Part 2: Demand Sectors

South African households consume some 22% of the country’s energy. By the end of 1995, about 50% of households had access to electricity, yet this energy source contributed only 17% of household energy consumption. Most energy was obtained from fuelwood (65%). Other fuels used include coal (9%), illuminating paraffin (8%), and a small amount from liquid petroleum gas makes up the remainder.

To put these figures in context it is important to recognise that the percentage contribution of coal and illuminating paraffin to total household energy consumption is partly a function of access. In fact a majority of poorer households consume these fuels wherever they are available. Also, increasing amounts of coal, paraffin and liquid petroleum gas are used in areas where fuelwood has become scarce. These fuels are also used frequently for cooking and space heating in electrified households, where electricity is used only for lighting and entertainment.

These trends indicate the complexity of multiple-fuel use in households where fuels are required to meet a range of household energy services: cooking, water and space heating, lighting and access to electronic media being the commonest end uses. Energy is also required for productive activities such as informal home-based industries, and small-scale agriculture. Beyond the home, energy is required for the provision of infrastructural services to communities, such as rural water supply, health care, education, public lighting, community facilities and transport.

This range of basic needs requiring energy inputs shows that normal life would be impossible without energy. Without fuel for transport the economy would come to a standstill. Without energy to cook food a household would starve. This is particularly the case for poorer households who rely on cheap staple foods which are inedible without being cooked.

Just as energy is essential for industrial development and economic growth so, at the household level, energy services are essential for improving quality of life through access to services such as entertainment, lighting, home-based industries and small-scale agriculture. Modern development is not possible without energy. Everyday domestic life and activity in the home is inconceivable without energy. But poverty limits energy use, and so long as this situation continues, development will be hindered.

Despite the importance of energy services for low income households, such services have not been adequately supplied in the past, the priority of government having being the development of a modern industrial urban society.

As a consequence there is a general service backlog, with the majority of people still not enjoying the benefits of electricity, and a significant proportion of electrified households at a stage where they are only using electricity for lighting and entertainment. Furthermore, the considerable inequalities in wealth which have resulted from past social and economic policies has meant that many people cannot afford to use electricity optimally, even if they have access to it. Such households have to rely on less convenient and often unhealthy fuels, such as paraffin, candles, coal, liquefied petroleum gas, batteries and fuelwood.

An important factor associated with the continued use of non-electric fuels is unemployment and poverty. Households facing low or unpredictable incomes tend to purchase fuels as and when cash resources are available. Whilst small amounts of paraffin are convenient for such users the benefits of bulk purchasing are foregone. Such unstable energy use patterns, characterised by the use of several fuels for different end-uses, clearly mitigates against the efficient and rational use of energy. Furthermore, low income households tend to purchase cheap and unsafe appliances, thus increasing the risk to health.

A further important factor to consider when formulating energy policy is that most household energy users are women. The gendered division of labour traditionally means that women are a ‘disempowered’ class. They are responsible for managing household resources and doing the menial work in the home - using appliances to perform energy tasks and purchasing fuels. However, unless they are breadwinners and command power in the household by virtue of holding an income-earning position, it is often the man who makes the decisions about appliance purchases. Past formulation and implementation of energy policy has given virtually no consideration to women’s needs in this context.

Household energy services can be provided by numerous appliance/fuel combinations. For example, cooking can be done with a coal stove/coal, hot-plate/electricity, gas-stove/gas, paraffin-stove/paraffin, solar cooker/sun, or low-smoke fuel stove/low-smoke fuel combinations. The costs of these combinations vary widely. For poor households the multi-functionality of appliances and fuels is often important. Paraffin and coal stoves can be used to cook food while heating a room at the same time, whereas two electrical appliances would be required to perform these tasks, at greater expense.

Research has shown that electrified low income households continue to use a range of fuels because electricity is found to be less cost effective, and is less socially desirable than the alternatives. It is becoming apparent that, contrary to initial expectations, grid electrification may not satisfy all the energy needs of low income households (or at least not in the short to medium-term electrification process). The high cost of electrical appliances, their lack of multi-functionality and the relatively high costs for thermal end uses like cooking and space heating are some obvious constraints to the greater application of electricity.

On the other hand, higher income households are almost entirely dependent upon electricity to meet their energy needs. Despite the high energy consumption of such users, energy policies have placed little emphasis on encouraging energy conservation.

The environmental effects of household energy use are particularly severe on the rural poor, where three million households use fuelwood as their primary energy source. Studies have shown that fuelwood users are exposed to extremely high levels of particulate emissions from wood smoke, which result in adverse health effects, such as Acute Respiratory Illness in children. In addition to air pollution from wood smoke, many areas experience an over-harvesting of natural woodland resources, resulting in environmental degradation, soil erosion, and desertification.

Coal is used by about 950 000 households, mainly on the Highveld, but concentrated particularly in Gauteng. The resulting indoor air pollution has serious health impacts. As with fuelwood, it has been found that exposure to this pollution, especially particulate matter, exceeds World Health Organisation standards by a considerable margin.

It is clear that all South African households require access to a basic level of energy services. Achieving a sustainable level of energy security for low income households can play a central role in the reduction of poverty, the fostering of households’ livelihoods and an improved quality of life.

Government will determine a minimum standard for basic household energy services, against which progress can be monitored over time.

Basic needs are understood as those requirements essential for human survival. Defining exactly what constitutes a basic energy need, or rather what may satisfy such a need, is not an easy task however. It is also necessary to recognise that the use of some fuels causes intolerable levels of air pollution. From this it is apparent that people must have both access to fuels and that these fuels should not endanger their health in the conversion process.

As with minimum levels prescribed for other services, such as water and sanitation, the criteria for defining basic energy needs must include consideration of costs, access and health. The establishment of minimum standards could thus be achieved by analysing how a hierarchy of energy supply options could meet these criteria.

For instance access to a plentiful supply of fuelwood without the means to ensure that the appliance used to burn the wood keeps air pollution to an acceptable level would not meet these criteria. Indeed, the application of the health criteria would indicate that several existing fuel use practices which endanger life, such as three-stone open wood fires in rural areas and the use of bituminous coal, would not meet a minimum standard, thus necessitating policy interventions. Other appliances and fuels which seriously endanger life will also have to be reviewed. Further detail is provided in the section on Environment, Health and Safety.

Any interventions using technological innovations must be introduced in consultation with households, for the simple reason that without this input households are unlikely to use them. The introduction of healthier and safer technologies has often been shown to be a more difficult process than the introduction of pricing and marketing measures aimed at controlling the supply and retailing of existing fuels.

In implementing this policy government will have to consider:

• appropriate appliance/fuel combinations to meet energy service needs of households in different areas of the country,
• households’ abilities to acquire these fuels and appliances,
• the availability of efficient and safe appliances and fuels,
• the impact of pricing structures and financing mechanisms on the affordability of fuels and appliances.

Considerable research and development has been undertaken nationally and internationally around household energy use, technical interventions, and pricing and financing mechanisms aimed at bringing safe and effective energy ‘package’ within the grasp of low income households. Much of this information can be utilised for the present exercise, but the monitoring and evaluation of the progress towards the basic energy service level will require a research and extension programme.

More specific policy measures pertaining to household energy access can be found in the relevant energy supply sections of this paper.

A significant opportunity exists to promote energy efficiency and energy conservation measures in building low cost housing at a time when the national housing campaign is still in its formative stages. There is also great potential to stimulate the adoption of energy demand management in middle and high income households, through strategies such as time of use electricity tariffs, energy efficient lighting, insulation, and solar water heating. Savings realised through these measures would free resources, and delay the need for further investment in plant. Detailed policies on this issue are provided in the sections on Energy Efficiency and Electricity.

Government commits itself to the promotion of energy efficiency awareness in households.

Detailed policies on the implementation of energy efficiency are provided in the section on Energy Efficiency.

There is a great need to supply all householders with responsible information about the efficient, safe and cost-effective use of appliances and fuels. Without such an initiative government and the energy supply industry alone would find it impossible to convey the information which people need to make knowledgeable decisions about energy use and appliances. Almost all energy users lack sufficient knowledge about energy as well as community leaders, development advisors in the NGO and professional sectors and government officials at all levels.

Specific policies on this issue are presented in the section on Capacity Building, Education and Information Dissemination.

Industry, mining and commerce account for about 60% of commercial energy consumption in South Africa, at a cost of approximately R18 billion in 1995. The low price of coal and electricity in South Africa has contributed to the development of an economy with a large energy-intensive primary industrial sector. Mining and minerals beneficiation were responsible for 11% of South Africa's GDP and over 50% of South Africa's foreign exchange earnings in 1995.

Whilst large industry has been well supplied with all forms of energy, many urban and rural areas of South Africa have inadequate access to energy, particularly electricity, which has been a major obstacle to the development of small and micro-sized industrial, mining and commercial enterprises in these areas. A major priority is therefore to provide these areas with access to energy services.

In the past, government has devoted little attention to the promotion of energy efficiency in industry, mining and commerce, despite widely acknowledged potential for improvement. More efficient use of energy would have both financial and environmental benefits for the country, and could assist in making South African industry more internationally competitive. Government faces a challenge in mobilising resources to tap this potential.

Whilst cheap energy is a comparative advantage for South Africa's major foreign exchange earners, there are concerns that the production and use of energy has harmful environmental and health effects, the costs of which are not included in the price of energy. There is also concern that rapidly changing international environmental standards may have an adverse effect on South Africa's exports in the future. The challenge for government is therefore to balance energy prices with sustainable environmental standards.

Many energy supply/demand issues encountered by this sector are resolved between consumers and suppliers in the normal commercial manner, without requiring the intervention of government or regulators. In the electricity and gas sectors, however, where opportunities for competition are currently limited, regulation is required to ensure equitable access for consumers and avoid the abuse of monopoly power. The regulatory framework must, at the same time, stimulate the growth and competitiveness of large industry.

The development of commercial activities in underdeveloped areas will be a crucial factor in the economic empowerment of the poor. Commercial activity usually begins with small businesses and micro-enterprises, such as shops, entertainment facilities and agro-industrial activity. The development of commercial activity provides services and employment for people living in underdeveloped areas.

Modern energy services are an essential input for the development of commercial activity. Electricity in particular is a key requirement for commercial activity, which the electrification programme is addressing. Where the supply of grid electricity is impractical, costly or delayed, alternative electricity supplies are required.

Policies relating to these challenges are contained within the sections on Electricity, and Renewable Energy Sources.

Researchers have identified significant opportunities for energy efficiency improvements in South Africa. Typical conservative estimates of savings vary between ten and twenty per cent of current consumption. These findings clearly suggest a degree of market failure and the need for government to play a role in facilitating increased efficiency in the use of energy. Barriers to the adoption of efficiency measures include:

• inappropriate economic signals;
• lack of awareness, information and skills;
• lack of access to efficient technologies;
• high return on investment criteria; and
• the high cost of capital.

Government commits itself to the promotion of energy efficiency and the development of holistic programmes for industry, mining, and commerce.

Detailed policies around the implementation of energy efficiency programmes are provided in the section on Energy Efficiency.

The environmental impacts of energy use by industry, mining and commerce can by reduced by the use of cleaner energy end-use technologies, the enforcement of environmental performance auditing, and the internalisation of environmental costs. Effective implementation of these strategies does, however, require better co-ordination between organisations concerned with environmental issues.

The Department of Minerals and Energy will therefore proactively collaborate with other government departments and public authorities in order to improve the management of the environmental impacts of energy use by industry, mining and commerce.

Government will continue to track developments in international environmental standards, in order to formulate policies that prevent the loss of South African exports through unwitting transgressions of any environmentally sensitive policies supported by our trading partners. The economic implications of ratifying environmental agreements should, however, be properly assessed before South Africa consents to these.

Further detailed policies are provided in the section on the Environment, Health and Safety.

Poor quality and reliability of electricity supply can endanger workers, damage equipment, and cause production and revenue loss. Some industrial processes are particularly susceptible to supply quality and reliability, whereas others can tolerate a degree of disruption without significant impact. The issue of supply quality is particularly relevant in the light of the restructuring envisaged for the electricity distribution industry.

The government will take care to ensure that the restructuring of the electricity supply industry does not compromise supply quality and reliability standards.

The National Electricity Regulator will determine minimum standards for electricity supply to industrial, mining, and commercial consumers.

Electricity distributors will have to comply with these minimum standards. Where higher standards are required these can be negotiated between the distributor and the consumer at a cost premium.

There is as yet insufficient accurate information on energy demand for policy planning and implementation purposes. Whilst the Department of Minerals and Energy has begun developing an energy statistics database, the database is not yet accurate or comprehensive, and does not include sub-sectoral production and economic data. A means of collecting accurate and consistent statistics from energy users and energy suppliers is necessary and co-operation with the Central Statistical Service is essential. Aggregated information should be made available to all interested parties for planning and research purposes.

The Department of Minerals and Energy will develop a comprehensive energy demand database, which will be available to all interested parties.

Publication of energy data will have to take into account sensitive commercial interests. Aggregation of data should, however, overcome this problem. Further policies on energy information are available in the section on Statistics and Information.

Transport of people and goods is an essential social and economic service, and accounts for about 24% of total energy consumption. More than 90% of transport energy is derived from liquid fuels. Since the supply of these fuels is largely dependent on crude oil imports, transport energy is unusual in that its pricing is heavily influenced by international supply and demand trends.

With the lifting of oil sanctions, and South Africa’s readmittance into the international community, the importance of liquid fuel supply security has declined dramatically. Instead, South Africa now faces the challenges of facilitating equitable access to affordable public transport, ensuring the efficient utilisation of transport fuels as a means of promoting international competitiveness and minimising harmful environmental effects stemming from the use of transport fuels. Opportunities also exist to increase fuel diversity within the transport sector. Innovative international transport technologies, enabling the use of natural gas, hydrogen and electricity as fuels, are reaching stages of maturity which may make their usage economic for local applications.

Provision of public transport has been severely constrained by past land use development and allocation policies, resulting in low housing densities and the poor being located furthest from work opportunities and social facilities. This inequitable spatial development has a direct impact on transport patterns and, in addition to being a further burden on the poor, results in the inefficient use of transport energy.

Many transport energy problems are best addressed by transport and town planning-specific policies. Nonetheless, there are a number of energy-related challenges which deserve attention.

Liquid fuel prices are presently composed of a cost-related component and a variety of duties, levies and taxes emanating from different government departments. These taxes are utilised to raise revenue for the general fiscus and for specific policy purposes. In many countries the price of diesel is much lower than petrol, in some cases by up to 33% percent. This price differential thus promotes the use of diesel, which is a more efficient fuel, and also lowers input costs for productive activities. Insufficient consideration has, however, been given to the impact of these taxes on fuel usage. In fact, liquid fuel pricing policies provide an opportunity to influence the fuel mix (particularly the ratio of petrol to diesel consumption), in order to support economic activities, constrain leisure activities and promote public transport. This can be achieved by adjusting taxation levels to provide appropriate price signals.

A suitable tax differential between diesel and petrol will be determined, through research and negotiation between government departments and stakeholder interest groups.

The key challenge for transport energy policy is to promote the optimum and efficient utilisation of transport energy, in a way that is sensitive to the needs and attitudes of transport energy users, and particularly for those most in need of affordable transport. The promotion of energy efficiency directly complements government’s policy of promoting public passenger transport.

The Department of Minerals and Energy will advise other government departments, particularly the Departments of Transport and Finance, on the energy efficiency implications of alternative transport modes and public transport subsidy policies, and will provide assistance in the formulation of fiscal and transport policies to promote energy conservation and efficiency.

Issues which need to be prioritised include the energy efficiency implications of income tax deductions on company vehicles and travel allowances, as well as vehicle benefit schemes and the effect of transport subsidies.

Vehicle purchasers do not generally consider the vehicle’s fuel consumption as a major criterion. This is due in part to a lack of accurate information on vehicle fuel efficiency.

Information on the fuel use characteristics of new vehicles will be provided by the Department of Minerals and Energy.

Energy consumption information should be included in all advertising, vehicle test reports and vehicle specifications. The system will have to be developed in close liaison with the vehicle-manufacturing industry and should be implemented through appropriate marketing and information dissemination campaigns.

The implementation of this policy will assist government, as a major owner of vehicles, to include energy efficiency as a criteria for vehicle purchases. Further information on this is available in the Energy Efficiency and Fiscal and Pricing sections.

Whilst demand for transport energy needs to be satisfied in order for economic activity to take place, insufficient consideration has been given to the indirect costs of utilising transport energy. Further policies on this issue are covered in the Environment, Health and Safety section.

Major benefits could be derived by operating vehicles on alternative fuels such as electricity, gas or diesel. Research is required on government's role in the promotion of such vehicles, the technical and economic feasibility of such technologies, and the key requirements for their successful promotion. Research is also required to develop and stimulate energy-efficient and environmentally friendly transport energy technologies. Further policies on this issue are covered in the Research and Development section.

Clearly transport energy policy must be mutually supportive of related national policies. A further challenge facing government is therefore effectively to co-ordinate and integrate transport, energy, land use, economic development, environmental and other policies. The new constitutional dispensation may well exacerbate existing problems with policy co-ordination as transport functions are now devolved to provincial and local government levels.

A lack of adequate co-ordination is demonstrated by the failure of past policies to consider their implications for transport energy efficiency. Policy instruments at government’s disposal, including fiscal measures such as fuel taxes, vehicle licence fees and income tax deductions on transport benefits, have been used as a means of generating revenue, without sufficient consideration being given to their impacts on energy efficiency.

An inter-departmental Transport Energy Co-ordinating Committee will be established to co-ordinate and integrate policy formulation between the Department of Minerals and Energy and other relevant departments.

The functions of the Transport Energy Co-ordinating Committee will include:

• the identification of transport energy policy needs;
• the co-ordination of transport energy policy research;
• the formulation of appropriate policies;
• the co-ordination of policy administration;
• improving communication between government departments; and
• improving communications with other transport energy stakeholders.

The Transport Energy Co-ordinating Committee will also ensure the co-ordination and communication of transport energy policies between national, provincial and local government bodies.

Land use, transport and traffic management plans all impact on transport energy usage. Insufficient attention is currently paid to the energy impacts of these plans. The Transport Energy Co-ordinating Committee will give attention to the formulation of guidelines to assist metropolitan and other planning and implementing authorities to consider the transport energy use impacts of land use, transport and traffic management plans.

In general the Department of Minerals and Energy will assume the lead responsibility for policy formulation where the primary motivation for such policy is energy supply, energy efficiency or energy conservation. The Department of Minerals and Energy does not currently have sufficient capacity to undertake this work.

About three per cent of the total energy used in South Africa is consumed by agriculture, mainly by commercial farmers. Traction and transport tasks dominate this energy use, as evidenced by the fact that three-quarters of commercial agriculture’s energy requirements are met by liquid fuels. Stationary operations, such as lighting and refrigeration, are generally performed with electricity, although diesel is also used to power pumping and dehulling activities.

By contrast, traditional agriculture depends almost exclusively on the muscular energy of people and draught animals for the performance of traction and stationary tasks. The productivity of traditional agriculture power is severely constrained by the inherently low energy and power capacity limits of these energy inputs and the lack of access to cost effective energy supplies and energy-dependent agricultural technology. Women, in particular, bear a disproportionate burden in providing muscular energy for agricultural activities, in addition to their many household tasks.

Despite these problems, it is necessary to recognise that traditional agriculture provides employment and livelihoods for many of the black rural population, albeit at subsistence levels below the poverty line.

Commercial farmers have, on the whole, adequate access to energy supplies and energy technologies. The key challenge for energy policy in respect of commercial farming and energy use is thus the issue of energy efficiency.

Although technological advances have enabled production per unit of land and per person to increase significantly, it is interesting to note that energy inputs have increased for the same agricultural output. Mechanisation, fertilisers and pesticides are energy-intensive technologies and, whilst they clearly have a role to play in increasing productivity, need to be balanced with environmental protection and improved nutrient cycling. New technologies make it possible to design farming systems which are energy efficient, productive, profitable and environmentally responsible.

Policies related to this issue are covered in the sections on Energy Efficiency and Renewable Energy Sources.

It is tempting to prescribe increased access to fuel energy and fuel-driven technologies as the remedy for low productivity in smallholder agriculture. This solution must, however, take two important factors into account. Firstly, fuel energy and fuel-driven technologies are costly and often unaffordable for smallholder farmers. Secondly, indiscriminate mechanisation of smallholder farming could lead to massive labour displacement and the loss of rural livelihoods. This would aggravate rural unemployment and migration to urban areas.

Such unwanted side-effects can be pre-empted by careful strategies which focus on providing access to energy services which relieve critical muscular-energy bottlenecks and help to raise the productivity of labour intensive agriculture. Examples of such selective applications of modest mechanisation are found in the high productivity smallholder farming systems prevalent in the far east, such as in Japan, Korea, Taiwan and China. This strategy is in accordance with Agenda 21, the international environmental convention, which advocates the use of low external input and sustainable agricultural systems in support of rural development. Programmes to encourage these systems could focus on:

• supporting the use of perennial crops, to reduce ploughing bottlenecks in spring;
• research into efficient forms of animal traction; and
• supporting efficient nutrient cycling, through the development of ecologically sound, energy-efficient farming systems to reduce energy wastage and pollution.

Smallholder agriculture also requires many other enabling inputs in addition to improved energy services, such as rural schools, clinics, roads, communication infrastructure and well-trained people. In essence, the energy needs of smallholder agriculture cannot be divorced from broader issues around rural development and the supply of energy services to rural households. Rural energy programmes should not be established in isolation of these broad initiatives.

Nonetheless, specific policies which can be addressed within the scope of the energy white paper include the following.

Many smallholder farmers experience difficulties in accessing diesel supplies. This is caused by limitations on the number of supply points, due to distribution cost constraints, resulting in farmers having to travel long distances to buy fuel.

Government will facilitate the removal of market barriers so as to provide access to bulk diesel supplies for small-scale farmers.

Strategies will be established to increase access to diesel supplies, such as the creation or expansion of rural co-operatives, or the establishment of communal bulk storage facilities owned and managed by local communities.

While the majority of commercial farms are electrified, many thousands of farm workers do not have access to electricity within their homes. Policies addressing this problem can be found under electrification in the Electricity section.

Although the agricultural sector is a relatively small consumer of energy its contribution to the supply of fuelwood, the main source of energy for many millions of rural people, is crucial. This demonstrates the strong linkages between agriculture and the livelihood of rural people.

Many agricultural, forestry and agro-forestry products, by-products and residues can serve as raw-materials for processing into modern biofuels, suitable for the operation of fuel-driven technologies at high efficiencies and for combined heat and electric power generation. Such biofuels include briquettes, charcoal, biogas, producer gas, ethanol and biodiesel fuel. The residues from processing some of these biofuels include fertilisers and soil conditioners.

Policies relating to renewable energy supplies and social forestry programmes can be found in the section on Renewable Energy Sources.

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