How UNIDO-Egypt mobilized over USD 18 million in financing for energy efficiency
When UNIDO launched its Industrial Energy Efficiency programme in Egypt there were very few avenues companies could take when it came to financing. Attracting finance from the mainstream banking sector for industrial energy efficiency, and related equipment upgrades, was virtually unheard of.
For Hoda Sabry, Egyptian banker and finance consultant, accelerating investment into industrial energy efficiency was the challenge she had been waiting for. “Banking in Egypt is traditionally focused on a limited array of financial products. The most popular are corporate and SME loans. The usual financial products that you would find in other markets, such as leasing arrangements and pay for performance contracts don’t actually work very well here.”
“In addition, the lack of knowledge and information in the market and among bankers on specific energy related subjects constituted another barrier to facilitating the financing of those energy efficiency projects ,” explains Hoda.
Nevertheless, Hoda and the UNIDO team persevered. Together they fostered relevant awareness and expertise among industrial energy managers, equipment and efficiency service providers, the media, policymakers and, most critically, among bankers. This culminated in the project mobilizing over USD 18 million in investments for industrial energy efficiency projects, which helped to surpass the programme’s original energy savings and emissions reductions targets.
“You know, achieving things like that is a dream come true,” says Hoda. “When you find that you’re reaching excellence and positive results so quickly, and achieving something that you didn’t know was even possible, it’s just an amazing feeling.”
Worldwide demand for industrial energy efficiency financing is gradually picking up pace. This is particularly the case for countries in Africa and the MENA region where investing in energy efficiency has emerged as one of the best solutions to sustainably expand energy access to rural communities.
Below are four key insights and recommendations that Hoda credits to the success of accelerating mainstream finance for energy efficiency in Egypt.
1) The timing needs to be right
Timing is everything. Unlike previous efforts to kick-start an energy efficiency market, fortunately UNIDO’s project started at an ideal time when there was a sharp rise in demand for efficient energy management. We were still recovering from the 2012 energy crisis during which a shortage in fuels led to frequent electricity outages and peak load shedding throughout the country. Many factories had to operate at lower capacity, because they did not receive enough gas. In addition, the government began its macroeconomic stability reform and started rolling back massive fuel subsidies. In 2013, these were three times the spending on education and seven times as large as health expenditures. As a result the price of natural gas increased by as much as 33 per cent for the cement industry. So, as you can imagine, these new policies and fuel prices were going to significantly affect the industrial sector’s bottom line if the companies didn’t do anything. Demand for training and capacity building on energy efficiency soared and the finance sector was suddenly inundated with proposals for energy efficiency project financing.
2) Don’t try to go it alone! Survey the landscape and complement existing initiatives
Another important factor to the success of UNIDO’s industrial energy efficiency project was the pre-existing efforts in the field. This included the European Bank for Reconstruction and Development (EBRD), which was focusing on its Egypt Sustainable Energy Financing Facility (EgyptSEFF) at the time. Kick-starting genuine demand for industrial energy efficiency is a broad task and requires the engagement of a huge range of stakeholders who require differing levels of capacity and knowledge. What the EBRD did was help to lay the groundwork particularly among the financial actors. They helped to introduce the concept of energy efficiency. This allowed UNIDO to contribute and build on this work.
Additionally, there were some really great opportunities for collaboration. For example, EBRD’s Sustainable Energy Financing Facility (EgyptSEFF) directly provided funds to UNIDO’s pilot project companies. This helped to establish a ‘proof of concept’ for financing energy efficiency projects in Egypt’s industrial sector.
3) Don’t forget about the finance sector when it comes to capacity building
Development projects often forget that banks also need technical assistance. Practical capacity building in this field is key. It’s all well and good to deliver lectures, workshops and content, but it’s also equally very important to directly support banks as they consider real world case studies for financing. This builds confidence among the finance sector and eventually results in banks marketing and pitching dedicated products designed for industrial energy efficiency. From there the market can grow organically.
4) Take one step at a time
When we first pitched to private lenders we were sure to emphasize the no and low-cost solutions for energy efficiency. This meant that the financing risk was minimal and it gave the banks a chance to get really comfortable with energy efficiency projects and understand how they work in practice. From there we could gradually expand into proposals which required more capital for larger returns. It’s all about building trust between the financing sector and the industrial organization.
Throughout the month of November, the Accelerator is sharing a series of interviews which explore the barriers and solutions for financing energy efficiency in key industrial countries. Through this series, the Accelerator hopes to inspire and equip industry practitioners to take the first step towards achieving better energy results.
Read also the recommendations shared by South Africa’s finance expert, Nadia Rawjee, about financing the country’s energy transition and our interview with India’s Energy service (ESCO) business owner, Milind Chittawar,
Read more about how the Accelerator is working to mobilise finance and investment for industrial energy efficiency: Our work