Industrial power and energy savings initiatives in South Africa

March 12th, 2015, Published in Articles: Vector

The electricity crisis of 2008 sparked numerous initiatives by government, Eskom and industry associations to reduce power demand and energy use. This article provides a summary of some of these, their effectiveness and impact.

The main purpose of these programmes was to reduce the demand on the grid and to free up generating capacity. Two approaches were adopted:

Demand management, which controls and limits the demand for power from the grid by limiting the maximum or peak power demand on the grid.
Efficiency measures, which primarily reduce the amount of energy used by industrial machinery and systems, but which may also reducing the power demand of a system for the same output.

Own generation is an additional category and uses renewable sources such as solar PV, wind, and co-generation from industrial waste products. This falls somewhere between demand management and energy efficiency, as the output depends on the weather or the production cycles of the primary process, and is both unpredictable and variable. The impact of own generation depends on the load profile of the company and is essentially a grid energy reduction method, which may or may not affect the demand.

The terms “power savings” and “energy savings” seem to be used interchangeably both in industry and in statutory documentation. Energy consumption is the amount of energy used from the grid within a time period. It is related to peak power but the relationship is not a simple one. Reducing energy consumption does not necessarily mean a reduction in peak power demand. Where energy efficiency measures result in a reduction of power, this is a permanent reduction.

Demand-side management results in a temporary reduction of power, usually centred round peak demand periods. The demand versus generation crisis does not exist all the time but only at peak periods, or in peak demand seasons, so demand-side management is applied on a short term basis.

Statutory programmes

Government introduced several energy and power restriction programmes, including the power conservation programme (PCP) [1]. The PCP consists of several parts, with the part impacting the industrial sector most being the energy conservation scheme (ECS).

The energy conservation scheme [2]

The aim of the scheme is to encourage mainly large electricity users to achieve energy efficiency by setting energy reduction targets. The initial target set was a 10% reduction in energy usage, but this was considered impractical and the aim has been changed to allow for different targets for the various sectors. The scheme was initially targeted at users of more than 25 GWh per annum but could be extended to users of less than 25 GWh but more than 100 MWh per annum, if required. The scheme was initially rolled out on voluntary basis, and savings have been achieved by voluntary action.

Under the scheme, users would receive an annual energy allocation based on historical usage patterns. Exceeding this level would incur stiff penalties. Use of energy less than the allocation would generate credits which may be traded with other users. The scheme has not yet been officially applied, but much discussion and preparation has been undertaken to enable it to be “switched on” at short notice.

Demand-side management programmes

A number of demand-side management (DSM) programmes have been developed and implemented since 2008. DSM is applied in real-time.

The virtual power station [3]

Eskom contracted with several customers who have large standby or emergency generation plant to run the plant on a pre-agreed schedule under initiation of the utility’s network management centre. The plant are run in such a manner that the majority of the customers’ load is carried by the standby plant during the agreed period, which effectively frees up the equivalent generating capacity on the grid.

The amount of power freed up will depend on the customers’ load during the peak period. Customers are paid an agreed tariff by Eskom for the number of kWh generated per month, in addition to which they have the benefit of reduced metered use from the grid while the plant is running.

Demand-response rewards programme [4]

This is a dynamic programme designed to manage demand on the grid with the assistance of large energy users in both the industrial and commercial sectors. These users agree to switch off production processes or to turn down certain electrical loads during periods of peak demand. The programme works on a bidding principle where participants notify Eskom on a daily basis whether they can participate, the amount of load available for reduction, and the bid price. If a bid is accepted, load reduction commences automatically or manually within affixed time from notification. The programme accommodates of two options:

The ten minute reserve programme: This requires load reduction within 10 minutes of a request. It is limited to 60 minutes per reduction and to one, two or three events per day.
The supplemental reserves programme: This option requires load reduction within 30 minutes of receiving a request. Participation is limited to one, two, three or four hours per day, once a day.
Participants are paid an agreed fee per megawatt-hour load reduction, as well as a capacity payment for each day load reduction is accepted and scheduled.

Demand market participation [4]

The demand market participation programme provides an opportunity for large users to participate in the instantaneous reserve market. Consumers may contract to reduce demand by a minimum of 20 MW within ten seconds of a frequency-based control signal. The reduction is sustained for up to ten minutes at a time. The purpose of this programme is to provide an effective buffer against sudden drops in frequency. Participants are paid at an agreed rate based on the time on standby and the MW scheduled.

Eskom also initiated a demand response aggregation system whereby the aggregator contracts with a large number of smaller demand response participants and co-ordinates the customer’s activities in response to requests from Eskom.

Load shifting

Load shifting (LS) offers a solution to constrained generation by reducing the peak demand without reducing usage and, therefore, without reducing revenue.

LS means simply moving the load from a peak demand period to a period of lesser or even low demand. This is not as easy as it sounds as it impacts production and operation cycles but can be achieved. It would be difficult with continuous production process but may be possible with cyclic production. Examples are ice production for HVAC systems or cyclic pumping operations during off-peak periods.

Time-of-use metering

Time-of-use metering allows higher tariffs to be applied during peak periods and encourages voluntary shifting of loads or reduction of consumption to avoid high energy costs. The system requires smart metering and possible load management or energy management systems. To be really effective, time varying tariffs and communication of tariffs to end-users is required, allowing customers to adjust demand in real time.

Peak shaving

A voluntary method used by large users to reduce their peak period demand and to make use of emergency plant. Peak shaving is effective in systems with dynamic time of usage pricing, and enables the end-user to reduce demand during periods of high prices.

Energy efficiency programmes

Programmes promoting energy-efficiency projects through incentives to end-users have been introduced by government and utilities alike.

Eskom IDM [5]

Several initiatives have been developed over the years, many of which have been absorbed and consolidated into the standard offer programme (SOP). This system applies to energy-efficiency (EE) projects which can achieve verifiable savings of energy, between 50 kW and 1 MW. One of the earlier programmes involved the subsidisation of the replacement of older, inefficient motors with high-efficiency ones. Known as the “Eskom energy motor programme” [6], this was regarded as important as it is estimated that electric motors consume 60% of all electrical energy used by industry. Energy-efficient motors now appear as an item under process optimisation in the standard product programme (SPP).

The SPP was introduced to cover projects offering savings from 1 to 250 kW. A once-off rebate based on the standard technology was paid to the customer. Although primarily aimed at the domestic market, the scheme had some application in the industrial market. Both SOP and SPP were placed on hold in September 2013.

Eskom recently announced [7] that a decision was taken to consider low-cost, rapidly-implementable projects which achieve peak demand savings equal to or greater than 500 kW per project site in the commercial and industrial sectors, which comply with certain terms, and with maximum implementation periods of twelve months. Priority will be given to projects with implementation periods less than six months.

National treasury tax incentive

The incentive, which was introduced into the income tax act in 2009, came into effect on 13 November 2013 with the publication of regulations covering the application of the act [8].

It offers a tax reduction incentive to companies based on the number of kilowatt-hours or kilowatt-hour equivalents and reduction achieved through energy efficiency practices within a financial year. The current incentive rate is R0,45/kWh. This incentive is applied to taxable profits and not to tax, so, in the case where the marginal tax rate is 28%, the actual benefit amounts to R0,16/kWh.

This is considered too low by many, and insufficient to motivate companies to adopt EE programmes. The regulations also exclude the claiming of concurrent benefits from other programmes

There is neither upper nor lower limits to the amount that can be claimed per annum, although the lower limit may be determined by the cost of the measuring and validation process, as well as by other administrative costs. There does not appear to be a cap on the global annual amount which can be claimed either.

The incentive scheme is administered by the South African National Energy Development Institute (SANEDI), which is responsible for registering, validating and auditing claims, as well as for the issuance of tax certificates. Companies wishing to participate must engage the services of a measurement and verification professional who must conduct both baseline calculations and the annual saving verification.

The scheme runs on a year-to-year basis up until 2020. Energy efficiency claims are not cumulative and are evaluated on a zero-base annual system, using the performance at the end of the previous year as a baseline for the following year. So, if no additional measures are implemented in subsequent years, benefits may only be claimed for the year in which they were implemented. The baseline is taken as the average performance of the preceding year to accommodate efficiency measures implemented late in the year.

Generation of energy from renewable sources and cogeneration are excluded from the scheme, with the only source of non-primary fuel generation included being waste heat or waste gas. This differs from the Eskom IDM system which considered renewable energy sources such as rooftop solar eligible. There appears to be an anomaly in the regulations, which state that captive generation, which is defined as generation for own use only, is eligible provided it provides more than 35% of the total demand. It is unclear whether captive generation includes renewable sources or not.

Electricity pricing

The electricity shortage was also accompanied by steep rises in tariffs and this inspired private initiatives aimed at reducing cost independent of government or utility programmes.

Limits to energy efficiency

What are the limits to energy efficiency? How far can we take energy efficiency before the area of diminishing returns is reached and the cost of efficiency measures exceeds the achieved savings?

The IRP 2010-2030 update report and other future plans for energy resources see energy efficiency playing a significant role in reducing future energy demand. The report does not make any estimates of targets but stresses the need for a “centrally-mandated entity to pursue energy efficiency in order to realise the expected electricity intensity”. The original energy efficiency strategy of the DoE set a target of 15% overall savings by 2015.

Increasing efficiency does not always have the desired effect of decreased usage due to the rebound effect. In some cases it has actually resulted in an increase in usage. A user may decide that production can be increased at the same input cost. Incentives must be targeted more at reduction of usage than just on an increase in efficiency.

Unintended or unforeseen consequences

Some energy savings initiatives have unforeseen consequences which result in major changes to the way in which tariffs are levied. Reduction in maximum demand is often accompanied by a reduction in energy used, which means a reduction in units of electricity sold and a reduction in revenue for both generation and distribution utilities.

This does not present a problem in a constrained generation situation where existing and potential demand exceed capacity, as electricity saved is absorbed by new end-users or used by existing users to increase production.

It could be a problem in a system with excess capacity, where savings in electricity usage would result in curtailed generation and underutilisation of assets. In such a situation energy efficiency measures may result in increased cost of generation to recover fixed costs.

The impact on generating costs would be lower for technologies where fuel costs are a significant part of the total generating cost and higher for technologies with high capital costs and low fuel costs, such as solar PV and wind. Nuclear falls into the high capital cost category but is normally used for base load and would not be affected by marginal changes in demand.

An example is Eskom’s solar water heating programme which had a major impact on domestic energy consumption. Estimates are that the use of solar water heaters reduces domestic electricity usage by anything up to 50%.

This has a positive result for the energy consumption programme, but a negative one for the distributors, mainly municipalities, which experience a drop in revenue from electricity sales.

One of the reasons is that it is a general practice for municipalities to use profits from the sale of electricity to subsidise other services. This results in a regulatory move to revise the charge structure so it only covers the real costs of providing electricity, which consists of two components:

  • Network cost: The cost of providing and maintaining the distribution network to provide connection to end-users. This should depend on the size of the connection or maximum demand only.
  • Energy costs: The cost of energy used by end-users. This includes the bulk purchase cost from the grid utility, and overheads and administration costs related to consumption.

Many of the existing tariff structures at the time incorporated the network costs into the energy charges, and reduction in revenue resulted in less funds being available to maintain the network, as well as lower profits.

In this case, energy efficiency measures had an additional benefit in that they resulted in a move towards rationalisation of tariff structures to reflect actual cost. From the end-user’s point of view, this resulted in an increase in network charges to reflect the real cost of maintaining the distribution network. This subsequently focused attention on the real cost of maintaining outdated and inefficient distribution networks.

Job creation

One of the additional benefits of the drive for energy efficiency is that government, utility and private initiatives have all created a need for energy efficiency professionals, both on the sphere of project engineering and measurement and validation. All incentive schemes require validation by a measurement and validation professional. There are a number of institutions offering training and qualification courses in the field of energy efficiency, and the number of energy efficiency and energy management companies is growing.

References

[1] M Appel: “Penalties for excessive energy use” SouthAfrica.info, 9 June 2008.

2] Eskom: “The energy conservation scheme ECS”,www.eskom.co.za/sites/idm/Pages/Power%20Conservation%20Programme.aspx#two

[3] M Rycroft: “Virtual power station uses customer standby generating capacity” Energize, September 2013.

[4] Eskom: “What is demand response?”,www.eskom.co.za/sites/idm/Pages/Demand%20Response.aspx

[5] Eskom. “IDM expansion- the standard offer programme”, www.eskom.co.za/sites/idm/Pages/SOP%20Test.aspx

[6] TL Mtombeni: “Energy efficient motor systems for demand-side management”, ICUE 2007.

[7] Eskom: “Demand-side management incentive update”, www.eskom.co.za/sites/idm/Industrial/Pages/SP.aspx

[8] National Treasury: “Regulations in terms of section 12L of the Income tax act, 1962, on the allowance for energy efficiency savings”, Government Gazette No 37136, 9 December 2013.

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