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Petrobras: Picking Up The Slack

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Brazilian oil giant Petrobras helps customers reduce energy consumption.

BY MARIANNE OSTERKORN

For decades, shoppers in supermarkets have been used to discounts, two-for-the-price-of-one special offers, big value packs and other marketing ploys they know are designed to attract them. Most marketers of fast moving consumer goods know that even if they supply some products for free they are likely to benefit financially in the longer term as the satisfied customer is likely to return. “Less is more” is a well-understood principle in the convenience store.

It is a rather different story for utilities, oil companies and other supply-driven organizations in the energy sector. In the past, they have often had the status of a national monopoly, or had little competition. The nature of the product meant it was harder to switch supplier. The price of the product was more likely to be shaped by international commodities negotiations or trading or governmental regulation than by competition. There has been little need to woo the customer.

SAVING COSTS, BOOSTING MARKETSHARE

But Petrobras, Brazil’s flagship oil company, has begun a rethink. What if it helped customers spend less on energy? Appreciative of the lower bills that help improve their bottom line, they might be more likely to continue to work with this particular supplier. Like the grocery shopper, they might feel they are receiving more for their money: not more energy, but more cash to invest in other parts of the company.

Cutting back “We’d rather save our customer 10 percent of their energy bills using energy efficiency services and take the opportunity to increase our market share creating new customers rather than lose one customer 100 percent that wants a more efficient and complete supplier!” exclaims Renato de Andrade Costa, Manager of the Commercialization of Energy Solutions at BR, Petrobras’ retail subsidiary. Working alongside Canadian consultancy Econoler International and the Renewable Energy and Energy Efficiency Partnership (REEEP), BR is pioneering this innovative form of marketing: helping the high growth manufacturing and service companies cut their own utility bills in a nation showing high per capita growth rates.

It is something the customers themselves are unwilling to consider without assistance in the first place. Most of the time, the upfront investment in energy efficiency is not in their priorities, and they are not prepared to wait the required number of years before the economic benefits come through, despite the economic advantages. 

ENERGY SERVICE COMPANY

Returns take some years to come through when energy saving is financed in the conventional way. In most companies there is little energy efficiency culture. So BR and Econoler International are establishing an Energy Service Company, or ESCO, to take advantage of a financial package offered by the Brazilian development bank BNDES, to provide both financing and energy efficiency services to industrial clients.

“Many companies don’t even have the idea and haven’t seen the opportunity to save energy,” says Eduardo Mello of BNDES, which will provide a 1 percent base credit on top of national rates, amounting to a total of 11.5 percent.  The overall rate being used by the ESCO will undercut conventional corporate funding by around 2-3 percent. 

Typically, companies employ staff for operational purposes but they do not usually have the skills, knowledge, time or motivation to consider energy saving possibilities.  “But industry doesn’t borrow for these types of programs unless there is a very, very short payback period,” says Mello.

ESCO INVESTMENTS

The creation of the ESCO will carry through investments amounting to R$19.8 million in total or $10.8 million, with BR acting as the largest stakeholder, owning 49 percent of the ESCO. Financial institutions, local private investors and even foreign ESCOs are other potential shareholders.

The support of the BNDES is important because for some clients, access to credit is difficult. If, under more conventional circumstances, the organization making the investment has problems raising debt financing, leveraging from equity investors may also become more of a struggle. The relatively small sizes of investments in equipment that cuts energy use may also deter more conventional financial institutions. To counter some of these problems, BR – which as a retail organization experiences more intense competition than its parent company - and its partners have tended to opt for larger companies with better financial credentials.

Payback through savings “Financing through the ESCO is interesting – the client doesn’t have to budget. The ESCO finances the project and it pays itself back through the energy savings. This is much easier for the client,” explains Stephanie Nour of Econoler International.  Running the energy saving program via an ESCO – a company operating separately from both BR and Petrobras – is also a more efficient management model.

The ESCO will pay for several types of investments, most of which have a payback period of between three and five years. However, it will prioritize two types in particular: improved air conditioning systems and replacing motors with more efficient models. There will also be some investment in more efficient lighting at clients’ facilities.

TELEMAR

To start with, BR is targeting one of Brazil’s biggest national companies, Telemar, a telecommunications company. Telemar owns or runs 50 buildings and therefore demonstrates strong energy savings potential. There has been little focus on energy savings up until now. 

Telemar has more choice of energy suppliers than previously since international players such as Shell now operate on the market. “We want Telemar to make big economic and financial gains. It’s a big company, and we plan to use the same business model for many other projects – leading to better results for us because we will be optimizing our resources that way,” comments de Andrade Costa.

If Telemar works out well, BR will move on to other industries. There is potential to cut huge swathes out of Brazilian energy consumption. The food and drinks industry, as well as the chemicals industries, offer rich pickings. According to data supplied by BR, R$273 million worth of energy could be saved in the chemicals sector and R$185 million in food and beverages alone. Studies carried out by the company have identified an enormous wastage in traditional industries. For instance, the agricultural industries could save R$457 million in oil and gas costs.

UNUSUAL AND INNOVATIVE

Nevertheless, these figures represent large chunks severed from BR’s turnover figure. It seems a tall order to expect any utility to be in favor of such a policy if exercised across the whole of its customer base. Certainly the move is an unusual, innovative and radical one, and it does not lack skeptics. 

"Most oil companies are putting very little research and development into alternative technologies and very little effort into entering the energy demand reduction business.  Current extraction of oil from Canadian tar sands shows that Shell and others will inflict all kinds of damage in order to maintain an out-dated business model," comments Dax Lovegrove, Head of Business & Industry Relations at WWF in Europe. "It’s a little bit unusual," admits Stephanie Nour.

De Andrade Costa sees the situation differently from Lovegrove. “It’s not common in Brazil for companies to offer this type of service. We will make our approach to other companies better. Our idea is not to be an oil supply company but an energy solution company and thus bring in new customers too,” he explains. The company’s remarketed focus is less on a physical product and more on a service.

SOUND JUSTIFICATIONS

Brazil’s oil trade numbers are fairly in balance and there are sound economic justifications for choosing this particular path. In 2004, Brazil showed net imports of 31.33 million tons of oil equivalent (mtoe). 

“We need to import lighter oil,” says de Andrade Costa, referring to the type of product demanded by the refineries. “There are lots of economic motivations for what we are doing,” he adds, “we’re a developing country with big growth potential. If we grow at 5 percent per annum we’re going to need lots of megawatts – maybe 4000-5000 extra capacity each year and that means a lot of investment. So we need to save energy. It’s a form of virtual generation, like increasing energy capacity but at a lower cost.” 

The cost of, for instance, increasing hydro-electric capacity in order to manage this problem is much higher per megawatt added and the national hydro-electric capacity is in any case close to being full. This is a problem faced by most emerging markets. Brazil is likely to more than double its energy use within a generation, according to the International Energy Agency (IEA) and this will have major impacts on global energy markets and climate, unless more effective energy saving measures are put in place. That is why, despite some teething problems relating to financial support, the ESCO industry in Brazil is steadily growing; there are now 40 ESCOs operating in this country, and the number is growing every year.

Most of the ESCOs are connected with electricity rather than oil, as electricity suppliers are obliged to invest 1 percent of revenues in energy efficiency projects.  “Petrobras’s work is a new and interesting addition as Petrobras is more involved in energy efficiency on the fuel side. This has been a key, important point to the project,” remarks Stephanie Nour of Econoler.

Dr. Marianne Osterkorn is the international director of the Renewable Energy and Energy Efficiency Partnership (REEEP), a global public-private partnership that structures policy and regulatory initiatives for clean energy, and facilitates financing for energy projects. Republished with permission.

 

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