Energy efficiency is a highly effective and economical way to reduce global greenhouse gas (GHG) emissions and can significantly contribute to combating climate change. Given the present geopolitical context, energy efficiency will be vital for achieving goals set out in Nationally Determined Contribution and tackling the energy trilemma of environmental sustainability, energy security and energy access. With financial constraints coupled with the growing dependence on electricity imports and subsidised electricity tariffs, the need for equipment with higher efficiency is crucial to reduce electricity losses and the pressure on the grid of economies. By driving down capacity addition and electricity generation, energy efficiency alleviates the financial burden on governments to reach universal electrification. Despite its recognisable benefits, investments in energy efficiency are currently not happening at the needed rate. Much of the financing will need to be mobilised locally and from private sources.
To scale up the adoption of energy-efficient solutions in Africa, investments must be enhanced with targeted climate mitigation finance strategies consisting of policy enablers, innovative financing mechanisms, business models, and de-risking instruments. Based on our experience at BASE, there are notable examples of African countries paving the way for developing and implementing such holistic efforts.
For the past two years, Malawi, Namibia, Zambia, and Zimbabwe have embarked on a journey to establish and adopt National Policy Roadmaps.
This includes recommended Minimum Energy Performance Standards (MEPS), test standards, policy measures, and financing mechanisms to promote energy-efficient and climate-friendly domestic refrigerators and distribution transformers (DTs). Moving from the current state of technologies to MEPS alone could save up to 860 GWh by 2030, with a complete market transformation for refrigerators and DTs and potential for scale-up.
The Ghanaian, Rwandan, and Senegalese governments have been trailblazers in designing, operationalising, and piloting low-risk, market-based consumer finance rebate programmes to promote small investments in energy-efficient cooling appliances aligned with the country context. The two financial mechanisms-on-bill and green on-wage to encourage the uptake of the cooling appliances target on-grid end-users and salaried employees from selected private and public institutions. The on-bill financing option (Senegal) enables energy utility customers to acquire energy-efficient appliances while paying for the equipment over time through their monthly utility bills.
On the other hand, the green on-wage (Ghana and Rwanda) is a consumer finance product designed to meet the short- and medium-term financing needs of salaried employees of public and private institutions that have a business relationship with local financial institutions.
Green on-wage offers flexible and straightforward repayment terms for EE products through salary deductions. Both low-risk repayment options setup green credit facilities to ease access to concessional finance and help overcome the higher upfront cost barriers otherwise faced by end-users. As of September 2022, the programme in Ghana has sold 2,260 new certified refrigerators and ACs, unlocked GHS 10.4 million, saved 20,875 MWh of total energy via reduced residential electricity demand during the equipment’s lifetime, and prevented 17,190 tonnes of total CO2 emissions during the equipment’s lifetime.
Meanwhile, in Morocco, the Energy Savings Insurance (ESI) flagship model is being rolled out for the commercial sector.
The ESI model consists of financial and non-financial de-risking instruments, including an ESCO’s energy performance contract, independent validation processes to ensure the installed equipment’s capacity to deliver savings, and an insurance product to guarantee the promised energy savings.
These elements are designed to improve EE investments’ risk-return profile and stimulate the demand for energy efficiency projects.
Once the model is fully operational in Morocco, the model could result in up to USD 140 million of new investments in EE projects, 1.450 GWh of energy savings, and 960,000 tCO2e of GHG emissions reduction.
Within the framework of the COP27 in Egypt, knowledge sharing will help raise awareness of these low-risk, high-reward innovative strategies from pioneers around Africa that have spurred investments in energy efficiency by leveraging and multiplying the limited public financial resources. These models can be adapted and replicated in new markets, equipping countries to address climate change and achieve the goals of the Paris Agreement.
Aurelien Pillet
Senior Climate Finance Specialist & Team Lead at Basel Agency for Sustainable Energy
