When the subject of Latin America’s growing energy demand comes up, talk predictably turns to such topics as natural gas reserves and power plants. Often ignored, unfortunately, is energy conservation.

Yet the potential for energy savings in Latin America is huge. And while many experts feel creative government action is needed to realize it, private ventures also must play a role.

An example is Energy & Water Services Multinational (ESM). The Monterrey, Mexico firm is exploiting a new niche in Latin America, offering companies energy audits plus project financing to ensure that its recommendations are implemented.

Capital is in short supply and interest rates still are high in Mexico as the banking sector continues to recover from the 1994 Peso crisis. Companies often cannot underwrite changes recommended by energy auditors, even if the result will be lower power costs.

ESM is trying to steal a march on rivals by offering clients—among them, Mexican industrial giants such as the paint manufacturer Pinturas Osel and Cervecería Cuauhtémoc Moctezuma, maker of Sol beer—comprehensive power-saving packages. These include financing and help in finding more efficient machinery to achieve energy savings.

The company was founded in 1998 by engineer Héctor Martínez. Its staff, originally six, now numbers 16. In 2000, CEO Martínez sold 40% of the company for $450,000 to Econergy International Management Group (EIMG) a consultancy run by Econergy, an energy and environmental-services firm in Boulder, Colorado. Another 20% is now owned by Calvert World Values Fund, a socially responsible mutual fund. The rest is held by Martínez and other Mexican partners.

ESM finds loans for its clients from sources including the Inter-American Development Bank, U.S. nonprofit funds such as the Environmental Enterprises Assistance Fund and Energy House Capital, the Mexican government’s Trust Fund for Electrical Energy Savings (Fide) and—as the Mexican banking system rights itself from the 1994 Peso crisis—private banks such as Banorte.

“So long as the company has a good credit history, it is good business for the banks,” says Peter Oatman, president and CEO of EIMG. Oatman says most Mexican companies can “very easily” trim 10% from their electric bills and can save up to 40% with larger investments. He estimates Mexico is 30 years behind the United States in energy conservation at a time when its power demand is rising. “It is a huge growth market. It is untapped,” he says. “The only obstacles are the financial environment, finding the capital.”

Too much old equipment

Currently, Mexico has 16 different regulations setting energy-efficiency specifications for new industrial machinery such as electric motors or fluorescent light bulbs. However, the rules do not apply to old equipment, which abounds in Mexican industrial plants.

The regulations all date from the last decade and were drafted with the aid of Fide officials. Set up in 1990, Fide has an annual budget of $50 million. It lends companies up to $100,000 to improve energy efficiency and acts as a go-between with the Inter-American Development Bank. Fide helped get Mexico to adopt daylight savings time, which now saves the country an estimated $1 billion a year.

The government’s strategy is to point out possible energy savings and let the private sector make its own decisions, says Fide’s director of market development and energy services, Felipe David Angeles Molina. “It is a question of resources,” says Molina, acknowledging Mexico could reduce energy demand by 20% with basic conservation. “We have to be realistic.”

But others believe the government must actively push industry to acquire efficient machinery, using tax breaks, fines and temporary plant closures. “Why not tell them they have to comply by 2010?” asks Tania Mijares, air and energy coordinator for the Mexican Center for Environmental Law (Cemda), a leading green group here. “That would give them eight years to get their house in order. You cannot leave this to the market.”

Stricter laws clearly would benefit ESM. Audits cost between $10,000 and $50,000 and take up to four engineers 12 weeks, depending on the size of the plant. Recommendations fall into three categories: no, low and high investment. Low investment involves such changes as rewiring lights in a factory to allow employees to illuminate only the areas where they are working rather than the whole factory floor. Low investment covers recommendations that individually cost less than $1,500.

Guaranteeing cost savings

Changes requiring substantial investment usually come in the context of a performance-related contract with ESM. “When you are offering an internal solution they are definitely convinced,” says Martínez. “When it is a bigger recommendation, they are often a bit suspicious, but when you really put your foot down and say ‘If you don’t get the savings that I am promising, you don’t pay me,’ then they sit up.”

The main areas where efficiencies can be achieved include automation and the replacement of antiquated refrigeration systems, air compressors and electric motors, typically between 30 and 50 years old. Automating assembly lines with computerized controls cuts out peak demand. This usually does not save electricity, but it helps companies avoid the punitive tariffs slapped on users with a pattern of sudden demand surges.

New computerized compressors typically use 15% less power than older models, and dated electrical motors often need to be replaced by high-performance models. Modern cooling and refrigeration systems also boost efficiency and don’t contain ozone-depleting CFCs. Resulting savings typically range from $1,000 to $50,000 a month for companies, many of which have monthly power bills of $300,000.

One happy ESM customer is the Monterrey-based industrial conglomerate CYDSA. In 2000, ESM carried out an energy audit on CYDSA’s rayon plant and recommended replacing seven old air compressors with two new ones. Monthly installments to buy the new compressors cost CYDSA $3,000, a sum more than offset by the $6,000 decline in monthly electricity bills. “It was the complete service,” says Benedicto Casanova, energy director of CYDSA’s chemical division. “They arranged everything from the audit to the financing and even found us the new compressors. We were very impressed.”