Expanding Energy Efficiency Financing Opportunities in the SME Marketplace in South Africa

1. Expanding Energy Efficiency Financing Opportunities in the SME Marketplace in South Africa

2. Energy Efficiency spending increasing significantly in South Africa • ESKOM has developed incentives that provide a significant level of subsidy • Up to 100% of project costs in some cases • Either paid in full or 70% upon implementation • Specifically targeting SMEs • The government is expanding tax incentives and has ambitious goals • Introduction of specific tax rebate for energy efficiency by April this year through income tax provision 12L • 1 million solar hot water heaters by 2014/15 • Introduction of energy efficiency standards for new industrial and commercial buildings in national building regulation from November last year

3. Financing Options Targeting the SME Sector are Increasing • IDC and KfW have launched a new Energy Efficiency Program • EUR 50 million • Offer free energy audits as part of the loan process • Loan size of EUR 100,000-5,000,000 • IFC/AFDB recruited 2 large commercial banks (Sansfin and Mercantile) to participate in a new lending program • USD $13.15 million • USD $1 million for technical advice • Talks have started with other banks to be included in the program (o.a standard Bank and ABSA)

4. ESCO Market is Developing 500 accredited ESCOs in ESKOM’s database • Likely only 10% active • South African Association of Energy Companies has 90 registered members • Market dominated by 7-8 large players A detailed study of the ESCO marketplace and players is expected later this year • Study commissioned by IDC • Results expected to be ready by June

5. Opportunities for FSP Program Train bankers on mechanisms to incorporate efficiency into standard loan practices and marketing • EE incentives will push clients towards efficient options when replacing equipment or refurbishing buildings • Bankers can council clients on incentive options and organize seminars for key accounts in manufacturing and other high energy users • Banks can target specific industries and market EE loan offerings available to support adoption

6. Opportunities for FSP Develop new loan product to support ESCOs While ESKOM offers significant subsidies, rebates are paid after installation • Banks could provide 100% financing, with 85% paid by ESKOM rebate (under standard product programme) after installation and remaining paid by client over 3-5 years • Banks could provide bridge financing with 70% of rebate paid by ESKOM (under the Standard Offer Program) after installation and 10% in each year for next 3 years

7. Opportunities for the Financial Sector Program Help support lending to SMEs for efficiency, potential for a DCA credit guarantee program which focuses on energy efficiency financing. Such a program would target: • SMEs implementing efficiency measures • Solar hot water heater manufacturers and installers • ESCOs needing working capital to implement projects prior to ESKOM incentives • SMEs in the construction sector, involved in installing EE technologies into new commercial and industrial buildings (insulation, double glazing etc)

8. Upcoming USAID sponsored Energy Efficiency Workshop Proposed Date: May 24, 2012 in Johannesburg Potential co-hosts and speakers: • USAID Representative – Importance of EE for USAID • IDC/KfW – discussion on ESCO study and EE program • RSA Department of Energy – RSA market overview • IFC – discussion on EE Projects in South Africa • Eskom – discussion on incentive programs being implemented • NBI – role of government and private sector