THE SUSTAINA LE ENERGY SETOR A Global and National ... · Onshore wind power technology is also...

THE SUSTAINABLE ENERGY SECTOR

A Global and National Industry Analysis

Draft Situational Report for eThekwini Municipality

November 2013 Prepared by Abigail Knox

SE Sector: Draft Situational Report for eThekwini

Table of Contents

EXECUTIVE SUMMARY ........................................................................................... i

1. Introduction ................................................................................................... 1

2. Energy Efficiency Industry Analysis ................................................................. 1

2.1. Industrial Energy Efficiency Trends...................................................................... 3

2.2. Agricultural Energy Efficiency Trends .................................................................. 8

2.3. Energy Efficiency Trends in Transport ............................................................... 11

2.3.1. Passenger Transport .......................................................................................... 11

2.3.2. Freight Transport ............................................................................................... 13

2.4. Energy Efficiency Trends in Electricity Generation ............................................. 17

2.5. Energy Efficiency in Buildings ............................................................................ 19

2.6. Residential Energy Efficiency Trends ................................................................. 20

2.6.1. Residential Energy Demand Drivers ................................................................... 21

2.6.2. Household appliances and end use energy efficiency ....................................... 22

2.6.3. The “energy efficiency gap” ............................................................................... 25

2.7. Critical Success Factors for Energy Efficiency Sector ........................................... 27

3. Renewable Energy Industry Analysis ............................................................ 28

3.1. Renewable Energy and Electricity Generation ................................................... 31

3.1.1. Bioenergy ........................................................................................................... 32

3.1.2. Waste to Energy ................................................................................................. 39

3.1.3. Hydropower ....................................................................................................... 40

3.1.4. Solar Power ........................................................................................................ 43

3.1.5. Onshore Wind power ......................................................................................... 47

3.1.6. Geothermal ........................................................................................................ 49

3.1.7. Ocean Energy ..................................................................................................... 50

3.1.8. Levelised-cost comparison of electricity generation per technology ................ 52

3.1.9. Decentralised Electricity Generation ................................................................. 55

3.1.10. Critical Success Factors for Renewable Electricity Generation ........................ 56

3.2. Solar Thermal Energy ....................................................................................... 58

Critical Success Factors for Solar Thermal Energy ........................................................... 61

3.3. Renewable Energy and Liquid Fuels .................................................................. 62

3.3.1. Current demand for Liquid fuels and oil dependency ....................................... 62

3.3.2. Demand for liquid fuels in the transport sector ................................................ 64

3.3.3. Biofuels production, trade and potential ........................................................... 65

3.3.4. Biofuels Market in South Africa ......................................................................... 67

3.3.5. Critical Success Factors of Renewable Energy in Liquid Fuels sector ................ 70

3.4. Renewable Energy in Rural and Developing Markets ......................................... 71

3.4.1. Basic cooking, space heating and lighting .......................................................... 73

3.4.2. Productive end-uses ........................................................................................... 74

3.4.3. Micro-, mini- and off-grid systems ..................................................................... 75

3.4.4. Critical success factors for RE in rural and developing markets ........................ 76

4. Priorities and Potential for Sustainable Energy Industries ............................. 77

References .......................................................................................................... 82


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EXECUTIVE SUMMARY

This Situational Report provides an analysis of global and national sustainable energy

industries. The market trends in energy efficiency and renewable energy are summarised in

order to assist in formulating recommendations on how to create an enabling environment

for the development of the sustainable energy sector going forward.

The sustainable energy (SE) sector encompasses so many different industries that overlap

with existing industries, therefore this report has analysed the different trends in various

energy efficiency industries and renewable energy industries.

ENERGY EFFICIENCY

Energy efficiency is a global imperative to reduce GHG emissions and improve productivity

per unit of energy consumed (R/kWh). A conservative estimate of the potential for energy

efficiency globally is modelled in the Efficient World Scenario, where “the growth in global

primary energy demand to 2035 would be halved” (IEA 2012) if the best available

technologies were adopted. When compared to potential reductions in GHG emissions

among climate mitigation measures such as renewable energy and carbon sequestration,

energy efficiency in end uses accounts for 45% of potential emission reductions. (Kaygusuz

2012).

Industrial Energy Efficiency Industry

A major driver in industrial energy efficiency is the opportunity to save money and reduce

input costs. Local companies such as Toyota-SA have been able to invest in energy efficiency

measures with a pay-back period of less than two years. Toyota-SA saved 13,845 MWh over

2 years from a R4,9 million investment in over 50 energy system optimisation initiatives.

These interventions are the low hanging fruit, which can achieve major savings at scale with

little capital investment and much behaviour change and appropriate energy management

practises. Although the total savings, investments and potential in this sector is not

quantified, there is still substantial potential for greater industrial energy efficiency with best

available technologies and appropriate incentives such as the energy savings allowance and

12I tax allowance incentive.

Agricultural Energy Efficiency Industry

The agricultural energy efficiency industry is advancing in light of increasing oil prices

affecting input costs of fertilizer and motorized machinery such as tractors. The energy

intensity of different farming methods in different regions varies considerably, requiring

case-specific strategic interventions. The major drivers for agricultural energy efficiency are

energy security and cost. Biofuels that can be produced and consumed at the source are

attractive from an energy security point of view. Biogas digesters that can generate natural

gas, electricity and fertilizer are also attractive in the agricultural industry. The energy


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intensity of the South Africa’s agricultural industry is high compared to the rest of the world,

meaning that less income is generated per unit of energy consumed.

Energy Efficiency trends in Transport

Energy efficiency measures in the transport industry can be categorized by fuel and

technology efficiency and modal shifts in both freight and passenger transport. Measured in

litres of gasoline equivalent (lge) per 100 km, the fuel economy of passenger vehicles in

OECD countries has improved by -2.7% between 2008 and 2011 and by -0.6% in Non-OECD

countries. These efficiencies are not enough to abate for the increasing levels of

motorisation (ownership of personal vehicles) in developing countries. Public transport is

known to achieve greater passenger km per litre of fuel than private use of passenger

vehicles.

About 74% of South African households are 1-15min walking distance from a taxi service but

have no access to a train service (Ryneveld 2008). To address the need for better public

transport, the South African government has initiated large scale infrastructure investments:

R4.2 Billion has been allocated by the Government to the state-owned Passenger Rail

Agency of South Africa (PRASA), and two bus rapid transport systems have been established.

ReaVaya in Johannesburg and My City in Cape Town are in the process of expansion. New

systems are being introduced in Tshwane, Nelson Mandela Bay, Rustenburg and eThekwini,

which are expected to begin construction of their systems shortly (Treasury 2013).

Energy efficiency in the South African transport sector is of paramount importance because

the high dependence on imported crude oil at ~70% of primary energy for liquid fuels (RSA

2013) renders the sector vulnerable to external price shocks, supply constraints and

insecurity. Vanderschuren, Lane and Wakeford (2010) project that road transport in South

Africa can achieve up to 25% energy savings across passenger and freight transport by 2030.

Similarly, rail can achieve up to 10% in energy savings by 2030 and air transport up to 25% by

2030.

Energy Efficiency in Electricity Generation

The energy efficiency in electricity generation industry is fairly standard per technology. Coal

fired electricity generation has an efficiency of 35% on average, which means that only 35%

of the calorific value of raw coal is processed into useful energy in the form of electricity

generated with a portion of the energy generated used in the generation process.

Supercritical coal fired generation are said to achieve efficiencies of 43% or even as much as

50% but this technology is very costly (Sims, et al. 2008). In comparison, electricity

generation from solar, wind and small hydro is 100% energy efficient, converting all of the

renewable resource into useful energy.

Energy Efficiency in Buildings

The built environment has been identified as the sector contributing to the most GHG

emissions, producing approximately 50% of all emissions globally. Linked to urban planning,

population density, architectural design, and consumption behaviour, the opportunities for

improved energy efficiency and reducing emissions in built environment are diverse.


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Integrated planning, monitoring, and management are essential systems to promote greater

energy efficiency. Green star rated buildings and LEED rated buildings are recognised

internationally as standards for energy efficient and low carbon buildings. In parallel to these

voluntary rating systems, building regulations can be applied. The South African Energy

Efficiency Building Regulations adopted in 2011 apply similar standards for buildings

appropriate to the region and climate.

Residential Energy Efficiency

Residential energy consumption and end-use efficiency varies widely between households of

different income groups, climatic regions and levels of industrialisation or economic

development. Many advances have been made in improving and standardising the energy

efficiency of appliances with appropriate labelling. However, energy is a normal good, as

incomes rise, more energy is consumed, which can explain the rebound effect.

A phenomenon in modern societies is the energy efficiency gap, which is commonly

understood as the gap between the potential for energy savings and the actual uptake

of/investment in energy efficiency measures. Consumption behaviour and consumer

education are critical in improving residential energy intensity. Modelling residential energy

efficiency therefore takes only a portion of total potential savings to accommodate the gap.

As a whole, South Africa consumes more energy to produce income and has an energy

intensive economy compared to Brazil, India Europe and Latin America as can be seen in the

figure below.

Figure 1: Ratios of Total Final Energy Intensity per region and BRICS countries from 1990 - 2011

Source: http://www.worldenergy.org/data/efficiency-indicators/

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

1990 2000 2005 2006 2007 2008 2009 2010 2011

koe

/$0

5p

World

Europe

Latin America

Asia

Africa

Middle-East

Russia

Brazil

China

India

South Africa


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The energy intensity of an economy is measured here as ratio of final energy consumption to

GDP. Knowledge economies or tertiary sectors will tend to be less energy intensive than

agricultural economies or primary sectors. China and Russia are more energy intensive that

South Africa but have both shown large improvements in energy efficiency since 1990. The

Middle East is the only region shown in the figure above to have become less energy

efficient over or more energy intensive since 1990.

RENEWABLE ENERGY

Renewable energy technologies (RETs) have proved to be cost competitive and efficient in

generating centralised and decentralised electricity, as well as direct energy services such as

heat, gas for cooking and liquid fuels. Although global primary energy consumption is still

heavily dependent on fossil fuels, the net investment in new generation capacity from

renewable energy (excluding large hydro) has exceeded investment in conventional

generation capacity for three consecutive years (Bloomberg New Energy Finance 2013).

While certain countries lead by significant margins with large portions of total installed

capacity, the graph below shows how more and more countries already have and plan to

have sizeable (over 100MW) installed renewable energy capacity (not including hydro

capacity).

Number of countries with non-hydro renewable energy capacity above 100MW (IEA 2012a, 12)

Renewable Energy for Electricity Generation

The increase in renewable energy capacity globally is largely attributed to utility scale

renewable electricity generation plants using wind and solar technologies. The solar PV

industry has experienced the fastest growth rates of all renewables with cumulative capacity

increasing by 54% on average per year from 2005-11 (IEA 2012a, 159). With 30% reductions


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in the price of solar PV, the level of new investment decreased in 2012 by 11% for the first

time while actual new capacity increased by 29% to 100 GW in 2012 (REN21 2013).

Onshore wind power technology is also proven and mature technology like Solar PV and is

also cost competitive with conventional energy generation. Installed capacity has increased

at an average growth rate on 26,5% since 2005 (IEA 2012a). This total installed capacity of

onshore wind increased to 230GW in 2012 (REN21 2013).

Conversion technologies such as cogeneration, Combine Heat and Power (CHP) and

Anearobic Digestion are widely used to generate electricity, heat energy, and natural gas

from biomass. Total global bioenergy (electricity generated from biomass) exceeded 300

TWh in 2011 (IEA 2012a). The main driver of electricity generation from bioenergy is reliable

feedstock such as wood, agricultural residues, waste biomass (or underutilised biomass) and

organic municipal waste. The wood pellet industry, in particular, has steadily grown as a

major biomass feedstock; with total consumption in 2012 reaching 22,4 million tons (REN21

2013). In addition to the well-established sugar industry in KZN and use of baggase in

cogeneration to power the sugar mills, new bioenergy industries such as organic waste and

wastewater streams are emerging.

Geothermal electricity generation is another mature technology suitable for locations near

tectonic plates. South Africa does not have any identified potential in this regard. There is

however considerable opportunity for Ocean Energy power utilising the Agulhus current

(estimated 1212MW potential) on the east coast (Roberts 2012) and wave potential on the

cape coastline at 2,5m/sec.

In addition to centralised utility scale plants, renewable energy is also suitable for

decentralised and embedded electricity generation. The market for mini- micro- and off-grid

renewable energy has increased with the fall in technology, battery and inverter prices. The

global statistics for privately installed rooftop PV installations or rural solar home systems in

the region of 10 – 200 watts are not available, however in Bangladesh more than 2.1 million

[solar home] systems had been deployed by March 2013.” (REN21 2013)


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Levelised cost of power generation (USD per MWh) (IEA 2013a, 168)

Small hydropower is another mature and cost competitive technology suitable for

decentralised generation that can be applied on small dams, in run-of-river, inter basin

water transfer schemes and municipal water distribution systems without having a negative

impact upon the environment. The levelised costs of power generation per technology in the

figure above, show that micro-hydro and biogas at a small scale are cost competitive with

utility scale power plants.

Levelised costs of electricity for centralised large-scale generation are generally lower than

small-scale generation due to economies of scale (see solar PV for example). However, the

cost of transmission infrastructure and losses are dependent on the location of the

generation plant relative to the end user and existing infrastructure. Decentralised

generation, closer to the end-user or even operated by the end user can therefore prove

more cost effective. Furthermore, embedded generation has benefits for the end user and

price taker. Customers and even local authorities are end users and price takers. They are

able to generate electricity for own use at a lower cost than that which they can import in

the long term.

Solar Thermal Energy

In a class of its own, solar thermal energy can provide hot water as well as space cooling and

heating for various residential and industrial applications. As a demand side management

measure, Solar Water Heaters can replace as much as 24% of household electricity

consumption. The market for solar thermal water heating is responsible for most of the

industry in growth as can be seen in figure below – see unglazed, glazed and evacuated tube

water collectors (WC) make up the bulk of growth since 2004. However the market for solar

thermal space heating and cooling is starting to emerge especially in Europe.


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Installed Capacity of Solar Thermal Systems from 2004 – 2009. WC is water collector and AC is air

collector. (Timilsina, Kurdgelashvili and Narbel 2012)

Beyond 2009, the total global solar water heating capacity alone increased from 195 GWth in

2010, to 223 GWth in 2011, to 255 GWth in 2012 (REN21 2013).

China is responsible most of the recent growth in the SWH industry, such that SWH are now

cheaper than electrical water heaters. South Africa is following the progress of the leading

countries with the implementation of rebates and Energy Efficiency Building Regulations in

2011 that make it mandatory for new buildings to supply at least 50% of annual hot water by

non-electrical means.

Renewable Energy and Liquid fuels

South Africa’s dependency on crude oil imports impact negatively on the national balance of

payments (DoE 2013). Although the heavily susbsidised coal-to-liquids programme makes

Sasol one of the largest carbon emitting companies in the world, it also ensures some supply

diversity and local production capacity, which improves energy security in the liquid fuels

sector and lessens the trade deficit.

To improve energy security and lessen the dependence on oil imports or depleting oil

reserves, many countries have implemented mandatory blending rates. Long established

markets like Brazil, can accommodate higher blending rates up to 50% due to a market with

flexi-fuel engines, whereas emerging markets typically aim for E10 (10% ethanol) rates. “The

global demand for liquid biofuels more than tripled between 2000 and 2007. Future targets

and investment plans suggest strong growth will continue in the near future… Driven by

supportive policy actions of national governments, biofuels now account for over 1.5% of

global transport fuels (around 34 Mtoe in 2007).” (Sims, et al. 2008)


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Although the IPAP recognises the potential to create 125,000 jobs at 10% mandatory

blending rates (DTI 2012), the Regulations regarding the Mandatory Blending of Biofuels

with Petrol and Diesel, which were ratified in 2012, require a minimum of 5% biodiesel

blending with diesel and 2-10% bioethanol blending with petrol. This can be provided by

licensed capacity of over 1000 million litres per annum.

Renewable Energy in Rural and Developing Markets

Accessibility and affordability are important drivers for promoting renewable energy in rural

and developing markets. Development objectives and social welfare imperatives across the

world have sought to provide more affordable and cleaner energy carriers for basic energy

needs. Gel fuel, a processed biofuel, has been introduced to the market as an affordable

substitute for fuel wood; and fuel efficient stoves that create much less smoke and use up to

90% less wood/twigs, have also been introduced.

In rural areas of China, India, Nepal, Vietnam and Bangladesh, Anaerobic Digestion in the

form of small scale biogas digesters use organic waste to generate gas for cooking and

electricity for lighting (Greben and Oelofse 2009). REN21 estimate that “48 million domestic

biogas plants have been installed since the end of 2011… in China (42.8 million) and India

(4.4 million), and smaller numbers in Cambodia and Myanmar” (REN21 2013, 83). The

economic viability of biogas digesters in rural homesteads in South Africa have a positive

benefit to cost ratio of 4.83, however if only financial benefits are measured against financial

costs, the ratio is 0.98 (Smith 2012).

Ahlfeldt (2013) identifies the off-grid residential PV Solar Home System market in South

Africa as “the biggest growth opportunity in the long-term with over 10 GW potential”. “In

Bangladesh, for example, more than 2.1 million systems had been deployed by March 2013.”

(REN21 2013)

The social, economic and environmental value of renewable energy deployment in rural and

developing markets has attracted much donor support for such initiatives. Without

subsidies, technical support, micro-credit, and favorable lending, the capital investments

required are a major challenge for low-income households. Even the fast growing market for

solar lanterns with a relatively low per unit cost, faces the challenge of affordability (Lighting

Africa 2011).

Compared to diesel generators used by rural customers who can afford to, renewable

energy technologies are fast becoming cost competitive (REN21 2013). Biogas, solar PV and

wind in particular can generate electricity for own use off-grid or it can be fed into mini-,

micro-grids to enhance the welfare and access to modern technology for a community or

village. Community Property Resources (CPRs) have proven effective models for the

deployment and maintenance of micro-grids powered by renewable energy in Kenya

(Chaurey and Kandpal 2010). Decentralised distribution grids (DDG) powered by biogas

digesters have also been strongly promoted in India (IEA 2012a, 118).


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PRIORITIES AND POTENTIAL FOR LOCAL SE INDUSTRIES

Taking into account all relevant national policies, the objectives of the Draft Integrated

Energy Plan include (DoE 2013):

1. Security of energy supply 2. Minimise cost of energy 3. Increase access to energy 4. Diversify supply sources and energy carriers 5. Minimise emissions by energy sector 6. Improve energy efficiency 7. Promote localization, technology transfer and job creation 8. Water conservation

These objectives permeate the tax incentives for energy efficiency, and the allocation of

3725 MW to renewable energy projects in the Renewable Energy Independent Power

Producer Procurement Programme (REIPPPP) informed by the Integrated Resource Plan for

electricity. In KwaZulu-Natal (KZN) however, the REIPPP has only attracted one 16,5MW

biomass project, recently announced in the third bid window.

There is potential for KZN to be a fast follower in a number of suitable industries: industrial

energy efficiency, SWH, solar PV embedded generation, cogeneration at a utility and

industrial scale, anaerobic digestion to generate electricity, gas and liquid fuels from

agricultural waste streams, municipal wastewater and waste to energy technologies

(already a leader in landfill gas), wood chip production for export and use in CHP industries,

bioethanol and biodiesel production, and micro-hydro power.

There is also potential for KZN to be a first mover in second-generation biofuels from algae,

ocean current energy generation, and in the deployment of renewable energy in rural and

informal markets.

The major job creation industries in the sustainable energy sector identified by the 2011

Green Jobs Report are in installation, maintenance and manufacturing of Solar PV,

installation and manufacturing of SWH, materials recovery facilities in Waste to energy

industry, biofuels production, cogeneration, public transport and in construction of new

generation plants.

The outcomes of the Sector Survey and Manufacturing Baseline Study will be discussed

within this context at a Stakeholder Meeting with representatives from eThekwini Energy

Office, Economic Development and Investment Promotion Unit, and the Electricity

Department. The purpose of the meeting is to receive preliminary presentations on the

manufacturing survey and the sector survey and to assist in formulating recommendations

on how to support sustainable energy manufacturers and the broader sustainable energy

sector going forward.


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1. Introduction

The purpose of this Situational Report is to describe the known nature, trends and state of

the Sustainable Energy (SE) sector globally and in South Africa. This Report is the

consolidation of desktop research undertaken prior to a sector survey, which aims to

understand the local experience of businesses active in the SE sector. This market research

will provide the evidence base to inform the development of a SE Sector Development

Strategy for eThekwini Municipality (eTM), which will aim to create an enabling environment

for the economic development of this sector in the region.

The sustainable energy sector includes multiple sub-sectors or industries involved in energy

efficiency and renewable energy. Section 2 provides a detailed industry analysis of various

energy efficiency markets, including industrial, agricultural, transport, residential and

electricity generation. Section 3 provides a detailed industry analysis of renewable energy

for electricity generation, thermal heating, and rural developing markets. This desktop

research focuses on the market trends internationally and nationally, and identifies critical

success factors as experienced by existing markets. Section 4 summarises the local priorities

and potential for sustainable energy industries, and section 5 lists the gaps in information

identified during the desktop research process.


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2. Energy Efficiency Industry Analysis

The 2012 World Energy Outlook report models various scenarios for future energy demand

against supply globally. The scenarios take into account technological capacity, policy

targets, market growth trends and even political uncertainty. A conservative estimate of the

potential for energy efficiency globally is modelled in the Efficient World Scenario, where

“the growth in global primary energy demand to 2035 would be halved” (IEA 2012). The

report emphasizes:

“These gains are not based on achieving any major or unexpected technological

breakthroughs, but just on taking actions to remove the barriers obstructing the

implementation of energy efficiency measures that are economically viable. Successful

action to this effect would have a major impact on global energy and climate trends,

compared with the New Policies Scenario.” (IEA 2012, 2)

Disappointingly, all industries and sectors have been slow in adopting best available

technologies and achieving the full potential of economic energy efficiency. Based on the

average energy intensities of a few major industrial sectors, and financially viable efficiency

values, Banerjee et al (2012) calculate that there is a potential energy savings of 16% in steel

production, 28% in cement production, 4% in paper pulping, and 31% in aluminium

production. Furthermore the greatest potential for energy savings is expected in developing

countries.

As a climate change mitigation measure, energy efficiency has the greatest potential to

reduce the carbon emissions according to an analysis of technology pathways for reducing

CO2 emissions to current levels by 2050 (Kaygusuz 2012). Figure 5 below shows that energy

efficiency in end uses accounts for 45% of emission reductions.


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Figure 2: CO2 emissions reduction potential per sector (Kaygusuz 2012)

Energy efficiency is also the most cost-effective measure to relieve energy supply constraints

in the short term. GHG emissions can be used as a proxy for energy consumption, whereby a

reduction in GHG emissions is directly relative to energy savings. The global GHG abatement

cost curve below explicitly shows how energy efficiency measures reduce CO2 emissions,

save energy and save money (at a negative cost) while any new generation build projects

have a substantial (Hughes, et al. 2009) cost.

Figure 3: Global GHG Abatement Cost Curve by 2030 (Sarkar and Singh 2010)

Despite the immeasurable benefits of saving money and resources, there has been slow up

take of energy efficiency (EE) across the world. The technology to improve energy efficiency

across all sectors exists, and is considered affordable yet structural barriers, market failures


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and information and behavioural problems are argued to stand in the way of realising the

full economic potential of energy efficiency (Sarkar and Singh 2010) (Gillingham, Newell and

Palmer, Energy Efficiency Economics and Policy 2009). The critical success factors for

increasing energy efficiency and growing the industry will be discussed in section 2.7.

This section will review the global and national trends in energy efficiency by sector: industry

(section 2.1), agriculture (section 2.2), transport (section 2.3), residential (section 2.4) and

electricity generation (section 2.6).

2.1. Industrial Energy Efficiency Trends

The World Energy Council1 measures the energy intensity of different sectors and countries

by calculating energy consumption relative to output or production. Figure 3 below shows

how South Africa’s Industrial energy intensity has only marginally decreased since 1990

relative to the averages in Africa and the World.

Figure 4: Industrial Energy Intensity of South Africa compared to the world and Africa

While there is potential to reduce energy consumed in industry by ~20% using best available

technologies (IEA 2013a), many growth industries continue to consume more energy.

Figure 4 and 5 below show that energy consumption in EJ has increased in all industrial

sectors since 1990. In terms of energy intensity, significant improvements were made by

China and India for example, however in recent years, the rate of improvement has slowed.

1 Downloaded on 26 August 2013 at http://www.worldenergy.org/data/efficiency-indicators/


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Figure 5: Global Industrial Energy Consumption by sector (IEA, 2013: 3)

Figure 6: Aggregate Industrial Energy Intensity by country/region (IEA, 2013: 4)

It is important to note that the energy intensity of any sector is not a direct measure of

improvements in energy efficiency since multiple other factors come into play, such as

structural changes and variable input prices. (IEA 2013a)


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In eThekwini, there are several primary and secondary sectors, such as food and beverages,

wood, petroleum and chemicals that are typically more energy intensive (greater than

1GJ/R’000) than tertiary sectors such as trade, financial real estate-services and public

administration services. This can be seen in the table below. Surprisingly the transport sector

is not as energy intensive as one might expect because of the significant contribution it

makes to GDP. The energy intensity of different sectors is not a sufficient indicator of the

potential energy savings, but serves as useful comparison with other economies.

Figure 7: Energy and Carbon Intensity by economic sub-sector for eThekwini Municipality

2007/2008 (source: Moolla, 2009) (ASSA 2011, 94)

The Tracking Clean Energy Progress 2013 Report (IEA 2013a) scrutinizes potential for greater

industrial energy efficiency within the Iron and Steel sector, Cement sector, Chemicals and

Petro-chemicals sector. Although efficiency measures are particular to the industrial process,

there are some cross cutting measures such as: high-efficiency motors and variable-speed

drives, heat recovery technologies, sensors and controls, and co-generation.

Better energy management, measurement and auditing are as important as technological

innovation in industrial processes and operations. “By ensuring the support of top

management, and by the initiation of an energy management program early on, these

barriers [to energy efficiency implementation] can be avoided and results and

recommendations from an energy assessment can feed into a receptive management

system” (Fawkes 2005).


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The National Cleaner Production Centre in South Africa successfully engaged several large

local industrial manufacturers in better energy management systems with the following

results:

Figure 8: Project Achievements to Date (McKuur 2013)

In eThekwini, Toyota-SA saved 13,845 MWh over 2 years from a R4,9 million investment in

over 50 energy system optimisation initiatives including: implementing an energy

management system, pump optimization, compressed air, day light harvesting, lighting

reduction, and lighting and ventilation automation. This resulted in a savings of R9,6 million

between 2011 and 2012, which falls well within the company policy “to consider all energy

initiatives that show a payback period of less than two years” (NCPC 2012). As the price of

electricity rises by a projected 8% per year, the monetary savings to be gained from EE

measures and better energy management will be greater for local companies like Toyota SA.

The industrial price elasticity for electricity demand will determine how responsive industry

will be to the projected price increases. Inglesi-Lotz (2012) shows that the SA industrial

electricity price elasticity of demand did not vary significantly in the 2000s, stabilising

“around -0.95 showing that the industrial sector has experienced an inelastic demand”. The

figure below shows how the real price of electricity decreased since the 70s causing SA to

have the some of lowest prices in the world. “However, as can be seen in Inglesi-Lotz and

Blignaut (2011a) in many industrial sub-sectors, the percentage of electricity costs to total

for 2005 has not exceeded 3% showing that electricity is not an unimportant input to the

total costs of business” (Inglesi-Lotz 2012).


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Figure 9: Electricity prices and estimated price elasticity for the industrial sector 1977-2007

(Inglesi-Lotz 2012)

The SA Energy Efficiency Strategy (2005) set a target of 15% final energy demand reduction

for industry by 2015. In order to achieve this target, tax incentives and energy savings

regulations have been instated. The Section 12I Tax Allowance Incentive by national

Treasury and Energy Savings Allowance Regulations by the Department of Energy apply

here.

“Since the Section 12I Tax Allowance was announced in 2010 to date, the

programme has supported 13 projects with an investment value of R21,7 billion. These

projects are within the priority sectors identified in the Industrial Policy Action Plan (IPAP).

Eight of the projects are in the chemical sector; one within the agro processing

sector, two are in the paper and pulp sector, and two in the bio-fuel sector with a total

investment of R21,7 billion. These projects will create 1 618 direct jobs and 25 448 indirect

jobs are estimated to create R3,7 billion worth of opportunities for small medium and micro

enterprise procurement.” (DTI 2012)

The Tracking Clean Energy Progress 2013 Report (IEA 2013a) highlighted that the

Manufacturing Competitive Enhancement Programme established by South Africa’s

Department of Trade Industry in 2012 is a significant driver of investment in Energy

Efficiency. The Programme will make USD 640 million available over five years to companies

willing to invest in clean technology among other areas of investment.


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2.2. Agricultural Energy Efficiency Trends

The trends in agricultural energy efficiency are different for developing and developed

countries, types of crops and climatic conditions. Figure 7 and 8 below show how the input

intensities of agricultural sectors in developing countries are quite different from that of

developed countries. In both cases, energy intensity closely follows the intensity of fertilizers

and tractors.

Figure 10: Input intensities over time relative to average input intensity between 1961 and 2003

aggregated over all developing countries (Schneider and Smith 2009)

Figure 11: Input intensities over time relative to average input intensity between 1961 and 2003

aggregated over all developed countries (Schneider and Smith 2009)


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Schneider and Smith (2009) concluded “while the variation in energy intensities over the last

30 years has been relatively small, large differences exist between countries. A considerable

portion of that variation may be due to differences in agricultural management.”

Woods et al (2010) examine the relationship between energy and food systems. A detailed

analysis of food production shows difference agricultural management approaches

depending on crops animal farmed. For example potato cropping in the UK is more energy

intensive than cereals and legumes because potatoes require cold storage. Brazil’s sugar

cane production and the UK’s wheat production are identified as very energy efficient

because of the low water content. Meat production, on the other hand, is commonly cited

as the most energy intensive subsector of agriculture (involving the energy used in growing

feed grains and in processing and transporting grains and meat) accounting for 18% of global

greenhouse-gas emissions (McMichael, et al. 2007). Meat consumption – and hence energy

consumption – is expected to rise per region as is shown in the figure below.

Figure 12: Trends in consumption of livestock products per person (milk, eggs, and dairy products,

excluding butter) (McMichael, et al. 2007)

In addition to energy efficiency, which reduces input costs, the agricultural sector values

energy security, which increases the stability of input costs and production rate. The sugar

cane industry in Brazil, India and South Africa utilise much of the residual biomass (bagasse)

as a feedstock in the cogeneration of electricity to process sugar. The reduction in fossil fuel

inputs improves the energy security and stability of input costs in the sugar cane industry

(Woods, et al. 2010).


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Woods et al (2010) conclude that technological developments, changes in crop

management, and renewable energy will all play important roles in increasing the energy

efficiency and energy security of the agricultural sector.

Figure 9 below shows how South Africa’s agricultural energy intensity peaked in the mid ‘90s

and thereafter only marginally decreased from 1990 levels. The sector’s energy intensity is

considerably higher than the averages in Africa and the World.

Figure 13: Energy Intensity of Agricultural Industry in South Africa

Haw and Hughes (2007) gave an estimate of useful energy demand in the agricultural sector

in South Africa using 2001 figures: 9.3% heat, 16.2% irrigation, 13.9% processing, 36,6%

traction, and 24% other. Useful energy demand is highest for traction, which utilises diesel

and petrol. This corresponds with the high demand for diesel at 59% of total final energy

demand in the agricultural sector. “Technologies using liquid fossil fuels (tractors, harvesters

and pumps using diesel or petrol) are able to use a bio-fossil fuel blend. Tractors and

harvesters are also able to run on pure bio-ethanol or bio-diesel for a case in which farmers

may be producing biofuel on site for use in their own vehicles.” (Haw and Hughes 2007, 46)


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2.3. Energy Efficiency Trends in Transport

Energy Efficiency trends in transport span passenger transport (both private and public) and

freight transport (including air, sea, and road). Through mode improvements (vehicle

efficiency), energy improvements (fuel efficiency), behavioural and management

improvements (modal shifts), greater energy efficiency can be achieved in the transport

sector.

2.3.1. Passenger Transport

Trends in passenger transport are driven by multiple factors such as changes in urban

population densities, land-use characteristics, vehicle technologies and fuel costs. The

average travel time per day for passengers is estimated at 1.1 hours/day (Schafer and Victor

2000). This average travel time budget per day has been observed to be constant over time

and across income groups/levels, however the distance achieved in 1.1 hours/day will vary

depending on the speed of vehicle technology, affordability and land-use characteristics. “All

world regions illustrate the same phenomenon of shifting from slow to faster modes of

transport as income and the demand for mobility rise. Variations among regions largely

reflect the historical legacy of infrastructures, which partially reflect population density,

policies and tastes. (Schafer and Victor 2000)”.

The Fuel Economy and Transport sector have seen slight improvements in the average fuel

economy of light duty vehicles (LDVs) or conventional passenger vehicles. Measured in litres

of gasoline equivalent (lge) per 100 km, the fuel economy of passenger vehicles in OECD

countries has improved by -2.7% between 2008 and 2011 and by -0.6% in Non-OECD

countries.

Figure 10: Fuel Economy Status Worldwide (IEA 2013a)

Merven et al (2012) apply an annual change in fuel economy improvements for South Africa

at 0,4% for light duty vehicles, which is less than the above 0,6% in Non-OECD countries.

National fuel economy improvements are also dependent on the average age of the national

“car park”; the longer older (less efficient) vehicles remain in use, the slower the national

fuel economy will improve.

In the same way that passenger vehicle ownership has dramatically increased among

industrialised countries, vehicle ownership is rapidly growing in developing countries that

are entering the per capita income range of US$2000–5000 (Wright and Fulton 2005).

Currently in South Africa the average motorisation rate is about 180 vehicles per thousand

people, which is “compared to a range of 500 to 800 for developed countries and an average

of around 40 for Africa (The World Bank, 2011).” (Merven, et al. 2012, 3)


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In addition to income, other driving factors for increasing private vehicle ownership are:

population growth, urbanization levels, importation regulations and the quality of

alternative transport services. Private vehicle usage is also rapidly increasing while public

transport usage is decreasing in developing countries as can be seen by the table below

(Wright and Fulton 2005).

Figure 14: Trends in mode share of public transport in selected cities (Wright and Fulton 2005)

This trend of greater motorisation will cause increased energy consumption and emissions

per capita. Using scenario analysis, Wright and Fulton (2005) estimate that “shifting mode

share from high-emitting sources (private vehicles) to lower-emitting sources (public

transport and nonmotorized options) produced emission reduction costs between US$14

and US$66/tonne of CO2.”

The 15 year Review of Public Transport Development in South Africa commissioned by the

National Planning Commission, highlights a number of state capacity issues responsible for

the under-development of public transport such as poor capacity for implementation and

coordination of responsibility, not to mention the often volatile stakeholders. Despite sound

policy and principles for development, Ryneveld (2008) paints the bleak picture of current

public transport infrastructure in the figure below. About 74% of households are 1-15min

walking distance from a taxi service but have no access to a train service.


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Figure 15: Household access to public transport (Ryneveld 2008)

In recent years the South African government has initiated large scale infrastructure

investments to begin the process of improving and expanding public transport offerings in

South Africa. With regards to rail R4.2 Billion has been allocate by the Government to the

state-owned Passenger Rail Agency of South Africa (PRASA) to being a 20-year procurement

programme for new rolling stock. The first coaches are expected to be delivered in 2015.

(Treasury 2013). In addition large scale investments have been initiated into bus rapid

transit systems in cities across South Africa. Two systems have been established ReaVaya in

Johannesburg and My City in Cape Town and are in the process of expansion. New systems

are being introduced in Tshwane, Nelson Mandela Bay, Rustenburg and eThekwini, which

are expected to begin construction of their systems shortly (Treasury 2013).

2.3.2. Freight Transport

The optimal balance of intermodal freight transport where road, rail and waterway networks

are integrated and interconnected can achieve greater energy efficiency, reducing costs and

emissions. “In Europe, for example, rail-road intermodal solutions reduce carbon dioxide

emissions by 55% (or by 1.8 million tons per year) and save 29% of energy usage compared

to a road-only solution, with estimated annual environmental savings of about €180 million”

(Havenga, et al. 2011, 153).

Greater efficiencies are achieved along the freight transport supply chain by unitising cargo

(such as packaging goods on pallets within containers) enabling the swift transfer of freight

from one mode of transport to another and from one distribution centre to another

(Havenga, et al. 2011).

Pederson (2001) examined the development and impact of trucking, shipping, air and rail

freight transport in Africa. With better maintenance of infrastructure and cross-border

flows, greater efficiencies can be achieved. However these energy efficiencies must also

correspond with input cost reduction. Trends in freight transport are largely driven by cost,

reliability and convenience.


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Havenga et al (2011) compared the cost of transporting freight between Durban and Cape

Town. Transporting the same amount of palletised freight by road cost 46.6 cents per tonkm

compared with the 32.8 cents per tonkm it cost to rail similar freight on similar routes.

In South Africa, energy efficiency in the transport sector is of paramount importance

because the high dependence on imported crude oil at ~70% of primary energy for liquid

fuels (RSA 2013) renders the sector vulnerable to external price shocks, supply constraints

and insecurity. Vandeschuren, Lane and Wakefored (2010) cite numerous transport

efficiency measures and the potential impact based on international literature. For example:

Lightweight materials can improve energy efficiency between 1,8 – 30% across

different modes of transport.

Biofuels can improve energy efficiency by 8% and hybrid vehicles can improve

energy efficiency of passenger transport by 3-106%, freight transport by 55 - 140%,

and bus transport by 75%.

Idle reduction can improve energy efficiency between 10 - 27% across different

modes of transport.

Fleet tracking systems can improve energy efficiency between 15 - 25% by measures

such as route optimisation and the reduction of empty trips.

Figure 16: Road Freight Transport efficiency measure and potential energy reduction

(Vanderschuren, Lane and Wakeford 2010)


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Figure 17: Road Passenger Transport efficiency measures and potential energy reduction


Figure 18: Rail Transport efficiency measures and potential energy savings



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Figure 19: Air Transport efficiency measure and potential energy reductions


Figure 13, 14, 15 and 16 above project the potential energy savings across passenger and

freight road transport (up to 25% by 2030), rail (up to 10% by 2030) and air (up to 25% by

2030).

The optimal combination of public and private measures within local developmental

constraints is required to achieve the potential energy savings.

The SA Energy Efficiency Strategy (2005) set a target for final energy demand reduction of

9% by 2015 in the transport sector relying heavily on behaviour change and fuel efficiency

standards. “The impact of measures such as public transport systems, moving road to rail

and spatial planning are also difficult to assess at this stage and remain interventions with

impacts in the long-term” (DME 2005).

To improve long term freight efficiency the Government through its agency Transnet is

investing considerable amounts in freight infrastructure. During the 2010/11 financial year

Transnet “increased capacity on bulk export rail lines for an additional 24 million tons and

bought 110 new locomotives for these lines” (Treasury 2013). In addition during the

2011/2012 period Transnet invested “R14.5 billion to upgrade and maintain general freight

infrastructure and rolling stock.” (Treasury 2013)


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2.4. Energy Efficiency Trends in Electricity Generation

The energy efficiency of electricity generation relates to the amount of energy produced

compared to the amount of energy losses during production (not including the energy losses

during transmission), or compared to the total energy value of primary inputs. Coal fired

electricity generation has an efficiency of 35% on average, which means that only 35% of the

calorific value of raw coal is processed into useful energy in the form of electricity generated

with a portion of the energy generated used in the generation process. The energy efficiency

values for all types of electricity generation are shown in the table below.

Figure 20: Characteristics of New Generation Plants (Winkler (ed), et al. 2006, 134)

Supercritical coal fired generation are said to achieve efficiencies of 43% or even as much as

50% but this technology is very costly (Sims, et al. 2008). In comparison, electricity

generation from solar, wind and small hydro is 100% energy efficient, converting all of the

renewable resource into useful energy. However, dual axis tracking systems typical in


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concentrating solar plants consume a portion of the electricity they generated; this is called

the parasitic load (EPRI 2010).

Figure 21: Energy Efficiency of Coal-fired Power Plants in South Africa

In recent years, timed with supply constraints, the energy efficiency of South African coal

fired plants has increased to be in line with world averages. For power generation, the SA

Energy Efficiency Strategy (2005) set an interim Target of 15% reduction in “parasitic”

electrical usage by 2015.


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2.5. Energy Efficiency in Buildings

Under construction… More will be added to this section.

In Chapter 6: Residential and Commercial Building of the Fourth Assessment Report of the

Intergovernmental Panel on Climate Change, Levine, et al (2007) summarise the successful

government policies adopted to promote energy efficiency in buildings: “continuously

updated appliance standards and building energy codes and labelling, energy pricing

measures and financial incentives, utility demand-side management programmes, public

sector energy leadership programmes including procurement policies, education and

training initiatives and the promotion of energy service companies. The greatest challenge is

the development of effective strategies for retrofitting existing buildings due to their slow

turnover.” (Levine, et al. 2007, 390)

With regard to general recommendations for developing countries, they note:

“The shift to more efficient appliances quickly pays back, while building shell

retrofits and fuel switching, together providing approximately half of the potential in

developed countries, are more expensive.” (Levine, et al. 2007, 414)

Upon reviewing UK policies for improved energy efficiency in the built environment over the

last twenty years, Rydin and Turcu (2013) identify five key trends:

“a greater reliance on regulation; the growing importance of the retrofit agenda; more

tightly targeted subsidies; more finely tuned market-based instruments to shape and

structures energy efficiency and decentralised renewable energy markets; and a shift from

the dominance of market rationality towards a more nuanced understanding of how inter-

related change in energy systems and built environments is achieved.”


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2.6. Residential Energy Efficiency Trends

Residential energy consumption and end-use efficiency varies widely between households of

different income groups, climatic regions and levels of industrialisation or economic

development. The national energy intensity of an economy is congruent with residential

energy efficiency due to various factors such as “compositional changes in the economy

toward less energy-intensive industries, energy efficiency policies, and other forces that

drive total factor productivity growth” (Alcott and Greenstone 2012).

Figure 22: Ratios of Primary Energy to GDP in Developing Countries, 1975–95

Southern Africa includes the ratios of energy to GDP are for Nigeria, South Africa, Zambia, and Zimbabwe. Source: (Jochem 2000)

Between 1975 to 1995, many developing countries have actually become slightly more

energy intensive or less efficient at producing income. This can be understood by a general

trend of industrialisation and transition into energy intensive sectors in the primary and

secondary economy. As countries transition into the tertiary economy or “knowledge”

economy for example, energy inputs relative to output reduce. Endowed with substantial oil

reserves, countries in the Middle East have become dramatically more energy intensive,

while China has become dramatically more energy efficient at producing income.

The figure below provides more recent data, comparing South Africa to BRICS countries and

regions of the world. As a whole, South Africa consumes more energy to produce income

and has an energy intensive economy compared to Brazil, India Europe and Latin America,

while China and Russia are more energy intensive that South Africa but have both shown

large improvements in energy efficiency since 1990. The Middle East is the only region

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Page 21 of 102

shown in the figure below to have become less energy efficient or more energy intensive

since 1990.

Figure 23: Ratios of Total Final Energy Intensity per region and BRICS countries from 1990 - 2011

Source: http://www.worldenergy.org/data/efficiency-indicators/

2.6.1. Residential Energy Demand Drivers

Specific factors for residential energy consumption such as per capita disposable income,

price of electricity, population, price of a substitute of energy, a temperature variable, sales

of electrical appliances, the number of consumers and the price of diesel, family size, size of

the dwelling, household income, price of electricity, have all been tested with varying results

(Inglesi 2010). Understanding these demand drivers will help to explain the trends in

residential energy efficiency investments and energy savings.

Household energy demand is found to be very specific for income levels and regions, even

between different countries in Europe (Reinders, Vringer and Blok 2003). Across all income

brackets, energy is considered a normal good where an increase in income will result in a

relative increase in energy consumption (Cassim, Ewinyu and Sithebe 2012).

In South Africa, the real price of electricity steadily decreased from the mid ‘70s until the

first electricity price increases after the 2008 Blackouts. All data in South Africa during this

period indicates that the demand for electricity is price inelastic, in other words the relative

demand for electricity did not change with prices (Inglesi 2010). In the long run however,

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Page 22 of 102

price and GDP are expected to play a role in electricity demand, while in the short run

income and population parameters are expected to play a role (Inglesi 2013).

Given new data during the recent price increases, Cassim, Ewinyu and Sithebe (2012)

estimated that electricity prices do have an impact upon electricity consumption to a

degree, which is different for different income groups. They show that high-income

households are less responsive (their electricity consumption does not change dramatically

as the price increases) while low-income households are more responsive.

In contrast, Louw et al (2008) showed that the demand for electricity in low-income

households is not be dependent on electricity price, rather the price of alternative, less

modern fuels such as paraffin and wood have a measurable impact upon the demand for

electricity. He explained “low-income households are more likely to use electricity for

‘‘cheaper’’ services such as lighting, ironing and entertainment where the appliances are

cheaper to purchase and the per-unit cost of using the appliance is also less expensive than,

for example, using a four-plate stove.”

2.6.2. Household appliances and end use energy efficiency

Household appliances in the European market have become more efficient measured by an

energy efficiency index for various appliance categories (Bertoldi and Atanasiu 2007).

Between 1992 and 2005, Bertoldi and Atanasiu (2007) calculated that freezers and

refrigerators became 40% more efficient; with washing machines, there is an “energy saving

potential of about 12%, between the average model on the market and the best model”;

and with dishwashers a 10% energy saving can be achieved. The report goes on to detail

trends among all household appliances including cooking appliances, electric water heaters,

dryers, TVs and lighting. Air-conditioning appliances were not included as major household

appliances, however a spike in their sales, after a 2003 heat wave in Italy, increased

penetration of air-conditioning appliances dramatically. By 2005, 20% of Italian households

were estimated to have an air-conditioning unit installed. In the 25 EU counties, residential

air-conditioners’ electricity consumption was estimated to be between 7-10 TWh in 2005.

Among 15 EU countries, Bertoldi and Atanasiu (2007) show the breakdown of household

energy consumption per appliance in the figure below.


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Figure 24: Breakdown of residential electricity consumption in EU-15 (Bertoldi and Atanasiu 2007)

Residential electric heating in colder European climates understandably consumes a large

portion of household electricity consumption at 22% on average. Heating is followed by

refrigerators at 15%, lighting at 12% and electric water storage at 9%. Consumer electronics

and other equipment in stand-by mode notably accounts for 6% of electricity consumption

compared to TV on mode at only 3% and home office equipment at 1%.

In South Africa, low income households tend to have multiple appliances for the same end

use such as a four plate stove, paraffin stove, and gas burner, as well as broken appliances

that when they can afford to fix, they might use too. Depending on the price of the fuel, and

cash on hand, time of the month and accessibility, low-income households will use multiple

appliances regardless of the energy efficiency of the appliance (Hughes, et al. 2009).

Howells et al (2010) discuss the impact of circumstantial drivers on energy consumption and

appliance utilisation in rural households. They identify eight circumstantial drivers, namely:

(1) income and affordability; (2) access to energy-appliance (or production technology)

options; (3) management of communal land and access to it; (4) the extent to which the

local economy is monetized; (5) institutional and policy intervention; (6) location and

climate, (7) dwelling size and (8) cultural norms.

On the other end, medium- to high-income households on average are shown have the

following energy consumption profile


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Figure 25: Residential Energy Use (Source: Department of Energy 2005)

(Worthmann, Johnson and Mconnell Johnson 2012)

An important implication of household energy consumption relating to appliances and end-

use is the cumulative contribution to peak electricity demand. The average daily electricity

load curve blow is typical for medium- to high-income households in South Africa. The cure

indicates peak electricity consumption in morning (0:6:00 – 09:00) and evening periods

(17:30 – 21:00).

Figure 26: Average daily load curve (Eskom Home Flex booklet)


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In order to lessen/flatten the peak demand from high-energy residential consumers, Eskom

designed a HomeFlex tariff that charges customers more per kWh in peak periods and less in

off peak periods, incentivising customers to actively change their behaviour and time

appliances such as washing machines and pool pumps to run during off-peak periods. This is

called load shifting and falls with Demand Side Management (DSM) policy measures. The

South African Electricity Pricing Policy of 2008 promotes the application of time-of-use tariffs

among all customers including residential customers within municipalities. There is some

reluctance by municipalities to shift to this pricing and the inclining block tariff promoted by

Nersa (Barnard 2012).

2.6.3. The “energy efficiency gap”

A phenomenon in modern societies is the energy efficiency gap, which is commonly

understood as the gap between the potential for energy savings and the actual uptake

of/investment in energy efficiency measures. Alcott and Greenstone (2012) describe this as

the gap between “the cost-minimizing level of energy efficiency investments and the level

actually realised”.

Jochem (Chapter 6: Energy End-Use Efficiency 2000) provides a succinct synopsis of the

problem:

“Residential consumers in industrialised countries substantially underinvest in energy-

efficient appliances or require returns of 20% to more than 50% to make such investments

(Sioshansi, 1991; Lovins and Hennicke, 1999). Related obstacles include a lack of life-cycle

costing in a culture of convenience, longstanding ties to certain manufacturers, aspects of

prestige, and the investor-user dilemma in the case of rented apartments or office

equipment.

Low incomes make it difficult for households in developing countries to switch from

lower efficiency to higher efficiency (but more expensive) devices (improved biomass cook

stoves, and liquefied petroleum gas and kerosene stoves). Similarly, fluorescent and

compact fluorescent lamps are often not bought due to the lack of life-cycle costing by

households.” (Jochem 2000)

Even with successful implementation of energy efficiency measures, the full potential energy

savings are not realised because consumers are known to increase their energy consumption

elsewhere. Van den Bergh explains: “’Energy rebound’ denotes the phenomenon that

greater energy efficiency, or plain energy conservation through changes in behaviour or

choices (by firms or consumers), triggers additional energy use so that the net effect on total

energy use over time becomes uncertain” (Bergh 2011, 45). In developing countries in

particular, Van den Bergh expects energy efficiencies to advance development, improve

welfare, and reduce pollutive emissions while having a net impact on overall energy

consumed.

Split incentives between owners and tenants are an example of why people do not invest in

energy efficiency measures that make economic and financial sense. For instance, “when the

landlord (principal) pays the energy bill and cannot influence the choice of energy


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consumption by the tenant (agent), and when the tenant (principal) cannot perfectly

observe the prior choice of insulation by the landlord (agent)” (Gillingham, Harding and

Rapson 2010).

Another example of the complex drivers for private investment in energy efficiency is the

energy cost variance over the lifetime of an appliance or product relative to the full purchase

price. For example the cost of fuel over the lifetime of a vehicle is low relative to the full

purchase price of the vehicle, whereas the cost of electricity over the lifetime of an air-

conditioner is high relative to the full purchase price of the air-conditioner. A consumer is

therefore more likely to invest in a more efficient air-conditioner before the end of its

lifetime than in a more efficient vehicle. (Alcott and Greenstone 2012)

Gillingham et al (2009) evaluate the systematic biases that influence the investment and

consumption decisions of consumers “that could lead to overconsumption of energy and

underinvestment in energy efficiency. However, more fully understanding the magnitude of

these biases, disentangling them from informational and other market failures, and

measuring the ability of practicable policies to address these behavioural failures remains an

important area for future research.”

“A survey of energy-related behaviour and perceptions in South Africa” (DoE 2012)

concluded that only 20% of the sample interviewed were aware of ways and means to save

energy, and 81% of South Africans preferred awareness raising as a government initiative

compared to the 46% who favoured the option to tax households who use a lot of energy.

75% also favoured the replacement of electric water heaters with solar water heaters.

Of those who were aware of various ways and means to save energy, the relative action or

behaviour change to achieve energy savings is shown to be high for switching off lights when

leaving the home and low for conserving energy by ironing less or using less hot water. This

ratio between awareness and actual behaviour change is shown in the figure below.

Figure 27: Ratio between awareness of an energy saving measure and taking action (DoE 2012, 69)


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The SA Energy Efficiency Strategy (2005) set a target for final energy demand reduction of

10% by 2015 in the residential sector, which would require 1% reduction every 6 months.

2.7. Critical Success Factors for Energy Efficiency Sector

In general there is a trend to consume more energy as countries develop and incomes rise,

holding the price of energy constant. Direct monetary and cost savings for the consumer are

commonly the most effective incentive for energy efficiency. However, even when

financially viable, many market barriers/failures, and information and behavioural problems

are cited for the poor uptake of energy efficiency (Sarkar and Singh 2010) (Gillingham,

Newell and Palmer 2009).

From international experience reviewed in the preceding sections, the following factors are

critical for successful uptake of energy efficiency and promotion of the industry:

Awareness about technology benefits, costs, policy incentives, etc among

consumers across all sectors to enable informed decision making

Accurate data capture to set baseline for energy consumption, monitor

performance, improve energy management and achieve relevant targets

Energy management to ensure implementation of appropriate systems to monitor,

evaluate, verify and manage energy consumption

Performance based incentives such as tax incentives

Non-performance based incentives such as rebates/subsidies, attractive micro-

finance & lending schemes, and mandatory compliance regulations/quotas

Sector specific incentives for different industries, end-use applications and markets

Integrated site specific planning to avoid one-size-fits-all and blanket approaches

Integrated Value Chains for the reliable manufacture, supply, operation and

maintenance of energy efficiency measures

Removing perverse incentives such as subsidies for conventional energy intensive

products, services and economic activities

Appointing responsibility for energy savings and energy consumption is critical in all

sectors involving landlord and tenant situations where no incentive to save energy

exists for either party. Appointing responsibility to leading government agents,

departments and line functions is also important from an institutional perspective.

These are critical success factors for an enabling environment for free market enterprise,

which promotes behaviour change that can save energy and money. Additional factors

should be considered in order to achieve other possible objectives such as protection of

local manufacturing from international exports for example.


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3. Renewable Energy Industry Analysis

The Draft National Integrated Energy Plan broadly examines the energy sector by primary

energy supply. In the assessment of renewable energy, it states:

“Overall, at a global level, renewable energy deployment has expanded rapidly,

providing evidence that this group of low-carbon energy technologies can deliver the

intended policy benefits of improved energy security, GHG reductions and other

environmental benefits, as well as economic development opportunities” (RSA 2013, 73).

This is supported by the REN21 Renewables 2013 Global Status Report, which measures the

growth in Renewable power and fuels from 2010 - 2012. The total renewable power capacity

(excluding hydro) grew from 315GW in 2010 to 395GW in 2011 and to 480GW in 2012. The

total renewable capacity including hydropower in 2012 is 1470GW and is disaggregated as

follows (REN21 2013, 14):

Hydropower capacity 990GW Biopower generation 35GWh

Solar PV capacity 100GW Concentrating solar thermal capacity 2.5GW

Wind Power capacity 230GW Solar thermal hot water capacity 255GWth

Biodiesel production 22,5 billion litres Ethanol production 83,1 billion litres

While certain countries lead by significant margins with large portions of total installed

capacity, the graph below shows how more and more countries already have and plan to

have sizeable (over 100MW) installed renewable energy capacity (excluding hydro capacity).

Figure 28: Number of countries with non-hydro renewable energy capacity above 100MW

(IEA 2012a, 12)


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The legacy of energy intensive coal and oil based industrialised development is observed in

the figure below where fossil fuels account for over 78% of total global energy consumption

in 2011, and renewables accounting for only 19%. Traditional use of biomass for cooking and

heating in developing countries still predominates this portion of renewables at 9.3%, while

modern biomass and other renewables make up the remaining 9.7%.

Figure 29: Estimated Renewable Energy Share of Global Final Energy Consumption in 2011,

(REN21 2013, 19)

The dominance of fossil fuels (including coal, oil and gas) and nuclear is likely to only slowly

fade out due to long lifespans and large capital replacement costs. However in the same way

that fossil fuels displaced traditional energy carriers, sustainable forms of energy will begin

to replace fossil fuels (Grubler 2012). Supply factors, such as natural resource availability and

technological innovation, as well as demand factors, such as demand for energy services and

end-use will drive this energy transition. The concept of the third industrial revolution

speaks to this idea of an energy transition away from fossil fuels to renewable energy and

information technologies.

A comparison of final energy consumption by end-use (such as heating), or by sector (such

as industry or residential), or by energy carrier (such as electricity or liquid fuels) can explain

how demand might drive this energy transition.

Many reports review the growth and investment trends in the renewable energy industry by

natural resource (such as wind, solar, biomass) and the potential for these resources to

provide different energy services and replace conventional fuels. In contrast, this report will

review trends in the global renewable energy industry by energy carriers, namely electricity,

transport fuels and other primary/traditional energy carriers in rural and developing

markets.

Section 3.1 will provide an overview of trends in the renewable energy electricity generation

sector according to renewable energy technologies (RETs) and natural resources biomass,

solar, wind, etc. By focusing only on the electricity generation potential of various RETs, a

clear assessment of the potential for renewable energy to substitute and/or supplement

conventional fuels in the electricity industry can be made.


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In its own category, the trends in the non-utility solar thermal energy industry will be

assessed in section 3.2. Section 3.3. will cover the trends in renewable energy uptake in the

liquid fuels sector allowing a clearer assessment of the potential for renewable energy to

substitute and/or supplement conventional transport fuels. And section 3.4. will cover the

development trends, supply and demand for renewable energy in rural and developing

markets. The critical success factors experienced in existing markets will be identified in each

section.


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3.1. Renewable Energy and Electricity Generation

In 2012, electricity generation capacity from renewable energy totalled 480GW excluding

hydropower and 1470GW including hydro-power (REN21 2013, 94). This is just over 26% of

total global electricity generation capacity, whereas renewables account for an estimated

21.7% of global electricity supplied. The figure below shows that 16.5% of electricity

produced in 2012 was supplied by Hydropower and 5,2% by other renewables.

Figure 30: Estimated Renewable Energy Share of Global Electricity Production, end 2012

(REN21 2013, 19)

The historical dependence on fossil fuels such as coal and natural gas, and the scale of

electricity generated by fossil fuels and nuclear is evident in the majority share of total

global electricity production shown above. However, there has been a noticeable move

away from new investment in electricity generation capacity from fossil fuels. This is

understood by the Bloomberg New Energy Finance report in 2013 to be partly due to

increasing gas and crude prices, more stringent emissions regulations (especially in Europe

and North America), and significant penetration of renewable energy. The figure below

shows that gross investment in fossil fuels is in fact declining while the gross investment in

renewables has increased in recent years.


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Figure 31: Renewable Power Investment compared to Gross Fossil-Fuel Power Investment,

2008 – 2012, ($Bilion) (Bloomberg New Energy Finance 2013)

This growth in gross investment includes the investment costs to replace existing power

plants. If one accounts for only the net investment (or investment in new capacity only),

then the investment in renewable electricity production (excluding hydropower), at $227.4

billion in 2012, comfortably exceeded net investment in fossil-fuel electricity production, at

$147.7 billion, for the third successive year (Bloomberg New Energy Finance 2013, 32).

The following sections will assess the market trends in utility scale electricity generation

from bioenergy, waste, hydro, solar, wind, geothermal and ocean energy. The opportunity

for decentralised electricity generation will also be discusses as well as the critical success

factors for the development of renewable electricity generation.

3.1.1. Bioenergy

Electricity generation from bioenergy/biomass resources encompasses a variety of forms

(using solid biomass, biogas, liquid biofuels and renewable municipal waste) and varies from

country to country, depending on the technology and particular feedstock available in that

region. “Conversion technologies may release the energy directly, in the form of heat or

electricity, or may convert it to another form, such as liquid biofuel or combustible biogas”

(Musango, Amigun and Brent 2011).


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The figure below shows that the total electricity production from bioenergy increased from

about 200TWh in 2005 to 300TWh in 2011. US, Brazil and Japan’s production of electricity

from bioenergy have remained fairly constant compared to the steady increase in Germany

and the rapid growth in China (driven by an ambitious target of target of 30 GW of

bioenergy-to-power applications in 2020, as well as ample availability of feedstocks).

In the rest of the world (RoW), Thailand, Malaysia and Indonesia are taking advantage of

ample available wastes from the palm oil and sugar cane industries. As a result the growing

capacity of Southeast Asia is leading the rest of the developing world (IEA 2012a).

Figure 32: Bioenergy electricity generation by country (IEA 2012a, 139)

The main driver of electricity generation from bioenergy is reliable feedstocks such as wood,

agricultural residues, waste biomass (or underutilised biomass) and organic municipal waste,

which will be discussed in further detail below. Landfill gas and waste to energy are covered

in the section 3.1.2.

Wood pellets

The following excerpt from Opportunities and barriers for international bioenergy trade

(Junginger, et al. 2010) summarises the nature of wood pellets for electricity generation:

“Wood pellets are a type of wood fuel generally made from compacted sawdust.

They are usually produced as a byproduct of sawmilling or other wood transformation

activities. In past years, increasingly also round wood and wood chips are used as feedstock.

Wood pellets typically have a low moisture content (below 10%) and a high energy density

compared to many other solid biomass types. These properties allow efficient storage and

long-distance transport.”

The international production, consumption and trade of wood pellets for power generation

has grown dramatically since 2000 as can be seen in the figure below.


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Figure 33: Wood pellet global production by country or region 2000-2012 (REN21 2013)

The EU is the largest market for wood pellets internationally, while Canada is the largest

gross exporter. In 2010, 81% of EU wood pellet demand was met by EU production,

importing only 19% (IEA 2011).

Figure 34: Wood pellet production and consumption internationally in 2010 (IEA 2011)

The main exporters of wood pellets to the EU are shown in the figure 26, with South Africa

exporting 25,425tons in 2010.


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Figure 35: Extra EU imports of wood pellets by country in 2010 in tons (IEA 2011)

Wood chips and wood pellets can be used as a feedstock on its own as well as a supplement

feedstock with coal in modern heat and electricity generation plants. In Sweden, the

consumption of wood pellets has increased across all sectors including: “private consumers,

small and medium size heating plants and large scale CHP plants for both heat and electricity

production” (IEA 2011, 18).

In Germany, the market for wood pellets is largely in non-electrical heating systems such as

pellet boilers (65% of the market), and pellet stoves (35%) (IEA 2011), however electricity

generation in Germany’s Combined Heat and Power (CHP) increased from 3TWh in 2011 to

20,5 TWh of electricity in 2012 (REN21 2013). Due to the promotion programme

“Holzwärme” in Austria, residential pellet heating systems on a small scale have steadily

increased consuming about 630,000 tons in 2010 (IEA 2011).

In addition to residential and industrial heating systems, wood pellets in Finland for example

can supplement 2-3% of fuel use in Coal‐fired power plants using pulverised combustion;

without great technical changes in the burning systems. In Netherlands, “almost 100%

[1,250,000 tons/year] of all wood pellets are used for co‐firing in large‐scale coal fired power

plants” (IEA 2011, 55).

Since KZN has an established agricultural sector in timber, some interest in the potential for

marketing wood chips and pellets from the under-utilised timber has developed. The

greatest challenge for pioneering project developers is the security of feedstocks from

farmers, which can undermine the bankability of projects.

A few known manufacturers of wood pellets in KZN were orientated towards export

markets, however all have since closed down according to James Van Zyl, Commercial

Manager of NTC. Woodchips, on the other hand, are still being exported successfully. The


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NCT 2012 annual report2 states that three woodchipping facilities - BayFibre, ShinCel and

NCT Durban Wood Chips (the former two mills are located in Richards Bay and the latter in

Durban), export all their product to Japan’s paper making industry. In 2010, “the total

tonnage exported was 2,267,000 tonnes on 59 ships. 46 of these ships were from the Port of

Richards Bay and 13 from the Port of Durban” (Naidoo and Chasomeris 2013).

The potential for cogeneration from wood chips is dependent on multiple market and

legislative factors. The Paper Manufacturers Association of South Africa (PAMSA) motivated

for a Cogen Feed-In-Tariff of Tariff of R1.34/ kWh for wood chips biomass in 2011 based on

the levelised cost of electricity.

Agricultural residues and underutilised biomass

Many agricultural industries produce biomass residues that can be utilised to generate

electricity, such as bagasse in the sugarcane industry and manure from livestock in the pig,

cattle and chicken farming industries. Bi-products of certain industrial processes in food and

beverage industries can also be used to generate power. There are often equal

opportunities for electricity generation and biofuel generation from underutilised biomass

residues (see section 3.3). Factors such as cost, demand, market infrastructure and

competition with alternatives therefore determine what portion of the available feed stocks

are utilised for fuel or electricity generation.

“Sugarcane bagasse is the fibrous waste that remains after the recovery of sugar juice

via crushing and extraction. It also has been the principal fuel used around the world in the

sugarcane agro-industry because of its well-known energy properties.” (Pippo and Luengo

2013)

The utilisation of bagasse in electricity generation (particularly cogeneration) in sugar mills

“is widely used in many parts of the world because of its high calorific value, its availability

and its proximity to industry and end-users” (Karekezi, Kithyoma and Kamoche 2009, 185).

Brazil has the largest agricultural sugar cane industry in the world and leads in the field of

bioenergy – in particular, the production, consumption and export of bioethanol (which is

discussed in section 3.3) as well as electricity from biomass, producing 36TWh in 2012

(REN21 2013).

In India, a total of 130 biomass power projects feed electricity to the grid with a combined

capacity of 999 MW, and 158 bagasse cogeneration projects in sugar mills have a further

1666MW of capacity (Gupta and Vyas 2013).

In Eastern and Southern Africa, the eight countries listed in the table below collectively

generated 85,3 TWh of electricity from bagasse using cogeneration in 1995. This increased

2 NCT Forestry Co-operative Limited (NCT) was established in 1949 as a marketing cooperative

catering to the needs of private and independent timber growers. As a co-operative, its members who

share in profits, own NCT. Today membership exceeds 2 000 shareholding members, representing a

total area of 300 000ha - 21% of afforested land in South Africa.


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to 134,9 TWh in 2005. The table below indicates the full potential for cogeneration using

bagasse in these countries.

Figure 36: Cogeneration (bagasse) potential for Eastern and Southern Africa

(Karekezi, Kithyoma and Kamoche 2009)

The sugar industry in South Africa has the potential to generate 1,000MW of electricity from

bagasse with the existing 14 sugar mills (Fechter 2012). In the Nersa 2006 Electricity Supply

Statistics Report, 4 power stations accounted for 0.01% of total electricity generated from

bagasse, which equates to 237GWh of base load electricity during peak season. The

Integrated Energy Plan estimates that the installed generation capacity in the industry is

about 245 MWe.

The sugar industry, the majority of which is based in KZN and the east coast of Southern

Africa, is dominated by two major companies Illovo and Tongaat Hulett; with a cane growers

association and the SA Sugar Association representing all interests. The industry has

motivated that the proposed Cogeneration Feed-in-tariff (COFit) of R1.84/kWh to generate

electricity from bagasse is too low. The industry is said to suffer from lack of off-take

agreements and tax incentives.

The sugar industry is not the only source of suitable biomass residues. The table below

shows potential sources of biomass in South Africa (not exclusively for electricity

generation).


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Figure 37: Summary of Biomass availability in South Africa by type

(Musango, Amigun and Brent 2011)

The table above does not account for residual biomass from livestock industries, however

(Stafford, et al. 2013, 21) provide first order estimates of energy potential from wastewater:

“The greatest energy potential was identified for wastes from animal husbandry

activities, in particular poultry farms and cattle. The energy potential from poultry farm

waste waters, a major sector of South African agricultural industry, were estimated as 940 to

2 980 MWth. This was followed by the domestic blackwater stream, which was estimated to

have the capacity to generate of the order of 840 MWth.”

Cattle feedlots have an estimated potential capacity of 79 – 215 MWth, while rural cattle has

1271– 3445 MWth estimated capacity, dairies 117 – 121 MWth and piggeries 18 – 715 MWth

(Stafford, et al. 2013).

An initial feasibility study undertaken by Bosch and SLR commissioned by Dutch Ministry of

Economic Affairs, Trade and Investment KwaZulu Natal and the uMgungundlovu District

Municipality, conservatively estimates that 14,5 MW of electricity can be produced in the

uMgungundlovu district alone (Nothling, 2013). Seven sites for potential Anaerobic Digesters

are identified within a radius of 7 – 22km of all suitable feed stocks such as pig, chicken, and

cattle manure as well as industrial organic waste from Nestle. The distance the feed stocks


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must be transported affects the cost of power production and therefore multiple sites for

decentralised power generation is usually cost effective. Anaerobic Digestion can convert

biomass into electricity or natural gas.

Organic Municipal Waste

Municipal solid waste and wastewater treatment works have constant feed stocks of

biodegradable matter that can be harnessed to generate energy. “Approximately 2,250

sewage sludge facilities are operating in Europe” (REN21 2013). Stafford et al (2013)

estimate an energy potential of 840 MWth from “black water” or sewage in South Africa.

Eskom “the power utility in South Africa has been looking into the potential of using the

biomass from municipal waste and wood-based biomass for firing or co-firing the existing

coal plants (Thomaz, 2009; de Bruyn, 2010)” (Musango, Amigun and Brent 2011).

Investigation into the potential for anaerobic biogas digestion at wastewater treatment

works is currently underway in eThekwini Municipality.

3.1.2. Waste to Energy

As a means to reduce landfilling municipal solid waste and to reclaim the energy content of

waste streams, a combination of systems are commonly promoted; these include anaerobic

digestion, materials recycling and incineration (Eriksson, et al. 2005). Anaerobic digestion of

biodegradable or organic municipal waste was discussed previously. This section will cover

energy potential from non-organic waste streams as well as landfill sites.

“Incineration and gasification are the two primary [waste to energy] (WTE)

technologies that have been used successfully throughout the world. It is estimated that

about 130 million tonnes of MSW are combusted annually in over 600 WTE facilities

worldwide, producing electricity and steam for district heating and recovered metals for

recycling (Themelis, 2003).” (Cheng and Hu 2010)

After recycling (or materials and organic waste recovery), municipal solid waste can be

“incinerated producing electricity at an efficiency of about 20% and thermal product at an

efficiency of about 55% … [while] Gasification produces electricity at an efficiency of about

34%” (Murphy and McKeogh 2004). Various cost and site specific factors, as well as

commercial and environmental advantages and disadvantages will determine the most

appropriate application of each technology.

Countries like Japan, Korea, USA, and EU member states have 3R (reduce, reuse, recycle)

policy targets to limit waste to landfill and reduce associated GHG emissions. Recycling and

incineration are two methods applied to achieve these targets. Recycling has increased in all

countries between 1996 and 2008, while landfilled waste has decreased in every case.

Incineration has remained fairly constant in Japan, slightly decreasing in the USA, slightly

increasing in the EU, and increasing the most in Korea. The major driver of these policies is

the difficulty in obtaining landfill sites (Sakai, et al. 2011).


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Landfill gas is a highly contested as a renewable energy resource because the potential for

capturing gases such as methane for electricity generation is limited to the lifespan of the

landfill site. While municipal solid waste streams are considered renewable, landfill gas is

not intrinsically renewable, however existing landfill sites do offer the potential for

electricity generation, albeit limited to the lifespan of the landfill site.

Electricity generation from landfill gas is a commercialised technology in South Africa with a

handful of plants in operation, including eThekwini’s: Mariannhill (1MW) and Bisasar Road

(6.5MW). The landfill gas, which consists of 60-50% methane gas (Botes, 2012), is extracted

and used to power gas turbines. As a result the GHG emission reductions can be sold for

carbon credits and the electricity can also be sold to the network or grid. Industrial and

domestic waste is estimated to have an energy content of 11,000GWh per annum (DOE,

2013). The REIPPP has yet to allocate the 25 MW to landfill gas projects in the next bidding

windows.

3.1.3. Hydropower

Hydropower accounts for 67% of the renewable energy capacity globally at 990MW in 2012

(REN21 2013). This is due to a long history of commercialised hydropower globally. Modern

Large Hydro power plants with a capacity of 25MW or more are highly engineered projects

that can generate base load electricity as well as meet peak electricity demand because of

the vast storage and stable supply of water. The numerous benefits of large hydro are

tainted by the negative environmental and social impacts such as: “potential impacts on

hydrological regimes, sediment transport, water quality, biological diversity, and land-use

change, as well as the resettlement of people and effects on downstream water users, public

health, and cultural heritage.” (REN21 2013, 37)

China, Brazil, Canada, USA, Russia, Norway, India and Turkey are the leading countries for

large hydropower generation in the world. In Africa, the Grand Inga Hydro Project in DRC has

between 36,000 and 100,000MW of potential hydro capacity, and the Zambezi River Basin

has approximately 6,000MW of potential capacity (Haw and Hughes 2007). Ethopia’s Grand

Renaissance Dam is currently being built with an expected capacity of 6,000MW (REN21

2013). “According to the Intergovernmental Panel on Climate Change (IPCC), Africa has

developed only about 8% of its potential” (IEA 2012a).

Given the maturity of hydropower technology, it is currently the most well developed form

of renewable energy in South Africa. Eskom currently has approximately 665MW of

installed hydropower capacity. In addition Jonker Klunne (2013) has a record of about 102

known hydro projects in various stages of development or operation in South Africa. In

addition to self-generated hydropower, South Africa imports hydropower from Cohora Bassa

and Mepanda Uncua in Mozambique, and Inga in DRC.

In general, South Africa is water scare country and is not regarded as a country with much

more potential for hydropower generation (DoE 2013). Opportunities for new large-scale

hydro lie mainly in neighbouring SADC countries, with a total estimated import potential of


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36,400MW (Musango, Amigun and Brent 2011). As can be seen from the figure below, KZN

has a number of small-scale hydro power plants.

Figure 38: Current Status of Hydro Projects in South Africa (Jonker Klunne 2013)

There are also opportunities for new small hydro in South Africa as can be seen in the figure

below, showing that KZN and the Eastern Cape have the greatest potential (Hutchinson

2011) (DoE 2013).


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Figure 39: Areas with micro hydro potential in South Africa (Hutchinson 2011)

Source: DME, Eskom, CSIR, 2001

Musango, Amigun and Brent (2011) refer to the following “opportunities for developing

pico-, micro-, mini-, and small-hydro in South Africa, include, among others (Barta, 2011):

(i) the upgrade of the existing plants that are owned by the Department of Water

Affairs and municipalities - this has a potential to generate up to 70 GWh per

annum;

(ii) setting up hydro power stations on existing or new dams - currently, there are

about 300 dams that are suitable for this development and have a potential to

generate up to 500 GWh per annum;

(iii) inter-basin water transfers, which has a potential to generate up to 300 GWh

per annum;

(iv) making use of the municipal or water distribution systems and has a potential to

generate between 250 and 500 GWh per annum”

Business models for developing large hydro commonly require state involvement and even

multi-lateral agreements in the case of Inga Hydro Project, which exports power to the

entire region and requires shared finance. Public private partnerships and parastatals ensure

private sector expertise and capacity to operate and maintain vital water and energy

resources. Small dams and run-of river applications on private land can be implemented


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privately but require substantial capital investment, licensing and permission from upstream

and downstream stakeholders.

Internationally smaller hydro projects are attracting the attention of national strategies and

investment. Ukraine’s “financing of a series of small hydro projects totalling 980MW and

worth $2.1 billion on the Dnieper River” indicates the value of small hydro and decentralised

generation (Bloomberg New Energy Finance 2013, 25).

Inter-basin water transfers and municipal water distribution systems have spurred interest

by local authorities interested in generating electricity for own use, and saving on electricity

imported from Eskom. In KZN for example, the Springrove Dam water transfer hydro project

pre feasibility study estimates that 5MW of electricity capacity could be produced to self-

power the 5.8MW pump (Knox 2013a). In addition the eThekwini Mini Hydropower project

feasibility study for eThekwini Water and Sanitation (EWS) are in progress. The EWS

feasibility study has identified two reservoirs in Phoenix (143 kW and 70 kW), a reservoir in

Umhlanga (113 kW), Sea Cow Lake (147 kW), Aloes (26 kW) and KwaMashu (172 kW) as

potential hydropower sites (Knox, Small Hydro – a mature renewable energy technology

2013).

3.1.4. Solar Power

The total global installed capacity of Solar Photovoltaic (PV) grew from 71GW in 2011 to

100GW in 2012, and the capacity of Concentrated Solar Thermal grew from 1.58GW in 2011

to 2.55GW in 2012 (REN21 2013). Solar PV technology is the fastest growing renewable

energy technology and price competitive with conventional electricity generation. PV is

suitable for large-scale utility applications, commercial and industrial applications, as well as

small-scale residential installations embedded and off grid. The figure below shows that

“from 2005-11, solar PV cumulative capacity grew on average by 54% per year” (IEA 2012a,

159).


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Figure 40: Solar PV installed capacity by country (IEA 2012a)

Global investment in solar experienced its first decline by 11% in 2012, decreasing from

$158.1 billion to $140.4 billion. This is compared to the average positive growth rate of 36%

per annum since 2004 (Bloomberg New Energy Finance 2013, 16). This decrease in

investment does not equate to a direct decrease in new installed capacity because total

installed solar PV capacity increased from 71 GW in 2011 to 100GW in 2012. (REN21 2013)

The main reason for this is that 2012 also saw a drastic decrease in the levelised cost for

solar PV.

The drastic decrease in solar prices is attributed to decreasing costs of input materials and

over supply in the manufacturing chain. The REN21 report estimated that “the average price

of crystalline silicon solar modules fell by 30% or more in 2012, while thin film prices

dropped about 20%” (REN21 2013, 43). According to Bloomberg “crystalline silicon PV

levelised costs fell by 57-58%, while those of thin-film PV dropped by 44%” (Bloomberg New

Energy Finance 2013, 32).

The manufacturing sector has undergone serious restructuring due to increasing

competition and over capacity (IEA 2012a, 161):

“Due to a large degree of overcapacity, the solar PV manufacturing industry is

undergoing major consolidation. In 2011, many companies scaled back their production or

restructured, and some went out of business. Competition is fierce, with companies selling

their products with zero margins or at a loss just to keep their market shares. Chinese-based

companies are taking increasingly large market share, as several United States and European

companies have been unable to compete on a cost basis. Moreover, companies are tending

to locate manufacturing facilities closer to demand centres, which are increasingly found in

emerging markets. Still, at the end of 2011, the global manufacturing capacity as estimated

by Lux Research was 50 GW (Lux Research, 2012b).”


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Chinese companies have dramatically increased their market share of manufacturing as can

be seen by the figure below, but the strategic location of manufacturing closer to demand

centers should keep other companies afloat.

Figure 41: Global PV module production in 2011, by company (GW) (IEA 2012a)

Another major driver of Solar PV investment is linked to subsidies and policy – having both a

positive and negative impact. Policy instruments driven by price, such as Feed-in-tariffs (FIT),

and those driven by quantity, such as Renewable Portfolio Standards (RPS), have had mixed

effects. Germany’s progressive financial incentives through FITs and low interest loans since

the 90s propelled the growth of the industry, such that “within just a few years, a highly

dynamic industry covering the entire value chain has come into being” (Luthi 2010).

However, German utilities were obliged to accept “green electricity” at 90% of the cost,

causing the price of electricity to rise, which was ultimately transferred to customers

(Frondel, Ritter and Schmidt 2008).

The early PV developers benefited most from this programme, which guaranteed market

demand at a favourable (profitable) price. However not all of the “first movers” have been

able to maintain market share. In more recent years, reduced incentives (including FIT

payments) and general policy uncertainty across Europe has resulted in reduced investments

in Solar PV (REN21 2013). As a fast follower, China’s production and installed capacity of

solar power has overtaken the rest of the world.

In the US, deployment of solar PV is broadening further afield “driven by falling prices and

innovative financing and ownership models such as solar leasing, community solar

investments, and third-party financing” (REN21 2013, 41). Decentralised rooftop PV systems,

generating electricity for own use, accounted for 47% of added solar PV capacity in the US –

showing a decline in utility scale investment (REN21 2013, 42).


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The Solar PV Localistaion study by (Ahlfeldt 2013) estimated that 30 MW of Solar PV was

installed in South Africa in 2012, of which the REIPPPP allocation does not yet feature (see

figure 39).

Figure 42: Installed Solar PV Capacity in South Africa (Ahlfeldt 2013)

The study differentiates between large scale (>1MW) projects such as the Solar PV and

Concentrated Solar Power (CSP) plants allocated through the REIPPPP with the purpose of

exporting electricity to the grid, and small scale (<1MW) projects with the purpose of

generating electricity for own use. At a large utility scale, South Africa, like most developing

countries, has seen increased investment in Solar PV as the cost of technology has decreased

rapidly:

“In South Africa, the $5.7 billion of investment in 2012 was also helped along by

falling costs. The bidding in the second round of the government renewable energy tender

mechanism in May 2012 resulted in prices 22% and 40% lower for wind and solar PV than in

the first round in late 2011.” (Bloomberg New Energy Finance 2013, 33)

The REIPPP allocation of 400MW to three CSP projects in the Northern Cape will see an

investment of R9 billion in utility scale generation (Creamer 2013). Unlike Solar PV, CSP

generates heat that can be stored and used during peak demand periods after dark to

generate electricity. Due to this improved dispatchability, CSP is a valuable utility scale

renewable energy technology (Knox 2013b).

There has been limited development of large-scale solar installations in KZN due to the

comparatively higher irradiation levels in the Northern Cape and Highveld, therefore none of

the REIPPP allocations for Solar PV have been awarded in KZN. However, there have been

some notable installations such as 675kWp Solar PV installation at Dube Tradeport and a

477kWp Concentrated PV demonstration installation by Soitec located in Veralum.


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The market for small scale private installations, in particular medium to large industrial roof

top installations, is expected to grow as electricity prices increase and as the demand for

energy security by private firms increases. Appetite for private investment in rooftop PV in

South Africa is still plagued by common market barriers such as: high upfront cost and

financial barriers, lack of knowledge or inconsistent information among businesses and

households, and inertia and market perception barriers albeit to a lesser degree (EA Energy

and Camco 2013).

This market for small scale PV has the potential to create more local jobs (5.3 and 8.0 Full

Time Equivalent jobs per MW in construction and installation) than the large scale industry

(5.83 Full Time Equivalent jobs per MW). (See section 3.3 for rural and off-grid applications

for Solar PV.) Ahfeldt (2013) estimates that these residential rooftop PV systems can create

between 6.1 and 9.2 Full Time Equivalent (FTE) jobs per MW. In total, there is potential to

create up to 389 282 FTE jobs in South Africa between 2013 and 2035; 52.6% of which are

attributed to the commercial/industrial and residential market segments.

3.1.5. Onshore Wind power

Onshore wind power technology is also proven and mature technology like Solar PV and is

also cost competitive with conventional energy generation. Installed capacity has increased

at an average growth rate on 26,5% since 2005 as can be seen by the figure below. This

increased to a total installed capacity of 230GW in 2012 (REN21 2013).

Figure 43: Onshore Wind power installed capacity by country (IEA 2012a)

The Industrial Action Plan of South Africa 2012-2015, recognises that “the scale and maturity

of the global wind industry have made this a cost-competitive energy option compared not

only to other renewable technologies, but also to many fuel-based technologies” (DTI 2012).

As an indicator of the price competitiveness: in the US, “wind power represented as much as


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45% of all new electric generating capacity in the United States, outdoing natural gas for the

first time” (REN21 2013).

Nearly 50% of the global manufacturing industry for wind turbines is dominated by five

companies: Vestas (Denmark), Goldwind (China), GE Wind (US), Gamesa (Spain) and Enercon

(Germany); but it is anticipated that Non-OECD countries should begin to have a more equal

or distributed share of the market. Standardised production of turbine components and

economies of scale has been achieved in the manufacturing industry causing market stability

and sufficient supply to match demand (IEA 2012a, 152).

In Africa, “Ethiopia joined the list of countries with commercial-scale wind farms, installing

52 MW; and construction began on several South African projects totalling more than 0.5

GW” (REN21 2013, 49).

The Wind Atlas of South Africa (WASA) was commissioned in 2012 to generate more

accurate data on the Wind energy potential for South Africa and to enable long term

planning of large-scale exploitation of wind power. In the initial stages, only the coastal

areas of the Northern, Western and Eastern Cape were mapped due to perceived

comparative advantage. “According to Szewczuk and Prinsloo (2010), several studies provide

estimates of the wind energy potential in South Africa and range from a low of 500 MW to a

high of 56000 MW.” (Musango, Amigun and Brent 2011).

As with the investment in utility scale solar power, the wind industry has seen a rapid

injection through the REIPPP Programme. 1646,6MW of Wind Power Projects have been

awarded through the REIPPP Programme and a further 203,4MW remains to be allocated in

future bidding windows. The Policy-Adjusted Scenario of the IRP 2010 however,

accommodates 8,400 MW of electricity from Wind in the electricity generation mix by 2030.

Compared to Solar PV the Green Jobs report calculates that Wind electricity generation have

the potential to create far fewer jobs (Maia, et al. 2011).

Table: Employment potential across different services in Solar PV and Wind industries

Jobs/MW Construction Operations and Maintenance Manufacturing Total

Solar PV 7 0,7 16,8 24,5

Wind 1,5 0,5 4,5 6,5

Source: Green Jobs Report (Maia, et al 2011)

A report on the training and skills needs in the SA Wind Energy Industry by Garrad Hassan &

Partners (2012) estimates that 1,000 jobs will be created for skilled workers in the

construction of wind farms and manufacturing of wind turbine components by 2020 in the

Central scenario. Another 1,000 jobs for technical-level staff will be created in the operation

and maintenance services, and about 300 engineer-level jobs spread over all activities. This

will require news skills and training in:

professional-level short courses across the industry, and specifically for the project

development phase;


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technician-level training for the construction and operation phases.

There are a small number of single wind turbines that have been erected by private entities

in the province such as the Dew Catcher vertical axis wind turbine. The employment

potential of the wind industry may be small in comparison to the Solar PV industry, however

these new jobs will not replace existing jobs in KZN and provide a net gain to the economy.

3.1.6. Geothermal

Geothermal power utilises naturally occurring geothermal heat and steam resources to

create electricity and heat. This is clearly articulated in the excerpt below (IEA 2012a, 144):

“Conventional geothermal power plants, which require a high-temperature resource

(over 180°C), use steam separated from geothermal fluid to drive a turbine and produce

electricity. High-temperature hydrothermal resources are located along tectonic plate

boundaries. Binary geothermal plants use medium temperature (80°C to 180°C) fluid in a

heat exchanger to boil a secondary fluid with a low boiling point to drive a turbine.”

Countries such as the US, Indonesia, Mexico and so on are geographically located near

tectonic plate boundaries and have thus seized the opportunity to generate geothermal

power since “the generation costs from high-temperature geothermal resources are

competitive with fossil-fuel alternatives” (IEA 2012a, 144)

Figure 44: Geothermal Installed Capacity by Country (IEA 2012a, 144)

The Geothermal market in both heat and power is mature with sufficient service providers in

the high potential regions. The turbine manufacturing market is dominated by a few large

companies: “Mitsubishi (Japan), Toshiba (Japan), Fuji (Japan), Ansaldo/Tosi (Italy), and

Ormat (Israel), which together account for well over 80% of capacity currently in operation

around the world” (REN21 2013, 35).


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Like mining for oil and natural gas, Geothermal plants have long lead times and the full scale

of the resource can only be known after drilling; this creates barriers to entry (REN21 2013).

South Africa does not have the potential for geothermal, and the closest market

opportunities in Central and East Africa have been earmarked for development by the

African Union Commission, the German Ministry for Economic Cooperation and

Development (BMZ), and the EU-Africa Infrastructure Trust Fund. Beyond Kenya’s 7,5MW,

eight new projects have already been short-listed by this consortium.

3.1.7. Ocean Energy

Ocean Energy potential includes wave, tidal, current, temperature and salient gradient

potential. Although ocean energy technologies are new compared to hydro, solar and wind,

tidal power generation technology has reached commercialisation in countries such as Korea

(254MW), Canada (20MW) and France (240MW) (IEA 2012a). Tidal power makes up the

bulk of installed capacity as can be seen by the table below – note that Korea only came

online with a leading capacity of 254MW in 2011.

Figure 45: Ocean Power Installed Capacity per country (IEA 2012a, 149)

Currently temperature and salient gradient technologies are still in research and

development phase, while ocean current and wave technologies are in prototype phase.

Positioning itself as a leader in ocean energy investment Europe, the UK government

adopted a Marine Energy Action Plan 2010 (Harris 2012):

“Five companies building wave and tidal energy prototypes will receive £7.9m from

the Scottish government, while the Technology Strategy Board (TSB) and Scottish Enterprise

have awarded more than £6.5m to seven projects developing supporting technology.”

The US, South Korea, Canada, Sweden, UK, and other European countries have medium and

long-term plans and interest in the development of ocean energy (IEA 2012a). In South

Africa, the theoretical ocean energy resource potential has attracted foreign investment


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interest. At a workshop on Ocean Energy that was hosted by KSEF in 2012, it was identified

that only wave energy and marine current energy are appropriate and viable for South

Africa. Tidal current energy generation was not regarded as appropriate given the sensitive

nature of estuaries as well as the tidal difference not being high enough to invest in

(Ramayia 2012).

Early investigation by Eskom into the potential of the Aguhlus Current on the east coast

shows that the current flows towards the southwest along the coastline at up to 2,5m/sec

with monthly reverse flows, called the Natal Pulse. This translates into a total theoretical

potential of 1212MW from multiple sites (see figure 38).

Figure 46: Characteristics of Agulhus Current with Natal Pulse (Roberts 2012)

Figure 47: Technical resource available in Agulhas Current stream based on SIF of 30%

(Roberts 2012) [Source Eskom]


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In terms of wave energy, the Cape is endowed with an average wave power at 40kW/m

compared to the East Coast average at 15kW/m. The Centre for Renewable and Sustainable

Energy at Stellenbosch University is actively pursuing technology options and designs to

harness this wave potential. The Technology Innovation Agency (TIA) requested applications

in 2012 to incubate and fund the early development of Ocean Energy technologies in South

Africa. Seven of 37 applications were selected according to correspondence with Zukile Zibi

of TIA on 5 March 2013. “The selected proposals fitted well with what TIA and the challenge

planned to achieve at the time. They were duly written to asking them to prepare formal

proposals to TIA for funding. The challenge was no competition and there was no award,

etc.” (Zibi 2013)

3.1.8. Levelised-cost comparison of electricity generation per technology

The levelised cost of electricity calculates the cost of production (capital, operation,

maintenance, fuel or feedstocks, etc) over the full lifetime of the installation to get a

comparable cost per kWh. The following table … (reference from Nisaar Mohammed)

Type of energy

Cost of plant Cost of electricity

GHG emissions/environmental impact

Coal $4 million per MW $0.048 to 0.055

per kWh 0.82lbs of CO2 per kWh 0.004lbs of NOx per kWh 0.006lbs of SOx per kWh 1,05lbs of methane per kWh

Biomass For a fuel burner or boiler system the cost is estimated to be between $150 000 to $225 000 per MW of heat input

$0.06 to $0.11 per kWh

On average the amount of CO2 emitted during the burning process is 90% less than when burning fossil fuel.

Landfill

gas

$1500 to $2250 per kW

$0.04 per kWh By extracting landfill gas, methane is also being extracted from the environment. *Zambiza landfill in Ecuador was in operation for 22 years (until 2002), and it is estimated that the project reduced CO2 emissions by 770 000t.

Waste-to-

energy

Capital costs are between $100 000 and $140 000 per daily ton of capacity (for every ton of waste 500 to 600 kWh of electricity is generated)

$0.04 per kWh Environmental impacts are extremely positive, as the size of landfills will be reduced; fossil fuels will be conserved; and emissions will be reduced.

Tidal

power

The cost of a tidal power system will be strictly based off the technology that is installed. In most scenarios, the cost of tidal power is still

$0.10 per kWh Tidal power systems disrupt the tides and the natural ecosystem of fish and marine wildlife. The development can also disrupt the migration of fish and marine wildlife.


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more than typical energy generation.

Solar $2 million to $5million per MW to construct new plants

$0.08 per kWh Negative environmental impacts can be mitigated by proper planning and co-ordination.

Wind Between $1650 and $2400 per kW

$0.095 per kWh Bird fatalities and noise pollution.

Levelised costs for electricity are useful when modelling the comparative costs of generating

electricity, but certain variables such as plant location relative to existing infrastructure and

the end-user need to be considered. This is because transmission losses and the cost of

transmission infrastructure can increase the levelised cost of electricity in more remote

locations. Furthermore, this does not account for investment decisions between own

generation at cost or imported generation with transmission losses, profits, etc.

Roof top solar PV installations in industrial, commercial and residential markets, has

increased renewable energy capacity where grid tie and embedded generation is permitted

(REN21 2013). The benefit for consumers is that although the levelised cost of electricity

from decentralised solar systems is higher than utility scale systems (see figure below), the

consumer can generate electricity for own consumption at a lower price without

transmission losses than what can be purchased from the network or grid (IEA 2013b).

Figure 48: Levelised cost of power generation (USD per MWh) (IEA 2013a, 168)

See detailed cost break down (REN21 2013, 54-55)

The Bloomberg New Energy Finance (2013) review gives the levelised costs for all RETs

including ocean energy in marine wave and tidal.


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Figure 49: Levelised cost of Electricity for different generation technologies (Bloomberg New Energy Finance 2013, 31)


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3.1.9. Decentralised Electricity Generation

Decentralised distributed generation and embedded generation are developing markets that

can compliment the traditional centralised distribution electricity networks and grids. India

for example “is promoting decentralised distributed generation (DDG) systems” (IEA 2012a,

118)

“The size of a distributed generating system may range from less than a kilowatt to a

few megawatts, and it can employ a range of technological options based on renewable and

nonrenewable energy resources. Biomass gasifiers, solar photovoltaic systems, wind-electric

generators are some of the commonly used distributed generating systems for rural

electricity supply and distribution. Of several distributed generation technologies, small-

scale (kWp range) roof-top PV systems are most commonly deployed in urban areas in

developed countries. These roof-top PV systems are exceedingly becoming popular in

developing countries including in India.” (Chaurey and Kandpal 2010, 2275)

The value and trends of decentralised generation in rural and developing markets is

discussed in more detail in section 3.3. Common in both developing and developed markets

is the need for new infrastructure development to accommodate decentralised power

generation. Transmission grids have been traditionally established to transmit electricity

from centralised electricity generation plants to end-users. There is a need for these

transmission and reticulation networks to be upgraded in order to accommodate embedded

and decentralized generation (feeding in of electricity at multiple locations and even at the

end users connection). Kolk an Buuse (2012) cite the lack of infrastructure for renewable

energy technologies (RETs) as another challenge:

“In addition to challenges related to financing and up-scaling beyond pilot projects,

Mohiuddin (2006) mentions that RETs are not yet widely adopted in developing countries

due to a lack of available infrastructure for RETs, which creates high initial capital costs for

RET-based electrification projects, and limits the possibilities for a wider, sustained market

development.” (Kolk and Buuse 2012, 3)

Local municipalities responsible for reticulation of electricity to end users are faced with the

need for “municipal ownership or control of local power distribution and generation

infrastructure. Municipally owned or controlled utilities allow for the greater participation of

local governments and citizens in the planning and development of renewable energy,

enabling local governments to directly advance utility investments, targets, or promotion

policies that encourage private investment in renewables.” (REN21 2013, 73)


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3.1.10. Critical Success Factors for Renewable Electricity Generation

At a utility scale, wind and solar renewable energy technologies are proving to be cost

competitive with conventional electricity, operating with baseload capacity over 1MW, and

with innovations in storage potential and improved dispatchability. As a result, investment

in new electricity generation using renewable energy resources has exceeded that of fossil

fuel based electricity generation. The critical success factors for renewable electricity

generation at a utility scale are:

Competitive levelised cost of electricity for geothermal, biomass, solar and wind

technologies, have proven to attract investment in renewable energy. Feed in tariffs

and subsidies have worked to spur market demand for renewable energy that can

thereafter be faded out.

Long-term commitment in the form of Power Purchase Agreements (PPAs) and

economic stability is essential for capital investments that only begin to realise

returns on investment in 10 – 15 years, with a plant lifespan of 30+ years.

Capacity to compliment peak demand makes any electricity generation plant

attractive in terms of dispatchability

National RE capacity targets ensure that a portion of national generation mix comes

from renewable energy

Competitive bidding processes have proven to achieve greater price competition

and share the investment risk between the purchasing authority and the power

producer. The focus on lowest price per kWh can however ignore potential

economic benefit of other generation such as decentralised generation.

Financial preparedness is important to ensure the smooth implementation of utility

scale projects and broad participation of financial institutions.

Appropriate localisation requirements can have optimal impact upon local

economic development if developed appropriately. REIPPP projects are the only new

generation plants required to meet localisation requirements in South Africa, other

new generation capacity, such as new gas powered plants (OCCGT) are not required

to achieve localisation that can cost more than sourcing cheaper capital, expertise,

technology and components internationally. Localisation requirements must

therefore be applied to all new generation plants.

Strategic market response is important for responding to international market

factors. A “first mover” approach emphasises Research and Development of

emerging technologies from concept development to commercialisation, whereas a

“fast follower” approach emphasises skills and capacity development for market

integration of services along the entire value chain. A fast follower approach is

therefore relevant for mature technologies such as solar whereas a first mover

approach will be effective in industries such as ocean power, and second-generation

biofuels.

In parallel to this utility scale market with centralised generation, renewable energy is also

suited to decentralised electricity generation, in the form of embedded generation, micro


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and mini grids as well as off grid applications. The critical success factors for renewable

electricity generation at a decentralised level are:

Local Government participation to create an enabling environment for

decentralised generation opportunities

Legislation, by-laws and standards to ensure compliance with safety requirements

and quality of electricity supply

Infrastructure for decentralised electricity generation in the form of suitable grid

connections and appropriate metering

Power Purchase Agreements between local authorities and embedded generators is

important for private investments even at a small scale (also experience long

payback period and lifespan over 20 years) to achieve general investment security

and bankability.

Competitive levelised cost of electricity for geothermal, biomass, solar and wind

technologies, have proven to attract investment in renewable energy. Feed in tariffs

and subsidies have worked to spur market demand for renewable energy that can

thereafter be faded out.

Capacity within local government to manage grid connections, maintenance of

reticulation networks and new applications for embedded generation is critical

Awareness among private developers about the opportunity for embedded

generation whether outsourced, or self-operated can be increased to stimulate

rapid uptake of financially viable opportunities in embedded generation.

The off-grid applications of Renewable Energy for electricity generation are discussed in the

section on rural markets.


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3.2. Solar Thermal Energy

With the bulk of household energy consumption for water heating at 24%, it is not surprising

that consumers looking to reduce their electricity bill or reduce dependence on grid

electricity seek alternative water heating solutions. In addition, the use of hot water for

bathing, laundry and washing dishes is also typically timed during peak electricity demand

periods, therefore Solar Water Heating and heat pumps also complement national load-

shifting strategies through demand side management (DSM).

Solar Thermal Energy is discussed here in its own section because it is considered both an

energy efficiency measure and a renewable energy technology. It is also a new emerging

market, competing with electric water heaters and heat pumps at a domestic level, and

heating ventilation and air conditioning (HVAC) systems and large boilers fuelled by coal,

electricity or gas at an industrial or commercial level.

Faced with barriers to the uptake of SWH (such as consumer finance), pioneering countries

implemented subsidies, attractive micro-finance & lending schemes, policy targets and

mandatory building regulations to promote the local investment and installation of Solar

Water Heaters (SWH) across all sectors. Non-performance based incentives are typically

applied to the Solar Thermal industry because it is difficult to measure and verify the heating

performance (particularly in residential sectors) (Timilsina, Kurdgelashvili and Narbel 2012,

461).

As a result of proactive national policies to promote the market, many competing designs of

SWH are widely available and are now price competitive “with other alternatives even in the

absence of incentives. Establishing a well-functioning supply chain is a major enabler for the

creation of solar thermal water heating market.” (IEA 2012a, 164)

The market for solar thermal water heating is responsible for most of the industry in growth

as can be seen in figure 36 – see unglazed, glazed and evacuated tube water collectors (WC)

make up the bulk of growth since 2004. However the market for solar thermal space heating

and cooling is starting to emerge especially in Europe. The REN21 Global Status report

indicates the growth of this industry:

“Rising interest in solar cooling is attracting new companies to the solar thermal

sector, such as Hitachi and Mitsubishi in Japan. The technology has historically had trouble

competing due to its higher investment costs, but costs declined 50% between 2007 and

2012, and the potential remains for further reductions. There are also efforts under way to

improve system quality, such as the recent adoption of an Australian standard for solar

cooling.” (REN21 2013, 48)


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Figure 50: Installed Capacity of Solar Thermal Systems from 2004 – 2009. WC is water collector and

AC is air collector. (Timilsina, Kurdgelashvili and Narbel 2012)

Beyond 2009, the total global solar water heating capacity alone increased from 195 GWth in

2010, to 223 GWth in 2011, to 255 GWth in 2012 (REN21 2013). The following figure shows

the share of total global capacity in 2011 among the top 12 countries.

Figure 51: SWH Global Capacity, Shares of Top 12 Countries in 2011 (REN21 2013)

The European market for SWH has increased by about 9% per year in the last decade while

the market demand in China has increased exponentially; increasing by 18% in 2011 and

accounting for about 80% of global capacity added that year as is shown in GWth capacity in

the figure below (Bloomberg New Energy Finance 2013). There is a greater difference

between China’s net increase compared to gross increase because many SWH systems in

China are specified for 10 years as opposed to the 15 – 25 year life time of SWH in the rest of

the world, hence the net increase in SWH accounts for the replacement of old SWHs.


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Figure 52: Gross and Net Increase in World Solar Water Heater Capacity, 2012, GWth

(Bloomberg New Energy Finance 2013)

Since SWHs in China are more price competitive than electric water heaters, “the expansion

is likely to continue, as the 12th Five-Year Plan proposes to boost the country’s solar water

heating capacity to 280GWth by 2015 and 560GWth by 2020” (Bloomberg New Energy

Finance 2013).

Meyer (2000) measured the average consumption of hot water in South African households

of different dwelling types. Before the rollout of the 1 million SWH campaign, Meyer

observed that:

“Although South Africa is one of the countries in the world that are most suited for

solar heating, an insignificant number of dwellings are fitted with solar water-heating

systems. The reason for this is the high capital cost and the low cost of electricity. Domestic

hot-water heat pumps have only recently started to penetrate the residential market and

the number of units in use is therefore very small.” (J. P. Meyer 2000, 56)

South Africa is following the progress of the leading countries with the implementation of

rebates and Energy Efficiency Building Regulations in 2011 that make it mandatory for new

buildings to supply at least 50% of annual hot water by non-electrical means. The Eskom

rebates for SWH and the national roll out to achieve “1 million SWH by 2013” are contested

to have spiked the import of cheap SWH from China and distorting the market. The graph

below shows that there is substantial opportunity to increase SWH capacity in line with the

world average.


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Figure 53: Number of SWH installed per capita (m2/1000 inhabitants) in South Africa

3

Critical Success Factors for Solar Thermal Energy

The Solar Thermal Technology Platform in South Africa (STTP-SA) offers a suitable reference

for critical success factors in the development of the solar thermal energy industry, since

their activities and objectives are geared to mobilise the transition from energy intensive,

fossil fuel based energy supply to a more sustainable supply. The following critical success

factors are derived from the STTP-SA focus areas:

Market awareness to promote transition to sustainable energy solutions

Capacity building and skills training through Centres of Competence for solar

thermal applications and Solar Thermal Technology as well as extensive training

courses ranging from practical hands-on training to University level courses.

Practical demonstration and pilot projects strategically located in highly visible

areas with private sector participation. The beneficiaries of these demonstration

systems are social institutions and small and medium enterprises.

Full value chain planning such as assistance to manufacturers and support for a

solar thermal testing centres

3 Corresponds to the total solar thermal collectors installed for hot water in m2 divided by the

population. It is expressed for 1000 inhabitants. With: installed solar water heaters per capita (m2/1000 inhab) = solar thermal collectors installed (Mm2) ÷ number of inhabitants (million) and then x 1000.


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3.3. Renewable Energy and Liquid Fuels

To understand the opportunity for renewable energy resources to supplement or substitute

fossil fuels in the liquid fuels sector, it is important to first examine the current demand for

Liquid fuels and the global oil market.

3.3.1. Current demand for Liquid fuels and oil dependency

Global demand for crude oil in 2012 totals 89,78 million barrels per day (mb/d), and it is

expected to grow to 96,68 mb/d by 2018 (IEA 2013b). Figure below shows that positive

demand growth has been sustained above 2,5% in non-OECD countries (typically under-

developed, developing or non-industrialised countries) compared to the stable demand in

OECD countries.

Figure 54: Global Oil Demand 2000 - 2012 and projected to 2016 (IEA 2013b)

Fast developing countries such as the BRICS countries (Brazil, Russia, India, China and South

Africa) and Saudi Arabia have lead the demand for oil among non-OECD countries, however

“a shift toward slower Chinese growth may help decrease their share of incremental

demand somewhat” (IEA 2013b). Energy demand forecasts for oil depend on multiple

demand and supply drivers, such as high oil prices, shifts in the global economy, social and

political transitions and technology advancements.

Recent developments in North American oil supplies “includes not only tapping shale oil and

gas resources in places ranging from Latin America to China and Russia, but also extending

the life and yield of low permeability conventional crude plays” (IEA 2013b). Furthermore,

the abundance of natural gas in the US is slowly entering the fuel mix with opportunities for

big producers such as Australia and China, but the burgeoning natural gas industry is still in

its formative years with unknown reserves and environmental impact (IEA 2012).


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In Africa, total final consumption of petroleum products in 2011 equated to 115,126

thousand tonnes (ktoe), according to IEA online statistics4. South Africa accounts for 17,39%

of Africa’s total final consumption of petroleum products, while Nigeria for example

accounts for only 8,84% and Angola accounts for only 3,22%. However Angola and Nigeria

produced 81,033 ktoe and 115,499 ktoe of crude oil respectively, which equates to 50,3% of

all crude oil produced in Africa. Angola exported 97,35% of all crude oil that they produced

and Nigeria exported 94,9%. In contrast, South Africa imported 20,346 ktoe of crude oil in

2011, which equates to 56,3% of total crude oil imports in Africa.

South Africa’s dependency on crude oil imports impact negatively on the national balance of

payments as explained in section 2.3. Although the heavily susbsidised coal-to-liquids

programme makes Sasol one of the largest carbon emitting companies in the world, it also

4 http://www.iea.org/statistics/statisticssearch/ accessed on 5 October 2013

Rest of Africa 71%

Angola 3%

Nigeria 9%

South Africa 17%

1. Total final consumption of petroleum products in Africa (115,126 ktoe) 2011

Rest of Africa 44%

Angola 0%

Nigeria 0%

South Africa 56%

2. Total crude oil imports in Africa (37,341 ktoe) 2011

Rest of Africa 50%

Angola 21%

Nigeria 29%

South Africa

0%

3. Total local prodcution of crude oil in Africa (390,564 ktoe) 2011

Rest of Africa 42%

Angola 24%

Nigeria 34%

South Africa

0%

4. Total crude oil exports in Africa (322,736 ktoe) 2011

http://www.iea.org/statistics/statisticssearch/


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ensures some supply diversity and local production capacity, which improves energy security

in the liquid fuels sector and lessens the trade deficit.

3.3.2. Demand for liquid fuels in the transport sector

A major demand sector for liquid fuels is the transport sector because of the mobility of the

energy carrier. Continuing with the comparative examples above, Angola and Nigeria, which

In South Africa, “almost 69% of the energy that is used in transport is derived from oil that is

imported. The balance is from fuel that is derived from coal (the SASOL coal to liquid

process) and natural gas (the Mosgas project)” (RSA 2013, 54). Only 5% of transport in SA is

powered by electricity (trains presumably), while the majority of energy for transport is in

the form of liquid fuels. Merven et al (2012) determine that liquid fuels account for as much

as 97% of the energy needs of the transport sector in South Africa:

“Transport is a large consumer of energy in South Africa and vital for economic

development. Currently the transport sector consumes 28% of final energy, the bulk of

which, 97%, is in the form of liquid fuels. As the population grows and becomes wealthier, so

the demand for passenger transport and private vehicles increases; similarly, rising GDP

drives the demand for freight transport. Supply interruptions are costly to the economy and

careful long‐term planning is required to ensure that there is sufficient infrastructure to

support the efficient functioning and growth of the transport sector in the future.”

In support of this, Vandeschuren, Lane and Wakeford (2010) show that the annual sales of

all petroleum products for period 1994–2008 steadily increase with increase in GDP

although at a lesser rate due to greater efficiencies. Petrol, Diesel and Jet Fuel account for

most of the demand linked to the transport sector.

Figure 55: Annual Liquid petroleum sales 1994 - 2008 Source: adapted from SAPIA (2008)


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Peak oil is a contested eventuality, where cost of production will exceed affordability.

Despite uncertainty in projections, Vandeschuren, Lane and Wakeford (2010) recommend

immediate response and adaptation since there are varying lead times for appropriate

measures to transition to a more sustainable transport sector. Such measures include

greater transport efficiencies as discussed in section 2.3 as well as energy efficiency

measures such as increasing biofuel utilisation, which has the potential energy savings of 6%

in both air and road transport, or LPG (5%) or Hydrogen (20–43%).

3.3.3. Biofuels production, trade and potential

“The production of 1st generation biofuels - such as sugarcane ethanol in Brazil, corn

ethanol in US, oilseed rape biodiesel in Germany, and palm oil biodiesel in Malaysia - is

characterised by mature commercial markets and well understood technologies. The global

demand for liquid biofuels more than tripled between 2000 and 2007. Future targets and

investment plans suggest strong growth will continue in the near future… Driven by

supportive policy actions of national governments, biofuels now account for over 1.5% of

global transport fuels (around 34 Mtoe in 2007).” (Sims, et al. 2008)

Since 2000, global biodiesel and bioethanol production has increased dramatically as can be

seen in Figure 13 below.

Figure 56: Development of world biodiesel and fuel ethanol production between 2000 and 2009 in

PJ (Lamers, et al. 2011, 2660)

The REN21 Renwables 2013 Global Status Report estimates that biofuels now provide about

3% of global road transport fuels. Bioethanol is one of the only renewable energy sectors

where global annual production has slightly decreased from 85 bill litres in 2010 – 83.1 bill


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litres 2012. The US bioethanol production from corn at 50.4 bill litres accounts for 61% of

this in 2012, while Brazil produced 21.6 bill litres from sugarcane, which equates to 26%.

Heinimo and Junginger (2007) calculated that of the 41Mm3 of ethanol produced globally in

2002, only 3.5Mm3 was traded internationally, which equates to 8,5%. More recent trade

data (see figure 14 and 15 below) shows that international trade is growing – net trade of

bioethanol produced grew from 2-3% in 2004 to 8-9% in 2006 and then decreased to 5-6% in

2008 and back again to 2-3% in 2009, whereas net trade of biodiesel produced grew from

1% in 2005 to 10% in 2007 right up to 18% in 2008 and then decreased to 14% in 2009.

Favourable domestic policies such as increasing minimum content quotas, mandatory

blending levels and technical standards have provided market stability and increased local

demand and international trade (Lamers, et al. 2011). With adequate demand from flexi-

fuel vehicles, quotas can be as high as that in Brazil: “all petrol sold in Brazil contains a 20–

25% ethanol share on volume basis—in addition to neat ethanol supplies” (Lamers, et al.

2011).

Figure 57: Global (fuel) ethanol trade streams of minimum 1 PJ in 2009 (Lamers, et al. 2011)


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Figure 58: Global biodiesel trade streams of minimum 1 PJ in 2009 (Lamers, et al. 2011)

Annual biodiesel production has increased from 18,5 bill litres in 2010 to 22,5 bill litres in

2012. Europe accounts for 41% of production but the US leads the market by producing 3.6

bill liters in 2012, followed by Brazil which produced 2.7 bill litres (REN21 2013). “The major

exporting countries of [common biodiesel] commodities in the last years were Indonesia and

Malaysia for palm oil, Argentina and Brazil for soybean oil, and Canada for rapeseed oil.

Among these, key biodiesel exporting countries are yet only Indonesia, Malaysia, and

Argentina.” (Lamers, et al. 2011, 2659)

Argentina’s biodiesel market has been strategically orientated towards export market,

contributing to agriculture’s 50% share of total exports, and improving the country’s trade

balance. Export taxes on agricultural products have been developed to protect domestic

food security while also encouraging biodiesel exports since “biodiesel export taxes to be

around 18.5% lower than for soybean oil” (Lamers, et al. 2011, 2659).

Apart from 1st generation feedstocks such as soyabean oil and palm oil, smaller biodiesel

production facilities are known to process waste cooking oils for local or personal vehicle use

(REN21 2013).

Preference for 2nd generation biofuels (such as cereal straw, bagasse, forest residues and

algae) stems from food security concerns about food/fuel crops, higher energy yields per

hectare and utilization of less arable land. However, the market for 2nd generation biofuels is

relatively immature and still competes with available land use and water supply (Sims, et al.

2008).

3.3.4. Biofuels Market in South Africa

Unfortunately “biofuels, as yet, do not contribute any significant portion of liquid fuels [in

South Africa]; their use is confined to very small-scale operations. The same applies to liquid


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petroleum gas (LPG) in motor vehicles. LPG sales relate mainly to household use for cooking

and heating.” (Vanderschuren, Lane and Wakeford 2010)

The opportunity for biofuels development has not gone unnoticed however, “the South

African government and other large stakeholders (e.g. Sasol) are currently developing the

capacity to produce liquid fuels from biomass, with an estimated potential of 20 percent of

the national liquid fuels requirement (45.7 PJ)” (Banks and Schäffler 2006, v).

Meyer, Strauss and Funke (2008) conducted seminal modelling of the impact of possible

policy instruments and incentives upon the food/ agricultural industry. They only tested the

impact upon biofuel feedstocks from sugar cane, yellow maize, soybeans and sunflower

seed. The model illustrates the importance of import tariffs to protect local production and

local fuel levy tax exemption to stimulate domestic demand. They stress that government

support and stakeholder participation in the biofuels industry is crucial for the success of this

infant industry in South Africa.

The South African Biofuels strategy (2007) only allows biofuel production from sugar cane,

sugar beet, soyabeans, sunflower and canola crops. A preliminary target to replace 4.5% of

the local petrol and diesel supply with biofuels by 2013 was set by the Renewable Energy

White Paper (Meyer, Strauss and Funke 2008).

“Even though the 2013 target will be missed, the country is set to produce biofuels in excess

of the originally set annual target when the overall enabling and supporting framework

(mandatory blending regulations, pricing framework) takes effect.” (Modise 2013)

The Regulations regarding the Mandatory Blending of Biofuels with Petrol and Diesel, which

were ratified in 2012, require a minimum of 5% biodiesel blending with diesel and 2-10%

bioethanol blending with petrol. Announced in September 2013, these mandatory blending

requirements will come into affect as of 1 October 2015. Local manufacturers or producers

are required to obtain licenses to produce fuel. The following progress has been made:


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(Modise 2013)

In terms of job creation potential in SA biofuels market, “the estimates as per the 2006

feasibility study (conducted by the former DME) revealed that the targeted 2% biofuels

scenario can create about 25 000 jobs. Government’s intention is to only allocate the

producer (investor) incentive to projects that involve expansion that assist in achieving the

2% target.” (Modise 2013)

The regulations stipulate that bioethanol is free from fuel tax and biodiesel will benefit from

a 50% fuel tax reduction. A regulated price for biodiesel and bioethanol is expected to

compliment the regulated price for diesel and petrol thereby ensuring a neutral impact upon

prices for consumers.

Biofuels need only meet a portion of the transport fuel demand to achieve greater energy

security, reduce carbon emissions and save energy. Because there is an insatiable demand

for liquid fuels in a society of increasing motorisation, it is not likely that biofuels will entirely

replace the existing oil industries.

The Industrial Policy Action Plan 2012/3 – 2014/5 (IPAP2012) supports the scaling up

biofuels industry:

“South Africa has the potential to create significant numbers of jobs through the

development of a large-scale biofuels sector. This will have additional benefits in terms of

import replacement, improved security of fuel supply and expansion of the farming sector.”

(DTI 2012, 98)

Although the IPAP recognises the potential to create 125,000 jobs at 10% mandatory

blending rates and that many developing countries adopt a 10% rate, only 2% mandatory

blending rates are stipulated by the Policy for biofuels.


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3.3.5. Critical Success Factors of Renewable Energy in Liquid Fuels sector

The liquid fuels market is heavily regulated protecting the consumer from the potential of

competing oil refineries to collude. As such the barriers to entry in such a market are

therefore determined by the regulations. Successful markets for biofuels in the liquid fuel

sector have commonly applied quotas or mandatory blending quotas to ensure a certain

portion of liquid fuels contain biofuels at an optimal level for motor performance. 27

Countries have applied blending requirements with consideration for market penetration

among vehicle types and compatibility (REN21 2013, 72).

Downstream and upstream market considerations are important for the successful supply

chain integration, such as the upstream local production of biofuels and secure feedstocks,

and the downstream capacity within automotive repairs and maintenance services.

Securing feedstocks are as important as quotas or mandatory blending requirements to

ensure supply meets demand at a profitable price for the investor. In the same way that

PPAs in the electricity generation sector secure bankability, long-term contracts with

suppliers are required for biofuel projects. Biofuel producers absorb the risk of supply

fluctuations dependent on annual harvests, rains, etc, but with suitable storage capacity, any

surplus can be stored for periods of increased demand.

Critical success factors for the Brazilian bioethanol market include: “existing know-how and

infrastructure for sugarcane production, the involvement of all players along the value chain,

the competitiveness with fossil fuels due to high production efficiency, the ability to make

use of co-products, and the introduction of flex-fuel vehicles (FFV) guaranteeing a long-term

ethanol demand.” (Lamers, et al. 2011, 2660)


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3.4. Renewable Energy in Rural and Developing Markets

Rural and developing markets are typically dependant on traditional energy carriers such as

fuelwood. Modern energy carriers such as electricity are difficult to access and/or not

affordable. Figure 55 shows the share of populations in different regions which are

dependent on traditional biomass – fuel like wood that can be locally harvested/collected

and burned to generate heat and light.

Figure 59: Number and Share of Population relying on traditional use of biomass as their primary

cooking fuel in 2009 (Kaygusuz 2012)

Reliance on traditional biomass is a good indicator of the accessibility and affordability of

modern energy carriers in these markets. It is evident form the figure above, that Sub-

Saharan Africa has the highest percentage of the population reliant on traditional biomass at

80%, of which is mostly rural with a significant portion in urban areas.

Access is an important first step to develop rural communities’ ability to move beyond basic

end use such a cooking and lighting to productive activities such as welding, driving an

electric motor, etc. This natural progression from traditional to modern energy carriers is

referred to as the energy ladder (SEA 2008).

Affordability is major challenge in most developing markets whether rural or urban, and is

the next step in advancing up the energy ladder. A number of business models and support

programmes are identified as important for the successful deployment of renewable energy

(REN21 2013):

after-sale activities,

availability of micro financing,

the creation of an enabling business environment,

fee-for-service models (territorial like concessionaires),

direct lease or lease-to-own arrangements,


Page 72 of 102

mini-utility business models (require complex planning and management skills and

are strongly dependent on load volume, availability of a reliable low-cost primary

energy source, customer affordability, and robust regulatory frameworks)

Different business models for the development of sustainable energy in developing

countries are categorised according to public or private, and subsidized and non-subsidized

as can be seen from the graph below (Kolk and Buuse 2012):

Kolk and Buuse (2012) analyse four companies located in developing and rural markets,

“providing RET-based off-grid energy solutions to households and villages living beyond the

reach of the electricity grid”. They conclude that the involvement of private companies in

establishing long-term sustainable markets for renewable energy depend on the support


Page 73 of 102

from governments and donor organizations in a variety of forms. This is the case for the

concessionaires in the Eastern Cape and KZN, which have exclusive authority to provide

Solar Home Systems (SHS) in identified rural markets. KZN Energy Services Company (KES) is

one such private company that sells and installs SHS in rural homes that are not likely to be

electrified in the short term. These systems are heavily subsidised by government and

private companies are free from competition in their identified region.

Since the deployment of renewable energy in rural and developing markets varies according

to technology, system and end-use, the following sections will unpack market trends in basic

cooking, space heating and lighting, market trends in renewable energy for productive end

uses, and the market trends for RE infrastructure development in terms of micro-, mini- and

off-grid systems.

3.4.1. Basic cooking, space heating and lighting

The domestic consumption of wood and charcoal for basic energy services such as cooking

and heating is still prominent in South Africa. Rural and peri-urban low-income households

are commonly more reliant on wood for much of their heating and cooking needs than

urban households, however there is still noteworthy demand in urban areas. Shackelton et

al (2004) determined that household consumption of fuel wood ranges from 0.6 tonnes to

over 7.5 tonnes per year and that the gross, annual value of demand to the national

economy is estimated to be R3 – 4 billion.

Compared to electricity, which is a preferred energy carrier for the associated modern

energy services, fuelwood is an inferior good – when incomes rise, the consumption of wood

decreases. Electrification provides access to more desirable modern energy services but it

does not necessarily achieve affordability. Rural and urban low-income households remain

heavily dependent on fuel wood at least as a back up when other preferable forms of energy

cannot be bought (Hughes, et al. 2009).

Development objectives and policies across the world have sought to provide more

affordable and cleaner energy carriers for basic energy needs. Gel fuel, a processed biofuel,

has been introduced to the market as an affordable substitute for fuel wood; and fuel

efficient stoves that create much less smoke and use up to 90% less wood/twigs, have also

been introduced.

In rural areas of China, India, Nepal, Vietnam and Bangladesh, anaerobic digestion in the

form of small scale biogas digesters use organic waste to generate gas for cooking and

electricity for lighting (Greben and Oelofse 2009). REN21 estimate that “48 million domestic

biogas plants have been installed since the end of 2011… in China (42.8 million) and India

(4.4 million), and smaller numbers in Cambodia and Myanmar” (REN21 2013, 83).

In a study on potential for rural biogas digesters in South Africa, for the Water Research

Commission, Smith (2012) explained that 20L of water and the equivalent of 20kg of cattle

manure was needed to produce approximately 2 hours of burn time per day. A full cost

benefit analysis of the biogas digester for one rural household in KZN was conducted,

showing that the financial benefit to cost ratio at 0.98 does not provide the household with


Page 74 of 102

the same financial benefit (savings) relative to the investment and cost. However the

economic benefit to cost ratio at 4.83 reveals that the economic value including, safer and

cleaner cooking methods, improved harvest and yields, etc, far exceeds the financial savings:

“Significant economic feasibility was identified and this provides a convincing

argument for the social value of biodigester systems in rural households. Considering a

governmental imperative to uplift the social wellbeing of its people, the economic result is

compelling evidence for government support to make financial desirability of biodigester

systems a reality” (Smith 2012).

Renewable energy technologies are often cited for having the ability to improve social

welfare in terms of access to modern services, cleaner cooking practices, less indoor air

pollution and therefore improved health. The cost of implementing certain technologies

determines their viable implementation and market reach. “The most cost-efficient process

for biogas use is direct use for cooking/heating, light or even refrigeration rather than

converting it to electricity (Stegman 1996, Harris 2006, Strachan et al. 2006)” (Greben and

Oelofse 2009, 4) In the South African example, investment in biogas has a positive economic

value but the upfront capital cost is still a challenge for low-income rural households. Solar

lanterns on the other hand are affordable in rural and developing markets due to low

upfront costs.

The market for solar lanterns is said to be the next fastest growing market after mobile

phones in Africa. Lighting Africa, a project of the World Bank, conducted research into the

market for solar lanterns. Affordability is the most significant challenge identified, but it was

shown that through consumer education and direct marketing, customers would be willing

to prioritise their minimal spending and afford the product due to the value of electric

lighting (Lighting Africa 2011).

3.4.2. Productive end-uses

In order to improve productivity and economic development, rural and developing markets

require energy for productive uses, such as powering machinery, water pumps, irrigation,

cold storage, greenhouses, refrigeration in clinics, etc. Traditional forms of renewable energy

such as windmills have long powered productive uses, as well as conventional energy

carriers such as diesel generators. Hughes et al (2009) cite Banks and Schaffler (2006):

“Farmers in South Africa already make use of wind energy with wind powered water

pumps. An estimated 30 000 systems are installed and although initially imported, they are

now made locally to such a high standard that systems are now being exported.”

Beyond the familiar windmill and wind pump, wind power to generate electricity is also

being deployed in rural markets:


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“Even in areas with limited infrastructure, medium-scale wind systems in increasing

numbers are being transported, installed, and maintained, with generation costs as low as

USD 0.10/kWh in 2012” (REN21 2013, 81)

Due to decreasing technology costs, “small renewable sources – small hydropower,

bioenergy, small wind or solar PV – can often supply electricity at a lower cost than diesel-

fired alternatives, making their deployment attractive over the long term.” (IEA 2012a, 125)

In addition to poor rural customers, farmers, clinics, businesses, luxury tourist destinations,

etc in rural and developing areas often depend on diesel generators to power productive

end-uses. Even in electrified areas, many consumers depend on diesel generators as back-up

systems because electricity supply from the grid is known to be unreliable, intermittent and

poorly maintained.

In their market assessment of Kenya, Ethopia and Tanzania, Lighting Africa (2011) includes

even electrified households as potential customers of solar lanterns due to the “poor

reliability of grid electricity in these countries”. Energy security and/or grid independence is

another driver of demand for off-grid, own generation renewable energy technologies.

3.4.3. Micro-, mini- and off-grid systems

Renewable energy deployment using micro-, mini- and off-grid systems offer remote or

difficult to electrify areas, the opportunity to access electricity and therefore modern electric

appliances such as a cellphone, laptop, microwave, refrigerator, sewing machine, welding

iron, etc. Chaurey and Kandpal (2010) assess the impact and success of PV based

decentralised rural electrification:

“The experience from Kenya have demonstrated that community- led rural micro-

grids have the potential to cover a substantial proportion of the operating costs from

internal revenue derived from sales of electricity and other charges. These group-based

micro-grids that are initiated and managed as common property resources (CPRs) can be

based on the use of a mix of energy sources (e.g., diesel, micro-hydro, solar, wind, and

biomass) to serve small and geographically dispersed villages.” (Chaurey and Kandpal 2010,

2269)

Maintaining and servicing these rural systems is important for sustained energy provision

and have effectively been built into fee-for-service business models. With the price

reductions and technological improvements in wind, solar, inverter and metering

technologies, the market for mini-grids has grown (REN21 2013). Bangladesh is an example

of such:

“Slightly larger solar home systems (SHS)—solar PV systems generally ranging from

10 to 200 watts—are increasingly being installed in rural areas where small grids are

infeasible. In Bangladesh, for example, more than 2.1 million systems had been deployed by

March 2013.” (REN21 2013)


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In South Africa, Ahlfeldt (2013) identifies the off-grid residential PV Solar Home System

market as “the biggest growth opportunity in the long-term with over 10 GW potential”. Off-

grid systems require storage and consumption control to optimise the balance between own

generation of power and on-site consumption. Awareness among consumers about how

such systems operate optimally is an important driver for this market.

3.4.4. Critical success factors for RE in rural and developing markets

Low interest finance, programmes for information sharing, consumer awareness, as well as

local skills training to prepare maintenance and repair services along the market value chain

are important for the successful deployment of renewable energy in rural and developing

markets.

This sector is unique in that there is a social welfare imperative and driver for the

accessibility and affordability of cleaner, healthier energy carriers in the form of renewable

energy. The trends in development have therefore combined donor and public funding with

market-orientated policies (Kolk and Buuse 2012). This requires extensive stakeholder

engagement to understand local demand, affordability and capacity to service and install

renewable energy technologies (Chaurey and Kandpal 2010) as well as consumer education

to share information on true benefits and costs.

It is uncertain how profitable this sector can be. In an analysis of four large private

companies with successful market orientated programmes, all depend on some sort of

concessionary finance schemes or market share (Kolk and Buuse 2012).


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4. Priorities and Potential for Sustainable Energy Industries

The local priorities for the development of sustainable energy industries in South Africa,

KwaZulu-Natal (KZN) and eThekwini in particular are influenced by geography, natural

resource endowments, national policy objectives and local economic capacity. The Draft

National Integrated Energy Plan (IEP) takes into account all national overarching,

unidirectional and bidirectional policies; these are: the National Development Plan (NDP),

New Growth Path, Proposed Carbon Tax Policy, National Climate Change Response Strategy

(NCCRS), Beneficiation Strategy and the National Transport Master Plan. The eight objectives

of the Draft IEP include:

1. Security of energy supply 2. Minimise cost of energy 3. Increase access to energy 4. Diversify supply sources and energy carriers 5. Minimise emissions by energy sector 6. Improve energy efficiency 7. Promote localization, technology transfer and job creation 8. Water conservation

The IPAP identifies the Solar PV, Wind, Biofuels and SWH industries as important sectors to

develop in South Africa. These technologies are mature and well developed internationally.

The Integrated Resource Plan (IRP) for Electricity considered all such commercialised

technologies for electricity generation in a modelling planning process. In the Policy-

Adjusted Scenario of the IRP, renewables make up 42% of new generation capacity by 2030.

As a first step, 3725 MW of new generation was allocated to projects in the Renewable

Energy Independent Power Producer Procurement Programme (REIPPPP). The table below

gives the allocated and awarded MW per technology to feed into the national electricity

generation mix.

Technologies

Total Allocation

(MW)

Allocation to preferred bidders (MW) Total

awarded (MW)

Remaining Allocation

(MW) Nov 2011 May 2012 Aug 2013

Solar PV 1450 631,5 417,1 450 1498,6 -48,6

Solar CSP 200 150 50 200 400 -200

Onshore Wind 1850 634 562,6 450 1646,6 203,4

Small Hydro 75 0 14,3 0 14,3 60,7

Landfill Gas 25 0 0 18 18 7

Biomass 12,5 0 0 16,5 16,5 -4

Biogas 12,5 0 0 0 0 12,5

Sub-Total 3625 1415,5 1044 1134,5 3594 31

Small IPPs 100 Total 3725


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Solar irradiation and wind speeds in the Cape have attracted the lion’s share of Wind, Solar

PV and CSP investments in the first, second and third bidding windows of the REIPPP

Programme. The first successful RE IPP project located in KwaZulu-Natal (KZN) was awarded

to a biomass project with the 16,5 MW of capacity in the third round.

Potential to attract private investment and development

BRIC countries feature as some of the leading economies in the Global Renewables Market

alongside US, Germany, Japan, Italy, Turkey, Spain, Argentina, and others. China leads the

world in new renewables capacity investment at USD 66.6 bil for 2012. This can be

compared with all of Europe’s investment new renewables at USD 79.9 bil for 2012. China

also leads in total renewable electricity generation capacity (excluding hydro) at 90 GW in

2012. However, the Bloomberg New Energy Finance Report describes South Africa as the run

away star among developing countries for dramatically increasing asset finance in renewable

energy in 2012:

“South Africa was the runaway star among developing countries outside the “Big

Three” in 2012, raising its investment in renewable energy from a few hundred million

dollars to $5.7 billion. Some $1.5 billion of this went on wind farms, and $4.2 billion on solar

projects, such as the 75MW Solar Capital De Aar PV Plant Phase 1, at $270 million, and the

similarly sized Scatec Solar Kalkbult PV Plant, at $259 million. The biggest wind transaction

was the Rainmaker Dorper Wind Farm I, at 100MW and $251 million.” (Bloomberg New

Energy Finance 2013, 27)

The REIPPP Programme has opened the market for large competing Independent Power

Producers (IPPs) attracting Foreign Direct Investment (FDI) with conditions for local content

requirement. Since these commercial technologies and international markets are well

advanced, South Africa appears to be a “follower” in this economy.

The National Business Institute (NBI) identifies structural issues in the South African financial

sector due to a shortage of capital for early-stage, high-risk technology development; “the

financial system is geared towards an economy that is a fast follower rather than a

technology leader, and this policy misalignment is seen to stunt the growth of the green

economy” (NBI 2013). There are benefits and costs for both approaches:

“[E]arly entrants face less competition but risk costly mistakes due to limited

information, whereas late entrants can benefit from information revelation and learning

opportunities but risk high costs from pre-emption.” (Hawk, Pacheco-de-Almeida and Yeung

2012)

There is potential for the local economy to be a fast follower in:

Industrial energy efficiency

Solar thermal energy (especially SWH)

Solar PV embedded generation (such as rooftop installations),

Cogeneration at a utility and industrial scale (existing capacity in Sugar, paper and

pulp industries as well as heat exchanger technologies)


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Anaerobic digestion to generate electricity, gas and liquid fuels from agricultural

waste streams

Municipal wastewater and waste to energy technologies such as (already a leader in

landfill gas)

Wood chip production for export and use in CHP industries

Bioethanol and biodiesel production

Micro-hydro power

There is also potential for KZN to be a first mover in second-generation biofuels from algae,

ocean current energy generation, and in the deployment of renewable energy in rural and

informal markets.

Foreign direct investment available for large projects, finance gap for small IPPs and

decentralized generation. The NBI Study on Barriers to Climate Finance (2013) conducted a

perception survey about private sector access to climate finance in South Africa. The study

identifies the following barriers relating to energy projects:

1. Misalignment between green economy vision, industrial policy and structure of the financial system

2. Barriers in financing early-stage, high risk projects and for moving projects from early development stages to commercialisation

3. Barriers in funding for mid-size projects 4. Sub-optimal coordination between commercial banks and development finance

institutions (DFIs) 5. Capacity constraints of implementation partners 6. Project development skills shortages within project developers 7. Project sourcing and evaluation skills shortages within commercial banks 8. High transaction costs for commercial finance of low-carbon projects 9. Costs and administrative burden of monitoring, evaluation and reporting

requirements for concessional finance 10. Non-exemption of withholding tax for on-lending of concessionary finance

The study goes on to recommend “A facilitated dialogue to improve coordination between

commercial banks and DFIs” (NBI 2013, 41).

Potential employment creation and income generation

The South African Energy Sector Jobs to 2030 report prepared for GreenPeace Africa

(Rutovitz 2010) models three scenarios for future electricity generation and compares the

potential sustainable job creation of each scenario in South Africa. Compared to a Growth

Without Constraints scenario and the IEA Reference scenario, the [R]evolution scenario

estimates that 72,400 new renewable energy jobs can be created by 2030. That equates to

“56% more than in the IEA Reference scenario and 28% more than in the Growth Without

Constraints scenario” (Rutovitz 2010, 3). Employment factors per technology are given in

the figure below. The report offers a succinct summary relating to the [R]evolution scenario

(Rutovitz 2010, 3):


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“Diversifying South Africa’s energy supply by deploying renewable energy at a large

scale, alongside active industry support and training for local renewable technology

manufacturing and installation, has significant job creation potential. In the short term, this

would occur alongside coal export jobs, as those are determined by the international

market.”

Figure 60: Table of Employment factors for use in South Africa (Rutovitz 2010, 15)

The major job creation industries in the sustainable energy sector identified by the 2011

Green Jobs Report are in installation, maintenance and manufacturing of Solar PV,

installation and manufacturing of SWH, materials recovery facilities in Waste to energy

industry, biofuels production, cogeneration, public transport and construction of new

generation plants.


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Potential linkages

Durban Climate Change Strategy – Sustainable energy

Provincial Green Economy mandate, and sustainability targets in the Provincial Growth and

Development Plan and Strategies


Page 82 of 102

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