Energy Service Company Market Development

The World Bank, in dialogues with local stakeholders, sought to identify feasible paths for the development of an energy service company (ESCO) industry in South Africa to effectively contribute to untapping a large-scale demand-side energy efficiency market. The assignment served to assess the ESCO market potential and barriers across the various EE market ecosystems, covering different end-use segments (public, commercial, industry, and buildings sectors). This assignment also served to identify feasible solutions and tools based on global best practices and experiences with different types of ESCO solutions (public and private) using energy savings performance contracting experiences from around the world and aligning with the local ESCO market dynamics and barriers to help develop the building blocks to contribute to dialogues on scaling up EE investments implemented by ESCOs in South Africa.

The World Bank sought to understand the opportunities to develop the ESCO market in the country with a focus on the implementation of business and finance models to effect an ESCO market transformation that would not only contribute to the country’s global commitments to climate change mitigation, but also attract more youth and women-owned businesses into the current fledgling ESCO market in South Africa.

The following tasks were carried out under the mandate:

• Conduct a situational analysis of not only the status and progress of the ESCO industry in South Africa, but also the demand response mechanisms and programs promoted by the South African electric utility;
• Draw from global experiences and benchmark successful practices from other countries that support private ESCOs and public Super ESCOs and examine their relevance, viability, and applicability within the context of the demand-side EE sectors in South Africa;
• Review the legal and accounting frameworks to identify potential barriers to the adoption of ESCO transactions;
• Develop and design the specific building blocks required to strengthen the ability of ESCOs to design and deliver EE in various demand-side EE sectors, including demand-side management (DSM), demand response (DR), and renewable energy (RE);
• Design the ESCO business model based on shared savings and/or guaranteed savings as well as energy savings performance contracting (ESPC) mechanisms and standardization of transaction tools;
• Prepare guidelines and templates for associated energy savings measurement and verification (M&V) protocols applicable to the South African ESCO industry;
• Assess the options for strengthening the ESCO certification and/or rating (licensing) system by building on the existing ESCO Register;
• Analyze the barriers ESCOs face in accessing finance and develop systems that will help mainstream EE lending, including scaling up energy savings through utility DSM and DR programs in local financial institutions;
• Design the operational aspects, institutional and financing structures, and associated mechanisms for delivering ESCO projects based on either commercial financing and/or the use of financial incentive programs (such as an EE credit line or a risk sharing facility) to enable private ESCOs to access financing and scale up project implementation;
• Assess the public Super ESCO option and its viability, pros, cons, and potential role in South Africa for supporting the private sector ESCO industry and EE market transformation;
• Identify gaps and support comprehensive multi-sector capacity building to all stakeholders in the ESCO market ecosystem, including key public sector entities.

The final results of this assignment were presented in a final dissemination workshop to all stakeholders. Econoler showed a clear understanding of the assignment’s scope, actively engaged in the study, and efficiently delivered reports aligned with specifications. This enabled the client to gain valuable insights and practical solutions to enhance the ESCO industry in South Africa, foster EE market transformation, and facilitate effective stakeholder capacity building.