SA tests private finance model for public-sector energy efficiency

South Africa is testing a private finance model that could allow public institutions to undertake energy efficiency projects without funding the full upfront cost, with the first project moving ahead at the East London Industrial Development Zone.

The project involves replacing about 415 conventional high-pressure sodium street lights with LED lights, which use less electricity and generally require less maintenance.

The lights will be connected to a central system that allows them to be monitored and controlled remotely, making it possible to identify faults and adjust their operation without relying entirely on manual checks.

The project is being developed through the Energy Efficiency in Public Buildings and Infrastructure Programme (Eepbip), aimed at helping public institutions reduce their energy costs.

The programme is supported by the Energy Efficiency Project Support Unit, a unit within the South African National Energy Development Institute (Sanedi) that helps public institutions identify energy-saving opportunities and develop them into projects that can be financed and taken to market.

The programme is targeting R1bn in private finance for energy efficiency investments across the public sector and aims to reduce electricity consumption by 4,195GWh.

For the model to work, the projected savings need to be sufficient to cover the investment over the contract period. The terms of the contract will therefore determine how the savings are shared and how the Esco recovers its costs—  South African National Energy Development Institute

Sanedi said the programme’s first project uses an energy performance contract (EnPC), a financing model designed to overcome the upfront cost of energy efficiency upgrades.

Under an EnPC, an energy services company (Esco) finances and implements the efficiency measures and recovers its investment from the energy savings generated by the project.

“This means the public institution does not have to provide the full capital cost upfront. Instead, the Esco takes on the initial investment and expects to recover it from the savings achieved through lower energy consumption,” Sanedi said.

“For the model to work, however, the projected savings need to be sufficient to cover the investment over the contract period. The terms of the contract will therefore determine how the savings are shared and how the Esco recovers its costs.”

The street lighting project is intended to provide a model that could later be applied to other public-sector infrastructure, including:

The East London Industrial Development Zone published the tender for the street lighting project on August 14, which Sanedi said is the first EnPC tender under Eepbip.

The programme is being implemented in collaboration with the department of electricity and energy, the National Business Initiative and German development agency GIZ. It is funded through the Mitigation Action Facility, an international climate finance initiative.