A Transformational Energy Efficiency SME Advice and Loans Program for Mexico

1. 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

2. 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

3. 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 CO2 as well as create value for their companies, resulting in a “policy cost” of under £7/t 716 432 in £m (2009/10) (32) Catalysing ratio >13:1 (252) • Policycost • Annual policy cost • Capital investment Investment required to get the energy savings • Lifetime energy savings • Present value oftotal energy savings • Total cost savings • Lifetime project cost savings

4. 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

5. 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

6. In Mexico, cost-effective SME energy efficiency measures could save MXN$28 billion (12%) and reduce emissions by 10MtCO2(14%) per year 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 Source: GIZ (2012) “Recomendaciónestratégica sobre tecnologías y subsectors como orientación para sustentar acciones de eficiencia energética en el sector PyME” BMZ for Ministerio Federal de CooperacíonEconómica 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.

7. 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 businessor 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 financedue to risk-adverse commercial banks that don’t understand energy efficiency projects (the nature of returns through energy savings) $

8. While a number of effective programmes offering advice and finance already exist, they are fragmented and sub-scale GobiernoFederal CCE PEMEX SEMARNAT SHCP SE CFE SENER CESPEDES CONCANACO SERVYTUR CONCAMIN COMPITE FIDE NAFIN BANCOMEXT CRE CONUEE INECC • Mexico GHG Program • GHG emissions reporting & sectorial analysis • Mi Tortilla • $MN150k for tortilla manufacturers • Training & advice to improve efficiency • financial advisor (via SE) to help access funds • EficienciaEnergética • Advice and technical assistance – with or without funding - to modernise facilities and apply new technologies in productive sectors • FondoPyMES • Targets SMEs to improve competitiveness through business management and access to finance: • National Guarantee System • Financial advisors network • business centres (189) • Technological Innovation Fund (SE-CONACYT) • Projects for innovative products, processes, services or materials • Training & business consulting • SME Library • CFEctivaEmpresarial • Funds for power factor correction (<90%) & voltage optimisation (low to medium voltage) • Energy efficiency education for equipment operators, obsolete equipment replacement, & specialist advice for process improvement • Programa de Ahorro y EficienciaEnergéticaEmpresarial (PAEEEM) • Financing to replace obsolete equipment (with Sello FIDE equipment) • Funding for refrigeration, AC and LEDs ($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) • 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)

9. 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 Cost effectiveness of delivering service $20/tonne 250 employees 10 employees SME size and therefore saving potential

10. 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 Annual activities All SMEs Access to website and 20-30 new publications each year 150,000 30,000 calls and emails handled each year 100 events each year, with 40 SMEs at each 4,000 2,000 audits for larger SMEs each year 10,000 6,265 660 loans in year 1, up to 1,900 by year 5

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

12. 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

13. 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