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  1. ENERGY EFFICIENCY PRESENTATION TO THE PPCoE By Thembani Bukula & Bianka Belinska 6 Sep 2012

  2. CONTENTS • NERSA’s Mandate • NERSA Vision & Mission • Regulatory principles • Regulatory Functions • Concept of EE • Rational of EE • Introduction and Background • EE Mechanisms & Funding • EE Determination Process • EE Achievements and Innovation • Stimulation of Economic Development • Ways of EE Improvements

  3. NERSA MANDATE NERSA is a legal entity established in terms of National Energy Regulator Act,Act No 40 of 2004 to regulate ESI in South Africa Mandate derived from the • Industry legislation • Electricity Regulation Act, 2006 (Act No. 4 of 2006) as amended in 2007 • Gas Act, 2001 (Act No. 48 of 2001); • Petroleum Pipelines Act, 2003 (Act No. 60 of 2003); • Gas Regulator Levies Act, 2002 (Act No. 75 of 2002); and • Petroleum Pipelines Levies Act, 2004 (Act No. 28 of 2004). • Policy Documents • White Paper on Energy Policy • Energy Efficiency Strategy of the RSA • Electricity Pricing Policy • Policy to support the Energy Efficiency and DSM through Standard Offer program • New Generation Regulations

  4. NERSA Vision and Mission NERSA strives to regulate the South African electricity, piped-gas and petroleum pipelines industries by ensuring that the most efficient and effective industries are in place to exceed the requirements of existing and future energy customers. This is encapsulated in its Vision statement: “To be a world-class leader in energy regulation” Further supported by this Mission “To regulate the energy industry in accordance with government laws and policies, standards and international best practices in support of sustainable development.”

  5. REGULATORY PRINCIPLES Regulatory principles, which guide the Regulator’s conduct and service delivery: • Rule of Law: Law applies to everybody and provides a clear framework for everybody to operate. Review and appeal by high court • Transparency: reason for decisions and consultative processes; • Neutrality: neutral to all market players without favouring one or other group (non-discrimination) • Consistency: Explained decisions enabling stakeholders to make informed decisions – no surprises; predictability • Independence: Independence from stakeholders and politicians; within legal framework and published Government policy • Accountability: Internal accountability – PFMA. Regulator takes responsibility for actions and decisions. In addition, NERSA binds itself to carry out its business efficiently, economically and effectively, as required by legislation.

  6. REGULATORY FUNCTIONS • Licensing: Construction, operations, trading; • Setting and/or approval of tariffs and price structures including EE & DSM; • Setting of license conditions including compliance with EE standards, requirements and DSM; • Monitoring compliance with licence conditions: • Setting incentive mechanisms and penalties for non-compliance • Gathering and storing industry information; • Promoting the use of diverse energy and energy efficiency • Promoting BEE, competition and improved efficiency of the energy industry;

  7. CONCEPT OF ENERGY EFFICIENCY • EE refers to the ratio of system’s useful energy output to its energy input, or to the overall energy use by end-users through the efficient technologies, equipment and processes. • DSM refers to utility programs related to load shifting, load management, load reduction, or utility sponsored interventions reducing the demand & energy consumption. • DMP and/or DRP is a sub-category of DSM that provides incentives to customers to curtail load at short notice

  8. THERATIONALOF EEDSM • Economic benefits • Lower cost than generation plant • Lower lead time to implementation • Financial savings (defers capital expenditure for capacity • Better utilisation of national resources • Environmental • Lower environmental impact (coal, water) • Low GHG emissions • Energy security • Social: Job creation, increased access to affordable energy services • Sustainability: Change consumer behavior

  9. EE INTRODUCTION & BACKGROUND EEDSM Regulatory policy: Following the publication of the WPEP the National Electricity Regulator (NER), the predecessor of NERSA, introduced the Energy Efficiency and Demand Side Management (EEDSM) regulatory policy in the electricity sector in 2004. Inception occurred in 2005 through the administration of Eskom. This framework is in the process of revision pending finalization of the new Standard Offer Policy from the Department of Energy Purpose: To inform the Parliament Portfolio Committee on Energy (PPCoE) about the achievements to date in the implementation of EE in the electricity sector and provide recommendations for further improvement.

  10. EE MECHANISMS AND FUNDING • Funding: Through the electricity tariffs (regulated revenue of Eskom (utility based EEDSM) • An obligation to utility to invest a percentage of their revenue in EEDSM programs through the MYPD (MYPD1 and MYPD2 for Eskom) • Setting Energy Saving Targets • Ring-fencing of EEDSM funds within Eskom

  11. MECHANISMS AND FUNDING (cont’d) • Measurement and verification of demand and energy savings • Claw-back of the EEDSM funds in case of non-achievements of the targets in the next price review process. • Annual reports on technical and financial performance • Annual Audits of EEDSM Fund (established since 2006)

  12. EEDSM Determination Process There are several pillars used in the EEDSM regulatory process • Planning: Submission of 5-year EEDSM plan as part of the MYPD • Review of regulatory rules on EEDSM (as part of MYPD) • Public Consultation on EEDSM rules, programs and costs (as part of the MYPD) • Regulatory analysis of EE program types , costs, impacts and timelines • Regulatory determination of the size and targets of the EEDSM fund • Measurement and Verification of achieved savings • Monitoring and Reporting: Quarterly and annual reports. • Annual reports on technical and financial performance • Annual Audit of EEDSM Fund (established since 2006) • Reconciliation of revenue with M&V savings and Claw-back if applicable.

  13. EE ACHIEVEMENTS TO DATE 974 projects implemented, measured and verified (M&V) since inception in 2005 Accumulated Peak Demand Savings: 2 604 MW (Equivalent to 5 generators of 600 MW each or about 3000 MW) Estimated accumulated Peak Energy Savings: 19 960 GWh An estimate of deferred capital expenditures of about R 13.02 billion

  14. EE ACHIEVEMENTS TO DATE (2) Figure 1: Verified cumulative demand savings against targets Source: Eskom IDM annual report 2011/12

  15. EE ACHIEVEMENTS TO DATE EEDSM & IRP (3) The inclusion of EEDSM as a resource option in the development of the IRP has been initiated since 2002. (NIRP1, NIRP2, NIRP3 and IRP2010) The approved IRP2010 for implementation includes cumulative amount of 3420 MW demand savings in the next 20 years or about 171 MW demand savings per annum.

  16. EE ACHIEVEMENTS TO DATE (4) NERSA supports the expansion of the portfolio of programmes and EE initiatives. Current EE programs include: • Compact fluorescent lights (CFLs) • Light emitting diodes (LED) lighting • Shower heads • Solar water heaters (SWH) • Heat pumps • Process optimisation (industrial) New programs under regulatory assessment: • Small scale renewable energy (RE) • Waste heat recovery systems (WHRS) for funding under EEDSM • Rules for DMP and DRP

  17. EE ACHIEVEMENTS TO DATE (5) Economic Development: • 10,092,302 CFLs were installed nationwide in 2011/12 • 187,386 units of SWHs have been rolled out in the same period Job creation: A number of people employed to install EE products as well as for M&V hence EE contributes to job creation Increase Access to Affordable Energy Services Installation of low pressure SWHs in RDP houses

  18. WAYS OF EE IMPROVEMENT Clearer government policies and institutional responsibilities will improve the governance of EE. Legislative clarification of the role and obligations of the NERSA in EE should contribute to better implementation of the EE Co-ordination between government departments, government policies andinstitutional mechanisms could be improved in order to achieve greater integration of the implementation Diversifying the incentives could be another way of encouraging people to be more EE Targets should be set for energy efficiency improvements in various sectors. Achievement should be monitored against the targets

  19. WAYS OF EE IMPROVEMENT (2) Institutional oversight to guarantee cost-effectiveness of EE Information Mechanisms: Data collection, analysis and development of indicators and dissemination of information aiming to help the market to recognise the EE product ISMO Bill & DMP/DRP: DMP, DRP, load shifting, load reductions and interruptible loads, are an inherent part of the system operator (SO) function and real-time balancing of supply and demand; therefore these programmes should remain under the control of the SO.

  20. WAYS OF EE IMPROVEMENT (3) Municipal distributors should be given targets by Government policy to undertake EEDSM programmes The portfolio of M&V teams should be expanded to include small-scale Broad-Based Black Economic Empowerment (BBBEE) consultancies, thereby contributing to economic development and job creation M&V function should be independent of the fund administrator reporting directly to the DoE or NERSA

  21. Thank you

  22. Direct Load Control Peak Reduction (interruptible load) Peak Load Shifting Impacts: Avoided costs: G capacity and energy costs T & D infrastructure costs Avoided GHG emission costs Limits price volatility in a liberalised market No energy saving (conservation) Energy saving (conservation) In a liberalised market structure these DSM could be implemented as Demand Side Bidding (DSB) for regulation and frequency response markets (Norway and UK). It will be included in the Multi Market Model Studies of the DPE ESI restructuring process. DS participants could be large industrial customers and also retail customers participating in the market via aggregators Strategic Conservation (Energy Efficiency) Government Mandated Energy Efficiency Programs targeting residential and commercial customers Energy saving appliances Lighting programs High-efficiency HVAC Efficient Building Design Heat Recovery systems Energy saving (conservation) Reduces consumption at all times Energy Efficiency Participants: Residential and Commercial Customers Prepared by Bianka Belinska Page 22

  23. MECHANISMS FOR EE Control mechanisms (revenue regulations, license conditions, NIRP, Local IRP, tariff approval process Funding Mechanisms (public benefits fund) Support Mechanisms (EE education centres, energy training etc) Market Mechanisms (taxes, tax exemptions, energy performance labelling, DSB, sourcing of EE programs via competitive tendering process) Prepared by Bianka Belinska Page 23