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Observatory of Renewable Energy

in Latin America and �e Caribbean

AUGUST 2011

Final ReportProduct 3: Financial Mechanism

Final ReportProduct 3: Financial Mechanism

ECUADOR

This document was prepared by the following consultants:

EDUARDO ROSERO and BYRON CHILIQUINGA

The opinions expressed in this document are those of the author and do not necessarily reflect the views of the sponsoring organizations: the Latin American Energy Organization (OLADE) and the United Nations Industrial Development Organization (UNIDO).

Accurate reproduction of information contained in this documentation is authorized, provi-ded the source is acknowledged.

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Case of Ecuador - Part III

CASE OF ECUADOR

Final Report

Component 3: Financial Mechanisms

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Content

1. Introduction ............................................................................................................. 5 2. Methodology ............................................................................................................ 5 3. Financial Mechanisms ............................................................................................... 6

3.1 Detailed list of mechanisms ................................................................................. 6 3.1.1. National financial mechanisms: ....................................................................... 6 3.1.2 International Financial Mechanisms: ................................................................ 8 3.2 Detailed Information of the Financial Mechanisms according to Institutions: ...... 9 3.2.1. Rural Electricification and Urban Marginal Fund (FERUM): ......................... 10 3.2.2. Rural Electrificacion Program for 15,000 homes in the Amazon (PERVA): ... 11 3.2.3. Energy Management Master Plan in Galapagos ............................................. 12 3.2.4. Ecuadodrian Investment Fund in the Energy and Hydrocarbon Sectors (FEISEH): ............................................................................................................... 13 3.2.5. Invesment Projects of the Bank of the Social Security Institute (BIESS): ....... 14 3.2.6. Funding Studies by the National Reinvestment Institute (INP): ...................... 15 3.2.7. CREEcuador Program – Productive Transformation Projects: ...................... 15 3.2.8. Cooperation GEF/Ecuador: ............................................................................ 16 3.2.9. Cooperation United Nations/Ecuador: ........................................................... 16 3.2.10. Euro-Solar Program: .................................................................................... 17 3.2.11. Direct Bilateral Cooperation Germany/Ecuador: .......................................... 18 3.2.12. Direct Bilateral Cooperation South Korea/Ecuador: ..................................... 19 3.2.13. Direct Bilateral Cooperation Japan/Ecuador: ............................................... 19 3.2.14. Bilateral Cooperation South Korea/Ecuador: ............................................... 20 3.2.15. Bilateral Cooperation China/Ecuador: .......................................................... 21 3.2.16. Bilateral Cooperation Russia/Ecuador: ........................................................ 21 3.3. Ecuador’s Cooperation with International Organizations and Countries: ........... 22 3.3.1. Inter-American Development Bank (IADB): ................................................. 22 3.3.2. Global Environment Fund (GEF): ................................................................. 23 3.3.3. United Nations Development Program (UNDP): ........................................... 23 3.3.4. Germany: ...................................................................................................... 23 3.3.5. China:............................................................................................................ 24 3.3.6. South Korea: ................................................................................................. 25 3.3.7. Japan: ........................................................................................................... 26 3.3.8. Russia: .......................................................................................................... 26 3.4. Comparative Analysis of Financial Mechanisms............................................... 27

4. Support mechanisms ............................................................................................... 30 4.1. Support mechanisms in Ecuador ....................................................................... 30 4.1.1. Public Policies: .............................................................................................. 30 4.1.2. Tax Incentives: .............................................................................................. 30 4.1.3. Clean Development Mechanism (CDM): ....................................................... 30 5. Successful Cases ................................................................................................. 31 5.1 Non-Refundable Cooperation Fund ................................................................... 31 3.4.2 Bank loan ....................................................................................................... 32 5.3. Bank loan and self financing ............................................................................ 33 5.4. Co-generation project under the CDM: ............................................................. 33 5.5. Centralized International Cooperation: ............................................................. 34 5.6. Public Procurement: ......................................................................................... 34

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6. Barriers ............................................................................................................... 35 6.1 Regulatory Framework: ..................................................................................... 35 6.2 Information on current financial mechanisms: ................................................... 35 6.3Power Generation Potential with Renewable Resources: .................................... 35 6.4. State entities support communitary organizations: ............................................ 36 6.6. Lack of knowledge of CDM among potential project developers: ..................... 36 6.7. Subsidies to commercial fossil energy: ............................................................. 37

7. Conclusions ........................................................................................................... 37 8. Bibliography .......................................................................................................... 39 LIST OF TABLES Table 1: List of National Financial Mechanisms………………………………………6 Table 2: List of International Financial Mechanisms………………………………….8 Table 3: Comparative Analysis of the Financial Mechanisms………………………..27

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EXECUTIVE SUMMARY

This document has the objective of analyzing the various financial mechanisms that exist in the country and that are allocated for the promotion, study, project preparation and implementation of power plants using renewable resources. The financial mechanisms that were considered and thus are outlined in this study are those that are offered by national agencies and international cooperation agencies to implement renewable energy projects. In accordance with the government policy, these mechanisms seek to diversify the energy matrix of the country. In this manner, the financial apparatus seeks to reduce the high contribution of fossil fuels in the energy supply for the principal economic and strategic activities of the population; increase the use of natural resources that generate commercial energy and reduce environmental pollution produced by the energy sector’s emissions by producing clean or environmentally friendly energy. By documenting existing mechanisms for financing renewable energy projects and making the information available to the national and international community, this will provide a better understanding of the existing alternatives and it will facilate the increase of energy generation with renewable resources.

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1. Introduction

This document presents an analysis of the available information regarding the financial mechanisms targeted for renewable energy projects in Ecuador and it also contains information regarding the institutions that offer such mechanisms, the financing methods used in this county, and some successful stories and barriers. Additionally, information about the support mechanisms and their current use is provided, several success stories and their barriers are described. Finally, the document contains several conclusions of the analyzed information in this report. 2. Methodology

In order to prepare this report, information was gathered from several governmental institutions that are responsible for the promotion and execution of renewable energy projects. Interviews and telephone calls were carried out with various public officials from the following entities:

• Ministry of Electricity and Renewable Energy-MEER • National Electricity Council - CONELEC • Electricity Corporation of Ecuador - CELEC EP • Hidrotoapi Company

Telephone contact was also established with officials from entities that are responsible of the international cooperation, such as:

• Technical Secretariat for International Cooperation, Ministry of Foreign Affairs

Additionally, technical documents and websites of the organizations mentioned above were also consulted, highlighting the following:

• Catalog Offer for International Cooperation of the Technical Secretariat of International Cooperation, Ministry of Foreign Affairs.

• Progress reports of programs and projects developed by the MEER, CONELEC and CELEC EP

• Website of the Ministry of Coordination of Production, Employment and Competitiveness (MCPEC).

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3. Financial Mechanisms In Ecuador there are some mechanisms for renewable energy projacts, in particular for those iniativesor activities performed by state-owned entities. Also, for the private sector there are some options, but according to the policy adopted by the Government, the implementation of energy projects in general and in particular those related to renewable energy need to be developed mostly by using financial resources allocated by the State or available on entities where it holds a stake, as discussed later on this report. In regards to financial mechanisms, it is necessary to highlight the main policies that the Government has created to promote a greater participation of renewable energies in the country's energy supply basket1:

• Diversification of the energy national matrix by increasing the participation of renewable energies;

• Provide energy to the people located in rural sectors, especially in isolated areas; • Increase the contribution of hydropower to the electricity supply; • Incorporate biofuels in the transport sector, replacing the extra fuel consumed in

Guayaquil by mixing ethanol (5%) – gasoline; • Zero fossil fuels on the Galapagos Islands.

3.1 Detailed list of mechanisms

3.1.1. National financial mechanisms:

1 MEER (Ministry of Electricity and Renewable Energy), 2008p, Policies and Strategies for Changing

the Energy Mix of Ecuador, May 2008

TABLE 1: LIST OF NATIONAL FINANCIAL MECHANISMS

Institution Name of

Program/Mechanism

Type of

Mechanism

and Validity

Period

Funding

Phase of the

Project

Geographical

Coverage Website

CONELEC

Rural Electrification and Urban Marginal Fund (FERUM)

Non-Refundable

State Investment

/ 2008 - 2012

All of them, if these meet the requirements.

National, preferably in

border areas, the Amazon and Galapagos

http://www.conelec.gov.ec

CELEC EP Rural electrification program for 15,000 houses in the Amazon(PERVA)

Non-Refundable

State Investment

/ 2012 - 2013

All of them Amazonia http://www.conelec.gov.ec

MEER

Energy Management Master Plan for Galapagos (example: Photovoltaic Power Plant in Floreana)

Non-Refundable

State Investment

/ 2010 - 2012

All of them Floreana Island,

Galapagos http://www.meer.gov.ec

Central Bank Ecuadorian Investment Fund in the energy and

Non-Refundable

All of them, in investment

National -

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Source: Own Development

As it can be seen in the table above, the majority of the identified mechanisms are directed to the allocation of state resources to implement projects that are in accordance with the policies of renewable energy. Most of these mechanisms are available as government grants or contributions to the projects, which are generally managed by central government agencies (ministries or businesses) or local agencies (provincial and municipal councils). Among the mechanisms presented above, one is highlighted: BIESS, an entity created in 2010 as an investment bank, which uses funds from members of the Ecuadorian Social Security Institute (IESS) to finance both public and private projects in the long-term. Despite the short life span of this institution, BIEES has already begun funding electricity generation projects, which are detailed below.

hydrocarbon sector (FEISEH) - Examples: Hydropower Plants: Mazar, Coca Codo Sinclair, Toachi Pilaton

State Investment

/ 2008 - 2012

projects

Bank of the Social

Security Institute

(BIESS) -CELEC EP

Investment Projects (e.g.: Villonaco Wind Project)

Loan / 2011 -

undefined

Construction and start up

National – Loja Province

-

Ministry of Coordination

for Production, Employment

and Competitiveness (MCPEC)

CREEcuador Program - Productive Transformation

Projects

Investment with Venture Capital Funds

/ 2010 - undefined

All of them National http://www.creecuador.ec

National Pre-investment

Institute (INP)

Financing research (e.g. studies of geothermal fields)

Non-Refundable

State Investment

/ 2008 - undefined

Pre-investment studies

National http://www.preinversion.gob.

ec/

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3.1.2 International Financial Mechanisms:

TABLE 2: LIST OF INTERNATIONAL FINANCIAL MECHANISMS

Entity Name of

Program/Mechanism

Type of

Mechanism

and Validity

Period

Phase of the

Funding

Project

Geographical

Coverage Website

Government of Japan

(JAICA) – MEER

Direct bilateral cooperation Japan / Ecuador (e.g.: Energy Management Master Plan of Galapagos - Baltra Island Photovoltaic Project)

Non-Refundable Cooperation

Fund / 2010 - 2012

All of them Baltra Island,


German Government

(KfW) – MEER

Direct bilateral cooperation Germany / Ecuador ( e.g. Energy Management Master Plan of Galapagos - Isabela Island Photovoltaic Project)


Fund / 2010 - 2012

All of them Isabela Island ,


Korean Government (KOICA) –

MEER

Direct bilateral cooperation Korea / Ecuador (e.g. Energy Management Master Plan of Galapagos - Photovoltaic Project Santa Cruz Island)


Fund / 2010 - 2012

All of them Santa Cruz

Island, Galapagos http://www.meer.gov.ec

Eximbank Bank from

Korea -MEER

Direct Bilateral Cooperation Korea / Ecuador - Investment Projects (e.g. Energy Management Master Plan Galapagos: Photovoltaic Project Santa Cruz - San Cristobal Island Photovoltaic Project)

Loan (reimbursable

fund) / 2010 - 2012

All of them

Santa Cruz Island / San

Cristobal Island - Galapagos

http://www.meer.gov.ec

Global Environment

Fund (GEF) – MEER

Cooperation GEF / Ecuador - (e.g. Energy Management Master Plan of Galapagos - Baltra - Santa Cruz Wind Project)

Non-Refundable Cooperation Fund - State Investment

/ 2010 - 2012

All of them Baltra and Santa

Cruz Islands, Galapagos


United Nations Fund

(UNF) – MEER

United Nations Cooperation / Ecuador (e.g. Management Master Plan Energy in Galapagos - Baltra- Santa Cruz Wind Project)

Non-Refundable Cooperation Fund - State Investment

/ 2010 - 2012

All of them Baltra and Santa

Cruz Islands, Galapagos


German Government

(BMU y DED) – MEER

Direct Bilateral Cooperation Germany / Ecuador (e.g. Energy Management Master Plan in Galapagos-Zero Fossil Fuel Program in Galapagos - Using Pinion)

International Technical

Cooperation Non

Reimbursable - State

Investment / 2010 – 2012

All of them Floreana Island,


Eximbank Bank from

Korea - CELEC EP

Direct bilateral cooperation Korea / Ecuador (e.g. Investment Projects - Wind Project Villonaco)

Loan / 2010 – 2012


National - Loja Province

-

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With regards to the funding mechanisms that come from international organizations (see Table 2), most of the identified mechanisms are a result of a direct relationship between the State and the international entity, thus these financial mechanisms are granted under the framework of ¨bilateral cooperation¨ and the resources are usually granted as “Non-Refundable.” Moreover, the table gives detail of some international banks, which also provide funding under the scheme of ¨State-State: bilateral cooperation¨; however, these resources are granted as loans, and their conditions are set according to the situation and circumstances of each case. In order to obtain these loans, the approval and support of the Ecuadorian State is a requirement, and that is why the projects that receive financial support under this scheme are usually implemented and administred by the state agencies. 3.2 Detailed Information of the Financial Mechanisms according to Institutions: The most relevant mechanisms that were mentioned in the previous section are presented below on a technical sheet that summarizes the information available for each mechanism:

Eximbank Bank from

China – Hidro Coca

Company

Direct bilateral cooperation China / Ecuador (e.g. Investment Projects - Coca Codo Sinclair Hydropower Plant)

Loan / 2010 - 2023

Construction and start up National

-

Eximbank Bank from

China – Hidro Paute

Company

Direct bilateral cooperation China / Ecuador (e.g. Investment Projects - Sopladora Hydropower Plant)

Loan / 2010 – 2023


National – Azuay Province

-

Eximbank Bank from

Russia - HidroToachi

Direct bilateral cooperation Russia / Ecuador (e.g. Investment Projects - Toachi Pilatón Hydropower Plant)

Loan / 2011 - 2023


Pichincha and Cotopaxi Provinces

-

European Commission –

MEER Euro-Solar Program

Non-Refundable Cooperation Fund – State Investment

/ 2007 – October 2011

All of them National -

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3.2.1. Rural Electricification and Urban Marginal Fund (FERUM):

Parameters Units Information

Name of the mechanism

Rural Electrification and Urban Marginal Fund (FERUM)

Entity CONELEC

Application

• Electrical Distribution Companies

• Representatives of regional governments, Provincial Councils, Municipalities

• Communities

Technology Type

• Improvement and strengthening of distribution systems

• Network Extension

• Infrastructure of sub transmission systems

• Renewable energy: mini hydropower, wind, solar photovoltaic, biomass plants.

Validity Period 2008 - 2012

Geographic Area

Provinces in the borders, and Amazonia and Galapagos.

Phase of the project (feasibility, construction,

operation)

• New constructions

• Expansion and improvement of distribution systems in rural and / or marginal urban areas

• Construction of generation systems using renewable energies, destined for the exclusive service of rural areas

• Operation and maintenance of not incorporated electrical systems into the INS.

Available budget US$ 648 millions of dollars

Short description Budget for 5 years

Type of Loan Non- refundable funds

Interest Rate % N/A.-

Application Procedures

• The identification and planning processes of projects is the responsibility of the distribution companies, in whose jurisdiction these were to be implemented. This will have to be undertaken in coordination with the provincial councils and the relevant municipalities.

• Projects are subject to the approval of CONELEC.

• CONELEC approves the projects and their annual budgets.

• The existing distribution companies will be in charge of the operation and maintenance of projects.

Others -

Results

The implementation of rural electrification projects funded by FERUM through the Distribution Companies during the period

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1998-2009, reached a total of 13,863 projects that sought to meet the needs of 1,177,150 houses.

Date -

Name of the projects that have been benefited

In the FERUM 2008 program a total of 2,443 projects benefited, which amounted a total of USD $126,562,752 that benefited 582.,702 houses.

Amount approved US$ In 2008 FERUM Program USD $ 126,562, 752

Source: own elaboration (information taken from the Electrfication Master Plan of Ecuador, 2009) 3.2.2. Rural Electrificacion Program for 15,000 homes in the Amazon (PERVA):



Rural Electrification Program for 15,000 homes in the Amazon (PERVA)

Entity CELEC EP

Application

• Representatives of local governments:

municipalities and communities

Technology Type

• Photovoltaic panels

• Other renewable sources

Validity Period 2012 – 2013 (18 months)

Geographic Area Amazonia


operation)

• Studies

• Project execution

• Sustainability of the projects.

Available budget US$ 52,5 millions of dollars

Short description

There are two types of projects: 1) grid extension and decentralized systems. 2): micro hydropower plants, individual photovoltaic systems, micro networks with hybrid systems, wind energy systems, etc.

Type of Loan Non- refundable fund

Interest Rate % N/A.--


• Each community will be considered as a separate project. The program will consist of 2,145 projects. Each project will take the name of the community.

• Preparation of specifications for the procurement of the design studies.

• Socialization of the project in the community.

• Study of project design.

• Development of agreements to support the installation of community systems.

• Electrification of houses.

• Electrification of community systems.

• Monitoring the implementation of

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electrification works.

• Training community technicians and users.

• Delivery of the executed projects and constructions.

• Delivery of the project to public companies.

Others -

Results

The following results are expected :

• Electrical studies in 2,145 communities.

• 15,000 homes with electricity.

• Establishment of public company or a unit within an existing public company which will be in charge of the administration, management and sustainability projects.

• Sustainability Program of projects.

Date -

Name of the projects that have been benefited Program in the preliminary studies stage

Amount approved US$ -

Source: own elaboration (information taken from the interview of Ings. Marcelo Espín y Mario Brito)

3.2.3. Energy Management Master Plan in Galapagos


Name of the mechanism Energy Management Master Plan in Galapagos

Entity MEER

Application State programming of a series of energy power projects

Technology Type Solar photovoltaic, wind power

Validity Period 2010 – 2012

Geographic Area Galapagos Islands


operation) Feasibility, construction and operation

Available budget US$ It depends on international cooperation agreements and the loans made by the MEER to co-finance projects of the Program.

Short description

The following projects have been developed: • Photovoltaic Power Plant in Floreana • Photovoltaic Project Baltra- • Photovoltaic Project Isabela Island • Photovoltaic Project Santa Cruz Island • Photovoltaic Project Santa Cruz Island • San Cristobal Photovoltaic Project • Wind Project Santa Cruz- Baltra • Zero Fossil Fuel Program in Galapagos - Using Pinion

Type of Loan These are mainly non-refundable state investments, but there are some projects that have a bank loan.

Interest Rate % It does not apply in cases of the non-refundable

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funds. In the case of loans, the interest rate is set individually for each project. It also considers bank loans for co-financing.

Application Procedures Projects considered in the MEER annual program

Others -

Results -

Date January, 2011

Name of the projects that have been benefited Program under development


Source: own elaboration (information taken from the interview of public officers of MEER: Ings. Patricia Recalde, Paula Sánchez, Edison Chicaiza, Gabriel Rengifo)

3.2.4. Ecuadodrian Investment Fund in the Energy and Hydrocarbon Sectors

(FEISEH):


Name of the mechanism Ecuadorian Investment Fund in the energy and hydrocarbon sectors (FEISEH)

Entity Central Bank

Application

The Fund has the following instances: • Commission (COFEISEH), which qualifies the investment projects that will be funded and it is also in charge of allocating the resources. • Technical Committee (COTEFEISEH), which prepares a project investment portfolio, suggests the priorities for implementation and elaborates the report of technical, economic, financial, social and environmental viability of the investment projects, whose selection will be recommended to COFEISEH

Technology Type

Financial support for investment projects in the energy sector. Hydropower plants

Validity Period

2008 – 2012 (The financing period depends on the duration of each project)

Geographic Area National


operation) Construction and start up

Available budget US$ -

Short description

Type of Loan

Resources are allocated in two ways: direct investment and loans to the executors of the project

Interest Rate % Determined in each case

Application Procedures Application to request fund

Others -

Results Several hydropower plants under construction

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Date January, 2011


Coca Codo Sinclair, Ocaña, Mazar and Sopladora Power Plants


Source: own elaboration (informaton taken from the Ministery of Economic and Financing of Ecuador, Press Release, 2007)

3.2.5. Invesment Projects of the Bank of the Social Security Institute (BIESS):


Name of the mechanism Investment Projects

Entity Bank of the Social Security Institute

Application Construction of Electric Generating Plants

Technology Type Hydropower, wind and thermal plants

Validity Period

2011 – undefined (This mechanism is established for each project. As an example, it is mentioned the power plants in Santa Elena and Quevedo which had a validity period of 12 years counting from the beginning of the commercial operation).




Available budget US$ N/A

Short description

As an example, the Quevedo (100 MW) and Santa Elena power plants (90 MW), the BIESS financed 60% of the total project value.

Type of Loan Investment Projects

Interest Rate

%

Esbtablished according to the conditions of each loan. In thermal power plants in Quevedo and Santa Elena a 7.5% interest rate was set.


Application of electric companies to the Bank, the respective feasibility studies and financial performance

Others -

Results -

Date January, 2011


Power Plants in Quevedo, Santa Elena and Villonaco wind farm. In negotiating the loan to the Toachi Pilatón hydropower plant.



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3.2.6. Funding Studies by the National Reinvestment Institute (INP):


Name of the mechanism Funding of studies

Entity National Reinvestment Institute

Application

Preparation of feasibility studies and technical and financial feasibility

Technology Type Renewable energies in general

Validity Period 2008 – undefined (is still valid)



operation) Feasibility


Short description

Support to the reaslization of the feasibility studies, 100% of the total value can be funded

Type of Loan Non-Refundable State Investment

Interest Rate % N/A

Application Procedures INP application to the proposed project

Others -

Results -

Date January, 2011


Studies in the geothermal fields, Chacana and Chachimbiro, and Tufiño; Cardenillo hydropower project studies.



3.2.7. CREEcuador Program – Productive Transformation Projects:



CREEcuador Program - Productive Transformation Project

Entity

Coordinating Minister of Production, Employment and Competitiveness

Application

Supporting the development of projects that benefit productive sectors

Technology Type Renewables in general

Validity Period

2010 – undefined (the project can last between 3 and 6 years).



operation) Feasibility, construction and start up

Available budget US$

Between 500,000 and 2 millions of dollars per project.

Short description

The Fund may invest up to 49% of the total project value

Type of Loan Investment with venture capital funds

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Interest Rate % N/A


Application to the Fund with technical and financial information of the project

Others -

Results -

Date January, 2011

Name of the projects that have been benefited N/A



3.2.8. Cooperation GEF/Ecuador:


Name of the mechanism Cooperation GEF / Ecuador

Entity Global Environment Fund (GEF)

Application

Energy Management Master Plan in Galapagos – Baltra - Santa Cruz Wind Project

Technology Type Wind Energy





Available budget US$ ND

Short description

Wind systems parallel to the network connection. The electrical interconnection system will transport energy from Baltra to Santa Cruz Island.

Type of Loan Non-Refundable Cooperation Fund

Interest Rate % N/A


Project in the GEF Cooperation - Government of Ecuador.

Others -

Results -

Date January, 2011

Name of the projects that have been benefited ND


Source: own elaboration (information taken from the Catalgo of International Cooperation Offer, 2011)

3.2.9. Cooperation United Nations/Ecuador:


Name of the mechanism United Nations / Ecuador Cooperation

Entity United Nations Fund

Application

Energy Management Master Plan in Galapagos - Baltra- Santa Cruz Wind Project

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Technology Type Wind Energy






Short description

Wind connection systems parallel to the network. The electrical interconnection system will transport energy from Baltra to Santa Cruz.

Type of Loan Non-Refundable cooperation fund

Interest Rate % N/A


The project is part of the Cooperation Program between the UN and the Government of Ecuador.

Others -

Results -

Date January, 2011



Source: own elaboration (information taken from the Catalg of International Cooperation Offer, 2011)

3.2.10. Euro-Solar Program:


Name of the mechanism Euro-Solar Program

Entity European Commission

Application

Regional Program that takes place in 8 countries, including Ecuador.

Technology Type

Photovoltaic solar energy for communication (computers - Internet), education and health.

Validity Period 2007 – 2011 (October 2011)




Available budget US$ 4,79 million Euros

Short description

Seeks to provide to 91 communities in Ecuador the following: access to solar energy for electricity generation strictly for community use, computers, a projector, a refrigerator for medicines and a water purifier. Also, it will be offered services of education, culture, productive, social, communication and health applications will be provided.


Interest Rate % N/A


The project in Ecuador is part of the Regional Euro-Solar program.

Others -

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Results

The Project is developed in communities in the provinces of Esmeraldas, Guayas, Orellana, Sucumbios, Napo, Pastaza and Morona Santiago.

Date January, 2011



Source: own elaboration (Information taken from MEER, 2008). 3.2.11. Direct Bilateral Cooperation Germany/Ecuador:



Direct Bilateral Cooperation Germany / Ecuador

Entity

Government of Germany through its institutions: DED and BMU (Biofuels) and KfW (solar photovoltaic)

Application

Energy Management Master Plan Galapagos - Zero Fossil Fuel Program in the Galapagos Islands / Using of the Pinon and Photovoltaic Project in Isabela Island.

Technology Type Biofuels






Short description

Biofuels Project on Floreana Island, including the purchase of two generators of 70 kWp each. Project to build a photovoltaic system up to 400 kWp

Type of Loan

Non- Refundable Financial and Technical Cooperation

Interest Rate % N/A


Project part of the Bilateral Cooperation Germany - Ecuador

Others -

Results

Date January, 2011

Name of the projects that have been benefited -



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3.2.12. Direct Bilateral Cooperation South Korea/Ecuador:



Direct bilateral cooperation South Korea /Ecuador

Entity

Government of South Korea through the National Agency for the Cooperation of Korea KOICA

Application

Energy Management Master Plan of Galapagos Photovoltaic Project Santa Cruz Island

Technology Type Photovoltaic Solar Energy

Validity Period 2010 - 2012




Available budget US$ Under negotiation

Short description

Construction of a photovoltaic system up to 1.5 kWp in Phase I the project.


Interest Rate % To be defined


The project is part of the cooperation between the governments of Korea and Ecuador.

Others -

Results Project under negotiation

Date January, 2011




3.2.13. Direct Bilateral Cooperation Japan/Ecuador:


Name of the mechanism Direct bilateral cooperation Japan / Ecuador

Entity

Government of Japan through its International Cooperation Agency JAICA

Application

Energy Management Master Plan of Galapagos - Photovoltaic Project Baltra

Technology Type Photovoltaic Solar Energy






Short description

Construction of a photovoltaic system up to 500 kWp, a project to be developed in the new ecological airport in Baltra.


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Interest Rate % N/A


The project is part of the cooperation Japan - Ecuador

Others -

Results

The project is in final phase of management of non-refundable funds

Date January, 2011




3.2.14. Bilateral Cooperation South Korea/Ecuador:



Bilateral Cooperation of South Korea / Ecuador

Entity Eximbank Bank from Korea

Application

Energy Management Master Plan of Galapagos - Photovoltaic Projects in the Santa Cruz and San Cristobal Islands.

Villonaco Wind Power Plant Project

Technology Type Renewable energies in general


Geographic Area Galapagos Islands and Loja Province




Short description

PV projects: construction of 1.5 kWp system (Phase II) and 3 kWp.

Wind project: construction of 30 MW plant.

Type of Loan

In negotiation: amounts, interest rates and terms



Application to the Bank through the channels of international cooperation in the country.

Others -

Results Projects under negotiation with the Bank

Date January, 2011




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3.2.15. Bilateral Cooperation China/Ecuador:


Name of the mechanism Bilateral cooperation China / Ecuador

Entity Eximbank Bank from China

Application

Construction of hydropower plants Coca Codo Sinclair and Sopladora

Technology Type Hydrolic energy

Validity Period 2011 - 2013 (12 years)





Short description

Planning and construction of hydropower plants

Type of Loan

EPC contract. Loan of 85% of the total value of construction.

Interest Rate % To be defined in the negotiation



Others -

Results

Projects under negotiation with the Bank. The Coca Codo Sinclair plant already began preliminary construction work.

Date January, 2011




3.2.16. Bilateral Cooperation Russia/Ecuador:


Name of the mechanism Bilateral cooperation Russia / Ecuador

Entity Eximbank Bank from Russia

Application

Construction of Toachi Pilatón hydropower plant - Hidrotoapi is the company formed for the Construction and start up.

Technology Type Hydraulic energy

Validity Period 2011 - 2023 (It is still under negotiation)




Available budget US$ ND

Short description

Planning and construction the hydropower plant

Type of Loan Under negotiation


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Others -

Results

Project under negotiation with the bank that will finance the equipment (85% of the total value of equipment). Preliminary work will begin with the funds of the Company.

Date January, 2011




3.3. Ecuador’s Cooperation with International Organizations and Countries:

The Ecuadorian government maintaines cooperation relationships with several international agencies and countries from all over the world, with several of which it has existing cooperative agreements or business relationships. These cooperation agreements consider energy as one of the principal components of collaboration, especially all projects related to the development of renewable energy.

The coordination for international cooperation in the country is focalized in the Technical Secretariat of International Cooperation in the Ministry of Foreign Affairs. This entity has all the information on the activities carried out with each of the foreign aid workers.

Below are the details of the existing cooperation with some organizations and countries that actively support the development of renewable energy in Ecuador, according to the information available at the Technical Secretariat for International Cooperation (Catalg of International Cooperation Offer, 2011)

3.3.1. Inter-American Development Bank (IADB):

Country’s Strategy:

• Consolidate the production structure and promote social development and protecte the most vulnerable population. As a cross-cutting element, it supports the institutional strengthening.

Cooperation Modalities :

• Loans

• Non-Refundable Cooperation Fund

• Technical Cooperation

Intervention Sectors :

• Infrastructure

• Energy

• Climate Change

• Water and Sanitation

• Education

• Health

Representative in Ecuador:

Carlos N. Melo Edificio World Trade Center

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Torre II, Piso 9, Telephone: 2996969 E-mail: [email protected]

3.3.2. Global Environment Fund (GEF):




• Training


• Management and Conservation of Natural Resources

• Protection of the Environment and Natural Disasters

• Administrative

Punto Focal ante el GEF:

Federico Meneses Ministerio de Relaciones Exteriores Quito E-mail: [email protected]

3.3.3. United Nations Development Program (UNDP):

Country’s Strategy: • Strategic Plan 2008 - 2012




• Emergency Food Aid


• Agricultur and livestock

• Environment

• Administrative

Representative in Ecuador:

José Manuel Hermida Av. Amazonas 2889 y La Granja, Quito Tel.: 2460330 ext.2201 E-mail: [email protected]

3.3.4. Germany:


• Development cooperation strategies with Latin American and

the Caribbean countries.

• Strategies by sector:

o Priority area of the German cooperation with Ecuador: Environment and Natural Resources Protection

o Framework Document on Priority Area Orientation: Modernization of the State, Decentralization and Strengthening of decentralized autonomous governments.


• Non-refundable fund

• Technical Assistance

• Debt swap

• Scholarships, Internships

• Public-Private Partnerships

• Cooperation in Science and Technology

• Trade Cooperation

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• Modernization of the State, decentralization andstrengthening of decentralized autonomous governments.

• Protection of the Environment and Natural Resources

Cooperation Actors:

• Germany Embassy in Quito

Actors of the Official Bilateral Cooperation Contact: Christian Berger Quito Web: http://www.quito.diplo.de/

• Federal Ministry for Economic Cooperation and Development(BMZ) Actors of the Direct Bilateral Cooperation Contact: Minister Federal Dirk Niebel Bonn E-mail: [email protected]

• Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU) Actors of the Direct Bilateral Cooperation Contact: Minister Norbert Rottgen Berlin E-mail: [email protected]

• GTZ Actors of the Direct Bilateral Cooperation Contact: Jorg Peter Holla Quito E-mail: [email protected]

• DED Actors of the Direct Bilateral Cooperation Contact: Lothar Rast Quito E-mail: [email protected]

• InWent Actors of the Direct Bilateral Cooperation Contact: Andean Regional Office Lima E-mail: [email protected]

• KfW Actors of the Direct Bilateral Cooperation Contact: Eudoxia Tello Casa Alemana Quito E-mail: [email protected]

Undertaken cooperations: • Non-Refundable cooperation (2007-2009) for an amount of USD $ 97,40 millions dollars in Ecuador.

3.3.5. China:


• Refundable Financial Cooperation


• Trade Cooperation

• Technical Cooperation o Grants o Scholarships o Volunteer

• Humanitarian Aid

• University Cooperation

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• Military Cooperation


• Education

• Infrastructure

• Health

• Environmental Sanitation

Cooperation Actors:

• China Embassy in Ecuador

Actors of the Direct Bilateral Cooperation Contact: Ambassador Cain Rung Quito E-mail: [email protected]

Undertaken cooperations: • Non-refundable cooperation ( 2007 - 2009) for an amount of USD $ 14,21 million dollars in Ecuador:

3.3.6. South Korea:

Country’s Strategy: • Country’s Assistance Strategy (CAS) for Ecuador



• Technical Cooperation o Scholarships o funds for research and consulting o Volunteer o Provision of equipment


• Education

• Health

• Productive Support


• Environment and Natural Disasters

Cooperation Actors:

South Korea Embassy in Ecuador Official Cooperation Agency Contact: Keen – Ho Jang Quito E-mail: [email protected]

• Korean International Cooperation Agency - KOICA Actors of the Direct Bilateral Cooperation Contact: Kim Young - rill Quito E-mail: [email protected]

• Korea Center for Environment Research Unregistered NGOs, Line of Action: Protection of the Environment and Natural Disasters Contact: Kim, Hung-Kook Seoul, Korea E-mail: [email protected]

Undertaken cooperations: Non-refundable cooperatio (2007 - 2009) for an amount of USD $ 8,69 million dollars in Ecuador:

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3.3.7. Japan:


• Policy and Cooperation Strategy of Japan to Ecuador



• Refundable Financial Cooperation


• Public Safety


• Education

• Health


• Social Development

• Productive Support

• Agriculture and Fisheries

• Environment and Natural Disasters

• Energy and Natural Resources

• Transportation, Communication and Road works

Cooperation Actors:

• Embassy of Japan in Ecuador Official Cooperation Agency Contact: Osamu Imai Quito E-mail: [email protected]

• International Cooperation Agency of Japan (JICA) Official Actor of the Direct Bilateral Cooperation Contact: Masao Taka Quito E-mail: [email protected]

Undertaken cooperations: • Non-refundable cooperations (2007-2009) for an amount of 72,98 million dollars in Ecuador.

3.3.8. Russia:


• Technical Cooperation o Experts o Scholarships


• Science and Technology

• Energy

• Oil

• Culture

• Education

Cooperation Actors:

• Embassy of Russia in Ecuador Official Cooperation Agency Contact: Yan Burley, Ambassador Quito E-mail: [email protected]/quito.rusembassy.org

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3.4. Comparative Analysis of Financial Mechanisms

TABLE 3: COMPARATIVE ANALYSIS OF FINANCIAL MECHANISMS

Entity

Name of

Program /

Mechanism

Overview of

Program /

Mechanism

Public or

Private

Mechanis

m Geographi

cal scope

Project’s

funded

phase Loan Interest

or Rate Loan

Guarantee

Loan Period

(How long is the

Loan?

Minimu

m

amount

funded

Maximum

amount

funded

Loan

Requiremen

ts Applicatio

n Process Comments

CONELEC FERUM

- Networks, - Distribution systems, - Renewable Energy Systems

Public

Border Areas Amazon Galapagos

All phases

Non-refundable State Investment

Contributed by Provincial Councils, Municipalities and Users

In general annually

5,000- 100,000

Request of Distribution Companies, Provincial Councils, municipalities

Annual Program FERUM

There is a program 2008 – 2012

CELEC EP PERVA

Electrification of 15 000 households with Renewable Energy (SFV)

Public Amazonia All phases


Contribution of local entities and Users

In preliminary studies phase

To be defined

To be defined

Application of the beneficiary communities

Community within the Project

Productive uses, connectivity, Health Others

MINISTRY OF HOUSING (MIDUVI)

Housing Bond Solar heating in homes

Public National All phases


- In preliminary studies phase

To be defined

To be defined

N/A Request of the beneficiary

-

MEER

Energy Management Master Plan of Galapagos

Construction of photovoltaic, Wind and Befoul plants

Public Galapagos All phases


State counterpart for projects with Loans

It depends on each project and its specified in the cooperation /agreement

N/A N/A

Cooperation agreement / contract with a state-owned entity

Annual Program MEER

Each project has a budget

Central Bank FEISEH Construction of Hydropower Plants

Public National Construction and start up


- It depends on the estimated construction time

N/A N/A Request by state-owned agency

Annual Program

Each plant is built by a company

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BIESS Investment Projects

Construction of Power Plants


Loans State Counterpart

Estimated time for construction

N/A N/A Request by a Company

Request to BIEES

-

MCPEC

CRE Ecuador program - BioEcuador Fund

Productive transformation projects

Public National All phases


Counterpart of the beneficiary

Time stated in the Terms of Reference between 3 to 6 years 500,000

2 millions of dollars

49% of the total has been funded

Beneficiary's request to MCPEC -

INP Studies Financed

Energy Pre-investment studies

Public National Studies

Non-refundable State Investment NA

Time stated in the Terms of Reference N/A N/A N/A

Beneficiary's request to INP -

ENDESA Cogeneration in plywood Company

Own funding and Bank loan

Private Quito Construction and start up of the plant

Loan from 50% to 11% interest

N/A 5 years N/A

Private bank finances 50% of the total

Regular banking process

N/A -

ECOELECTRIC

Cogeneration in sugar mills

Own funding Private La Troncal (El Triunfo)

Construction and start up of the plant

Own Funds and CDM Mechanism

N/A N/A N/A N/A N/A - CDM was applied

Government of Japan (JAICA)

Direct bilateral cooperation Japan / Ecuador

Galapagos Master Plan - Photovoltaic Project

Public Baltra Island, Galapagos

All of them

Non-Refundable Cooperation Fund

Cooperation Agreement with the State


Bilateral Cooperation Program

Resource management

German Government (KfW)

Direct bilateral cooperation Germany / Ecuador


Public Isla Isabela, Galapagos

All of them



Time stated in the Terms of Reference N/A N/A NA


Resource management

Korean Government (KOICA)

Direct bilateral cooperation Korea / Ecuador


Public Santa Cruz Island, Galapagos

All of them





Resource management

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Eximbank from Korea

Direct bilateral cooperation Korea / Ecuador

Investment Projects - Photovoltaic and Wind projects

Public

Santa Cruz and San Cristobel Island - Loja

All of them Loan (interest To be defined)


To be defined N/A N/A N/A Bilateral Cooperation Program

Resource management

GEF Cooperation GEF/Ecuador

Galapagos Master Plan - Wind Projects

Public

Baltra and Santa Cruz Island, Galapagos

All of them





Resource management

World Bank Cooperation Program BM / Ecuador

PROMEC Program - Photovoltaic Systems

Public Esmeraldas and Napo Provinces

All of them Loan


Time stated in the Terms of Reference

N/A N/A N/A Bilateral Cooperation Program

project completed

Eximbank from China

Direct bilateral cooperation China / Ecuador

Investment Projects - Hydropower plants


Loan (6 a 7 %)


12 years N/A 85% N/A Bilateral Cooperation Program

Resource management

Eximbank from Russia

Direct bilateral cooperation Russia / Ecuador

Investment Projects - Hydropower plants


Loan


N/A N/A N/A N/A Bilateral Cooperation Program

Resource management

European Commission

Eurostar program

Energy Program, Education and Communication

Public National All of them


Cooperation Agreement with the State 5 years N/A N/A

4.8 million Euros


In final stages of development


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4. Support mechanisms 4.1. Support mechanisms in Ecuador In the following section is mentioned the support mechanisms that were identified in the subject of financing renewable energyprojects in Ecuador: 4.1.1. Public Policies:

The Ecuadorian government approved a law called the "Organic Law of National Public Procurement System," which in its Article 3 regulates the contracts that are financed with loans and through international cooperations. As the article mentions: "Contracts Financed with Loans and International Cooperation: - In the contracts to be financed, subject to agreement, with funds from multilateral lending agencies of which Ecuador is a member, or in contracts that are financed with refundable funds or non-refundable funding from government to government or international cooperation agencies, the agreed shall be observed in the respective agreements. Matters not covered by such agreements shall be governed by the provisions of this Act.¨ (Official Record, 2008). 4.1.2. Tax Incentives: In the Law of the Electric Sector, the Ecuadorian State commits to promote the development and the use of unconventional energy resources. That is why, in this law in Chapter XI, Article 67, it is included certain tariff advantages and tax exemptions to income; in this manner, to encourage energy production based on renewable energy such as solar, wind, geothermal, biomass, etc. However, only few projects have benefited from the provisions of the above-mentioned article, probably due to a lack of knowledge of the private sector or the promoters of renewable energy projects regarding this benefit. 4.1.3. Clean Development Mechanism (CDM): The Kyoto Protocol, to which Ecuador is a signatory, has the Clean Development Mechanism (CDM) as one of its alternatives for global environmental protection. This tool allows the trade of greenhouse gases pollution reduction certificates (GHG). Through this mechanism, the developing countries like Ecuador can implement projects that avoid the emissions of GHG. In this manner, once these projects are certified, these represent an environmental and economic contribution. The first, due to the reduction of GHG emissions; the second, considering that reduction emission certificates (REC´s) are generated and these are sold in the international carbon market, thus helping improve the financial indices of the project such as the NPV (net present value) and the IRR (internal return rate). Ecuador has registered in the CDM executive entity (within the United Nations Framework Convention on Climate Change - UNFCCC) 16 CDM projects, of which

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seven (44%) are hydropower projects (6 run-of-the-river hydroelectric power plants and 1with a new reservoir), four (25%) are biogas projects (which prevent the spread of methane in the atmosphere generated by the fermentation of organic waste), one is co-generation using biomass as fuel (biogases), two are landfills (prevents the spread of methane from garbage), one is of generating electricity with wind turbines and one to avoid generating methane. The amount received for the negotiation of licenses (CRE's) helps the project owner and/or administrator to complete the balance sheet of the initiative and in many times it frequently helps to reach or surpass the breakeven point; thus, making the project be profitable and feasible (URC, 2011)

5. Successful Cases

The majority of the projects of energy generation with renewable sources are developed by state-owned entities, as part of its policy of extending the energy coverage, financing the priority projects and environmental protection. However, there are some experiences in the private sector for energy generation to be used by own private companies (own-consumption), which have used conventional financing mechanisms: own funding and private bank loans. With this background, the following section gives detail of the successful cases in the use of the financing mechanisms and in the use of the support mechanisms: 5.1 Non-Refundable Cooperation Fund

This is the most common mechanism for the implementation of projects and state programs that seek to increase the energy supply in the country, using funds available from bilateral cooperation agreements, which are established between the National Government and the Multilateral Entity or the Cooperating Country. An example of this mechanism is the European Commission, which sought to implement the Euro-Solar Program developed by MEER. This program has the objective of providing electrification to schools with photovoltaic (PV) systems, and community centers, in this manner to install communication centers (Internet) and health centers in the isolated provinces of Esmeraldas, Guayas, Orellana, Sucumbios, Napo, Pastaza and Morona Santiago. This project takes place in 91 rural communities and the electricity will be generated by PV systems so that the computers (PCs), projector, refrigerator for medicines and a water purifier can function. The resources are used to finance: studies/research, technical consultancy, procurement and installation of equipment, training, workshops, operation and maintenance.

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The project has a regional scope considering that several countries are involved (Ecuador and also 7 other countries of Latin America). The project initiated in 2006 with the signing of a cooperation agreement by each of the beneficiaries countries. The activities are foreseen to be completed by the year 2011. This project has been highlighted as one of the most successful cases not only because of the financial support granted, but also due to the technical cooperation that was provided and the exchange of experiences and knowledge between the 8 participating countries. Additionally, the training and thus preparation that the community inhabitants received in order to manage the communication systems via internet, will allow the communities to have a modern tool to encourage the development of its inhabitants. Similarly, once the health center with the refrigerator is up and running, people (especially children) will have guaranteed access to vaccines and may consume safer water (MEER, 2010). With these benefits, the project is definitely contributing to reach asustainable development within the country. 3.4.2 Bank loan With the creation of the Bank of the Social Security Institute (BIESS), the country and its population have at its disposal a mechanism for financing national investment projects of state-owned entities. The process and the requirements for applying for funding to BIESS are the following: present the economic feasibility study of the initiative and the financing commitment of the counterpart, which is usually the company in charge of the project or the State (Ministry of Finance). The resources allocated by the Bank are used for the stages of construction and start up/intiation of the project. Until the present date (June 2011), the allocation of resources has been approved for the project of electricity generation through the explotation of

thermal resources (power station Quevedo - 100MW, and Santa Elena power station - 90MW)2. Approval of resources for the construction of the Villonaco Wind Plant in Loja is also being managed by CELEC EP. In the case of the above-mentioned thermal plants, the BIESS financed 60% of total required investment, and charges a 7.5% interest rate for a term of 12 years, counting since the beginning of the commercial operation of the thermal plants (CELEC EP, 2010). In the case of electricity generation, the loan will be recovered through the "tariff," which will be chared to users of electricity. That is the reason why for these types of funding it is required the approval of CONELEC.

2 Although this line of funding has only financed until today projects for electricity generation from thermal resources, this line of funding has been mentioned and analyzed in this paper because of its great relevance and potential to fund renewable energy projects in the near future.

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With the availability of this financial arrangement, the country can benefit by using national capital in investment projects defined as priorities by the Stat. The entire population and other actors will benefit from this mechanism considering that the economic benefits are for both: investors and for counterpart such as private energy companies, the State, and others. 5.3. Bank loan and self financing Another mechanism that should be highlighted, for the case of private companies, is the loan which is granted by the national private banking system. This type of financing is usually combined with the own resources of the project and/or company to finance the construction and start up of co-generation (electricity and steam) plants, products that are used in the production process. A concrete example of this mechanism is the Cogeneration Project to manufacture

plywood, implemented by ENDESA. This project used wood waste (biomass) in the production process. This initiative includes a generator of 1,000 kW. It uses waste as raw material, which before the project it was considered trash and was material that was thrown away by the company and burned, causing environmental pollution. With the use of biomass residues, the bunker and the electricity purchased from Empresa Electrica Quito (EEQ) was replaced. In this manner, the generated electricity is produced at a lower cost, allowing savings that makes possible the payment of the investment. The Bank loan obtained covered 50% of the total investment, with an interest rate of 11% at a 5 years term. The company reported a positive cost – benefit relation due to the investment, with the following benefits: green seal for export, reduction of pollution, total replacement of the bunker used for the boiler, reduction in the purchase of electricity to the EEQ, no waste disposal (MEER, 2010). This experience has been higlighted because it can be an example to be followed by the productive sector that is dedicated to the generation of agro-industrial biomass waste, which will be polluting elements that bring added value to the production process. Good experiences are important to demonstrate that these investments have positive returns for the employer and allow the country to generate energy from renewable resources for the benefit of the environment.

5.4. Co-generation project under the CDM: The most representative case of the 16 projects registered in the UNFCCC is the Co-

generation Project of the Company ECOLECTRIC in the Ingenio Azucaro Valdez, which uses the raw material for the co-generation during harvest season and also uses biogases waste in times where there is no production of sugarcane.

34


This project has an installed generating capacity of 27.5 MW of electricity, which is used in the production process of the sugar mill and the generating surpluses are sold to the National Interconnected System. This project was financed with funds of the company and with the sale of emissions reduction certificates. Of the 16 projects approved, this one is highlighted because of the significant benefits it provides to the sugar mills of the consortium to which it belongs, at the level of comprehensive use of the produced bagasse, and in the generation of steam and electricity for the process, with the additional benefit of the sale of surpluses (MEER, 2010). In countries with a strong sugar industry, this contribution to the generation of electricity is representative and allows saving fossil fuels. This example could have a significant replication in other similar agro-industries, thus generating benefits for the economy, society and the environment. 5.5. Centralized International Cooperation: The National Government decided to centralize the coordination and negotiation of all international cooperation received in the country in a single state –owned entity, making it possible to optimize the benefits of programs or initiatives, particularly in the promotion and installation of renewable energy projects. This entity is the Technical

Secretariat for International Cooperation (SETECI. The fact that a government entity is at the head of a negotiation facilitates the signing of bilateral agreements and the allocation of state resources as counterpart of the projects. Similarly, this type of negotiation facilitates the definition of refundable loans considering that the State garantess for the debts. That is how agreements have been set with institutions from Germany, Korea and Japan, and other financial endeavours are under negotiation: loans with "Eximbank" from China, Korea and Russia (SETECI, 2011). 5.6. Public Procurement: The Ecuadorian State, through the Organic Law of National Public Procurement System has created the conditions for transparency in recruitment processes for projects or technical assistance. The various state agencies must invite publicly through the Public Procurement Portal (http://www.compraspublicas.gov.ec/) to individuals or consulting firms to submit their proposals and be the ones responsible for the projects, equipment supplies or specific studies.

35


This mechanism allows opening and democratization of the selection process of companies, or consulting team and provides the State the possibility of a proper and consistent monitoring and control of procurement processes. It is highlighted this procedure adopted by the State, because it conceptually allows for broad participation of society in the government initiatives by providing strategic and infrastructure studies of the energy sector. This mechanism also applies for renewable rnergy projects which are developed by the State. An example of such case is the PERVA Program (developed by CELEC EP), which was uploaded to the public procurement website bid to participate in various projects assigned to communities in the Amazonia (Instituto NAcional de Contratación Pública, 2010). 6. Barriers 6.1 Regulatory Framework: The existing regulation for the concessions of power generation by the private sector is not attractive to investors. They claim a lack of legal certainty to ensure an adequate return on capital, because there is no guarantee of purchase, neither fixed percentage of return on invested resources. Only in April 2011, CONELEC established two new regulations, the 003/11 - related terms, and the 004/11 which establishes requirements, prices, validity period and the framework for disposal of non-conventional renewable resources. This new regulation replaces the 009/06, which set prices for renewable energies. 6.2 Information on current financial mechanisms: It is necessary that State -owned entities that are responsible for the promotion of renewable energies provide information regarding the financial mechanisms in all public forums. In this manner, to facilitate the implementation of renewable energy projects and government priorities for modern energy supplies to the population that is lacking of these services. The lack of knowledge of the existing options of both public and private resources, and of the promotion policies could be the cause why certain project executors or isolated populations do not implement renewable energy projects. 6.3Power Generation Potential with Renewable Resources: There isn`t a detailed study of the potential of renewable resources which could be used for the generation of energy, using technology options such as co-generation with biomass residues, obtaining electricity and steam, or for generation of biogas digesters and biofertilizer.

36


As part of its production process, several agribusinesses generate a high percentage of biomass residues, which if not used in the production chain these become pollutants and thus need to be thrown away. This occurs in the paper, food, tobacco, timber, oil industry, etc. A proper study of existing waste, location, quality and content of solids, together with an information campaign aimed to entrepreneurs in the productive sector could be useful to develop a catalog of projects of interest to businesses owners that generate waste, thus providing an adequate waste treatment and obtaining its own energy. 6.4. State entities support communitary organizations: The high potential that exists for the production of materials to obtain biofuels makes it crucial and necessary the support of government entities in the non-organized productive sectors or in those where there is low capacity of production. This support needs to be in the subject matters of organization and incentives, which can allow the private sector to establish cooperatives and/or associations, which will allow the private companies to participate in government initiatives for the provision of raw material for the industrialization of ethanol or vegetable oil as fuel. The lack of incentives and organizational capacity of small producers makes these actors be relegated and thus not taken into consideration in government initiatives.

6.5. Focalization of financial mechanisms for the public sector: With regards to the financial mechanisms, as presented in the sections from above, there are several avaible options for developing projects or initiatives by state entities. In the case of the private sector, there are not many and almost no options of funding, due to the low levels of interest there is in this sector to undertake projects for energy generation. 6.6. Lack of knowledge of CDM among potential project developers:

It is necessary that technical institutions responsible for the promotion and control of this important mechanism carry out awareness campaigns to disseminate information regarding the benefits that could be achieved by incorporating CDM processes in the project. It is important to make sure that the dissemination of this opportunity to develop projects and energy efficiency is widely known at the university level, in the productive sector, and within professional associations in the country. Having only 16 registered projects with the UNFCCC allows us to conclude that much remains to be done at the level of information strategies and institutional support to develop new projects.

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6.7. Subsidies to commercial fossil energy: In Ecuador, the commercial fossil fuels (liquefied petroleum gas (LPG), gasoline and diesel) which are widely used by the population are subsidized. This makes the costs of these energy sources very low and thus these products are very easy to find on the market, therefore descintivizing the use of alternative technologies based on the use of renewable resources, which by its commercial cost are hard to purchase. Consequently, the fuels that are used for transport, electricity generation or production of handicraft goods have costs that are extremely low in comparison to renewable energies; thus making this last energy source unable to compete. 7. Conclusions From the information discussed in previous chapters, it can be mentioned the following conclusions:

• The financial mechanisms available in Ecuador are:

o Non-Refundable State Investment o Bank loans o Investment with Venture Capital Funds o Own investment o Non-Refundable Cooperation Fund

• The most widely used mechanism in the country is the non-refundable state investment, under which the State aims to expand the coverage of energy services to all the communities in the country. That is why most of the projects are carried out with government’s resources.

• The Government has established agreements / cooperative arrangements with several multilateral organizations, aid agencies and donor countries. This is benefiting the country due to the transfer of experience, technical assistance and funding available for renewable energy development.

• There is not much private sector participation in renewable energy projects because of a lack of clarity in the existing regulatory framework and investors require security for their investment: safety when buying products and a price that guarantees a minimum return.

• The coverage of energy services is quite significant in the country; only certain areas that are located in rural areas still require service. This is also another reason why private sectors investors are not interested in investing in this sector.

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• It is necessary to undertake an awareness campaign and disseminate more information regarding the exsiting financial mechanisms that are available for developing renewable energy projects in the country, so that project executors can access such benefits.

• CDM is not very well known among projects executors in the productive sectors, so that they can access the carbon market and its viable initiatives.

• There is a high potential of biomass waste that can be used for productive enterprises that generate these. However, due to a lack of technical knowledge the biomass waste is not being reused in the process. The cases the co-generation and bio-digesters have demonstrated that this type of projects have a positive cost-benefit relationship.

• There are a lot of small producers of raw materials for the production of biofuels that require organizational support to become major players in this new market without requiring substantial funding.

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8. Bibliography

CELEC EP (Electricity Corporation of Ecuador), Information provided in interviews

with officials Marcelo Espín and Mario Brito, Quito, December 16, 2010.

CONELEC (National Electricity Council), Electrification Master Plan in Ecuador 2009

– 2020, Quito, 2008

Official Gazette, Supplement No. 395, Monday August 4, 2008, Page 3. MEER (Ministry of Electricity and Renewable Energy), 2008p, Politics and Strategies

for Chanes in the Energy Matrix of Ecuador, May 2008 MEER (Ministry of Electricity and Renewable Energy), Information provided in

interviews with officials. Patricia Recalde, Paula Sánchez, Edison Chicaiza, Gabriel

Rengifo, Quito, November 29, 2010.

URC (UNEP Risoe Centre), www.cd4cdm.org, CDM Pipeline Overview October, 2010

CONELEC (National Electricity Council), Rural Electrification Program for 15,000

homes in the Amazon (PERV), Quito, 2010.

Ministry of Economy and Finance of Ecuador, Feasibility approved to Hydropower

Projects for FEISEH Resources, Press Release No.063, Quito, August 27, 2007.

MEER (Ministry of Electricity and Renewable Energy), Presentation of Euro solar

Project Results: Renewable Energy for Development, 91 Communities, Quito 2010.

SETECI (Technical Secretariat for International Cooperation), Ministry of Foreign Affairs of Ecuador, Catalogue of the International Cooperation Offer, http://www.ageci.gov.ec/, Quito, 2011

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