1. Background to the Energy Sector
2. Electricity Supply Industry (ESI)
3. Renewable Energy in South Africa
4. Energy Efficiency in South Africa

4. Energy Efficiency in South Africa

4.1. The Context for Improving Energy Efficiency in Low-income Households

The potential for energy savings in the field of space heating, particularly in low-income households, is high. In the South African domestic sector, it has been estimated that the installation of an insulation-integrated ceiling in the brick houses of the formal low-cost houses in the Gauteng region (38 per cent of all formal low-cost houses in South Africa) would save 90 per cent of energy consumed for heating during winter (van Wyk, Mathews 1995). The purchases of household appliances are also expected to increase significantly in the nearby future. In this area, too, large potentials of efficiency improvements are possible with the best available versus the cheaper old and inefficient appliances.

Successful energy efficiency is connected to efficient pricing in order to communicate accurate signals of the value of resources being consumed. It is also about organisational and regulatory efficiency - creating structures which are able to increase access to information and affordable finance and providing incentives for the development and dissemination of innovative energy efficient technologies and strategies.

Within the context of ESI restructuring, regulatory encouragement is needed to support such an integrated approach and to give utilities a better incentive for undertaking DSM measures. Regulatory encouragement is important with respect to tariff setting, the environmental aspect (utilities will probably not introduce environmental protection as a criterion for investment decisions as long as they are not forced to by regulators), and the investment decision making criteria. If the utility uses the wrong cost criterion, low-cost efficiency improvement potential may be discarded.

In 1996, the South African Department of Minerals & Energy (DME) launched an "Energy Efficiency Business Plan" which identifies the rationale for promoting energy efficiency in terms of its potential contribution to economic growth, environmental sustainability and reduced energy bills. The Plan can be considered the first major pro-active approach to energy efficiency by the DME (EEN 1996: 1). However, the internal capacity of the DME to promote energy efficiency is quite limited. In consequence, the DME plans to establish an Energy Efficiency Agency. Data on energy and efficiency is still inadequate so that an important first step towards a national efficiency initiative is to improve the data basis.

4.2. Eskom's Integrated Electricity Planning (IEP)

In the electricity industry itself, Eskom has also begun to recognise the need for and benefits of energy efficiency. In 1993, the residential sector accounted for roughly 15 per cent of total electricity consumption (DME 1995: 28), yet the impact on the electricity supply system is far greater as it is responsible for up to 75 per cent of variable load (Naudé, Lane 1995). This is due to the uneven shape of the daily and annual domestic electricity demand curve with its typical peaks in the morning and the afternoon as well as seasonal variations. High peak to base load ratios are economically unfavourable for they require large and expensive reserves in power generation. In the course of accelerated electrification and growing electricity demand per household, this effect will become more pronounced. Consequently, there is a growing need and incentive for Eskom to invest in demand-side management (Eberhard, van Horen 1995: 176).

A second major motivation for Eskom arises from the implications of investments in power plants. An analysis of Eskom's performance over the past decade and a half (van Horen 1996a) shows that the construction of large power stations has serious financial implications for the utility's financial structure and electricity prices. In a situation of competition, the investment-related risk grows, and the incentive for avoiding large investments increases. Thus, consideration should be given to demand-side management and energy-conservation programmes or supply options which require a smaller capital investment and thus less risk.

In mid-1996, the Eskom Management Board identified DSM as one of the priority issues in Eskom over the next five to ten years. Eskom developed an "Integrated Electricity Plan" for the period of 1996 to 2015. Estimates are that roughly 7 000 MW of new generation plant could be avoided by 2015 at lower costs. Eskom plans to exploit potential savings by means of interruptible load measures (3 200 MW), load shifting (1 600 MW) and energy efficiency improvements (2 500 MW). Another 1 500 MW of additional off-peak electricity sales (i.e. valley-filling) are expected to be possible through the promotion of off-peak tariffs. Furthermore, a multi-year research project on energy efficiency, equity and environment, financed by Eskom and the International Development Research Centre, was initiated. The reports underline the potential benefits for Eskom fostering energy efficient lighting, thermally efficient housing, fuel switching and other measures to increase efficiency and reduce environmental impacts for low-income households would be substantial (EDRC references). However, real progress in these areas has yet to be observed.

In addition, the International Institute for Energy Conservation also conducts projects to foster energy efficiency in a couple of pilot studies such as:

• Eco-home advisors

• Green buildings for Africa

• The Efficient Lighting Initiative ELI is a central component of Eskom's Residential Demand Side Management (RDSM) programme; IIEC is involved

• Energy star computers

4.3. Efficient Lighting Initiative ELI

The Efficient Lighting Initiative ELI is a three year programme supported by the IFC and funded by Eskom and the Global Environment Facility (GEF), to accelerate the dissemination of energy-efficient lighting technologies into emerging markets in developing countries. South Africa is one out of seven countries taking part in the ELI initiative. The overall aim is to increase awareness of GHG and to reduce emissions. Eskom funds R 48 million (or about 4.8 million €), IFC/GEF support the programme with 2,5 million US$.

Bonesa means "to lighten up" in Setswana. It is a Joint Venture company established by Eskom Enterprises, Africon Engineering International and Umongi-Karebo. The objective of Bonesa is to implement the efficient lighting initiative in South Africa. CFLs save up to 80 % of the energy consumed by a conventional light bulb and last 6-15 times longer. The potential for replacing conventional light bulbs has been estimated to 31,5 million. Over a 15-20 year period, savings in peak load are estimated to up to 810-820 MW of new capacity.

4.4. Preliminary Conclusion

Significant potential for the adoption of energy efficient technologies exist, but have not been realised, often because market barriers and failures have not been addressed.¹

In the current political context, the South African government might not perceive energy efficiency to be of high priority. Therefore, it is important to underline the point that energy-saving measures not only help avoid environmental impacts, but also reduce energy bills. Higher energy efficiency is often associated with higher productivity due to the link between the deployment of modern technology and energy-cost savings.

1.Along with that, the energy-related implications for the state of the environment and health of the society have been ignored, although the notion of externalities has started to be debated. Improving the environment is equivalent to an increase of individual and societal welfare and is also an important element in improving social equity when local emissions and health implications are taken into consideration. The positive intersection of these efficiency and environmental issues should therefore form part of the process of restructuring the ESI with special regard to setting the right incentives through a favourable regulatory and political framework.