Global Warming Mitigation Technology Promotion Project. Report

Transcription

1 FY2014 Study Report Global Warming Mitigation Technology Promotion Project Report March 2015 The Japan Research Institute, Limited

2 Report on the Global Warming Mitigation Technology Promotion Project - Contents - 1. Background and Aim of the Study Background of the study Basic Information about Mexico Energy Supply and Demand Situation and Prospects in Mexico Greenhouse Gas Emissions Situation and Prospects in Mexico Situation Regarding the Mexico-Japan Joint Crediting Mechanism (JCM) The Purpose of this Study Existing Policies for Promotion of Energy Conservation in Commercial and Business Sectors Analysis of Corporate Awareness and Recognition Relating to the Promotion of Energy Conversation Challenges in Energy Conservation Implementation and Review of the Status of Initiatives Related to Energy Effieicncy Energy Audits Description and Results Solutions for energy conservation promotion based on the audit Resuts Economic effect in the case of widespread commercialization Study of Emissions Reduction Methodology, Estimates of Emissions Reductions Amount Expected using the Methodology Examination of JCM Methodology JCM Methodology Investigation Policy Analysis of JCM Methodology Examination of Emissions Reduction Methodology Examination of JCM methodology for inverter-type air conditioners Examination of JCM Methodology for Lighting Calculation of Emissions Reduction Parameter setting Calculation of reference emissions Calculation of project emissions Calculation of emissions reduction

3 Calculation of emissions reductions from multiple stores Implementation of FS Debriefing Session for Mexican Government Officials Debriefing Session for Each Company that underwent Energy Audit Manufacturer A Retailer B Debriefing Session with Mexican Government Officials Regarding Promotion of the Joint Crediting Mechanism Regarding Energy Efficient Technology and Products Regarding Future Promotion of Energy Conservation in Mexico

4 1. Background and Aim of the Study 1.1. Background of the study Basic Information about Mexico Mexico has a population of million people and an area of 1,964,375 square kilometers (about 5.2 times the size of Japan). Its economic scale is the second largest in Latin America after Brazil, with a nominal GDP total in 2013 of trillion US dollars 1. Demographically, more than half of the population is under 30 years of age, and there is an active consumer market. According to Mexico s National Population Council (CONAPO), the domestic population is predicted to increase to 150 million by 2049, with expansion of the consumer market expected to continue in the future. Mexico has free trade agreements (FTA) with 45 countries such as the United States, EU and Brazil, and is aggressively developing trade liberalization. In particular, Mexico has maintained a close political and economic relationship with the United States, and following Mexico s participation in the North American Free Trade Agreement (NAFTA) with the United States and Canada in 1994, its low cost of logistics and labor have enabled it to rapidly develop as an export manufacturing base for the United States. In 2013 exports to the United States accounted for 78.8% of Mexico s total exports 2 Exhibit 1-1 : Nominal GDP trends in per capita (US$) 12,000 10,000 10,650 8,000 6,000 4,000 2,000 0 Source: Created by JRI based on the IMF World Economic Outlook (October 2014) 1 Mexican National Institute of Statistics and Geography (INEGI) (Producto interno bruto trimestral, base 2008) 2 Central bank announcement and INEGI trade statistics - 3 -

5 Nominal GDP per capita in Mexico fell temporarily to about $ 8,000 due to the influence of the 2009 financial crisis, but recovered to $10,000 in 2011 and slightly increased to $ 10,650 in Real GDP growth rate was temporarily stagnant in the 1-1.9% range since 2013 due to delays in budget execution as a result of changes in government, but in the third quarter of 2014 there was a slight increase of 2.2 percent year-over-year. With US economic recovery and various structural reforms by the government in the future (education, communications, financial, political and electoral system, energy), Mexico's economic recovery is expected to progress. Exhibit 1-2: Real GDP growth rate (%) I II III IV I II III IV I II III Source: Created by Japan Research Institute based on Mexican National Institute of Statistics and Geography Mexico is one of the world's leading producers of crude oil, and the oil industry is an important industry for the country, accounting for about 30% of revenue. Oil production in 2013 was million barrels per day, making Mexico the 10 th largest oil producing country, the same as in However, due to stagnation in investment, such as updating of new oil field exploration and existing facilities, oil production has fallen from the peak in 2004, and 2013 production was 1.1% lower than Following the Peña Nieto government s energy reforms launched in December 2013 to allow the entry of private companies in the oil industry, 3 BP Statistical Review of World Energy June

6 previously monopolized by Mexican Petroleum (Pemex), it is hoped that the development of new oil and gas fields (deep water, shale gas, etc.) will increase production. In manufacturing, a major industry of Mexico, the automotive industry has continued strong growth, with production volume of 1.68 million units in 2005 increasing to 3.52 million units in The production rate in January-November 2014 of 3.01 million units is higher than the previous year 5. Automobiles and parts accounted for 25.7% of total exports in 2013 (about $ billion), a 10.6 point increase over the previous year 6. The non-japanese manufacturers GM, Volkswagen, Ford, Chrysler and Fiat, and the Japanese manufacturers Mazda, Honda, Nissan and Toyota are producing in Mexico. Japanese manufacturers have established further production bases since 2011, and foreign direct investment from Japan to Mexico is increasing, with investment in 2013 of $ 1.75billion being about 2.5 times that of Exhibit 1-3: Foreign direct investment from Japan (million US$) 2,000 1,800 1,750 1,600 1,400 1,200 1,023 1, Source: Created by JRI based on JETRO materials 4 OICA correspondent s survey. World Motor Vehicle Production by Country and Type 5 Asociacion Mexicana de la Industria Automotrilz. Cifras de Noviembre Y Acumulado Central bank announcement and INEGI trade statistics - 5 -

7 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 The policy interest rate has been reduced in stages from 4.5% in June 2012, and reached a record low of 3.0% following a reduction of 0.5 points from 3.5% since the beginning of The reason for this rate cut is mainly in order to increase demand and address the reduction in domestic consumption and private investment due to increases in tax rates. In 2014 there were many months where the consumer price inflation was slightly above the Mexican central bank s objective maximum of 4% (annual + 3%, fluctuation range ± 1%) and in November became 4.17%, but the central bank expects it will decrease in 2015 due to factors such as the impact of tax increases settling. The exchange rate jostled around the $ 1=13 pesos level in 2014 but by December 2014 the weak peso against the dollar proceeded to $1=14 pesos. The background behind the peso depreciation is the degradation of the social situation, global dollar of movements, and crude oil price declines. Exhibit 1-4: Mexican Peso (MXN) vs. US dollar (USD) exchange rate Source: Created by JRI based on Mexico central bank database - 6 -

8 Energy Supply and Demand Situation and Prospects in Mexico 1. Final Energy Consumption The final energy consumption in 2012 in Mexico of 117Mtoe, had a breakdown of industrial sector 25.8%, transport sector 44.8%, residential sector 15.4%, commercial and public sector 3.2%, agriculture and forestry sector 3.4%. The average annual growth rate from 2002 to 2012 was 1.8%, except in 2008 there was an increasing tendency. As a whole, when comparing 2002 to 2012 there was an increase of about 21Mtoe, with the increase of the internal transportation sector accounting for about 70% of the increase with about 15Mtoe. As well as other emerging markets in Mexico, due to advances in motorization along with economic development, up to 2008 energy consumption by the transportation sector significantly expanded. However since 2008 there has been the increasing trend has slowed, it can be said that the popularization of automobiles has settled down. On the other hand there is an increasing trend energy consumption in the industrial sector, with the recent trend of manufacturing industry development, and the industrial sector s growth from 2011 and 2012 exceeded the rate of increase in the transportation sector. A slight increase trend has also continued in the commercial and public sector. Exhibit 1-5: Final energy consumption trends in Mexico (Mtoe) 120 Non-Energy Use Non-Specified Agriculture / Forestry Commercial and Public Services Residential Industry Transport 2012: total 117Mtoe 3.4% 0.9% 3.2% 6.5% 15.4 % 44.8 % 25.8 % Source: Created by JRI based on IEA - 7 -

9 2. Domestic Primary Energy Supply Total primary energy supply volume in 2012 in Mexico (TPES) was 188Mtoe, the breakdown being petroleum 43%, gas 31%, coal 5% and renewable energy 7%. Since Mexico s domestic oil production has fallen in recent years, domestic oil supply has slightly decreased from the peak of about 91Mtoe in 2005, to about 82Mtoe in 2012, the same level as in In addition, the proportion of oil in primary energy reduced to 43% in 2012 from 55% in On the other hand the proportion of natural gas increased from 22% in 2002 (33Mtoe) to 31% (58Mtoe) in Along with this imports of natural gas from the United States have also increased, and since the existing natural gas pipeline transportation capacity is approaching its limit in recent years, President Peña Nieto has announced a new pipeline construction project 7. Although the increase of natural gas is expected to continue in the future, production is expected due to the possibility of oil industry entry by private companies as a result of energy reform in oil production in Mexico Greenhouse Gas Emissions Situation and Prospects in Mexico GHG emissions, along with the growth of final energy consumption have also increased; GHG emissions in 1990 were about 500 million t / year, and in 2010 were about 700million t / year, an increase of 1.5 times over about 20 years. The average annual growth rate from 1990 to 2010 is 2.1%. The Mexican government established a basic law in April 2012 (GLCC: the General Law of Climate Change) to reduce emissions, with a target of 30% reduction in greenhouse gas emissions by 2020 (base year: 2000), and 50% reduction by In addition, in 2007 a comprehensive national climate change strategy (ENACC: Estrategia Nacional de Cambio Climatico)" was developed, and in 2013 the Peña Nieto presidency announced the "National Climate Change Strategy. Vision (ENACC: Estrategia Nacional de Cambio Climatico. Vision ). The new national climate change strategy seeks to make clear the challenges, including reducing GHG emissions, for society as a whole to 1. respond to climate change 2. promote a shift to a sustainable and competitive low-carbon and low emission economy, and suggests actions and strategies. 7 June 2014 Mexico Embassy "Mexico Infrastructure Market Overview - Natural Gas Pipeline Project" - 8 -

10 Exhibit 1-6: GHG Emissions (LULUCF excluded) (carbon dioxide CO 2 equivalent) (thousands) 800, , , , , , , , , ,360 Source: Created by JRI based on OECD (2014), Greenhouse gas emissions, OECD Environment Statistics (Database) Situation Regarding the Mexico-Japan Joint Crediting Mechanism (JCM) On July 25, 2014, taking the opportunity of Prime Minister Shinzo Abe s visit, the signing of bilateral documents on the Joint Crediting Mechanism was carried out between Japan and Mexico. Since the start of the Joint Crediting Mechanism in 2013, Mexico became the 12 th country to sign. At the "20th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP20)", held in Lima, Peru in December 2014, a meeting was held between the 12 countries that signed the Joint Crediting Mechanism and Japan, and a Joint Statement confirming progress to date and the aims for future progress was issued. It should be noted that from Mexico, Rodolfo Lacy, Secretary of Ministry of Environment and Natural Resources (SEMARNAT) attended. Regarding the Ministry of Economy, Trade and Industry s FY2013 Global Warming Mitigation Technology Promotion Program (operated by Japan Research Institute Co., Ltd.), Mr. Lacy participated in an event with invited Japanese companies with the aim of education and promoting understanding of Japanese low-carbon technologies, and deepened his knowledge of related technologies and products and the Joint Crediting Mechanism through visits to Japanese companies. These efforts relating to the promotion - 9 -

11 of the Joint Crediting Mechanism can be said to have greatly contributed to the recent conclusion of institutional documents with Mexico The Purpose of this Study This study investigates and examines new policies and business schemes utilizing the Joint Crediting Mechanism with Mexico that will contribute to the spread of Japanese technology, products and services related to energy conservation (for example energy audit, LED lighting, air conditioning equipment and solar power). Regarding the study of business schemes, this study analyses, as a model case, the economic impact of energy audit and the implementation of solutions proposed by the audit, in Mexican stores and offices that expressed willingness to cooperate in this study, as a project to promote packages of products and services for energy conservation. Based on this model case, this report investigates and analyses methodologies for measuring, reporting, and verifying reductions in greenhouse gases (hereinafter referred to as "GHG") that are achieved through the realization of the project scheme, and using the same methodology reviews and analyses trial calculations of the expected GHG reduction amount

12 2. Policies for the Promotion of Energy Conservation in Cooperation with the Joint Crediting Mechanism 2.1. Existing Policies for Promotion of Energy Conservation in Commercial and Business Sectors 1. Medium-term energy policies President Peña Nieto established the basic policies and strategies in his term ( ) in the "National Development Plan (PND: Plan National de Desarrollo)", which lays out policies in each individual field. In the energy sector, under the PND, the "Energy Plan (PSE: Programa Sectorial de Energia )" has been developed, and goals are set for saving, creating, and storing energy, including "Goal 5: expand the use of clean energy and renewable energy, promote energy conservation and social and environmental responsibility". Under the above high level policy, as an individual policy for the energy production sector, the "Renewable Energy Use Special Plan (PEAER: Programa Especial Para el Aprovechamiento de Energias Renovables) " has been announced by the Department of Energy to expand the use of renewable energy. As an individual policy for energy conservation, the "National Plan for the Sustainable Use of Energy (PRONASE: Programa Nacional Para el Aprovechamiento Sustentable de la Energia )" was announced in April The National Plan for the Sustainable Use of Energy sets six goals, defining numerical targets and strategies for each. Examples of numerical targets are, "the level of energy intensity in 2018 shall be at the same level as 2012 ( kj / $) or less", "the final energy consumption energy efficiency standard (Mexico official standard "NOM") in 2018 shall be at the same level as 2012 (46%) or increase to 51%. Also, concrete strategies and actions to achieve the targets are set out, such as "implement program to replace inefficient equipment in the industrial, commercial and service sectors", "identify and develop equipment, devices and systems to be targets of new energy efficiency standards (NOM)", "set the framework of optimal financing to promote the uptake of programs and projects related to energy conservation". The previously announced strategy "National Plan for the Sustainable Use of Energy" did not mention specific numerical goals and strategies for all sectors, but the contents of the current plan are more comprehensive, showing specific numerical targets and strategies

13 It should be noted that Article 26 of the Renewable Energy Use and Energy Transition Funds Law determines that the situation of energy conservation and renewable energy should be evaluated and adjusted every year under the "National Energy Transition Strategy and Sustainable Use of Energy (ENTEASE: Estrategia Nacional de Transicion Energetica y Aprovechamiento Sustentable de la Energia)". Exhibit 2-1 :Saving-creating-storing energy-related policies in Mexico Development Plan (PND: Plan National de Desarrollo ) National Target 4: Prosperity for Mexico. Department of Energy plan (PSE: Programa Sectorial de Energia ) Goal 5: To expand the use of clean energy and renewable energy, to promote energy efficiency and social and environmental responsibility. National plan for the sustainable use of energy (PRONASE ) Goal 1: Design and development of programs and actions to promote optimal use of energy in national energy chain. Goal 2: Enhance the energy efficiency regulations for electrical equipment and energy systems that are manufactured and sold in Mexico. Goal 3: Strengthen federal, national, city level energy efficiency and systems and harmonize public, private, research and social organizations. Goal 4: Strengthen the development of technology and capacity for sustainable use of energy. Goal 5: Contribute to the building and dissemination of energy conservation culture. Goal 6: Promote technology development and research of energy conservation. Source: Created by JRI based on Department of Energy "PRONASE "

14 2. Long-term energy policy A longer term energy strategy than the above-mentioned "Department of Energy Plan " is "National Energy Strategy (ENE: Estrategia Nacional de Energia)" which shows targets and strategies for energy issues to be addressed over the next 15 years. This strategy is revised and published annually by the Department of Energy and the latest version is the National Energy Strategy However, the strategy, announced by the Peña Nieto presidency is the basic policy, and the 2014 edition also includes the perspective of monitoring of objectives (indicators) and strategies that have been set out in As a long-term goal with an eye to "acceleration of GDP growth", and 2. "realization of social inclusion" are cited, and 21 strategies and 26 indicators to be monitored have been set. It should be noted that there are the indicators 1. sustainability", 2. efficiency", and 3. safety". Among the goals of "sustainability" are to "reduce GHG emissions in the energy sector", and to "increased the proportion of power from non-fossil fuel sources". Among the goals of "efficiency", there is "reduction of energy intensity", and under the goal of "safety" there is "diversification of energy sources". For energy conservation and efficiency, Strategy 2 aims "to promote efficient energy use in all energy sectors", and as concrete action there is a policy to proceed with energy efficiency standardization efforts. 3. System As a financing system in the energy conservation field, the Mexican Energy Efficiency Trust Fund (FIDE) implements the "Business Energy Efficiency and Savings Program (PAEEEM: Programa de Ahorro y Eficiencia Energetica Empresarial). This system provides financing through the "Energy Transition and Sustainable Use of Energy Fund", defined in Article 27 of the "Promotion of Alternative Energy Use and New Energy Transition Financial Assistance Law" enacted in November Under the "Business Energy Efficiency and Savings Program", when companies buy energy efficient products that achieve the NOM standards (commercial refrigerators, electric motors, air conditioning units, efficient lighting or LEDs, substations) they can receive a low-interest loan. The target companies of this plan are mainly small and medium-sized enterprises (convenience stores, department stores, gas stations, offices, hotels, restaurants, sports clubs, hospitals, schools, etc.), the loan amount is up to $350,000 (Mexican Pesos), the repayment period is 4 years, and there is a mechanism to repay through the company s electricity bill payments (CFE jurisdiction)

15 In addition to the above financing system, there is also an investment system (Eficiencia Energetica) mainly for large companies where the amount and repayment period of the financing is determined through discussions with the Energy Efficiency Trust Fund. This system has been operational since 2011, and there are several cases in which Japanese products have been purchased with the help of this system. On the other hand, in local interviews to Mexican government officials, awareness of the two financing plans is low among companies, and there were views that there is a need to address the promotion of the systems. 4. Energy reform From his inauguration in December 2012, President Peña Nieto has aggressively pursued structural reforms in various areas (labor, communication, education, finance, politics, energy) and among these, energy reform has been addressed as a top priority. And, in December 2013 one year from his inauguration, a series of energy reform legislation was established and passed by the Diet, and in August 2014 was promulgated. With the reforms, private companies can enter into the power industry and the oil and gas industry, which had previously been a monopoly of state-owned enterprises. In particular, the oil industry is an important industry, accounting for about 30% of the national revenue, but in recent years domestic oil production has shown a decreasing production trend, and strengthening the resource development of the state-owned enterprise PEMEX (Mexico Petroleum Corporation) was a pressing issue. By opening the industry to private companies, including foreign companies, the Mexican government hoped to activate the oil industry by developing new resources, such as deep-sea oil and shale resources, that require financial strength and technical capabilities. It should be noted that under the reforms it also became possible to secure production sharing contracts and license agreements which had not been recognized before then. In addition, also for the power industry, although until now the state-owned enterprise CFE (Mexico Power Corporation) had been supplying power with a vertically integrated model, it will be possible for the private sector to enter into the power generation business in the future. By this series of reforms, it is hoped that private investment in the energy sector will increase, and that this will lead to activation of the entire Mexican economy

16 2.2 Analysis of Corporate Awareness and Recognition Relating to the Promotion of Energy Conversation Challenges in Energy Conservation 1. Corporate Side Challenges In this study, energy audits were carried out in Mexican manufacturing industry, distribution and retail businesses. While supporting Mexican economic growth, these industrial and commercial sectors, when combined with the residential sector, are the main source of GHG emissions. For the Mexican government, having listed GHG emission reduction targets to address global warming, promoting energy conservation in the industrial and commercial sectors has become a major challenge. On the other hand, awareness on the corporate side with respect to energy conservation promotion can generally be said to be low. Business activities to improve sales and profits have priority, and it is not the case that environmental action has been actively promoted. Although in some large companies pioneering efforts have been made, fostering of knowledge and awareness of concepts and behaviors such as energy conservation and power saving is needed in the entire industry. For the companies in this survey, except for a few large companies, room for significant improvement was observed regarding measures to encourage power saving and efficient energy use in business locations. 2. Institutional Challenges There are also institutional problems with the systems that Mexican authorities have developed. As described above, energy efficiency certification exists for electrical products in Mexico, and support is provided for energy saving promotion to small and medium-sized enterprises. However, regarding the actual system in operation, there is still much room for improvement, according to local manufacturers that have been using such systems. For example, for air conditioning, the top three air-conditioning equipment manufacturers that have been purchased by using the FIDE PAEEEM system are local manufacturers. But their market share is very small. On the other hand, manufacturers such as from the US have almost no registrations or purchases under PAEEEM, but their market share is large. PAEEEM is a system to increase sales of registered products, but because installation costs are not included, users (SMEs) do not feel the benefit, and as

17 a result largely do not buy, which means that manufacturers feel little incentive to go through the cumbersome registration process, and this is one reason why the system has failed to become more widely used. Manufacturers have explained these problems to FIDE and asked for improvements, but no such improvements have been made Implementation and Review of the Status of Initiatives Related to Energy Effieicncy 1. FIDE s Activities In Mexico, FIDE has developed a specific approach for energy efficiency for general homes and enterprises since the 1990s. However, efforts to also actively drive efforts at the corporate level of the industrial and commercial sectors, which may have a significant impact on the economy and the environment have not progressed. FIDE has also recognized this situation and is exploring cooperation possibilities in institution-building and operations through consultations and interviews with companies. (1) Challenges Recognized by FIDE and its Responses Challenge Nationwide awareness of energy efficiency is low. FIDE has conducted specific initiatives for energy efficiency since the 1990s for general homes and companies, yet awareness of the public and businesses to save energy is low. Lack of engineers with basic knowledge and companies providing energy efficiency services. Public-private partnership framework for promotion of energy conservation has not been established. Energy saving has not become Response Deployment of enlightenment and awareness-raising activities for energy conservation, especially for children. Development of technical personnel, scheme aimed at professional development (under planning and review) Implementation of grand prize event for

18 widespread at the corporate level. companies using FIDE mark home appliances and commercial equipment. since promotion of energy conservation efforts are not obligatory, few companies proactively make efforts. SENER has decided to significantly increase the budget of PAEEEM, currently the only energy conservation promotion support system, by four times. In order to plan promotion activities at this budget scale, FIDE is strengthening its efforts to convince manufacturers to register with PAEEEM. 2. CONUEE s Activities This energy conservation authority is also acting vigorously. In Mexico, as a regulatory oversight agency independent from the government, the Mexico Energy Efficiency Commission (Comisión Nacional para el Uso Eficiente de Energía, hereinafter referred to as "CONUEE") is developing its own NOM standards for items such as appliances. In addition it also carries out reviews and certifications of standards for NOM products. 8 According to interviews with CONUEE, the general assessment is that Mexican energy efficiency standards have become stricter, since the country has adopted the same standards as the neighboring countries of the United States and Canada. The background is that electrical appliances that are domestically manufactured are mainly exported to the United States, such that product specifications must meet US standards. CONUEE, with these functions, through raising efficiency of home appliances as a regulatory oversight agency, plays a role to accelerate the efficiency and energy conservation of energy use in Mexico. As with PRONASE, discussed earlier, based on the goal of "enhanced energy efficiency regulation of production and sales of electrical equipment and energy systems made in Mexico", focus is being put on the development of NOM standards to expand target equipment, devices and systems under NOM. 8 Currently CONUEE has 7 certified institutions and 50 laboratories for product inspection in Mexico

19 In terms of concrete efforts, in September 2014 a new standard NOM-032 was released which includes standby energy use that had not been regulated before, expanding the scope of NOM. Target products were audio-visual equipment such as TVs and DVD players, microwaves etc. In addition, standards for solar-related equipment, inverters, household pump equipment and power adapters are in development, and based on the national strategy of energy conservation, CONUEE is performing its duties as a supervisory body

20 3. Concrete Plan towards Commercialization Utilizing Energy Conservation Promotion Policies 3.1. Energy Audits Description and Results In this study, we conducted energy audits for Mexican companies in the industrial and commercial sectors, and an analysis of the measurement results was carried out. Furthermore, based on the results, in order to enhance the energy conservation of the companies audited, proposals were made to introduce equipment and systems and improve operations. The following summarizes the implementation overview and results of the energy audit at each company audited. <Project Aim > The objectives of this project are to investigate and deliberate new political policies in Mexico related to the Joint Crediting Mechanism (JCM) between Japan and Mexico that is contributing to the spread of Japanese technology, products and services related to the conservation, creation and storage of energy (example: Energy conservation diagnosis, LED lighting, ventilation equipment, solar energy production, lithium-ion batteries, etc.), as well as business ventures that take advantage of these policies. <Survey Overview> When implementing a project to introduce energy-conserving technology and equipment, the energy survey is performed to analyze in how energy can be conserved as a result of the project. Details on the method and procedures are stated below. <Survey Method> Walk-through investigation : Check of the operating status of lighting and air-conditioning equipment. Management document check : Check of operating records, equipment lists and electricity bill. Energy consumption measurement : Measurement of electricity consumption for lighting and air-conditioning equipment by using power loggers. (The outdoor temperature is also measured in order to assess the effect of the

21 temperature.) ManufacturerA For manufacturer A, an audit of its manufacturing base, a walk-through survey, confirmation of management documentation and measurement of energy consumption was carried out. <Measurement Overview> Two measurements were carried out between September to November, lasting 2 and 4 weeks. Exhibit 3-1:Measurement Overview <Companies in charge of measurement> Hokuriku Electric Power Company (Cooperation) Panasonic de Mexico S.A de C.V Panasonic Corporation AVC Networks Company <Estimated results of the annual amount of energy> The surveyed factory uses electricity and natural gas, etc. but only the equipment

22 that uses electricity was surveyed. Therefore, the annual amount of electricity used was grasped in advance from CFE bills. Each load ratio was estimated from the survey result. Air-conditioning units are used mainly for offices, not used in the plant work area (with the exception of the monitoring room). Therefore, the percentage of electricity consumed by Air-Conditioning units is estimated to be 2% of all the electricity used by the entire factory. Efforts have been made to conserve energy inside the factory by using daylight as much as possible. It is estimated that Lighting accounts for 9% of the electricity consumed by the entire factory. If Japanese energy-saving technology is applied to Lighting and Air-Conditioning, the amount of electricity used in the factory can be reduced. Exhibit 3-2:Estimated annual power consumption by usage AC 2% Lighting 9% 7,000,000 6,000,000 5,000,000 4,000,000 Others 89% 3,000,000 2,000, Total 1,000,000 7,000,000 kwh/year 120, ,000 0 AC Lighting Others AC Lighting Others Source: Consortium material 6,200,000 The figure below shows the average outside temperature and power consumption by month. There is no observed effect on the power consumption due to changes in outside air temperature

23 Exhibit 3-3:Average outside temperature and power consumption by month Source: Consortium material Retailer B For retailer B, an audit of the store, a walk-through survey, confirmation of management documentation and measurement of energy consumption was carried out. <Measurement Overview> Measurement Period: 28 October November 2014 <Companies in charge of measurement> Hokuriku Electric Power Company (Cooperation) Panasonic de Mexico S.A. de C.V Panasonic Corporation AVC Networks Company <Estimated results of the annual amount of energy> Electricity consumption of the annual whole store was grasped from a CFE bill because there is no use of energy except for electricity in the building. We measured

24 respective electricity consumption in order to be classified by use and estimated the respective annual consumption. Air-Conditioning and Lighting account for 55% and 33% of electricity consumption, respectively. If Japanese energy-conserving technology is applied, the amount of energy used in the store can be reduced. Exhibit 3-4:Estimated annual power consumption by usage (kwh) 350, ,000 Others 12% 250, ,000 Lighting 33% AC 55% 150, , , , Total 540,000 kwh/year 50,000 60,000 0 AC Lighting Others AC Lighting Others Source: Consortium material Looking at the above exhibits, it can be seen that energy usage is dominated by air conditioning with 55% and illumination with 33%. That is, by applying Japanese energy-saving technologies for air conditioning and lighting, it can be said that it is possible to reduce the store s energy use. In exhibits 3-5 the correlation of power consumption and the outside air temperature in each month is shown. With high outside air temperatures from April to October, it is found that the power consumption is high as compared to other months

25 Exhibit 3-5:Average outside temperature and power consumption by month Source: Consortium material From the audit results of the walk-through surveys, confirmation of management documentation and measurement of energy consumption, the following can be cited as recommendations. Lighting : in non-business hours, light only places needed for work Air conditioning: Manually switch power on and off at the time of opening and before closing 3.2. Solutions for energy conservation promotion based on the audit Resuts Based on the results of the preceding energy audits, towards each audit target, we propose solutions for energy conservation as follows Manufacturer A 1. Proposed equipment Air conditioning: introduction of inverter-type air conditioning Lighting: introduction of LED lighting, practice improvement of adjustment, operational illumination level Compressor: reduction of pressure loss, airflow improvement, etc., practice operational improvement

26 2. Energy-saving effect due to the introduction of proposed equipmen Items Equipment Operation Air-Conditioning System -0.6% - Lighting -3.6% -1.5% Other -2.2% - Total -6.4% -1.5% The combined effect of the equipment installation and operational improvement is estimated at a total of 7.9% annual energy saving effect. 3. Cost saving effect of the proposed equipment and operational improvements The cost reduction effect and ROI from the above-mentioned equipment introduction and operational improvement will be as follows. Exhibit 3-6:Energy- and cost-savings by introducing equipment Items Amount of reduction Electricity(kWh/year) Cost saving (MXN$) Air-Conditioning System 45,000 69,000 Lighting 356, ,000 Other 155, ,000 Total 556, ,000 Source: Consortium material Retailer B 1. Proposed equipment Air conditioning: introduction of inverter-type air conditioning Lighting: introduction of LED lighting, practice improvement of adjustment, operational illumination level Other: demand peak suppression by the introduction of demand-control system

27 2. Energy-saving effect due to the introduction of proposed equipment Items Equipment Operation Air-Conditioning System -22.7% -4.5% Lighting -15.8% -3.7% Other -1.5% - Total -40.0% -8.2% The combined effect of the equipment installation and operational improvement is estimated at a total of 48.2% annual energy saving effect. 3. Cost saving effect of the proposed equipment The cost reduction effect and ROI from the above-mentioned equipment introduction and operational improvements will be as follows. Exhibit 3-7:Energy- and cost-savings by introducing equipment Items Amount of reduction Electricity(kWh/year) Cost saving (MXN$) Air-Conditioning System 149, ,000 Lighting 106, ,000 Other 8,000 12,000 Total 263, ,000 Source: Consortium material

28 3.3. Economic effect in the case of widespread commercialization Businesses such as the SMEs for which the energy audits were done and solutions proposed, are widespread in Mexico. Therefore, the energy and cost saving effect obtained if the introduced solutions presented above were adopted across Mexico are shown. It should be noted that on the estimates, electricity rates were 1.36 Mexican peso / kwh Retailer B In retailer B, improvements in air conditioning (introduction of inverter-type air conditioning) and lighting (introduction of LED lighting, improvement of adjustment, operational illumination level) were proposed. If these were introduced in all stores (1,000 shops), annual energy savings of 165,000MWh and cost savings of approximately 280 million pesos are estimated. Exhibit 3-8:Energy and cost savings in the case of nationwide deployment (retailer B) Items Energy saving Energy saving Cost saving per store in all stores (Per store) (All store) (kwh/year) (MWh/year) (MXN$) Air-Conditioning System 333,000 50, ,000 73,000,000 Lighting 107, , , ,000,000 Other 14,000 5,000 21,000 7,000,000 Total 454, , , ,000,000 Source: Created by JRI based on various data Furthermore, the cumulative energy savings for the proposed solution from 2016 to 2025 that are obtained when introduced in 100 stores per year, and the cost saving effects are shown in the exhibits below

29 Exhibit 3-9:Energy saving effect in cumulative (retailer B) Unit:MWh 1,000, , , , , , , , , , Source: Created by JRI based on various data Exhibit 3-10: cost savings (retailer B) Unit:Million MXN$ 1,800 1,600 1,400 1,200 1, Source: Created by JRI based on various data

30 4. Study of Emissions Reduction Methodology, Estimates of Emissions Reductions Amount Expected using the Methodology 4.1. Examination of JCM Methodology JCM Methodology Investigation Policy The CDM methodologies considered possible for use with the main energy conservation technologies used in this project, namely air-conditioning (the technology used in this project is an inverter-type air-conditioner) and lighting (the technology used in this project is LED), are the small scale energy conservation methodology AMS-Ⅱ.C Demand-side energy conservation activities for specific technologies and the small scale energy conservation methodology AMS-.E Energy conservation and fuel switching measures for buildings. These methodologies take the equipment uptime as the amount of activity, and multiply the difference between before and after equipment efficiency (for example air conditioner COP) or energy consumption (for example lighting energy consumption) to calculate the reference emissions. Business feasibility studies for energy conservation related JCM projects up to now have also referred to these methodologies in studying and creating the JCM methodology proposals. On the other hand, the JCM methodology MN_AM001 "Installation of energy-saving transmission lines in the Mongolian Grid" was approved by the Japan-Mongolia Joint Committee in February 2014, and after that 1 other project at the Japan and Mongolia Joint Committee (total 2 projects), and 4 JCM methodologies have been approved by the Japan-Indonesia Joint Committee. In addition, 3 methodologies are being considered by the Japan-Indonesia Joint Committee, 4 by the Japan-Vietnam Joint Committee and 1 at the Japan-Palau Joint Committee, such that the total of approved and proposed methodologies is now 14 (as of end of January 2015). Because the JCM is a system that is operated by a Joint Committee established between two countries, cooperation between each Joint Committee basically is not thought to be required. On the other hand, since the Japanese Government is involved in all of the Joint Committees, and robust methodologies, transparency, ensuring environmental integrity, systems and operations that conform to international rules are the aim, largely different JCM methodologies approved at the Joint Committees should be avoided. The study of the methodology to be applied to

31 this project activity refers to the approved and proposed methodologies in JCM, such as eligibility requirements and reference scenarios, and examines the specific circumstances and conditions in this project Analysis of JCM Methodology There have so far been five approved or proposed JCM methodologies related to air conditioning and lighting as the major subject equipment to achieve energy conservation. JCM methodologies related to inverter-type air conditioners and LED lighting Target Country Methodology Number Methodology Name Status Energy Saving by Introduction Indonesia ID_AM002 of High Efficiency Centrifugal Approved Chiller Installation of Inverter-Type Air Indonesia ID_AM004 Conditioning System for Approved Cooling for Grocery Store Indonesia ID_PM004 Installation of LED Lighting for Grocery Store Proposed Introduction of room air Vietnam VN_PM003 conditioners equipped with inverters to public sector Proposed buildings Improving the energy efficiency Vietnam VN_PM004 of commercial buildings by utilization of high efficiency Proposed equipment Source: created by JRI from each Joint Committee website Among these JCM methodologies, three relate to air conditioning (ID_AM002 Energy Saving by Introduction of High Efficiency Centrifugal Chiller, ID_AM004 Installation of Inverter-Type Air Conditioning System for Cooling for Grocery Store,

32 VN_PM003 Introduction of room air conditioners equipped with inverters to public sector buildings ). Two methodologies are related to lighting (ID_PM004 Installation of LED Lighting for Grocery Store, VN_PM004 Improving the energy efficiency of commercial buildings by utilization of high efficiency equipment ). (1) Analysis of JCM Methodologies for Air Conditioning In the methodologies related to air conditioning, one has targeted at chillers and two are intended for split type of inverter-type air conditioners. Since it is a split type inverter air conditioner employed in the present project activity, it was decided to analyze the two JCM methodologies with similar technology. Eligibility requirements are as follows for the two JCM methodologies that are targeted to the split type of inverter air conditioner. Eligibility requirements in JCM methodologies related to inverter-type air conditioners Methodology Number ID_ AM004 Methodology Name Installation of Inverter-Type Air Conditioning System for Cooling for Grocery Store Eligibility Criteria 1. Single split inverter-type air conditioning system is newly installed or installed to replace existing air conditioning system for grocery store whose selling area is less than 400 (four hundred) m The installed air conditioning system is wall mounted type and/or ceiling cassette type, and has a COP value higher than that of the value indicated in the table below. 3. Ozone Depletion Potential (ODP) of the refrigerant used for the installed air conditioning system is 0 (zero). 4. Plan for not releasing refrigerant used for

33 VN_ PM003 Introduction of room air conditioners equipped with inverters to public sector buildings project air conditioning system is prepared. In the case of replacing the existing air conditioning system with the project air conditioning system, refrigerant used for the existing air conditioning system is not released to the air. 1. The project newly introduces RACs equipped with inverters, or replaces existing non-inverter RACs by inverter RACs. 2. This methodology is applicable to public sector buildings. 3. Rated cooling capacity of a project RAC is within the applicable range of the Vietnamese national standard TCVN7831: Ozone Depletion Potential (ODP) of the refrigerant used for project RAC is zero. 5. Plans to prevent release of refrigerants into the atmosphere at the time of RAC removal are prepared for both project RACs and the existing RACs replaced by the project. In the case of replacing existing RACs by project RACs, execution of the prevention plan is checked at the time of verification, in order to confirm that refrigerant used for the existing RACs removed by the project is not released to the air. Source: Created by JRI based on each JCM methodology Note 1:RAC:Room air conditioner Among the eligibility requirements of the two JCM methodologies, the following summarizes the common requirements

34 Overview of eligibility requirements common to JCM methodologies related to inverter-type air conditioners No. Requirement Contents 1 Applicable Technology Must be Inverter-type Air Conditioner 2 Applies to Limited to buildings which are the target of project activity (ID_AM004: sales floor area <400m 2 grocery store, VN_PM003: government or public buildings) 3 Applicable condition 4 Applicable condition 5 Applicable activity Limited to products to be applied in the project activity (ID_AM004: not less than was determined for each cooling capacity COP, VN_PM003: conforms to cooling capacity of Vietnam standard TCVN7831:2012) That ozone depletion potential of the refrigerant being used in products to be applied in the project activity (ODP) is zero. Refrigerants must not be released into the air when the existing air conditioner is replaced, and also when the air conditioner installed under the project is removed. Eligibility requirements are configured simply, with an appropriate treatment of technology, subject, conditions and activities. Since inverter-type air conditioners are used in the project activities, requirements numbers 1, 4 and 5 are considered necessary for all methodologies. Regarding numbers 2, 3, while based on the subject and conditions of this project activity, there is a need to consider whether the eligibility requirements can be secured. The approach for reference emissions of the two JCM methodologies that are targeted at split type inverter air conditioners both use the air conditioning energy efficiency ratio of the reference scenario air-conditioner and the project air conditioner, estimate the reference scenario power consumption from the power consumption of the project, and calculate the reference emissions using the the reference emissions factor of the power grid. The energy efficiency of the air conditioner is set in ID_AM004 as the COP set for each cooling capacity, and VN_PM003 uses the air conditioner evaluation method standard ISO5151, and the Cooling Seasonal

35 Performance Factor (CSPF) calculated by evaluation criteria set by the Vietnamese national standard TCVN 7831:2012. Although there are differences in energy efficiency indicators employed due to the circumstances in each country, by defining the energy efficiency of the air conditioner that is employed in the reference scenario, the reference emissions reduction calculated from the difference in energy efficiency ratio of the air conditioner introduced in the project activity is considered to be reasonable. (2)Analysis of JCM Methodology for Lighting Of the methodologies associated with lighting, two are intended for LED lighting. Since the technology employed in the present project activity is LED lighting, it was decided to analyze the two JCM methodologies that use similar technology. Eligibility requirements are as follows for the two JCM methodologies that are intended for LED lighting. Eligibility requirements in JCM methodology related to LED lighting Methodology Number ID_ PM004 Methodology Name Installation of LED Lighting for Grocery Store Eligibility Criteria 1. LED lighting is newly installed or installed to replace existing fluorescent lighting for grocery store whose selling area is less than 400 (four hundred) m 2 2. The installed LED lighting is a straight type LED with color temperature between 5,000 and 6,500 K, length between and 1,513.0 mm, and luminous efficiency of more than 120 lm/w. 3. In the case of replacing existing fluorescent lighting with the project LED lighting, mercury contained in existing fluorescent lighting is not released to the environment