AGAMA Financial Modelling SwH for N2 Gateway

Modelling and Analysis of Financial Structuring for SWH Projects

2nd April 2007

Prepared for: DANIDA Prepared by: Greg Austin, Glynn Morris and Freek

van Rijn AGAMA Energy (Pty) Ltd Tel: +27 21 701 3364 Fax: +27 21 701 3365 Email: [email protected]: www.agama.co.za David Nicol Lereko Sustainability (Pty) Ltd Tel: +27 21 419 1881 Mobile: +27 83 642 6616 Email: [email protected]

mailto:[email protected]

http://www.agama.co.za/

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Lereko Sustainability (Pty) Ltd, AGAMA Energy (Pty) Ltd 2 April 2007

Executive summary

Overview Hot water for domestic requirements in urban areas, can be supplied by solar water heating systems (SWHs) at a service cost to customers of between 1.2 and 3.5 c/litre (for water supplied at 45oC at the point of use, usually the tap or shower). This compares favourably with the cost of hot water supplied by electrically operated storage water heaters, commonly called geysers, which is currently supplied at approximately 3 c/litre (this value includes only the electricity component and no capital cost). These costs are the direct financial costs of hot water and do not include the indirect (or external) costs of the service. SWH systems have significant additional benefits in terms of reduced negative environmental impacts, increased social equity and enhanced economic impacts (largely due to economic risk mitigation). Recognising the broader benefits of SWH and the high priority of addressing domestic energy utilisation within the Draft Energy and Climate Change Strategy [7], the City of Cape Town has committed to a target of installing SWH systems on 10% of the households in the city by 2010. This study was commissioned and funded by DANIDA in support of the City of Cape Town’s target. Initially the scope of the study was limited to the hot water requirements of the N2 Gateway Housing Project but the scope was subsequently extended to include all houses in the Metro. The study addresses the financial modelling for domestic-scale SWH systems of between 100 litre/1.4 m2 – 300 litre/4.2m2 of hot water storage capacity and collector area. This includes all houses and small guesthouses. In general, the service costs for solar heated water are primarily dependent on the mode of implementation and financial model for service delivery. In addition, within the context of the mode of implementation and financial modelling, these costs are dependent on the individual input variables to the financial models. This study developed financial models for scenarios based on the two modes of service delivery, namely:

• Energy services or fee-for-service • Ownership-based with short- or long-term financing

These modes of implementation are not mutually exclusive and can share common support services such as quality assurance, repair and maintenance and awareness programmes. The support mechanisms for both the primary modes of SWH implementation include policy/legislative support, financial support and awareness support. This study has developed (and adapted) financial models for the implementation of SWH systems which enable different scenarios for implementation to be investigated. The base case service costs for specific segments of the household hot water market for conventional geysers and each of the two models for SWH systems is presented on the following page together with the basic assumptions for each scenario.

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ESCO mode Ownership mode N2 Gateway Metro-wide target

of 10% Short-term finance Home loan

Customer segmentation

Low-income 22 000 32 000 n/a n/a Mid-income 36 000 n/a n/a Higher-income 12 000 n/a n/a Total 22 000 80 000 n/a n/a CAPEX R50 million R150 million n/a n/a DSM funding R2000 R2000 n/a n/a CDM funding €8/tonne CO2 €8/tonne CO2 n/a n/a IRR 15.4% 15.0% n/a n/a SWH installed costs

Low-income R2900 R2900 R3500 R3500 Mid-income R9668 R9668 R11710 R11710 Higher-income R13480 R13480 R16350 R16350 Service costs Low-income 2.7

c/litre 99

R/month 1.3

c/litre 31

R/month 2.2

c/litre 53

R/month 2.4

c/litre 59

R/month Mid-income n/a n/a 3.1

c/litre 114

R/month 3.8

c/litre 140

R/month 4.7

c/litre 170

R/month Higher-income n/a n/a 3.5

c/litre 171

R/month 3.8

c/litre 185

R/month 4.7

c/litre 227

R/month It is clear that a metro-wide energy service model can deliver hot water at the lowest cost for the three broad income sectors in the City of Cape Town. The service costs of the ESCO mode of implementation are lower than the ownership-based mode of implementation due, largely, to the aggregation of costs in the service delivery which leads to economies of scale and more efficient access to support mechanisms – especially the financial support mechanisms. The ESCO mode has a 20% materials cost reduction assumption associated with its delivery. The service costs for the scenario of supplying the N2 Gateway Housing Project by means of an energy service approach are higher than the equivalent costs for the low-income customer segment in the metro-wide case due to the higher level of service offered and the smaller scale of implementation. It is also significant that the ESCO model enables accelerated access to the service benefits of SWH since the customers do not need to raise their own finance, by whatever means possible, as in the case of the ownership model. The legislative or policy support of the SWH bylaw and the replacement of damaged electrical storage water heaters with SWH system within the insurance industry will have the effect of accelerating the uptake of SWH systems. The combined effect of these two mechanisms would be an additional 35,000 SWH installations in the first few years subsequent to the bylaw approval and the insurance industry promoting the concept. The limiting factor in this scenario is the capacity of the industry to deliver these sorts of numbers.

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In addition, the study undertook basic sensitivity analyses to test the impacts of uncertainty in the assumptions. These included the impact of capital subsidies, such as DSM funding, interest rate subsidies and the operational efficiencies of an ESCO. Surprisingly, the ESCO mode of implementation is relatively insensitive to operational costs and loan finance rates, due to the fixed IRR. Subsidised interest rates make a positive impact on the ownership mode of implementation. Clearly, increasing capital subsidies have a positive impact on the service costs to customers in both the ESCO and ownership modes of implementation. In summary, and supported by the experience to date, the financial modelling suggests that the most appropriate approach to the implementation of SWH within the City of Cape Town would be a large-scale energy services mode of implementation. However, in practice, it is likely that a blend, or combination, of models and support mechanisms will need to be implemented to cater for the range income groups and personal preferences within the metro.

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Acknowledgements This study was funded by DANIDA. Ossie Asmal, Shirene Rosenberg and Wouter Roggen provided the incentive to develop financing models for solar water heating in the metropolitan area of the City of Cape Town to assist with the implementation of a large-scale SWH roll-out to meet the targets set by the City in 2003/4. The authors gratefully acknowledge the contributions of Pieter Wesselink, Export Capital, in developing a financial model for a fee-for-service delivery mechanism for solar water heaters. In addition the financial model developed as part of the UNDP/GEF funded SWH project in Namibia is acknowledged.

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Project Development and Report Structure Since inception in March 2006, the project developed in two distinct stages:

Stage 1 – The N2 Gateway

The original project proposed to investigate the potential benefits of incorporating energy efficiency into the design of the N2 Gateway Project. It was proposed that a solar geyser installed in each household would be both technically and financially feasible, and would not disrupt the existing planning on the project or affect its timelines. Due to unforeseen complications surrounding the development of the N2 Gateway Project, the original terms of reference (TOR) set out for the SWH study were considered to be no longer appropriate and a new set of TOR were decided upon. By this stage however significant resources had already been spent on initiating and developing the N2 Gateway stage of the project. A brief overview of the work completed during this stage has been included in Appendix A of the report. To make further use of this work, the N2 Gateway project was also chosen as a study area in the modeling component, to investigate the energy services approach to the provision of hot water. Unfortunately the N2 Gateway remains a politically sensitive and high risk area on which to roll-out SWHs. There is no clear indication of how many units will be constructed and when this will happen. Furthermore, Thubelisha homes, the contractors assigned to the project refused to provide any information or comment.

Stage 2 – The City of Cape Town

The new terms of reference includes two components. The first component is the financial modeling as described in of the original TOR. Given the recent developments in the City of Cape Town, surrounding SWH, and the need for detailed financial modeling in this area, it was decided to expand the subject area to include the whole of the Metro. The City was seen as an ideal study area as it covers all income groups and target markets, allowing for easy comparison of implementation modes across the various groups. The second component of the new TOR examines different issues surrounding the implementation of large scale SWH roll-outs, including; market, legal, financial and technical issues. This information was developed to guide the inputs and assumptions in the modeling section of the report. The focus on this section is to provide well researched, up-to-date information rather than a summary report (these areas have been the focus of numerous reports in the recent past). Given that both components of the TOR are so closely linked, it was decided to develop a single report that would reflect this.

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Table of Contents

1. Introduction 1

2. Methodology 1

3. Review of existing projects and financing mechanisms 2 3.1 Existing domestic SWH systems in the metro 2 3.2 Lwandle 2

3.2.1 Overall description of the project 2 3.2.2 Implementation mode and financing 3

3.3 Durban / eThekwini Solar project 3 3.3.1 Overall description off the project. 3 3.3.2 Implementation mode and financing 3

3.4 Kuyasa low-cost urban housing energy upgrade project 3 3.4.1 Overall description and status of the project 4

3.5 Lynedoch Energy Services 4 3.6 Solar 500 project 4 3.7 International experience 4

4. Modes of implementation and support mechanisms 5 4.1 Modes of implemention 5 4.2 Financing mechanisms 5 4.3 Financial support mechanisms 5

4.3.1 Capital subsidies 5 4.3.2 Interest subsidies 6 4.3.3 Interest holidays 6 4.3.4 National tax and / or municipal rates rebates 6 4.3.5 Basic energy grants 6 4.3.6 Carbon finance 6 4.3.7 Tradable Renewable Energy Certificates (TRECs) 6

4.4 Legislative support mechanisms 7 4.4.1 SWH bylaw 7 4.4.2 Replacement of geysers by the insurance industry 7

5. Financial model development 7 5.1 Technology and market segmentation 8 5.2 Models and modes of implementation 8

5.2.1 Basic assumptions 8 5.2.2 Ownership 8 5.2.3 Energy Services 8

5.3 Limitations of the models 9 5.4 Details of input variables 9

5.4.1 Demographics of the customer portfolio 9 5.4.2 Hot water consumption patterns 9 5.4.3 Financial 10

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5.4.4 Costs 10

6. Scenarios and results 11 6.1 Baseline scenarios 11

6.1.1 N2 Gateway housing development project 11 6.1.2 Metro-wide 11 6.1.3 Personal loans 12

6.2 Legislative support mechanisms 12 6.2.1 SWH bylaw 12 6.2.2 Household insurance 12

6.3 Results 12 6.3.1 Baselines 12 6.3.2 Sensitivities 13

7. Conclusions 16

8. Recommendations 17

9. References 18

10. Annexures 19 10.1 Annexure A - An Overview of the N2 Gateway Project (Pre-TOR modification) 19

10.1.1 Introduction 19 10.1.2 Background 19 10.1.3 SWH in the N2 Gateway Project 19 10.1.4 Summary of work completed – Stage 1 20

10.2 Annexure B – The Fee for Service Model 21 10.2.1 Detailed Assumptions and Costs 21 10.2.2 Assumptions and Results 22 10.2.3 Detailed Assumptions and Revenue 23 10.2.4 Cash Flow Models 23 10.2.5 User Cash Flows 24 10.2.6 Electrical Savings 24 10.2.7 Debt Model 24 10.2.8 Income Statement 25 10.2.9 Tax Calculation 25

10.3 Annexure D – The Short Term finance Model 26 10.3.1 Financing Scenarios 26 10.3.2 Main Analysis Sheet 27 10.3.3 Global Variables 28 10.3.4 Water Heater Costing 29 10.3.5 Solar Water Heater LCC 29 10.3.6 Sensitivity Calculations 30

10.4 Annexure D – The N2 Gateway SWH Presentation 31

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Acronyms and abbreviations

CCT City of Cape Town, http://www.capetown.gov.za

CEF Central Energy Fund, http://www.cef.org.za/

CO2 carbon dioxide

DBSA Development Bank of Southern Africa, http://www.dbsa.org/

DEAT Department of Environment Affairs and Tourism, http://www.deat.gov.za/DFI Development finance institution

DSM Demand-side management

EDC Energy Development Corporation,

ESCO Energy service company

IDC Industrial Development Corporation, http://www.idc.co.za/

kWh kilowatt-hour

RDP Reconstruction and Development Programme RE renewable energy

SABS South Africa Bureau of Standards, http://www.sabs.co.za/

SWH solar water heater

TREC tradable renewable energy certificate

http://www.capetown.gov.za/

http://www.cef.org.za/

http://www.dbsa.org/

http://www.deat.gov.za/

http://www.idc.co.za/

http://www.sabs.co.za/

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1. Introduction The provision of hot water by means of solar water heating technology is increasingly understood to be an attractive energy service solution in South Africa. Apart from providing a necessary energy service need in households, and hence the national economy, SWH systems offer additional environmental and social benefits. The economic benefits of solar heated water are understood to a high priority in support of the national energy policy of increasing the proportion of renewable energy within the overall energy mix for the economy.

Recognising the broader benefits of SWH and the high priority of addressing domestic energy utilisation within the City of Cape Town Energy and Climate Change Strategy [7], the City of Cape Town has committed to a target of installing SWH systems on 10% of the households in the city by 2010. This study was commissioned and funded by DANIDA in support of the City of Cape Town’s target. There is good practical experience, both in South Africa and internationally, with the use of SWH systems for the provision of hot water for domestic purposes. This experience is derived from small- and large-scale projects over a period of over ten years in some cases. The study has been developed to complement the existing work that has been completed in this sector. Its starting point is the analysis of the financial mechanisms behind existing SWH projects, from which the outputs have been developed. Given the fact that there are currently no large scale SWH projects in operation in the country, there is a lack of knowledge and awareness around the implementation models and the financial implication of these models. This study aims to raise awareness of these issues and provide useful data for key stakeholders within the public and private sectors.

2. Methodology The approach adopted in the study was to undertake a desk-based review of SWH projects and input parameters followed by a modelling exercise for a range of implementation scenarios using spreadsheets. The outcomes of the models were interrogated by means of sensitivity analyses. The initial review included:

• A high-level review the experience to date with SWH projects and the financing of these projects

• Determination of the basic modes of implementation for SWH projects • Identification of financial support mechanisms for the different modes of implementation of

SWH projects • Determination of the range of basic input parameters and appropriate input data such as

demographics in the metro, materials costs, financial parameters, etc. The modelling phase of the study relied on a number of spreadsheet models which were developed or adapted for use in different modes of implementation. These models were set up to share the basic input parameters and provide outputs in a consistent format. The study included consultations with key stakeholders including:

• the City of Cape Town: Shirene Rosenberg; Craig Haskins • the Western Cape Provincial Government: Goosain Isaacs and Joos Roelofse, DEA&DP • a number of SWH manufactures • other relevant stakeholders, including NGOs and CEF


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The financial modelling was undertaken by means of two spreadsheet models which shared basic input parameters. Detailed explanations of the workings of these models are not included in this report, but the individual sheets used in each of the models have been included for reference purposes. These can be found in Annexure B and Annexure C.

3. Review of existing projects and financing mechanisms There is significant experience of financing solar water heating systems within a number of SWH initiatives in the metro area of the Cape of Cape Town and in South Africa as a whole. Variations on the financing options for the two basic implementation models have been applied in each case. It is useful to have a brief overview of the experience in these projects and summaries are presented below.

3.1 Existing domestic SWH systems in the metro Although there is limited documented data on the existing installed capacity of SWH systems in the metro, there are a significant number of SWH systems in the City of Cape Town (estimated at between 10,000 – 15,000) which have been installed over the past 40 years. All of these systems are owned by the homeowner as fixtures of the associated house or guesthouse – until recently no energy services options have been available for domestic SWH systems. A significant proportion of these installations –estimated at approximately 15% - were bought prior to the late 1980s on the basis of short-term asset-based (and specific) loans called home improvement loans. The balance of these systems has been bought on the basis of cash or funds re-advanced from home loans. In most of these cases, the primary reason for buying a SWH system is thought to be the long-term financial benefits of a more predictable and cheaper hot water energy service.

3.2 Lwandle The solar water heating project in Lwandle, near Somerset West, is the largest residential water heating project in South Africa to date and it forms part of the City of Cape Town’s Cape Care Route.

3.2.1 Overall description of the project The project is located in the Lwandle Township in the Western Cape Province and was implemented between 1998 and 2000 as an integral part of a Hostels-to-Homes upgrade project.

The project has provided hot water for 300 community showers. It is the largest single SWH project in Southern Africa with a total collector area of 884 m2 and storage volume of 59 250 litres. The key stakeholders – and their roles in the project - included:

• Lwandle community, Brett Myrdal and Steve Thorne - concept • HEAT / Urban SEED – capacity building of energy advisors • City of Cape Town (formerly Helderberg Sub-structure) – local authority • Development Bank of SA – project co-financier with community contributions from the

housing subsidy • Liebenberg & Stander / Safconsult / Glynn Morris – project management / facilitation /

technical design • Smyth & Andersen – contractor • Solardome / Tecron– suppliers of collectors and storage cylinders


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The project has operated successfully despite there being no routine maintenance of the SWH systems. Ad-hoc repairs have been undertaken by the local SWH contractor on a few occasions over the eight year operating period.

The overall success of the project is attributable to the high level of awareness and participation by the community in the original decisions to implement solar heated water.

3.2.2 Implementation mode and financing The SWH systems are mounted on the roofs and are considered fixtures on the buildings. Consequently, these assets are owned by the City of Cape Town.

The project finance for the implementation was raised as a combination of capital derived from an allocation by the Lwandle community from their housing subsidy and a loan from the Development Bank of Southern Africa (DBSA). The community contribution amounted to approximately R1 million of the R4 million total project cost. The loan funding of approximately R2.8 million was sourced from the Development Bank of South Africa (DBSA) and was secured by the (then) Helderberg Sub-structure of the City of Cape Town. The loan repayments have been serviced from a contribution from rent payments amounting to approximately R27/month (escalated from R17.50/month in 1999) [10] by the residents to the City of Cape Town.

3.3 Durban / eThekwini Solar project

3.3.1 Overall description off the project. In June 2002, a pilot project for SWH systems was initiated in eThekwini under the auspices of USAID’s Climate Technology Partnership in liaison with Durban (now eThekwini) Metro Housing Authority (DMH) [11]. The project aimed to increase community awareness, and to sell and install approximately 100 appropriately sized SWH systems in two low-income townships selected by DMH. The ultimate objective of the pilot was to help the housing authority determine whether to incorporate solar water heating into its housing delivery program, in which they are building approximately 20,000 low-cost homes annually.

3.3.2 Implementation mode and financing The project was implemented on the basis of ownership of the SWH systems by householders. The financing model which was used relied on a capital subsidy of 50% of the initial costs for the supply and installation of the SWH systems. Householders were expected to raise their own funds in the form of cash or personal loans to pay for the SWH system. Consumer acceptance of these appliances has been positive, but as with many programs aimed at poor people in urban and rural areas, affordability has limited adoption.

3.4 Kuyasa low-cost urban housing energy upgrade project The Kuyasa Project is an urban housing upgrade initiative for 2309 existing low-income houses in a part of Khayelitsha called Kuyasa. It is an Energy and Climate Change Project of the City of Cape Town which has been registered as a CDM Project on the basis of a pilot phase which was implemented in 2002. The full-scale project is expected to be implemented in 2007. It has elicited international interest due to its status as a Gold Standard CDM project. The CDM project registration was facilitated by SouthSouthNorth and the technical support for the development of the project methodology and the design and supervision of the pilot phase implementation was provided by AGAMA Energy.


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3.4.1 Overall description and status of the project The overall scope of the project is to upgrade the energy performance of 2309 existing RDP houses with the supply and installation of systems for the provision of:

• improved levels of thermal comfort using insulated ceilings • hot water on tap heated by solar water heaters • energy efficient lighting using compact fluorescent lamps

Subsequent to the pilot phase and in an effort to provide finance to the project, the Department of Environmental Affairs and Tourism appointed AGAMA Energy to develop a business plan for the implementation of the full project on the basis of an Expanded Public Works Programme grant. In this case, the institutional arrangements for implementation of the project between the City of Cape Town criteria of the EPWP grant funding required that the mode of implementation of the project would need to be essentially and ownership-based approach with no institutional or financial provision for maintenance. The outcome of the business plan has highlighted the need to adopt a more appropriate mode of implementation. An energy services mode is currently under development.

3.5 Lynedoch Energy Services AGAMA Energy has been operating a small energy services project since December 2005 for eleven low-income households at the Lynedoch Eco-village, near Stellenbosch. The operation has supplied over 180 litres of hot water per day per household from 200 litre/2.8m2 close-coupled SWH systems at a cost of approximately R166 per month over a period of nine years.

3.6 Solar 500 project The Solar 500 Project is a national South African SWH project which seeks to accelerate the uptake of SWH systems by removing market barriers to SWH systems. The project is currently being implemented by CEF in conjunction with the Department of Minerals and Energy, the Department of Science and Technology, the United Nations Development Programme, the Global Environment Facility and the South African Bureau of Standards (SABS). As in the case of the eThekwini Solar project, the initiative is implemented as an ownership-based model with a decreasing capital subsidy for the supply and installation costs of the 500 units. Approximately 100 applications have been received to date.

3.7 International experience International experience with domestic SWH systems has been largely focussed on combinations of subsidised initial costs and subsidised interest rates for the supply and installation of SWH systems which are owned by the associated householder. Recently, there has been some increased interest in fee-for-service modes of implementation. Some of this work has been undertaken and documented by Green Markets International (http://green-markets.org/SWH/). An example of a fee-for-service scheme is the one implemented by Lakeland Electric, Florida among 50 households. This is the first energy services model for SWH systems in the USA.

http://green-markets.org/SWH/

http://green-markets.org/SWH/


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4. Modes of implementation and support mechanisms

4.1 Modes of implementation There are essentially two modes of implementation of SWH systems, namely:

• An ownership-based mode in which the householder acquires the SWH system • An energy services mode in which the ownership of the SWH system is retained by an energy

services provider who assumes all responsibility for supply, installation, maintenance and replacement of the equipment in return for a service fee.

4.2 Financing mechanisms There are different financing mechanisms for SWH systems. The most appropriate financing mechanism for a particular SWH client depends on the mode of implementation for that client. In the case of ownership-based modes of implementation the most appropriate financing options include:

• Cash purchase • Credit purchase using an overdraft or a credit card • Short- or long-term asset-based finance using a targeted SWH loan or a mortgage-based

advance In the case of an energy services mode of implementation, the finance issue for the client is solved as an integral part of the overall service offering. Consequently, the financing challenge is focussed at the level of the range of enterprise funding mechanisms for a service company rather than on the individual customer level.

4.3 Financial support mechanisms Support mechanisms for SWH include legislative, financial and awareness programmes. These should be complementary and ideally, they should be implemented together as a suite of support mechanisms for increased uptake of SWH systems. A range of financial support mechanisms are available to support either, or both, of the modes of implementation. These are described below.

4.3.1 Capital subsidies Financial support by means of capital subsidies includes options such as demand side management (DSM), subsidies under the CEF Solar 500 project, supplementary grants to the housing subsidy for low-income housing and others. Eskom currently manages a Demand Side Management (DSM) fund. This fund is focused on subsidising interventions that reduce the overall electrical demand in the country – and hence Eskom’s involvement in the fund has been called into question, since it is not compatible with their core business. The discussion as to the relocation of the National Energy Efficiency Agency (NEEA) under the Central Energy Fund (CEF) is currently ongoing.

Regarding DSM for solar water heating, it is anticipated that the fund will provide a capital subsidy at a minimum of R2000 per SWH system.


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4.3.2 Interest subsidies Subsidies on the interest for loans are a useful financial support mechanism. Typical examples include Green housing bonds (home loans) and preferential rates for lower risk customers at commercial banks. Although not currently an institutionally debated mechanism, there is a positive impact regarding SWH uptake through provision of an interest rate subsidy on SWHs. This could, for example, be offered through a revolving credit fund that would be able to accessing risk guarantee(s) for financiers.

4.3.3 Interest holidays The use of interest holidays is focussed on ‘back-loading’ the repayment profile for loans to make the repayments more affordable in the short term. This does not necessarily imply a lower overall cost to the lender (it is more likely to add to the overall cost) but the access to the loan is made easier.

4.3.4 National tax and / or municipal rates rebates Tax or rates rebates are a very effective method of providing tax relief as a reward to liable taxpayers who are adopting policies which need to be supported by national or local government.

4.3.5 Basic energy grants A basic energy grant is already implemented in South Africa and is provided in terms of a small allocation of “free electricity”. The motivation for a basic energy grant is to provide a lifeline service to very poor households. This mechanism could be applied in the form of “free hot water” as a supplementary grant to (or instead of) the current levels of “free electricity”.

4.3.6 Carbon finance One of the benefits of using SWH systems for heating water is the environmental benefit of reductions in the levels of emissions, such as CO2, associated with (predominantly) coal-fired electricity generation in South Africa. A number of carbon finance mechanisms have been developed within the context of the compliance-based carbon mitigation mechanisms, such as the Clean Development Mechanism (CDM), developed multilaterally through the UNFCCC or with the context of a voluntary market. The Clean Development Mechanism (CDM) provides the framework for quantifying and certifying the avoided emissions reductions for projects. Solar water heating does have a significant impact on avoiding emissions at power stations, given that some 92% of the country’s electricity is generated using coal-fired thermal stations with a very high emissions co-efficient. Including losses in lines from Limpopo and Mpumalanga to Cape Town, and standing losses in electric geysers, there are 1.47 kg CO2-equivalent emissions per kWh of electricity consumed (in heating water in a household). Avoided emissions are called a Certified Emission Reduction, or CER. The current price for CERs is said to be €8/tonne CO2. For the purposes of this study, the energy services model incorporates a CER revenue stream, as per the details outlined above.

4.3.7 Tradable Renewable Energy Certificates (TRECs) A related approach – as widely used in Australia – is to use the Tradable Renewable Energy Certificate (TREC) system for subsidising the capital cost of SWHs over a ten-year crediting period. The TREC system values the same avoided emissions as are calculated for the CDM approach, but issues a certificate for avoided electricity consumption, that is redeemed when the sponsor of the system pays the allocated value. One TREC corresponds to 1 MWh of electricity avoided. The current approximate value of a TREC is South Africa: R200


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Average annual household energy expenditure on hot water: 2 MWh Total energy displacement by the unit over a 10 year period: 20MWh Total up-front capex subsidy available from TREC: R4000 Thus there is potentially a sizable contribution available from this approach. However, given the current local TREC framework and market conditions, the model does not include TRECs as a realistic source of revenue in the short term.

4.4 Legislative support mechanisms In this study two legislative support mechanisms are contemplated: the current SWH bylaw being developed for the CCT, and replacement of electric geysers within the insurance industry context

4.4.1 SWH bylaw An exciting example of a legislative support mechanism is the SWH bylaw which is currently being developed by CCT to accelerate the uptake of SWHs within the City. This bylaw is in its 9th draft and is expected to come into effect during the course of 2007.

The impact the bylaw will have is to increase the speed of installation. These increases are expected to be in the order of 9,000 SWHs per year in the middle- and high-income sectors, and 4,000 SWHs per year in the low-income market [1].

4.4.2 Replacement of geysers by the insurance industry This mechanism involves the replacement of failed conventional electric geysers with appropriately sized SWH systems. The effective cost of the SWH in any replacement analysis would then be that of the SWH system less the cost of a new electric geyser, in other words, it is effectively a form of capital subsidy. The assumption in this support mechanism is that the insurance industry provides the same level of coverage for the SWH as for the conventional system, but at reduced monthly premiums to reflect the reduced risk of internal damage to ceilings and household goods. This reduced risk is only relevant with an externally-mounted close-coupled SWH system. The number of geyser installations in South Africa is reported to be approximately 40,000 per month [4]. It is estimated that the proportion of these in the metro area of the City of Cape Town is 7.5%, corresponding to 3,000 geysers monthly. The number of insurance claims relating to geyser dysfunction in CCT equals 1,800 monthly based on the assumption that 60% of all geyser installations are undertaken as a result of insurance claims [6].

5. Financial model development Three financial models were developed separately to analyse three primary approaches to the financial structuring of SWH projects. These models were derived from models which have been developed over the past three years. The models used in this study include:

• an energy services or fee-for-service approach • a short-term finance approach, and; • an insurance industry driven approach.

On reflection, the insurance model did not add particular value when assessing the financial aspects, but did have an impact in terms of the uptake of SWHs. This information is reflected in Section 4.4.2.


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The models have been developed independently to address differing objectives over time; the inputs to the models have been correlated to ensure that they are consistent across the models. Sections 4.3 and 4.4 describe the different financial and legislative support mechanisms that are applied across each of the models, as appropriate, in order to assess the impacts.

5.1 Technology and market segmentation The domestic market has been broadly categorised into three segments: high-, middle- and low-income. For the City of Cape Town, the proportions of households in these sectors are 40%, 45% and 15% respectively, for the existing scenario where there is a suppressed demand for energy [2]. The alternate model, assuming a future unsuppressed demand for energy, has the proportions at 30%, 34% and 36% respectively. Where appropriate, the models assume a rollout as per the suppressed (current) demand situation.

Extensive research was conducted into the technology options and corresponding costs for currently available SWH. The following 3 SWH models have been selected for the three segments:

• Low-income: 100 litre/1.4 m2, low pressure, direct close-coupled evacuated tube system, no electrical backup

• Middle-income: 200 litre/2.9 m2, high pressure, direct close-coupled evacuated tube system, 2 kW electrical backup

• High-income: 300 litre/4.2 m2, high pressure, direct close-coupled evacuated tube system, 3 kW electrical backup

All the systems are externally mounted on the roof.

5.2 Models and modes of implementation Two basic modes of implementation, as described in Section 4.1, are considered here. These are:

• an ownership mode • an energy services mode

In addition, some basic assumptions have been made which are applied to both models.

5.2.1 Basic assumptions Certain basic assumptions have been made to establish a reasonable basis for the models.

• Hot water is assumed to be at 60oC, with a final mixed temperature of 45oC. • An annual average cold water inlet temperature of 16.2oC is used throughout. • An average daily solar radiation of 6.1 kWh/m2 is used throughout.

5.2.2 Ownership The ownership model assumes that homeowners purchase a SWH and take ownership of the SWH as an asset. There are numerous financing approaches for this model but in this study it is assumed that finance is provided by accessing a home loan or access bond. In general, this is the cheapest finance that is available for a household for any renovations or upgrades to the home.

5.2.3 Energy Services The energy services model is predicated on a large-scale rollout of SWHs within a dedicated area, such as perhaps a concession area, by an energy services company. The energy services company would capitalize the business which would involve raising the funds to both cover hardware and installation costs, operating and maintenance costs, and general overheads.


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The household pays a monthly service fee, either on a metered hot water consumption basis or a flat rate basis. The model developed here assumes a flat rate fee that is equivalent to the avoided cost of electricity that results from the installation of the SWH.

An important difference between this and any other approach to providing SWHs, not explicit in the results, is that the energy service model provides a long term contract, 15 years in this analysis, where the maintenance and replacement costs – and the inconvenience associated with finding and contracting a maintenance service provider – are included in the monthly costs.

5.3 Limitations of the models The major limitation is the assumption around an annual, linear increase in electricity tariffs. Given that there are higher than inflation price increases ahead, these impact on the value ascribed to backup electrical heating, most notably in the winter months. Eskom currently has an average selling price of a unit of electricity at 18c/kWh to the municipalities, while a new coal-fired station will have an average sale price of 33c/kWh [4]. Eskom intends to invest R150 billion into 9000 MW of new generation capacity between April 2007 and April 2012, over and above the existing ~ 39000 MW capacity. This will result in an average electricity cost in 2012 expressed in today’s Rand of 21c/kWh which is equivalent to a 16% increase in electricity costs before factoring inflation. These increases will come in steps and not linearly; the linear function over five years is an approximate 3% above inflation per annum increase. The models are structured to achieve the high-level comparisons between different financing approaches, and as such have certain (technical) limitations. A full economic analysis of the performance of a SWH should include dynamic hot water usage profiles, dynamic cold water inlet temperatures and dynamic variable solar insolation. The models developed do not include these dynamic components, but rather use average daily hot water consumption, solar insolation and cold water figures to reduce the models’ complexity. Details regarding these inputs are described in Section 5.4.

5.4 Details of input variables

5.4.1 Demographics of the customer portfolio This is applicable only in the energy services model (see Section 5.2.3). The domestic market is in the proportion of 40%, 45% and 15% in the high-, middle- and low-income sectors respectively (see Section 5.1).

5.4.2 Hot water consumption patterns These are estimated per income group, as follows:

• Low-income = 20 litres of hot water per person per day • Middle-income = 30 litres of hot water per person per day • High-income = 40 litres of hot water per person per day

For the baseline case it has been assumed that there four people in the household [3].


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5.4.3 Financial All rates are per annum:

Cost analysis period 15 years1

Nominal inflation rate 5.5% Nominal discount rate 15.0% Nominal loan interest rate 12.5% Home loan interest rate 10.5% Nominal escalation rate: tariff 6.0% Nominal escalation rate: general 5.5% Real discount rate 9.5% Real loan rate 7.0% Real tariff escalation rate 0.5% Real general escalation rate 0.0%

In addition, the energy services model assumes that the energy business needs to be attractive enough to raise the investments required. An IRR hurdle rate of 15% is assumed to be the minimum that might attract state-supported or DFI finance, for example through CEF, IDC or the DBSA. The actual details of the financing arrangements for this model are described in Section 6.

5.4.4 Costs 5.4.4.1 Materials The costs of materials for the three systems, complete, as described in Section 5.1 are:

• Low-income: R3,000 • Middle-income: R10,210 • High-income: R14,350

5.4.4.2 Installation The average costs of installation for the three systems are:

• Low-income: R500 • Middle-income: R1,500 • High-income: R2,000

5.4.4.3 Maintenance Maintenance costs are based on replacement of pressure valves every five (5) years, electrical heating elements every five (5) years, anode every three (3) years and average per year. Consequently, the estimated annual maintenance cost for the three systems is:

• Low-income: R156/annum • Middle-income: R192/annum • High-income: R192/annum

1 Except for the homeloan analysis where the term is assumed to be 20 years i.e. the period of a new bond


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6. Scenarios and results

6.1 Baseline scenarios Three scenarios are developed based on the inputs set out above. These include:

• An energy services approach to the provision of hot water to the home owners in the N2 Gateway project

• An energy services approach for a metro-wide programme for SWH in terms of the CCT target of 10% of households with SWH

• Personal loans

6.1.1 N2 Gateway housing development project It has been assumed that the rollout in the N2 gateway will take place through an energy services approach, and that all the houses (apartments) are low-income households utilising a 200-litre high pressure system. This particular unit was chosen as it offers a comparable level of service to the units that have already been constructed as part of the N2 Gateway Project. Given that this would be a large-scale dedicated project, with the total number of systems equalling 22,000, it has also been assumed that there would be a 20% discount on the system materials costs.

Further assumptions are that there is a capital subsidy in the form of DSM funding in the amount of R2000. Overall, it is assumed that there will be setup costs of R5 million; legal costs of R500,000; marketing costs of R1 million; a gearing ratio of 50%; and that the project is developed as a CDM project with associated CERs valued at €8/tonne CO2.

The costs to administer the energy business are assumed to be 1% of the total capex amount of R50 million, i.e. R500,000 per annum. The (low-income) households monthly payment grows with a nominal energy cost escalation of 6% per annum, or 0.5% real (noting that the real electricity tariff increase will be in the order of 3% per annum).

Further assumptions are that the initial installation rate is 100 SWHs per month, increasing at 5% per month and with maximum monthly installments of 300 SWHs per month.

6.1.2 Metro-wide Given that this would be a large rollout it has also been assumed that there would be a 20% discount on the system materials costs, with the total number of systems equalling 80,000. This represents the 10% SWH targeted by CCT. An energy services model is again assumed, where the implementation is in proportion to the number of households as described in Section 5.4.1 viz. in the proportion of 40%, 45% and 15% in the high-, middle- and low-income sectors respectively. These are equivalent to 32,000, 36,000 and 12,000 households respectively.

Further assumptions are that there is DSM funding in the amount of R2,000; R5 million setup costs; R500,000 legal fees; R1 million marketing costs; a gearing ratio of 50%; and that the project is developed as a CDM project with associated CERs.

The costs to administer the energy business are assumed to be 1.0% of the total capex amount of R150 million i.e. R1,500,000 per annum. The (low, middle and upper-income) households monthly payment grows with a nominal energy cost escalation of 6% per annum, or 0.5% real (noting that the real electricity tariff increase will be in the order of 3% per annum).

Further assumptions are that the initial installation rate is 100 SWHs per month, increasing at 5% per month and with maximum monthly installments of 750 SWHs per month.


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6.1.3 Personal loans The three household segments were analysed in two different ways:

• loans raised on the household bond, and • short-term (5-year) loans

All the financial and other parameters are assumed to be as described in Section 5.4.

The other baseline assumption is that there is no DSM or CDM funding, as it is unlikely that individually financed models would be eligible for these support mechanisms.

6.2 Legislative support mechanisms

6.2.1 SWH bylaw No specific modelling was performed around the impact of the bylaw as it is motivating factor that will push demand rather than a financial mechanism in its own right. What we can surmise from the data presented in [1] is that the effect of the bylaw will lead to an additional 13,000 SWHs installed in CCT per year (see Section 4.4.1).

6.2.2 Household insurance In Section 4.4.2 the insurance industry support via replacement of failed electric geysers is estimated to be in the order of 21,600 per annum (1,800 per month).

The combined effect of these two mechanisms would be an additional 35,000 SWH installations in the first few years subsequent to the bylaw approval and the insurance industry promoting the concept. The limiting factor in this scenario is the capacity of the industry to deliver these sorts of numbers.

6.3 Results Results are presented using a net present value (NPV) for the household for the different scenarios and sensitivities modelled. The results are also presented in terms of Rands per litre of hot water for completeness.

6.3.1 Baselines 6.3.1.1 N2 Gateway The scenario described results in an IRR (15 years) for the equity investor of 15.4% i.e. above the assumed hurdle rate (see Section 5.4.3). To achieve this, each household pays a cost of R99/month.

The annualised net present cost to the owner, with escalations, is R1,197. On the hot water consumption assumption of 30 litres per person per day, the system will deliver 43,800 litres of hot water per annum, at a cost of 2.7 c/litre.

(If one were to replace the 200L high pressure system with a 100L low pressure system, each household would only be required to pay R37/month. If a portion of the basic electricity grant were used to subsidise 50% of this payment, the household would only be required to pay an amount of R18/month.)

6.3.1.2 Metro-wide The scenario described results in an IRR (15 years) for the equity investor of 15.0% i.e. above the assumed equity investor required hurdle rate (see Section 5.4.3).

The annualised net present cost to the owners, with escalations, are R410, R1,368 and R2,051 for the low-, middle- and high-income groups respectively. On the hot water consumption assumptions, the systems will deliver hot water per annum, at an annualised net present cost of 1.4 c/litre, 3.1 c/litre


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and 3.5 c/litre for the three income groups respectively. The monthly payments for each income segment are R34, R114 and R171 respectively

It is important to note that this and the N2 Gateway baselines are offering very different costs of hot water to the low-income group, on the assumption that in the former scenario the middle-income technology (200 litre/2.9m2 high-pressure systems) are used compared with the latter where the 100 litre/1.4 m2 low pressure systems are used.

6.3.1.3 Personal loans Using a personal home loan

This scenario assumes that the SWH is purchased by means of a home loan. The assumption is that the SWH is installed with a new house i.e. the loan repayment takes place over the term of the home loan, which is here assumed to be 20 years. This is an appropriate assumption for SWH systems installed within the legal framework of a SWH bylaw.

• For the high-income, 300 litre/4.2m2 system, the annualised NPV is R2,729 over 20 years, corresponding to R227/month. This is equivalent to 4.7 c/litre of hot water.

• For the middle-income, 200 litre/2.9m2 system, the annualised NPV is R2,045 over 20 years, corresponding to R170/month. This is equivalent to 4.7 c/litre of hot water.

• For the low-income, 100 litre/1.4 m2 system, the annualised NPV is R708 over 20 years, corresponding to R59/month. This is equivalent to 2.4 c/litre of hot water.

Using a short-term (5 year) loan

This scenario assumes that the SWH is purchased by means of a personal loan with payment term of 5 years.

• For the high-income, 300 litre/4.2m2 system, the annualised NPV is R1,919 over 15 years, corresponding to R185/month. This is equivalent to 3.8 c/litre of hot water.

• For the middle-income, 200 litre/2.9m2 system, the annualised NPV is R1,456 over 15 years, corresponding to R140/month. This is equivalent to 3.8 c/litre of hot water.

• For the low-income, 100 litre/1.4 m2 system, the annualised NPV is R569 over 15 years, corresponding to R53/month. This is equivalent to 2.2 c/litre of hot water.

6.3.2 Sensitivities 6.3.2.1 ESCO model The N2 Gateway implementation using the baseline approach viz. using 200-litre HP systems in low-income households has been shown not to be the most cost effective way to deliver hot water to this market segment. Sensitivities around this have therefore not been analysed further. The generalised ESCO model is more appropriate for a metro-wide implementation consequently a sensitivity analysis is undertaken for the metro scenario where 10% of households have a SWH. The N2 Gateway scenario is a specific case targeting one income group which misses the opportunity of a diversified customer base.

The Metro scenario was tested for sensitivities around the

• Capital subsidy, in the form of DSM • ESCO operational overheads • Loan finance interest rate


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In all cases where the change in the parameter being tested resulted in an equity IRR > 15%, these savings were passed on to the end-user by way of reduced monthly service charges. The change in cost per litre of hot water in these sensitivities is presented in the tables below.

Table 1: Impact of DSM subsidy levels via ESCO Metro-wide model on end-user costs

DSM subsidy level R 0 R 1,000 R 2,000 (baseline) R 3,000

SWH market

c/litre R/month c/litre R/month c/litre R/month c/litre R/month Low-income 1.6 39 1.5 35 1.3 31 1.1 27 Middle-income 3.9 144 3.5 129 3.1 114 2.7 99 High-income 4.4 215 4.0 193 3.5 171 3.1 149

Table 2: Impact of ESCO Metro-wide model operational overheads on end-user costs

ESCO overheads (as % of capex) 0.5% 1% (baseline) 1.5% 2.0%

SWH market


Table 3: Impact of ESCO Metro-wide model loan finance charges on end-user costs

Nominal loan finance rate 11.5% 12.5% (baseline) 13.5% 14.5%

SWH market


6.3.2.2 Ownership mode The ownership mode was tested for sensitivities around the

• Capital subsidy, in the form of DSM • Loan finance interest rate

The capital subsidy, in the form of DSM, was varied from the baseline (zero) upwards in increments of R1,000 up to a maximum of R3,000. The variations in cost/litre of hot water for an assumed household occupancy of 4 people are summarised in Table 4 and Table 5 for the home-loan and short-term loan scenarios respectively.


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Table 4: Impact of DSM subsidy levels for SWHs purchased on home loans

DSM subsidy level SWH market R 0 (baseline) R 1,000 R 2,000 R 3,000


Table 5: Impact of DSM subsidy levels for SWHs purchased on 5-year personal loans

DSM subsidy level SWH market R 0 (baseline) R 1,000 R 2,000 R 3,000 c/litre R/month c/litre R/month c/litre R/month c/litre R/month Low-income 2.2 53 1.8 39 1.4 30 1.1 20 Middle-income 3.8 140 3.6 112 3.3 104 3.1 95 High-income 3.8 185 3.6 151 3.4 142 2.9 133

The loan interest rate levels were decreased from the baseline level of 10.5% down to 7.5%, as reflected in Table 6 and Table 7 for the home-loan and short-term loan scenarios respectively.

Table 6: Impact of interest rate subsidy levels for SWHs purchased on home loans

Interest rate subsidy level SWH market 10.5 % (baseline) 9.5% 8.5% 7.5% c/litre R/month c/litre R/month c/litre R/month c/litre R/month Low-income 2.4 59 2.3 57 2.3 55 2.2 52 Middle-income 4.7 170 4.5 163 4.3 156 4.2 149 High-income 4.7 227 4.5 217 4.3 208 4.1 198

Table 7: Impact of interest rate subsidy levels for SWHs purchased on 5-year personal loans

Interest rate subsidy level SWH market 10.5 % (baseline) 9.5% 8.5% 7.5% c/litre R/month c/litre R/month c/litre R/month c/litre R/month Low-income 2.2 53 2.2 52 2.1 51 2.1 50 Middle-income 3.8 140 3.8 138 3.7 137 3.7 135 High-income 3.8 185 3.8 183 3.7 180 3.7 178


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7. Conclusions The two primary modes of implementation explored in this report are not mutually exclusive and can share common support services such as quality assurance, repair and maintenance and awareness programmes. The support mechanisms for both modes of SWH implementation include policy/legislative support, financial support and awareness support. This study has developed (and adapted) financial models for the implementation of SWH systems which enable different scenarios for implementation to be investigated. It is clear that a metro-wide energy service model can deliver hot water at the lowest cost for the three broad income sectors in the City of Cape Town. The service costs of the ESCO mode of implementation are lower than the ownership-based mode of implementation due, largely, to the aggregation of costs in the service delivery which leads to economies of scale and more efficient access to support mechanisms – especially the financial support mechanisms. The ESCO mode has a 20% materials cost reduction assumption associated with its delivery. The service costs for the scenario of supplying the N2 Gateway Housing Project by means of an energy service approach are higher than the equivalent costs for the low-income customer segment in the metro-wide case due to the higher level of service offered and the smaller scale of implementation. It is also significant that the ESCO model enables accelerated access to service benefits of SWH since the customers do not need to raise their own finance, by whatever means possible, as in the case of the ownership model. The legislative or policy support of the SWH bylaw and the replacement of damaged electrical storage water heaters with SWH system within the insurance industry will have the effect of accelerating the uptake of SWH systems. The combined effect of these two mechanisms would be an additional 35,000 SWH installations in the first few years subsequent to the bylaw approval and the insurance industry promoting the concept. The limiting factor in this scenario is the capacity of the industry to deliver these sorts of numbers.


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8. Recommendations In summary, and supported by the experience to date, the financial modelling suggests that the most appropriate approach to the implementation of SWH within the City of Cape Town would be a large-scale energy services mode of implementation. However, in practice, it is likely that a blend, or combination, of models and support mechanisms will need to be implemented to cater for individual preferences and market segments within the Metro.


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9. References [1] Mahomed, L (2006). SWH initiatives in Cape Town. Presentation to the Domestic Use of Energy conference, 5

April 2006. [2] This arises from research undertaken for this study. David will you please elaborate this? [3] The City of Cape Town data (http://www.capetown.gov.za/censusInfo/Census2001-

new/Cape%20Town/Cape%20Town.htm) indicates an average number of people per household as being 3.7. Unfortunately, this is not disaggregated into the different income sectors.

[4] From http://www.busrep.co.za/index.php?fSectionId=563&fArticleId=3731608. [5] The Argus, January 2006. National statistics from South African Insurance Association [6] The Argus, January 2006. National statistics from South African Insurance Association, & InWeNT SWH Market

Study, 2006 [7] Borchers M et al (2005), City of Cape Town Energy and Climate Change Strategy, Environmental Planning

Department, City of Cape Town. [8] Cawood W and Morris GJ (2002). Baseline study - Solar Energy in South Africa, Department of Minerals and

Energy, Pretoria [9] Whitehead M (2005). N2 Gateway Project: SWH Business Plan 2005, Urban Energy Conservation and

Transportation, compiled for Lereko Energy. [10] J.M. Lukamba–Muhiya• and O.R. Davidson (2003). Dissemination of Solar Water Heaters in South Africa: Policy

Perspectives. Journal of Energy in Southern Africa [11] Austin GA and Morris GJ (2005). The status of solar water heating for domestic hot water supply in the low-

income sector in South Africa, report for WINROCK International [12] http://cdm.unfccc.int/Projects/DB/DNV-CUK1121165382.34/view.html [13] EMCON Consulting Group (2006). Assessment of Feasibility for the Replacement of Electrical Water Heaters

with Solar Water Heaters, Barrier Removal to Namibian Renewable Energy Programme (NAMREP), Ministry of Mines and Energy, Namibia

http://www.capetown.gov.za/censusInfo/Census2001-new/Cape%20Town/Cape%20Town.htm

http://www.capetown.gov.za/censusInfo/Census2001-new/Cape%20Town/Cape%20Town.htm

http://www.busrep.co.za/index.php?fSectionId=563&fArticleId=3731608

http://cdm.unfccc.int/Projects/DB/DNV-CUK1121165382.34/view.html


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10. Annexures

10.1 Annexure A - An Overview of the N2 Gateway Project (Pre-TOR modification)

10.1.1 Introduction The N2 Gateway project was envisioned as South Africa’s flagship low income housing delivery programme, and formed part of the new Comprehensive Housing Plan for South Africa that was adopted by National Cabinet on the 2nd September 2004. The project was unique in that it combined resources from National, Provincial and Local Government to develop and implement the concept of an integrated and sustainable human settlement. The projects focus was on the provision of housing for the inhabitants of informal settlements along the highly visible section of the N2 between Cape Town and Cape Town International Airport. The original project aimed at the delivery of 22000 housing units at a cost of R2.3bn, to be completed by December 2006. Delivery was planned to take place in several phases. To date only the first phase involving the development of 700 units in the Joe Slovo settlement in Langa has been completed.

10.1.2 Background The original project design did not include the option of installing SWH systems. Lereko Energy identified the opportunity to develop a SWH project alongside developments in the N2 Gateway Project. DANIDA was approached to provide support to the detailed financial modelling and development of an implementation approach based on the financial analysis for the City of Cape Town. The financial modelling was aimed at enabling the initiative to secure necessary funds from banks, and build the financial case that will enable the City of Cape Town to obtain the DME Demand Side Management (DSM) subsidy in order to make the installation of SWH a viable and sustainable option. Lereko Energy subsequently approached Agama Energy to form a partnership, with Agama to play the role as project implementers, based on their vast experience in the field of SWH. As a joint team, Lereko Energy and Agama then initiated the project through various meetings with key players involved in the N2 Gateway Project and a workshop in SWH. The efforts were however disrupted as the N2 Gateway Project collapsed due to allegations of corruption and subsequent financial problems. The team then waited for the dust to settle before continuing with the project. By this stage however, it became clear that the development of a SWH project on the N2 Gateway Project would not become a reality, as the project had been handed over to a group of external consultants, Thubelisha Homes, who were now responsible for delivery. The original terms of reference for the project were modified to reflect these changes.

10.1.3 SWH in the N2 Gateway Project The controversy surrounding the N2 Gateway project continues and there is no clear indication of when the project will be completed, if at all. An unfortunate outcome of this controversy is that issues such as Solar Water Heating have been forced to take a backseat. With budgets already strained it is unlikely that such projects will receive much support going forward. Several attempts were made to contact Thubelisha homes to establish their SWH strategy, but they refused to give comment.


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10.1.4 Summary of work completed – Stage 1 Partnership between Agama Energy and Lereko Energy Significant time and effort was spent on formalising a partnership between Lereko Energy and Agama Energy. This relationship is still in existence, with Lereko and Agama working closely together on the delivery of this report and as partners in other SWH projects.

Solar Workshop A workshop was presented to key stakeholders involved with the N2 Gateway project. The workshop aimed at building capacity in the sector and facilitating communication on SWH between the various role players. The presentation given at this workshop is given in Appendix B.

Meetings with the City of Cape Town and Key Stakeholders A number of productive meetings took place with the City and other stakeholders, before the project was handed to Thubelisha Homes. Lereko Energy planned to raise finances through donor funding, DSM and other sources and manage the installation and then the ongoing operation of the project.


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10.2 Annexure B – The Fee for Service Model

10.2.1 Detailed Assumptions and Costs

Solar Water Heating Module VOLUME DISCOUNTS? (Y/N) y

Detailed Assumptions - Costs100-litre 100-litre 200-litre 300-litre

Number Indigent Low Medium High Total

Cost of Unit

Solar Collector 1 1,000 Storage Tank 1 1,400 Piping 1 600 Heat Exchanger 1 - Volume Discount 1 (600)

2,400

Solar Collector 1 1,000 Storage Tank 1 1,400 Piping 1 600 Heat Exchanger 1 Volume Discount 1 (600)

2,400

Solar Collector 1 4,825 Storage Tank 1 4,785 Piping 1 600 Heat Exchanger 1 Volume Discount 1 (2,042)

8,168

Solar Collector 1 6,600 Storage Tank 1 7,000 Piping 1 750 Heat Exchanger 1 - Volume Discount 1 (2,870)

11,480

Labour / Installation Cost 500 500 1,500 2,000 Installed Cost per Unit 2,900 2,900 9,668 13,480

Maintenance Cost

Annual 50 50 100 100 5 Yearly 250 250 500 500 Total amortised cost per month 13 13 16 16

Contingency

Administration Costs

Capex Value 50,000,000 % per annum 1.00%Annual fee - payable monthly in advance 500,000

Central Administaion Costs (overheads not covered by FAC)

HPLP



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10.2.2 Assumptions and Results

amountAssumptions DSM? (Y/N) y 2,000 Results

Number Indigent Low Medium High Total Project

Combination (monthly installations) % 0% 0% 100% 0% 100% must NPV @ 25%Number of Units per month 21 45 24 10 100 15%Increase in monthly installations 5% 10%Maximum cumulative installations 22,000 IRR (before tax) 15 yearsMaximum monthly installation 300 IRR (after tax) 15 years

Costs Indigent Low Medium High Total Equity InvestorInstallationInstalled Cost per Household 900 900 7,668 11,480 NPV @ 25%Weighted installed cost per unit - - 7,668 - 7,668 15%

10%Maintenance Geared IRR 15 yearsAmortised maintenance cost per unit per month 13 13 16 16 Weighted maintenance cost per unit per month - - 16 - 15.54

Fund Administration monthly

Marketing monthlyonce-off 1,000,000

OtherConsulting development cost recovery once off - payable month 1 5,000,000 Structuring fee (financier and other) once off - payable month 1Legal once off - payable month 1 500,000

Revenue Indigent Low Medium High TotalConsumer contributionConsumer contribution per unit per month 17 33 122 182 Weighted consumer contribution - - 122 - 121.51

Government contributionBasic elecricity grant per consumer per month - - - - Weighted electricity grant - - - - -

Carbon CreditsCarbon credit contribution per installation 117.60 117.60 235.20 352.80 Weighted carbon credit contribution - - 235.20 - 235.20

General

Escalation - energy cost per annum 6.00%Escalation - swh price per annum 5.50%Escalation - electricity grant per annum 3.00%Escalation - other costs per annum 5.50%

real discount rate = investment rate 7.00%

Financial

Gearing ratio 50%Exchange rate R / € 10.00 Debt repayment period years 10 Useful life of unit (depreciation period) years 15 Wear & tear allowance period years 5 Corporate tax rate 29%



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10.2.3 Detailed Assumptions and Revenue

Cost/kWh -0.03CEF DSM 51,347,403 Additional GWh 0.00 0.00 -101.48 0.00 -101.48

86 42 (32) (49) 188% 122% 95% 95%

domestic sales 1,099 GWh120 120 240 360 840 domestic users 260,443

218,772,120 average use 4,220 kWh/year3,650 3,650 7,300 10,950 352 kWh/month

44 88 292 438 913 GWh avoided totalDetailed Assumptions - Revenue 83.10%

97 195 649 974 R 20.44 R 40.89 R 136.30 R 204.44R 0.21 R 0.21 R 0.21 R 0.21

Indigent Low Medium High Total RHHs - - 260,443 - 260,443

0% 0% 100% 0%Weighted HH elec consumption per month kWh - - 649 - 649 Income from consumerWeighted avoided elec consumption per month kWh - - 292 - 292 Weighted hot water provided per month - litres - - 240 - 240 Current elec cost 44 88 292 438 Avoided electricity cost 20 39 132 197

Income from ConsumerCost of electricity Year 2007 R 0.38Expected energy saving 45% per month 17 33 112 167 Consumer usage fee per monthBasic electricicty grant per month - - - - Total saving per month 17 33 112 167

Solar water heater charge % of saving 100% 100% 100% 100% Government GrantsSolar water heater charge R per month 17 33 112 167 Usage fee (basic grant) per month -

Installation Subsidy per installation - Government Grants - Basic electricity grant 811,380,115 If yes, input "1" - - - - - 811,380,115 Carbon Credits

Carbon CreditsLitres per installation 100 100 200 300 T/100l 1.470 1.470 2.940 4.410 T/installation 1.47 1.47 2.94 4.41 Contribution per tonne € 8.00 Contribuition per installation 117.60 117.60 235.20 352.80 If yes, input"1" 1 117.60 117.60 235.20 352.80

- - 2.94 - 2.94 11.76 11.76 23.52 35.28

Corporate Social ResponsibilityNumber of companies targeted - Success rate - annual 0%Succes rate - once off 0%Annual contribution (payble monthly) - - Once off contribution (payble mnth 1) - -

additional energy to HHs (kWh) per month

TOTAL kWh consumption per month

equivalent litres per month

equivalent litres per day

AVOIDED kWh consumption per month

10.2.4 Cash Flow Models


Cashflow Model

Years 0 1 2 3 4 5 6 7 8 9 10

Number of unitsCumulative units 1,592 4,443 8,043 11,643 15,243 18,843 22,143 22,143 22,143 22,143

Revenue 1,519,760 5,684,704 12,366,100 20,093,421 28,608,706 37,981,740 48,165,577 48,165,577 56,670,770 59,758,533

Customer Contribution 1,145,389 4,639,699 10,474,375 17,354,976 25,023,541 33,549,856 42,957,532 42,957,532 51,462,725 54,550,489 Government Contribution - - - - - - - - - - Social Responsibility Contribution - - - - - - - - - - Carbon Credits 374,371 1,045,005 1,891,725 2,738,445 3,585,165 4,431,885 5,208,045 5,208,045 5,208,045 5,208,045

Costs 19,351,715 24,157,044 32,551,599 35,102,647 37,837,354 40,768,205 40,730,187 40,730,187 6,836,346 7,184,845

Installation 12,205,253 23,066,558 30,724,833 32,414,698 34,197,507 36,078,370 34,890,790 34,890,790 - - Maintenance 146,462 590,486 1,326,767 2,187,949 3,139,847 4,189,835 5,339,397 5,339,397 6,336,346 6,684,845 Administration Overheads 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 Other Costs 5,000,000 - - - - - - - - - Marketing 1,000,000 - - - - - - - - - Other (once-off) 500,000 - - - - - - - - -

Cashflow before interest and tax (17,831,955) (18,472,340) (20,185,499) (15,009,226) (9,228,648) (2,786,465) 7,435,390 7,435,390 49,834,424 52,573,689

Interest 812,514 1,192,995 1,963,929 2,550,069 2,853,347 2,835,151 2,456,708 1,854,333 1,236,222 618,111

Cashflow before tax (18,644,469) (19,665,335) (22,149,428) (17,559,296) (12,081,996) (5,621,616) 4,978,683 5,581,057 48,598,202 51,955,578

Tax - - - - - - 3,883,167 5,465,945 9,423,667 11,998,384

Net cashflow (18,644,469) (19,665,335) (22,149,428) (17,559,296) (12,081,996) (5,621,616) 1,095,516 115,112 39,174,536 39,957,194

Cumulative cash balance - (18,644,469) (38,309,805) (60,459,233) (78,018,529) (90,100,524) (95,722,140) (94,626,624) (94,511,512) (55,336,977) (15,379,783)

Debt advances / repayment (4,895,708) (4,938,805) (5,374,730) (3,371,508) (1,089,310) 1,498,301 4,167,922 4,667,946 4,667,946 4,667,946

Net Equity Investor cash flow (13,748,762) (14,726,530) (16,774,699) (14,187,788) (10,992,686) (7,119,916) (3,072,406) (4,552,834) 34,506,590 35,289,248

Cumulative cash after debt (13,748,762) (28,475,292) (45,249,991) (59,437,778) (70,430,464) (77,550,381) (80,622,787) (85,175,621) (50,669,031) (15,379,783)

Project cash flow before interest after tax (17,831,955) (18,472,340) (20,185,499) (15,009,226) (9,228,648) (2,786,465) 3,552,223 1,969,445 40,410,757 40,575,305


DANIDA

10.2.5 User Cash Flows

200 litre hPPayments 1,338 -1,412 -1,489 -1,571 -1,658 -1,749 -1,845 -1,947 -2,054 -2,167 -2,286 Present value 1,338 -1,319 -1,301 -1,283 -1,265 -1,247 -1,229 -1,212 -1,195 -1,179 -1,162 Net present value -17,962Annual NPV -1,197Hot water deliver/annum 43,800NPV/litre hot water -2.7 cents

10.2.6 Electrical Savings

Years 0 1 2 3 4 5 6 7 8 9 10

Cumulative Num of units 3,958 24,593 48,593 72,593 96,593 100,593 100,593 100,593 100,593 100,593

Avoided elec consumption GWh 13.9 86.2 170.4 254.6 338.7 352.8 352.8 352.8 352.8 352.8% of national target % 0.1% 0.9% 1.7% 2.5% 3.4% 3.5% 3.5% 3.5% 3.5% 3.5%Emissions reductions tonnes CO2 ##### ###### 250,493 374,210 497,928 518,548 518,548 518,548 518,548 518,548 Value of CERs / VERs 10 Euro/tonne Rmil 1.84 11.41 22.54 33.68 44.81 46.67 46.67 46.67 46.67 46.67

10.2.7 Debt Model

51,347,403


Total 46,679,457 46,679,457 46,679,457 18,373,379 18,373,379 18,373,379 -

Month Interest Rate Capital Annual Advances

Cumulative Advances

Capital Repayment

Interest repayment

Monthly Interest

Annual Interest Cumulative Interest

Balance

10 0 12.50% 3,648,935 3,648,935 3,648,935 1 12.50% 412,541 4,061,475 - 38,010 38,010 4,099,485 2 12.50% 426,827 4,488,303 - 42,703 80,713 4,569,015 3 12.50% 441,828 4,930,131 - 47,594 128,307 5,058,438 4 12.50% 457,579 5,387,710 - 52,692 180,999 5,568,709 5 12.50% 474,118 5,861,828 - 58,007 239,006 6,100,834 6 12.50% 491,483 6,353,311 - 63,550 302,556 6,655,867 7 12.50% 509,717 6,863,028 - 69,332 371,888 7,234,916 8 12.50% 528,862 7,391,890 - 75,364 447,252 7,839,142 9 12.50% 548,965 7,940,855 - 81,658 528,910 8,469,764

10 12.50% 570,073 8,510,927 - 88,227 617,137 9,128,064 11 12.50% 405,050 8,915,978 - 95,084 712,221 9,628,198 12 12.50% 647,676 9,563,654 9,563,654 4,667,946 812,514 100,294 812,514 812,514 4,895,708 13 12.50% 673,398 673,398 - 50,997 50,997 5,620,102 14 12.50% 700,405 1,373,803 - 58,543 109,540 6,379,050 15 12.50% 728,763 2,102,566 - 66,448 175,988 7,174,262 16 12.50% 758,539 2,861,105 - 74,732 250,720 8,007,533 17 12.50% 789,804 3,650,908 - 83,412 334,132 8,880,748 18 12.50% 822,632 4,473,540 - 92,508 426,640 9,795,887 19 12.50% 857,101 5,330,641 - 102,040 528,680 10,755,029 20 12.50% 893,294 6,223,934 - 112,032 640,712 11,760,354 21 12.50% 931,296 7,155,230 - 122,504 763,215 12,814,153 22 12.50% 971,198 8,126,429 - 133,481 896,696 13,918,833 23 12.50% 462,065 8,588,494 - 144,988 1,041,684 14,525,886 24 12.50% 1,018,257 9,606,751 9,606,751 4,667,946 1,192,995 151,311 1,192,995 1,192,995 9,834,513 25 12.50% 1,000,371 1,000,371 - 102,443 102,443 10,937,326 26 12.50% 982,485 1,982,856 - 113,930 216,373 12,033,741 27 12.50% 964,599 2,947,454 - 125,351 341,725 13,123,692 28 12.50% 946,713 3,894,168 - 136,705 478,430 14,207,110 29 12.50% 928,827 4,822,995 - 147,991 626,421 15,283,928 30 12.50% 910,941 5,733,936 - 159,208 785,628 16,354,077 31 12.50% 893,056 6,626,992 - 170,355 955,983 17,417,488 32 12.50% 875,170 7,502,162 - 181,432 1,137,415 18,474,090 33 12.50% 857,284 8,359,445 - 192,438 1,329,854 19,523,812 34 12.50% 839,398 9,198,843 - 203,373 1,533,227 20,566,583 35 12.50% - 9,198,843 - 214,235 1,747,462 20,780,818 36 12.50% 843,832 10,042,676 10,042,676 4,667,946 1,963,929 216,467 1,963,929 1,963,929 15,209,242


DANIDA

10.2.8 Income Statement

Income Statement

Years 0 1 2 3 4 5 6 7 8 9 10

Revenue 1,519,760 5,684,704 12,366,100 20,093,421 28,608,706 37,981,740 48,165,577 48,165,577 56,670,770 59,758,533

Operating lease income 1,145,389 4,639,699 10,474,375 17,354,976 25,023,541 33,549,856 42,957,532 42,957,532 51,462,725 54,550,489 Government Contribution - - - - - - - - - - Social Responsibility Contribution - - - - - - - - - - Carbon Credits 374,371 1,045,005 1,891,725 2,738,445 3,585,165 4,431,885 5,208,045 5,208,045 5,208,045 5,208,045

Operating Expenditure 7,553,304 2,632,971 5,018,213 7,719,715 10,511,933 13,402,241 16,315,443 17,158,923 18,155,872 18,504,371

Maintenance 146,462 590,486 1,326,767 2,187,949 3,139,847 4,189,835 5,339,397 5,339,397 6,336,346 6,684,845 Administration and Overheads 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 Other Costs 5,000,000 - - - - - - - - - Marketing 1,000,000 - - - - - - - - - Other (once-off) 500,000 - - - - - - - - - Depreciation 406,842 1,542,485 3,191,446 5,031,766 6,872,086 8,712,406 10,476,046 11,319,526 11,319,526 11,319,526

Operating profit / (loss) (6,033,544) 3,051,733 7,347,887 12,373,706 18,096,773 24,579,499 31,850,134 31,006,654 38,514,898 41,254,163

Finance costs 812,514 1,192,995 1,963,929 2,550,069 2,853,347 2,835,151 2,456,708 1,854,333 1,236,222 618,111

Profit / (loss) before taxation 30,451,020 (6,846,058) 1,858,738 5,383,958 9,823,637 15,243,425 21,744,348 29,393,427 29,152,321 37,278,676 40,636,052

Taxation (1,985,357) 539,034 1,561,348 2,848,855 4,420,593 6,305,861 8,524,094 8,454,173 10,810,816 11,784,455

Net profit / (loss) after tax (4,860,702) 1,319,704 3,822,610 6,974,782 10,822,832 15,438,487 20,869,333 20,698,148 26,467,860 28,851,597

Calculation of depreciation and wear and tear allowance

Years 0 1 2 3 4 5 6 7 8 9 10

Cumulative units - 1,592 4,443 8,043 11,643 15,243 18,843 22,143 22,143 22,143 22,143 Additional units for the year 1,592 2,851 3,600 3,600 3,600 3,600 3,300 - - - Average number of new units 796 1,426 1,800 1,800 1,800 1,800 1,650 - - -

Number of units for depreciattion 796 3,017 6,243 9,843 13,443 17,043 20,493 22,143 22,143 22,143 Number of units for wear & tear 796 3,017 6,243 9,843 13,443 15,451 16,050 14,100 10,500 6,900

Cost of units for depreciation 6,102,626 23,137,270 47,871,688 75,476,488 103,081,288 130,686,088 157,140,688 169,792,888 169,792,888 169,792,888 Cost of units for wear & tear 6,102,626 23,137,270 47,871,688 75,476,488 103,081,288 118,480,836 123,071,400 108,118,800 80,514,000 52,909,200

Annual depreciation 126,789,283 406,842 1,542,485 3,191,446 5,031,766 6,872,086 8,712,406 10,476,046 11,319,526 11,319,526 11,319,526

Annual wear & tear allowance 152,813,599 1,220,525 4,627,454 9,574,338 15,095,298 20,616,258 23,696,167 24,614,280 21,623,760 16,102,800 10,581,840

10.2.9 Tax Calculation

Cashflow Model

Years 0 1 2 3 4 5 6 7 8 9 10

Operating profit / (loss) (6,846,058) 1,858,738 5,383,958 9,823,637 15,243,425 21,744,348 29,393,427 29,152,321 37,278,676 40,636,052

Add back

Depreciaton 406,842 1,542,485 3,191,446 5,031,766 6,872,086 8,712,406 10,476,046 11,319,526 11,319,526 11,319,526

Less

Wear & tear allowance 1,220,525 4,627,454 9,574,338 15,095,298 20,616,258 23,696,167 24,614,280 21,623,760 16,102,800 10,581,840

Taxable income / (loss) (7,659,742) (1,226,232) (998,934) (239,895) 1,499,254 6,760,587 15,255,192 18,848,087 32,495,402 41,373,738

Accumulated tax loss - (7,659,742) (8,885,974) (9,884,907) (10,124,802) (8,625,549) (1,864,962) 13,390,230 18,848,087 32,495,402 41,373,738

Tax - - - - - - 3,883,167 5,465,945 9,423,667 11,998,384

Net Equity Investor cash flow (7,659,742) (1,226,232) (998,934) (239,895) 1,499,254 6,760,587 11,372,026 13,382,142 23,071,736 29,375,354

Cumulative cash after debt (7,659,742) (8,885,974) (9,884,907) (10,124,802) (8,625,549) (1,864,962) 9,507,064 22,889,206 45,960,941 75,336,295



DANIDA

10.3 Annexure D – The Short Term finance Model

10.3.1 Financing Scenarios

Financing scenariosINPUT MONITORTown Cape Town SWH selected 200 litre HP directTariff type Pre-payment SWH capital costTariff rate 38.50 c/kWh EWH selected EWH, 150l, 3kWHot water consumption per day 180 lit/day EWH capital cost

INPUTS TO FINANCING SCENARIOSSolar Revolving Fund (SRF) inputs Home Loan (HL) inputs

SRF loan rate srf_rate 5% 10.5%SRF deposit srf_deposit 5% 0%SRF repayment period srf_period 5 years 20 years

Scenario 1: Capital cost of SWH financed thru SRF; EWH installation in existenceApplication: Household to convert exisiting EWH (no capital cost) to SWH(Click '+' to view Scenario 1 details)

(Click '+' to view calculation details)

SOLAR WATER HEATER CASH FLOW Year: 0 1 2 3 4 5 6 7 8 9 10Loan repayments: Revolving fund: 5 years 525 2,194 2,194 2,194 2,194 2,194 - - - - - Operating cost with escalation: SWH 534 590 652 721 789 856 920 989 1,064 1,143 RC1: with general escalation - - - - - - - - - - RC2: Replacement of system - - - - - - - - - 17,934 RC3: Recurring cost: Anode - - 587 - - 689 - - 810 - RC4: Recurring cost: Element - - - - 653 - - - - 854 RC5: Recurring cost: Pressure valve - - - - 980 - - - - 1,281

SWH: Annual cash flow 525 2,728 2,784 3,433 2,915 4,617 1,546 920 989 1,873 21,213 SWH: Cumulative cash flow 525 3,253 6,038 9,471 12,386 17,003 18,548 19,469 20,458 22,331 43,545

ELECTRIC WATER HEATER CASH FLOWExisting EWH - no capital cost - - Operating cost with escalation: EWH 1,752 1,936 2,140 2,364 2,589 2,809 3,020 3,246 3,490 3,751 RC1: with general escalation - - - - - - - - - - RC2: Replacement of system - - - - 4,538 - - - - 5,931 RC3: Recurring cost: Anode - - 587 - - 689 - - 810 - RC4: Recurring cost: Element - - - 619 - - - 767 - - RC5: Recurring cost: Pressure valve - - - 929 - - - 1,151 - -

EWH: Annual cash flow - 1,752 1,936 2,727 3,913 7,127 3,498 3,020 5,165 4,299 9,682 EWH: Cumulative cash flow - 1,752 3,689 6,415 10,328 17,455 20,953 23,973 29,138 33,437 43,119

Year: 0 1 2 3 4 5 6 7 8 9 10

SWH Loan part 525 2,194 2,194 2,194 2,194 2,194 - - - - - SWH Cash part - 534 590 1,239 721 2,423 1,546 920 989 1,873 21,213

SWH: Annual cash flow 525 2,728 2,784 3,433 2,915 4,617 1,546 920 989 1,873 21,213 SWH: Cumulative cash flow 525 3,253 6,038 9,471 12,386 17,003 18,548 19,469 20,458 22,331 43,545

EWH Loan part - - - - - - - - - - - EWH Cash part - 1,752 1,936 2,727 3,913 7,127 3,498 3,020 5,165 4,299 9,682

EWH: Annual cash flow - 1,752 1,936 2,727 3,913 7,127 3,498 3,020 5,165 4,299 9,682 EWH: Cumulative cash flow - 1,752 3,689 6,415 10,328 17,455 20,953 23,973 29,138 33,437 43,119

Net cash flow between SWH & EWH Annual -525 -1,501 -2,349 -3,056 -2,057 452 2,405 4,504 8,679 11,105 -426 Monthly -44 -125 -196 -255 -171 38 200 375 723 925 -35

HL repayment period

hl_ratehl_deposithl_period

10,499R

3,472R

HL rateHL deposit

Cash flowSWH: Solar Revolving Fund

EWH: Existing

-

5,000

10,000

15,000

20,000

25,000

0 2 4 6 8 10 12 14Year

Ann

ual c

ash

flow

[N

$/an

num

]

SWH EWH

Cash flowSWH: Solar Revolving Fund

EWH: Existing

-

20,000

40,000

60,000

80,000

100,000

0 2 4 6 8 10 12 14Year

Cum

ulat

ive

cash

flo

w [N

$]

SWH EWH

Cumulative savings betweenSWH: Solar Revolving Fund &

EWH: Existing

-5,000

-

5,000

10,000

15,000

20,000

25,000

0 2 4 6 8 10 12 14Year

Savi

ngs:

EW

H -

SWH

[N$]



DANIDA

10.3.2 Main Analysis Sheet

Main Analysis Sheet SELECT / ENTERTownTariff typeHot water per person per day [60°C] litresNumber of persons personsSWH systemEWH systemIrradiance zone kWh/m²/dayDaily hot water consumption litres/dayDSM funding? (Y/N) Y 3000Electrical consumptionSWH: Average daily consumption 3.54 kWh/dayEWH: Average daily consumption 11.60 kWh/dayTariff 38.50 c/kWh

Cost inputsSWH capex 10,499 R Interval [Years]Operating cost with escalation: SWH 497 R every 1

Recurring costs (click '+' for details)RC1: with general escalation 0 R every 1RC2: Replacement of system 10,499 R every 10RC3: Recurring cost: Anode 500 R every 3RC4: Recurring cost: Element 500 R every 5RC5: Recurring cost: Pressure valve 750 R every 5RC6: Recurring cost x 0 R every 1RC7: Recurring cost x 0 R every 1Residual value of project = zero 0

EWH capex 3,472 Interval [Years]Operating cost with escalation: EWH 1,630 every 1

Recurring costs (click '+' for details)RC1: with general escalation 0 R every 1RC2: Replacement of system 3,472 R every 5RC3: Recurring cost: Anode 500 R every 3RC4: Recurring cost: Element 500 R every 4RC5: Recurring cost: Pressure valve 750 R every 4RC6: Recurring cost x 0 R every 1RC7: Recurring cost x 0 R every 1Residual value of project = zero 0

200 litre HP directEWH, 150l, 3kW

180

Cape TownPre-payment

306

6.1



DANIDA

10.3.3 Global Variables

Global variablesProject life project_life 15 years

Ratesnominal discount rate = investment rate nominal_discount_rate 15.0%nominal loan rate nominal_loan_rate 12.5%inflation rate inflation_rate 5.5%nominal escalation rate: tariff nominal_esc_tariff 6.0%

Escalation trend: SELECT Non-linearnominal escalation rate: general nominal_esc_general 5.5%

real discount rate = investment rate real_discount_rate 9.5%real loan rate real_loan_rate 7.0%real escalation rate: tariff real_esc_tariff 0.5%real escalation rate: general real_esc_general 0.0%

VAT vat 14%

Climate zones for irradiance & inlet water temperatures (click '+' to view)

Climate zone Name of zone

Average daily

irradianceInlet water

temperature[kWh/m²/day] [°C]

Zone 1: Inland 6.5 22Zone 2: Zone 2 6.0 20Zone 3: Zone 3 6.0 20Zone 4: Coast 5.5 16.2

Empirical values (click '+' to view)Solar collector efficiency solar_efficiency 65%Electrical heating efficiency heating_efficiency 95%SWH heat losses 60 W/hour at 150 litEWH heat losses 80 W/hour at 150 litHot water temperature hot_water_temp 60 °COversized SWH storage tank oversize_tank 30%

Table for non-linear real tariff escalation per annum (click '+' to view)

Carbon credits (click '+' to view) NoneActivate after carbon_go 1 yearsCarbon per kWh of coal fired power generated 1.47 tons/MWhEskom energy mix: Coal vs Total 92%Carbon per MWh carbon_per_MWh 1.352 tons/MWhCarbon credits carbon_rate 80 R/tonTranslate carbon_go - ignore carbon_on 0



DANIDA

10.3.4 Water Heater Costing

Costing for hot water systems

Generic systemsGlassed collector System

Accessories Installation Capex Weight

Storage volume

High efficiency collector Element

excl VAT excl VAT excl VAT incl VATName of range: swh_range [R] [R] [R] [R] [kg] [litres] [sqm] [kW]

SWH, 100l, 1.5m², indirect 7,230 - 1,500 9,952 90 100 1.5 2 SWH, 150l, 2.1m², indirect 10,380 - 1,500 13,543 100 150 2.1 3 SWH, 180l, 2m², indirect 11,500 - 1,500 14,820 106 180 2.0 1.8 SWH, 200l, 2.8m², indirect 12,260 - 1,800 16,028 115 200 2.87 3 SWH, 250l, 3.5m², indirect 13,200 - 1,800 17,100 137 250 3.47 4 SWH, 300l, 4m², indirect 16,350 - 2,000 20,919 164 300 4.0 2.4 SWH, 300l, 4.5m², indirect 14,700 - 2,000 19,038 155 300 4.5 4 SWH, 450l, 6.3m², indirect 21,100 - 2,300 26,676 228 450 6.3 ?100 litre LP - - 500 570 - 100 1 ?200 litre HP direct 7,210 - 2,000 10,499 - 200 2.8 2 300 litre HP direct 11,350 - 2,200 15,447 - 300 4.2 2

Name of range: ewh_range

EWH, 100l, 2kW 1,565 350 1,000 3,323 40 100 2 EWH, 150l, 3kW 1,696 350 1,000 3,472 50 150 3 EWH, 200l, 4kW 2,696 350 1,000 4,612 60 200 4 EWH, 250l, 4kW 4,522 350 1,000 6,694 70 250 4 EWH 1 - undefined - - - - - - EWH 2 - undefined - - - - - - EWH 3 - undefined - - - - - -

10.3.5 Solar Water Heater LCC

Solar Water Heater LCC calculations NB set project_life = 20

Year: 0 1 2 3 4 5 6 7 8 9 10

Initial Cost - 1,154 1,154 1,154 1,154 1,154 1,154 1,154 1,154 1,154 1,154 Operating cost with escalation: SWH 463 444 426 408 388 365 340 316 295 274 RC1: with general escalation - - - - - - - - - - RC2: Replacement of system - - - - - - - - - 4,237 RC3: Recurring cost: Anode - - 381 - - 290 - - 221 - RC4: Recurring cost: Element - - - - 318 - - - - 202 RC5: Recurring cost: Pressure valve - - - - 476 - - - - 303 RC6: Recurring cost x - - - - - - - - - - RC7: Recurring cost x - - - - - - - - - -

Residual value - - - - - - - - - - Carbon credits - - - - - - - - - -

Present Value of Annual Cost - 1,617 1,598 1,961 1,562 2,336 1,809 1,494 1,471 1,670 5,666 Present Value of Cumulative Cost - 1,617 3,215 5,176 6,739 9,075 10,884 12,378 13,848 15,518 21,184



DANIDA

no CDM with CDM R1k R2k R3k no CDM with CDM R1k R2k R3kpeople litres

1 2,045 1,913 1,806 1,729 1,505 10,950 18.68 17.47 16.49 15.79 13.742 2,045 1,853 1,806 1,729 1,505 21,900 9.34 8.46 8.25 7.89 6.873 2,045 1,793 1,806 1,729 1,505 32,850 6.23 5.46 5.50 5.26 4.584 2,045 1,729 1,806 1,729 1,505 43,800 4.67 3.95 4.12 3.95 3.445 2,045 1,669 1,806 1,729 1,505 54,750 3.74 3.05 3.30 3.16 2.756 2,325 2,023 2,087 2,010 1,786 65,700 3.54 3.08 3.18 3.06 2.72

no CDM with CDM R1k R2k R3k no CDM with CDM R1k R2k R3kpeople litres

1 1,456 1,327 1,349 1,243 1,136 10,950 13.30 12.12 12.32 11.35 10.372 1,456 1,268 1,349 1,243 1,136 21,900 6.65 5.79 6.16 5.68 5.193 1,456 1,209 1,349 1,243 1,136 32,850 4.43 3.68 4.11 3.78 3.464 1,456 1,146 1,349 1,243 1,136 43,800 3.32 2.62 3.08 2.84 2.595 1,456 1,087 1,349 1,243 1,136 54,750 2.66 1.99 2.46 2.27 2.076 1,778 1,481 1,671 1,565 1,458 65,700 2.71 2.25 2.54 2.38 2.22

no CDM with CDM with DSM @ R2k, no CDM no CDM with CDM with DSM @ R2k, no CDMpeople litres

1 1,243 10,950 0.00 0.00 11.352 1,243 21,900 0.00 0.00 5.683 1,243 32,850 0.00 0.00 3.784 1,243 43,800 0.00 0.00 2.845 1,243 54,750 0.00 0.00 2.276 1,565 65,700 0.00 0.00 2.38

R/annum c/litre

homeloan - 20 years repayment, annualised over 20DSM DSM

R/annum c/litre

shortterm - 5 years - annualised over 15DSM DSM

R/annum c/litre

upfront - annualised over 15 (SAME AS SHORTTERM)

10.3.6 Sensitivity Calculations



DANIDA

10.4 Annexure D – The N2 Gateway SWH Presentation

Slide 1 Hot water on tap for the City of Cape

Town: the N2 Gateway kickstart

Preparatory Workshop20th June 2006

Glynn Morris and Saliem Fakir, Lereko/AGAMA Energy Service Co.

Slide 2

The opportunity• Lereko/AGAMA Energy will deliver hot water on tap

to 33000 households in Cape Town by 2014 using solar water heaters at a financial cost which is lower than the current (and future) costs (to households) of hot water using current supply systems, i.e. less than 4c/litre @ 45oC

• This infrastructure investment will be achieved through a concession approach which will offset 50MW of maximum demand and 80GWh of electricity consumption per annum at no cost to the City of Cape Town



DANIDA

Slide 3 The benefits to households

• SocialImproved hygiene and healthGreater comfort and amenityReduced risks of blackouts

• EnvironmentalReduced CO2 emissions 80 000 tonnes/annumReduced water consumption: 100 000 tonnes/annum

• FinancialLower costs to householdsMore predictable costs to householdsImproved value of houses

Slide 4

The benefits to the City of Cape Town

• The initiative will address:Visions 1 – 3 and 4 in the Draft Energy Strategy1% of the City’s target for renewable energy35% of the City’s target for solar water heating

• It will stimulate the local economy and create XXX jobs

Slide 5

The approach• Concessions awarded within the RED/City for

15 years for the supply of domestic hot water on a fee-for-service basis

• Concessionnaires will fund and finance the hot water systems and recover the costs from the households

• This approach is similar to the one implemented by Dept. Minerals and Energy and National Energy Regulator of SA for off-grid electrification in six concessions in rural areas



DANIDA

Slide 6 An immediate start

• Lereko/AGAMA Energy will kickstart the process by retro-fitting solar water heaters to the 700 housed already built before May 2007 – in time for next winter’s power crunch

• This will:offset approximately 1MW of peak demandprovide a visible example of the City’s commitment to more sustainable housingtest the process

Slide 7

Thank you !

Lereko / AGAMA EnergyTel: +27 11 215 2364Email: [email protected]

Tel: +27 21 881 3282Email: [email protected]


AGAMA Financial Modelling SwH for N2 Gateway

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