Industrial Development Corporation (IDC) on implementation of New Growth Path and Industrial Policy Action Plan (IPAP2) with special reference to the green economy and renewable energy

Energy

15 August 2011
Chairperson: Mr S. Njikelana (ANC)
Share this page:

Meeting Summary

The Industrial Development Corporation (IDC) discussed the implementation of the New Growth Path (NGP) and Industrial Policy Action Plan (IPAP2), in particular on the non-fuel and fuel based green economy as well as energy efficiency and the role of the IDC’s procurement program.

The IDC was expecting to invest R14 billion in the next five years on the green economy. It was anticipated that 300 000 jobs would be created by 2020. It had identified business opportunities in energy efficiency but renewable energy was where the most significant growth would take place and where the most investor interest was. South Africa needed 50 000 MW by 2030 of which 19 000 MW had to be from renewable sources if South Africa’s target for renewable energy of 33% of new capacity were to be met.  The IDC participated through equity funding, BEE and BBBEEE funding and debt participation. Projects under consideration to date were four concentrated solar power, 12 wind, 18 photo voltaic and 3 hydro projects. The government had announced on 3 August the phased bid process for 3 725MW of renewable energy. Bids had to be submitted by 4 November 2011. There had been 104 responses for bid documents. The biggest challenge for many companies to become energy efficient was that they were in survival mode and therefore cash strapped. The IDC had a facility for technical assistance grants of R500 million to be loaned at prime less three percent. It was targeting SMEs which could generate a 20% energy saving and the company could use the savings portion to pay back the loan. The scheme had not formally been launched yet. The IDC had approved the rollout of 200 000 solar water heaters and the target was to install 1 million.
There were a lot of opportunities for co generation with SA Calcium Carbide of Newcastle being a good example. The process had also made the company more energy efficient.

Members wanted information on skills training taking place and on the more energy-efficient stoves using waste.  Could the IDC help in getting the solar water heater rebate scheme back on track? Was there actual bio fuel production? How could Parliament assist IDC to move from the current R14 billion in investments to the R500 billion needed? How long did it take to process IDC loan applications? How was the IDC involved in making government buildings energy efficient? What were the control measures regarding community trusts. The IDC was asked to clarify the outsourcing of the applications’ legal and accounting work to service providers and on the local content of IDC projects. It was asked to furnish the names of municipalities who did not want to enter into long term feedstock supply agreements. What was the IDC doing to explain to people what and whom it funded. It was asked to give clear examples of energy efficiency and the Technology Innovation Agency initiatives. Were there any incentive schemes? What were the prospects on carbon credits? What industry players were outside the ambit of the associations. What was contained in the local content initiatives? Had there been any disbursements from the distress fund and how much of it had been used. What was the time factor to expand local manufacture? Who were the international investors? What emphasis was being placed on green transport?

A Department of Trade and Industry official said that the sector strategy for solar and wind power would be released by the Minister in September for public comment. An advisor to the Department of Energy said the Department was drafting regulations for the mandatory blending of bio fuels to be completed by the end of the financial year. The draft regulations would be published in September 2011. Concern was expressed that the IDC was a member of the various industry associations. Considering the lobbyist role of such associations, there would be a conflict of interest for the IDC.

Members pointed out the lack of a green strategy in South Africa. There was a huge gap between intention and implementation. The Committee needed to find out what the stumbling blocks were. Inter-sectoral collaboration was of fundamental importance and the drive to greening had to be structured in policy-driven way.

Meeting report

IDC’s alignment with the New Growth Path (NGP) and Industrial Policy Action Plan (IPAP2)
Ms Rentia van Tonder, IDC Head: Green Industries Strategic Business Unit (SBU), briefed the Committee on the IDC’s alignment with IPAP2 and the NGP, in particular, on the non-fuel and fuel based green economy as well as energy efficiency and the role of the IDC’s procurement program. The IDC was expecting to invest R14 billion in the next five years on the green economy. It was anticipated that 300 000 jobs would be created by 2020 according to draft NGP targets. The IDC green industries focus areas were photo voltaic power, wind and solar power in the non-fuel sector; waste to energy and co-generation in the fuel based sector; transport and industrial manufacturing efficiency and buildings energy efficiency; bio ethanol and bio diesel bio fuels and emission and pollution mitigation of air, water, waste and stoves. It had identified opportunities for business in energy efficiency but renewable energy was where the most significant growth would take place and where the most investor interest was.

She said South Africa needed 50 000 MW by 2030 of which 19 000 MW had to be from renewable sources. If South Africa’s target for renewable energy of 33% of new capacity were to be met it would mean an investment of R500 billion. R14 billion was thus a small drop but investment would be dependent on the pace that projects could be implemented.  The IDC participated through equity funding, BEE and BBBEEE funding and debt participation. With equity funding, it did not want to be the majority shareholder, it took stakes of 10 to 30%. With BEE funding, it would be structured to pay a trickle dividend.  Projects under consideration to date were four concentrated solar power, 12 wind, 18 photo voltaic and 3 hydro projects. Because of the volume of work, the IDC was in the process of streamlining its response to achieve a quicker turnaround time for applications. It was also standardising IDC documents. The IDC regarded the industry associations as important and was a founding member of the South African Photo Voltaic Industry Association (SAPVIA), the Southern Africa Solar Thermal and Electricity Association (SASTELA) and the South African Wind Energy Association (SAWEA). The government had announced on 3 August the phased bid process for 3 725 MW of renewable energy. Bids had to be submitted by 4 November 2011. There had been 104 responses for bid documents.

Turning to energy efficiency, she said that the biggest challenge for many companies was that they were in survival mode and therefore cash strapped. The IDC had a facility for technical assistance grants of R500 million to be loaned at prime less three percent. It was targeting SMEs which could generate a 20% energy saving and the company could use the savings portion to pay back the loan, although the scheme had not formally been launched yet.

She said that the Solar Academy of Sub Saharan Africa (SASSA) was not an easy industry to fund. It was important for companies to have the cash flow for the maintenance of the installations. The IDC had approved the rollout of 200 000 solar water heaters and the target was to install 1 million.

She said the most important factor in establishing waste energy companies was the security of feedstock supply. There were a lot of opportunities for co generation with SA Calcium Carbide of Newcastle being a good example. The process had also made the company more energy efficient.

Discussion
Ms N Mathibela (ANC) asked for data on skills training taking place and for more information on the more energy efficient stoves using waste.

Mr D Ross (DA) asked if the IDC could help in getting the solar water heater rebate scheme back on track. He said bio fuel returns were not high but the spin-offs were good. Was there actual bio fuel production? He suspected that because bio fuel regulations had not been published the bio fuel industry had not kicked off. He had heard that KPMG had been asked to work on the regulations. How could Parliament assist the IDC to move from the current R14 billion in investments to the R500 billion needed?

Mr E Lucas (IFP) asked how long it took to process IDC loan applications.

Mr S Radebe (ANC) asked how the IDC was involved in making government buildings energy efficient. What was the control measures regarding community trusts. He wanted clarity on the outsourcing of legal and accounting work to service providers.

The Chairperson wanted more information on the local content of the IDC projects.

Ms van Tonder replied about local content, saying that the emphasis was on the Concentrated Solar Power (CSP) investment of between R4-6 billion which held opportunities for local content. The IDC were not funding companies who imported and then installed, there had to be 50-70% local manufacture.

On the rebate scheme, she said that it was a difficult time for the companies because there was currently low demand. 150 000 solar water heaters had been installed. Eskom was targeting the High Pressure water heaters and had introduced restrictions on the amount any one company could install and this had impacted companies. IDC currently had three clients and one of them was doing 1000 installations per month compared to its previous 10 000 installations per month. The ultimate goal though was to move away from the rebate scheme.

She said the clean stoves were a new initiative and it was looking to Lesotho for its first rollout in conjunction with Phillips. The IDC wanted to do a few pilot rollouts first.

She said IDC had no data on skills training only on the training of plumbers who were necessary for the solar water heater installations. The IDC did not give training grants. Research and development related funding was done in venture capital projects and the IDC was closely involved with the Technology Innovation Agency (TIA).

For three years IDC had developed a bio fuels project in Cradock and had played the role of sponsor, one it was not customarily engaged in, but an exception had been made because of the strategic nature of the project.  Margins were small and if the IDC board approved it, the IDC would have a 51% stake in the project. The capital expenditure would be R1.7 billion. She said even a return of a 2% blend would make the project attractive to partners. The project had been initiated by the Agri-business SBU in the IDC and the Green industries SBU had inherited it on 1 April 2011.

She said the scale up of investments from R14 billion to R500 billion would be dependant on the SA economy.

Preferred bidders for the renewable energy projects would be announced on 25 November 2011

She said South Africa did not have a track record in renewable energy whereas the international players had and therefore it was very important for skills transfer to take place through the investments. The big challenge would be to explore local manufacture, while the international players were looking for confirmed demand.

R2 billion of the R14 billion investments would be in community development in the form of effective transformation and skills transfer and the IDC was supporting communities with developing trust deeds.

She said it was difficult to forecast the time to take on projects, but the IDC ensured that the project went through all the different stages it had to go through. It had targeted a turnaround time of 15 days to process the applications on non complex processes. The IDC was under extreme pressure regarding renewable energy and would be stretched to do 20 applications. It had asked assistance from a law firm and accounting firm to assist with bid documentation and support for financial analysis of applications because of the number of applications it had received.

The Economic Development Department had asked the IDC for a full analysis of government buildings. The IDC felt that it was not the role of the IDC to do so but that government had taken steps in this regard. The IDC had done a market study and feasibility study and believed this to be a good business opportunity. The UN model also started with government promoting energy efficiency in its buildings.

On the question of feedstock security, she said many municipalities sat with feedstock supplies but did not want to enter into long term agreements for fear that the municipalities might lose out financially.

The IDC did not fund Private Public Partnerships (PPP). PPP funding was the role of the Development Bank of South Africa.

The Chairperson insisted that the names of municipalities who did not want to enter into long term agreements be furnished to the Committee. He said the Committee wanted to work with SALGA and it was important that government not only work with the private sector but also with other tiers of government.

Mr S Motau (DA) asked what the IDC was doing to explain to people what and who it funded. He added that he felt that co generation was very important.

The Chairperson wanted clear examples of energy efficiency. He wanted the presenter to expand on the TIA initiatives. Were there any incentive schemes? What were the prospects on carbon credits? He wanted to know about industry players outside the ambit of the associations. What was contained in the local content initiatives? Had there been any disbursements from the distress fund and how much of it has been used. What was the time factor to expand local manufacture?

Ms van Tonder replied that the IDC had regional and satellite offices and had made a proactive decision to get closer to its clients, communities and industry. The CEO, Mr Qhena, had undertaken a road show visiting and introducing the IDC to potential customers.

On funding, she said that the IDC focussed on loans above R1 million while Khula focussed on loans of less than R1 million. It had a range of instruments and its main mandate was job creation. It did not look at applications other than on economic merit. There was lobbying, but the IDC had a clear mandate to allocate loans based on economic viability.

She agreed that co generation was important and there were lots of opportunities.

On energy efficiency, she said that currently the IDC‘s main priority was wind and solar power.

She said government could be a source of international money sourced at a better rate to reduce the cost of debt to companies thinking of improving energy efficiency.

The TIA operated through the Department of Science and Technology and the Council for Scientific and Industrial Research. It had a unit focussed on green energy and the IDC assisted by taking projects from the development stage to implementation.

The Cradock bio fuel project had been based on sugar beet but that had now changed to using grain sorghum for five years. To date the IDC had funded its feasibility. The Central Energy Fund had opted not to proceed with the project.  The project had capital expenditure of R1.7 billion producing 100 million litres at a very low return currently.

Mr Ross said he heard that the Minister was considering a 2% blend. Mr Ross believed it should be more.

Ms van Tonder replied that the IDC had been part of the bio fuels task team. It would start at an initial 2% and then be phased up to 10%.

On the incentive regime, she said that the installation of 1 million solar water heaters would be the equivalent of a power station‘s output.

She said South Africa had not used carbon credits the way China, Brazil and India had done. This was due to the high costs and expensive verification process. The income from carbon credits should go to the project and not be pre-sold to get funding.

On the time factor, she said that the deadline was June 2012 for companies to log their applications.

On the associations not working together, she said that this was because right now they were competitors and they were not sharing information but that this would change as they sought to grow the industry.

On distressed companies, she said that few local players had approached the IDC to get assistance.

On local manufacturing, she said that the IDC had done a costing analysis and found that imported steel from India was 30% cheaper than local steel.

The Chairperson wanted the latter issue followed up for answers as to why this was the case.

Mr J Selau said that the IDC’s minimum funding platform of R1 million was not assisting in developing business people in South Africa. He wanted the IDC to transform so that people need not go elsewhere to seek funding. He wanted to know who the international investors were.

The Chairperson asked what emphasis was being placed on green transport.

Ms van Tonder replied that
Economic Development Minister Patel had started the process where Khula and South African Micro-Finance Apex Fund (Samaf) would be incorporated into the IDC and that the process would be done by March 2012. The international players were in technology and developers. The IDC's criterion was that local employment be used. When engineers from overseas came it would allow skills transfer to locals. Regional integration was very important and South Africa could be a key player in the establishment of a manufacturing industry for the rest of Africa and this was an opportunity it could not ignore. South Africa relied on the solar water heater rebate and Southern Africa was being considered as a market. The first wind project was started in Kenya one year ago. IDC funded it as a learning experience. Biomass and hydro projects presented opportunities but more outside of South Africa than inside. All IDC strategies were regionally based.

On green transport, she said that a project for busses and trucks running on biogas had been instituted in conjunction with the Department of Transport. Energy efficiency savings of 3000MW was the equivalent of a coal fired power station. IDC was working with Eskom to stretch the pool of money available to create energy efficiencies. It would do this by providing loans for 50% of the cost of the efficiency improvements. It would also be involved in Eskom-approved smart metering devices.

In conclusion, she said that greening was becoming a bona fide business strategy to become more competitive. She had not seen any comprehensive document providing a clear green strategy for South Africa.

Mr Grant Strachan Chief Director: Industrial Policy (dti), said that the sector strategy for solar and wind power would be released in the next month for public comment.

Mr Jonathan De Vries, Advisor to the Department of Energy, said the Department was finalising regulations on mandatory blending of bio fuels to be completed by the end of the financial year. A draft of the regulations would be published next month. He was concerned that the IDC was a member of the industry associations considering the lobbyist role of the associations; there would be conflict of interest.

Ms van Tonder replied that the reason why they were involved with the associations was to support them because they were new. The IDC had made it clear to the associations that the IDC was there to support sector growth. The most challenging association would be the concentrated solar power one as there were only four to five players but the IDC was sensitive to the issue of lobbying.

Mr P Dexter (COPE) acknowledged that there was no green strategy. He said there was a huge gap between intention and implementation. He said China five years ago had no green industry but was now a world leader. The question should be put to the Department whether it should drive that policy intervention. He knew that many departments and institutions were involved in greening but a workable plan was necessary as well as an agenda to implement it. The Committee needed to confront the issue and find out what the stumbling blocks were. As it was, other countries were benefiting from greening initiatives because parliamentary committees could not co-ordinate this.

The Chairperson said that inter-sectoral collaboration was of fundamental importance and wanted the drive to greening to be in a structured, policy-driven way. The Committee would ascertain who the lead department was. He acknowledged the regional initiatives of the IDC and their work with municipalities and promotion of local manufacturing and asked the Department to look into re-introducing the solar water heaters incentive schemes.

Consideration and Adoption of minutes
The minutes of the meetings held on 9 February, 22 February, 1 March and 8 March were adopted.

The meeting was adjourned.


Share this page: