Energy efficiency in the rainbow nation

My recent first ever trip to South Africa was too short (36 hours) but exciting and fascinating. The African sun and energy of the people I met was truly invigorating, especially after a long cold and wet winter in the UK. The commitment to energy efficiency, which of course is vitally important to the country, was also good to see.

As is well known South Africa has a power supply crisis and on the 23rd May this year ESKOM’s (the power supplier) supply margin was a frighteningly tight 0.4%. Any additional failures or a small amount of extra load would have led to demand exceeding supply capacity. Because of this supply situation, increasing the uptake of the energy efficiency resource has a critical role to play in South Africa’s energy future. Much good work has been done and many initiatives have been taken or are planned.

Chief amongst these are ESKOMs IDM (Integrated Demand Management) programme which since 2004 has removed 3.5 GW from the system. IDM has several elements including:

• Energy Efficiency Demand Side Management (EEDSM) – to identify and promote more efficient electricity use through technology enhancements and behavioural change.
• Energy Management Programme (EMP) – assisting Corporate Customers to enhance energy efficiency.
• Solar Water Heating Programme – providing financial incentives for consumers to switch to solar water heating.
• Power awareness and communications campaigns.
• Coordinated internal energy efficiency programme.
• Energy conservation scheme (ECS) – to achieve a 10% energy reduction amongst consumers using more than 25GWh per annum.
• Demand Response (DR) – system operator pays customers to reduce load on instruction to balance demand and supply.
• A Standard Offer programme in which ESKOM pays for verified savings between 50kW and 5MW.  The project host, or an ESCO, is paid a standard price per kWh for three years.

In addition ESKOM has an Internal energy efficiency programme which has a target of a 15% energy reduction for non-essential consumption (Eskom buildings and substations).

The Industrial Development Corporation (IDC), in conjunction with KFW, has established a ZAR 500 million (c.GBP 32m) Green Energy Efficiency Fund (GEEF). GEEF focuses on private sector companies and provides loans ranging from ZAR1 million to ZAR50 million at a concessionary rate of prime less 2%. GEEF allows for loan repayments of up to 15 years, depending on the energy efficiency or renewable energy technology.  To date, 17 companies have been financed utilizing ZAR 174 million with 95% committed to SMEs.

I was in Johannesburg speaking and taking part in a panel discussion at the IFC’s inaugural ESCO financing conference (see http://www.escoconference.co.za/index.html for details).  I was given the task of speaking on the thorny issue of on-off balance sheet financing and the implications of accounting rule changes. Perhaps not the easiest or most exciting subject but one that will become globally more important as the IASB and FASB harmonize on issues such as leasing and ‘balance sheet window dressing’. As someone who was at Enron at the end I particularly like Sir David Tweedie’s quote when he was Chairman of IASB, ‘the purpose of accounting is to keep capitalism honest’.  We need more honest capitalism.  Despite the lobbying of the leasing industry it looks like these changes will come into effect in 2015/16.

South Africa is doing some excellent work on energy efficiency but like most countries has a long way to go to fully exploit the huge and cost-effective energy resource we know to be out there. As I have found on my trips to other countries, it is clear that the major issues of energy efficiency financing – namely: creating demand, picking the right contract form, standardization, the need for aggregation, and access to the right kind of long term low cost finance, are the same all over the world and there is a global market for the right solutions.

A big thank you to the IFC, the organizers, the driver, the staff of the Intercontinental Sandton Towers hotel, and as always British Airways for a safe flight and excellent service.