African Development Bank Launches Pioneering Energy-Efficiency Project in Senegal

At the 2024 UN Climate Change Conference (COP29), the African Union, which encompasses most of Africa’s nations, embraced energy efficiency with vigor. It launched the African Energy Efficiency Programme and the African Energy Efficiency Alliance, and certified the African Energy Efficiency Strategy (AfEES) to promote energy-efficient practices across the continent in multiple sectors, including buildings, transportation, and cooking. These practices have the potential to reduce energy poverty and lower greenhouse gas emissions significantly.

As the African population continues to grow, urbanize, and gain increased access to electricity, energy consumption on the continent could double by 2050. Implementing energy efficiency measures in households and businesses can help reduce energy consumption and prevent the need for new power plants. By implementing building energy upgrades (e.g., efficient appliances, lighting, and cooling systems), African countries could collectively save as much as 175 terawatt-hours and avoid building over 80 new 500-megawatt power plants by 2040. Building fewer power plants would save money and keep carbon emissions in check, as approximately 75% of electricity generation in Africa currently comes from fossil fuels.

On-Bill Financing Programs in America

On-bill financing programs are currently better known in the United States than in Africa. Dozens of U.S. utilities offer this financing to help their customers install energy-efficient upgrades, thereby saving energy and money. EESI has helped about 40 utilities in the United States design and launch these inclusive financing programs. To date, more than $100 million has been invested through these programs, helping families and businesses lower their energy costs, reduce carbon emissions, and strengthen their communities. On-bill financing programs help families and businesses overcome the barriers to installing energy-efficient equipment by offering financing with no upfront costs. These programs can also consider utility bill payment history in their application process instead of credit scores or other traditional loan requirements, making it easier for households to participate. Adding the repayment charge to the monthly utility bill provides convenience and ease of payment, as participants can view both the costs and the energy savings on the same bill. Historically, on-bill financing programs in the United States have experienced very low default rates, largely because they have financed affordable and cost-effective upgrades, such as energy efficiency measures.

As part of these energy-saving efforts and to increase access to affordable energy, the African Development Bank launched the Programme to Promote Efficient Lighting Lamps (PPLEEF) in Senegal, the westernmost country in West Africa, to spur the replacement of incandescent lights with high-efficiency LED lights. The bank is helping Senegal implement the African Union’s energy efficiency strategy. While Senegal has committed to phasing out incandescent lights and has banned imports and production of such bulbs since 2020, many are still being used by families and businesses. By replacing outdated and inefficient incandescent lighting with more efficient LED lighting on a massive scale, Senegal aims to reduce its electricity consumption by 126.8 MW by 2030.

A key element of the PPLEEF program is its on-bill financing mechanism, which allows households and participants to repay the replacement costs of their bulbs on their utility bills over time, without incurring upfront costs. On-bill financing is an innovative approach to financing energy efficiency and clean energy upgrades over time, using the energy savings generated by the upgrades to offset the costs. Cost-effective energy upgrades can save households money, even after the repayment costs are deducted.

Additionally, on-bill financing programs can expand access for women, who often have limited access to commercial financing and credit, hindering their ability to install energy-efficient technologies and reduce energy consumption for their small businesses. By financing lighting replacements, the PPLEEF on-bill financing program can help women-owned businesses lower their costs and become more competitive.

“We believe that the on-bill financing scheme is one of the best options to secure wider participation in the program, reach the maximum number of end users, bring more comfort for investors through a ‘secured repayment,’ and provide better financing conditions, notably monthly settlements where the savings will pay the initial investment,” said Jalel Chabchoub, chief investment officer at the African Development Bank.

Financing Lighting Replacements in Senegal

The PPLEEF program became a reality thanks to a loan from the African Development Bank and the Canada-African Development Bank Climate Fund. The African Development Bank funded the program with an investment of 8.51 million euros ($10.1 million), marking the first time the bank has made a financial commitment to energy efficiency upgrades and invested in a demand-side energy efficiency program. By leveraging additional funds from Senegal’s government, the PPLEEF program will procure 4.3 million LEDs. Total costs for the program are estimated at €12.7 million ($13.37 million), which includes marketing costs, labor, and setting up a recycling facility for disposing of used incandescent lights.

The program is available to more than 700,000 households and 80,000 small businesses in the Dakar, Thiès, and Diourbel regions. Starting the program in these regions makes sense as they are the most populated—with 8 million inhabitants—and industrialized (the region of Dakar is home to Senegal’s capital of the same name).

Investing in energy efficiency helps Senegal meet its international and national climate commitments, as outlined in its nationally determined contribution (NDC) to the Paris Agreement on combating climate change. The energy-efficient lighting program also contributes to several international sustainability goals, including increasing access to affordable and sustainable energy (Sustainable Development Goal 7), achieving gender equality and empowering all women and girls (Sustainable Development Goal 5), and urgently combating climate change (Sustainable Development Goal 13).

“Establishing the on-bill financing program for lighting equipment is the initial step toward expanding to other efficient appliances, notably refrigerators, air conditioners, fans, solar water heaters, and solar panels,” said Chabchoub. “We expect to receive additional funding to include other energy-efficient appliances and to expand this program to other countries across Africa.”

ECOFRIDGES: A Successful On-Bill Financing Program for Cooling Equipment

The Programme to Promote Efficient Lighting Lamps isn’t Senegal's first foray into on-bill financing. Launched in 2021, Senegal’s ECOWAS Refrigerators and Air Conditioners Initiative (ECOFRIDGES) helps families access affordable cooling systems solutions to increase comfort and beat the heat while reducing their energy costs and promoting a clean energy transition. The program helps households replace outdated appliances with products that are two to three times more efficient, thereby reducing energy bills and decreasing harmful emissions. Replacing inefficient fridges and air conditioning units is particularly good for the environment, since these outdated and sometimes leaky appliances often contain refrigerant gases that have a high global warming potential. ECOFRIDGES is a partnership between La Banque Agricole and Senegal’s main utility, Senelec (Société Nationale d’Électricité), and is a United Nations Environment Programme United for Efficiency (UNEP U4E) initiative, in partnership with the government of Senegal and the Basel Agency for Sustainable Energy (BASE).

 

Author: Miguel Yañez-Barnuevo