SOUTH AFRICA’s RENEWABLE ENERGY INDEPENDENT POWER PROCUREMENT PROGRAMME (REIPPPP): A

CASE OF LOCALISING THE RENEWABLE ENERGY INDUSTRY

Dr. TIDINGS P. NDHLOVU MANCHESTER METROPOLITAN UNIVERSITY, UK VISITING RESEARCH FELLOW, GRADUATE SCHOOL OF BUSINESS LEADERSIP, UNIVERSITY OF SOUTH AFRICA Ms. NTOMBIFUTHI NTULI DIRECTOR:RENEWABLE ENERGY INDUSTRIES, INDUSTRIAL DEVELOPMENT & POLICY DIVISION, DEPARTMENT OF TRADE AND INDUSRTY (dti), SOUTH AFRICA

INTRODUCTION: Context – Climate Change - alternative renewable and green economy approaches • Reliance on fossil fuels, especially coal. • Implications for social and ecological sustainability • South African pledges: 34% emissions reduction below

business as usual by 2020 and 42% by 2025 • President Jacob Zuma: $100bn per year needed for low

carbon development plus $100bn per year for adaptation • Outline: Theoretical framework; Green Economy Accord;

Renewable Energy Rollout – Renewable Energy Independent Power Producer Procurement Programme (REIPPPP); Localisation of Renewable Energy; Evaluation and Challenges of Localisation; Evaluation of Job Creation via Localisation; Conclusion

MARKET VERSUS INSTITUTIONAL APPROACHES: TOWARDS A TRANSFORMATIVE APPROACH OF THE GREEN ECONOMY

Market Approaches: - free market solutions - Marketization and “commodification” of nature Institutional Approaches: - State Planning and Regulation institution building; social cohesion - Transformative strand: ecological, social and political sustainability; role of developmental state; localization; democratization

Context - Energy

Electricity demand may reach 78000 MW with economic growth

86% of power generation capacity from coal 87% of primary energy supply from fossil fuels

2006 data, Source: DoE 2011 data, Source: Eskom

95% of crude oil requirement is imported

Source: Eskom

Demand @ 4% if GDP @ 6%

Demand @ 2.3 % if GDP @ 4%

Context Manufacturing…

13.5

14.0

14.5

15.0

15.5

16.0

16.5

17.0

17.5

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011Source m

anuf

actu

ring

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e of

GDP

Manufacturing declined by almost 20% from 2008 to 2009 and then recovered somewhat, showing growth of 5, 0% and 2, 5% in 2010 and 2011 respectively.

Context – Unemployment • Unemployment (25.5%) – 4,2 million actively looking for work

with an additional 2.5 million discouraged work seekers

Man

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turin

g em

ploy

men

t

1 050 000

1 100 000

1 150 000

1 200 000

1 250 000

1 300 000

1 350 000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source:

Government Policy on Renewables

• IRP2010 – 17,8 GW of Renewable Energy – 42% of new build capacity

• Failed REFIT Renewable Energy IPP Procurement Programme

• Green Economy Accord • Local Procurement Accord

REIPPPP

• Renewable Energy Independent Power Producer Procurement Programme

• Initial Determination 3725 MW by 2016 • Additional determination – 3200 MW by 2020 • Additional 6800MW committed.

REIPPP - Procurement

REIPPP- Procurement

Government Framework Support Agreement

REIPPP - Evaluation

Price 70 %

30 % ED

REIPPPP – Economic Development Criteria

Local Content Requirements Local Content

Technology First Bid Submission Date

Second Bid Submission Date

Third Bid Submission Date

Current Threshold

Current Target

Threshold

Target Threshold Target

Onshore Wind

25% 45% 25% 60% 40% 65%

Solar Photovoltaic

35% 50% 35% 60% 45% 65%

Solar CSP Without Storage

35% 50% 35% 60% 45% 65%

CSP with storage

25% 45% 25% 60% 40% 65%

Biomass 25% 45% 25% 60% 40% 65% Biogas 25% 45% 25% 60% 40% 65% Landfill gas 25% 45% 25% 60% 40% 65% Small scale hydro

25% 45% 25% 60% 40% 65%

25% 45% 25% 60% 40% 65%

Progress in REIPPPP Rollout

Summary of BW1, BW2, BW3 & BW4

Total MW Allocated

Total Project Cost (R’Mil)

Total Local Content Value (R’Mil)

Total Construction Jobs

Total Operations Jobs

BW 1 1416 MW R46 026 R11 419 13 420 419

BW2 1044 MW R29 321 R11 787 7 059 316

BW3 1456 MW R44 956 R16 228 7 915 18 229 (Person Months)

BW4 1121 MW R23 410 R9 976 6 835 19 411 (person months

Total 5037 MW R143 713 R49 410 35 229 735 (BW1 & BW2)& 37 640 (BW3 & 4 in person months)

Bid window 1 outcomes

Technology MW Allocated

Price (fully Indexed)/ MWh

Total Project Cost (Mil)

Local Content Value (Mil)

Average local content

Construction Jobs

Operational Jobs

Onshore wind

634 R1.14 R12 724 R2 766 21.7% 1869 128

Solar PV 632 MW R2.75 R21 937 R6.262 28.5% 10 386 221

Solar CSP 150MW R2.68 R11 365 R2 391 21% 1 165 70

Small hydro None None None None None None None

Total 1416 MW

R46 026

R11 419 13 420 419

Bid Window 2 Outcomes

Technology MW Allocated

Price (fully Indexed)/ MWh

Total Project Cost (R’Mil)

Local Content Value (R’Mil)

Average local content

Construction Jobs

Operational Jobs

Onshore wind

563MW R0.89 R10 897 R4 001 36.7 1579 65

Solar PV 417MW R1,65 R12 048 R5 727 47.5% 4 557 194

Solar CSP 50MW R2.51 R4 483 R1 638 36.5% 662 50

Small hydro 14MW R1,03 R631 R421 66.7% 261 7

Total 1044 MW

R29 321 R11 787 7 059

316

Bid Window 3 Outcomes

Technology MW Allocated

Price (fully Indexed)/ MWh

Total Project Cost (R’Mil)

Local Content Value (R’Mil)

Average local content

Construction Jobs

Operational Jobs (person months over 20 yrs)

Onshore wind

787MW R0.65 R16 969 R6 283 46.9% 2612 8506

Solar PV 435MW R0.88 R8 148 R3 969 53.8% 2119 7513

Solar CSP 200MW R1.40 R170949 R5 627 44.3% 3082 1730

Landfill Gas 18MW R0,83 R288 R88 41.9% 6 240

Biomass 16MW R1.24 R1.062 R261 40% 96 240

Total 1456 MW R44 596 R16 228 7915 18229

Bid Window 4 Outcomes Technology MW

Allocated Price (fully Indexed)/ MWh

Total Project Cost (R’Mil)

Local Content Value (R’Mil)

Average local content

Construction Jobs

Operational Jobs (person months over 20 yrs)

Onshore wind 676MW R0.61 R13 466 R5 146 44.6% 2831 8161

Solar PV 415MW R0.78 R8 504 R4 319 64.7% 3825 9273

Solar CSP n/a n/a n/a n/a n/a n/a n/a

Small Hydro 5MW R1.11 R245 R80 40% 30 30

Biomass 25MW R1.45 R1 195 R431 47.8% 149 1947

Total 1121MW R23 410 R9 976 6835 19411

Why Renewable Energy Localisation?

• Round 1,2, 3 & 4 = R144 billion • Renewable Energy a new sector – re-industrialisation and re-

skilling opportunities and address unemployment • Existing industrial capabilities in a range of relevant areas e.g.

engineering, metal fabrication, etc. • Growing number of component suppliers into renewable

energy and energy efficiency value chains

Government interventions for Renewable Energy Localisation

• Market creation - Local Content Requirements • Trade and Investment promotion and support • Export promotion • Manufacturing Incentives • Financing through the IDC and DBSA • Import Tariffs • Standards and testing facilities • R & D and Skills Development – support DST and

DHET

Components earmarked for localisation

• Components earmarked for local manufacturing in the immediate to short term – wind turbine blades and towers; – PV modules; – PV inverters; and – the metal structures used in PV plants.

• Government would eventually like to see all of these components manufactured in South Africa but understands that a gradual roll-out may be necessary in order to build manufacturing capacity in South Africa.

Studies Supporting Localisation of Renewables

• Solar and Wind Strategy • Solar PV Localization Roadmap • Solar CSP Localization Roadmap • Wind Industry Localization Roadmap

Investments in Local Manufacturing

Name of Investor

Location Technology Investment Amount

Jobs Created

Total Capacity

DCD Wind Towers

Coega (PE) Wind Towers R300Mil 150 150 towers/annum

GRI Atlantis (CT) Wind Towers R237 Mil 160 150 Towers/ annum

Concrete Units CT Concrete Towers

SMA CT Inverters R30 Mil 15

ILB Helios Eat London IDZ

Solar Modules R220 Mil 200 120MW/annum

Jinko Solar Solar Modules R60 Mil 100 100MW/annum

AEG Inverters

ART Solar Durban Solar Modules

Sunpower Cape Town Solar Modules

Summary • A national commitment to renewable energy • A national commitment to localisation (Green Economy Accord, Local Procurement Accord)

• Development of a strong, competitive domestic manufacturing industry, • Establish capability to compete with imports from an already established global industry

• Focus on Exports • What will it take for local manufacturing industry to scale up? – Market size – Economies of scale – Long term visibility… market certainty – Incentives required to support industry development – Policy support

• Alignment of government policy objectives

Conclusion: Impact of South Africa’s approach on economic, ecological, social and political

sustainability • Renewable energy will contribute significantly to the future energy

mix of the country – 42% (17.8 GW) of the total new electricity generation planned for in the current Integrated Resource Plan will be renewable.

• The cost (excludes interest and inflation) of this is expected to be R400 billion plus.

• Therefore such a large renewable energy programme is expected to put electricity on the grid, support industrialization, local value add and jobs and make a significant contribution to address South Africa’s climate commitments

• Transformative Approach is likely to produce greater results