Turnkey Energy Efficiency Solutions for MunicipalitiesWed, 02/19/2014 - 11:04
Much of the debate surrounding energy efficiency in Mexico takes place at a theoretical level, concerning the thrust and parry of federal government policy and leaving aside what is happening on the front lines, in Mexico’s 2,500 or so municipalities. Yet, implementing long-lasting and real changes at the municipal level would garner vast energy savings for Mexico, help fight climate change and assist in reaching central targets for the participation of renewable sources in the energy mix.
“Energy efficiency projects for municipalities in Mexico have had a lot of difficulties in becoming successful. 90% of projects have failed because they lacked financing. Of the 10% that got financing, 90% failed because they could not get the energy savings recognition from CFE.” So says Raúl Enrique Romo, President of Inteligenciæ, a company that specializes in providing turnkey solutions for municipalities to successfully cut their energy spending. Romo explains that municipalities are troubled by a number of aspects, including venal companies that do not deliver on promises. Companies sell their products to municipalities by pledging that the town will make savings on the costs it pays to CFE, but when these do not materialize municipalities are often left with a debt they cannot pay. Seeing this, Inteligenciæ decided to act. Romo states that the company backs up the municipalities it works with from the start by ensuring that the initial diagnostics are correct, helping to lobby Congress to get the needed authorization for such programs, and supplying a variety of financial strategies from pure leasing and direct credit to trust funds. The complexity stems from the fact that Mexican states have their own legislation, meaning that Inteligenciæ is not able to develop one universal package that it can use across the country. Instead, the company has had to develop tailor-made solutions for each state, a process that involved some hard knocks along the way. “We found out the hard way that the lighting departments of many municipalities have unions that sometimes try to sabotage the projects. Then, we let municipalities do the installations for energy-saving lights, but they did not always have the right people to do it,” says Romo. Inteligenciæ hired lighting workers outside normal working hours to net them extra income, involved CFE from the beginning to pave the road for minimal bureaucracy, and hired local people to help the economy. Romo explains that it can be so difficult to work around specific local problems that the CFE has appointed a large team of dedicated superintendents, with one working in each Mexican municipality.
“The disconnect in the dialogue between federal, state and municipal actors is at the root of much of this discord,” Romo believes. He provides the example of Georgina Kessel, the former Minister of Energy, who moved from SENER to head up Banobras with the express purpose of financing energy-saving projects in municipalities, but was unable to close even one. To solve this problem, Romo suggests that energy efficiency projects should no longer be decided on by the presidents of municipalities but should be weighed up at the state level by the governors. Seeking to turn this suggestion into concrete action, Inteligenciæ is working on establishing a trust for every state that would see the firm deal only with governors. The advantage of this scheme for the municipalities is that, through a trust backed by the state, they would be able to access cheap loans that no banks would extend to them individually.
In order to trust Inteligenciæ and follow the firm into such a framework, municipalities must already possess an inherent faith in the company’s capacity to deliver on its word. Not a problem, says Romo, who states that the company’s integrated solutions are at the core of its business success. “We do not only sell lamps. If you want to buy lamps, you can buy them cheaply from the market. We solve political, legislative, financing and technological problems in order to make projects work under the different requirements of each municipality.” One of the major differences is the time it takes to make a project work. Romo points out that in the State of Mexico, an energy efficiency project is mandated for 24 months, whereas other states might allow them to run for 36 months. For Inteligenciæ, the longer the better as this allows the firm to generate more savings and use better technologies, such as LED lighting. Shorter timeframes mean that cheaper technologies need to be used to ensure quicker results. This flexible attitude has seen Inteligenciæ carry out successful projects in over 60 Mexican municipalities so far.
Financing remains the prominent contributing factor to the failure of municipal energy efficiency projects. “We can provide the best technology in the world but it will not work if the municipalities do not have money. The only way they can do the project is if you supply them with the money to do so,” Romo argues. But Inteligenciæ believes it has come up with some creative solutions to avoid that problem as well. Beyond regular financial partners, such as Banorte and Grupo Financiero Interacciones, the company has turned to Sofomes for support. Sofomes are financial entities that can provide credit or lease holding for specific projects, but that do not require the authorization of financial authorities to operate. This gives them just the flexibility Romo is looking for, because as he explains: “One municipality could not get the right authorization from Congress, so instead of a longterm credit the Sofome gave them a 90-day credit, as this timeframe does not require the registration of the financing with Congress. Every 90 days, they re-sign the contract, which a bank would never do, but a Sofome can.”So why does Inteligenciæ fight so hard to implement the latest technologies such as LED lighting in municipalities? Surely the aggravations listed above would put off many other players. For Romo, despite these hurdles, working with municipalities is easier: the initial investment required is smaller and the projects are worth more. He estimates that small municipal energy saving projects can be worth between MX$2-5 million (US$148,000-370,000), as opposed to MX$1-3 million for a small private project. And given the size of the public lighting market in Mexico, Inteligenciæ is unlikely to run out of potential clients anytime soon.