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Water heating (WH) accounts for as much as 40% of the household electricity bill in South Africa. Solar Water Heaters (SWH) & Heat Pump (HP) can reduce and shift load demand and save enormous energy given the country’s high solar radiation levels.
That is why the Solar Water Heating and Heat Pump Rebate Programme was introduced in 2008. To receive a rebate the water heaters must exceed the minimum energy performance standards (MEPS) set for electric water heaters by 25%. The rebate programme was very well received by the private sector and there was a rush to the market. From 20 suppliers in 1997 this number grew to over 400 by 2011. Other benefits are:
The Renewable Energy White Paper (2003) set a target of reducing 10,000 GWh of energy by 2013. In 2004, the Renewable Energy Market Transformation project (REMT, 2004) published a report which identified SWH as a ‘low hanging fruit’ which could contribute as much as 23% to the 2013 target. Additionally, the National Energy Efficiency Strategy (NEES) issued by the South African Department of Energy (DOE) in 2005 set a national aspirational target for energy efficiency improvement of 12% by 2015 (using a 2000 baseline). These national targets illustrate the right conditions to introduce a programme with a focus on solar water heaters. The next figure shows how electricity is consumed by the average South African household and further justifies why hot water was targeted.
Although there may have been some ‘behind the scenes’ preparation for the promotion of SWH the “game changer” was the 2008 rolling blackouts. Within weeks a rebate for high-pressure SWH systems was announced with the programme to be administered by Eskom. The initial target was the installation of 925,000 systems by 2013 (5 years) to save 3,500 GWh (Eskom 2009). The programme was aimed at middle- to high-income groups and only high-pressure systems qualified for the rebate. Eskom had two objectives:
All SWH/HP which qualified for the rebate were required to install a timer to ensure that the back-up element would not be activated during peak hours – 06h00 to 08h00 and 18h00 to 21h00.
To qualify systems it is required to meet the relevant national product standards and undergo tests to determine the system’s Q Factor. This would be used to determine the value of the rebate (Eskom 2011a), but typically equates to around 20-30% of the price of the SWH. The payment of the rebate has taken different forms since the programme was introduced. Initially the installer would submit a claim to Eskom once the installation had been completed. This created cash flow problems for smaller installers and was changed to the household submitting the rebate application to Eskom. If all paperwork is submitted correctly payment is made within 6 weeks.
All SWH storage tanks must exceed the MEPS of electric water heaters by 25%.
On 20 April 2010 the National SWH Programme was officially launched by President Zuma, with the intention that the programme run in parallel with existing initiatives, and would now include LP systems. The structure of the programme was based on the following residential market analysis.
Sales of high pressure SWH under the Government’s rebate scheme was totalled 89,842 for the period 2009 until October 2014, which amounts to approximately 18,000 units per annum (Eskom, 2014a). The actual figure is probably slightly higher as not all buyers make use of the rebate scheme but this is a small number as such behaviour would be classed as irrational. Just over 300,000 low pressure SWH systems have been installed over the same period but these units do not have an electrical back up and consume no electrical energy.
The introduction of SANS10400XA in 2011, which is the mandatory energy requirements, mandates specific requirements for hot water of not more than 50% may be supplied by resistance heating (please refer to SANS10400XA bigEE policy paper for more details) and this is expected to increase the penetration rate of SWH and HP.
As SWH cannot be applied in all instances and pressure had been growing from heat pump (HP) industry, in November 2011 Eskom announced the addition of HPs to the SWH rebate programme and was structured according to the same principles and requirements. The initial budget was R250million and targeted 54MW and the total programme R679 million to achieve 128 MW over three years (Eskom, 2011b). For HP installed on WH <300L the rebate was fixed at R3,668 and R4,320 for WH > 300L.
The low pressure programme was discontinued in 2013 due to local content requirements. In January 2014 Eskom terminated the HP rebate and in January 2015 Eskom handed over the entire programme to the Department of Energy. The programme continues in its current form but it is expected that changes will be announced.
SWH and HP rebate programmes are not new and have been implemented using different approaches throughout the world. The uniqueness of the SA programme was the aggressive targets and a large and committed budget.
A concrete example is the incentive programme to promote Solar Water Heating in Barbados. A combination of fiscal incentives enabled this success: (1) import tariffs were eliminated on the raw materials used to manufacture solar water heaters; (2) a consumption tax of up to 60 % was imposed on all electrical and gas water heaters; (3) homeowner tax incentives for solar water heaters of up to BBD 3500.
Due to substantial coal reserves available in South Africa, energy and power saving techniques and technologies have largely been neglected for a long time. In 2003, the government of South Africa introduced the Renewable Energy White Paper, which set a target of reducing 10,000 GWh by 2013. The document marked the first milestone of South Africa’s efforts towards a more energy-efficient economy.
In particular, research funded by the UNDP in early 2000 (Holm, 2005) looked at the SWH industry in the country with a view to identifying its viability and potential and which would be the most appropriate interventions to grow the industry. In addition, the Renewable Energy Market Transformation project (REMT 2004) published a report in 2004, which identified SWH as a ‘low hanging fruit’ which could contribute as much as 23% to the 2013 target.
Furthermore, the National Energy Efficiency Strategy (NEES) issued by the South African Department of Energy (DOE) in 2005 set a national aspirational target for energy efficiency improvement of 12% by 2015 (using a 2000 baseline).
However, despite the knowledge regarding the potential of SWH in terms of saving energy, decisive action followed the electricity blackouts of 2008. It became essential for the Government to take immediate action to 1) reduce demand and 2) shift load. Several programmes were announced such as CFL rollout, gas for cooking in CT as well as the SWH rebate programme. The latter was considered lower risk as a lot of research had already been undertaken and the programme structure had been largely developed.
The primary objectives of the programme are:
It is a national policy.
Domestic Hot Water
The programme provides a rebate lowering the upfront costs for solar water heaters and heat pumps. In particular, the rebate is to reduce the cost difference between a conventional electric water heater and a solar water heater or a heat pump. In so doing, the measure seeks to incentivise the purchase of those more efficient appliances – which are initially more expensive but implicate energy bill savings.
All storage tanks must exceed the MEPS of electric water heaters by 25%, which is to ensure that households will save energy costs due to the new purchase. Apart from that, all SWHs and HPs, which qualified for the rebate, were required to install a timer to ensure that the back-up element would not be activated during peak hours – 06h00 to 08h00 and 18h00 to 21h00. Peak demand has been a concerning issue, Eskom has been dealing with.
In general, the primary target group are all residential customer groups of the utility company Eskom.
Please note that SWHs were also rejected for aesthetic reasons. What exactly has changed the opinion within South Africa’s population is not certain. However, the fact that SWHs save energy, money and contribute to environment protection could outweigh the aesthetic disadvantages.
The national SWH / HP programme interacts with several policy objectives set by the Government of South Africa. In particular, it is aligned with:
Moreover, the government introduced a building energy code applicable for new buildings and substantial building additions. The SANS 10400XA requires that not more than 50% of the annual volume of domestic hot water may be heated using electricity.
The programme offers a straightforward rebate and from that perspective is not innovative. The programme tries to support small and local businesses.
The programme implemented a very bureaucratic, and expensive, processing system. For a long period this created long delays in payment which impacted the small businesses it tried to support. The process was eventually streamlined but remains sub-optimal.
The strict enforcement of existing legislation, such as SANS 10400-XA would improve uptake.
A more effective way to process the rebate would be for households to install SWH/HP and then claim the refund with their annual tax return. This has proven to be one of the more efficient and cost effective mechanisms to distribute the rebate. In Greece tax reductions contributed in raising the capacity per thousand of inhabitants from 20 m² in 2005 to 360 m² in 2009 (Duffour, 2012).
The rebate programme also created a ‘market rush’ which was unsustainable and many companies have exited the market having sustained large financial losses. Programmes such as these should operate in an orderly manner to create certainty to ensure the right investment are made.
The following pre-conditions are necessary to implement the SWH/HP Rebate Programme:
Agencies or other actors responsible for implementation
The programme officially resided with the Department of Energy but Eskom remained the custodian of the SWH high pressure and Heat Pump rebate scheme. Eskom also managed low pressure installations but these moved to a contract system due to the high incidence of fraud and poor installations.
To accelerate the uptake of SWH several metros and municipalities introduced rollout schemes. These programmes did not compete against the Eskom rebate. Most did not make it past the design phase but the City of Cape Town did [SWH Cape Town] – this programme has accredited installers and provides finance, subject to the creditworthiness of the households
To qualify for the rebate SWH & HP needed to pass the applicable national standards and get SABS accreditation.
SWH: SANS1307: Domestic storage solar water heater systems. The hot water cylinder must comply with SANS 151 Fixed electric Storage water heaters and must exceed the MEPS set for electric water heaters by 25%
HP: SANS181 Thermostat for electric water storage heaters; SANS514 Immersion heaters for electric storage water heaters & SANS 151
Energy efficiency has been on South Africa’s political agenda at least since 2003, when the 10,000 GWh energy saving target was introduced. For this goal, SWHs were identified as a “low hanging fruit” through a technology assessment carried out in 2004 by the Renewable Energy Market Transformation. Moreover, a scoping study was conducted to determine ways how to grow this industrial branch. However, despite this knowledge and the fact that water heating has contributed substantially to households’ energy consumption, the SWH rebate programme was not implemented before 2008 as the country’s power system was almost collapsing. Apparently, this dramatic situation can be seen as an important driving force for implementing the SWH rebate as well as other energy saving programmes.
The suppliers must be in good financial standing and registered with Eskom.
Claims process for SWH / HP Rebate Programme. The rebate is calculated based on the Q factor (the factor indicates the kWh of electricity it is expected to save on a typical day) allocated to the system during SABS certification. Eskom then allocates a fixed Rand value based on the units efficiency (Q factor).
Actors responsible for design
Responsible for the design of the policy are the Department of Energy (government) and Eskom (national utility).
Actors responsible for implementation
Eskom was responsible for implementation, the criteria for funding and the evaluation process.
DOE took control of the programme in January 2015.
Eskom appointed Deloitte Consulting firm to manage the administration of the project. All claims for a rebate were required to be submitted in the prescribed form to Deloitte for processing. Once evaluated the claims would be paid out in within 6 weeks. Spot checks were conducted to ensure compliance. All paperwork resided with Deloittes and they were required to provide detailed figures to the Eskom programme office as required.
Eskom employed a technical team who would conduct site visits to ensure the systems were installed according to required specification. There was a particular focus on monitoring for low pressure installations.
Data and statistics were supplied by Deloitte and these were analysed by the Eskom Integrated Demand Side Management (IDM) division. Below are examples of programme analysis undertaken by Eskom. As the programme resided with the DOE, and Eskom was managing it on their behalf they were required to provide regular updates to the DOE.
Design for sustainability aspects
The implementation of SWHs or HPs results in mitigated greenhouse gas emissions and climate change impacts.
The installation of solar water heaters as result of the EEDSM programme has resulted in poor communities having hot water supply for the first time (community development). Moreover, capacity development and job opportunities creation, e.g. related to auditing, manufacturing, installation and maintenance.
The following barriers have been experienced during the implementation of the policy
The policy faced the following issues (International Bank for Reconstruction and Development & World Bank 2013)
An additional barrier was Eskom’s refusal to commit to funding period and although the project ran for almost 7 years it was on a month to month basis. Rebates were increased and decreased on short notice, creating havoc in the market. The Heat Pump rebate was terminated while maintaining the HP programme. The LP programme was discontinued and given to the DOE who have yet to announce a replacement programme over 2 years later.
The following measures have been undertaken to overcome the barriers
A supporting team was established to make the policy process more efficient and effective. The most prominent team members were the World Bank, Eskom, the Department of Minerals and Energy, NERSA and the South African Association of ESCOs. The major recommendations of the supporting team were:
(International Bank for Reconstruction and Development & World Bank 2013).
Concrete figures in energy savings/year
Recent figures are not available but the impact appears to be much lower than expected due to the low uptake and the focus switching to low pressure systems.
According to Eskom the initial budget when the project was announced in 2008 was funded by NERSA and was made available through the Division of Revenue Act (DoRA) and DOE of R2.5 billion (DBSA, 2011) and a further R4.7 billion in the 2012 national budget (Budget Speech Transcript: 2012).
The following were identified by Eskom which showed that the programme did not deliver the expected benefit cost ratio.