Objective evaluation of industrial energy efficiency models for the RSA Section 12L tax incentive

Abstract

The industrial sector is the largest energy consumer in South Africa. There are numerous initiatives that can be implemented in order to reduce the energy intensity of the various industrial processes. Section 12L of the Income Tax Act (1962) allows a significant tax rebate for quantified energy efficiency savings resulting from an energy efficiency initiative. There are, however, strict rules and regulations related to 12L. Applications need to adhere to these rules and regulations in order to receive the allowance. Previous studies that focussed on Section 12L for industries recommend that multiple models should be developed in order to quantify the energy efficiency savings. These studies, however, do not provide guidance on how to evaluate the various models or how to select the final model. This becomes critical when considering that different models will result in different energy efficiency savings, which has a direct impact on the monetary value associated with 12L. A need therefore exists to prove that the most appropriate model was chosen between multiple modelling options. The various models should be evaluated to ensure that the final model adheres to the multiple requirements associated with 12L. The evaluation process leading to the selection of the final model should also be transparent in order to increase the confidence of the reported energy efficiency savings and to protect all stakeholders involved. This dissertation provides a detailed literature study related to the identified problem. Firstly, an overview of the 12L Regulations and Standard, as well as industrial measurement and verification is given. This is done to understand the legal and technical requirements of the 12L tax incentive. Thereafter, literature regarding decision support methods is presented. The generic steps of solving multi-criteria decision problems are also identified. These steps aid in the decision making process between multiple possible solutions which should adhere to multiple conflicting criteria. Objective evaluation of industrial energy efficiency models for the RSA Section 12L tax incentive The knowledge obtained from literature is used to develop a methodology to evaluate alternative baseline models and objectively select a final modelling option. The methodology consists of three phases: the generation of modelling options, evaluation of the modelling options, and ranking of results and recommending the preferred model. The methodology was verified by implementing it on three case studies. These case studies considered three different industries (petrochemical, iron and steel, mining). The ranked modelling options showed a 10% to 33% variance in the potential claim value. This significant variance highlights the importance of presenting a transparent and compliant model selection process. The preferred models recommended by the methodology were finally validated by comparing their result to models developed by an independent, SANAS accredited team. This validation confirms that the methodology addresses the original problem statement by delivering a traceable and objective process of evaluating various modelling options for the Section 12L tax incentive.