Integrated RE & EE Financing Options in the municipalities of Rio de Janeiro and Belo Horizonte

The World Bank (WB), in collaboration with the Municipalities of Belo Horizonte and Rio de Janeiro, has conducted studies in schools that demonstrate significant potential in not only energy and water efficiency, but also especially in PV rooftops. However, the modernization of schools may require different business and financing models since there is no clear revenue source that can be ring fenced and securitized as is the case in public lighting.   Given the constraints on public budgets, the WB is exploring alternative methods of procuring, financing, and executing projects and potentially involving the private sector. This would require an analysis of market and sector conditions in Brazil in the context of solar rooftop and energy efficiency projects. This analysis would form a solid basis for potential financing structures that meet the needs of the country and are suited to the existing institutional and market frameworks. Econoler was thus mandated to carry out this analysis to provide better understanding of the private investment market for energy efficiency (EE) and renewable energy (RE) projects, as well as identify key risks and barriers to investment and the most appropriate financing model.   

Econoler carried out the analysis in three stages: 1. Conduct Market Assessment: This activity provided a greater understanding of the existing market and potential scope for financing projects in Brazil. It identified broader issues that impact not only project scope and funding, but also the ability to implement longer term programs. In a series of interviews with city officials, Econoler assessed how adapted this project was to the broader respective strategies of both cities. We also explored key regulatory risks that tend to prevent the implementation and allocation of funds for RE and EE projects, as well as the barriers to both the use of solar rooftop panels and the reduction of energy consumption at the political, country, state and city levels. The market assessment culminated in a presentation of findings, including the experiences of other cities in Brazil, India, the United States and Africa with similar projects to highlight successes, failures and lessons learned.   2. Conduct Sector Assessment: This activity focused on how projects are procured and managed by municipal entities and the private sector. It provided in-depth understanding of the institutional structures of city governments in terms of designing projects, awarding contracts, licensing, and budgeting. It also provided insights into the federal regulations on net metering, wheeling energy and access to ANEEL-PEE funds (energy efficiency program for the electricity regulator).   3. Assess Alternative Financing Models: This activity consisted of thoroughly researching and analyzing the applicability of renewable generation concessions, solar Power Purchase Agreements (PPA) including third-party ownership models, solar leasing, securitization of receivables, and revolving funds for implementing EE measures in buildings, etc. and developing the most appropriate models for the schools in Belo Horizonte and Rio de Janeiro.   Econoler finally recommended the most suitable business and financial models for both municipalities to enable the WB and key stakeholders to select the most appropriate model and move forward with its implementation.