Bid to slash energy waste in Brazil, China and = India

Local Financing to Slash Energy Waste = in China,=20 India, Brazil Said Crucial to Forestalling Global = Climate=20 Change

With world energy prices and=20 climate-altering greenhouse gas emissions ballooning = in tandem=20 with a surge in energy demand from the hot economies = of China,=20 India and Brazil, the world has a major stake in the = success=20 of energy reduction efforts, particularly in those = three=20 countries, warn experts concluding a four-year = international=20 project.

Without significant gains from energy = efficiency efforts, China, India and Brazil within a = single=20 human generation (by 2030) will more than double their = energy=20 use and greenhouse gas emissions, resulting in major = impacts=20 on global energy markets and climate. However, experts = estimate that cost-effective retrofits could reduce = those=20 countries=92 energy use today by at least 25% and = advanced=20 technologies could reduce their energy use growth = projected=20 through 2030 by at least 10% (and reduce projected CO2 = emission growth by 16%).

Unlocking today=92s = potential=20 savings requires simple, highly cost-effective = renovation=20 projects to identify and eliminate energy waste. The = keys are=20 fostering corporate awareness, supporting catalyst = energy=20 efficiency practitioners and enlightening commercial = banks to=20 ease access to local financing for such projects.=20

=93Improving energy efficiency for existing = buildings=20 and other infrastructure could cut current energy = consumption=20 by 25% or more in India, China and Brazil, amounting = to=20 millions of tonnes in reduced greenhouse gas emissions = and=20 hundreds of millions of dollars in energy savings,=94 = says=20 Robert Taylor, a World Bank Lead Energy Specialist and = leader=20 of the 3 Country Energy Efficiency Project (3CEE).=20

Conclusions from the project were captured at = a=20 conference in Paris May 19-20 involving the = project=92s public=20 and private sector partners. An executive summary of = those=20 conclusions will be published online May 29. =

Despite=20 the huge potential, it has been difficult to achieve=20 investments on the ground so far, the project summary=20 concludes.

"Many energy efficiency projects = quickly=20 pay for themselves, with typical returns on investment = of 20=20 40%," says Chandra Govindarajalu, a senior World Bank=20 environmental specialist. =93Despite the demonstrated = benefits,=20 though, companies often cite other, more immediate = investment=20 and borrowing priorities. Meanwhile, commercial banks = in these=20 countries are generally unfamiliar with financing = projects=20 designed to achieve cost savings, rather than develop = new=20 product lines or other tangible assets.=94 =

Other=20 roadblocks within companies include:
=95 Lack of=20 awareness/experience with newer efficient = technologies;
=95=20 High transaction costs for smaller sized projects that = inhibit=20 implementation;
=95 High perceived risk by = decision makers;=20 and
=95 A lack of combined technical and financial = skills at=20 finance institutions, preventing accurate appraisal = and=20 structuring of potential efficiency projects. =

Energy=20 saved: cheapest, easiest to produce

=93Cutting = energy=20 waste is the cheapest, easiest, fastest way to solve = many=20 energy problems, improve the environment and enhance = both=20 energy security and economic development,=94 says Mr. = Taylor.=20 =93What we must develop further are systems to tap = huge=20 potential energy savings through thousands of small = projects=20 scattered across China, India, Brazil, as well as = smaller=20 developing country economies,=94

He says the = reluctance=20 of companies to undertake energy retrofits is akin to = that of=20 countless millions worldwide who fail to buy energy = efficient=20 light bulbs for homes, despite proof that they save = enough in=20 utility bills to more than pay for themselves. =

=93Even=20 people who know the financial and environmental = benefits of=20 the bulbs may not buy and install them =96 it seems = like such a=20 small thing, why take the trouble? But from a national = or=20 global point of view, the potential savings add up to = the=20 electricity and pollution produced by many large power = plants.=20

=93Imagine, however,=94 Taylor says, =93if I = offered to=20 install the efficient bulbs and guaranteed they would = pay for=20 themselves in six months or your money refunded. = Perhaps then=20 you might then buy a package.

=93Rapidly = developing=20 countries such as China, India and Brazil need many = people and=20 consulting firms to do that same thing at the level of = an=20 industrial facility or apartment building, for = example, to=20 identify energy efficiencies across the board and = exploit=20 large-scale energy use reduction opportunities, and=20 enlightened banks to finance them.=94

Such = retrofits=20 involve installing, for example, high efficiency = lighting, air=20 conditioners, boilers and waste heat recovery systems = for=20 commercial and public buildings, industrial plants and = other=20 facilities. Project costs (and profits) can be = provided to=20 energy service companies (ESCOs), which design and = implement=20 energy conservation projects, or participating banks, = from a=20 share of utility bill savings.

"Money is = available in=20 these countries but can't be accessed easily by energy = conservation promoters and ESCOs. This is a big area = for work=20 in the future=94, says Mark Radka, Head of the UNEP = Energy=20 Branch, based in Paris. =93It takes time and effort = for local=20 businesses, banks, governments and aid organizations = to=20 develop energy conservation delivery systems which = work and=20 which can be supported by the financial community.=94=20

While energy efficiency projects need to be = customized=20 to local circumstances and business practices, the = project=20 makes a host of recommendations, including: =

=95 Foster=20 the growth of ESCOs;
=95 Promote energy efficiency = investments by local utilities; and
=95 Develop = special=20 local bank lending arrangements to provide energy = conservation=20 financing.

Initiated in 2001, the 3CEE Project = has=20 worked creatively to promote energy efficiency = projects in=20 China, India, Brazil by easing typical investment = requirements=20 of financial institutions. The project is a joint = initiative=20 of the World Bank, the UN Environment Programme=92s=20 Denmark-based Risoe Centre (URC), and partners in = Brazil,=20 China and India. The UN Foundation and the World Bank = Energy=20 Sector Management Assistance Program provided = financial=20 support, with complementary activities supported by = the Asia=20 Alternative Energy Program and the UK Department for=20 International Development.

=93People worldwide = have a=20 vital interest in the success of this initiative to = harness=20 the power of the private sector to minimize the energy = required for these three countries to realize their = economic=20 goals,=94 says Jyoti Painuly, Senior Energy Planner at = the UNEP=20 Risoe Centre on Energy, Climate and Sustainable = Development.=20

Adds Juan Zak, a project team member at the = UNEP RISOE=20 Centre: =93Accelerated polar ice melting is the latest = indication that severe climate change may be upon us. = The=20 current 380 parts per million of carbon dioxide in the = atmosphere seem already too high. Roughly half of the = global=20 consumption of fossil fuels should be avoided if = climate is to=20 be stabilized. Using energy much more wisely is one of = the=20 very few feasible ways that, combined, would move the = world=20 towards this goal without economic disruption.=94=20

Energy-Related CO2 Emissions Growth to 2030 = (Reference=20 Scenario) Source: IEA 2004

The importance of = improving=20 energy efficiency in China, India and Brazil (with a = combined=20 2.6 billion people, or almost 40% of world population) = is hard=20 to overestimate.

China, India and Brazil, = already rank=20 among the world=92s top 10 energy consumers with = astonishing=20 economic growth rates nearing 10 % per year; they are = on track=20 to becoming the world=92s major greenhouse gas = emitters.=20 Although today they emit just 10% as much greenhouse = gas per=20 capita as North America, their national emissions are = rising=20 far faster. China's emissions, for instance, are = expected to=20 double by 2020, in which case China will surpass the = US as the=20 leading source of climate-altering gases. By one = estimate, the=20 China power market will require an average 48 = gigawatts of new=20 capacity every year, equal to two-thirds of the UK=92s = total=20 installed capacity.

Global GDP is projected to = more=20 than double by 2030, 80% of that growth accounted for = by=20 non-OECD countries, where current energy intensity of = GDP=20 (expressed as barrels of oil equivalent=97BOE=97per = $1,000 of GDP)=20 was approximately three times that of the OECD = countries in=20 2005. Without gains in energy efficiency, such global = GDP=20 growth would raise daily global energy demand from 205 = million=20 BOE today to more than 500 million BOE by 2030. =

Much=20 of that energy in India and China will be supplied by = coal.=20 China is both the world=92s largest coal consumer and = producer.=20 While coal in China=92s overall energy mix is = projected to=20 decline from 66% in 2002 to 41% in 2030, its total CO2 = emissions are still projected to increase from 3307 Mt = to 7144=20 Mt.

India=92s installed capacity for power = generation=20 has tripled over the last 20 years and now exceeds = 101,000 MW.=20 However, the total demand is expected to increase by = another=20 3.5 times in the next two decades, even under a = best-case=20 scenario that envisions intensified efforts to = modernize power=20 plants, improve transmission and distribution = efficiency, and=20 adopt more efficient generation technologies. The = soaring=20 power demand will necessitate tripling installed = generation=20 capacity from 101,000 to 292,000 MW over the next two = decades,=20 much of it derived from poor quality coal. Similar = demand=20 increases are forecast for all fuels, and CO2 = emissions are=20 projected to increase from 1016 Mt to 2254 Mt by 2030. =

The 3CEE report notes that improvements in = energy=20 efficiency will bring China, India and other = coal-dependent=20 countries the important additional benefits of cleaner = air,=20 better health and other environmental improvements.=20

Brazil is the world=92s 10th largest energy = consumer,=20 yet its fossil fuel CO=AC2 intensity per unit of = energy consumed=20 is low due to widespread use of renewable energy from = hydro=20 electricity, ethanol and other biomass. However, = Brazil's=20 overall energy intensity (measured as energy = consumption per=20 dollar of GDP) has been increasing. Fossil fuel = intensity=20 increased 18% between 1990 and 2004, while electricity = increased by 29%. Brazil=92s economic growth has been = much=20 slower than India=92s or China=92s over the past = decade and=20 projections are also much lower, hence projected = energy supply=20 increases are less dramatic =96 electricity = consumption would=20 increase 65% (244 trillion kw/h) by 2015, assuming = annual GDP=20 growth of 4%. The International Energy Agency projects = an=20 increase in Brazil CO2 emissions of 302 Mt to 665 Mt = by 2030.=20

=93Energy efficiency in these three countries = is a=20 win-win strategy. It is one of the cleanest, cheapest = and=20 fastest ways to reduce carbon emissions,=94 says = Timothy E.=20 Wirth, President of the UN Foundation = (www.UNFoundation.org),=20 which provided the project=92s core funding. =

ESCOs Gain=20 Traction in China

Three pilot ESCOs in China = were=20 given support and access to loans and grants from the = World=20 Bank and the Global Environment Facility in 1998. = Their=20 success inspired many more companies to copy the = business=20 model. In 2005 alone China=92s new ESCO industry put = into place=20 over 300 energy efficiency projects representing an = investment=20 of over US $200 million, saving the energy equivalent = of 2.46=20 million tonnes of standard coal and an annual decrease = in CO2=20 emissions of nearly 7.0 million tonnes.

=93We = were told=20 many times this would never work in China because the = concept=20 was too novel,=94 says Mr. Taylor. =93However, Chinese = entrepreneurs have proved very nimble in adapting the = concepts=20 to the Chinese market to both make profits and save = energy.=94=20

The World Bank and the Global Environment = Facility set=20 up a bank loan guarantee mechanism to help ESCOs = (there are=20 now 52 of them and an ESCO association in China) = finance for=20 these unique ventures. It also invested efforts in = training=20 ESCOs, educating potential clients, showing senior = bank=20 officials how to evaluate ESCOs; and working with = state tax=20 officials and auditors.

=93We were creating a = new way of=20 doing things and it could have easily died if not for = the=20 strong support of the central Chinese government,=94 = says Mr.=20 Taylor.

The 3 CEE project now has moved on to = help=20 China develop lending programs in a local banks for=20 large-scale energy efficiency projects, to be financed = in part=20 by a $200 million World Bank loan.

China has = called=20 for a "conservation society" and its commitment to a = further=20 20% improvement in energy intensity over 2005 levels = by 2010=20 and the project initiatives fit well with that = objective. The=20 topic of energy efficiency is now granted special = attention=20 (along with =93energy development=94) in all of = China=92s=20 energy-related planning. The project report highlights = potential savings as well in the industrial, = construction and=20 transportation sectors.

=93Our hope is that we = can=20 generate some successes in new energy efficiency = delivery=20 systems in these three countries, which can work by = themselves=20 to generate big energy savings over the coming = decade,=94 says=20 Mr. Taylor.

Hopefully other countries will see = that=20 success and create a similar programs to meet their = needs and=20 apply it to other natural resource areas such as water = where=20 inefficiencies are equally high he says.

New=20 Approaches for Energy Efficiency in Indian Banks=20

India=92s potential energy efficiency market = is=20 estimated at more than US $3.1 billion, which would = produce a=20 savings of 54 terawatt hours per year. To help realize = this=20 impressive potential, the Indian Government = established a=20 Bureau of Energy Efficiency (BEE) under its Energy=20 Conservation Act to institutionalize energy efficiency = services, enable delivery mechanisms in the country = and=20 provide leadership to key players in the energy = conservation=20 movement. A variety of commercial interests are = beginning to=20 pick up the energy efficiency business, but more = support and=20 financial backing is required.

Introduced to = the=20 energy efficiency business through the 3CEE Project, = five of=20 India=92s largest banks =96 holding 35% of the = country=92s total=20 bank assets =96 have developed new energy efficiency = lending=20 programs. Though small, the programs are growing and=20 attracting increasing attention. Indian banks have = targeted=20 small and medium enterprises (SMEs), where energy = waste is=20 often particularly high, but knowledge about more = efficient=20 options and the financing to implement them is scarce. =

=93The Indian banks developed a particularly = innovative=20 =91cluster=92 approach for their energy efficiency = lending=20 businesses, =93 says Jeremy Levin, a World Bank = consultant and=20 project team member. =93A series of template-type = loans are=20 being developed quickly for batches of projects using = the same=20 types of technical innovationss in targeted small = industries.=94=20

The banks have slotted energy efficiency = lending=20 schemes into existing SME lending practices. Bank = managers=20 point out that the program helps improve cost = competitiveness=20 and profitability of SME clients, which can lead to = further=20 client growth and bank lending opportunities. =

The 3CEE=20 project organized several meetings between Indian, = Chinese and=20 Brazilian ESCOs, to exchange ideas, business = strategies and=20 ways to help each other. Benefiting from the = experiences of=20 ESCOs in China and Brazil, India=92s young ESCO = companies are=20 creating an association to increase awareness of their = business and its potential.

=93There is much = work to be=20 done before the ESCO concept is widely accepted and = practiced=20 in India,=94 says Levin. =93One promising idea to help = drive the=20 market in India is to develop ESCOs specialized in = reducing=20 energy waste in government buildings, including = hospitals and=20 schools.=94

Energy Efficiency in Brazil =

Brazil=92s=20 annual untapped energy savings potential is estimated = at US$=20 2.25 billion and many projects would enjoy an average = payback=20 of less than 30 months.

Brazil=92s ESCO = industry is the=20 oldest among the three countries, with a vibrant = national ESCO=20 association (ABESCO).

It is also among the few = developing countries to have established a =93wire = charge,=94=20 which streams a small portion of power companies=92 = revenues=20 into energy conservation and other public energy = benefits.=20

The utilities spend 0.25% of annual revenues = on energy=20 saving projects in customer facilities and general=20 conservation education efforts. The wire charge fund = provided=20 about $250 million to efficiency initiatives between = 1998 and=20 2004 and many utilities work with ESCOs to fulfill = these=20 requirements, helping the ESCO industry grow. =

The 3=20 EEC project has worked with the energy efficiency and = banking=20 communities, to develop new ideas to ease and = accelerate the=20 financing of energy efficiency projects.

Via=20 workshops, training and other initiatives, including = an=20 international roundtable on energy efficiency = financing in Rio=20 de Janeiro April 2, attracting scores of banking, = energy=20 efficiency and government experts, the 3CEE project = helped=20 clarify roadblocks to progress and potential = solutions.=20

At the Paris meeting, the Brazilian = Development Bank=20 (BDNES) announced a new guarantee program to assist = ESCOs and=20 accept 80% of loan risks on accepted energy reduction=20 projects.

=93Mutual understanding of the = requirements=20 and opportunities of each agent in the market had been = minimal=20 prior to the 3CEE project,=94 says Mr. Taylor. =93The = project put=20 forward several proposals for Brazil, the most = important of=20 these being the proposed loan guarantee mechanism for = EE=20 initiatives and the Brazilian Development Bank has = earned=20 sincere congratulations for having accepted the = challenge.=94=20

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