PRESENTATION TO NERSA ENERGY EFFICIENCY AND DEMAND- SIDE RULES ( - - PowerPoint PPT Presentation

Energy Efficiency and Demand-Side (EEDSM) Rules including the Standard Offer Program (SOP)

PRESENTATION TO NERSA ENERGY EFFICIENCY AND DEMAND- SIDE RULES ( Rules ) INCLUDING THE STANDARD OFFER PROGRAM ( SOP )

5 August 2010

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Contents

Introduction The Case for Energy Efficiency Key Objectives of an Effective EEDSM Programme

Key Requirements for an Effective EEDSM Programme

Summary of Eskom Comments Balancing Short-and Long Term initiatives Security of Supply Cost-Effectiveness Simplicity Use of MYPD 2 Funding Eskom Recommendations Conclusion

Introduction

This presentation will highlight a few key issues regarding the Energy Efficiency and Demand-Side (EEDSM) Rules including the Standard Offer Program (SOP) and must be considered together with Eskom s written submission dated 20 July 2010. Accept that some of the issues may relate to the policy that informs the Rules There is clearly alignment on the crucial importance of energy efficiency

The SOP is also a useful tool in achieving this objective

Where we have different views, these relate in essence to the best way that the objective can be achieved.

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The Case for Energy Efficiency

Best form of renewable energy Elimination of wasteful usage Quicker and cheaper than new power generation

Positive impact on price path Allows time take informed decisions on capacity expansion

Unlocks economic efficiencies

Cost savings for consumers

Contribution to carbon reduction, climate change and protection of the environment

Security of Supply Challenges Environmental Challenges Financial Challenges

Common Solution

Key Objectives of an Effective EEDSM Programme

To ensure Security of Supply by:

• Solving Eskom and the country

s immediate supply / demand challenge until new base-load stations start coming on line from 2012/2013.

• Balancing Supply and Demand in the medium - term.

To achieve energy efficiency in the most cost-effective manner

Key Requirements for an Effective EEDSM Programme

It must provide a holistic and integrated solution that takes into account :

Short and long term interventions A combination of initiatives:

Use of a price signal An optimal portfolio of EEDSM technologies with an even spread over markets and the technologies in order to maximise the savings yield. Maximises the available EEDSM funding by leveraging customer self-funded EEDSM. Appropriate incentives

Sets an appropriate balance between high yield energy efficiency solutions and the social objective of the Solar Water Heating programme. Finally, it must be simple, cost effective and efficient

Summary of Eskom

Summary of Comments

Balancing Short-and Long term Initiatives

• Given the capacity situation in the country, EEDSM initiatives must be

supported with shorter-term initiatives that can yield maximum savings in the shortest possible time

• Elements of the SOP will take time to implement and could delay the

achievement of immediate savings

• Certain interventions may require implementation over a longer period

to ensure a sustainable outcome in the next 3 to 5 years

Security of Supply

• The proposed initiatives do not rely on an optimal portfolio of

initiatives

• The focus is mainly on the Solar Water Heating, public and new

buildings and the Energy Conservation Scheme for large customers. This represents only a portion of the total market that can be targeted for savings.

• A large portion of the market, specifically in the industrial, mining

and commercial sectors (for customers consuming <100GWh s pa) is not sufficiently covered.

• There is a strong focus on Solar Water Heating. Excessive funding of

SWH could lead to a limited exploitation of high yield savings technologies.

Cost Effectiveness

The published rates for the Standard Offer is mainly based on the

avoided cost of generation, however it should be based on the least amount required to incentivise self funding by consumers.

The proposed Standard Offer rates for Solar Water Heating does not

constitute a viable model.

Utilising the MYPD2 funds to incentivise the Energy Conservation

Scheme (ECS) will create an unquantifiable financial liability in a sector that could self-fund energy efficiency.

It is not appropriate that customers be paid for savings below the

baseline of the ECS not an integrated solution

The costs are therefore increased without the benefit that it will

necessarily result in more savings

Simplicity Governance and Administration

• The Standard Offer requires Project Developers to fund initiatives up-
• front. There are probably only two to three local ESCOs that will be

able to raise significant amounts of funding.

• Should Eskom participate as a Project Developer, this will create

additional funding requirements in an already cash constrained environment.

• It will take some time to create the necessary administrative

capacity to implement the Standard Offer, creating possible risk to roll-out of EEDSM.

Use of MYPD 2 Funding

• A large portion of the MYPD 2 funds have been contractually

committed to identified projects.

• It would therefore not be feasible to set these funds aside for the

proposed SOP.

• With regard to funds not contractually committed, the reservation of

funds for the purposes of the SOP will result in the suspension of the additional initiatives

• Aside from the concerns raised by Eskom about the efficacy of the

SOP, the proposed reallocation

• f the MYPD 2 funds is beyond the

authority of the Rules and Policy.

NERSA has powers to make rules Not clear if NERSA views these Rules as giving effect to specific Policy

• r an exercise of its general powers

In either case the Rules and/or Policy is ultra vires in terms of the proposed re-allocation

• f MYPD 2 funds

Process

Given the implication of EEDSM on Security of Supply, specifically in the next two to three years, the current governance and administrative mechanisms to roll-out EEDSM should be maintained. Eskom was allocated R5.4b in terms of the MYPD2 approval and these funds should be used for the projects identified Eskom proposes a segmentation of the SWH market, with appropriate solutions, funding models and governance models per market segment. An external market and financial review of our SWH segmentation approach will be obtained to test robustness and implementation ability. The Standard Offer model could be applied to a section of the SWH market:

• Focus should be on the ±554,000 geyser replacement in the Med / Low LSM market.
• Government should obtain funding from sources other than the MYPD2.

Cost estimates of the NERSA proposed standard offer model seems understated

• this needs to be confirmed prior to finalising an implementation strategy.

Eskom Recommendations

The balance of the SWH target needs to be met through:

• development and implementation of a solar water heating replacement programme in

the high-end residential market (including replacement of failed geysers).

• Eskom continuing the mass roll-out programme, using the R300m fiscal funding. and

a re-allocation of R434m from the MYPD2 DSM funding giving a total target of 256 000 houses in this market

The Standard Offer could be a tool for other DSM products for Eskom to realise the IRP targets.

Eskom Recommendations (continued)

The implementation of the Rules and SOP as proposed would not achieve the stated objectives of security of supply and energy efficiency in the most effective manner The roll out of the current initiatives could be delayed resulting in increased risk in the next year and beyond (in fact, a slow down in the market has been noticed due to the uncertainty regarding the funding regime)

Conclusion

Additional Slides

Solar Water Heating

Proposed Market Segmentation

High End Residential Middle / Low Income Electrified Houses Market

High LSM (>R16k pm), current geysers in place Med / Low LSM (R6k R16k pm), current geysers in place No geysers in place, use electricity to boil waters

Total Market

1,360,000* 3,500,000 6,300,000

Opportunity in Next 5 years

190,000**** 554,000 256,000

Customer Means

Able to afford, initial capital barrier Mostly not able to afford Mostly not able to afford

Product

Option provided, based on choice** Standard 200l product 100l low pres unit

Typical Savings (KW)

625 W per unit 290 - 625 W per unit 290 W per unit

Typical Savings (kWh)

200-275 kWh per unit per month 100-200 kWh per unit per month 100 kWh per unit per month

Funding Model

• Independent

customer funded with

• sweetner

Standard Offer Mass Roll-out

Initial Cost Per Unit

R5,850 N/A R4,500

Total Cost (3yrs)

R708m R618m*** R734m

Source of Funding

Customer + sweetner through MYPD & Other To be sourced by DoE e.g. World Bank, CDM etc. DoE & Other

Governance & Accountability

Eskom and Munics NEEA / DBSA Eskom and Munics

Implementation

• Set detail requirements and

selection criteria

• Analyse current products
• Contract external parties to develop

robust programme/s

• Take to market
• Agree way forward with DoE
• Address funding requirements
• Source additional funding
• Continue with mass roll-out using

R300m fiscal funding

• Complete tender to

stretch current funding

• Address sustainability (continued

maintenance)

• Manage political risk of

who gets first

* Including ±300,000 geyser replacements per year *** Calculated on 200 kWh savings per month ** Customer from this market could also opt for the Standard Offer **** Refers to SWH units, not households

In addition, the Commercial & Industrial sectors as well as large corporates could contribute

Per Unit Analysis of NERSA SWH Rebate

Middle Income Low Income Deemed Saving per Month (kWh) 200 100 Deemed Savings per Year (kWh) 2,400 1,200 Contract Period 5 years 5 years Year 1 Year 2 Year 3 Year 4 Year 5 TOTAL

• NERSA Proposed SO Rate (Rand)

0.504 0.517 0.580 0.614* 0.651*

• Middle Income Savings (kWh)

2,400 2,400 2,400 2,400 2,400 12,000 Rebate per Unit (Rand) 1,210 1,240 1,391 1,474 1,563 6,878

• Low Income Savings (kWh)

1,200 1,200 1,200 1,200 1,200 6,000 Rebate per Unit (Rand) 605 620 695 737 781 3,439 * Not published, assumed value

Given the NERSA proposal, the total rebate per unit will be R6,878 and R3,439 for the middle and low income market respectively The capital cost of SWH units in the middle income market ranges from R13,650 to R26,000 The capital cost of a SWH unit in the low income market is R4,500 Both the above scenarios do not constitute financially viable models