Utilities’ Refrigerator replacement programme

Refrigerators represent 70% of total low-income households’ electricity consumption. There is a social tariff for low-income households for electricity supply, which on average covers 65 kWh per month per household. Utilities have to invest 0.5% of net sales in efficiency programmes, which equals R$ 300 million. This compares to R$ 1,4 billion annually to subsidize low-income electricity tariffs (as of 2007) (Jannuzzi 2007).
None of the most popular refrigerators in the stock (in 2005) were labelled ‘A’ or most energy efficient (Jannuzzi 2007). And refrigerators found in low-income households are usually the oldest ones.

The obligation and public benefits funds scheme aims to help low-income households save money and energy by funding energy efficiency measures, such as through a refrigerator replacement programme.

Each utility carries out and manages its own energy efficiency programme within its concession area under the supervision of the national regulator. Therefore it is a national, local and regional policy depending on the focus of each utility.

Relevant sectors

• Residential: The sectoral focus is the residential sector

The new refrigerators must be labelled as “A”, have the PROCEL Seal and each utility’s programme must achieve a cost-benefit ratio (CBR) less than 0,8 (i.e., costs are no more than 80% of the economic benefits and the programme achieves a net economic benefit). The regulator will approve programmes with higher CBR only if their social and environmental benefits are worthwhile. The utility must report programme expenditure and the ex-post results (saved energy, refrigerators installed).

Relevant target groups

• Wholesale company
• Retail company
• Bank
• User Especially low income households
• Energy company

Direct beneficiaries

• User

  End users get a new refrigerator at no cost and save electricity. Depending on the model, modern refrigerators can improve efficiency up to 107%.

Indirect beneficiaries

• Manufacturer

  Manufacturers, recycling companies and associated services (transport, supervision, training, engineering companies) indirectly benefit from the P&M. Ratepayers benefit from lower (cross-)subsidies required for the social tariff.

Relevant barriers

• Knowledge and information barriers: The refrigerator replacement programme addresses the information barrier by using the European energy label. Furthermore low-income customers get energy savings information in their homes as part of the programme.
• Economic and financial barriers: A main barrier not to invest in energy efficient equipment are the higher purchase prices. The programme aims to help low-income households save money and reduce energy consumption by replacing old, inefficient refrigerators at no cost to them.
• Lack of interest and motivation in energy efficiency-improvement: For the vast majority of actors, the costs of energy are so small compared to their total (production or consumption) costs that energy-efficiency improvement is not even taken into consideration. Furthermore, there is a tendency that companies, organisations and households focus on their core activities only.

Relevant incentives

• Saved energy costs: End users get a new refrigerator at no cost and save electricity. The funding from the ‘wires charges’ finances the replacement refrigerators. Without such funding and mandatory energy efficiency programmes, low-income consumers would not be able to afford the replacements.
• Unique selling proposition for suppliers: Utilities have strong financial disincentives for effective energy efficiency programmes (especially those that reduce kWh) since they reduce electricity sales and profits. Changes in the rate design could help energy efficiency to become more attractive to customers and utilities. Electricity is “price capped”, therefore profits are driven by increased sales (Januzzi, 2006) Furthermore there is an incentive for manufacturers of energy-efficient appliances. The more market actors buy energy-efficient goods, the more manufacturers invest in energy-efficient production resulting in dropping prices. As soon as appliance manufacturers realise that there is a demand for energy efficient products, they start reaching out to this target group.

The replacement programme interacts with a refrigerator recycling programme (SENA) and the social tariff on electricity. The interactions could be improved (see: possible further improvements).The programme also benefits from the Brazilian energy label for appliances. The regulator requires that the refrigerator models in the programme are labelled as A.
The interaction of these different programmes is a quasi-planned interaction. The Brazilian Congress enacted new rulings for the application of the social tariff and for low-income energy efficiency programmes without discussions with other players, such as utilities.

The replacement of the refrigerators is combined with a recycling programme and aimed specifically at low-income households. And the programme is subjected to measurement and verification (M&V).

• Since 2008 all old refrigerators replaced must be certified as recycled and properly disposed. Most of them contain ozone depleting substances (ODS) ), such as their refrigerants and/or foaming agents, but Brazil completely phased out CFCs in all major consumer sectors on 1st January 2007 (Ramirez-Pabon et al., 2009).
• From 1998 to 2007, the utilities did not measure and verify the results of their energy efficiency investments. Since 2008 M&V became mandatory and should follow the guidelines of the IPMVP (International Performance Measurement and Verification Protocol).
• Some utilities are simultaneously investing in new anti-theft technologies in high-risk areas. They enhance the energy efficiency programme by forcing households to consume electricity more rationally, since they now have to pay for their electricity, as well as extending the lifetime of appliances, since the power quality is considerably improved.

• Better governance is required for the regulated utility programmes. Greater coordination between the main actors (regulator, utilities, and government) would be beneficial;
• It is necessary to clearly establish broad public energy policy goals to guide the regulator’s and utilities’ efforts to apply available resources more cost-effectively;
• If utilities are to continue to be the main proponents and implementers of energy efficiency projects, regulatory changes should align incentives to utilities with saving energy

To optimise the policy package, more integrated discussion and planning are necessary to ensure the main actors are working towards the same goals. It would be beneficial to envisage a strategy for phasing out the subsidies for the social tariff. So far, the low-income households not only get the benefits from a new and more efficient refrigerator but also continue to have a subsidised tariff. Brazil would probably be better off by removing this type of subsidies, and these programmes could provide a way out without severe impacts on electricity bills – households save many kWh and pay more for each kWh.

Pre-conditions are test-procedures, an agency, a funding scheme and some additional conditions.

Agencies or other actors responsible for implementation
No state agencies are needed to implement the programme as this task is mandated to the utilities. An agency is needed to oversee the programmes. This task is assigned to the energy regulator ANEEL.

Funding
The programmes would not be possible without the ‘wires charge’ that is used to fund them.
The social tariff for low-income households is part of the funding scheme. Only low-income consumers that participate in the Brazilian income transfer programme called “Bolsa Família” are eligible to get the electricity social tariff and, therefore, participate in the regulated energy efficiency programmes.
So far, there have been no discussions on decoupling revenues from the amount of power supplied or changing regulations to allow direct cost-recovery mechanisms from these energy efficiency programmes. The programmes are fully financed by electricity consumers and the refrigerators are free to low-income households.

Test procedures
Not directly for this programme, but as a basis for the energy label, which is needed for selecting the replacement refrigerators

• Municipalities (responsible for registering the eligible low-income families to benefit from “Bolsa Família”)
• Ministry of Social Development (grant and supervise “Bolsa Família”)
• ANEEL (authorizes the inclusion of the low-income consumer in the social tariff)
• Utilities (responsible for implementation)

ANEEL publishes the Manual for the Energy Efficiency Program containing rules and guidelines for utilities to submit their programmes to the regulator. This most recent Manual dates from 2008. It specifies several steps of implementation by the utilities: pre-diagnosis, diagnosis, execution, verification, fiscal and financial audit, final report, M&V validation and evaluation. ANEEL then oversees programme implementation.

Co-operation of countries:
There is no co-operation with other countries so far.

Quantified target:
The policy has no quantified target. Targets are set by utilities under their own criteria.

Actors responsible for design
Utilities design, manage and implement the programmes. Forty three utilities are currently (2011) carrying out refrigerator replacement programmes.

Actors responsible for implementation
Utilities (LIGHT, COELBA, ESCELSA, CELPE, AMPLA, CEMIG etc.)

Monitoring
A monitoring system is in place, run by utilities. The utilities’ programmes will be inspected by ANEEL to ensure that utilities have their own tracking system.
Accounting, fiscal and energy data are recorded.

Evaluation
An ex-post impact evaluation exists for some of the programmes. Results are not disclosed, but some can be provided without identifying the utility. Refrigerator replacement achieved energy savings of 81% for refrigeration in a case study in the Northeast region. Preliminary data in two other case studies show a reduction in refrigerator energy consumption of 75% and 70%.
Economic benefits and costs have been evaluated through the cost-benefit ratio (CBR) from the distributor perspective. At the end of the programme, the CBR is recalculated with actual figures.

• Minimising rebound effects: There does not appear to be any effective attempt to minimise rebound effects (e.g., that the low-income households use the new refrigerator at lower temperatures).
• Minimising snap-back effects: There does not appear to be any effective attempt to minimise the snap-back effect. However, snap-back effects are likely to be low in this case. They might result in the future from low-income households buying an inefficient refrigerator after the new one will reach its end of life or even earlier, if they sell the new higher-value refrigerator to a household not belonging to the low-income group.
• Minimising free-rider effects: The free-rider effect is likely to be minimized by registering and checking the consumers that are really resident in low-income neighbourhood and labelling the old refrigerators that will be replaced after inspection. It is also unlikely that low-income households would buy energy-efficient refrigerators without the programme (and thus become free-riders when participating in the programme), since these models are more expensive.
• Creating Spill-over effects: There does not appear to be any effective attempt to maximise spill-over effects. They might result from neighbours or others, who are not low-income households but get to know the energy and bill savings due to energy-efficient refrigerators from the programme participants.
• Dynamic market transformation and/or innovation: The regulator aims to promote market transformation, but utilities are in general only interested in complying with their legal obligations.
• Avoiding lost opportunities: The policy aims to avoid lost opportunities. It avoids low-income households buying another cheap and inefficient refrigerator when their current appliance breaks down. By linking the donation of the new refrigerator to scrapping the old one it also avoids GHG leakage by the safe recycling and disposal.

Co-benefits

• Old refrigerators will be recycled (delivery service for new and pick-up service for old appliances)
• Jobs are created (Schweizerische Eidgenossenschaft 2012)
• Increase in energy-efficient refrigerator sales

Consumers frequently claim the energy efficient refrigerators are too small. The acceptance rate could be higher if the refrigerators were bigger without unacceptably compromising the cost-benefit ratio.
The programme has not been able to eliminate illegal connections and power theft.

Please refer to the next figure. It presents the estimated energy savings and peak demand reduction, based on ANEEL data covering energy savings, peak demand reduction, CBR for all utilities by sector (residential, industrial, commercial, services etc), end use (refrigeration, lighting etc), utility.
45 utilities were carrying out refrigerator replacement programmes, totalling 383,760 appliances from 2008 to 2010 that would save 186,294 MWh/year and reduce peak demand by 23,277 kW.

The target years for these estimated savings were 2008-2010

The energy savings from refrigerator replacement achieved 81% reduction in refrigerator electricity consumption in a case study sited in Northeast region. Preliminary data from two case studies in the Southeast region show a reduction of 75% and 70%.
Energy saved in total electricity consumption for low-income households: Average total monthly consumption among a sample of customers of one utility fell from 167 kWh to 94 kWh after the replacement programme (a reduction of 44%). (Jannuzzi, 2007).
For this study, a statistical sample of refrigerators had their electricity consumption measured both ex-ante and ex-post. The average consumption and then energy savings were computed and extrapolated to the neighbourhood.

The evaluation years were 2009 and 2010.

This result suggests that each household saved almost 900 kWh per year of electricity from the refrigerator replacement.

No information is available but the number of low-income households eligible for a free refrigerator is probably much larger than the 383,760 appliances distributed from 2008 to 2010 would suggest, so there is probably room for extending these programmes.

The new refrigerator is supposed to save at least the same amount of electricity as the difference between the subsidised tariff and the residential one → 53% (Jannuzzi 2007).
Values of the utilities’ ex-ante estimates for the CBR reported by ANEEL vary significantly from unrealistic lower and upper limits (from 0,04 to 272,15). Out of 94 programmes, 56 are between 0,7 and 2,0, which is a more realistic range. (If the CBR is below 1, the programme will have a net benefit, i.e. the benefit is higher than the costs.)
There will always be a net benefit for the low-income customers participating, since they will save energy and costs for no initial investment.

Only 26 of the 94 programmes have an expected CBR under 1.0; i.e., these are cost-effective. The rest are not cost-effective, but potentially have social and environment benefits.

The regulator will have ex-post evaluations from all distributors and will be able to evaluate those programmes. These are not yet available but expected soon.