Eskom Demand Management Funding Models:
South Africa, like other countries in the developed and the developing world, faces an energy-constrained future. Studies to establish energy efficiency when compared with that of other countries with a similar per-capita Gross Domestic Product (15% variance), indicate that South Africa is more electricity-intensive by between 35% and 65% than its counterparts, of which a significant proportion is estimated to arise from the use of less energy efficient technology and production processes. This leaves substantial opportunities for energy saving through technologies.
Furthermore, in line with international governance trends, local companies are likely to be legally bound to adopt sustainable business practices at some point in future. Requirements such as the reduction of a company’s impact on the environment, amongst others, are being supported by developments such as new building standards.
To this end, Eskom has established aggressive goals and targets to support customers in their drive towards optimised energy consumption.With its understanding of the fact that reducing energy demand within industry may require investments in newer technologies, equipment and processes, Eskom’s Integrated Demand Management (IDM) programme makes funds available to its clients in support of reduced energy demand or consumption.
Eskom’s funding models for various initiatives and how to apply for subsidies and rebates.
- The rebate model is structured around paying consumers an incentive for converting their inefficient technologies to energy saving solutions, provided the suppliers are registered on the programme.
- The Standard Product, for customers with a potential load saving of between 1kW to 250kW.
- The Standard Offer, for customers with a potential load saving of 50kW to 5MW. This model was developed to streamline the project approval process and time frame and to facilitate a quicker payment process.
- The ESCo funding process is for Energy Services Companies (ESCo) which are specialists in energy efficiency, and who submit projects with a potential load saving of 100kW or more.
- The Performance Contract aims to purchase bulk verified energy savings across multiple sites and technologies by contracting with a single Project Developer. The minimum project size will be more than 30GWh of savings over a three year sustainability period.
- The Customer Model, which is designed to allow electricity end-users to participate in energy reduction initiatives of their own
- Click here for the 2012 March 22 financial incentives for energy efficiency available from Eskom.
Eskom is currently stimulating the demand for efficient water heating systems to counter the high consumption of electric geysers which account for 30-50% of the electricity consumed by an average household. Its programmes are structured around rebate schemes, in which a rebate is paid directly to consumers, provided the product, supplier and installers are registered on the programme. Currently there are two programmes in this market, the solar water heating rebate programme and the residential heat pump rebate programme.
The rebate, which significantly reduces the cost of solar or heat pump water heating systems, has made water heating more affordable to ordinary consumers. Rebates on solar systems range from R3 280 up to R8 964 and on heat pumps from R3 668 – R4 320.
The value of the Eskom rebate is based on the capability of the system to displace electrical energy; thus the larger the system, the greater the rebate.
Solar water heating systems included in the solar programme have an SABS efficiency rating (Q factor), which indicates the kilowatt-hours (kWh) of electricity it is expected to save on a typical day. Based on the test result, a system will qualify for a rebate, currently the maximum rebate on the programme is R 8 964.
The process of claiming a solar rebate has been streamlined and is facilitated by an independent auditing firm, with buyers receiving their rebates within 8 weeks of receipt of a complete application. Options such as leasing or paying off solar systems are now also available in the South African market.
Heat pump systems registered on the rebate programmes are quality tested by the Eskom Quality department, it is envisaged that soon these systems will have a test facility at SABS and will be able to get SABS test reports or mark of approval. The SABS report will supersede all previous approvals. Heat pump rebates are offered up front to buyers, suppliers then take on the responsibility of claiming the rebate in batches from Eskom. The rebate is applicable to both the split and integrated type systems in which the hot water storage system should be between 100L and 500L.
Also, the average integrated system COP achieved over the six temperature points should not be less than 2.8.
The Standard Product
The Standard Product model comprises pre-approved rates for energy savings achieved through specified technologies. Savings per load factor are predetermined and fall between 1kW and 250kW. For a project to qualify for a rebate, the energy savings achieved (5% load factor) must be greater than 1kW and greater than 2MWh per annum, with the rebate being capped at R750 000.
The Standard Product offer was developed to create capacity to implement small and medium-sized projects. Through this programme, customers are able to replace most commonly-used inefficient technologies with their energy efficient equivalents.
Standard Products, referred to as an application specific standard product (ASSP), are available as off-the-shelf components. Such products, approved by Eskom, are replacements for less energy efficient technologies. A product can be a component, sub assembly or a complete “machine”. Technologies include lighting equipment (CFLs instead of incandescent bulbs), heat pumps and energy efficient shower heads.
Customers who are interested in participating in the Standard Product programme can contact a regional Eskom Energy Advisor (list available from website) or Energy Services Company (list available from website) to conduct an on site energy audit to identify energy savings opportunities. The Eskom Energy Advisor will provide the customer with a substitute technology list including expected savings and possible Eskom rebate as calculated by the Standard Product toolkit. If the customer wishes to participate, a written project application is submitted to Eskom for approval.
After implementation of approved technologies the customer needs to provide proof of safe disposal for Eskom sign off in order to invoice Eskom. Eskom will audit the new installation against the project offer and accept or reject the invoice. The full rebate is paid after audit and implementation.
The customer will be required to formally commit to a sustainability period of three years. The measurement and verification approach could include the counting of exchange units, measuring the project against predetermined savings tables, using sample measurements or complete baselines.
The Standard Offer
Following on from the success of the Pilot project which focused specifically on energy savings created through lighting initiatives, Eskom has expanded the programme to a national programme that includes more technologies. These technologies now include:
- Building management systems;
- Hot water systems;
- Industrial and commercial solar water heating systems;
- Process optimization and
- Energy efficient lighting technologies
- LED lighting technologies
Any energy user (customer), project developer or Energy Service Company (ESCo) that can deliver verifiable energy savings, from 50kW to 5MW, can propose projects, and if successful, will be paid the fixed amount per kWh over a period of three years. It is a performance-based programme for energy savings in the commercial, agriculture and small industrial sectors.
The Standard Offer will:
- Pay for energy savings at a published rate
- Focus on the 16 daytime hours between 6am and 10pm, weekdays only
- Have a contract duration of three years
The total approval amounts to R250 million, with each technology class being limited by the approved NERSA R/MW benchmark of R5.25m/MW. The Rm8.74 that was allowed for industrial and commercial hot water systems are based on a derivative of the current solar water heating rebate system. Payment rates are detailed in table 1 below:
Payment rates and benchmarks
|Target technologies||Benchmark up to Rm/MW||c/kWh|
|Energy efficient lighting systems||5.25||42|
|LED lighting technologies||6.86||55|
|Building management systems||5.25||42|
|Hot water systems||5.25||42|
Table 1: Published Standard Offer technology category rates in Rm/MW and c/kWh
Please note: Eskom reserves the right to change these rates at any time.
The procedure involves the customer, ESCo or project developer submitting an application to participate in the Standard Offer programme to Eskom for approval. Once the initial project evaluation has been completed and the measurement and verification scope and plan have been finalised between parties, the appointed measurement and verification team will be able to provide the customer, ESCo or project developer with the detailed metering specifications to purchase and install the metering equipment for the development of the project’s present consumption baseline. Purchasing, installation and maintenance of measurement and verification equipment should be managed by the customer, ESCo or project developer.
The project is now ready to be implemented, and the technologies that are being replaced need to be certifiably disposed of. After the installation of the new technologies is complete the potential savings are confirmed by an accredited measurement and verification experts. A Certificate of Completion is issued and signed off jointly by the customer, ESCo or project developer and Eskom. This is known as the Measure Acceptance Date (MAD) and the customer, ESCo or project developer can now submit a request for payment. This stage of the process could take as little as four weeks, after which the customer will be paid 70% of the initial costs incurred in the purchase of products, and the installation thereof.
The remaining balance will be paid out in three annual installments of 10% of the initial payment based on the savings performance of the energy efficient technologies. The first performance payment will be made 12 months from the MAD. Each successive performance payment will be made in 12 month intervals over two years. The sum of all Eskom payments may not exceed 110% of the initial purchase price included in the Standard Offer contract.
The ESCo model
Energy Service Companies (ESCos) who are accredited by Eskom operate by establishing a three-way partnership between themselves, Eskom and the customer, and use their knowledge of DSM technologies and programmes to determine the best way of obtaining electricity savings at customer premises.
These organisations are experts within targeted vertical markets, capable of identifying opportunities for achieving reductions in electricity consumption, scoping and executing such projects.
To participate in the funding programme, the ESCo submits a proposal on potential savings (per load factor) of >100kW which Eskom reviews on its technical and financial merits, as well as, energy savings potential. Once a contract has been signed, the ESCo is given the go-ahead to implement the project.
Eskom supports ESCo projects by funding up to 100% of the financial benchmark value for viable energy efficiency projects as per the programmes set out below.
|Programmes technologies||Benchmark values|
|Lighting & HVAC||Up to 5.2m/MW|
|Hot Water||Up to 6.3m/MW|
|Demand Response||Up to 3.9m/MW|
|Compressed Air||Up to 4.4m/MW|
|Process Optimisation||Up to 5.2m/MW|
|Other||Up to 5.2m/MW|
In order to ensure that ESCo projects deliver the promised savings, there are penalty clauses in place which ensure that when ESCos scope projects, they do so accurately to ensure that projected consumption savings are in fact achieved.
Once the project has received approval and a contract has been signed, the ESCo can commence implementation. Progress payments are made during its implementation, with the final project payment is paid on the Measurement Acceptance Date (MAD). The MAD follows the completion of the installation, verification of the achievable energy savings per annum via an initial Measurement and Verification Report, and the issuing of a Certificate of Completion which is signed off jointly by the ESCo and Eskom. If the agreed-upon savings have been achieved, Eskom pays the Customer/ESCo the outstanding performance retainer.
Project sustainability is reviewed over a 5 year period with regular periodic M&V reporting on savings with the 7.5% performance retainer being paid on contract completion.
ESCo projects have a more complex value chain which includes several parties and is regulated by legal contracts (Eskom, the ESCo, the M&V provider and the end user) which can result in long lead times. However, because substantial sums of money are involved, careful execution of these projects is critical.
An overview of the ESCo process and a comprehensive list of all registered ESCo are available from the Eskom demand side management website on www.eskom.co.za/idm. Click on the below link to visit the page directly:
The Performance Contracting
Performance Contracting aims to purchase bulk verified energy savings across multiple sites and technologies by contracting with a single Project Developer. This will significantly reduce the current administrative requirements regarding project approvals, reduce contractual complexity, improve sustainability and reduce project lead times.
The focus of Performance Contracting is on energy efficiency. Eskom will contract for energy savings mainly during daytime hours on weekdays. Savings will be targeted and eligible for payment for 16 daytime (06:00 in the morning to 22:00 at night), weekday hours. In addition, savings during other periods will also be compensated, but at a lower rate. The rate will be determined either through a fixed offer or through a competitive bidding process.
A minimum project size that is substantially larger than the current average demand management project submissions will be defined to meet the objectives of performance contracting. The minimum project size will be more than 30GWh of savings over a three year sustainability period.
The Project Developer is responsible for financing all capital costs incurred to achieve the energy savings. Programmes can be financed by the Project Developer, the consumer or through a third party at the discretion of the Project Developer.
To incentivise performance and timeous delivery, Eskom payment to the Project Developer will be delivery-based. The Project Developer will submit a proposed energy delivery schedule over the period of the contract. Payments will made at fixed intervals during the course of the project, based on measured and verified savings. Timeous delivery is incentivised through the rate – should the Project Developer not meet the delivery schedule, the payment levels could be reduced. Over-delivery could be compensated up to a maximum limit determined by Eskom.
Eskom will periodically issue large energy savings “blocks” (e.g. 1,000 GWh) through a tendering process. This will ensure the predictable delivery of savings in line with electricity system requirements.
Only Eskom approved technologies in line with the NERSA guidelines, including amendments as may be negotiated with NERSA by Eskom, will be considered for the Performance Contracting solution.
Allocation of contracts will be based on fixed evaluation criteria, taking into consideration delivery timeframes, savings size, Measurement and Verification (M&V) complexity and Eskom’s requirements with respect to Supplier Development and Localisation.
Energy savings must be verifiable and current M&V protocols will apply. The appointment and management of independent M&V bodies will be the responsibility of Eskom, however, the Project Developer will be accountable for the procurement and installation of metering, in line with an agreed M&V plan.
The project proposal needs to contain a strategy for safe disposal of equipment that is removed, either initially or eventually as a result of the project. The disposal strategy needs to comply with the current Eskom disposal mechanisms and any other legal or environmental specifications.
The target market for Performance Contracting will be large consumers or ESCO’s, typically in operations with high load factors. Project Developers will be knowledgeable on the management of large energy efficiency programmes and be able to benefit from a high level of independence in their methods to attain savings.
In terms of the Customer Model, industrial electricity consumers can register with Eskom as ESCo’s. It differs slightly from the ESCo Model in that contracts are signed directly between the Customer and Eskom. The subsequent appointment of an ESCo by the Customer will result in a joint task team to conduct energy services projects.
Country wide support
Eskom’s advisory team are located conveniently across the country, to provide industrial, commercial, agricultural and residential customers, large and small, with close and easy access to energy advisory services.
To assist customers to locate their closest regional energy advisor, refer to the table below.
|Eskom region office||Areas covered||Contact person||E mail address|
|Western Cape region||Entire Western and Northern Cape (excluded are Frances Baard District Municipal area (including Kimberley), Pixley ka Seme District municipal area.(including De Aar, Colesberg), Siyanda District Municipal area. (including Postmasburg) in the Northern Cape||Wayne Fortuinfirstname.lastname@example.org|
|Southern region||Eastern Cape region
(including Port Elizabeth and East London including Butterworth, East London, King Williamstown, Adelaide, Albany, Alexandria, Alice, Grahamstown, Humansdorp, Joubertina, Kirkwood, Port Elizabeth, Aliwal North, Cradock, Graaff-Reinet, Lady Frere, Queenstown, Elliot, Lusikisiki, Mthatha North, Mthatha South
|Rene de Kockemail@example.com|
|Eastern region||Kwa-Zulu Natal||Clive Nicosiafirstname.lastname@example.org|
|North West region||Free State Province,
Ekurhuleni (including East Rand, Gauteng)
Frances Baard District Municipal area (including Kimberley), Pixley ka Seme District municipal area. (including De Aar, Colesberg), Siyanda District Municipal area. (including Postmasburg) in the Northern Cape.
|Central region||Johannesburg, Midrand, Sandton, Randburg, Roodepoort, Krugersdorp, Randfontein, Carletonville, Westonaria, Fochville, Vanderbijlpark, Vereeniging, Potchefstroom, Klersdorp, Mmabatho, Vryburg||Arend Louwemail@example.com|
|Northern region||Pretoria, Centurion, Rustenburg, Mphumalanga and Limpopo||Victor Martinsfirstname.lastname@example.org|
Energy advisors can assist with techniques and technologies that are available for the purpose of saving energy. To log a call customers can also call the Eskom Customer Contact Centre on 08600 ESKOM (08600 37566). Alternatively visit the demand side management website for detailed information on www.eskom.co.za/idm.