A combination of energy efficiency and captive solar provides quick wins for businesses, both in terms of cost savings and emission reductions. But despite growing interest across sub-Saharan Africa (SSA), the sector remains nascent.
Here we talk to Camco Clean Energy’s Adam Fitzwilliam, who is heading up a new energy financing platform called Spark Energy Services, which aims to scale up both energy efficiency and captive renewable energy in the region’s commercial and industrial (C&I) sectors.
For a lot of ESI Africa readers, this will be the first time they have heard of Spark. How would you describe what it is in a nutshell?
Spark is an energy financing platform developed by Camco Clean Energy that funds the installation and maintenance of energy efficiency and captive generation projects for C&I customers in sub-Saharan Africa. Spark works with a network of principally local developers in its five initial target countries – namely Kenya, South Africa, Ghana, Nigeria and Uganda – and provides developers with the streamlined funding, tools, contracts and training required to enable these projects to get built.
High emissions aren’t the only issue the industry faces
C&I customers account for 75% of power demand in the region, and so the decoupling of economic growth and emissions growth in this sector is key to addressing the climate issue. However, high emissions aren’t the only issue the industry faces – many of these customers also suffer from unreliable and expensive power, which is holding back job creation and development. Key to addressing this issue is improving the efficiency of their existing power use (thereby reducing overall power demand) and then addressing cost and carbon intensity issues for their residual demand.
Energy efficiency is one of the lowest cost, shortest payback investments a company can make in meeting its energy needs, but one which is currently held back by a number of bottlenecks. Camco is one of a very small number of financiers thinking holistically about how to unlock the potential for energy efficiency on the continent.
Energy efficiency and captive solar make a lot of sense for business, and ESI Africa is seeing a notable rise in interest across sub-Saharan Africa. At the same time, businesses are increasingly turning to captive power generation for reliable energy supply. What was behind your decision to enter the market now, and what specific challenges are you trying to address?
To date, Camco has mainly focussed on addressing the energy access and grid decarbonisation challenges in sub-Saharan Africa, principally through solar home systems, mini-grids and small IPPs via the UK Government-funded Renewable Energy Performance Platform (REPP). However, we became increasingly aware that energy poverty is not limited to domestic consumers, and regularly receive requests from developers working on innovative projects to address energy poverty for businesses. In our view, affordable and reliable power is a fundamental enabler of economic growth and job creation. And these two factors in turn support the economics of energy access projects and create a virtuous cycle.
However, many of the “quick fix” solutions we saw out there for business customers either locked in carbon-intensive generation for years to come (e.g. backup diesel generators) or placed the substantial capital costs of an investment on the businesses themselves, for which access to capital can often be prohibitive. At the same time, we understood that there were additional challenges specific to the energy efficiency sector, including small average transaction sizes, challenges on measurement and verification of energy savings, limited access to flexible capital and limited consumer awareness of the benefits of energy efficiency. With some ideas of how to address these issues, we entered the market during 2021 with the launch of Spark.
So that’s the challenge – what’s the solution? And is there anything that governments and regulators are doing that will also support sector growth?
The regulations in some markets (notably Kenya and South Africa) are already quite progressive and favourable to the energy efficiency sector. For example, in Kenya, large power consumers are required to carry out energy audits every three years and implement at least 50% of the recommendations of the audit. The challenge they have found in Kenya, however, has been finding capital on sufficiently flexible terms to implement these recommendations – specifically, capital that didn’t have minimum transaction size requirements, didn’t rely on large minimum equity tickets from developers or the businesses themselves, and didn’t tie up businesses’ land and/or buildings as security.
Spark has been designed to overcome some of these funding-related hurdles by:
Providing up to 100% of the funding required to enable execution of the project, with a focus on process efficiency to enable the platform to finance projects of any ticket size if there is a clear path to scale.Requiring no land and building security from the developers we work with. Instead, we have designed and employ a more pragmatic contractual and incentive structure for our projects, which helps developers unlock scale.Providing training, template contracts, risk and credit management tools and other benefits to the developers we work with to help them deliver projects efficiently and to a high standard. We also work with them to increase market awareness of the benefits of energy efficiency and captive generation – which is in part the purpose of this interview!
The challenge has been persuading consumers to take a leap of faith…
It’s a neat concept. What have been your learnings to date from the pilot projects you have run with Spark?
Our learnings to date have been that the audits, technology and installation processes are all pretty robust, as are the achieved energy savings. The challenge has been persuading consumers to take a leap of faith with a less well-understood technology than conventional power. We hope that the demonstration effect of our initial projects will help increase interest and appetite for similar solutions, which ultimately don’t cost customers anything upfront and from which they usually make savings from day one.
How are you planning to take Spark to scale?
Firstly, through increasing our network of approved development partners. We currently have four signed up with funding agreements and we are in late-stage documentation with two more. These developers typically have a pipeline of projects that need financing, and so this enables the Spark model to scale more quickly than through organic growth alone.
Secondly, we are working on making our processes more efficient, so that we limit our information requests to developers and end-users, and so that we can provide clear and quick feedback to developers on whether we want to progress with each project.
Finally, through working with industry associations and business networks, we aim to increase word-of-mouth marketing of our proposition, as we think C&I businesses will be our best advocates once they realise the benefits of energy efficiency and captive generation.
Is there anything you have seen happening in other countries that can be applied to energy efficiency markets in sub-Saharan Africa?
We have seen some good examples abroad of energy efficiency finally going mainstream, with listed investment products from the likes of Sustainable Development Capital Limited, and unlisted products from Amber Infrastructure, SUSI Partners and others. It’s great to see that the sector and technology are increasingly mature enough to attract institutional investors. However, I think we have to be realistic about what elements of this are applicable to sub-Saharan Africa. For example, initially, much of the market was public sector-led in more developed countries, with contracts underpinned by investment-grade sovereign entities, which was attractive to investors.
I think the market in sub-Saharan Africa is more likely to be private sector-led in the short to medium term, and as such, needs to build on the foundation of widespread public awareness and solid credit fundamentals to increase the attractiveness of the asset class to institutional investors. To this extent, the role of development finance institutions and grant providers at this early stage in the market’s development will be catalytic in unlocking capital.
What would be on your wish list for the energy efficiency sector during 2022?
For me, 2022 is all about increasing awareness of the benefits of the technology and creating more great case studies to share with the C&I community to prove how energy efficiency and captive solar can work for them. As such, all I wish for is a receptive audience! ESI
About Adam Fitzwilliam
Adam Fitzwilliam is Regional Manager for East Africa at Camco Clean Energy, where he supports the origination and execution of transactions across the region, in addition to wider business development activities for the company.
Adam also heads up Camco’s Spark platform, which was set up in 2021 to catalyse the growth of Sub-Saharan Africa’s energy efficiency and distributed renewable energy sectors. Adam is based out of Nairobi, Kenya.
Prior to joining Camco in 2019, Adam worked at Royal Bank of Scotland (RBS), including in strategy and transaction execution roles in the infrastructure and renewable energy sector.
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C&I projects in Africa
