|1. Project Data:
ICR Review Date Posted:
|Energy Efficiency Project
Project Costs(US $M)
Loan/Credit (US $M)
|Energy and Mining
Cofinancing (US $M)
Board Approval Date
|Energy efficiency in power sector (94%), Central government administration (6%)|
|Climate change (67% - P)
Infrastructure services for private sector development (33% - S)|
||ICR Review Coordinator:
|Richard L. Berney
||Robert Mark Lacey
|2. Project Objectives and Components:|
a. Objectives: This Energy Efficiency Project was conceived as a complement to the institutional components of the Electricity Transmission and Distribution Project (US$125 Million, Approved May 11, 1994) as a means of stimulating the national power company, and the private and public sectors, to invest in energy efficiency improvements.
The project development objective as stated in the Global Environment Facility Trust Fund Grant Agreement (page 22) is " to increase consumer demand for and competitive supply of energy efficient goods and services, contributing to: (a) improved productivity of energy use; (b) reduced reliance of the Recipient’s economy on imported electricity and fossil fuels; and (c) reduced emissions from the energy sector.
The project development objective as stated in the Project Appraisal Document (PAD, page 2) is virtually identical: "to increase the demand for and competitive supply of energy efficient goods and services, contributing to: (a) improved efficiency of energy use; (b) reduced reliance of the Uruguayan economy on imported electricity and fuels; and (c) reduced emissions from the energy sector."
The project’s Global Environmental Objective, as stated in the PAD (page 2) is: "to promote energy efficiency through (i) building capacity and know-how among stakeholders; (ii) stimulation of consumer demand; and (iii) promotion of project development and investment financing."
This Review uses the Project Development Objective of the Global Environment Facility Trust Fund Grant Agreement.
b. Were the project objectives/key associated outcome targets revised during implementation?
There were three original components:
Component 1: Energy Efficiency Market Development. (Appraisal US$10.83; Actual US$4.82): This component, implemented by the Ministry of Industry, Energy, and Mining (MIEM), was to strengthen the market for energy efficient goods and services. The component supported energy efficiency efforts in all economic sectors. It included two main activities:
The component was restructured twice, first in 2007 and then again in 2011, just before project closure. In 2007, the Uruguay Fund for Energy Efficiency (UFEE) investment Fund was redesigned as a Guarantee Fund. The US$2.5 million of GEF funds originally allocated for this component were allocated to the Guarantee Fund. This conversion was implemented because UFEE, with its relatively limited resources, found itself unable to place its loans in competition with the increasingly liquid private financial system. The guarantee mechanism was expected to allow UFEE to continue supporting energy efficient investments with what was anticipated to be a more responsive tool. However the banking sector showed little interest in using this guarantee fund. In June, 2011, the UFEE Guarantee Fund, with its US$2.5 million of GEF funds, was incorporated into the Uruguay National Guarantees System (SIGA), an institution that was established subsequent to UFEE's original capitalization.
- Market strengthening: The activities under this sub-component included: (i) developing policies and regulations for promoting energy efficiency; (ii) improving awareness of potential energy efficiency improvements and capacity building programs; and (iii) a labeling and standards program including a voluntary energy efficiency seal for main household appliances, lighting equipment, building thermal envelope and industrial and other equipment and materials;
- Uruguay Fund for Energy Efficiency (UFEE): The Fund facilitated the financing of energy efficiency projects. It was to support (i) fund management services, (ii) a Project Development Facility to provide contingent grants to cost-share feasibility studies, and (iii) a Project Finance Facility to provide term debt to energy investment projects by energy service companies, business, and industry. It was conceived to be managed by a commercial bank.
Component 2: Utility-Based Energy Efficiency Services. (Appraisal US$8.98; Actual US$9.42) This component assisted the creation and operation of an Energy Savings Unit within the national power company (UTE). It included:
- Establishment of a UTE Energy Service Unit (ESU). This sub-component provided support for technical assistance to advise UTE on establishing the unit and on carrying out market surveys. UTE’s own resources supported the costs of staffing, administration and office costs, marketing, training, and monitoring and evaluation of activities of the unit.
- Demand Side Management (DSM) and Energy Efficiency Investments by the Energy Service Unit of UTE. These activities comprised three initial projects defined during preparation plus further follow-up investments determined during the early years of operation. The initial pipeline of projects included: (i) provision of efficient lights, water heaters and other energy efficient equipment to residential and commercial customers in three municipalities; (ii) installation of new municipal lighting equipment in three municipalities and (iii) improving the retail electricity distribution system in three areas to reduce losses, and increase end-use efficiency and payment levels in poor urban neighborhoods. New projects were to be added, as long as they meet the criteria for energy efficiency investments.
- Solar Home Systems (SHS). This sub-component would provide SHS to dispersed rural populations.
Component 3: Project Management. (Appraisal US$1.35; Actual US$1.38) This component funded the work of the Project Management Unit in the Ministry of Industry, Energy and Mining, and supported the services provided by the accounting, acquisition, and information management departments of UTE.
d. Comments on Project Cost, Financing, Borrower Contribution, and DatesProject Cost: Total project cost was US$15.62 million, US$5.54 million (26%) less than the appraisal estimate. Expenditures on market development activities for generating demand for energy efficiency projects and products were US$4.82 million, about 45% of the US$10.83 the appraisal estimate. The expenditure by the electricity utility UTE on energy efficiency activities was US$9.14 million, about four percent above the appraisal estimate. Project management costs were US$1.38 million, about two percent above appraisal estimates.
Financing: US$6.62 million of the US$6.88 million GEF grant was disbursed. The remaining US$0.26 million dollars was cancelled. GEF funds provided about 44% of total project expenditures, compared with the appraisal estimate of 33%. The primary reason for the higher GEF percentage was that financing by sub-borrowers for energy efficiency projects, which the appraisal estimated would be US$6.08 million, failed to materialize. GEF financing of project management activities was US$0.16, about 30% above the appraisal estimate. Marketing development expenditures were US$0.21 million, about 5% below the appraisal estimate. There were no other external sources of financing.
Borrower Contribution: The national power company, UTE, and the Ministry of Industry Energy and Mining, contributed US$8.8 million for the project activities, US$0.6 million more than the appraisal estimate.
Dates: In April 2010, GEF grant resources were reallocated and an additional activity, the financing of energy efficiency laboratory testing equipment, was introduced under Component 2, and the project closing date was extended by eighteen months, to December 31, 2011
|3. Relevance of Objectives & Design:|
a. Relevance of Objectives:Substantial: The objectives are relevant to the 2005-2010 Country Assistance Strategy (CAS) and to the 2010-2015 Country Partnership Strategy (CPS), both of which include improvements in energy efficiency as part of their basic program. The CAS supported improving energy use by creating an enabling policy and regulatory environment (CPS page 16). The CPS has included both energy sector strengthening and Energy Efficiency as part of the outer year indicative lending program (page 18) in the context of improving competitiveness and infrastructure, the second of the Bank's four pillars for 2010-2015 (page 17).
The cost of energy for a country without any hydrocarbon reserves, such as Uruguay, is very large, and seeking to maximize efficiency within economic limits is a relevant objective from the country’s point of view.
b. Relevance of Design:Modest: There is a clear, if implicit, causal chain linking most, but not all, of the project activities and their expected outputs to the intended achievement of the objectives. The project addressed the lack of demand for energy efficient goods and services by (i) supporting a program to increase awareness of the benefits that could be derived from more efficient energy using devices; (ii) promoting the development of companies that support energy efficiency investments; and (iii) facilitating access to financing for commercial energy efficiency investments. However, at the time of the appraisal, electricity prices were very low because most of Uruguay's electricity came from Argentina, where it was generated from low cost hydroelectric dams and low cost natural gas. And as long as energy prices were low, it was unlikely that these activities would lead to increased consumer demand for energy efficient goods and services. And it was most unlikely that a competitive supply of these goods and services would emerge without a significant demand for them. This effort to engage the target population in a program to improve energy efficiency was not likely to succeed until energy prices increased significantly, an outcome that was not anticipated at the time of project appraisal.
For two of the project components there does not appear to be a causal chain linking the Grant Agreement’s Development Objective of increasing consumer demand for and competitive supply of energy efficient goods and services. These components were:
- Improving the retail electricity distribution system and payment levels in poor urban neighborhoods, under component 2.
- Providing Solar Home Systems to dispersed rural homes, also under component 2.
|4. Achievement of Objectives (Efficacy) :|
The first two objectives -- (a) Improved productivity of energy use; and
(b) Reduced reliance of Uruguayan economy on imported electricity and fuels . are closely interlinked through various activities, most of which were mutually supporting the targeted outcomes through increasing the demand for, and competitive supply of, energy efficient goods and services in the economy. Their efficacy is considered together. On balance, they are rated substantial.
1. Policies and regulations were developed for promoting energy efficiency.
- An Energy efficiency law was established. The energy efficiency law corrected a number of uneconomic disincentives to energy efficiency investments.
- Laws were passed establishing Daylight Saving Time and promoting the use of solar thermal energy.
- Decrees were passed promoting energy efficiency (EE) within energy generation activities, establishing an EE labeling initiative; establishing standards for insulation of buildings; and promoting EE in the public sector.
2. A labeling and standards program was established for lighting, water heaters and refrigerators.
- A compulsory energy efficiency evaluation and labeling system for compact fluorescent light bulbs, electrical heaters and refrigerators was implemented.
- A water heater and lamp testing laboratory was designed and equipped.
- Forty-nine energy efficiency national norms were developed and published.
- UTE installed efficient public lighting and rehabilitated the networks in two municipalities (approximately 1,500 lamps).
3. Programs were implemented to improve the public's awareness of potential energy efficiency improvements and to build capacity.
- Methods for providing the general public with ways to access energy sector information were evaluated.
- Radio and TV campaigns for the dissemination of energy efficiency information were designed and implemented.
- A primary school energy efficiency text was developed and disseminated.
- Courses oriented to energy service companies, energy-related staff in the public sector, and primary, secondary and community center teachers were developed.
- Some 3,200 stakeholders were trained in energy efficiency practices, twelve times the target of 250.
4. Feasibility studies and energy audits were carried out and support mechanisms for EE investments were put in place.
- Studies covering Uruguay's cogeneration potential, its solar thermal potential, and its energy savings potential were completed.
- A study was implemented on the use of solar water heaters in low-income housing.
- Six energy audits were financed (2 public sector, 4 private sector), nine energy efficiency diagnostic studies were completed, of which eight were implemented by Energy Service Companies, and 37 energy efficiency investments for public sector buildings were evaluated, 12 of which were implemented.
- Blueprints for Energy Supply Company interventions were developed, including standardized contractual instruments to support the projects, and organized training courses for their staff.
- A project monitoring and evaluation methodology was established.
- The Uruguay Fund for Energy Efficiency (UFEE) was established. When the commercial banks became more liquid, they became interested in providing energy efficiency related investment loans to the private sector and the UFEE was no longer used or needed. It was subsequently reformulated as a Guarantee Fund for energy efficiency projects with US$2.45 from the UFEE. However, only one guarantee had been issued before project closing. The guarantee fund subsequently became part of the National Guarantee System (SIGA). The US$2.5 million in GEF funds, originally intended for UFEE, were allocated to SIGA, but remained unutilized at the time of project closing.
- Energy efficient residential and commercial lighting grew to 18 percent, compared with the target of 10%.
- Energy efficient municipal lighting increased to 63%, compared with the appraisal target of 20%.
- The sale of efficient water heaters and refrigerators rose to 9%, compared with the target of 25%.
- The initial reduction of losses from the elimination of illegal connections was not sustained and the level of illegal connections again rose. The program was terminated.
- Fourteen of the 56 registered Energy Supply Companies (ESCs) were active at project completion.
- The ESCs made investments in 17 public and private sector energy efficiency projects between January 2008 and July 2010.
- US$22.3 million were invested in energy efficiency projects, slightly more than the target of US$22.7 million; almost all of these investment funds were financed by the commercial banking system independently from the UFEE. This confirms that commercial funds were available for EE investments without the need for UFEE funds and/or guarantee, which is an important milestone for the sector.
- The cumulative impact of the above activities is estimated to be a reduction of about 9.6 MW in peak demand, which should correspond to equivalent reductions in imports of electricity and/or fuels that would otherwise have been required to meet peak load demand (ICR, Annex 3).
(c) Reduced emissions from the energy sector. Modest
The ICR estimates that the project activities enabled the avoidance of about 500 CO2 emissions, equivalent to only 36 percent of the appraisal target of 1,400 tons CO2.
The ICR notes the direct quantifiable benefits as (i) the reduced peak demand and hence the associated benefits to the economy through avoided imports of electricity and/or fuels; and (ii) the financial benefits of avoidance of greenhouse gas production through the electricity savings from the introduction of compact fluorescent light bulbs. The other significant quantifiable part of the project, namely, investments in energy efficiency enabled by the project activities, should be regarded as intermediate and contributing to the achievement of the targeted outcomes of the project. The comparative analysis of energy intensity, while interesting, does not demonstrate any correlation with the project's outputs, as the ICR notes in Annex 3.
Other measures of efficiency suggest that actual outputs achieved were significantly less than had been expected. For example, the Uruguay Energy Efficiency Fund completed only 17 feasibility studies, made one investment for US$200,000 and one loan guarantee. In addition, the establishment of UTE's Energy Efficiency Unit cost US$3.0 million, compared with the appraisal estimate of US$1.6 million. This brought the project's total direct and indirect administrative cost to US$4.4 million, a high 28% of the project's total cost of US$15.6 million.
The funds for the energy efficiency investment program were unused at project completion, and the efficiency of their future use is unknown. The efficiency of both the Solar Homes component and the upgrading the distribution systems was negligible.
Overall, efficiency is rated modest.
a. If available, enter the Economic Rate of Return (ERR)/Financial Rate of Return at appraisal and the re-estimated value at evaluation:
* Refers to percent of total project cost for which ERR/FRR was calculated