Green economy & renewable energy: solar and wind industry & DTI progress reports

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Trade and Industry

11 March 2015
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Department of Trade and Industry (DTI) highlighted the importance of the Renewable Energy programme in the SA economy. It is generating local content of R39 billion, with 28 392 jobs created at a total project cost of R120 billion. A total of 3 916 MW has been awarded by 2013 with 64 projects. A big concern has been the Solar Water Heater (SWH) programme, where zero systems have been installed since being taken over by the Department of Energy.

The South African Photovoltaic Industry Association (SAPVIA) highlighted the importance of solar PVs. A total of 1 049MW has been awarded to PVs over bid windows BW1 and BW2, with 435MW in BW3. Around 2 000 jobs have been created in construction across the bid windows and local content is just above 50%. Jobs from operations and maintenance from these projects was 6 117 in BW1, 3 809 in BW2 and 7 513 in BW3. There is a silent revolution across the country with people placing solar PVs on their roofs. Pricing was raised as an issue and they would like to see a fixed tariff system going forward for the bidding. The government was encouraged to set up more medium sized programmes of 5-60MW as this is where the job creation will be explosive. Other recommendations included: a more consistent roll-out of the Renewable Energy programme, government pursuing SWHs with greater urgency, roll-out rooftop PV programmes and auction off the building of a new grid through being able to feed back into the grid.

The South African Wind Energy Association (SAWEA) stated that the wind industry has grown into a R55 billion industry in less than four years. About 5,000 people work in the industry at present with about 500 of these jobs being permanent. The latest wind projects will produce electricity at a cost of about 40% less than Eskom power from Medupi. Wind power has had a less than zero net cost to SA in 2014. All capital has been sourced privately with no government funding. Projects have been built on time and on budget. The wind sector has committed more than R5 billion to socio-economic development with communities owning up to 40% of wind farms.  Local content is up to 45%. Barring Medupi and Kusile, no new power will come from coal for a long time, possibly until 2019. Renewable energy will provide the majority of new energy going forward. The Eskom fuel bill is ± R1 billion for January alone and the new tax revenue will go straight into fuelling Eskom – so it is highly inefficient. The inevitable shift to as much renewables as possible has been forced upon us  - if SA embraces this and energy efficiency, SA could become a world leader.

SAWEA said the big question is do the commercial farms follow the grid or does SA build the grid according to high-wind potential sites. At what point do they cross over from one to the other? The long-term well-being of the electricity sector requires bold decisions on grid infrastructure. In twenty years, wind farms will be repowered or replaced, then we can build in the best sites possible if we plan long enough ahead and take the grid there - this is the time frame of the NDP.

Energy storage is under a revolution, it will become far more affordable. Very strong development on electricity storage is occurring and is expected to accelerate. Optimistic expectations imply an early move to a 100% renewables grid. The SA RE resource base can support this comfortably. SA needs to move into being a world leader or at least an African leader in this field. Bold moves are required to move SA to forefront of this. The suggestion is not to lock up too many resources into old technology sites. The municipal funding model is flawed and does not encourage RE uptake or energy efficiency. Grid defections are a serious concern, as it may be left with only the poor on the grid which will collapse it. SA needs high RE penetrations with people staying on the grid. Smart meters and energy efficiency should be rolled out. A sustainable municipal funding model is required.

The Committee complained that the whole point of the meeting had been to investigate the stalling of the Solar Water Heater programme and this had been skimmed over. The Committee's main discussion points were on jobs, BEE, local content and SWHs. On SWHs, it said the the Department of Energy (DoE) has been allocated R4.7billion and it needs to spend it now as the custodian of the programme. On the jobs front, the jobs created in construction will move from project to project, whilst those created in maintenance and servicing will be supported by the revenue from the projects. On the BEE front, information is scarce and confidential but a report will be provided to the Committee. The 15% black owned requirement is consistent and will increase going forward. Local content will be addressed in a written report to the Committee.

Meeting report

Department of Trade and Industry (DTI): Green Industries
Mr Gerhard Fourie, dti Chief Director: Greenhouse Industries, presented a status report on the solar and wind industries:
▪ Solar Water Heaters (SWHs) - Cabinet approved the accelerated role of implementing SWH programme in 2011. The DTI was tasked with amending the National Building Regulations to accommodate solar water heating and to localise this process while the Department of Economic Development (EDD) was tasked with coordination and leadership of the accelerated rollout. A 70% local content minimum threshold is now required. There are three segments to the SWH market: 1) new houses 2) low cost houses 3) insurance industry. As SWHs are more expensive than normal geysers, a cash injection will be needed to replace them through the insurance industry. The roll-out was meant to be one million SWH systems by 2014/2015 and four million by 2030, according to the National Solar Water Heater Programme. To date, ZERO SWHs have been installed. The problems with the SWH programme include poor quality installations, unreliable verification and local content compliance.
▪ Solar and Wind Renewable Energy - The DTI is active in market facilitation, local manufacturing and local content requirements. 
▪ Market Development and Independent Power Producers (IPP): A rolling procurement programme for 3 725MW renewable energy was announced in 2011. By November 2013, 3 916 MW had been awarded with a total of 64 projects. This equates to a project cost of R120 billion and a local content value of R39 billion with 28 392 construction jobs. The Minister of Energy has announced the second determination for procurement of 3 200MW renewable energy by 2020.

DTI showed tables reflecting local content targets for each bid across the different types of renewable energy (RE). The green economy is encouraged through incentives such as the Manufacturing Competitiveness Enhancement Programme (MCEP), local content requirements and through the Industrial Development Corporation (IDC). Local content commitments have been increased for each of the three windows of bidding across the RE technology types. Solar concentrating solar power (CSP) was explained as an RE type that can store electricity as it heats water to create steam that drives turbines.

DTI's Trade and Investment South Africa (TISA) support and facilitation includes these highlighted projects:

- DCD Wind Energy - wind turbine towers (project value: R300 million, job creation potential: 250)
- ILB Helios - PV panels (project value: R220 million, job creation potential: 250)
- Gestamp Renewable Industries (project value: R237 million, job creation potential: 160)
- About five companies are setting up local assembling of solar PV panels.

Identified challenges include the intermittent demand created by the nature of the bidding period; there is no financial incentive for green-field investments in the sector and the working relationship with the DOE needs to be improved with regards to setting local content requirements.

South African Photovoltaic Industry Association (SAPVIA): Impact of IPAP on Green Economy
Mr Davin Chown (Chairperson: SAPVIA) thanked the DTI for the robust working relationship they have and how they have worked well together to date. SAPVIA’s focus is on driving the solar photovoltaic (PV) industry and growing it, with over 100 members currently. The services offered by members are varied and 73% of the members are SA based. A more consistent roll-out of the renewable energy programme would make investment easier and lead to greater development. From 2001, the Renewable Energy (RE) programme started as a rural plan, it is now firmly situated in the IPP. Now there is 8,400MW of Solar PV in the programme. There is a silent revolution across the country with people placing solar PVs on their roofs. This is where the most job creation can be made, with the bakkie brigade and with additional electricians. This association is not focused on SWHs. The association is currently waiting on Bid Window (BW) 4 to be awarded and for the Bid Window 5 announcement date.

They are seeing a lot of new investors and many local businesses joining in. The project evaluation is based on 30% for economic development and 70% on price. They would like to see a fixed tariff system going forward.  The private sector investment to date is around R120 billion, with R11 billion flowing to communities adjacent to projects. The savings to SA are R3.64 billion in coal and diesel savings, R1.67 billion from reduced unserved energy and the net benefit to SA is R800 million in fuel replacement costs.  Medupi will cost R120 billion at the end of it all, compared to this, RE is a lot more affordable. Bidders are required to make commitments to Economic Development of 0-0.6% of total revenue within a 50km radius of the project. This will create a local ownership benefit of R23.1 billion over 20 years. A total of 1,049MW has been awarded to PV over BW1 and BW2, with 435MW in BW3. Around 2000 jobs have been created in construction across the bid windows and local content is just above 50%. Jobs from operations and maintenance from these projects was 6,117 in BW1, 3,809 in BW2 and 7,513 in BW3.

In the localisation process report, they are trying to unpack where the actual jobs are coming from. This will look into the situation where people have invested and uncover how are they getting their local content, are they are going to import from China? The conclusions are that most of the jobs will come out of the installation and maintenance rather than manufacturing. Unpredictability of the roll-out of the RE programme wreaks havoc in the value chain. In one instance, 250 jobs were lost and an international company that was planning to invest in an inverter manufacturing plant decided to look elsewhere. The SAPVIA would like to see 2,000MW a year for next four years in PV generated. The government must encourage the setting up of more medium sized programmes of 5-60MW as this is where the job creation will be explosive. Other recommendations included: government must pursue SWHs with greater urgency, roll-out rooftop PV programmes and auction off the building of a new grid through being able to feed back into the grid.

South African Wind Energy Association (SAWEA): Assessing wind energy industry
Mr Johan van den Berg, SAWEA CEO, stated that the collaboration with the DTI had grown tremendously. The wind industry has grown into a R55 billion industry in less than four years. About 5,000 people work in the industry at present with about 500 of these jobs being permanent. The latest wind projects will produce electricity at a cost of about 40% less than Eskom power from Medupi. Wind power has had a less than zero net cost to SA in 2014. All capital has been sourced privately with no government funding. Projects have been built on time and on budget. The wind sector has committed more than R5 billion to socio-economic development with communities owning up to 40% of wind farms.  Local content is up to 45%. Barring Medupi and Kusile, no new power will come from coal for a long time, possibly until 2019. Renewable energy will provide the majority of new energy going forward. The Eskom fuel bill is ± R1 billion for January alone and the new tax revenue will go straight into fuelling Eskom – so it is highly inefficient. The inevitable shift to as much renewables as possible has been foced upon us  - if SA embraces this and energy efficiency, SA could become a world leader.

Since the start of the programme, one commercial wind farm has grown to 9 wind farms with 14 in construction, 10 MW installed has grown to 654MW, with another 1,350 MW in construction. There are additional benefits from the wind industry. Around 100 000 tonnes of SA steel were used in 2013-2014 for the wind industry to the value of about R7 billion, as well as cement towers made locally. Logistics, advisory and law firms also benefit. Power from peaking plants is around R5/kwh, the cost of load shedding is around R75/kwh, Medupi best estimates are around R1.05/kwh. Renewable Energy costs SA R4.5 billion in tariffs whilst saving the country R5.3 billion in avoided costs and fuel costs. Successful wind bids were: BW 1 – R1.14/kwh, BW 2 R0.89/kwh and R0.62/kwh for BW 3. There is scope for more farms with a large amount of space available. CPUT is training a lot of people, 480 technicians by 2017, and 480 apprentices by 2017.

The big question is do the commercial farms follow the grid or does SA build the grid according to high-wind potential sites. At what point do they cross over from one to the other? The long-term well-being of the electricity sector requires bold decisions around grid infrastructure. In twenty years, wind farms will be repowered or replaced, then we can build in the best sites possible if we plan long enough ahead and take the grid there. This is the time frame of the NDP. Energy storage is under a revolution, it will become far more affordable. Very strong development on electricity storage is occurring and is expected to accelerate. Optimistic expectations imply an early move to a 100% renewables grid. The SA RE resource base can support this comfortably. SA needs to move into being a world leader or at least an African leader in this field. Bold moves are required to move SA to forefront of this. The suggestion is not to lock up too many resources into old technology sites. The municipal funding model is flawed and does not encourage RE uptake or energy efficiency. Grid defections are a serious concern, as it may be left with only the poor on the grid which will collapse it. SA needs high RE penetrations with people staying on the grid. Smart meters and energy efficiency should be rolled out. A sustainable municipal funding model is required.
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             Discussion
Mr Hill-Lewis brought to the attention of the Chair that the whole point of this meeting was to discuss SWHs and this has been skimmed over.

The Chairperson agreed that SWHs had been skimmed over and said that it needed to be raised with Director General of DTI.

Mr D Macpherson (DA) stated that if they get the basics right, the solar and wind industries can create jobs, plus produce power. Government does not need to get involved and meddle with it. How does the Committee get the government to not delay the next bid window and approve the projects? Are there subsidies on solar water heating?

Mr A Williams (ANC) asked what the BEE breakdown of these RE projects was and what number of the jobs are permanent versus temporary. What measures has the DTI put in place to stop China from importing products into this market and what are we going to do to stop it from being an overseas- and white-dominated industry? If it is such a new industry, why is it only 15% controlled by BEE?

Mr A Alberts (FF) queried why no SWHs have been installed yet? A follow on question was what kind of incentives for greenfield projects is the DTI implementing? He noted that there is a different wind energy system in France which uses sails instead of blades with less noise pollution.

Mr G Hill-Lewis (DA) stated that not a single SWH project has been implemented since it has been placed under the DOE. He is very concerned and asked what the way forward is. He stated that one cannot remove price competition entirely, as tax-players will be supplementing all the RE companies.

Ms P Mantashe (ANC) asked about the jobs, querying why there was a drop-off in jobs with the finalisation of wind infrastructure?

Mr B Mkongi (ANC) enquired what the environmental impact of the wind farms was, especially amongst bird life. What are the safety levels of the SWHs and the sustainability of the programme? DTI needed to collaborate more with the DOE in terms of the SWHs.

Ms J Fubbs (ANC) stated that the Committee needed the details on job creation and not such generalisation. This should include the length of time of short courses and training. SWHs needed to be addressed. On the maps of the wind, the grid should be overlaid with the wind distribution. She requested answers in writing to the query by Mr Williams on BEE growth and on local content development. A follow on question was what happens with the jobs once the project is completed, the Committee needed more information on what the jobs created are for. Ms Fubbs commented that the DTI needed to market the country better in that we are the champions of RE internationally. Her final statements were that government will not give 20 year guarantees for RE, business will have to make a plan if they want to be here and they must understand the local landscape.

Mr Fourie (DTI) responded that Eskom engaged a subsidy programme for SWHs in 2008 but they have now completely pulled out of this subsidy. The DOE is now the manager of this programme. The SWHs have always been installed free of charge for low cost houses. Unless the SWH is free, the low cost market is zero. R4.7 billion was set aside for SWHs by the DOE, it has spent nothing yet. Only 9 companies are able to provide SWHs with local content requirements. One company can provide 90% of the local content requirements and decentralised manufacturers which are black owned. DOE has decided to go ahead with bidding on SWHs, but it needs to start spending money. If a person imports a product from China and sells it locally, only the local value added can be used for local content, which would be the mark-up. There are strict local content requirements, as you cannot have it both ways. Mr Fourie was not sure about the BEE ownership breakdown for companies. There are a lot of rent-seekers who are trying to make a profit with SWH products not designed for SA conditions, these come and go. A stable demand and a proper procurement programme will bring in more SWH manufacturers. The insurance industry only pays out after two years of installation so the manufacturers need to be around to replace products in this sector. There are currently no greenfield incentives that he knows of but the IDC would be a better port of call. Depending on what rule government chooses to follow, the industry is mostly owned by foreigners or black ownership rather than white, contrary to popular belief. The DTI is looking at assembling and manufacturing locally.

Mr van den Berg (SAWEA) responded that there is a lot more work to do, looking at collaboration in SA, as SA has to deal with economic development and local content. On the jobs question, once a construction is completed, jobs will hopefully be moved to the next project. The revenue component of RE bidding goes to job creation in the local areas for those that cannot move to other projects. The jobs created are decent jobs. R4 billion has been donated for SWHs and this industry can be improved. In SA, according to Mr Fourie, there is more pump storage than can be used. If there were more RE, it would improve this capacity even further. The amount of RE a grid can take is still a long way from being saturated, SA can build as much RE as needed without disrupting the grid for the next few years. The organisation will keep an eye on new technology. On the environmental impact concerns, all projects have an intense EMIA (Environmental and Health Impact Analysis) done prior to receiving the go-ahead, and it includes bird and bat specialists. The IDC office will provide more information on BEE and local content is public information which will be provided to the Committee. The next objective: drive localisation and development rather than price as SA has one of the lowest RE pricing systems in the world.

Mr Chown (SAPVIA) commented that it would be great to have the IPP members at future meetings to discuss the process. A whole fleet of renewable energies will be able to generate consistently for a number of hours replacing the reliance on coal. The people that can provide the best information about the grid would be Eskom. On the ownership of projects, the individual projects have to be 40% SA owned and 15% black owned. These percentages should be increased over time. Mr Chown stated that he is unable to see individual project breakdowns as this is kept confidential. SA needed to figure out what it wants for the power grid. They need to get to a place where RE projects are operating and owned by SA companies. The price issue becomes a concern with risk increases as people may be cutting corners to meet the price ceiling. With BW 4, the Committee shall see the bidding of ± 60c/kwh going forward. Government needs to create an economy for a lot of new entrants.

The Committee adopted minutes of the previous meeting.

Meeting adjourned.

[Southern Africa Solar Thermal & Electricity Association (SASTELA) did not present]

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