Together with Integrate to Zero, BASE is excited to publish its research exploring the potential for Energy Service Companies to provide integrated clean energy solutions in Africa.
Clean energy investment has reached a new high of over USD 1.1 trillion globally. However, only USD 30 Billion of this global investment is flowing to Africa, where there is a substantial lack of investment in clean energy. For many countries in Africa, scaling clean energy is hindered by regulatory gaps, inadequate financing mechanisms, and a lack of local technological capabilities. Failure to act could have negative economic and social consequences for Africa and the world.
Energy Service Companies (ESCOs) have been instrumental in the deployment of clean technology and solutions in developed economies, but in Africa, the current ESCO market is nascent. The adoption of clean energy and technologies offers many African regions the chance to leapfrog traditional fossil fuel-based electricity generation and technologies and improve energy access. ESCOs can offer a one-stop solution by having an integrated system, and integrated energy service offerings can result in carbon and pollution reduction, cost savings, and increased availability of clean energy services.
Research carried out by BASE and Integrate to Zero, analysed the existing ESCOs in six African countries (Morocco, Kenya, Ghana, Nigeria, South Africa, and Rwanda) to understand the maturity and needs of this sector to provide integrated energy services. This includes an analysis of the services and types of contracts offered to consumers, and a comparative cost-benefit analysis for each of the six countries, considering aspects such as the cost of energy, cost of fuel, financing costs, tax incentives, among others.
The three insights from the study on the Energy Service Company (ESCO) market in Africa are as follows:
1. The ESCO market in Africa is nascent and uneven, with fewer ESCOs compared to developed economies, and financial constraints limiting market growth. Of the 103 entities mapped out in the six major African countries, only 48 were identified as ESCOs, while others were offering renewable energy services specific to sales and distribution, consultancy, and project development.
2. There is an array of services and contracts on offer in Africa, but they are disaggregated, lacking innovative financing mechanisms, and a full one-stop-shop service. The market is limited in terms of end-to-end offerings, and innovative financing mechanisms such as energy performance contracting, servitization, or lease financing are missing.
3. Conditions and needs in some African countries offer a great opportunity for the ESCO market. High energy costs, lack of quality and reliability of energy sources, and government support for clean energy are some of the reasons why opportunities exist in the region. Rwanda showed promising results in terms of the financial performance of integrating solar PV and electric vehicles (EVs), as both technologies leverage each other to reduce costs.
Overall, the paper discusses the potential for Energy Service Companies (ESCOs) to provide integrated clean energy solutions in Africa. However, there are main barriers that limit clean energy deployment in Africa are lack of appropriate policy frameworks, stakeholder market disarticulation and lack of trust, lack of appropriate financial sources, and lack of knowledge and capacity on business models and financing mechanisms. From this research, we recommend specific actions that governments, banks/financiers, suppliers, and philanthropy can take to overcome these barriers and support the growth of the integrated clean energy market in Africa. Additionally, the paper highlights emerging business opportunities for digitalization, e-mobility sharing, renewable energy, and green initiatives that can be supported by renewables and electric charging infrastructure development. By overcoming barriers and unlocking the potential of consumer-driven integrated systems, the ESCO market in Africa can help reduce emissions and provide cleaner, more efficient energy solutions.
