Sustainable Settlements Facility (SSF)

Project overview

The Sustainable Settlements Facility (SSF) aims to meet the challenge of financing low-income, social and “gap” housing (fully and/or partially government-funded housing units) for a low-carbon and climate-resilient future for South Africa.

The SSF emerged as a concept from the lessons of the Kuyasa Clean Development Mechanism (CDM) Pilot Project in Khayelitsha (South Africa) addressing methodological design issues related to the generation of certified emission reductions (CERs) from housing projects of a similar nature. SSF has the support of the South African government in the National Climate Change Response White Paper (October 2011) as a potential financing mechanism for one of the listed “Flagship Programmes”. The SSF is envisaged to play a critical financial and technical assistance role within a broader national climate change response and is likely to operate under the auspices of a regional development finance institution.

The establishment of the SSF is being implemented in partnership between SouthSouthNorth (SSN) and the Development Bank of Southern Africa (DBSA) with funding from KfW and the Federal Republic of Germany. During 2012, the British High Commission in South Africa provided a grant to support a stakeholder engagement process designed to map stakeholder roles and focus the SSF’s overall purpose and implementation plan going forward.

The challenge of building energy-efficient and climate-resilient homes in South Africa

In South Africa there are approximately 1.2 million households located in 2700 informal settlements. The existing stock of low-income housing is considered inadequate in terms of the poor quality of building structures and the provision of decent shelter to South Africa’s low-income sector. In addition, a gap exists between the need for the provision of energy-efficiency measures and other climate-compatible interventions in low-income housing, and the capital available to fund these interventions.

As of November 2011, the South African Department of Human Settlement’s low-income housing new build programme aims to provide a subsidy of ZAR 58 820 (approximately EUR 5580 / USD 7120) per top structure built. It is estimated that a further ZAR 15 000 – ZAR 20 000 (EUR 1425 – EUR 1900 / USD 1820 – USD 2420) for improved energy efficiency measures (including thermal performance improvements and solar water heaters) is required per household. This funding gap between standard and improved homes creates an additional financing requirement to support large-scale, climate-compatible housing delivery for the low-income sector in South Africa.

Currently it is envisioned that the SSF will act to bridge this financial gap in order to scale up the provision of energy efficiency and climate-compatible interventions in low-income housing. It is anticipated that these interventions will be implemented by the public and private institutions mandated with housing delivery in South Africa. In addition, the SSF is assessing the existing government-subsidized housing structures that require retrofitting in order to improve energy efficiency. Funding for such an intervention could include a blend of beneficiary contributions, energy efficiency and solar water rebates from national government programmes, carbon markets, climate finance flows (e.g. via NAMA funding, emerging new market mechanisms, etc.) and public finance earmarked for job creation.

The challenges emerging from a fast tracked delivery programme are twofold:

  • User financing: Low-income households are unable to afford the use of energy and water much beyond the free basic minima.
  • Resource constraints: Accelerated infrastructure delivery is being executed in the midst of resource scarcity and a need for cleaner energy sources.

The opportunity for change

The South African Department of Human Settlement’s low-income housing delivery programme presents an opportunity to improve the quality of people’s lives through improved housing quality and energy access while avoiding future carbon emissions (i.e. suppressed demand) through the integration of several key government initiatives, for example:

  • The South African Department of Trade and Industry’s recent inclusion of energy efficiency requirements in the national building regulations.
  • The South African Department of Energy’s One Million Solar Water Heating programme.
  • The Green Accord promotion for the use of clean stoves.

The convergence of these positive government initiatives and the associated rebates and potential for the generation of carbon credits provides the impetus to integrate national development priorities in housing, energy and job creation with climate change mitigation and adaptation interventions.

There are a number of demonstration projects in South Africa where low-income housing delivery has included energy-efficient building adaptations. These interventions are largely funded on a grant basis. Among these demonstration projects is the Kuyasa Clean Development Mechanism (CDM) project. The project was the first Gold Standard and CDM project registered in Africa. Kuyasa delivered 2309 low-income houses in Khayelitsha with solar water heaters, insulated ceilings and energy efficient lighting, resulting in a saving of approximately 2.85 tonnes of carbon per household per year. Significant social and economic benefits resulted from Kuyasa’s implementation including reduction of negative respiratory health incidences, access to hot water and savings on disposable income (income retention). The project also enabled local job creation during installation and ongoing maintenance of technologies. In this light it was designed to impact not only on the financial and environmental system but also to have an impact on people, jobs and development.

The project looks to address key issues to realise opportunities to integrate development, energy efficiency, job creation and environmental objectives that include:

  • Approved alternative technologies and methodologies for carbon accounting (accounting for suppressed demand in the estimation of future avoided green house gas emissions);
  • Delivery of economic and social benefits (e.g. employment and capacity development, economic development through increased local content in energy efficiency technologies);
  • Utilising carbon and/or climate finance;
  • Supplementing public finance (grants, rebates etc.) with private sources; and
  • Packaging low-income housing as an investment proposition.