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

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 2

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.

The Case for Energy Efficiency Security of Supply � Best form of � renewable energy � Challenges � Elimination of wasteful usage � Quicker and cheaper than new power generation � Positive impact on price path Common Solution � Allows time take informed decisions on capacity expansion � Unlocks economic efficiencies � Cost savings for consumers � Contribution to carbon reduction, climate Financial Environmental change and protection of the environment Challenges Challenges 4

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 ESCO � s 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 � of the MYPD 2 funds is beyond the authority of the Rules and Policy.

Process � NERSA has powers to make rules � Not clear if NERSA views these Rules as giving effect to specific Policy or an exercise of its general powers � In either case the Rules and/or Policy is ultra vires in terms of the proposed � re-allocation � of MYPD 2 funds

Eskom Recommendations � 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 (continued) � 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.

Conclusion � 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)

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