The World Bank Moves Towards Mexican CFL Loan
The World Bank Moves Towards Mexican CFL Loan
ILUMEX is the World Bank's multi-million-dollar showcase demonstration of how using CFLs in developing countries is a way of delivering energy services while saving money and achieving environmental benefits.
The international lending community is viewing energy efficiency with increased interest. It is well established that investments in energy efficiency can help developing nations meet their growing neeeds for energy services with less capital than would alternatively be required for expanding energy supply systems.
Increased energy efficiency is especially useful for electric utilities plagued with power shortages, mushrooming peak demand growth, and the need to subsidize the price of power. Given their access to capital and pre-existing contacts with energy users, electric utilities are logical purveyors of energy efficiency. Everyone benefits from less pollution, less debt burden, and new opportunitites for economic development.
Compact fluorescent lamps (CFLs) have become a symbol of energy efficiency. CFLs are four-times more efficient and last many times longer than the incandescent lamps they replace. Over its life, a 15-watt CFL costing US$ 10 will save the electricity equivalent of 200 kilograms (appr. 450 pounds) of coal or a barrel of oil, several times its value in electricity, and US$ 5-10 worth of incandescent lamps. However, despite these attractive benefits, the higher first-cost barrier has hampered diffusion of this promising technology. This problem is acute in poor countries, where even one CFL can equal a significant portion of a household's monthly income.
REDUCING CO_2 EMISSIONS
The ILUMEX projects began in 1991 when individuals from Mexico and the United States drafted a proposal to the Global Environmental Facility (GEF) within the World Bank to undertake an effort to use energy efficiency to achieve reduced CO_2 emissions in Mexico. The proposal is under final review at the World Bank and will likely result in a combined grant and loan amount of up to US$ 20 million.
The loan portion will be piggy-backed on a US$ 500 million loan to the Comision Federal de Electricidad (CFE) to reduce electricity transmission and distribution losses in Mexico. The Bank happily observed that linking the efficiency loan to the main loan would require little extra administrative and logistical effort.
PILOT PROJECTS
Given a very constrained financial outlook - and electricity demand growth in excess of 8 percent per year over the past three decades (about 3% per year recently) - energy efficiency has huge potential value to CFE. In an effort to begin developing its less expensive "demand-side" resources, CFE has proposed a multi-stage effort beginning with a CFL program directed at residential customers in the Mexican cities of Monterrey and Guadalajara. The project team consists of representatives of electric utilities, research institutes, and the lighting industry, from both Mexico and the United States.
Surveys have been completed in the two cities to gain understanding of patterns of use of light bulbs (size, hours of operation, demographics of users, customer perceptions of lamps, and physical feasibility of use) and to reveal how various market segments respond to different incentives. CFE has also undertaken seven CFL pilot programs over the past year. Different incentive types were tested, including rebates to customers, rebates to retailers, and house-to-house sales on a cash-or-lease basis.
Based on the survey and pilot programs, CFE has decided to promote direct sales and 2-year lease arrangements in the World Bank demonstration. CFE will pass on to their customers the lamp-cost savings that result from a large-scale purchase from manufacturers. With a monthly fee of less than one US dollar per lamp, the energy savings more than compensate the household for the lease fee.
To assist CFE in designing the two-city program, a CFL Program Menu was produced (with funding from the US Agency for Interntional Development, AID) with clear "How-to's" for successful design, implementation, and evaluation of CFL programs. The menu emphasized economic and technical issues, and verification of anticipated savings.
In early 1993, CFE will formally announce its plans for the program in the lighting trade journals.
PHASING OUT SUBSIDIES
It should be noted that CFE is focusing this demonstration program on the residential sector, despite superior return on investment for commercial, institutional, and industrial sector lighting retrofit programs. There are several reasons for this decision. First, low-income households receive the most heavily subsidized electricity prices (the lowest user class pays only 1.8 cents/kWh vs a marginal cost to CFE of about 12 cents/kWh).
As part of World Bank loan agreements, CFE is phasing out subsidies and moving to pricing based at the long-range marginal cost of electricity (LRMC). This will mean rate increases, and CFE recognizes the societal value of a CFL program to help lower utility bills and mitigate rate shocks potentially experienced by low-income households. Second, a residential CFL program would help foster better public relations. CFE remains open to the option of augmenting the residential program with commercial and institutional programs.
Evan Mills
See also Large-scale GEF Program in Poland, IAEEL 3-4/95)
For more information, contact:
Ing. Enrique Vargas Niet o (project implementation)
Comision Federal de Electricidad (CFE), Mexico
Tel: +52 5 254 52 68
Fax: +52 5 250 60 51
Luis H. Luzuriaga(program financing)
The World Bank, USA
Tel: +1 202 473 8768
Fax: +1 202 676 1821
Russel Sturm(survey results)
International Institute for Energy Conservation
Tel: +1 202 842 3388
Fax: +1 202 842 1565