Africa requires USD 2.8 trillion from 2020-2030 (277 billion annually) to implement its Nationally Determined Contributions under the Paris Agreement. Almost 75 percent of this is needed for efforts to reduce greenhouse gas emissions, which is the main goal of mitigating climate change. However, and contrastingly, 2020 investment flows – from domestic and international sources – are estimated at USD 30 billion per year.
Currently, only a small proportion of private flows are directed towards meeting the financing needs that promote sustainable development and climate change solutions in developing countries. Energy service companies (ESCOs) and the ESCO model can be instrumental in deploying clean energy solutions and can offer a solution under agreements that reduce the need for upfront investment (costs borne by the consumers), reduce perceived risks as well as provide new business opportunities in the market. A combination of these factors would increase investment flows in this sector and help to finance the transition to clean technologies. However, there are a limited number of companies in Africa acting as ESCOs.
The lack of consistent clean power procurement practices, poor planning around electricity access and grid expansion efforts and the lack of knowledge of clean energy opportunities from domestic investors are among the main barriers that commonly limit the deployment of clean energy in African nations.
The clean energy technology required for on-site, on-road and on-grid applications is available, but the high costs of installation and operation have been preventing a wider deployment. Connecting individual energy systems by seamlessly combining a variety of clean energy solutions such as solar, storage, electric vehicles and heating into a unified system has tremendous potential to make such technologies more accessible. By streamlining the integration process, deployment costs can be reduced, emissions can be lowered and the transition to clean energy can be accelerated.
BASE and Integrate to Zero (I2Z) collaborate with the private sector to support clean technology solutions through developing new business models and financial mechanisms. In order to develop energy service companies and deploy cleantech solutions, financing mechanisms are necessary to build capacities, unlock finance, and reduce risks. These mechanisms can include syndicated loans, credit and payment guarantees, reimbursable grants, and payment guarantees, which can be used to strengthen ESCO development and facilitate access to finance.
The project goal is to analyse and evaluate the current and future state of the African renewable energy and e-mobility market as well as to provide ESCOs with recommendations to integrate renewables and e-mobility into the energy systems across the continent. The project goal is to analyse and evaluate the current and future state of the African renewable energy and e-mobility market as well as to provide ESCOs with recommendations to integrate renewables and e-mobility into the energy systems across the continent. The study, published in April 2023, identified local ESCOs and compiled insights into their role, operations and challenges. The findings of the study were presented during a COP 27 side event hosted by the NDC Partnership in Sharm El-Sheikh.
The project, through innovative business models and financing mechanisms, will help consumers and financiers overcome the barriers and perceived risks preventing them from investing in cleantech-integrated solutions, mobilise finance and bring investment opportunities forward in this sector.
The study on the ESCO market in Africa, conducted in the context of this project highlights three main insights: i) The ESCO market in Africa is nascent, with only 48 out of 103 entities identified as true ESCOs. Financial constraints are a major barrier to growth; ii) Available services are disaggregated, lacking innovative financing mechanisms and comprehensive offerings like energy performance contracting and lease financing. iii) High energy costs, unreliable energy sources, and government support create opportunities for ESCOs in some African countries. iv) Rwanda shows potential with the integration of solar PV and electric vehicles. Overall, the paper identifies barriers such as weak policy frameworks, market disarticulation, lack of trust, limited financial sources, and insufficient knowledge of business models. It suggests actions for governments, banks, suppliers, and philanthropists to support the ESCO market’s growth in Africa. The report can be accessed here.
Building on this project, three pilots demonstrating the potential of integrating electric mobility with clean energy technologies were implemented as part of a new project. Learn more here.
