South Africa

ZA-2:Eskom’s Energy Efficiency and Demand-side Management (EEDSM) incentive program

Policy Description

Responding to the Government's National Energy Efficiency Strategy (NEES) (see ZA-1 for more information on the NEES) to reduce energy demand and contribute to the short-term shortage of electricity supply, Eskom launched a financial incentive program. Eskom is the largest state owned utility company of South Africa, which generates approximately 95% of the electricity used in South Africa and approximately 45% of the electricity used in Africa.
The Energy Efficiency and Demand-side Management funding program is aimed at promoting the implementation of more energy-efficient technologies, processes and behaviours amongst all electricity consumers. The program has been in place since 2004 and over the years, it has evolved and been extended.

Description

Responding to the Government's National Energy Efficiency Strategy (NEES) (see ZA-1 for more information on the NEES) to reduce energy demand and contribute to the short-term shortage of electricity supply, Eskom launched a financial incentive program. Eskom is the largest state owned utility company of South Africa, which generates approximately 95% of the electricity used in South Africa and approximately 45% of the electricity used in Africa [1].

The Energy Efficiency and Demand-side Management funding program is aimed at promoting the implementation of more energy-efficient technologies, processes and behaviours amongst all electricity consumers. The program has been in place since 2004 and over the years, it has evolved and been extended.

As of August 2013, Eskom has a number of programs in place targeted at different customers and energy savings project sizes. Current incentive schemes that offer opportunities for the all industrial companies include the following [3]:

 

  • Standard Product Program: pre-approved rebates for deemed energy savings achieved through specified technologies. Eskom provides rebates on the investment costs for the implementation of specific technologies. Standard value per rebated item, capped at ZAR 750,000, and full payment is awarded once the project has been commissioned. Eskom compiled a database of technologies that are deemed to be energy efficient, and customers who implement the technologies are eligible for the rebate on the investment costs. The focus is on small to medium projects <250 kW such as lighting, shower heads, and industrial heat pumps. The government announced in August 2012 that changes would be made to the programme especially due to the implementation of the Aggregated Standard Product Program (see below). However at the time of writing (August 2013), no further details were available [8].

 

  • Standard Offer Program: Energy efficiency payments at a fixed rate for a fixed period (16 hours). Under this program any energy user (customer), project developer or ESCO that can deliver verifiable energy savings (from 50 kW to 5 MW) can propose projects to Eskom, and if successful, will be paid the fixed amount per kWh  over a period of three years. The rate / kWh for energy savings will be fixed per technology group as per the National Energy Regulator of SA’s (NERSA) requirement and ranges from 42-120 c/kWh [9]. It is a performance-based programme for energy savings in the commercial, agriculture and small industrial sectors. The technology groups included are:
    • Energy efficient lighting systems
    • Building Management systems
    • Hot water systems
    • Industrial process optimisation
    • Industrial and commercial solar water systems

 

  • ESCO program: Demand-based payments for verified savings. Eskom has a separate program in place for Energy Service Companies (next to the other programs in which the ESCO’s can also participate). ESCOs who are accredited by Eskom, operate by establishing a three-way partnership between themselves, Eskom and the customer. To participate in the funding programme the ESCO needs to submit a proposal on significant energy demand reduction (ideally over 1MW) that is reviewed by Eskom. DSM (load management) projects currently (February 2012) qualify for up to 100% funding of the financial benchmark value set for various project categories [2]. It is also possible for an industrial electricity consumer to register with Eskom as an ESCO. Demand-based payments equate to ZAR 50-70c/kWh. Project types include process optimisation, lighting, heat pumps, etc.

 

  • Aggregated Standard Product Programme. This program is not a replacement but an expansion of the Standard Product Programme. Under this program project developers are able to aggregate the individual energy efficiency projects under the Standard Product Programme through a single contract. The target sectors are similar as the Standard Product Programme and the contract size is between 1-5 MW [10]

The programme considers funding for projects that

  • Achieve demand savings of less than 250 kW per individual project and aggregated demand savings of between 1 MW and 5MW per basket or group of projects; and
  • Achieve energy usage savings (kWh) 24 hours per day seven days a week.

 

  • Performance contracting: Bulk buying of energy savings from project developers for multiple projects, which includes fixed payments for verified savings. Performance contracting allows Eskom to purchase bulk verified energy savings across multiple sites and technologies by contracting with a single project developer. Eskom will contract for energy savings mainly during daytime hours on weekdays. The rate is determined either through a fixed offer or through a competitive bidding process. The minimum project size needs to be more than 30GWh of savings over a three year sustainability period. Multiple fixed rates per kWh based on time of savings: peak = 55 c/kWh; other = 10c/kWh. Project types include compressed air, ventilation, lighting, shower heads, heat pumps, SWH, etc and large capital intensive industrial projects.

 

Annually Eskom proposes a budget for anticipated EEDSM project funding to the National Energy Regulator of South Africa (NERSA) as part of the approval process for the tariffs.

Policy Information Expand this section for information on the key features of the policy, such as its date of introduction, categorization, main objective(s) and linkages with other policies.

Policy Categorisation

Policy Instrument Type: Economic, Incentives & Subsidies

Position in the Pyramid

About Us

Participation: Voluntary

Period

Start Date: 2004

Policy Linkages

Supports National Energy Efficiency Leadership Network (EELN) (previously called Energy Efficiency Accord) Effort Defining
Supports Eskom Energy Conservation Scheme (ESC) Supporting Measure
Complements Energy Efficiency Tax Incentive Regulations Supporting Measure

Agencies Responsible

National Energy Regulator of South Africa (NERSA)
Eskom
Department of Minerals and Energy

Primary Objective: Energy

Objective

­To improve electricity efficiency performance among the customers of Eskom and save on the absolute amount of electricity consumed during peak hours.

Target Group

all customers groups of Eskom

Driver of energy consumption or emissions affected by policy: Total energy use / Total emissions / Specific energy consumption / Relative efficiency / Technology implementation rate / Other: reduce electricity consumption during peak hours.

Implementation Information Expand this section for information on targets, monitoring, verification and enforcement regimes, and implementation requirements and tools.

Coverage

In principle all industrial companies can apply for funding under the different incentive schemes

Quantitative Target? yes

Target: Deliver 1037 MW demand savings and 4055 GWh energy savings over 3 years [7].

Time Period: 3 years

Progress Monitored? yes

Verification Required? yes

Enforced? no

Sanctions:  The contracts closed under the ESCO program hold penalty clauses in place in case of non-compliance. Penalties have a linear relationship to non-performance. For a project-size of ZAR 5 million per MW saved the penalty of 100% non-performance would be ZAR 5 million. For Performance Contracting there are no penalties - rather disincentives. If a project developer sticks to the contracted delivery schedule, they get payment terms of 55c/kWh for weekday savings between 06h00 and 22h00 and 10c/kWh for all other hours. Should they not come within 90% of the contracted cumulative delivery schedule, the rates default to 42c and 0c retrospectively for the total period - should they catch up, this will be retrospectively applied. In general no saving delivered and measured means no payment.

Requirements on the Target Group

With the exception of the standard product program all programs require applicants to:

  • perform an energy audit to identify eligible energy efficiency measures.
  • draw up an monitoring and verification plan.
  • submit a report on achieved savings that is verified by an independent verifier.

Support by Government

From 1 April 2011 the government allocated a budget of ZAR 5.4 million over 3 years to support Energy Efficiency and Demand Side Management measures [7].

Implementation Toolbox

Through the website of Eskom’s Integrated Demand Side Measurements division introduction letter, templates for M&V report, application forms, lists of eligible technologies, accredited ESCO’s en project developers etc. are made available [3].

 

Complexity of Implementation

Government

The government, through the National Energy Regulator of South Africa (NERSA), is only responsible for approving the budget allocated by Eskom.

Target Group

Target group need to set up a monitoring system and have their savings verified.

Impacts, Costs & Benefits Expand this section to find information on policy effectiveness and efficiency.

Impact Quantitative Estimate Qualitative Estimate
Estimated effect on energy consumption or emissions Cumulative total verified Demand Side Savings (MW) (*2): 2005 100 2006 150 2007 450 2008 1,000 2009 2,000 2010 2,400 2011 2,770  EEDSM results 2011: Average Verified MWs: NERSA funded: 344.4 MW; DoE funded: 0.5 MW; Customer funded: 9 MW; Eskom internal Energy Efficiency projects: 3.1 MW [7]. Over 2011 about 56% of the savings was achieved through more efficient residential savings and 21% from saving through industrial optimisation.  ESCO program: According to the Department of Minerals and Energy (2005), by 2004 there were 80 ESCOs registered. By March 2012, 406 projects were registered, demand savings equalled 793 MW and energy savings 2347 GWh [7].  Standard Offer: by March 2012 a total of 61 projects registered, demand savings equalled 31.4 MW and energy savings 148.1 GWh [7].  Performance contracting: by March 2012 a total of 16 projects registered, contracted 131 MW and energy savings 2076 GWh [7].  Standard Product: by March 2012 a total of 572 projects registered, demand savings equalled 19.7 MW and energy savings 86.9 GWh [7].
Estimated costs/benefits for industry No numbers are available on the actual costs for the industry. In 2011 Eskom total funding of DSM project amounted to 545 million Rand (70 million US Dollar against exchange rates of February 2012). Total budget allocated for a 3 year period is 5.44 billion Rand (707 million US Dollar against exchange rates of February 2012).
Estimated cost for government From 1 April 2011 ZAR 5.4 million over 3 years for EE and DSM [7].

References & Footnotes

References

[1] http://www.eskom.co.za/c/40/company-information/ (date 8 March 2012)

[2] http://www.eskomidm.co.za/funding-options (ESCO model)

[3] Eskom’s website on Integrated Demand Side Management: http://www.eskomidm.co.za/industrial/sp

[4] Eskom’s Integrated Annual Report 2011: http://financialresults.co.za/2011/eskom_ar2011/

[5] NBI and DME (2008) Assessment study of the Energy Efficiency Accord. National Business Initiative (NBI), Department of Minerals and Energy (DME), November 2008.

[6] Department of Minerals and Energy (2008). National Energy Efficiency Strategy. First review 2008. June 2009.

[7] Energy Efficiency Leadership Network Inaugural Workshop on 6 March 2012; Eskom; an overview of energy efficiency and demand side management in South Africa; presentation Dr. Michael Ndlovu, Eskom.

[8] Eskom (2013). IDM, Standard Product Programme webpage. Available at http://www.eskomidm.co.za/industrial/sp

[9] Eskom (2013). IDM, Standard Offer Programme webpage. Available at http://www.eskomidm.co.za/industrial/sop

[10] Eskom (2013)IDM FAQ webpage. Available at http://www.eskomidm.co.za/business/business-funding

Footnotes

(*1) Note on monitoring: Eskom annually report on the total savings achieved through Energy Efficiency Demand Side Management programs. No information is available on the split of savings among the different customer groups.

(*2) Savings are presented as savings on electricity production capacity in the evening peak.