2 years ago

Service - Leadership in Government - Issue 75

  • Text
  • Government
  • Leadership
  • Urban
  • Leaders
  • Pandemic
  • Transition
  • Digital
  • Infrastructure
  • African
  • Economic
  • Global
  • Cities

S energy

S energy resetting of supply chains. Management trends are laser-focused on business continuity in the short term. While addressing resilience, this restructuring has highlighted the opportunities for improvement and future aspirations. “As Covid-19 impacts every aspect of our work and life, we have seen two years’ worth of digital transformation in two months,” Microsoft CEO Satya Nadella reports. BASF CEO Martin Brudermüller attests, “There’s much more you can do via increased digitalisation. This is all further potential to bring costs down, also in the years to come. It’s a positive aspect.” These digitisation opportunities are central to readjusting cost bases in the short term. Amid all of the social impact, market turbulence and stimulus packages, it is important to keep track of the least understood driver of change: consumer sentiment. Improved risk-return profile eg via risk mitigation tools, access to growth markets/ new asset classes, scale (asset pooling), DFI/ MDB experience. Improved development, eg via technical assistance, standard setting, pipeline and policies. Corporate emissions targets are positive for the energy transition, but we have yet to see the full force of government regulation and consumer buying power demanding this shift. It is not inconceivable that Scope 3 or some form of end-to-end carbon pricing becomes embedded into the cost of producing and selling globally. Keep an eye on a low-carbon future so you are prepared for the market shifts that seem increasingly likely in the mid-term. Embedding decarbonisation strategy is a must-have that requires new and deeper capabilities across the business. BLENDED FINANCE is the use of capital designated for projects or programmes with developmental outcomes, to reduce the perceived risk and attract commercial capital from private investors who would otherwise not have participated. CHALLENGES OF MUNICIPAL ENERGY EFFICIENT PROJECT IMPLEMENTATION Source: Financing Municipal Energy Efficient Projects Source: SIDSSA 2020 12 | Service magazine

energy S Watch out for sudden and seismic consumer shifts. Leaders will find a credible way to track, understand and be agile in response to the consumer shifts that will impact their operations. Geopolitical, pandemic and social forces will likely trigger the next consumer-led shift soon. Spurring the energy transition. With stretched shortterm investments across the board, energy transition technologies could receive a larger budget allocation in the long term, and the pace of change should quicken as economies recover. With stimulus packages and a plethora of partnering and acquisition opportunities, the pandemic-related downturn poses both challenges and opportunities. Many companies continue to battle with the energy transition – essential to their future strategies. At this time of massive change, not taking the risks of an acquisition or a bold move to latch onto a regulation or stimulus alterations should reflect the consequences of inaction or a competitor taking the ground. The long-term energy transition winners will be shaped over the next few years. This decade is a crucial time to address climate change. Early movers are likely to see the biggest rewards. Agility and bold leadership are vital at this important crossroad. Amid the social impact, market turbulence and stimulus packages, it is vital to monitor the least understood driver of change: ENERGY SAVINGS PERFORMANCE CONTRACTS Many municipalities have limited technical capacity to design, develop and implement viable energy efficiency (EE) projects. Without such capabilities, accessing commercial financing for EE projects can be challenging. In assessing potential financing mechanisms, municipalities should consider how energy service providers, such as energy service companies (ESCOs), operating under energy savings performance contracts (ESPCs) can help in project implementation and provide access to financing. ESCO services generally consist of three components: integration of a wide range of project services (for example audit, design, engineering, equipment procurement, construction and installation, measurement and verification of savings), facilitation of financing, and guarantee of project performance. While ESCOs may help mobilise financing from financial institutions, their involvement cannot deliver financing that would otherwise be unavailable to a municipality. An ESCO’s ability to raise financing from lenders is dependent on the ultimate quality of its projects and the creditworthiness of its clients. If a municipality is not sufficiently creditworthy to borrow commercially, an ESCO dependent on that municipality to pay its bills also may not be creditworthy. ESCOs should complement the financing mechanisms rather than substitute them. In some cases, public funding and support may be provided to municipalities via ESCOs who also bring the technical capacity to deliver projects. In others, municipalities may receive funding and contract ESCOs for help in project implementation. Using an ESPC for water loss reduction and energy savings in Emfuleni, South Africa The municipal water utility of Emfuleni distributes water to 70 000 house- holds in part of the city. However, due to deteriorating infrastructure, about 80% of potable water was leaking through broken pipes and failed plumbing fixtures. A technical investigation determined that adopting advanced pressure management measures in the distribution network could cut water loss dramatically and also lower pumping costs. The utility lacked the technical expertise to prepare and implement the project and was short of funds to finance the investment. A shared savings ESPC could help address both issues. The city government engaged an external technical advisor to help the utility design and prepare the project, as well as procure engineering services, and monitor and verify savings. Through a competitive bidding process, the utility signed a water and energy performance contract with a local ESCO under a Build-Own- Operate-Transfer arrangement for a period of five years. The project was designed to operate for at least 20 years under the scheme. The ESCO provided turnkey services while underwriting all performance and financial risks. Third-party project financing was arranged by the ESCO from Standard Bank (South Africa). The project achieved impressive results of seven- to eight-million m 3 annual water savings and 14 250MWh annual electricity savings. Monetary savings exceeded US.8-million per year. The ESCO recovered the capital cost of its investments in one year with a total return to the ESCO that represented four times the ESCO’s initial investment. Nonetheless, the lion’s share of the benefit stayed with Emfuleni Municipality. Source: Financing Municipal Energy Efficiency Projects consumer sentiment. S Service magazine | 13

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