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Brazil May Invest $3 Billion in Energy Efficiency as Loans Rise

Brazilian businesses may invest as much as $3 billion in energy-efficiency measures through 2020 as banks become more comfortable offering loans that will be repaid mainly through cost savings, according to the International Finance Corp.

Energy-service companies, which provide consulting and power audits, may spend as much as $400 million next year on systems that help corporate clients cut their power consumption, Daniel Shepherd, program manager for advisory services in Latin America and the Caribbean for the Washington-based IFC, said in a telephone interview.

High electricity rates in Brazil mean industrial companies may cut their power bills by more than a third by installing more efficient lighting or cogeneration plants. The IFC is seeking to educate banks about the potential returns for such projects and encourage them to offer financing, Shepherd said.

Most of the country’s 80 or so energy-service companies “aren’t considered credit-worthy by financing institutions,” he said in an interview. Lenders “need to understand the business model” of energy-efficiency projects, some of which pay for themselves within a year.

Financing rates as high as 18 percent in Brazil have deterred industrial companies from taking on such projects on their own, he said.

Consumers in Brazil pay as much as 18 cents a kilowatt hour for electricity, about twice what’s paid in the U.S. and 80 percent more than in neighboring Peru, Shepherd said.

Credit Lines

Brazil’s commercial banks have become more receptive to energy-efficiency initiatives in the past year and Banco Itau BBA SA developed credit lines just for such projects, Paulo Noronha, adviser to the directory of Associacao Brasileira das Empresas de Servicos de Conservacao de Energia, a Sao Paulo-based trade group, said today in a telephone interview.

The national development bank Banco Nacional de Desenvolvimento Economico e Social is also offering an energy-efficiency credit line, Proesco, with annual rates of 14 percent. About 30 million reais ($16.5 million) of financing was approved from the line in 2011, Norinho said.

“Banks are investing now because they understand this will be a large market in the future,” he said.

The IFC, a unit of the World Bank, is helping energy-service companies develop 12 pilot projects at hotels throughout the country in preparation for the 2014 soccer World Cup and the 2016 Olympic Games, Shepherd said. The initiative may spur as many as 50 hotels to adopt similar measures by 2015 that would require $50 million of investments, he said.

“There are 13,000 hotels in Brazil,” he said. “There’s an exponential growth opportunity here.”

Allocating Resources

Most measures to save electricity are implemented by utilities that are required to dedicate 0.5 percent of their income to energy-efficiency projects or research, Shepherd said. Utilities have invested about 1.35 billion reais on such initiatives since 2008, including public awareness campaigns, he said.

Businesses in rapidly growing markets like Brazil typically allocate capital to their core operations, whatever they are, rather than invest in unrelated projects such as energy efficiency, Tom Rowlands-Rees, an analyst at Bloomberg New Energy Finance’s London office, said yesterday in a telephone interview.

“In competitive markets it’s seen as better to increase your footprint and then optimize later,” he said. Taking on tasks that may reduce clients’ power bills “can be a real low-hanging fruit for companies seeking to make money from energy-efficiency savings.”

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