PROJECT IDENTIFICATION FORM (PIF) PROJECT TYPE: FULL-SIZED THE GEF TRUST FUND S Submission Date: 11 September 2008 Re-submission Date: 25 November 2008 Re-submission Date: 24 February 2009 PART I: PROJECT IDENTIFICATION GEFSEC PROJECT ID: GEF AGENCY PROJECT ID: PIMS 3277 COUNTRY(IES): South Africa PROJECT TITLE: Market Transformation through Energy Efficiency Standards & Labelling of Appliances in South Africa GEF AGENCY(IES): UNDP OTHER EXECUTING PARTNERS: Dept. of Mines and Energy GEF FOCAL AREAS: Climate change GEF-4 STRATEGIC PROGRAM(S): CC-SP1 INDICATIVE CALENDAR Milestones Expected Dates Work Program (for FSP) June 2009 CEO Endorsement/Approval July 2009 GEF Agency Approval Implementation Start Mid-term Review Implementation Completion Aug 2010 Oct 2010 June 2015 Oct 2015 A. PROJECT FRAMEWORK Project Objective: To reduce greenhouse gases (GHG) from the energy consumption by achieving a market transformation towards high-efficiency appliances through the introduction of energy labels and minimum energy performance standards. Project Components (UNDP outcome) 1. Energy labelling Indicate whether Invest, TA, or STA** TA Expected Outcomes Increased awareness and introduced energy labels 2. Policy and regulatory framework for labels and standards 3.Capacity strengthening TA Conducive policy & policy instruments on energy efficiency TA Strengthened capacity of main stakeholders 4. MEPS TA 5.Evaluation & dissemination TA Minimum energy performance standards (MEPS) adopted Monitoring, feedback, evaluation 6. Project management PIF Template, August 28, 2007 Expected Outputs 1) Specification and launching of energy labels for domestic appliances (voluntary) 2) Awareness creation and info campaigns for consumers and other stakeholders 1) Market and engineering studies 2) Regulation and legislation (mandatory) 3) Financial incentives 1) Testing capability enhanced 2) Enforcement of standards and labels 3) Strengthened institutional capacity Minimum energy performance standards (MEPS) adopted for electric appliances 1) Regular M&E 2) Best practices and recommendations Indicative GEF Financing* (‘000 $) % Indicative Cofinancing* ($) % Total ($) 900 15 4,750 35 5,650 1,800 30 3,800 28 5,600 1,800 30 1,450 11 3,250 900 15 2,800 21 3,700 300 5 100 1 400 300 5 600 4 1,000 1 6,000 13,500 19,500 Total project costs * List the dollar amount by project components/activities. ** STA = Scientific & technical analysis. B. INDICATIVE FINANCING PLAN SUMMARY FOR THE PROJECT ($) GEF Grant Co-financing Total Project Preparation 95,000 135,000 230,000 Project 6,000,000 13,500,000 19,500,000 Agency Fee 609,500 Total 6,704,500 13,635,000 20,339,500 609,500 C. INDICATIVE CO-FINANCING FOR THE PROJECT BY SOURCE ($), IF AVAILABLE Co-financing Source Government Contribution Utility (DSM)2 Private Sector3 Total co-financing 1 2 3 Cash 4,500,0001 4,000,000 2,500,000 11,000,000 In-kind 1,000,000 1,000,000 500,000 2,500,000 Total 6,000,000 4,500,000 3,000,000 13,500,000 This includes the standard and labelling program that DME is currently initiating with the SABS (Bureau of Standards) as well as budget for energy efficiency promotion This includes related financing planned under ESKOM’s Accererated Energy Efficiency Plan, which includes national awareness creation, promoting appropriate legislation preventing the importation and use of inefficient equipment, collaboration between stakeholders Including contribution from manufacturers/suppliers for marketing campaigns of energy-efficient appliances and piloting of consumer credit schemes by retailers. D. GEF RESOURCES REQUESTED BY FOCAL AREA(S), AGENCY (IES) SHARE AND COUNTRY(IES)* N/A PART II: PROJECT JUSTIFICATION A. STATE THE ISSUE, HOW THE PROJECT SEEKS TO SOLVE IT, AND THE EXPECTED GLOBAL ENVIRONMENTAL BENEFITS TO BE DELIVERED: The average efficiency of electrical domestic appliances currently sold in South Africa is significantly below that of the best products on the market, largely because of customers’ and marketers’ strong emphasis on first cost at the expense of life-cycle cost considerations, but also because of other policy, informational and market barriers. The strategy of the proposed project is to address these barriers that hamper the introduction of standards and labelin. Five outcomes are proposed to help overcome these barriers Identified barrier Project activities planned Awareness barriers o Lack of knowledge and understanding amongst consumers of energy efficiency improvement opportunities of appliances, o Uncertainty about market demand of highefficiency models, making manufacturers reluctant to tie up financial resources dealer/retailer reluctant to stock energyefficient models. Information and policy barriers Raise awareness among manufacturers and policy decision makers on the benefits of introduction of S&L programs and in cooperation with these stakeholders and local utilities (ESKOM) outreach the importance of energy-efficient (EE) appliances (Outcome 1) and propose energy labels for selected appliances (Outcome 1) PIF Template, August 28, 2007 Detailed market analysis and energy savings potential 2 o Difficulty to take informed decisions and make appropriate regulation, due to insufficiency of market data (on supply and energy consumption of most appliances and on the potential for improving the energy efficiency); o Lack of appropriate regulation (allowing production and import of highly inefficient appliance); lack of legislation for introduction of S&L Capacity barrier o Insufficient capacity to design and introduce S&L o Lack of procedures for compliance checking of the selected appliances to allow selection of S&L to be designed and introduced, so that the schemes proposed will have a high market transformation aspect (Outcome 2) and formulate a legislative framework for the introduction of labels (Outcome 2) and adoption of minimum energy performance standards (Outcome 4) Enhance testing capacity of laboratories and institutional capacity for the effective design of S&L schemes, consumer, manufacturer and outreach programs, incentive schemes and for monitoring and evaluation (Outcome 3 and Outcome 5) and propose compliance checking and testing procedures Cost barrier: Provide adequate information on cost and benefits and o The low unit price of coal and electricity in design and implement incentives for consumers to South Africa influences the mind-set of purchase S&L schemes (Outcome 2) consumers and companies with the argument that the higher initial investment cost cannot be justified due to lengthy payback times; o Low purchasing power of the majority of South African households The project is designed around the following five outcomes: Outcome 1: Awareness creation and introduction of energy labels for electric appliances - Output 1.1: Specification and launching of energy labels for domestic appliances1 (In 2004 DME decided to introduce the European labelling system. The first group of appliances include refrigerators, washing machines and cloth dryers, dishwaters, air conditioners, space heaters and stoves. Progress in implementation has been slow related to the barriers mentioned above2. Labels will be introduced first on a voluntary basis to get the general public manufacturers and retailers involved, starting with refrigerators/freezers and cloth washers in 2005)3. - Output 1.2: Awareness creation and information campaigns 1 2 3 Current labels may display the energy used as required by the existing South African National Standards (SANS), IEC and ISO (respectively International Electro-technical Commission and International Standard Organisation) specifications. This is usually displayed on the model and serial number tag at the back of the appliance and not visibly from the front of the appliance. The marking does not carry a norm or “bench marked” figure. Therefore, the customer cannot compare the energy efficiency of one make to another or to a norm for that type of appliance The norm for labels for refrigerators is now implemented on a voluntary basis in 2004. Other norms for labels (washing machines, tumble driers and dishwashers) have been postponed for some time and are now planned for 2009-2010. The standard for CFLs is completed and published; standards for industrial AC motors and Set-Top boxes (for digital TV) are in the later stages for finalization. The procedure of launching the label will encompass the following steps: (1) Energy data are collected to create a database and a norm for the label; (2) Consensus to be built among stakeholders in drafting technical parameters; (3) SABS/SANS (SABS has officially changed name to SANS) safety standards and performance specifications are amended to include the energy label; (4) Design of the visual format of the label (following the European energy labelling system); (5) Define compliance deadlines (adaptation times, line changeover schedules, inventory clearing and product availability, based on product development cycles and production). The market and engineering analysis of output 2.1 will feed into this process. PIF Template, August 28, 2007 3 (Appliance-specific consumer awareness campaign on labelling will be undertaken. The campaign will inform the consumers about the label features, the importance and potential impact of selecting efficient products for their household. In addition, country-wide massive campaign promoting energy efficiency in general will be launched, which launched through television, radio, magazine and newspaper advertisements, which will be an on-going activity until the end of the project4 Outcome 2: Conducive policy and policy instruments regarding energy efficiency - Output 2.1: Impact of voluntary label schemes (refrigerators/freezers, washing machines). Market survey and engineering analysis of appliances (a., consumer preferences and appliances market size, b. appliance energy use study and c. energy efficiency improvement potential). This is an iterative process throughout the project. A first analysis will provide the info needed for a voluntary label (air conditioners, stoves, space heaters). A more detailed analysis will provide the info needed for a mandatory labels (e.g., refrigerators, washing machines will move from voluntary to mandatory labels) and eventually the necessary analysis to introduce minimum energy performance standard (MEPS) for the before-mentioned appliances. - Output 2.2: Mandatory labelling: (The labelling scheme will first be introduced on a voluntary basis at first (see output 1.1). The historically low unit price of energy, coupled with limited awareness on energy savings potential, may result in only modest success arising from voluntary measures5 and other non-legislative instruments. For this reason, South Africa’s Energy Efficiency Strategy aims the voluntary labels go into mandatory labelling of products (first starting with refrigertor/freezers and washing machines). This requires that the product performance specification regarding energy levels of consumption and labels is made compulsary by legislation. - Output 2.3: Incentives and financial issues: (The Government will not consider direct subsidies for efficient appliances Nonetheless, over time some fiscal reforms will be considered (import duties, VAT). Based on the study done in the PPG phase, pilot innovative mechanisms’ for financing shall be implemented, such as the utilisation of customer credit schemes (many customer by on credit at the retailer’s outlet) to equalise cost of poorer and more efficient equipment (using funds from the Central Energy Fund, CEF) 6. Also, links with ESKOM’s Demand Side Management (DSM) programme will be made Outcome 3: Capacity strengthening of main stakeholders - Output 3.1: Developing a testing capability: (The process of creating energy testing capability must begin before a labelling of standards programme is launched. The test procedure describes the method used to 4 5 6 Also, promotion and education are valuable aids to increase the effectiveness of an energy label, such as government promotion of the program (e.g., annual efficiency awards), manufacturers campaigns (marketing of their energy-efficient products), training of retailers (shop managers and sales persons), publication of lists of current models on the market (e.g., through easy-accessible brochures and an Internet site) and educational programmes at schools. For example, even if South African industry would voluntary adopt the energy efficiency label, importers may bring in goods without the label at lower prices and poorer performance To be financed by co-financing PIF Template, August 28, 2007 4 measure the energy performance of a product and a testing norm that references the appropriate testing procedures)7. - Output 3.2: Enforcement of labels and standards (The policing of the energy label scheme is critical in the implementation and maintenance of a mandatory energy label system; options consist of self-certification, in their own or third-party facilities or certification by an independent party; planning of human and financial resources for verification and enforcement). - Output 3.3: Capacity strengthening of stakeholders (Strengthening of the government agency responsible for standards8, codes and labelling and of the agency responsible for compliance monitoring; Training of manufacturers, distributor and retailers) Outcome 4: Adoption of minimum energy performance standards for electric appliances (Minimum energy performance standards, MEPS, are usually set to exclude the label categories with the lowest energy efficiency from the market. Various methods exist to determine the standards, e.g., statistical consideration, setting energy efficiency target at the least life-cycle cost level, choosing the top runner model at the threshold or adopt world’s best energy efficiency practice9. First candidates for which standards will be introduced directly are refrigerators, geysers, boilers and fixed stoves)10 Outcome 5: Monitoring, learning, adaptive feedback and evaluation (The GEF project would support the: Monitoring of the market towards compliance and progress towards targets; Regular evaluations of the progress; Programme evaluation; Review of programme results and, if necessary, revise programme elements) B. DESCRIBE THE CONSISTENCY OF THE PROJECT WITH NATIONAL PRIORITIES/PLANS The project complements and contributes to the ongoing implementation of South African policy on Energy Efficiency. The final draft of the South African Energy Efficiency Strategy sets a national target for energy savings of at least 12% to be achieved by the year 2015. The draft strategy covers all economic sectors, including public and commercial buildings, residential sector, transport, industry and 7 8 9 10 The testing procedure is the foundation for the energy standards and label of a product. Selection (adoption) of existing test procedures is strongly preferable to inventing the wheel by designing new test protocols, e.g., the International Standards Organisation (ISO) and International Electrical Commission (IEC) are two international entities responsible for formulating internationally recognised appliance test procedures. In South Africa, various (commercial) independent testing facilities exist. SABS has a Test House; in addition there are other test laboratories as well as the in-house test facilities of the manufacturers. One or several test houses should be accredited under the South African National Accreditation System (SANAS) system to develop energy measurements, so that local manufacturers can have their products tested and accepted for energy efficiency performance. Accreditation of EE testing procedures will be sought with ISO and/or IEC This means, strengthening the capacity of stakeholders other than the test labs. On the policy level, for example, by setting up a ‘Standards and Labelling Unit’ within the Directorate for Energy Efficiency of DME GEF support is requested to ensure that stakeholder consultations and the necessary engineering and market analyses are carried out in a systematic way in order to develop a strong standards programme, which could be as follows: (a) Expert and stakeholder consultations; (b) Identification of product categories and key issues; (c) Engineering analysis to determine life-cycle cost and energy performance of models;(d) Defining principle and methods for setting the standards (e.g., lowest life-cycle cost); (e) Analysis of impacts (on manufacturers, consumers, competition, utilities, as well as economic and environmental impacts); (f) Public comments and stakeholder negotiation; (g) Setting of final standards; (h) Introduction of relevant legislation. The reason is that these artefacts usually come with the house a consumer buys or rents. For other appliances, such as air conditioners the introduction of both labels and standards will be considered, while for some other appliance the introduction of labels may suffice PIF Template, August 28, 2007 5 transportation. The Strategy further mentions that energy efficiency improvements are to be achieved through a mix of instruments and interventions, including support mechanisms (such as labelling of appliances; energy standards and building codes; energy audits), financial instruments (such as revisions of the tax system and linkage with the utility ESKOM’s demand-side management programme) as well as policy and regulatory instruments (preparation of appropriate legislation to implement the energy efficiency strategy and implementation of regulatory means where necessary, of efficiency standards and labels). The DME has introduced voluntary labelling schemes for refrigerators/freezers with the help of the Bureau of Standards (SABS). Norms for labels for for washing machines tumble driers and dishwashers were planned to be introduced by the year 2006. This has not happened so far. It is now planned for 20092010, so here the GEF support would be timely. C. DESCRIBE THE CONSISTENCY OF THE PROJECT WITH GEF STRATEGIES AND FIT WITH STRATEGIC PROGRAMS: This project will directly relate to the GEF Focal Area of Climate Change and is addressing the Strategic Priority on “Energy-Efficient Buildings and Appliances”. D. OUTLINE THE COORDINATION WITH OTHER RELATED INITIATIVES The project will work closely with existing programmes undertaken by means players: South Africa Bureau of Standards and South Africa National Accreditation System (certification and accreditation, regulation, standards and norms) ESKOM and utilities (demand-side management programmes) E. DESCRIBE THE INCREMENTAL REASONING OF THE PROJECT Business-as-usual The average efficiency of electrical domestic appliances currently sold in South Africa is significantly below that of the best products on the market, largely because of customers’ and marketers’ strong emphasis on first cost at the expense of life-cycle cost considerations, but also because of the other barriers. In the absence of the proposed GEF-supported Standards and Labelling project, the efficiency of new energy consuming appliances, equipment and lighting products sold in the South Africa would likely continue to increase slowly from existing levels. However, the average efficiency of products currently sold is significantly below that of the best products on the market, largely because of customers’ and marketers’ strong emphasis on first cost at the expense of life-cycle cost considerations, but also because of the other barriers to energy efficiency in today's marketplace, mentioned above. While the Energy Efficiency Strategy foresees the introduction of a standards and labelling programme, the challenge for South Africa is not only to overcome the barriers to the introduction of high-efficient appliances in general, but also to overcome the barriers to the adoption and implementation of a labelling and standards programme in particular, such as insufficient institutional capacity and lack of specific expertise for S&L programme implementation and financing. The project seeks to develop a full-size grant proposal for submission to GEF funding which will enable South Africa to address the policy, financial, information and technological barriers that block the widespread introduction of more energy efficient domestic appliances in general, as well as the introduction of a standards and labelling programme in particular. To be able to understand and analyse the barriers in detail, the DME proposes to use GEF funds to set up comprehensive consumer awareness and information dissemination campaigns and to target retailers who PIF Template, August 28, 2007 6 play a very important role in influencing the consumer’s purchase decision. Assistance will be provided to manufacturers in the form of assessment of the technological upgrade and energy efficiency improvement potential and marketing support. Also, relevant institutional capacity building will be identified and strengthened by training and technical assistance to formulate standards and labelling policy, planning and decision-making. Specific attention will be given to addressing financial barrier issues, while potential funding sources for energy efficiency will be identified and evaluated. The project will support DME in seeking implementation commitment from the main stakeholders to achieve an effective market transformation by providing information that assists consumers in making rational decisions based on lifecycle cost rather than initial investment cost. As a complementary tool to appliance labelling, minimum performance efficiency standards (MEPS) will bring about significant improvements by removing poor efficiency appliances from the market. F. INDICATE RISKS, INCLUDING CLIMATE CHANGE RISKS, THAT MIGHT PREVENT THE PROJECT OBJECTIVE(S) FROM BEING ACHIEVED. OUTLINE THE RISK MANAGEMENT MEASURES, INCLUDING IMPROVING RESILIENCE TO CLIMATE CHANGE, THAT THE PROJECT PROPOSES TO UNDERTAKE: Risk Risk mitigation South Africa may choose not to However, the country’s Energy Efficiency Strategy as well as the White implement or delay the Paper on Energy firmly states mandatory labelling and standards as an introduction of energy labels and ultimate goal. In addition, the structure for the proposed GEF project is to MEPS (mandatory minimum first identify and focus on barriers and barrier removal, then to develop a efficiency standards) for end-use menu of options suited to the specific situation of South Africa and equipment. demonstrating these Manufacturers object to the implementation of efficiency labels and standards, fearing that the implementation of new regulations resulting in additional costs Consumers do not understand energy efficiency labelling and avoid purchasing energy-efficient models owing to higher first costs. The proposed project will take into account the financial situation of manufacturers and is designed to assess this situation as part of any decision to move forward on the development of labels and MEPS. Also, the project will be to contribute in generating awareness around business opportunities related to energy efficient labeling. While the project cannot eliminate the potential higher first-costs of energy efficient models to consumers, who have a preference to spend less money for a less efficient model, label development will be accompanied by substantial efforts in information dissemination, consumer education, retaildirected educational materials, and other activities to both raise awareness of the label and to educate consumers An important barrier to successful An update of the existing market survey will be performed during the PPG implementation is the maturity of stage to make sure all related barriers are addressed in full implementation. the market The FSP design will also be done in consultation with all major stakeholders to minimize this risk. Finally, the FSP will be monitored closely on the aspect of market risk to be able to take management decisions early in the project cycle. G. DESCRIBE, IF POSSIBLE, THE EXPECTED COST-EFFECTIVENESS OF THE PROJECT The potential for savings in South Africa through standards and labelling is high in terms of energy consumption. The Appliance Labelling Study, report no. 2.3.4-05, CaBEERE project, Department of Mineral and Energy (South Africa, 2003) has made projections of energy savings resulting from phasing in PIF Template, August 28, 2007 7 energy labels and standards over a 5-year period. A compilation of these projections is presented in table below. The data will be updated during the PPG phase. Assuming an economically useful life of 15 years for each appliance (as is done in the CaBEERE study) this implies direct emission reduction of 2.1 million tCO2. The total potential of savings was estimated at about 188,000 tCO2, assuming that within 10 years after introduction all appliances would be the more energy-efficient ones (as is summarised in the table below). Including this post-project impact, total direct and indirect emission reduction is estimated at 2.8 million tCO2. Estimated energy and CO2 emission reduction by the project Estimate of actual energy demand reduction Potential energy demand reduction (GWh/yr) Year 1 Refrigerators - single door - two door - freezer Washing machines - front load - top load Tumble dryer Dishwashers Space heating - air conditioners - electric heaters Stoves - electric stoves - electric hot plates Annual carbon reduction (tonnes CO2) @ .96 tCO2/MWh Annual Year 2 Year 3 Year 4 Year 5 Total 7.6 26.8 8.6 0.4 1.3 0.4 0.8 2.7 0.9 1.1 4.0 1.3 1.5 5.4 1.7 1.9 6.7 2.1 5.7 20.1 6.4 3.4 1.5 8.1 2.2 0.2 0.1 0.4 0.1 0.3 0.2 0.8 0.2 0.5 0.2 1.2 0.3 0.7 0.3 1.6 0.4 0.9 0.4 2.0 0.5 2.6 1.2 6.0 1.5 4.7 10.9 0.2 0.5 0.5 1.1 0.7 1.6 0.9 2.2 1.2 2.7 3.5 8.1 89.3 32.7 4.5 1.6 8.9 3.3 13.4 4.9 17.9 6.5 22.3 8.2 67.0 24.5 5,472 19,296 6,144 2,496 1,152 5,760 1,440 3,360 7,776 64,320 23,520 - 195.7 9.7 19.7 29.2 39.1 48.9 146.6 140,736 Potential for energy savings and CO2 reduction Annual savings Refrigerators - single door - two door - freezer Washing machines - front load - top load Cloth dryer Dishwashers Space heating - air conditioners - electric heaters Stoves - electric stoves - electric hot plates Annual carbon Money ('000 reduction (tonnes Rand) CO2) @ 0.3/kWh @ .96 tCO2/MWh # of units bought annually Assumed energy consumption per appliance (kWh) Assumed energy reduction of appliance Energy demand (GWh/yr) 259,170 417,552 316,763 588 1,284 540 5% 5% 5% 7.6 26.8 8.6 2,286 8,042 2,566 244,772 158,382 187,178 71,992 281 192 864 300 5% 5% 5% 10% 3.4 1.5 8.1 2.2 1,032 456 2,426 648 51,834 483,784 1,800 450 5% 5% 4.7 10.9 1,400 3,266 532,738 259,170 3,353 2,520 5% 5% 89.3 32.7 26,794 9,797 7,315 25,735 8,210 0 3,301 1,460 7,763 2,073 0 4,478 10,450 0 85,741 31,349 TOTAL 195.7 58,711 187,875 The total requested GEF contribution is USD 6.04 million, leading to a cost-effectiveness of USD 2.14 per tCO2 reduced. PIF Template, August 28, 2007 8 H. JUSTIFY THE GEF AGENCY COMPARATIVE ADVANTAGE UNDP is mentioned as having a comparative advantage in ‘energy efficiency’ projects in Annex L of the document GEF/C.31/5 rev.1 (GEF comparative advantage matrix). PART III: APPROVAL/ENDORSEMENT BY GEF OPERATIONAL FOCAL POINTS AND GEF AGENCIES A. RECORD OF ENDORSEMENT OF GEF OPERATIONAL FOCAL POINT (S) ON BEHALF OF THE GOVERNMENT(S): (Please attach the country endorsement letter(s) or regional endorsement letter(s) with this template). Ms. Pam Yako Director General Department of Environmental Affairs and Tourism Date: (December 20, 2006 B. GEF AGENCY(IES) CERTIFICATION This request has been prepared in accordance with GEF policies and procedures and meets the GEF criteria for project identification and preparation. John Hough Deputy Executive Coordinator UNDP/GEF Date: 24 February 2009 PIF Template, August 28, 2007 J.H.A. van den Akker RTA a.i. climate change, Eastern & Southern Africa Project Contact Person Tel. and Email: +31 6 27424634 / 31 40 2019240 Email: johannes.vandenakker@undp.org 9 ANNEX A. ATTACHMENTS PIF Template, August 28, 2007 10