Implementing CaaS in South Africa with Sphere Solutions

Since June 2019, Sphere Solutions, GFA Climate & Infrastructure, and BASE have been collaborating on bringing the CaaS model to South Africa.

What is CaaS?

The CaaS initiative is driven by Switzerland-based BASE, together with the Kigali Cooling Efficiency Program (K-CEP) with the aim of reducing energy consumption and the GHG emissions from cooling through a pay-per-service model for efficient cooling systems. CaaS involves building and business owners to pay for the cooling service instead of purchasing the equipment that delivers the cooling, while the technology provider owns the cooling system, maintains it and covers the operational costs connected to it.

Why South Africa?

“South Africa is in the envious position of being able to implement a first of its kind financial instrument endorsed by a most prominent global climate finance innovation association (Global Climate Lab), developed by a leading foundation (BASE) involved in climate change and used to support the roll out by the leading technology provider of CO₂ based refrigeration systems in South Africa, Sphere, and funded by a local bank,” explains Johnathan First, Managing Director of GFA Climate & Infrastructure. “It catalyses global thinking in a local context with definite climate mitigation outcomes.”

As the country experiences increasing demand in cooling, combined with a continuous rise in electricity prices (9 per cent in 2019 with a further rise expected in 2020), refrigeration technologies that prioritise clean and energy efficient cooling deliver clear cost advantages to local businesses. This makes South Africa a particularly good candidate for the implementation of Cooling as a Service (CaaS); which in itself lowers market barriers for businesses to engage with the best technologies and benefit from the advantages of energy efficient cooling products on the market. The latter is even more accentuated given the current impact COVID-19 has had on businesses due to the lockdown. CaaS enables the optimisation costs associated with cooling and redirects business expenses where needed to accelerate growth.

Sphere, GFA and BASE delivering CaaS

In March 2020, Sphere Solutions, GFA Climate & Infrastructure, and BASE met with the five leading commercial banks in South Africa to present the funding structure of CaaS and the first projects to be implemented by Sphere Solutions. One of the five banks will be selected as the funder to partner with GFA, Sphere Solutions and BASE to then approach a leading South African retailer who will hopefully recognise the significant benefits of CaaS as a way to convert stores to more efficient and cost reducing refrigeration, and accelerate recovery after the COVID-19 lockdown.

About the companies

• Sphere Solutions: Based in South Africa with offices around the globe, Sphere is a pioneer of globally relevant, future-fit and insightful temperature control solutions for the built environment that also serve the long-term interests of broader society. Among its technologies, Sphere’s product portfolio includes and prioritises CO₂ refrigerants. Global legislation, as well as the Kyoto and Montreal Protocols, which reviewed substances linked to ozone depletion and climate change, encourage the use of CO₂. Over the past decades, Sphere has built on their experience and has a global footprint in terms of clients, installation capacities and a proven track record.
• GFA: Based in Cape Town, GFA Climate & Infrastructure (Pty) Limited is part of the Climate and Energy Cluster within the German based GFA Consulting Group. They have a geographic focus on southern Africa where GFA has been active for more than 20 years. Based on the past successes and the increasing sustainable energy opportunities in the region, GFA has opened a subsidiary to focus on climate advisory services with focus on climate finance. GFA Climate & Infrastructure has a well-established funding network in the region that extends to providers of private and concessional funding, from local, and international Development Finance Institutions (DFIs) and regional and international multilateral agencies, government and private sector funders as well as export credit agencies.
• BASE: The Basel Agency for Sustainable Energy (BASE) is a Swiss Foundation and a specialised partner of the United Nations  Environment. BASE designs, develops and implements innovative financial mechanisms to catalyse investments towards sustainable energy. In 2018, it designed the model of Cooling as a Service which is currently being implemented in South Africa and around the globe. More info can be found on www.energy-base.org

History: Uniting through a common goal

BASE initially met Jonathan First from the Development Bank of South Africa (DBSA) through the Global Innovation Lab for Climate Finance, where BASE received the award for CaaS as one of the most innovative financial instruments to mitigate climate change. Mr. First, who is also the Managing Director of GFA in South Africa, was already familiar with the climate friendly technologies and innovative mindset of Sphere Solutions. On this basis, introductions were made between BASE and Sphere Solutions, and since then the three companies have been working together to tailor the CaaS business model to the South African market and to the needs of Sphere Solutions’ customers.

Sphere has been serving its customer base for over 50 years with innovative, future fit solutions to reduce energy costs. “A big driver for us over the last decade has been rolling out CO₂ refrigeration to our client’s as a far more sustainable alternative to HFC’s and their damaging effects on the environment,” explains Marcel Steinberg, CEO of Sphere. “With CaaS, we hope to drive the adoption even faster as we remove some of the negative perceptions around upfront CAPEX costs, which seem to be impediments to implementation for smaller retailers. Sphere is proud to be associated with BASE and will continue to innovate and implement technologies and solutions to curb climate change.”

Thanks to the dedication of all parties involved, Sphere solutions developed the tools required to implement the model. These include:

• Pricing packages fit for their customer’s needs within the benefits of CaaS based on a funding model developed for both the funder (commercial bank) and the target customer.
• A CaaS contract aligned with local regulations and including the latest requirements of IFRS16. The contract was developed by a leading external law firm, to ensure that all parties can benefit from the advantages of the model CaaS.
• Modifications in Sphere’s daily operations to successfully implement and manage CaaS.
• Audit opinion of the off-balance sheet nature of CaaS.

How does it work?

To promote the use of more efficient and environmentally friendly refrigeration solutions, Cooling as a Service will be primarily available for systems utilising Transcritical CO₂ technology.

Refrigeration solutions are designed to meet the cooling requirements on a case-by-case basis taking into account the utilisation and cabinets capacities. The option to add cabinets in the cooling service will be a natural evolution to ensure optimisation of the system and increase the off-balance sheet product offering. Due to clients utilising less than 50% of their installed capacity on average, modular design is being considered where a mobile capacity can be used for the initial cooling of products; the ability to provide a modular solution will be dependent on the ease of access to designated areas.

The operation, maintenance and monitoring of the system forms part of the Cooling as a Service to ensure short responsive callouts. Maintenance teams are optimally situated to guarantee on-site presence within two hours of fault detection and does not require client staff for the monitoring or maintenance of any equipment relating to the cooling system.

Transcritical CO₂ systems are manufactured, installed and maintained for many different applications, including small store formats (convenience stores), supermarkets and hypermarkets, and industrial sites. Across this range, different technologies have been used. Booster systems, with the addition of parallel compression, ejectors, different suction groups, as well as adiabatic gas coolers allow for increased efficiency over freon systems. Although CO₂ systems operate at higher pressures than CO₂, components are being manufactured to handle this.

A big advantage of using CO₂ as a refrigerant, is that it has very little to no environmental impact as it is a natural refrigerant. It is also not flammable or toxic. Its cost is significantly lower than that of freon gas – which is bound to escalate even more in the future, with regulations constantly becoming stricter for the use of freon as a refrigerant. The capital cost of CO₂ systems is higher, however, through energy savings the payback period can be as little as between one and five years. This capital cost difference is reducing over time, as CO₂ technology improves, and more suppliers enter the market.

Leading the Path to Sustainability

“In these days of turmoil, the urgency of smart and sustainable financial and technical solutions is even more undeniable,” says Thomas Motmans, Sustainable Energy Finance Specialist at BASE. “Companies such as Sphere and GFA are leading the path towards sustainability, green development and the circular economy. We encourage other organisations to follow the footsteps of these innovators. “

Stay tuned for more news soon.