EFFICIENT FFICIENT ECONO ONOMY MY Opportunities for Companies - PowerPoint PPT Presentation

LE LEVERA VERAGING GING A WATER TER EFFICIENT FFICIENT ECONO ONOMY MY Opportunities for Companies and Financial Institutions Gustavo Pimentel gpimentel@sitawi,net June 14 th , 2016

METHODOLOGY 1 The objective is to assess and highlight business opportunities for financial institutions in the transition to a more water-efficient economy in Brazil OBJECTIVES SCOPE AND METHOD  Select relevant water conservation technologies or business models and analyse their introduction  9 sectors and 14 technologies in critical sectors and regions in Brazil  Secondary research  Identify viable and more efficient technologies and  Water specialists’ collaboration estimate their investment gap  Interviews with relevant agents (sector associations, equipment and  Identify financing opportunities for financial technologies suppliers) institutions 2

METHODOLOGY 1 The framework to analyze each technology was adapted from academics Demand management Supply management Usage optimization Supply options Consumption Segmentation Effluents Reuse Loss Management Rainwater Process and Equipment Change Desalinization Consumption and Effluents Indices Groundwater Recharge Water Management Program 3 Source: Adapted from Mierzwa - Hespanhol (2007)

METHODOLOGY 1 Each technology was further scrutinized based on a set of qualitative criteria prior to its feasibility analysis 4

METHODOLOGY 1 9 high water usage sectors and 14 water-conservation technologies were selected Steel Pulp Cattle Food Beverage # Technology Agriculture Automotive Petrochemical and Mining and Farming Processing s Metallurgy Paper Hydrometer for Consumption 1 X X X X X X X Segmentation 2 Drip Irrigation X 3 Dust Disperser X 4 Sewage for X Aquaculture 5 Evaporation to Vinasse X Concentration 6 Water Loss Detector X X X X X X X 7 Chemical Free Cooling X X X X X X Tower 8 Rainwater Harvesting X X X X X X X 9 Ozone Treatment X X 10 Artificial Wetlands X X X X X X X X X 11 Ultra Filtration X X X X X X X X X 12 Reverse Osmosis X X X X X X X 13 Thermal Distillation X X X X X X X 5 14 Reforestation X X X X X X X X X

METHODOLOGY 1 The 14 technologies were categorized according to the benefit generated: Reuse, Economy or Availability # Technology Reuse Economy Availability 1 Hydrometer for Consumption Segmentation X 2 Drip Irrigation X 3 Dust Disperser X 4 Sewage for Aquaculture X 5 Evaporation to Vinasse Concentration X 6 Water Loss Detector X 7 Chemical Free Cooling Tower X 8 Rainwater Harvesting X 9 Ozone Treatment X 10 Artificial Wetlands X 11 Ultra Filtration X X 12 Reverse Osmosis X X 13 Thermal Distillation X X 14 Reforestation X 6 Source: SITAWI Finance for Good

METHODOLOGY 1 The economic sectors use water of different sources, degree of purity and total costs TOTAL WATER COST OF COST OF COST OF COST TREATMENT DISPOSAL PURCHASE/ADDUCTION • Tariff charged by the • Function of the • Depends on the water provider quality of the quality of the Total water cost • Public price for water effluent released must be compared water usage, abstracted/purch and the quality to the estimated depending on the ased vs the of the receiving water break-even water basin body quality required cost (WBC) to • Purchase price from by the production assess whether the other industries with • Defined process investment has own treatment according to the economic and facilities • In case of a national financial benefits • Cost of classification of WTP, includes infrastructure and costs with economic energy for water chemicals, activities of the pumping electricity and Brazilian storage Institute of Geography and Statistics - IBGE 7

METHODOLOGY 1 When the Water Break Even Cost is lower than its Total Cost, the technology is potentially viable Operational Cost Water Break Even Cost Investment in Water consumption Technology Besides OPEX, reduction The minimum cost of saved includes other costs water that compensate Potential for water and benefits CAPEX and OPEX is called reused, saved or generated from the Water Break Even Cost , treated by the technology Average CAPEX for for a period of 15 years and implementation of a implementation, a typical project taking into account the medium sized such as : input different costs and benefits project. prices, productivity associated to the gains, implementation of the environmental risks technology mitigation, etc Water Break Technologic is Water Total IF Even Cost Viable Cost 8

METHODOLOGY 1 In order to estimate the market potential, we looked for the number, size and location of companies among other factors MARKET POTENTIAL NUMBER OF LEVEL OF USAGE SECTOR SIZE LOCATION COMPANIES Some technologies Among the companies Mapping of number of Some technologies Due to high average tend to naturally apply able to implement companies and depend on natural CAPEX or economies RATIONAL just to some sectors, certain technologies, we production unit s that resources availability in of scale in its use, we E.g.: Irrigation to estimated the comply with sector, a specific location, expect that some agriculture percentage size and localization E.g.: Desalinisation is technologies apply only that already adopt these criteria for each only viable close to the to medium/large plants technologies, to avoid technology, sea double counting Equipment suppliers, Based on secondary Data from SIDRA/RAIS Data from SOURC specialists and research and specialists Data from SIDRA/RAIS of IBGE SIDRA/IBGE, The size secondary research opinion of IBGE, Secondary ES classification also research comes from IBGE In cases where the OBSERVATION Most Technologies still Because of lack of technology was only technologies are incipiently used in Brazil data, not all the feasible in remote broad, not sector- were assumed as not technologies had their areas, transportation specific yet implemented by the market potential infra costs were analysed companies calculated this way, included in the CAPEX Proxies were used 9 S when necessary, Source: SITAWI Finance for Good

METHODOLOGY 1 Attractiveness for FIs was estimated by projects CAPEX, Water Break Even Cost and Investment Gap Level of Attractiveness % Potentially financed Higher attractiveness for FIs by FIs Lower attractiveness HIGH 60% Water Break Even Cost¹ Investment Gap² MODERATE 40% LOW 20% CAPEX³ 1. The smaller the Water Break Even Cost, the more feasible the technology and more Higher positive the credit risk profile Value ($) LEGEND 2. The bigger the Investment Gap, the more efficient becomes the development of capabilities or products by FIs Lower 3. Technologies that demand a higher initial investment, that is, higher ratios between Value ($) Capex and Opex, are more likely to demand external funding 10 Source: SITAWI Finance for Good

2 KEY RESULTS To look into each technology, we developed a framework with the main assumptions used (1) DRIP IRRIGATION FOR SUGARCANE 3, REFERENCES AND ASSUMPTIONS FEASIBILITY ANALYSIS MARKET POTENTIAL A - Capex to install the technology in 1,000 hectares. Information provided by Amaggi (user). 1, GENERAL PARAMETERS B - Considering reduction in energy and maintenance costs for R$ E - Size of Companies that 1,000 hectares. Based on Amaggi. A – CAPEX (R$) S/M/L 4,000,000 may Use the Technology C - Water saving in comparison to central pivot and rainfed B – Annual OPEX (R$) R$ 684,000 irrigation for 1,000 hectares, assuming a productivity Applicable of 4 ton/ha and reduction of 206 m³/ha of water. C – Annual Water Agriculture Sectors D - Break Even cost of water to enable the investment in drip Saving 824,000 irrigation in comparison to central pivot. per Equipment (m³) E - Technology applicable to companies of all sizes. G - Companies that 2, OTHER COSTS OR BENEFITS OF F - Technology directed to soy agriculture with central pivot. Already Use the 0% THE TECHNOLOGY G - We assumed that the use of this model of irrigation is close to Technology (%) zero. Productivity gains in comparison H - Number of Equipment 542 H - Each irrigation equipment corresponds to 1,000 hectares. The to central pivot market potential is equal to the area of soy plantations that are I - Total Water Saving irrigated with central pivots (J). 447,066,675 with the Technology (m³) I - Potential market for the technology (H) times water saving provided by each equipment (C). 2, SPECIFIC PARAMETER OF THE J - Soy production in 2015 was 95 Million tons (Conab, 2016). TECHNOLOGY Given that 12% of soy crops are irrigated, and 19% J – Sugar Plantations of this amount is irrigated with central pivot, production in such Irrigated with Central 542 model is 2,167,596 tons. Annual production Pivot (1.000 hectares) of soy per hectare is 4 tons. Therefore, the area of soy plantations that are irrigated with central pivots is 542 D – Water Break R$ 1,21 K – Investment Gap R$ 2,2 bi thousand hectares. Even Cost ((R$/m³) K - Based on the number of equipment potentially sold (I), times 11 CAPEX (A).