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Jalel Chabchoub
Chief Investment Officer, AfDB

Yang Liu
Principal Research Economist, AfDB

Energy efficiency paving the way for modern energy infrastructure investments in Africa

More than two-thirds of people without access to electricity in the world today live in sub-Saharan Africa. It is natural to question why we should care about energy efficiency for African countries?

Economic growth and improving living standards lead to rising energy consumption and consequently, many African countries will face exceptional challenges in the coming decades to fuel economic growth while curbing energy demand growth. To manage this growth efficiently assuring a sustainable path for energy demand, energy efficiency needs to be considered and addressed as a priority in these fast-growing economies.

Why Super ESCOs matter for Africa ?

A Super ESCO will serve as a special purpose vehicle for large investments in energy efficiency notably for government facilities. It will support the public sector to enter into an Energy Performance Contract (EPC) scheme under a competitive approach, using initially either a dedicated energy efficiency revolving fund or financing from local commercial banks. Projects development and implementation will be fully subcontracted to private ESCOs on a competitive basis and deliver the best outcome in terms of sustainability and financial viability. The Super ESCO can start with a dedicated energy efficiency program for government buildings. This can offer many governments facilities the opportunity of not only reducing their energy bills and but also leapfrogging from older inefficient

equipment to more advanced technologies. In addition, this will also help stimulate and sustain energy efficiency investments with much needed capacities and skills. Through the Super ESCO program for government buildings, local ESCOs will build their capacity to develop and offer EPC with low risk projects and receive support from the Super ESCO to gain further EPC skills. Consequently, the ESCOs

will extend their services to the commercial and industrial sectors, facilitate projects aggregation to make energy efficiency financing more attractive.

Therefore, the implementation of Super ESCOs will be critical to overcome energy efficiency

investment barriers in Africa. Super ESCOs can play a leading role in assisting in project development and implementation, facilitating project financing arrangements, putting

in place all required procedures, templates and documents to enable the maturity of the EPC market.

What can Africa learn from the experience across the world ?

Most of the long established Super ESCOs have been successful in implementing energy saving projects and achieving huge reduction in total energy consumption and greenhouse gas emissions.

The governments of African countries could emulate international successful experience, such as the Federal Energy Management Programs in United states, the Federal Buildings Initiative in Canada, Etihad Energy Services Company in United Arab Emirates, FEDESCO in Belgium, EESL in India as well as other similar concepts in Brazil, China and Philippines.

What are next steps ?

The African Development Bank is helping its regional member countries to learn from experience and lessons drawn from major jurisdictions to propose a strategy for setting Super ESCOs in the African context. The implementation of the Super ESCO will require a holistic approach which enables to translate the benefits of energy efficiency to the market value, through institutional setting, business models, and policy design.

To tap the public sector’s energy efficiency potential and enable the domestic market of private ESCOs the creation of Super ESCO might be through the conversion of any existing government entity with energy efficiency mandate if any or through power utilities by creating a utility-based Super ESCO.

The promotion of Super ESCOs will ensure that energy efficiency is considered and implied as an alternate resource against supply side expansion, based on comparative cost-benefit assessment. The AfDB is encouraging and supporting any initiative for the developing and implementation of Super ESCO in the African countries.