Design of a Distributed Generation with Renewable Energy and Energy Efficiency Fund for the Public Sector

The Inter-American Development Bank (IDB) is in charge of implementing a global initiative named Sustainable Energy for All (SE4All) and acts as regional hub for Latin American Countries (LAC) participating in the initiative. Brazil participates in SE4All and has thus not only launched the Brazilian Energy Efficiency National Plan, which establishes an EE savings target of 10% of electricity consumption by 2030, but also created the Distributed Generation program to promote distributed generation with renewable energy (DGRE) especially through the installation of solar photovoltaic panels (PV).   The National Forum of the States Mines and Energy Secretaries, which represents the Mines and Energy Secretaries of all Brazilian states, has requested support from the IDB to help design DGRE and EE financing mechanisms for the public sector to help overcome barriers currently inhibiting the expansion of such projects at the state and municipal levels. The public sector is thus targeting DGRE investments in solar PV for hospitals, schools, universities, administrative public buildings, as well as state-owned companies and public parking lots.   The general objective of this project is to scale up public-sector investments to help reduce carbon emissions, promote clean energy and increase competitiveness. The specific objective is to design and implement standardized financing mechanisms to foster the development of public-sector DGRE and EE projects that can be scaled up and replicated in the different Brazilian states.

Econoler carried out the following activities to design the DGRE-EE Fund:

• Reviewed the legal framework governing public-sector investments at the state and municipal levels to analyze key issues of the investment cycle and potential financial models that could be used (procurement practices, ownership of assets, collateral and guarantees, budget capture possibilities, borrowing and on-lending capabilities and limitations);
• Reviewed previous relevant analyses carried out by international and local stakeholders. The objective was to identify typical project parameters, ratios and characteristics that could serve as a basis for standardizing and simplifying the project development process;
• Reviewed and identified existing financing schemes and best practices from other LAC applicable to the implementation of DGRE and EE projects. This analysis focused on financing models that are readily applicable and adaptable to states and municipalities.

  Based on these activities, Econoler carried out the following tasks:

• Recommended financing models for implementing DGRE and EE projects. A wide range of models were considered, which can be applied at different levels (state, municipal, individual facilities, development banks, PPPs, etc.). Two models suited to the needs of DGRE/EE investments were identified:
• a credit line for investment in EE/DGRE based on energy-saving projects;
• SPV with mixed financial resources (public and private) and managed by a private administrator.
• For each model, the legal and financial structures of the scheme, the repayment mechanisms and the project investment cycle were defined, outlining the roles and responsibilities of different stakeholders.
• Prepared project prototypes. This activity focused on defining typical project profiles suitable to each recommended model by substantiating each with market data and concrete project information. They included (1) a solar rooftop project, (2) an EE project in buildings and (3) an efficient street-lighting project.
• Developed guidelines and templates for public-sector use to facilitate the process of preparing and submitting projects for financing, based on templates and processes available in the market.  

  The analysis and findings of this assignment will not only enable the IDB to decide whether or not to set up a DGRE-EE fund, but also provide all the required elements do so.