Representatives of the Chilean financial, business, and government communities are participating in a comprehensive program of workshops, training, and pre-investment studies with the aim of increasing financing for renewable energy self-supply and efficiency projects, particularly for small- and medium-scale industrial, commercial, and private entities. Program participants include the Ministry of Energy (CER), the Chilean Agency for Energy Efficiency (AchEE), the IDB, the International Finance Corporation (IFC), banks, and potential private sector clients.
The activities financed by the grant will help to reduce barriers to the availability of financing for renewable energy self-supply and energy efficiency projects and to enable firms to quantify the effects of non-conventional renewable energy projects in reducing operational costs. The issue is critical for firms seeking to raise productivity in a country where energy costs are high.
The program. The grant for preparing the Renewable Energy and Energy Self-Sufficiency Program is being carried out by the IDB with US$780,000 in CTF technical cooperation resources in collaboration with the IFC, which is managing a CTF technical cooperation for US$213,000. The IDB operation was approved in December 2012.
The program’s five activities, which are being carried out in coordination with the Ministry of Energy, CER, and AchEE, are preparing the way for a scaled up renewable energy self-supply and energy efficiency program that would be funded by the CTF and executed by the IDB and the IFC. The program activities are as follows:
- Identification of the target market (feasibility study) which will assess entry barriers for energy efficiency and energy self-supply production schemes, including feasibility profiles for energy efficiency and self-supply for segments of the energy consumption market (IDB).
- Capacity building for technical service providers that will include workshops and training to increase knowledge and expertise in reducing financing barriers and developing expertise of project developers and finance analysts (IFC).
- Development of pilot projects for energy efficiency and self-supply production projects to be funded later. Included will be pre-investment studies and development of projects to a bankable stage (IDB).
- Identification of possible financing mechanisms and structures and the proposal of alternatives for increasing project development for energy efficiency and local energy production projects with financing from private banks and governmental loans (IFC).
- Design of a system to evaluate the impact of the REESSE program (IDB).
Although the Chilean government has provided support mechanisms for energy investment, these incentives have had a relatively minor impact on the development of small-scale thermal and/or electrical energy self-supply projects in the industrial, public, and commercial sectors. A large part of the reason is that investment costs of these projects are typically less than US$400,000, which is the minimum required for projects to qualify for preinvestment studies by the country’s economic development agency. Moreover, these projects generally are not connected to the grid.
Update on results. A coordination committee with representatives from local governmental institutions, CER, and AchEE has been established. The target market feasibility studyhas been completed and the development of more than 10 pilot projects has initiated at the first trimester of 2014.
High-priority on energy savings. Chile will require an additional 14,500 MW of installed electrical power capacity by 2020. Reducing incremental consumption by 20 percent in the period 2008-2020 will decrease the additional installed capacity needed by 1,600 MW.
Despite the compelling need for energy efficiency measures and their apparent profitability, investment in this sector has not yet taken off. For this reason, the government has included energy efficiency as a central tenet of its recently launched National Energy Strategy, which seeks to decouple economic growth from energy consumption. The goal is to reduce by 12 percent the projected energy demand by 2020, which would be equivalent to a reduction of more than 4.1 million tons of petroleum equivalent.
The IDB is executing several projects in Chile’s energy sector that support the country’s energy strategy. An equity investment fund is financing smaller hydropower plants, which is expected help increase interest in renewable energy projects. A direct loan to a commercial bank is financing green projects, mainly small hydropower plants. Other initiatives include a project to promote clean energy market opportunities among small and medium-sized enterprises and a program with the Chilean Energy Efficiency Agency with support of the GEF to promote energy efficiency in the industrial and commercial sectors by strengthening technical service providers and increasing access to financing.
Lessons learned. During the preparation of the grant several initiatives were identified to promote energy efficiency and renewable energy in the country. However, while many of these studies were developed, they resulted in few actual projects. The program’s aim is to ensure that projects are carried out, which is the purpose of the component for developing pilot projects and preparing investment studies to bring projects to a bankable stage. It also was felt that pilot projects would be the best means for replicating these type of initiatives nationwide.