Publication date: September 2017

The Transformative Investments for Energy Efficiency and Renewable Energy (TI4E) programme was set up to improve industrial energy efficiency in Brazil by facilitating deals between potential investors and investment opportunities.

This report is the first outcome of the GIZ and The Carbon Trust partnership to design the TI4E programme. It presents a survey of the industrial energy efficiency market in Brazil, focusing on energy service company (ESCO) opportunities, along with a detailed mapping of ESCO characteristics, regulatory drivers for industrial efficiency, available financial mechanisms, existing technical assistance initiatives and remaining barriers limiting the implementation of industrial energy efficiency interventions.

This assessment provides an understanding of technical assistance requirements and other solutions that can help unlock Brazil’s industrial energy efficiency potential. Using official government projections, the report shows that energy efficiency is expected to play a significant role in reducing Brazil’s energy demand, and industries can save around 8 million tonnes of oil equivalent a year by 2024 through efficiency interventions.

However, a survey of the 80 members of Brazil’s ESCO Association (ABESCO) reveals that most have very limited capacity to access finance and implement interventions on the basis of energy performance contracts, and therefore have limited reach into industries. The report contains an assessment of the ESCO project pipeline, performed on the basis of ABESCO members’ total reported energy-efficiency-related revenue of R$1.1 billion a year. The lack of underlying data and evidence limits the capacity to assess the precise composition of this pipeline, but it appears to be  largely focused on electricity saving opportunities, leaving thermal savings largely unaddressed.

The attractiveness of this pipeline to foreign investors remains unclear, but evidence suggests that there are only a small number of projects with attractive rates of return and a low risk profile. This pipeline is concentrated in very few ESCOS (5-10), and limited in terms of the number of projects (likely 5-10 projects per ESCO) and the size of such projects (R$ 1-5 million on average). Further analysis is required to identify their applicability for energy performance contracts and their capacity to deliver high internal rates of return.

Desk-research and interviews with representatives of 10 key players in the market reveal a range of barriers need to be addressed to unlock ESCO-based energy efficiency opportunities. Barriers are classified as:

• customer-related - weakening demand from end users for ESCOs’ services;
• ESCO-related – limiting the capacity of Brazilian ESCOs to create a pipeline and service demand; and
• financier-related – hindering the attractiveness of existing finance mechanisms and hence the creation and implementation of a pipeline.

Solutions to these barriers are summarised in the report and are ranked on a scale of low, medium and high priority in terms of their importance to unlock market opportunities, guiding the next steps for the TI4E programme.