Brazil: new business models seek to achieve energy efficiency

Brazil could achieve one fifth of its energy savings goal by 2030 if it substitutes the existing lighting by LED technology, according to the report Lighting Brazilian Cities: Business models for energy efficiency in public lighting, published by the World Bank and presented in Sao Paulo in an event attended by experts from multilateral organizations such as CAF. 

During the forum, it was explained that LED lamps are between 40 percent and 60 percent more efficient in terms of energy than sodium steam and mercury lamps which are currently used in the Brazilian public lighting system. However, the cost of modernization is a challenge for local governments, as the responsibility of managing the assets of the public lighting system was transferred to them in 2013. 

The event included the participation of representatives from IFC, BNDES, CAF, and the  Frente Nacional de Prefectos (National Governors Front), and analyzed eight business models that currently flourish in Brazil as a solution to this need: 

1. Municipal PPA: A Public-Private Association (PPA) is created as a concessionary to which the municipal government grants an administrative concession for the modernization and efficient operation of the public lighting park. 
2. PPA Consortiums: several municipalities associate in a consortium to create a bigger PPA, ideal for small municipalities. 
3. Municipal financing: the municipality issues debt through traditional mechanisms. 
4. Energy concessionary programs: the electric service concessionary grants loans to municipalities, recovering the costs through municipal transfers and increases in electricity rates. 
5. Energy Service Companies (ESCO): the Esco's raise resources from third parties, acquires and installs LED lighting in exchange for a payment from the municipality.  
6. Municipal consortium: creation of municipal consortiums to centralize the purchase of LEDs and benefit from the economy of scale with respect to the supplier. 
7. Self-financing: local governments make investments to modernize, using their own resources. 
8. Lighting transfers: transfer the sodium steam and mercury lighting that has been displaced by LED lighting to municipalities which do not have modernization plans in the short term. 

Hamilton Moss, CAF's Energy Vice-president, highlighted the value of the participation of multilateral development banks, as they can adapt to most of the mentioned schemes as a result of their wide range of financial products that enable them to work with sovereign risk and public and private non-sovereign risk sector, and they also have the technical expertise needed to provide specialized consultancy to municipalities for the restructuring of these modernizing schemes. 

In addition, Moss presented the CAF's Regional Energy Efficiency Program, which offers financing lines available for these types of activities.