SA National Energy Development Institute 2012 Annual Report briefing

Energy

17 October 2012
Chairperson: Mr S Njikelana (ANC)
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Meeting Summary

The South African Energy Development Institute (Sanedi) presented its Annual Report for 2011/12.  Sanedi acted as a catalyst for sustainable energy innovation, but also intended to investigate any new technologies that would transform the energy landscape to ensure transition to a lower carbon future. In the last year it had delivered several important projects across a number of initiatives. It was acting now in conjunction with the Department of Transport on the Green Transport Programme, which was supported by other stakeholders in the transport sector. It had only eight permanent staff, of whom four were highly experienced white males passing on their skills to younger staff. Sanedi also arranged jobs for other people not reflected on its staff establishment, as they were paid by partner entities. It had received an unqualified audit opinion from the Auditor General on both the financial performance and the performance against objectives. A report from the Board Audit Committee was included, outlining discussions held with the Auditor-General and corrective actions.

Sanedi outlined its projects in the Wind Sector, including the Wind Atlas project, which was moving into its second phase with support of the Danish Government. Working for Energy programmes were identifying key technologies that would lead to sustainable job creation, particularly for the youth. Sanedi was working more with the provinces to develop technologies originally conceptualised for other programmes, and with a number of universities. Its research, bursaries and internships contributed to the opportunities. A Centre Manager was appointed to coordinate the Renewable Energy Centre of Research and Development (RECORD), although funding was still needed. A Solar Park and Demo Centre were to be established, probably in Upington. The S A Smart Grid Initiative was launched and a smart grid business plan produced. Business proposals were developed for various projects. A holistic database for energy in the country was being developed by Department of Energy, with input from Sanedi. Clean Coal Technologies were particularly important, and were described, as well as Carbon Capture Storage. It had managed to increase its research output and a number of publications were done in South Africa and abroad. Collaborative projects were running with international agencies and donors, and Sanedi was looking to develop detailed lists of possible projects from which donors could select. The Waste Hub in KwaMashu was particularly successful and may be increased. Sanedi was also contributing to the Acid Mine Drainage, although, in answer to later questions, it noted that ideally the water should be converted to potable water, by removal and sale of certain salts. It was developing a Consolidated Online Database for energy efficiency initiatives and was mapping stakeholders.  The algae plantation project done at the Nelson Mandela Metropolitan University (NMMU) was outlined, and the potentials were also discussed in relation to liquid fuels.

Members sought clarity on a number of the named projects, including the transport initiatives, quality of coal, Acid Mine Drainage, and the reasons for the focus. Members commented that Sanedi was trying to achieve a lot on quite a small budget and wondered if it did not want to re-think its position and become more visible, addressing the challenges that its present structure imposed. Sanedi confirmed that it would welcome Parliamentary support for more funding. There were many business cases that needed to be implemented. Members commented favourably on the mentorship programme but questioned staffing in other respects and enquired how Sanedi would take projects forward to a commercial status. It was noted that there were challenges around intellectual property in some instances. The tax allowance uptake was questioned, as well as whether there were commitments from National Treasury on funding. The Chairperson asked for more information on the Smart Grid to be provided, and noted that Sanedi should participate in the second round of public hearings on energy efficiency, as this area was still too fragmented. Its initiatives in household energy were questioned. 

Meeting report

SA National Energy Development Institute (Sanedi) Annual Report 2011/12
Mr Kadir Nassiep, Chief Executive Officer, South African Energy Development Institute, pointed out that in this year, the Annual Report of the Institute (Sanedi) was produced using environmentally friendly ink and recycled paper. Only 100 hard copies were printed, with about 400 circulated on memory sticks. The entity constantly tried to reduce its carbon footprint.

Sanedi acted as a catalyst for sustainable energy innovation, but also aimed to transform the energy landscape, by identifying technologies that would ensure promotion of the green economy and transition to a lower carbon future.

Sanedi employed eight permanent staff, four of whom were white male experts. They were intended to pass on their skills, through mentoring, to the younger historically disadvantaged individuals (HDIs). Sanedi was in the process of employing about ten unemployed graduates in Gauteng.

Sanedi had received an unqualified audit opinion from the Auditor General on both the financial performance and the performance against objectives.

This presentation would focus on clean coal technology, induction of gas, and also carbon capture storage - a project that Sanedi was looking at on behalf of the state. The issue of shale gas was under investigation. Energy, research and analysis were also important. Sanedi had established a centre that partnered with the Universities of Pretoria and Cape Town, and the projects considered the various modelling requirements.

An important project delivered during 2011 on Clean Energy had provided guidelines to investors and developers in the wind sector, including which areas of South Africa were suitable for deployment of wind turbine technologies. Wind Atlas project was successfully launched during the course of the year, and was now scheduled for its next phase. The Danish government was ready to support the project financially.

The Working for Energy programme continued to show results, despite its challenges. The programme had started identifying technologies in key areas where job creation would be viable in the future. The partnership with IA on technology data exchange had resulted in far more access to technologies. Continuity of the Green Transport Programme had also experienced some challenges.

The Department of Transport (DoT) had agreed to sponsor and keep the work of the Centre running, and ensure there was a transition to cleaner fuels in the country. This initiative was viable, in light of developments in the country on cleaner fuels, including the buy-in from key stakeholders like the South African National Taxi Council and Metrobus. Far more clients were now willing to invest in new technologies for transport.

Sanedi was now working far more closely with provinces, especially KwaZulu Natal (KZN) and the Western Cape (WC). The objective was now to develop some of the technologies that were initially conceptualised for other programmes, like Working for Energy. The hub at the University of Pretoria (UP) continued to deliver results, and was able to produce graduates able to work in energy efficient environments. Research and publications assisted the industry in understanding how to improve on energy efficiency.

Bursaries and internship opportunities had been identified for the purpose of human capital development. Over and above the normal day to day operations, Sanedi also ran Corporate Social Responsibility programmes, where it hoped to improve the lives of South Africans.

Mr Nassiep took the Committee through the targets of Sanedi for the year in more detail.

The Centre Manager was appointed to coordinate the establishment of Renewable Energy Centre of Research and Development (RECORD) was appointed, and various stakeholders forums were conducted. The only outstanding matter was to obtain funding from National Treasury in the following financial year.

Another target related to the establishment of a Solar Park Test and Demo Centre in Upington. It was possible that the site may be changed, and this would limit Sanedi’s contribution on its design. However, Sanedi would still design a test and training facility that would run with the commercial operations inside the Solar Park. The results of studies done by outside institutions on the Solar Park were awaited.

The first phase of the Wind Atlas was completed and the Government of Denmark was requested to fund the second phase of the project, which would focus on identifying wind farms. That information would be communicated to stakeholders.

The South African Smart Grid Initiative was launched, chaired by the Department of Energy (DoE), and the smart grid business plan was produced. Stakeholders included the South African Local Government Association (SALGA).

Sanedi had also met its targets around business proposals and stakeholder meetings for the Centre for Energy Systems and Research, and the Centre and DoE were developing a holistic database for energy in the country. This was DoE's ultimate responsibility, but Sanedi was contributing.

Mr Nassiep emphasised that Clean Coal Technologies would become particularly important if South Africa was to continue using coal in the future. Sanedi had concluded studies on extracting liquid fuels from coal and on trace elements in coal. The quality of coal changed and degraded over time, and it was important to understand the quality of the coal that was still in the ground, and its implications. It was equally important to investigate how to optimise extractions, maximising yields and minimising carbon dioxide (CO2) emission whilst maximising the yields. Phase 1 of the Coal Roadmap had been completed.

The Centre for Carbon Capture Storage achieved its goal for the year. Sanedi was preparing for scoping in testing injection of CO2. The scoping would be complete by 2016. Currently, Sanedi was evaluating options for onshore storage, with a particular focus on the Zululand or Algoa areas for testing purposes. The decision had been taken to store onshore because of the cost.

Sanedi had not been able to take the Green Transport initiatives further, until the DoT came on board. Sanedi itself could not purchase vehicles intended for conversion to use compressed natural gas (CNG), and so that function was moved to the current financial year. The Department of Science and Technology (DST) was also committed to a programme around Green Transport.

The Working for Energy programme focussed on creating an enabling environment for the youth, through seminars and workshops that would empower young people. The Centre for Carbon Capture Storage awarded a number of bursaries in the 2011/12 year, and more would be awarded this year, and the Centre was also hiring interns. Some delays were experienced in alignment of work plans, but this had been achieved, with confirmation from National Treasury now given for rollover of funds to implement the Annual Work Plan. Proposals were made for various technologies. Some projects had been implemented and some had been concluded. Sanedi was ready for the next set of projects, and would be funded from October 2012 for these.

Sanedi had met its targets for increasing its research output, by producing a publication on Sanedi-funded projects. There was an array of publications in South Africa and abroad. An extensive array of collaborative projects were running with international agencies, and a number of international donors were keen on sponsoring programmes that were run by Sanedi. Sanedi also looked at new demonstration projects.

Sanedi was working closely with provinces in putting up and identifying suitable areas for energy technologies. There was a plan to have an energy hub in KwaMashu this year, which would develop many technologies that utilised waste effectively, either through recycling, or through converting it to liquid fuel or electricity. The programme had received support from KZN, donors and government.

Another two key elements on which Sanedi focused were Renewable Energy and Energy Efficiency. He reiterated that RECORD had been established, with the objective was to facilitate and coordinate renewable energy research, product development, and training in all entities. RECORD formed and facilitated several new inter-institutional collaborations. Sanedi was in negotiations with the German government around establishing a Wind Energy Training Centre in the WC, possibly to be hosted by the Cape Peninsula University of Technology (CPUT). The intention was to grow the project to other areas.

Another important issue that Sanedi looked at under the renewable energy was acid mine water drainage and the recovery of CFP salts, used in the CFP industry for storage, which not only produced salt for the industry, but also resulted in treating water. Work would be starting soon on this exciting opportunity. The intellectual property for this technology was privately-held, but the benefits were enormous for the solar industry and provision of potable water.

The DoE had a very strong mandate when it came to Energy Efficiency, and had asked Sanedi to concentrate on specific issues such as measurement and verification. This included consolidated reporting and training around energy efficiency. Sanedi was moving towards developing the Measurement and Verification (MMV) framework for the country, although there were currently few practitioners. This MMV would be required in various areas, including the tax incentives that National Treasury, DoE and the Department of Trade and Industry (dti) intended to introduce. All projects eligible for tax incentives required MMV services, and that meant that more skills would be needed.

Sanedi also noted the need for a Consolidated Online Database.  GIZ and the Swiss Government had been very helpful in setting up the database for energy efficiency initiatives. Many initiatives were operating in this field, yet there was no clarity on which sectors were making improvements. The Department of Public Enterprises, DoE and Eskom all had their own figures and the consolidated database would help to indicate more clearly what was happening around Energy Efficiency.

Sanedi had done a mapping of stakeholders who were, or needed to become, involved. Knowledge Clusters had been formed, in areas of renewable technologies using biomass, wind and solar, and all were ready for development. Sanedi was looking at building a Solar Energy Centre, probably in Northern Cape, as well as another Waste Energy Centre in KwaMashu, KwaZulu Natal. Donors such as GIZ supported all these training centres, but there were others willing to come on board. Sanedi was putting together a project management package that would allow international partners to select projects. The awareness campaigns were ongoing and various initiatives were running in the country.

Finally, Mr Nassiep outlined the algae plantation project done at the Nelson Mandela Metropolitan University (NMMU). The algae plantation absorbed the CO2 and other dangerous gasses from any combustion process, and released potable water. Algae also produced algae mass, that could be used to produce liquid fuels. This was an exciting project and consideration had been given to also taking it to KwaMashu.

Discussion
Mr E Lucas (IFP) commented that it was always exciting to listen to Sanedi. The transport programme was important, given the cost of fuel and the cost to the environment. He sought clarity on the kind of vehicles contemplated beyond the use of petrol and oil. He asked how Members could help to move this along.

Mr Nassiep replied that Parliament could help in driving legislation, for instance in relation to regulations for regular emissions tests of vehicles. This was successfully done in India, and it proved to create numerous jobs. South Africa had no compulsory scrapping age for vehicles. The average age of cars on the road was 15 years, and some were over 30 years old. New vehicles were subjected to carbon tax, but the real culprits were not. It was recognised that since transport drove the economy, scrapping might not be a viable option, but consideration could be given to conversions, and more awareness on this was needed. He explained that vehicles were not converted only to run exclusively on gas, but also on a combination of gas and fuel. The conversion costs would have been paid back in a year or two, by filling up with cheaper gas, when it was available. The efficiencies were similar, but the gas side showed savings. Sanedi would increase the infrastructure to ensure that there was sufficient gas available. Apart from awareness and establishing a scrapping agency, Parliament could also ensure that the South African Revenue Services (SARS) offered incentives to people for converting their vehicles. He added that electric, gas and bio-fuel options were all possibilities. He recognised the concerns around food security, and the fact that South Africa could not spend too much on first generation fuels. However, he stressed again the benefits of algae, which grew three times faster than any other plant, and was conducive for diesel production. However, there was not yet consensus that algae could be run on a commercial scale.

Mr Lucas commented that coal would be around for a while and asked what the country was doing to try to improve the quality.

Mr Nassiep said the quality of coal had been declining steadily. Historically, Eskom had used a lower grade of coal than was currently being exported. South Africa could use coal that was unmined and trapped in dolomite intrusions. Because the country had to sustain coal availability, it needed to invest on pre- or post-combustion technologies. Carbon capture storage was a post-combustion technology, and trying to beneficiate coal on the pre-combustion side became too expensive.

He added that Sanedi was not ignoring solar power, but the question was to find a technology that would be available quickly. Sanedi had been focusing on Acid Mine Drainage (AMD) and the Solar Park Test and Demo Facility. Broader proposals on a Solar Hub were being worked on, with the University of Johannesburg. The full benefits needed to be weighed up, including whether initiatives led to job creation or were just a matter of diversifying the energy mix, as well as where the manufacturing and demonstration opportunities lay.

Ms B Ferguson (COPE), and Ms N Mathibela (ANC) asked for further elaboration on the AMD programme, and asked if the Department of Water Affairs was involved.

Mr Nassiep replied the AMD was an important matter, although there were several limitations. The water was to be treated and returned to the system. However, it was still not drinkable at the moment. Sanedi would prefer to see the water treated to the extent where it could be fed into communities, as drinking water, whilst producing sodium and potassium salts from the process as this was cheaper than importing the salts. The processes were available to do this.

The Chairperson interjected to question if scientists at the University of Stellenbosch (US) had not proposed something similar.

Mr Nassiep replied that there were a number of technologies used to separate various salts out of different solutions, including membrane technologies. However, the level of water produced was the key. The whole process hinged on whether the salts could be sold, otherwise there was not a viable business case for treating acid mine water to a level where it became potable. At the moment, it was too expensive.

Mr L Greyling (ID) said that Sanedi was achieving all this work on a budget of about R40 million. It had obtained an unqualified audit and this clearly indicated that Sanedi could go much further. He wondered if Sanedi would be keen to proceed and motivate for more funding. It would need to focus on the institutional barriers that presently hampered its work on the advancement of renewable and efficient energy, which seemed to include the Public Finance Management Act (PFMA).  Sanedi should be far more visible than it was at the moment, particularly in municipalities. He suggested that Sanedi should be looking at those challenges and make a presentation to Parliament as to what legislative changes were needed.

Mr Nassiep said funding from the State was R56 million. The business plans required R300 million per year, with a staff complement of 66 people. It was clear that there was a huge mismatch. In five years time, Sanedi needed to reach the point where it was relatively sustainable, with all programmes funded independently of the State. Ten main projects, developed with the key stakeholders, would be implemented next year. These would include the Smart Meter rollout.

Mr Nassiep confirmed that Sanedi would welcome Parliamentary support for more funding. There were many business cases that Sanedi already had, that needed to be implemented. Sanedi had been able to attract better skilled people and so far had managed to keep them. Another important factor was to have reliable data.

Ms N Mathibela (ANC) was very pleased to hear of the mentorship programme that was resulting in transfer of skills to HDIs.

The Chairperson sought clarity on the spread and location of the 61% of HDIs at Sanedi.

Mr Nassiep replied that most of the HDIs were black females, who tended to be a lot more mobile. There was still one black female senior manager, but another one had left. The bulk of the 61% were at the more junior level. Sanedi was recruiting technical advisors who were being paid for by French investors, and were therefore not reflected in the Sanedi staff complement.

The Chairperson wanted further clarity on the statement around business development, and asked about the state of readiness of Sanedi to handle commercial fees.

Mr Nassiep said the reference to new business development related to research, and new areas where Sanedi could make an impact at the pre-commercial phase. At an appropriate time, those projects would have to be handed over to another institution, like the Industrial Development Corporation (IDC) or Central Energy Fund (CEF) who could take them to the next level of commercialisation. Sanedi was not intending to be involved in the commercial rollout phase, but would rather hand over to a development agency.

Mr J Smalle (DA) said it would be interesting to know how much money was spent on the research component of Sanedi, and wanted to know the type of progress made, in new areas, apart from the publications. He asked if indeed its work extended to new fields.

Mr Nassiep said most of the research was being done outside Sanedi. Research facilities were set up at academic institutions, and funded there.

Mr Nassiep added that intellectual property was a challenge, because the DST had requested that it manage some of the fundamental research projects. That meant Sanedi focussed more on applied research. Sanedi had also been working with the Technology Innovation Agency (TIA), to move technologies developed by universities and Sanedi into the commercial sphere. He cited the University of Fort Hare efforts on solar, where Sanedi was now focusing on getting the results into the market.

Mr Smalle asked for information on the uptake of tax allowances, noting the figure of R20 million. He asked if 14 companies had applied for the tax allowance, or if there were more, who were not able to be assisted with the currently budget. He also asked if the pre-application criterion of R30 million was a barrier, and if Parliament had to look at the regulations.

Mr Nassiep replied that there were no limits on the number of companies who could apply for tax relief but only 14 had applied.

Mr Smalle asked if the training on Future Proof Property Inspectors (FPPI) wasdealt with.

Mr Smalle asked if there was a firm commitment from both the Department and NT in relation to whether more funding would be made available.

Mr Nassiep said NT had asked Sanedi to look into possible incentives on renewable energies. DoT had agreed on a R10 million a year over the Medium Term Expenditure Framework (MTEF). There was a three-year cycle of the MTEF allocations amounting to R50 million a year.

The Chairperson asked if anything was done towards Cleaner Coal Technologies, which was a crucial area.

Mr Nassiep agreed that a lot could be done with Clean Coal Technologies, but the most important was the Roadmap, on which Sanedi was currently busy, with the involvement also of the World's Bank and a number of other institutions. The various technology options all had to be mapped out, with the economic implications, before firm recommendations were made.

The Chairperson sought clarity on data management and asked how far that had proceeded, given the concerns around its absence in South Africa.

Mr Nassiep replied that there was strong data management, linked to knowledge. It was necessary to have data that was current and orientated towards retaining institutional memory. Sanedi was concentrating on developing people, which meant that it needed access to data and the necessary awareness. GIZ was paying for the Geographic Information Systems that were meant to identify where all the technologies were. Sanedi had data that was being packaged by the suppliers.

The Chairperson commented that the Committee needed more information on the Smart Grid, especially now that Sanedi was at the stage of developing a business plan. He felt that Sanedi had to drive harder than it was, on the 20% mark, past a minimalist approach on projects.

Mr Nassiep replied that the business plan had been developed, and would be shared with the Members. Sanedi had achieved far more on Black Economic Empowerment. 90% of the non-research consumables were procured from BEE suppliers.

The Chairperson said Sanedi needed to be return to the second round of public hearings on energy efficiency, as this area was still too fragmented.

Mr S Mayathula (ANC) wanted to know the number of employees with disabilities in Sanedi.

Mr Nassiep replied that, because of funding limitations, Sanedi was heavily reliant on CEF, and it had to focus on technical staff. It did regard employment of people with disabilities as a priority, but it was currently managed through CEF. On the financial and human resources side, people with disabilities were employed.

Mr Greyling said that all the projects were thoroughly worthwhile. However, he though that a greater focus was needed on the household energy strategy, for many issues would be dealt with by ensuring that energy carrier and home usage levels were matched. If there was more attention given to this, Sanedi could deal with other pressing issues facing the sector.

Mr Nassiep replied that, initially, Sanedi had advertised for a Centre on Household Energy, as it agreed that this was critical, and stretched across all types of housing. Sanedi worked with the Sector Education and Training Authority (SETA) Centre at University of Johannesburg. Research was also done with RECORD, and Department of Economic Development, on clean stoves. Various alternatives were available, but they would have to be a little better understood before a strategy was formulated.

The Chairperson commented there was a need to take note of the municipalities’ wastage of energy.

Presentation of Sanedi Financial Statements
Mr Viren Magan, Chairperson of Board Audit Committee, Sanedi, said the Board Audit Committee (BAC) comprised of three financially-qualified members, and it met three or four times a year. The BAC activities and Minutes were tabled to the Board. The Committee guided the function of the overall Audit Committee. The BAC was involved in key activities around the adequacy, accuracy and reliability of the financial reports. Internal controls were functional, and focussed on matters of emphasis on policy guidelines. However, it was more important to ensure a good management attitude to complying with good governance, and to setting policies and procedures. The BAC also reviewed Sanedi’s performance information.

The Board Committee looked at the quarterly management accounts, that included income statements, the balance sheet and how management had spent the budget. The Committee was rigorous when engaging with management. Both management and the full Board took the recommendations of the BAC seriously.  The unqualified audit outcome was indicative of the thoroughness of the process. Through these processes, any deficiencies in internal controls had been identified, and rules to address those were implemented.

The internal audit function was set up under a formal Charter, recommended for approval by the Board, and it was a well-structured and well-functioning unit. A risk management function existed and was operative within Sanedi. The BAC was satisfied on the internal controls in this area.

There had been some discussions with the Auditor-General (AG), especially on deviations from the budget. The BAC had reviewed the scope of the work, looked at the scope of the work, and what might be done better to put the AG in a better position to make findings, and ensure that any findings were not technicalities that could have been avoided, but were in relation to the business.

Some of the findings by the AG were attributable to the transitional process of Sanedi. The first related to a bonus provision of a staff member who had resigned. An internal audit of the process was recommended, and this was implemented, looking to the calculation of the performance bonuses as well as grading of individuals. There was one finding around completeness and existence of assets, and because it was critical to reconcile what was on the books with what was physically in place, Sanedi was in the process of appointing own procurement officer. A corporate calendar had been presented to counter the finding that no strategic plan was presented.

The Chairperson wondered aloud if an organisation in transition could have a strategic plan.

The meeting was adjourned.

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