Since 2012 Mexico has established a comprehensive climate change policy framework, but despite many efforts, energy intensity remains stable and emissions have steadily increased. In November 2015, Mexico established ambitious INDCs committing to reduce its greenhouse gas (GHG) emissions by 22 per cent by 2030 relative to business-as-usual (BAU) levels.
Small and Medium Enterprises (SME) are often described as the backbone of the Mexican economy since they represent 98 per cent of all businesses, 75 per cent of employment and produce 50 per cent of its GDP. They are responsible for around 12 per cent of total GHG emissions in Mexico with a total emission reduction potential close to 6.91 Mt CO2e/y. Nonetheless they are rarely referred to as an important target group for promoters of Mexico’s transition towards a low-carbon economy. Energy Efficiency (EE) has been identified as a mechanism for costs reduction in SMEs, and clearly show that companies can directly influence their energy costs by optimizing production processes thereby increasing their competitiveness and reducing GHG emissions. As to tap their full mitigation potential it is, however, crucial to make SMEs aware of the EE potential and benefits and provide them with adequate mechanisms to ensure their maximization. Likewise, financial institutions, especially commercial banks, need to better understand the risk profile of SMEs and technical aspects of clean technologies as to manage their investment risk. This is key to leveraging more private capital for climate finance.
Acknowledging the above, Mexico has already developed a NAMA to promote EE in SMEs. Implementation started in 2014, and has so far provided publicly funded concessional loans to 17,501 companies for standardized EE measures such as the substitution of obsolete equipment. Nevertheless given the basic technological focus adopted, it produced rather modest impacts with regards to GHG emission reductions. Nonetheless, the initial NAMA has successfully provided concessional loans to SMEs and built up a wide technical support structure 100 per cent financed by public funds.
The proposed Nama Support Project (NSP) will offer technical and financial assistance to the above mentioned SME-NAMA, to considerably extend its scope by starting a second implementation phase. For this purpose a strategy has been developed for providing financing for more complex EE measures, such as the optimization of systems in medium-sized enterprises (compressed air, steam generation and distribution, industrial refrigeration, amongst others) which will require higher investment costs but have a higher energy savings potential resulting in more GHG reductions. Furthermore by introducing commercial (second-tier) banks as financial intermediaries, private capital will be leveraged providing for considerable up-scaling opportunities.
The NSP will focus on developing a dynamic and robust market for EE in SMEs, with a significant contribution of private capital and replication potential in other sectors. For this purpose a new technological approach, based on optimizing energy systems performance in selected SMEs’ sub-sectors (i.e. hotels, chemical industry, food processing industry, etc.), will be implemented. Also, a qualified EE services offer integrated by certified consulting companies, will be established and market and financial barriers will be overcome to attract involvement of commercial banks in EE financing.
Direct funding leverage: Financial cooperation will be provided to set up a guarantee fund (EUR 7 m) as well as a small-scale grant subsidy scheme (EUR 2.5 m) to finance EE measures in SMEs. A leveraging effect of at least EUR 70 m of private capital is expected for clean technology financing.
Technical cooperation funds will be used to make the need and importance of EE ubiquitous in the relevant stakeholders’ mindset, and to produce a significant pipeline of bankable EE projects showcasing the success cases (4 million EUR). This will be achieved by providing the market with a qualified offer of EE services integrated by certified consulting companies; and raising SME’s awareness regarding EE economic and environmental benefits, particularly emphasizing how it improves SME’s competitiveness.
Mitigation potential: With a conservative approach, an energy efficiency project implemented in electric and thermal energy consumption systems can produce individual average savings in the range of 40 and 100 t CO2e/y, which is 17 to 42 times higher than the savings obtained per project during the first implementation phase. At the end of the 4th implementation year, the NSP aims to a total of 9,000 projects implemented with an annual impact capacity of 360,000 t CO2e/y. Over the NSP implementation period, the estimated cumulative emission reduction potential amounts to 421,200 t CO2e.