Rollout of National Solar Water Heater Programme: briefing by Department of Energy

NCOP Economic and Business Development

24 February 2014
Chairperson: Mr F Adams (ANC; Western Cape)
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Meeting Summary

The Department of Energy (DoE) met with the Select Committee on Economic Development to brief the Committee on the National Solar Water Heater Programme.   The installation of solar water heaters (SWHs) was announced in 2009 and over the current medium term expenditure framework (MTEF) had remained government’s short-term target.  In July 2013, National Treasury had signed off and released the Solar Water Heater instruction note.

Between 2009 and 2012, funding for the programme was sourced from the Division of Revenue Act (DoRA). In that period, the total allocations had amounted to R 332 175, and from this the following allocations were made: Tshwane R 104 475; Sol Plaaitjie R 59 450; Naledi R 59 450; Polokowane and Musina R 54 400; and Buffalo City R 54 400.  The Demand Side Management budget, under the second Multi-Year Price Determination (MYPD2) committed approximately R1.45 billion to the solar water rebate programme for the period between April 2012 and March 2013. For the 2014/15 financial year the fiscal allocation was R1.6 billion, and R 700 million for the 2015/16 financial year.  By January 2014, Gauteng, Kwa-Zulu Natal, Eastern Cape and the Western Cape were the provinces with the highest number of allocations.  Limpopo, North West and Mpumalanga were the three provinces with the lowest number of installations.   The installations were skewed, however, and biased towards provinces such as the Eastern Cape, Western Cape, Kwa-Zulu Natal and Gauteng.  In total, 395 088 solar water heaters were installed nationally.

A Revised Contracting Model (RCM) had been designed to maximize local content and to improve job creation. The RCM envisaged the following:

• Compliance with the SWH industry designation requirements – a minimum local content threshold of 70% -- in terms of the Preferential Procurement Policy Framework Act;

• Competition for manufacturing contracts to be based on the highest local content achieved in the shortest possible time;

• Manufacturing contracts to be separated from installation – this closed the import opportunity and forced local manufacturing.

The DoE still needed to install 600 000 solar water geysers over the current MTEF.   An implementation agreement had been signed between Eskom and municipalities, which among other things would spell out participation requirements for municipalities, and the satisfaction of municipal and Eskom needs under each individual municipal solar water heater project. The DoE had appointed the South African Bureau of Standards (SABS) to conduct independent measurement and verification of self-declared local content.

Some of the challenges faced by the solar water heater programme had been indentified as the subsidization of imported products; poor quality installations; unreliable verification of the number and location of installed systems (about 400 000) due to lack of systematic reporting and independent verification; poor alignment with the objective of reducing electricity demand, due to focusing installations in low electricity consumption areas only; lack of maintenance obligations by the suppliers;  poor workmanship, which resulted in solar water heaters being dysfunctional; and Eskom’s lengthy procurement process.

In general, Members were pleased with the DoE’s progress with regards to the implementation of the SWH programme.  Concerns were raised, however, about the role of municipalities in the process. Local municipalities needed to be involved in all the development initiatives which took place within their municipalities. Challenges at local municipal level, such as theft and poor workmanship by installers, were highlighted,.

Members commented that many residents had been complaining that their newly installed geysers were being stolen; would the new system be tagging geysers? In cases where a resident’s geyser was stolen, did the DoE replace it?  At a provincial level, how was the bias towards certain provinces being addressed? How was the DoE dealing with issues around poor water quality at various provinces?  What plans did the DoE have in reaching the rural communities around the country’s outskirts? What was the lifespan of the solar water heaters, and how durable were they?  How many municipalities were participating in the local verification process? What was the DoE’s strategy for installations; how many geysers was the DoE planning to install per year? How would funding be allocated per province? How many young people and disabled people had benefitted from the solar water heater programme?

Meeting report

Chairpersons’ opening remarks

The Chairperson welcomed representatives from the Department of Energy (DoE) to the meeting.  The purpose was to brief the Committee on the Solar Water Heater (SWH) Programme.   He asked the DoE also to provide the Committee with information on Free Basic Electricity (FBE), but if it did not have the information on hand, it could forward it to the Committee at a later stage.

National Solar Water Heater Programme: status update

Ms Mokgadi Modise, Chief Director: Clean Energy, DoE, thanked the Committee for the invitation, and said the installation of solar water heaters (SWHs) was announced in 2009 and over the current medium term expenditure framework (MTEF), had remained government’s short-term target.  On 29 January 2013, the DoE had provided a media release on the Solar Water Heater Designated Study, which was welcomed by the public. In July 2013 National Treasury signed off and released the Solar Water Heater instruction note.

Solar Water Heater funding

Between 2009 and 2012, funding for the programme was sourced from the Division of Revenue Act (DoRa). In that period, the total allocations had amounted to R 332 175, and from this the following allocations were made: Tshwane R 104 475; Sol Plaaitjie R 59 450; Naledi R 59 450; Polokowane and Musina R 54 400; and Buffalo City R 54 400.

The Demand Side Management budget, under the second Multi-Year Price Determination (MYPD2) committed approximately R1.45 billion to the solar water rebate programme for the period between April 2012 and March 2013. For the 2014/15 financial year the fiscal allocation was R1.6 billion, and R 700 million for the 2015/16 financial year.  MTEF plans were, however, subject to change.

Solar Water Heater installation progress

Ms Modise said by 10 January 2014, Gauteng, Kwa-Zulu Natal, Eastern Cape and the Western Cape were the provinces with the highest number of allocations.  Limpopo, North West and Mpumalanga were the three provinces with the lowest number of installations.   The installations were skewed, however, and biased towards provinces such as the Eastern Cape, Western Cape, Kwa-Zulu Natal and Gauteng.  In total, 395 088 solar water heaters were installed nationally.

With regard to the provincial allocations, she said that a request for information was issued to municipalities in 2012. The responses were well below the DoE’s expectations, and very few municipalities had responded. However, municipal interest had grown over the years.  The municipal allocations were spread across the first 54 municipalities which had participated under the geyser Load Reduction Programme.   A Revised Contracting Model (RCM) had been designed to maximize local content and to improve job creation. The RCM envisaged the following:

• Compliance with the SWH industry designation requirements – a minimum local content threshold of 70% -- in terms of the Preferential Procurement Policy Framework Act

• Competition for manufacturing contracts to be based on the highest local content achieved in the shortest possible time

• Manufacturing contracts to be separated from installation – this closed the import opportunity and forced local manufacturing

The DoE still needed to install 600 000 solar water geysers over the current MTEF.   An implementation agreement had been signed between Eskom and municipalities, which among other things would spell out participation requirements for municipalities, and the satisfaction of municipal and Eskom needs under each individual municipal solar water heater project. The DoE had appointed the South African Bureau of Standards (SABS) to conduct independent measurement and verification of self-declared local content. The local content verification (LCV) process would be conducted in less than eight weeks and would be done two parts -- the technical and financial phases.

Ms Modise said that some of the challenges faced by the solar water heater programme had been indentified as follows:

• subsidization of imported products;

• poor quality installations;

• unreliable verification of the number and location of installed systems (about 400 000) due to lack of systematic reporting and independent verification;,

• poor alignment with the objective of reducing electricity demand, due to focusing installations in low electricity consumption areas only;

• lack of maintenance obligations by the suppliers;

• poor workmanship, which resulted in solar water heaters being dysfunctional; and

• Eskom’s lengthy procurement process.

Various remedial actions had, however, been taken by the DoE.  In response to the challenge of poor workmanship, the DoE was piloting a solar water heater capacity-building programme for plumbers and hot water installers within beneficiary municipalities. The aim was for solar water heater training to precede solar water heater installations in all the targeted sites, thus ensuring the sustainability of the project during and beyond the installation phase. Another challenge was that local manufacturers did not have the capacity to supply the anticipated volumes of solar water heaters according to the localization requirements.

Ms Modise concluded that municipal participation was key to the successful delivery of the National Solar Water Heater Programme, and therefore they needed to seek capacity-building interventions where necessary. The DoE had kept communication lines open to all municipalities and the necessary support would be provided to local companies for them to be equal players in the programme.   Overarching support and coordination within all the provinces was crucial.

Discussion:

Ms B Abrahams (DA, Gauteng) thanked the DoE for the comprehensive presentation. She said the web-based system was very interesting. Many residents had been complaining that their newly-installed geysers were being stolen; would the new system be tagging geysers? In cases where a resident’s geyser was stolen, did the DoE replace it?  Many residents were still not seeing these new geyser installations as a benefit, so how was the DoE marketing them in a way which appealed to local communities?  Poor workmanship was also raised as a serious concern -- installers of these solar water geysers had sideline businesses.

Ms M Dikgale (ANC, Limpopo) asked for clarity on why Limpopo had such a low level of solar water geysers installed in the province. What were the reasons for this? What plans did the DoE have to address geyser thefts?

Ms D Rantho (ANC, Eastern Cape) said some of the Members’ questions needed to be directed to a political head representative, and she wondered why no political head representative was present. The presentation mentioned the importance of municipal involvement in the rollout of solar water heaters; how would the DoE be ensuring municipal compliance?  Concerns were also raised about some contractors who were installing these geysers not being qualified to do the work; to whom could communities direct their grievances?  She argued that some areas where the geysers were being installed had very cold weather conditions, and would therefore not work well.  She asked the DoE to clarify what it meant by the need for water treatment in some areas due to the poor quality of water. What plans did the DoE have to reach rural communities?

Mr A Nyambi (ANC, Mpumalanga) welcomed the balanced presentation. He thanked the Department for reflecting both the challenges as well as the remedies to these problems throughout the presentation. There were many instances where the quality of the solar water geyer installations was of a poor standard; how was the DoE addressing this?  He agreed that some of the Members’ questions needed to be directed to a political head within the DoE.  Another concern raised was that some of the allocations of the geysers at provincial level were seen as being biased towards particular provinces and neglecting the rest; how was the DoE addressing this?  He asked about the DoE’s successes in working with designated groups. What role did municipalities play in this regard, and how could the Committee become involved? 

Mr K Sinclair (COPE, Northern Cape) thanked the DoE for the presentation. He agreed with the rest of the Members that some of the questions were policy issues, and therefore needed to be addressed to the Minister. The DoE’s presentation indicated that the department had a target of installing 1 million solar water heater geysers by 2014, but fewer than 400 000 had been installed so far. This meant that the DoE had managed to achieve only 10% of its set target.   This had serious implications with regard to service delivery. He asked whether the current policy framework was the right one.

There were clearly serious problems regarding workmanship and the quality of the geysers. The South African Bureau of Standards (SABS) had a fundamental role to play with regards to making sure that the products installed were of a good quality. As a result of the low quality of these installations, people were resorting to vandalism as a result of their frustration.  According to the presentation, Sol Plaaitjie municipality was allocated R50 million, but the DoE had had to add a further R30 million to fix problems which arose after installation. This raised serious concerns around construction. Eskom played a fundamental role as an implementing agent -- what role did municipalities play in this regard? Municipalities needed to be empowered to take control of what happened in their municipalities. What was the lifespan of the solar water heaters, and how durable were they?

The Chairperson explained why there was no political representative at the meeting.  The Minister had  had to attend a Cabinet meeting. The Deputy Minister was in Kwa-Zulu Natal, and the Acting Director-General was with the Minister at the Cabinet meeting, which was discussing the budget. However, any burning issues which Members needed to address could be forwarded to the DoE in writing.

Ms K Keketsi (ANC, North West) said in many remote rural areas, geysers had been installed but were still not working; what was the government doing about this? How many municipalities were participating in the local verification process, and which ones were they?   First preference for the installation of solar water heater geysers needed to be given to local municipal contractors. Small local businesses were not being supported.

Ms E van Lingen (DA, Eastern Cape) asked whether Buffalo City was part of the DoE’s local verification process. Would the remaining 600 000 solar water heater geysers in the DoE’s 1 million target be installed in the next MTEF?  What was the DoE’s strategy for installations; how many geysers was the DoE planning to install per year?  How would funding be allocated per province?  What was the memorandum of agreement between Eskom and local manufacturers?  Eskom supplied a lot of electricity directly to consumers; how many solar water heater geysers would Eskom be supplying to municipalities per province? She asked whether the results of the technical audits would be available on the DoE’s website.

Mr D Gamede (ANC, KwaZulu Natal) thanked the DoE for the presentation. He said the DoE’s Clean Energy unit in Kwa-Zulu Natal had responded positively. However, there were challenges with regard to the local supplier’s capacity and inadequacy with regard to installations.   The DoE needed to enhance local capacity so that delivery could be improved.

Ms Abrahams asked what work the DoE was doing towards developing the skills of disabled people within the Department. How many young people had benefited from the solar water heater programme?

The Chairperson asked that the DoE provide an explanation around the Goldman Sachs Report on maintenance.  It had been four years since the inception of the solar water heater programme, but there was still not much progress in the area of maintenance.  On the water quality within the country, he said the lime content was not the same in all the provinces, and this contributed significantly to the bursting of geysers. How was the DoE dealing with this?

Ms Modise thanked Members for their engagement with the presentation. The DoE would be responding to some questions and those which required additional information would be responded to in writing.  The work around solar water heaters was a collective effort by all key stakeholders.  Issues concerning local content were therefore not necessarily handled by the DoE, but were rather an initiative of the Department of Trade and Industry (dti).  In addition, some of the matters concerning the rollout were handled by the Project Steering Committee, where all the relevant departments were represented. This Committee reported to the Presidential Infrastructure Coordinating Committee.

On the issue of replacements, she said there were two processes.  The first involved the Project Steering Committee, which was led by the Department of Economic Development, and the DoE had been engaging with the insurance sector in an effort to ensure that the replacements took place. Secondly, with regards to the rollout from the fiscal allocation, replacements would be dealt with within the maintenance process. The DoE was committed to addressing these concerns and a clear maintenance process would be established. On the pre-feasibility study, she said Eskom would appoint a service provider through an open and competitive bidding process. Upon appointment, the DoE would therefore also be a part of the consultation, reporting and monitoring, with Eskom and the service provider.

It was the first time that concern over the high levels of theft had been raised with the DoE. In instances where cases of theft were reported, the DoE would assist in investigating the matter.  She acknowledged that the Committee had questions which needed to be addressed to the political leadership within the DoE.  With regard to municipal involvement and the role of the National Council of Provinces (NCOP) in the solar water heater programme, the DoE had written a letter to the selected municipality informing them that the municipality had been selected, based on their request for allocation. Both the DoE and Eskom did not choose the benefiting area -- the matter was discussed and confirmed by council. The DoE would engage the officials within the municipality only to discuss the rollout of the programme. The project management unit within the municipality was different from the one contracted for installation, in an attempt to prevent bias.  An independent monitoring service provider was necessary for fair and accurate reporting.  In areas where the DoE was not happy with the councillors or the service providers, the MEC for Electricity would then be engaged. The mayors of the respective municipalities would also be engaged where the need arose.  There was a concern that in some cases, the installers did not provide a decent service within the communities, and this created serious tension among community members.  In some cases, where a community member was not in good standing with a councilor, they did not get a solar water heater geyser installed. The reality was that the technical teams did not have the authority to confront municipalities.  However, call centres had been established so that communities could lay complaints.

Ms Modise said maintenance was one of the areas which the DoE was addressing.  The DoE was heavily committed to maintenance and, as a result, the Presidential Infrastructure Coordinating Committee had also been involved in the process. Some corrective measures had been recommended.  Poor workmanship fell into the area of maintenance and it therefore needed to be reported.  Some matters had been reported to the DoE, some to councillors and some to Eskom.  Communities were also encouraged to report their frustrations to the Community Liaison Officers.   She said water quality throughout the country was not the same, especially due to the lime content. Water with a high salt content reduced the efficiency of the solar water geysers.   The DoE would be providing the Committee with a full list of all the municipalities which would be part of the 2014/15 allocations.   Active participation within the municipalities with regard to the implementation of the solar water heater geysers, was highly encouraged.  Pre-feasibility studies had been done to eliminate some of these challenges, and also to inform the selection process.

On the provincial allocations, she said one of the issues with which the DoE was busy, was addressing the demand reduction from the grid.  This meant that demand reduction would also add to the challenge of bias towards particular provinces.  Demand reduction was higher in bigger cities, or areas where industrialization was high. With regards to skills development, the DoE was committed to driving this initiative. The training of plumbers, for example, was one area which the DoE was prioritizing. She acknowledged that the DoE had not put enough effort into localization within the policy framework, and the heavily reliance on imports was therefore a major challenge.  The instruction note was not finalised in isolation, as the dti was part of the process of investigating the area of localization and the 70% requirement for local content.   Regarding municipal involvement in the process, municipal capacity was a matter which also had to be taken into consideration.  However, Eskom had the existing structures, skills and capacity to lead the installation process.

The Chairperson thanked DoE for the engagement with Members’ questions. The DoE was asked to respond to all remaining questions in writing by 28 February 2014.

The meeting was adjourned. 

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