Successful ESCO projects and Climate Change in Mexico

Successful ESCO projects and Climate Change in Mexico Ubaldo Inclán Underministry of Energy Policy and Tecnologic Development National Commission for Energy Conservation Milano, Italy. December 1, 2003

CONTENIDO • Energy Sector Activities for the fostering of mitigation projects • Energy Efficiency Projects and Climate Change • ESCO projects potential in Mexico

Energy Sector Activities for the fostering of mitigation projects Three main fields § Renewable Energy § Energy Efficiency § Cogeneration

Energy Sector Activities for the fostering of mitigation projects Renewable Energy 1 Large Scale Renewable Energy Development Program § Objective: Development of Large Scale Market for Renewable Energy in México § Goal: 1, 000 additional MWs in 10 years § Interconnection and transmition contract schemes § Acelerated depreciation § Capacity development: technical training courses; information to decision makers; etc. § Financial Incentives § Establishment of fund for tariff support through competitive auctions

Large Scale Renewables Project – Fund Operation Combined Cycle plants 25 years CFE PI’s ~US$ 0. 03 Normal Tariffs Users Renewable energy plants 25 years ~US$ 0. 035 CFE Normal Tariffs Users PI’s 12 years US$ 0. 05 (or less) Fund 5% Normal Tariffs §Carbon certificates §Other incomes

Energy Sector Activities for the fostering of mitigation projects Renewable Energy 2 Development of projects for non electrified communities § Interconnection and transmition contract schemes § Acelerated depreciation § Capacity development: technical training courses; information to decision makers; etc. § Financial Incentives § Establishment of fund for tariff support through competitive auctions

Financial Model: rural electrification Complementary Funds • $ from 3 government levels (Federal, State y Municipal) • Indigenous Fund • Private Sector • Migrant resources $8 x Federal Funds for Rural Electrification • • • CONADEPI SENER BM/IBRD GEF (US $25 Mill) NGOs/Fundaciones Otros: GVEP, apoyo bilateral $x

Energy Sector Activities for the fostering of mitigation projects Energy Efficiency § Development of Energy Efficiency Standards § Long term reduction of GHG emmission intensity § Market transformation measure § 18 Standards for apliances § Technical Assistance to Latin American Countries § Technical Assistence § Development of Technical Metodologies for the identification of energy efficiency potentials § Support from CONAE for Industrial Chambers: project integration and bundling

Energy Sector Activities for the fostering of mitigation projects Energy Efficiency § Promotion and Creation of local Institutional Capacity § Creation of State Energy Commissions § Training and Coordination with National and International Initiatives § Creation of an energy efficiency market: ESCOs § Advise and support to the first group of ESCOs § Bundling projects: CONAE and Industrial Chambers § Creation of a special Fund (current proposal)

Energy Efficiency Proyects and Climate Change Energy efficiency projects § CONAE is assisting energy end users to identify and evaluate energy efficiency projects § Information useful for project developers, ESCOs among others ----- Lower transaction costs § Zero or low investment measures § important for national compromises § no possibility for carbon trading § Investment measures --- feasible projects!!! § Own resources § ESCO projects

Energy Efficiency Proyects and Climate Change Advantages for GHG mitigation projects § ESCO projects are economically feasible, GHG resources facilitate and provide the needed extra motivation § Additionality verification is a very important issue for the Mexican Government § Those projects have negative mitigation cost § Commonly used methodologies for Monitoring and Verification of Energy Savings are the base for credible GHG M&V § Again, this helps to ensure low transaction costs § Work on electric sector Emmission Factors is very advanced and will help

Market for Energy Conservation in Mexico Considering an average potential for energy savings of 20 per cent, the average market for energy efficiency in Mexico is estimated around $9, 500 million USD annual § Residential, Commercial and Public: Public USD 2, 400 millions § Transport, USD $5, 000 millions § Agricultural, USD $280 millions § Industrial, USD 1, 700 millions Public sector is an important emerging market § Public electricity and Petroleum utilities § Public Health and Education agencies § State and municipal governments Source: Estimation of CONAE considering the 2000 energy balance

Market for Energy Conservation in Mexico l l Considering an average period of investment recovery of 3 years, around 28, 500 million USD investment would be needed to take advantage of the energy efficiency potential, amount that stands for around 2 per cent of the national GDP. This is an important business opportunity, however in general terms, energy end users do not have resources to invest. That is why ESCOs offer such an important opportunity in the context of GHG mitigation projects.

Conclusiones • There is a great opportunity for GHG mitigation projects in the Mexican energy sector, a lot of them with cost effective measures • • • Negative mitigation costs One of the most important characteristics of those projects are: • Low transaction costs • Easy M&V activities Energy project developers will play an important role in the next years, with initiatives in different sectors • Public sector: energy utilities; health and education sector; local governments

Ubaldo Inclán, SENER / CONAE , Mexico 5000 -6000 ext. 1076 uinclan@energia. gob. mx www. conae. gob. mx