Description
South Africa’s Department of Energy and GIZ developed a Nationally Appropriate Mitigation Action (NAMA) - and a NAMA Support Project (NSP) on “Energy Efficiency in Public Buildings and Infrastructure Programme” (EEPBIP) to contribute to making public buildings and infrastructure more energy efficient. The NAMA enables Energy Service Companies (ESCOs) to access affordable funding via a portfolio lender and develop capacity within municipalities. Many municipalities in South Africa have an enormous potential to curb their energy consumption and emissions. Mercury vapour lamps illuminate the streets, high-watt incandescent light bulbs burn in public administration buildings, and old heating, ventilation, and air conditioning (HVAC) systems are prevalent in hospitals, prisons and schools. The Department of Public Works alone maintains 90,000 buildings that partly operate outdated technologies. The same problem extends to thousands of public buildings and infrastructure at the provincial and municipal level. Some energy efficiency programmes subsidised by municipalities have been successful, but have not had a broad-scale impact due to a lack of resources and expertise in running these types of projects in municipal administrations. In addition, South Africa still does not have enough energy service companies capable of implementing such projects. The NSP supports several municipalities, provinces and the Department of Public Works in the development and realisation of energy saving projects in their portfolio of buildings and infrastructure through technical advisory services and an innovative financing model. The core financial component of the NSP is a partial credit guarantee, which covers defaults and delays in loan repayments.
Location
South Africa - multiple cities
Region
Sub-Saharan Africa
Instrument
Instrument category
Aggregation models
Secondary instruments
Partial or full risk guarantee
Project size (range)
USD 20-50M
Project size (details)
EUR 20M / USD 21.1M
Implementer
South Africa’s Department of Energy
Year of financial closure
2018
Client
Department of Public Works; Department of Energy; Department of Environmental Affairs
Primary financer
NAMA Facility - Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH
Other co-financers
N/A
Other contributors
N/A
Other transaction participants
Partners: Department of Public Works; Department of Energy; Department of Environmental Affairs
Barriers addressed
The NAMA Facility supports a national energy efficiency programme which stimulates the energy efficiency market in different ways and draws in other national funding in the medium-term. The NAMA Support Project (NSP) uses the procurement potential of the public sector to strengthen the market for Energy Service Company (ESCO) in order to establish a critical mass of projects in the market. It improves access to financial services for ESCOs through the banking sector, and it incorporates already existing expertise in identifying energy efficiency potentials in public buildings into which ESCOs are invited. In this way, this NSP will also have a stimulating effect on the overall energy efficiency market transformation in South Africa.
The core financial component of the NSP is a partial credit guarantee, which covers defaults and delays in loan repayments. This mechanism addresses a major obstacle to public energy efficiency projects: banks are often reluctant to lend money, because they assess the risk as being too high. Or they only lend at high interest rates. Many municipalities are not in a strong financial position and credit defaults or late payments are a genuine risk.
Financing structure
The “Energy Efficiency in Public Buildings and Infrastructure Programme” (EEPBIP) NSP helps scale up support for implementing the Energy Efficiency and Energy Demand Management flagship programme. In EEPBIP’s Financial Component, a Project Preparation Facility enables provinces and municipalities to develop bankable energy efficiency investment plans for their public buildings. A Guarantee Fund supports private ESCOs in raising the necessary finance for entering contracts with the public owners of these buildings to finance and implement these plans. The core financial component of the NSP is, therefore, a partial credit guarantee, which covers defaults and delays in loan repayments. To foster a low-risk environment for lender organisations, the partial credit guarantee provided by the NSP covers 50 per cent of the loan value. This puts energy service companies in a better position to receive affordable credit to carry out energy efficiency projects for public sector customers. The loans will be provided by the public Industrial Development Corporation (IDC). After a project has been successfully realised, the Department of Public Works, municipality or province pays the energy service company using the money saved by the energy-efficiency measure. For South African municipalities, the model offered by the NSP is particularly attractive because it permits them to combine the new IDC credit with the existing subsidies. The South African government has agreed to pay around EUR 4.5M/USD 4.8M in subsidies for efficiency measures each year in combination with the NAMA. EEPBIP uses NAMA Facility funding to mobilise public and private sector investments in public buildings in a 1 to 3.3 ratio (overall NAMA Facility contribution in relation to loans for energy efficiency measures issued by the end of the project and 1 to 7.7 ratio after 10 years).
Suitability for cities in low-and-middle income countries (detail)
Yes. Donor financing such as that provided by the NAMA Facility, applied to a portfolio of smaller projects, can make climate adaptation investments more cost-effective in LMICs.
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