- Buildings Guide
- Policy Guide
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The South African government introduced the National Energy Efficiency Strategy (NEES) to reduce the demand of energy. Responding to this programme, the largest state-owned utility Eskom implemented a financial incentive programme, “Energy Efficiency and Demand-side Management Incentive Programme (EEDSM)”. The aim of this programme is to promote energy-efficient technologies, processes and behaviours amongst all electricity consumers. It has been in place since 2004 and was extended in the last years. Several projects were implemented under this programme including a standard product programme, a standard offer programme, an ESCO programme and a residential mass rollout programme (from 2004 to 2011 47 million CFLs were distributed door-to-door or at exchange points with realised energy savings of 1958 MW) (Skinner 2013).
Today, however, the continuation of the programme is uncertain.
South Africa’s economy is driven by large energy-intensive industries and these industries rely on coal as the main fuel source. Due to this fact South Africa is one of the highest emitters of CO2 per capita in the world. The government has recognized this development and implemented a strategy to minimise the environmental impacts. One of the policies is the “Energy Efficiency and Demand-side Management Incentive Programme (EEDSM)”. This programme is organised by the largest South African utility company Eskom. This company “purchases” energy savings from different technologies or demand reduction using specific rates. Any energy user or Energy Service Company (ESCO) that can deliver energy or demand savings is paid a fixed amounts per kWh for the energy savings. These savings must be certificated by an authorized measurement and verification organisation. The mechanism of this programme is comparable to the feed-in-tariffs which are used to promote the increased implementation of renewable energy resources (International Bank for Reconstruction and Development & World Bank 2014).
Eskom has a number of programmes in place to reach different target groups. Examples are the following:
Standard Product Program:
Small projects under 250 kW are supported with the “Standard Product Program”. The programme provides pre-approved rebates for technologies like efficient lighting, shower heads, air conditioners, heat pumps etc. The payment is based on the product installed and on a standard value per item. The level of payment is equivalent to between R0.5 and R1.0 per kWh. The full payment is made upon installation and after a monitoring report is published (International Bank for Reconstruction and Development & World Bank 2013).
Standard Offer Program:
“Standard Offer Programme” (SOP) policy has been put in place as a mechanism to acquire demand-side resources by offering a predetermined rate for electrical demand savings (kW) and annual energy savings (kWh).The SOP provides a fixe rate for delivered energy savings. Projects that were implemented under this programme were efficient lighting, hot water systems, and industrial process optimisation. Based on the technology used a standard amount is paid per kWh saved. The level of payment is between R0.04 and R1.20 per kWh (peak hours). Projects were introduced between 50 kW and 5 MW. 70% of the payments are made at the end of the project and 10% at the end of each of the three following years. Monitoring is required each year (International Bank for Reconstruction and Development & World Bank 2013).
Performance Contracting Program:
This project covers large projects in commercial and industrial facilities (larger than 5 MW). Project developers can bit through a tender process. Payments are made at a pre-published rate (R0.55 per kWh during peak period and R0.10 per kWh during off-peak hours (International Bank for Reconstruction and Development & World Bank 2013, LBNL 2013).
Solar Water Heating Program
The “Solar Water Heating Program” offers a rebate for the replacement of residential electric water heaters with solar water heaters. The goal of the government is to install 1 million solar water heaters in 2014 (International Bank for Reconstruction and Development & World Bank 2013).
Other programmes are an ESCO programme and a residential mass rollout programme (from 2004 to 2011 47 million CFLs were distributed door-to-door or at exchange points with realised energy savings of 1958 MW) (Skinner 2013).
The next figure illustrates the different funding schemes according to the size of savings they are targeting (LBNL 2013)
All these mentioned programmes use a transparent and simple payment procedure with the aim that participants know how much they will receive for verified savings.
Eskom prepared a list of pre-approved technologies and measures that are eligible for a payment under the EEDSM scheme. The measures must reduce the energy consumption during the peak period from 6:00 am to 9:00 pm. The reduction must be measurable and verifiable. The EEDSM programme has reduced peak electricity demand by 3072MW for the combined years 2005-2012(Eskom cited in LBNL 2013).
According to LBNL (2013) “the establishment of energy efficiency goals and funding capabilities is making South Africa one of the few emerging economies with experience in integrating energy efficiency in its future capacity planning”.
According to Hertzog (2014) Eskom stopped the funding for any of the normal DSM activities. The programmes were cancelled or stopped till further notice. However, it is expected that the EEDSM programme will be moved to the DOE or a similar organisation.
Energy efficiency funds were already introduced in the USA, Australia, Brazil, Korea, New Zealand, Romania and Thailand. The funding varies among the different countries and programmes.
One of the programmes, the ‘Standard Offer Program’, was already implemented in some states of the USA. These programmes offer performance-based incentives to customers and pay a defined amount of money for each estimated kWh or kW saved (International Bank for Reconstruction and Development & World Bank 2011).
South Africa is ranking high among the world’s most energy-intensive nations, and is the highest contributor in terms of national greenhouse gas emissions per capita. This can be attributed to the fact that the economy is predominantly coal based and a legacy of comparatively low electricity costs. The industrial and mining sectors combined are the largest users of energy in South Africa and account for 38% of total end-user energy demand. Together, Commercial and public building sectors contribute to 8%, while the residential sector accounts for 18% of final energy demand in the country (Department of Minerals and Energy 2005).
In 2008 a combination of different factors resulted in a power crises in South Africa. As a consequence, the South African government has recognized the relevance of energy savings and energy efficiency. The need for a strategy to overcome the national problems led to the implementation of an energy efficiency strategy as well as demand side management policies.
The National Electricity Regulator of South Africa already published the “Regulatory Policy on Energy Efficiency and Demand-Side Management for the South African Electricity Industry” in 2004. This document strengthened the relevance of energy efficiency, energy service companies and monitoring activities.
One year later the “Energy Efficiency Strategy of the Republic of South Africa” was published with the aim to establish national targets for energy efficiency improvements and a timetable (International Bank for Reconstruction and Development & World Bank 2011).
The National Electricity Regulator established the EEDSM programme together with Eskom, the largest utility company of South Africa and defined the rules and procedures of the policy in the same year (2004) (International Bank for Reconstruction and Development & World Bank 2011).
The aim of the policy is to improve energy efficiency to reduce the absolute electricity consumption during peak load hours (Institute for Industrial Productivity 2014)”. The EEDSM sets targets relating to various interventions in the domestic, commercial and industrial sectors. The 2008 National Energy Efficiency Strategy of South Africa sets an overall target for final energy demand reduction of 12% by 2015. This shall be achieved by the implementation of different initiatives including energy efficiency programs under the guidance of the Energy Efficiency and Demand Side Management (EEDSM) programme. The aim of this EEDSM is to incentivise providers of (large) energy efficiency programmes by offering them a fixed remuneration for verified units of energy saved.
It is a national policy.
Eskom has published a list of technologies and measures, which are eligible for payment under the EEDSM scheme.
The policy supports the replacement of inefficient technologies and the purchase of different technologies like efficient lighting, insulation, efficient HVAC systems, motion sensors, etc.
The Energy Efficiency Demand-side Management Incentive Program is part of the energy efficiency strategy of South Africa. The vision of the strategy is to encourage a sustainable development of the energy sector by means of efficiency measures in order to minimize negative impacts of energy usage upon health and environment, as well as to contribute to the aim of secure and affordable energy for all (International Bank for Reconstruction and Development & World Bank 2011)”.
The EEDSM has direct effects through programmes such as the standard offer model policy, which addresses electricity users of residential, commercial and public buildings.
The EEDSM is part of a policy package that influences the demand and supply side. The programme targets the ESCOs and investors to replace inefficient technologies and increase energy efficiency with financial incentives.
Standards and label support this development by setting an upper limit for the allowed energy consumption of a building. Energy performance certification informs buyers or tenants about the level of energy efficiency.
The utility company Eskom has integrated an innovation programme into the EEDSM and invites technology and equipment suppliers to develop new or innovative ideas under the Performance Contracting Program (International Bank for Reconstruction and Development & World Bank 2013).
The Standard Offer Programme (SOP) is an innovative programme. The policy has been put in place as a mechanism to acquire demand-side resources by offering a predetermined rate for electrical demand savings (kW) and annual energy savings (kWh).The SOP provides a fixe rate for delivered energy savings. The mechanism of this programme is comparable to the feed-in-tariffs which are used to promote the increased implementation of renewable energy resources (International Bank for Reconstruction and Development & World Bank 2014).
Energy savings have focused on lighting, general industrial process optimisation, compressed air systems as well as on industrial and commercial HVAC. A further improvement would be a focus on technology improvement in the residential sector (LBNL 2013).
The following pre-conditions are necessary to implement the EEDSM programme:
Agencies or other actors responsible for implementation
Eskom launched the Energy Efficiency and Demand Side Management incentive programme. It is the largest state-owned utility company in South Africa and generates approximately 95% of electricity used in the country, equalling to about 45% of electricity used in entire Africa (Eskom 2014). Eskom has set up the “Group Customer Services for
Integrated demand management” to implement the programme.
Other responsible agencies are the National Energy Regulator of South Africa (NER), and the Department of Minerals and Energy (Institute for Industrial Productivity 2014).
The National Energy Regulator of South Africa (NER) has provided approximately R6 billion for Eskom (to fund ESCOs) and electricity distributors to apply to the Demand Side Management (DSM) programme. These funds are available via a number of programs to electricity customers to assist them in reducing electricity usage.
The funding will also be obtained from a tariff levy approved by the National Energy Regulator (International Bank for Reconstruction and Development & World Bank 2011).
The National Electricity Regulator (NER) calculates the potentials and then plans and implements the policy and defines the responsibilities and obligations. Eskom, the largest utility company of South Africa is responsible for the implementation of the policy. The NER established the following rules for the EEDSM:
The next figure illustrates the Eskom Energy Efficiency and Demand Side Management Fund Funding Mechanism.
According to the International Bank for Reconstruction and Development & World Bank (2011), the major steps for the operation of the standard offer programme are:
The concrete target of the EEDSM was to deliver 1037 MW demand savings and 4055 GWh energy savings from 2011-2013 (with a load factor of 45%) (Institute for Industrial Productivity 2014; LBNL 2013).
The National Energy Efficiency Strategy of 2008 sets a final energy demand reduction of 12% by 2015. This will be achieved by implementation of different initiatives including the implementation of demand side management rules.
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 is responsible for the different programmes, the criteria for funding and the evaluation process.
MonitoringA methodology for monitoring and verification was developed by Eskom and approved by the National Energy Regulator. The target groups (except the participants of the standard product program) are required to
Eskom prepares a list of independent organisations to carry out the evaluation. According to International Bank for Reconstruction and Development & World Bank (2011), a number of university-based groups organise the M&V process for Eskom. The monitoring process is funded from the EEDSM fund (M&V costs are allowed up to 8% of the total project costs) and collected through the electricity tariffs (2 cents per kWh are paid for monitoring activities) (Xia 2012; LBNL 2013)
The next figure illustrates the EEDSM process including the monitoring and verification stages.
The following barriers have been experienced during the implementation of the policyThe policy faced the following issues (International Bank for Reconstruction and Development & World Bank 2013).
These uncertainties led to considerable risks and it was difficult to finance and implement all projects.
The following measures have been undertaken to overcome the barriersA 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:
The overall saving target is to save 1037 MW demand savings and 4055 GWh energy savings over 3 years (2013-2015) (Unlimited Energy 2013).
Standard Product Program:
By March 2012 a total of 572 projects were registered. Demand savings equalled to 19.7 MW and energy savings to 86.9 GWh.
Standard Offer Program:
By the end of 2011, a total of 61 projects were registered. Demand savings equalled 31.4 MW and energy savings 148.1 GWh
By 2004 there were 80 ESCOs registered. By the end of 2011, more than 400 projects were registered. Demand savings equalled 793 MW and energy savings 2347 GWh.
By the end of 2011, a total of 16 projects were registered and contracted 131 MW as well as energy savings of 2076 GWh.
Solar Water Heating:
By the end of 2011, 104,978 solar water heater were installed. In January 2012, already 172,784 solar water heaters were installed (Skinner 2013).
Cumulative total savings are:
Source: Institute for Industrial Productivity (2014)
According to Eskom (cited in LBNL 2013) the EEDSM programme has reduced peak electricity demand by 3072MW for the combined years 2005-2012.
The project costs are partially funded by the government. From 1 April 2011 the government allocated a budget of R5.4 billion over 3 years to support the policy (R5.4 billion to deliver 1,037MW demand savings over 3 years or R5.2m/MW). The National Energy Regulator of South Africa is only responsible for approving the budget allocated by Eskom (Institute for Industrial Productivity 2014).
These funds will be applied for project implementation and administrative costs for EEDSM and demand-reduction programmes, including a portion of the solar water heating initiative by the Department of Energy (cited in: International Bank for reconstruction and Development & World Bank 2013)”.