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 BuiraSenior Manager, InnovationDaniel.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

Total cost savingsLifetime project

cost savings

Lifetime energy savings Present value of

total energy savings

Capital investment Investment required to get the energy savings

Policy cost Annual policy cost

in £m(2009/10)

(32)

(252)

716 432

Catalysing ratio >13:1

Carbon Trust advice and support activities of £32m in FY2009/10 helped our customers save 5m tonnes of CO2 as well as create value for their companies, resulting in a “policy cost” of under £7/t

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 CO2 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

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

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

In Mexico, cost-effective SME energy efficiency measures could save MXN$28 billion (12%) and reduce emissions by 10MtCO2 (14%) per year

Sector Total carbon emissions(ktCO2e)

Total energy costs

(millions MXN)

Potential carbon savings

(ktCO2e)

Potential cost savings

(millions MXN)

Commerce / services 10,587 $71,237 1,669 $8,659

Industry 50,447 $107,588 6,488 $11,765

Other inc. agriculture 14,098 $46,432 2,618 $7,857

Total 75,131 $225,257 10,775 (14%) $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.

Other benefits: Strengthening competitivenessSales of ‘greener’ productsEmployee motivationIndirect job creation though the energy efficiency sectorMitigation against the impact of future regulation

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

8

Gobierno Federal

CFE

FIDE

SENERSEMARNAT

SESHCPPEMEX

CRE BANCOMEXT

CONCAMINCESPEDES

CCE

CONCANACO SERVYTUR

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

Programa Nacional paral el Aprovechamiento Sustentables de la Energia (PRONASE) • Electrical substitution

(Motor replacement) • Normas Oficiales

Mexicanas (NOM) / Normas Mexicanas (NMX)

Eficiencia Energética• Advice and technical

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

Mi Tortilla• $MN150k for tortilla

manufacturers• Training & advice to

improve efficiency • financial advisor (via

SE) to help access funds

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)

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

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

Mexico GHG Program• GHG emissions

reporting & sectorial analysis

CONUEE INECCCOMPITE

NAFIN

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

9

ADVICE

• Website & publications

• Advice centre (calls/emails)

• Training & events

FINANCE 

• Loans

• Investment support

COORDINATION & PROMOTION

• Strategic coordination• Program marketing• Program management & Quality Assurance (QA)

• On-site energy audits

Cost effectiveness of delivering service$2/tonne $20/tonne

SME size and therefore saving potential10 employees 250 employees

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

Access to website and 20-30 new

publications each year

2,000 audits for larger SMEs each year

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

30,000 calls and emails handled each

year

100 events each year, with 40 SMEs at each

All SMEs

150,000

4,000

10,000

6,265

5-year reach Annual activities

10

Service Carbon saving - lifetime (tCO2)

Energy saving - lifetime (MWh)

Cost saving - lifetime (US$m)

Cost US$/tCO2 -

lifetime

Website & publications

303,902 876,658 114 2.2

Advice Centre

203,540 587,144 76 2.2

Training & events

143,822 414,879 54 2.2

Site audits 266,950 732,499 95 10.4

Loans 99,262 159,530 21 20.4

Total 1,017 ktCO2 2,771 GWh 360 6.1

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

Service element Set-up cost Operational cost (5-years) Total cost

($m)Local ($m)

Consultancy ($m)

Local ($m)

Consultancy ($m)

Co-ordination 0.57 1.03 5.41 3.63 10.65

Advice 0.30 0.17 7.08 7.89 15.44

Finance 0.23 0.07 7.17 - 7.48

Total 1.10 1.27 19.67 11.52 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 BuiraSenior Manager, InnovationDaniel.Buira@carbontrust.co.uk +44 7801 817532