Guilherme Teixeira: Breaking down financial barriers to accelerate industrial energy efficiency in Brazil
As climate change and unpredictable weather patterns threaten to disrupt Brazil’s energy supply, Guilherme Teixeira is working to promote the competitive advantages of industrial energy efficiency.
Name: Guilherme Teixeira
Position and organization: Sustainable Finance Consultant at SITAWI Finance for Good
Tell us a little about your experience and the type of work you do.
I am a senior consultant for SITAWI, which is a Brazilian think-and-do tank that works to advance social and environmental outcomes through finance and investing. I specialise in sustainable finance and have experience evaluating social and environmental management instruments with some of Latin America’s largest banks and private equity firms. I’m particularly passionate about combining my knowledge in finance and sustainability management because finance can be one of the most powerful drivers to push the real economy towards more sustainable practices.
Could you gives us a high-level overview of the current state of industrial energy efficiency in Brazil?
The industrial sector in Brazil accounts for nearly 20 per cent of the nation’s GDP and it consumes 30 per cent of the total annual energy consumption. When we talk about energy efficiency in Brazil we are also talking about competitiveness, it’s not just about sustainability issues. The industrial sector needs to recognize the economic opportunities and cost benefits which can be achieved through energy efficiency and technology upgrades.
Why is industrial energy efficiency so important in an era of climate change?
Brazil is hugely dependent on hydropower, it contributes 60 per cent of the total energy mix. Therefore the country’s power supply is vulnerable to climate change and rainfall patterns. As weather patterns become increasingly unpredictable, there is a greater risk of power outages and unstable energy prices which can greatly impact the productivity of industrial companies. So when companies are more efficient they reduce their chances of being exposed to these environmental risks.
The industrial sector in Brazil accounts for nearly 20 per cent of the nation’s GDP and it consumes 30 per cent of the total annual energy consumption. Photo: Guilherme Cunha/Unsplash.
How is the business community in Brazil responding to climate change and the need to become more efficient with their energy?
Large companies are aware of these issues. They are aware of the risks that climate change presents and many are engaged in international initiatives to reduce their greenhouse gas emissions. Many companies are choosing to take bold steps to become more efficienct. However, when we talk about medium and small sized companies, most of them still do not prioritize energy efficiency or other efforts which can reduce costs and help them remain competitive.
What other challenges do companies face in the transition towards industrial energy efficiency in Brazil?
It’s not just an issue of awareness among companies and SMEs (small to medium sized enterprises). There is a financial challenge as well. Industrial companies need to access credit lines, but interest rates are high in Brazil. Generally banks prefer safe and mainstream projects to finance which assure high returns. There is a high degree of perceived risk and uncertainty around industrial energy efficiency projects in Brazil, especially when SMEs are involved.
What kind of interest rate would an average SME expect if they wanted to take out a loan for an energy efficiency project?
Well it depends on the credit line, the industry and the company. There are some energy efficiency credit lines with a 10 to 15 per cent annual interest rate. This is just for concessional loans and can be still considered high. When we are talking about standard mainstream loans, the interest rate can reach 20 per cent per year or even more. Much greater than in Europe. Nevertheless, interest rates are not the only challenge. Companies are usually required to provide a great amount of real assets for collateral, and this is one of the main barriers for SMEs.
Guilherme delivers a financial sector workshop in Brazil on behalf of the Industrial Energy Accelerator.
You recently supported the Carbon Trust and worked with Adelphi to deliver workshops on industrial energy efficiency for the finance sector in Brazil? What was the purpose of these workshops?
We know the potential positive impact of energy efficiency to the environment and on society. But in order to access finance, these arguments need to be bolstered with a business case. From the investor’s perspective, there is a general lack of awareness of the commercial benefits of best practices in energy efficiency. Other challenges include bureaucracy, a lack of appraisal capacity among bank staff and the ‘high-risk’ perceptions surrounding energy efficiency projects. With this in mind, the Accelerator’s financial sector workshop series aims to provide Brazilian banking staff with the tools and knowhow needed to confidently appraise energy efficiency investment projects from a risk management perspective.
It is important to note that these financial barriers are only part of what is a very complex array of intertwined barriers and solutions for industrial energy efficiency in Brazil. The Carbon Trust and UNIDO identified many of these issues in the Brazil Diagnostic Report.
What response did you receive from the financial sector participants who attended the workshops?
It was very interesting. We had more than 60 participants from a wide variety of banks. All of the participants welcomed the workshops and the broader initiative from the Industrial Energy Accelerator. Many felt that the framework used to deliver the workshop was a useful tool to appraise energy efficiency proposals in the future. On the other hand, there are still some banks which remained unconvinced by the international business cases. They want to see a solid and successful business case in Brazil before they consider financing local energy efficiency projects. So that is one of the next steps.
Views from the field.The Industrial Energy Accelerator works on the ground to rally government, business and finance around efficient solutions in some of the world’s most energy intensive nations. This month, the Accelerator interviewed our in-country experts about what we stand to gain from industrial energy efficiency, and what needs to be done to make this invisible climate solution a reality.