CONTEXT

Morocco has set the target of reaching 25 to 30 percent energy savings by increasing its energy efficiency efforts by 2030. For this vision to take shape into reality, it is fundamental to enhance private sector investment in energy efficiency (EE) across all sectors. Innovative financing and well-designed financing schemes can help create the conditions needed to ensure an adequate supply of private finance for EE investments, motivate the demand, and help to reach new market segments.

Small and medium-sized enterprises (SMEs) play a strategic role in economic growth and development globally. They are a vital part of the Moroccan economy, representing nearly 98 percent of all enterprises and employing almost 65 percent of the working population. Although individually SMEs consume relatively modest amounts of energy, collectively, their energy consumption is quite significant – around 13 percent of total global, and at least one-third of total industrial energy demand, according to IEA estimates. Therefore, the potential to reduce their energy consumption is considerable, with the IEA estimating energy savings of up to 30 percent through the implementation of cost-effective measures. 

There is enormous potential for EE projects to decrease energy costs, increase production efficiency, improve electricity reliability, and reduce costly waste for SMEs while also significantly decreasing CO2 emissions and other negative environmental impacts that arise from high-energy consumption. However, SMEs have a high-risk perception of this type of investment, and there is currently a lack of adequate risk mitigation mechanisms.

Several barriers inhibit SMEs from investing in EE, including low-investment priority and high-risk perceptions related to EE equipment and a lack of trust between the different stakeholders involved. To persuade SMEs to invest in EE and generate a continuous pipeline of bankable projects, it is crucial to improve the risk-return profile of EE projects.

PROJECT

BASE is partnering with the Société d’Ingénierie Énergétique (SIE) to expand the benefits of its flagship Energy Savings Insurance (ESI) model to the Moroccan market, with funding support from the Climate Emergency Collaboration Group. The ESI model consists of financial and non-financial mechanisms designed to improve the risk-return profile of EE investments and overcome the associated barriers to stimulate the demand for EE projects, especially SMEs. Furthermore, the model presents a proven and unique, market-based approach that uses commercial channels and instruments already available on the market.

The project involves working closely with three key stakeholder groups: technology providers, who supply EE solutions and therefore become a critical driving force of the model; the business and SME sector as the demand side for EE projects and financing; and banks and credit guarantee institutions that help businesses access to finance and mitigate risks. Furthermore, ESI also involves working with validation entities and local insurance companies to develop the mechanism. The model is based on existing market-based instruments, such as surety bonds tailored for the EE project’s purpose specifically, creating a long-term business for the actors mentioned above. The model considers that the principal investor and credit-taker for EE projects are SMEs, and the lender (if needed) is a commercial bank. The model incentivises the actors to work together to reduce the SME and the FI risks at a national level. 

EXPECTED IMPACT

The overall objective of this project is to mobilise private sector investment and financing for EE investments in SMEs in Morocco by replicating the successful ESI financing model. With an estimated 7,812 small and medium-sized enterprises with high energy use, the Moroccan market and its SMEs present a significant potential to achieve untapped energy efficiency savings. 

By the end of the project lifetime, the model will be fully operational in Morocco, is expected to be financing EE projects, and will be ready for scale-up. The specific results are as expected:

• Secure between 500 and 800 EE contracts for SMEs per year when the ESI model is fully operational and known in the country. 

• Generate 339 EE projects in SMEs within the first three years, and accumulate nearly 1536 projects accumulated by the sixth year. These projects represent around 20 percent of the potential SMEs in Morocco.

• Increase investments in EE projects triggered by the ESI model in Morocco in the first three years to USD 31 million, and accumulate USD 141 million at the end of the first six years of operation.

• The energy savings generated after 6 year of project start is equivalent of 1.450 GWh during a 15-year period operation

• Reduction of the country’s GHG emissions triggered by the ESI model from projects executed during the first 6 years of operation is aimed at 960.000 tCO2e during the 15-year equipment operation window.

• Serve 20 percent of energy-intensive SMEs through the ESI model during the first six years of the programme’s operation.