Mexico CTF-IDB Group Energy Efficiency Program, Part I
Policy measure

According to documentation of the Inter-American Development Bank (IDB) (2011), the “Mexico CTF-IDB Group Energy Efficiency Program will promote scaling up the supply of [energy efficiency] financing products and services by local financial intermediaries (LFIs) in Mexico, by providing them with the financial, knowledge and technical cooperation (TC) needed to develop necessary knowledge and build a track-record of such investments.”


The Program includes a Commercial Banking Component in which “three banks will receive financial, knowledge, and technical support in order to mitigate their risk and improve capacity to make energy efficiency loans”. The objective of the component is to “transform the commercial side of the energy efficiency finance market. It will achieve this by providing financial guarantees or funding necessary to enable banks to expand their loan portfolios into [energy efficiency] finance, capacity building in order to implement the funds”. (IDB, 2011)

 

“A package of technical assistance (TC) and knowledge management (KM) activities is included in the project to support its effective implementation” (IDB, 2011).


“The investment capital and technical cooperation funds will be provided by the Clean Technology Fund (CTF), IDB, commercial banks, donors, and bilateral agencies. (IDB, 2011) “

Implementation

“The IDB will work with three commercial LFIs in Mexico to reduce emissions through funding for either direct financing of the LFIs EE on-lending portfolio or for a partial credit guarantee mechanism. The type of support provided will be structured to respond to the financial needs of each bank.


The IDB will work with three commercial LFIs in Mexico to reduce emissions through funding for either direct financing of the LFIs‟ EE on-lending portfolio or for a partial credit guarantee mechanism. The type of support provided will be structured to respond to the financial needs of each bank:


Moreover, by involving large and small banks in the energy efficiency financing or guarantees component, the Component will have a demonstration impact for different classes of commercial banks.


Financial assistance and TC will be geared towards building capacity of the client banks and technical partners, as well as maximizing the replicability of investments. To the extent possible, domestic banks and technical agencies will lead investments, supported by the Program’ s TC and the KM program. In order to ensure fast and effective implementation of the CTF investments, the Component will work with LFIs that have recently received training on financing efficiency projects via planetBanking or other initiatives, and have demonstrated keen interest in the field. “ (IDB, 2011)

Challenges

“Despite the potentially substantial profitability of energy efficiency investments, lack of knowledge currently makes this a high-risk investment for Mexican banks, and therefore they have been unwilling to provide finance at commercially viable terms to competent actors in the market. Even given the training and technical support provided by the Program, LFIs may still be hesitant to undertake EE investments as a result of their lack of experience, and entry cost barriers.” (IDB, 2011)

Outcomes

“The Commercial Banking Component will provide funding for EE investments in SMEs. A number of opportunities for thermal and electrical EE exist in industrial, commercial and service SMEs. The most relevant opportunities for SMEs, in terms of their potential for emission reductions, are high-efficiency industrial motors, cogeneration, air conditioning, and lighting. Assuming that the envelope resources (USD110M) were available as lending products for these four technologies, the estimated emission reductions that would be achieved over the lifetime of the technologies would be 4.33 Mt CO2e.

 

The Commercial Banking Component‟s envelope would therefore achieve 0.039 t CO2e per dollar invested, or 0.197 t CO2e per CTF donor dollar invested (5.08 USD/t CO2e).


The total emission reductions that could be achieved if the CTF intervention were to be replicated throughout the targeted businesses across the economy, using these four technologies, would be 227 Mt CO2e. The emission reductions would be larger if other technologies are accounted for.


The further goal of this Component of the Program is to maximize the potential for replication by institutionalizing a business line that can scale-up EE investment in Mexico, while demonstrating its environmental and commercial attractiveness so that it can later be replicated in other LFIs. It is expected that other LFIs will be able to participate in the short to medium term as these types of EE investments become commonplace and as costs associated with their implementation reduce over time, due to learning and technical improvements.” (IDB, 2011)

References

IDB (Inter-American Development Bank), 2011.  IDB Private Sector CTF Proposal: Mexico CTF-IDB Group Energy Efficiency Program, Part I. Available at: www.climateinvestmentfunds.org/cifnet/sites/default/files/Mexico%20Energy%20Efficiency%20Program%20Part%20I%20-%20Approved.pdf.