2005-09-21 - Nicaragua
By creating energy efficiency businesses, a new breed of entrepreneurs would both strike a blow at rampant oil demand and create local wealth. Nicaragua, El Salvador and their neighbouring countries closed a turbulent chapter only a few years ago. Known for its revolutionary history, the region has since attempted to rebuild local economies. Yet a band of gentle, prosperous and creative rebels could emerge from the area if plans to build a whole new energy paradigm are realised.
That is a vision to which NGO BUN-CA and its partner REEEP (the international renewable energy and energy efficiency partnership) passionately subscribe. Their aim is to generate a culture of entrepreneurialism in the energy sector across the whole region which would spawn numerous energy efficiency businesses. And just as Mexico seems to pre-date its smaller neighbours in the revolutionary calendar, so it has already provided a blueprint in this field.
“Traditional and alternative financing for energy efficiency investments is available in the region,” says Kathya Fajardo, REEEP-BUN-CA project officer, “but this availability is under-utilised due to a lack of a culture of entrepreneurs, who are unaware that energy costs are not visible enough to realise business opportunities by undertaking profitable investments.”
Oil imports tyrannise most of the region, with the exception of Guatemala, so there is a pressing need to bring them down, for both economic and environmental reasons. That is because construction of local renewable capacity has failed to keep in line with growing energy demand partly driven by population growth and partly by economic improvements and significant investments in the extension of the grid to rural areas.
The situation was quite different 20 years ago. At that time, 83% of electricity production originated mostly from hydro-electric power stations, a picture many countries can only dream of. Since then, though, the region’s economic progress has leapfrogged its use of local energy sources. Electricity production from fossil fuel sources has risen, so that the share of hydro-electric power has now dropped to 52% and is falling fast.
The energy imbalance is intensifying because electricity demand is doubling every decade; it is forecast to increase at an average annual rate of around 6% leading to an aggregated . installed capacity of approximately 10,378 MW by 2014.
According to BUN-CA, the creation of energy efficiency markets, selling products such as efficient air conditioning units and modern boilers as well as developing energy service companies (ESCOs), would cripple the growth of fossil fuel dependency.
That is where the role of new enterprise comes in. “If we were able to trigger a market for financial intermediaries and project pioneers by convincing them to undertake commercially viable financial mechanisms like leasing and payment schedules based on electricity savings for energy efficiency investments, we can say we have won the first round,” observes Kathya Fajardo.
The integration of these innovative financial mechanisms – such as ESCOs and equipment leasing - is critical to the sector’s development, allowing conventional players such as local commercial banks, project developers, chambers of industry and commerce and industrial entrepreneurs, to get involved.
However, they will not be drawn to the idea unless the mechanisms are designed and validated and additional support offered. That is one of the goals of the BUN-CA/REEEP project between 2005-2006, which is also being funded by the Global Environment Fund through the United Nations Development Programme (UNDP).
BUN-CA will also earmark and screen four projects (out of a total of 350 in the region) as key components of a pioneering energy efficiency investment portfolio and is implementing a capacity development programme for investors and project developers. To help the private sector, the three organisations will also jointly develop a business plan for energy efficiency investment in Central America and will run a regional workshop to transfer knowledge and best practice on energy efficiency project financing to local executives.
They need only to look to Mexico to see that the project and its longer term aims can come to fruition. As long ago as 1990, Mexico established a trust fund called Fideicomiso para el Ahorro de Energia Electrica (FIDE) which is a private not-for-profit organisation that promotes energy conservation at the point of electricity end use.
It has also created a functioning market for ESCO operations supported by country’s energy ministry which also steers ESCO businesses towards greater levels of cost-efficiency using expertise from local professionals. One of the BUN-CA/REEEP project’s aims is to ensure that Mexican experience is appropriately transferred to the other central American countries, allowing unnecessary mistakes to be avoided and expertise to be shared.
With the cost of thermal power jumping up as a result of rising oil prices, the project’s organisers might find people are surprisingly receptive.