New Business Models for Brazilian Energy Efficiency

Brazil could reach one-fifth of its energy savings target by 2030 by replacing existing lamps with LED technology, according to the report Lighting Brazilian Cities: Business Models for Energy Efficient Public Street Lighting, published by the World Bank and presented in Sao Paulo, at an event attended by experts from CAF and other multilateral agencies.

During the forum, experts explained that LED lamps are between 40% and 60% more energy efficient than the sodium and mercury vapor lamps currently used in Brazilian public street lighting. However, the cost of modernization is a challenge for local governments, which were entrusted with managing street lighting assets in 2013.

Together with partners such as the IFC, BNDES and CAF and the National Mayors Front, the event also analyzed eight business models currently thriving in Brazil as a solution to this issue:

1. Municipal PPP: A Public-Private Partnership (PPP) is created to which the municipality awards an administrative concession for the modernization and efficient operation of public lighting.
2. PPP Consortiums: Several municipalities partner in a consortium to create a larger PPP, ideal for small municipalities.
3. Municipal financing: The municipality issues debt through traditional mechanisms.
4. Energy concession programs: The power supply concessionaire grants loans to municipalities, recovering costs via municipal transfers and raising electric service rates.
5. Electricity Companies (ECs): ECs raise funds from third parties, purchase and install LED lamps in exchange for payments from the municipality.
6. Municipal Consortium: Creation of municipal consortia to centralize the purchase of LEDs and benefit from the economy of scale with respect to the supplier.
7. Self-financing: Municipalities make investments in modernization using their own funds.
8. Lamp transfer: Transferring sodium or mercury vapor lamps replaced by the new LED lamps to municipalities with low modernization prospects in the short term.

Hamilton Moss, Vice President of Energy at CAF, emphasized the value of CAF’s involvement: first, because it can adapt to most of these schemes due to its wide range of financial products, which allow it to work with sovereign risk and the public and private non-sovereign sector, and its technical expertise for providing specialized advice to municipalities in structuring of these modernizing models.

In addition, Moss presented CAF’s Regional Energy Efficiency Program, which offers funding lines available for such initiatives.