several barriers have hindered the development of EE in Central America. The FSP will
examine and determine the magnitude of the financial, technical, and political-cultural barriers,
implementing the appropriate mechanisms to remove them. The activities to be carried out will
aim towards achieving the largest regional impacts on the ground-level while positively
enhancing country performance.
Regarding financial barriers for energy efficiency investments, potential investments to improve
energy efficiency in the concerned sectors are directly benefiting from the power sector
restructuring and corresponding price increase, because in the new market arrangement,
electricity prices tend to reflect their true economic costs in the absence of subsidies. Hence,
GEF support will not be required for direct investment in energy efficiency. Energy efficiency
initiatives are new and still unknown to most local financial institutions; therefore, a review of
different financial avenues for energy-saving investments suitable to the regional market, will be
carried out as part of this FSP, in conjunction with a capacity strengthening programme targeted
at financial institutions. This effort will build upon the network of banks that was established by
BUN-CA through its previously implemented regional programs FOCER and FENERCA,
including also bi-lateral cooperation agencies and multi-lateral development banks interested in
promoting energy efficiency, such as E+Co (FENERCA Initiative), COSUDE (SECO), USAID
(Global Environment Group), CIDA (PREICA Project), the World Bank (IFC), the Inter-American
Development Bank (MIF), and the Central American Bank for Economic Integration (Private
Sector Division).
To overcome the technical barriers, the FSP will begin with identifying the main barriers that
hinder the supply and demand of energy-efficient products and services in the commercial
service and industrial sectors, focusing on air conditioning, lighting, and motors, where high
relative weight in GHG reduction is significant. The FSP will also include the identification and
implementation of eight demonstration projects that exhibit a major energy efficiency potential
and a high probability for replication throughout the region.
A detailed market assessment, including a review of the outcomes of past experiences and of
project viability and success, along with additional surveys carried out with the key stakeholders,
will examine the main political barriers that inhibit in-country policy transformation for
implementation of energy efficiency and energy conservation measures. Experiences derived
from the demonstration projects in each target sector will be needed to evaluate investmentbased demonstration projects and will provide methods and techniques for replication to
overcome the existing cultural barriers. Measures to address these barriers are expected to be
in the areas of:
 Implementation of technical training programs of regional scope to support energy
efficiency and energy conservation,
 strengthening policy guidance at the in-country level to incorporate energy efficiency
considerations when formulating national strategies in the power sector, and
 disseminating information for the local and regional stakeholders in the commercial and
industrial sectors on the proposed energy efficiency products.
Project Implementation Arrangements
BUN-CA is proposed as the Executing Agency for the implementation of the FSP in accordance
with UNDP project executing procedures. BUN-CA is a regional non-governmental organization
promoting and facilitating the sustainable use of natural resources to improve the quality of life
in Central America. Between 2000 and 2002, BUN-CA implemented a regional MSP related to
the development of small-scale renewable energy projects, funded by UNDP/GEF in OP#6. As
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a result, BUN-CA has established contacts with many stakeholders in the energy industry.
A Program Management Unit (PMU) in BUN-CA, financially assisted by UNDP/GEF, will be
responsible to manage and implement the execution of the FSP, starting from the PDF-B
activities. A Steering Committee, with one representative from each core country will be
appointed by the corresponding UNDP country office to ensure that activities are prioritized to
meet the region's most pressing energy efficiency needs in the target sectors. This Committee
will also support to mainstream and complement UNDP operations, as well as implement
project activities in a timely manner.
FSP activities in each country will be supported by a local representative of BUN-CA,
supervised by the Steering Committee, and strongly linked with the UNDP Country Offices in all
the core countries. The UNDP- Costa Rica Country Office is proposed to be the official channel
of communication with the GEF through the Climate Change UNDP/GEF Coordination Office for
LAC. The standard UNDP administrative procedures will be used in implementing the activities
and the budget allocated for it.
Due to the nature of this Project of regional scope, a close coordination and collaboration with
other GEF agencies is foreseen, such as with the World Bank, the Inter-American Development
Bank, UNEP, and ONUDI (Cleaner Production Centers). The following provides an indicative
list of major stakeholders associated with the design and implementation of the FSP at the
country level:
Core countries:
El Salvador: UNDP Country Office; private power distribution utilities, El Salvador Industry
Association (ASI) and its key associates made up by large industrial power consumers; the
General Energy Directorate at the Ministry of Economic Affairs, Ministry of Environment and
Natural Resources (MARN), General Supervision of Electricity and Telecommunications
(SIGET); the National Center for Cleaner Production; the University of Central America in San
Salvador (UCA); as well as local commercial banks such as: Banco Cuscatlán, Banco de
Fomento Agropecuario (BFA), and the Multilateral Investment Bank (BMI).
Nicaragua: UNDP Country Office; Union Fenosa private power distribution utility, the Chamber
of Industries and Private Sector; National Planning Energy Commission (CNE), Climate Change
Office, Ministry of Environment and Natural Resources (MARENA), Electric Energy Company
(ENEL); University of Central America in Managua (UCA); as well as local commercial banks
such as: BANCENTRO; Banco de la Producción (BANPRO); the Lafisse Group, and Banco de
America Central (BAC).
Costa Rica: UNDP Country Office; the Chamber of Industries and Chamber of Commerce
(large power consumers); Energy Sector Directorate at the Ministry of Environment and Energy
(MINAE); National Energy Conservation Commission (CONACE), the main public distribution
company (CNFL -"Compañía Nacional de Fuerza y Luz"), the national public utility Costa Rican
Institute for Electricity (ICE), and the National Center for Cleaner Production.
Panama: UNDP Country Office; Union Fenosa and AES private power distribution utilities, the
Chamber of Industries and its key associates; Energy Policy Commission (COPE); Panama
Environmental Services Foundation (FUPASA); National Environment Authority (ANAM); Energy
Transmission Company (ETESA); the Technological University of Panama (UTP), as well as local
commercial banks such as: Banco Continental and the National Bank of Panama.
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Associated countries:
Guatemala: UNDP Country Office; Iberdrola and Union Fenosa private power distribution
utilities, the Chamber of Industries; Climate Change Office, General Energy Directorate at the
Ministry of Energy and Mines (MEM); the Center for Cleaner Production; as well as local
commercial banks such as: Banco Reformador; and Corporación de Occidente.
Honduras: UNDP Country Office; Honduran Business Council for Sustainable Development
(CEHDES), National Industry Association (ANDI), General Energy Directorate at the Ministry of
Energy and Environment (SERNA), Climate Change Office; ENEE public utility, the National
Center for Cleaner Production (the PESIC Project), as well as local commercial banks such as:
Banco BGA and Banco Atlantida. In this associated country, a close link will be established with
an approved UNDP/GEF MSP also in OP #5 “Energy efficiency measures in the Honduran
commercial and industrial sector”.
Belize: UNDP Representation; Belize Electric Limited, the Chamber of Industry of Belize
Electricity Supply Office, Ministry of Economic Development, and the Ministry of Public Service,
Energy, Communications and Immigration.
During the development of the FSP, BUN-CA will also strengthen contacts and coordinate
efforts with energy regulatory agencies and private consulting and servicing companies in all the
above core and associated countries.
15.
Description of proposed PDF-B activities:
The execution of the PDF-B includes five main activities to identify and design the mechanisms
aimed at reducing GHG emissions in the commercial service and industrial sectors in Central
America for the implementation of a UNDP/GEF/FSP.
Activity 1: Detailed Market Sector Assessment for Energy Efficient Motors, Cooling
Devices and Lighting Equipment
This activity includes, in a consultative manner, a market assessment to estimate the current state
(baseline conditions) and the potential market for energy efficient motors, cooling devices and
lighting equipment for the industrial and commercial service sectors in the four core countries.
This activity will also include discussions with the main stakeholders at the local and regional
levels on issues such as: technology costs, energy prices, existence of promotional policies,
subsidies, and tax schemes for technology innovation. Activity 1 will consider the specific context
of each core country and it will include the identification of any other local and regional on-going
initiatives in the same direction to reach the maximum potential of energy efficiency opportunities
to reduce GHGs.
This assessment will be supported by the following actions:
1.1 Arranging technical meetings in each country with multi-stakeholder participation. This
action will allow the market characterization of large electricity consumers in the
industrial and commercial sectors in accordance with the national energy balance,
determine their potential for achieving significant GHG reductions, and gather
information on the existing policy and legal framework related to EE.
1.2 Identifying and analyzing the EE barriers in each core country, as well as the analysis of
common barriers at the regional level.
1.3 Designing alternative mechanisms for barrier removal to be implemented during the
execution of the FSP.
1.4 Validating the identified barriers and the proposed mechanisms for their removal with
local and regional stakeholders by organizing one technical workshop in each core
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country and one in each associated country.
1.5 Identifying projects and programs in different stages of implementation in Central
America, including the identification of local and regional sources of funding potentially
interested in co-financing EE investments.
Activity 2: Project Financing
Since access to investment capital for energy efficiency is a major barrier, the PDF-B will seek
meaningful avenues to increase the participation of commercial banks and regional
development banks, including the design of financing mechanisms to channel financial
resources to a successful capitalization of this new market niche. This activity focuses on:
2.1 Examining and designing as appropriate, existing instruments to be applied in the context
of energy efficiency projects to meet the regional context. Such possible instruments are:
a) rebate programmes, b) reduction of import subsidies, c) accelerated depreciation of
equipment, d) Energy Service Companies, d) leasing agreements, e) vendor
financing/leasing, and f) guarantee schemes, among others. The mix for in-country
application will be the result of the participative design process in parallel with the
execution of Activity 1.5.
2.2 Building communication channels and collaborative long-term partnerships with financing
window operators that may offer financial resources for investments in energy efficiency
measures.
Activity 3: Demonstration Projects
During the execution of the PDF-B, this activity will focus on the identification and pre-selection
of demonstration projects in the core countries that will be developed during the implementation
of the FSP. This activity will consist of the following stages:
3.1 Defining the criteria for the selection of projects or programs in the industrial and
commercial service sectors in the core countries.
3.2 Identifying and pre-selecting a portfolio of projects in energy efficiency that can be
implemented in each core country. This stage also includes establishing a public
consultation with the main stakeholders in each country of the region to identify energy
efficiency projects with a proper balance in technology (motors, lighting, and air
conditioning).
3.3 Selecting 8 demonstration projects following energy performance contracting principles
or shared-savings design, to be implemented during the execution of the FSP (cost
estimates ranging from US$50,000 to US$100,000 per project could be implemented
over the three-year period of the FSP).
3.4 Identifying non-GEF financial sources to support these investments, with a view to
facilitate replication at the country and regional levels, in accordance with outputs from
Activity 2.
3.5 Calculating the fossil fuel savings of the selected projects, as well as a projection of the
potential reductions of GHG emissions over a 10-year period due to a market
transformation on energy efficiency in Central America.
Activity 4: Capacity Building
This activity includes the design of specific programs for capacity building to be executed during
the implementation of the FSP. This activity will integrate national multi-stakeholders, as well as
regional stakeholders in order to link downstream demonstration projects with upstream policy
advocacy and capacity building in order to support the long-term impact on sustainability and
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replicability.
During the execution of the PDF-B, this activity will focus on:
4.1 Organizing and developing a national workshop in each core country as a platform for
information exchange with multi-stakeholder participation, in order to discuss and
validate the main barriers identified at the national level in Activity 1. In line with UNDP
Country Offices and in-country energy authorities, these national workshops will bring a
participatory involvement of public and private stakeholders to strengthen country
ownership of the Project.
4.2 Organizing and developing two regional workshops: one, after the completion of Activity 1
to share and validate the main regional barriers identified. The second one will be held
near the end of the PDF-B to adjust and also validate the outcomes of the preparatory
assistance during the preparation of the Project Brief in a consultative manner.
4.3 Designing a comprehensive, educational, and formal training program with a group of
regional universities targeting key professional staff from energy efficiency companies
and services, factory-plant engineers, senior management staff of industries and
commerce facilities, equipment distributors, loan appraisal/bank staff and (local)
government officers.
4.4 Designing a capacity building program to strengthen the horizontal regional knowledge
as well as information exchange on technical skills and best energy efficiency practices,
aimed at medium level technicians. This other program will rely on sharing project
experiences, lessons being learned and it will be also executed throughout the
implementation of the FSP. BUN-CA has already experience on this activity through the
FOCER and FENERCA Programs, since over 40 workshops were held in the region and
led to a total of over 10,000 person-hours of training received by key stakeholders from
all seven countries during three years (2000-2002).
Activity 5: Project Brief
This activity will consist of the preparation of a Project Brief Document including all the required
GEF criteria under Operational Program # 5, notably the incremental cost analysis, the log
frame matrix, CO2 calculations, detail budget, design an approach for information dissemination
of main results and replicability to other regions, and a set of UNDP/GEF indicators for projectlevel monitoring and evaluation, including GHG emission monitoring changes. Special attention
will be given during the FSP design to guarantee long-term sustainability (including financial
sustainability) of this GEF intervention after its completion.
The aspect of co-financing is critical for a successful completion of the PDF-B, and it has to be
detailed and secured to the fullest extent possible well before the end of the activities. During
the preparation of the EE Concept, BUN-CA has already built collaborative relationships with
existing financing window operators that may offer financial resources for investments in energy
efficiency and co-financing the execution of the FSP. International cooperation agencies
present in Central America, such as E+Co, UNDP, Central America Regional Project of
Electrical Energy (PREEICA) from Canada, New Energy and Industrial Technology
Development Organization (NEDO) from Japan, Oiko-Credit from the Netherlands, the Swiss
Development and Cooperation Agency (COSUDE) in Nicaragua, among others, have been
initially contacted to guarantee co-financing for the execution of the Full Size Project. In
addition, to involve them in the execution of the FSP, the local governments in the core
countries, the local chambers of industry and commerce, and several private consulting and
servicing companies, have already shown interest in becoming active players in the design of
this FSP.
16.
PDF Block B Outputs:
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The execution of a PDF-B foresees the following outputs:
1. The UNDP/GEF Project Brief Document with the design of a Full-Size Project for the
removal of barriers to the efficient use of energy in Central America, over a 3-year
period. This document will be structured in accordance with the requirements and criteria
provided by GEF in the Operational Program # 5, the GEF Business Plan FY04-06, and
the UNDP-GEF Business Plan FY04-06.
2. Identification and analysis of the financial, technical and political-cultural barriers that
impede energy efficiency, including the design of the mechanisms for their removal.
3. Assessment of the market in the four core countries for energy efficient motors, cooling
devices and lighting equipment, i.e.: El Salvador, Nicaragua, Costa Rica, and Panama.
4. Selection of at least 8 demonstrative projects identified for the core countries to be
implemented during the FSP, providing enterprise development services, which includes
securing non-GEF funding resources as well as designing of the appropriate financial
mechanisms to implement them during the FSP.
5. Design of a Regional Capacity Building Program at two levels: i. in each of the four core
countries for technicians, and ii. at the regional level for professional staff.
6. Execution of two regional workshops to strengthen institutional arrangements for the
removal of barriers during the FSP, and four national workshops to coordinate and
validate institutional mechanisms in order to promote market transformation n the
efficient use of energy in the industrial and commercial sectors.
17.
Eligibility:
As per the description of the proposed PDF-B activities, the proposed Full Size Project is
consistent with the criteria of GEF OP#5 Strategic Priorities Market Transformation to facilitate
supply and demand energy efficient products and promote know-how transfer, and Access to
Finance for energy efficiency investments.
Each country is eligible to receive financing from the GEF through the fixed mechanisms of the
United Nations Convention on Climate Change (UNCCC). The exact dates of ratification are
listed below:
Belize: October 31, 1994
Guatemala: June 13, 1992
El Salvador: December 4, 1995
Honduras: July 29, 1995
Nicaragua: October 31, 1995
Costa Rica: June 13, 1994
Panama: May 23, 1995
18.
National Level Support:
All Central American countries have prepared the first national communications, presenting
GHG inventories and actions to mitigate GHG emissions. On the other hand, in the context of
cleaner production, countries are looking for innovative mechanisms to modernize the local
industry sector (pulp and papers, food, cement, agro-industries, etc.), and reduce increasing
electricity bills in the commercial sector (malls, hotels, bank and office buildings, etc.), in order
to strengthen their economic position to become more competitive at a global level while
promoting the sustainable management of shared eco-systems. In all seven countries, large
end-users, local associations and chambers of industry and commerce, with government
support, have been sought to identify and implement sustainable solutions to modernize the
existing production processes in compliance with increasingly strong environmental regulations.
The following provides a brief description of linkages to national priorities for each one of the
Central American countries associated with the execution of the Full Size Project.
11
El Salvador
El Salvador has attempted in the past to undertake strategic actions in support of energy
conservation. A National Electric Energy Conservation and Savings Program (PROCAESS)
was conceived with the financial support of the Inter-American Development Bank and with
technical inputs from Mexico's Energy Savings Trust (FIDE). However, given the complexity of
the newly privatized energy sector, and in contrast to the national utility approach proposed by
the Mexican model, this course of action has encountered significant drawbacks in its
implementation. The commercial and industry sectors continue to consider energy efficiency a
priority and are now promoting a complementary effort, through the Salvadoran Industries
Association (ASI), to help remove the barriers that have deadlocked the execution of energy
conservation measures. The First National Communication on Climate Change reflects this
positive outlook on energy conservation, when it advocates "the identification of options for
rational energy use, that without sacrificing the key objectives of growth and equity at the
national level, result in a positive contribution to the productive sectors".
In the industrial sector, El Salvador is actually finishing a training program on the Rational Use
of Electric Energy (UREE), with the participation of the National Directorate of Electricity
(DGEE), the Salvadorian Industrial Association (ASI), the National Association of Private
Companies (ANEP), the Chamber of Commerce and Industry, the Technical Institute of Central
America (ITCA) with the financial support of PREEICA. This Program aims at strengthening the
technical capacity of companies, with a goal to educate between 1,000 to 1,500 employees.
This effort can also be sustained at the regional level by the FSP, and it would serve as a basis
for the design of the training program for technicians outlined in Activity 4.4 above.
The El Salvadorian context provides inputs on a common regional issue that will be addressed
during the execution of the regional EE initiative, which is how energy efficiency markets fit in
with liberalization and privatization of the power sectors.
A letter of support from the El Salvadorian GEF Operational Focal Point, Ministry of
Environment and Natural Resources (MARN) was received on January 23, 2003.
Nicaragua
Energy efficiency investments have also been marked as a priority in Nicaragua, where the
National Energy Commission (CNE) has estimated that the energy consumption of the industrial
and commercial sectors represents 23% of the country's total energy use. The CNE is creating
a policy for energy efficiency in Nicaragua, where a synergy with this UNDP/GEF Project would
be appropriate in order to develop an energy efficiency market in this country.
A letter of support from the Nicaraguan GEF Operational Focal Point, " Ministry of Environment
and Natural Resources (MARENA), was received on October 30, 2002.
Costa Rica
As mentioned above, Costa Rica passed the Rational Energy Use Law in 1994 with the aim of
implementing mandatory labeling of equipment, tax and import duties, and incentives for energy
efficient equipment and materials, as well as the creation of a Trust Fund for energy audits and
energy efficiency measures. Unfortunately, it never became effective; among other reasons, it
did not enforce energy savings requirements for industry, and the financing terms of the Trust
Fund were generally not attractive to most industry players. A new Law proposal has been
drafted to contemplate savings incentives, monitoring and penalties for high consumers.
Therefore, carrying out an analysis of industrial and commercial sector barriers would represent
12
a favorable and timely input to the country's efforts. Government officials have also requested
technical assistance to BUN-CA for the promotion of EE capacity building programs, including
educational and promotional campaigns.
A letter of support from the Costa Rican GEF Operational Focal Point, "FundeCooperación para
el Desarrollo Sostenible", was received on November 1, 2002.
Panama
In accordance with the same study by FIDE mentioned above in the commercial service sector,
the equipment that contributes to the potential estimated electric energy savings includes air
conditioning, lighting, electric motors, refrigeration, and office and computer equipment. In the
case of the industrial sector, the equipment includes air conditioning, lighting, electric motor
systems (including pump and variable speed drivers), compressed air, and processing
equipment.
In addition, BUN-CA has identified that a number of isolated energy efficient interventions
already exist in the hotel and manufacturing industries, the most significant of these being a
major energy efficiency retrofit that the Authority of the Panama Canal has undertaken in the
last two years in their facilities. This experience, which has implemented financially and
technically sound investments with innovative EE technologies, could serve as a practical
lesson that can be used for dissemination and replication in implementing EE improvements in
large industrial and commercial facilities during the FSP not only in Panama but also throughout
the region.
A letter of support from the Panamanian GEF Operational Focal Point, "National Authority of
Environment (ANAM), was received on October 30, 2002.
Honduras
Energy efficiency is one of the four strategic areas identified by the Honduran Energy Ministry
(SERNA). The new Administration is currently implementing an initiative sponsored by UNDP
(TTF) to formulate a rational energy use policy. In addition, with support from the Canadian
Cooperation, financial resource allocation for energy efficiency was supported by the Honduras
Joint Implementation Office (OICH) in its financial plan published in March of 2000.
On the other hand, the UNDP Office in Honduras, together with the Honduran Business Council
for Sustainable Development (CEHDES); has submitted to the GEF a MSP on energy efficiency
for the North Coast of Honduras. This Program will support 5 projects using energy efficient air
conditioning, lighting and boilers for 3 industrial companies (“maquilas”), one hotel, and one
governmental building located in Cortes, Honduras. Coordination between the UNDP/GEF FSP
and this MSP will be sought during the PDF-B in order to generate a common learning curve
between the two projects in energy efficiency market transformation.
Belize
Also, under the support of UNDP (TTF), Belize is currently undertaking a multi-sector initiative
directed at formulating a new National Energy Policy Framework that fully takes into account
innovative energy conservation approaches, as well as renewable energy sources.
A letter of support from the Belizean GEF Operational Focal Point, Ministry of Economic
Development of Belize, was received on November 6, 2002.
Guatemala
13
In the case of Guatemala, the central role of free market dynamics in the determination of
market energy prices and dispatch trends, dominates the current agenda of the energy sector.
The General Energy Directorate at the Ministry of Energy, responsible for energy planning at the
national level, is seeking to better understand the interplay of market factors, in order to
accurately reflect the environmental costs of power generation and to foster the accurate
accounting of the costs and benefits of conservation measures, particularly in high-consumption
and strategic sectors such as large industries and commerce. As an associated country to the
FSP, policy makers will be integrated in the overall execution of the PDF-B, to capture the
existing high political interest on EE in Guatemala.
19.
Justification:
A set of principles will guide the process during the execution of the PDF-B. These include: (i)
the need to trigger a market-based approach, rather than a technology based-approach, which
will lead to annual energy savings and GHG impact of the leveraged investments; (ii) the need
for the core countries to pave the way by increasing funding volume of private investments and
commercial lending for the demonstration projects targeted by the FSP; (iii) the need to draw a
better EE power sector policy; and (iv) the need to develop capacity building programs to
individual countries for institutional effectiveness and enhancing core-country performance.
As a regional initiative, the Full Size Project needs to build a practical partnership of several
organizations and entrepreneurs at the regional and national levels. The PDF-B will be used to
consult and establish relationships with major stakeholders; identify the initial pipeline of
demonstrative projects; to elaborate a real time table for the FSP execution, and bring together
the potential partners/co-founders for the Project. The outputs from this preparatory work will
provide the GEF Council with a complete set of project activities, detailed implementation plans,
partners and co-financing.
Finally, power reforms in most of the countries in Central America have softened energy pricing
regulations. Deregulation of the power sector may lead to energy price increases or decreases.
On average, has led to price increases, and to subsequent increased interest in end-use energy
efficiency. Private power utilities have so far been more interested in coping with the lack of
capacity and the retrofit of the national interconnected systems, without giving greater attention
to the role of energy efficiency at the demand-side. It is a major challenge of this PDF-B to
determine their interest in becoming also a utility-based ESCO, for instance, following
international experiences in other regions.
20. Timetable
PDF-B activities have been scheduled to begin in December 2003 and are expected to be
completed by February 2005. Once the Project Brief has been cleared by the UNDP/GEF and
the GEF Secretariat, it is expected to submit it for Work Plan inclusion for the July 2005 GEF
Council Meeting.
21.
Budget
The total estimated budget for the execution of the Full Size Project is in the order of US$6
million, of which the GEF is expected to assist with $2 million for the incremental cost of the
agreeable activities, over a 3 year period. Co-financing will be provided by local and
international financiers for the project investments in the order of $3.5 million, equity
participation from local stakeholders in the order of $2 million, and grants and in-kind
contributions of about $0.5 million.
A preparatory phase of regional scope is required from GEF of US$350,000 with co-financing of
US$50,000 from BUN-CA, other international cooperation agencies, and local stakeholders
(mainly governments and local chambers). The length of the PDF-B is 15 months.
14
PDF-B Activities/time
1. Identify Stakeholders and Barriers
(3 months)
2. Detailed Market Sector Assessment
(4 months)
3. Capacity Building (5 months)
4. Demonstration Projects (3 months)
5. Project Brief (3 months)
TOTAL
GEF (US$)
Others (US$)
Total (US$)
68,640
26,500
95,140
87,860
32,200
120,060
119,650
43,650
30,200
40,500
16,600
9,200
160,150
60,250
39,400
US$350,000
US$125,000
US$475,000
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