Super Escos & Esco Concept

Mainstreaming energy efficiency today is a key strategy to shape patterns of future energy use for fast-growing economies in Africa. Likewise, energy efficiency is key to decoupling energy-related greenhouse gas emissions and economic growth in a cost-effective manner. More importantly, Energy Efficiency (EE) improvement will deliver economic growth bonus by increasing economic output per unit of energy use. As part of multiple benefits, improving domestic EE can reduce dependence on, and costs of, energy imports for an energy importing country, and free up resources for export and increases export revenue for an energy-exporting county.

Both private- and public-sector stakeholders use several energy efficiency financing mechanisms to unlock the energy efficiency potential in economic sectors. The Super Energy Services Company (ESCO) mechanism is among the innovative ones attracting significant interest from policy and decision makers.

The African continent’s infrastructure needs amount to USD130-170 billion a year, with a financing gap in the range USD 68-108 billion. Long-term energy infrastructure strategy calls for mainstreaming energy efficiency as the first fuel in most of African countries. 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.

An Energy Services Company (ESCO) is a specialized firm that provides a broad range of EE services, mostly under an Energy Performance Contracting (EPC) approach, a guaranteed savings scheme that repays the energy efficiency projects investments through the achieved cost saving. The ESCO value chain can range from energy audits, project design, project financing, installation, operations and maintenance, monitoring & verification (M&V) of energy savings to performance guarantee over the payback period. The global market for ESCOs is growing steadily. The global ESCO value in terms of EPC revenue expanded to nearly USD 30 billion in 2017, with China (60%), USA (20%) and Europe (10%) being three major ESCO markets. Over 1 million people are now employed by ESCOs around the world.

The typical business model of an ESCO is to enter an agreement with energy consumers either through shared savings or guaranteed savings contract. Under a shared savings contract, the costs savings are split with a predefined percentage, while the investment is often shared between the ESCO and the Customer. Under a guaranteed savings contract, the Customer retain all the savings where often the investment is solely provided by the Customer. The most important feature of the two models is that the project performance and savings to be attained are guaranteed, if the expected level of energy saved is not realized, the ESCO will pay the Customer the non-achieved savings.

The Super ESCO is a relatively new concept that has stared capturing international interest only in the 2000s. Usually established by the governments, the Super ESCOs act as facilitators and project developers for public facilities, such as government buildings, hospitals, schools and street lighting to implement EE projects through the private ESCOs. The Super ESCO will play the role of EE market catalyser by providing capacity building and technical assistance to firms wishing to join the ESCO field and provide EPC services. The government initially capitalizes the Super ESCO with sufficient funds to secure EPC financing in the public sector, as well as to leverage on commercial financing.

To date, many Super ESCOs have been implemented across the world. Africa still lacks awareness and experience in financing energy efficiency projects through Super ESCOs. Some countries, such as Kenya, Namibia, Senegal, Morocco, Tunisia, and Egypt, are considering the Super ESCO market opportunities. Most of 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 the United States, the Federal Buildings Initiative in Canada, Etihad ESCO in United Arab Emirates, FEDESCO in Belgium, EESL in India, HEP ESCO in Croatia, R2E2 Fund in Armenia, Tarshid in Saudi Arabia, as well as other similar concepts in China and Philippines.

The Super ESCO mechanism is not only considered as the most suitable answer addressing barriers to scaling up EE project implementation but also as a catalyst in developing the EE Market in Africa. The table below shows a summary of the barriers and the Super ESCO solutions to address them.

In the African context, the implementation of the Super ESCO will require a holistic approach which needs to translate the benefits of energy efficiency to the market value, through institutional setting, business models, and policy design. The African Development Bank (AfDB) is encouraging and supporting the African countries to create and implement Super ESCOs. Typically, African governments can consider two institutional options to tap the public sector’s energy efficiency potential through Super ESCO. The first option is to leverage existing government agencies with energy efficiency mandate to set up a Super ESCO. The other option is to leverage power utilities to create a utility based Super ESCO.

For this, the AfDB will assist targeted countries to review major overseas jurisdictions’ experiences, and investigate into what new financial products, vehicles or policy instruments can be introduced to enable broader access to energy efficiency finance through Super ESCOs.