After thorough consultation regarding the possible positive impact of the Green Geyser Replacement Programme, the South African Insurance Association (SAIA) has received indication from government that there is budget available for the high energy consumption market (as opposed to the social market).
This is a major step forward for the industry as SAIA has been trying to get the programme off the ground for a number of years. After spending more than a year in negotiations with the Government’s inter-ministerial Solar Water Heating Project Steering Committee, SAIA Consultant Ben Webbstock reports that this is a positive indication, which could lead to steps in the right direction.
Going green has a number of advantages
The purpose of the programme is to get into a position whereby insurers would be able to offer a green geyser replacement as an option when a policyholder’s electrical geyser bursts and requires replacement. This is in line with the Green Economy Accord which was signed by government, business and organised labour.
“There are a number of advantages when you replace an electrical geyser with a green geyser. Green geysers reduce the country’s carbon footprint by taking less electricity off the electrical grid. This also contributes towards state owned power utility, Eskom’s, requests for the country to reduce its energy consumption. While green geysers are more expensive to replace than electrical geysers, the money a policyholder saves by using less electricity can leave the policyholder in a cash positive position,” says Webbstock.
The other side of the coin
While there are a number of positives to the Green Geyser Replacement Programme, there are also a few concerns.
The most significant concern is the cost of the geyser. The cost to replace an electrical geyser with another electrical geyser is approximately R6 000 (total installation cost). The cost to replace an electrical geyser with a green geyser is estimated to be about R23 000 total installation cost. This is a burden that most policyholders may not be in the financial position to face.
SAIA General Manager, Vivienne Pearson, says that there could possibly be a way around this if there is involvement from the industry, which is keen to come on board and support the programme if there is involvement from government.
“We are still in discussions with government to get certainty around funding support. The preferred model is that, if a policyholder chooses to replace an electrical geyser with a green geyser, the insurer would fund the replacement up to the cost of the electrical geyser. Policyholders would then be eligible for further government rebates and be open to various options to fund any shortfall,” says Pearson.
There is also the possibility of the green geyser pushing up the policyholder’s premiums (given that a more expensive asset would be insured after replacement). This is a significant worry as SAIA is well aware that the industry cannot keep asking policyholders to pay a higher premium without showing fair value. Webbstock points out that this would be found in the cash positive position which policyholders would find themselves in through monthly savings on their electricity bill.
Ensuring industry participation
In addition to having meaningful discussions with government on the way forward for the project, SAIA has also been sitting down with the industry to encourage each insurer to participate in the programme and offer a green geyser as a replacement option. This project is one which would be more feasible if a critical mass of insurers bought into it.
This in itself has been an initial challenge, but there are positive signs that the whole industry would participate in the programme provided that there was some level of participation from government. Pearson points out that without government’s involvement, the industry would possibly be carrying too much risk. Viable alternative routes to drive the programme forward sustainably are currently being considered.
Formulating Plan B
This is simply one of those projects which cannot afford to simply be filed under File 13. This project needs to be a success as it can potentially offer many benefits to both the economy and to policyholders.
The industry remains committed to finding solutions with the support from government. SAIA is working on a Plan B.
“We are sitting down and working through funding models which would make it possible for insurers and their customers to buy into the programme. These have not been finalised and will take some time to formulate,” says Webbstock. Pearson adds that SAIA is also looking into ways that insurers could fund a greater portion of the debt or carry a greater portion of the risk in certain situations.
Fitting into the global picture
While South Africa does not have the largest carbon footprint when one looks at the country in the global context, the country is lagging when it comes to the adoption of initiatives which would reduce the country’s carbon footprint.
Government needs to find a flagship project to live up to the commitment signed during the Kyoto Protocol in 1997. While there have been a number of attempts from government to find this project, they have failed miserably. This is a project which government can take to other developing nations as a shining example of a public private partnership (PPP) that can be used to benefit the public, and live up to reducing the country’s carbon footprint.
Editor’s Thoughts:
Do you think that this project can be a success? What are the challenges that will prevent this from being a success? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.
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Added by James, 08 Jul 2014