Investigation into the Development of a Wind- Energy Industrial Strategy for South Africa Stefan Szewczuk (CSIR), Helen Markou, Tom Cronin, Jørgen Kjærgaard Lemming, Niels-Erik Clausen (all Risø DTU) October 2010 Acknowledgements Firstly, the authors wish to thank the funders: the United Nations Development Programme (UNDP) and the Royal Danish Embassy (RDE). Many people were involved in the preparation of a wide-ranging report such as this. The authors would like to thank all the participants who attended the workshop on 8 September 2010 at the DBSA in Midrand as well that those stakeholders who contributed in meaningful discussions, either by email, telephonically or face-to-face discussions. The Project Steering Committee (PSC) comprising of representatives of the Departments of Energy, Trade and Industry, Science and Technology, Environmental Affairs, the UNDP and the RDE provided guidance during the PSC meetings. Special thanks must go to Andre Otto from the Department of Energy and Gerhard Fourie from the Department of Trade and Industry who, during regular project meetings, provided valuable guidance and comment throughout the project process. Acknowledgements for contributions to this report must also be given to Alan Webb and Wim Jonker Klunne (both CSIR), Mike Levington (Navitas Holdings) and Janos Moldvay, an MBA student at the University of Cape Town’s Graduate School of Business. ii EXECUTIVE SUMMARY The South African Department of Trade and Industry (DTI) has published a manual that described the methodology for developing Customised Sector Programmes. A standardised methodology and manual for the development of Customised Sector Programmes (CSP’s) or sector strategies, is intended to generate the following institutional benefits: • International best practice in the development of sector strategies • Consistency and coherency of sector strategies • Retention of institutional memory • As a tool to aid institutional learning in the development and implementation of sector strategies • Institutional cost savings and higher productivity, resulting from all of the above, both in human resource and budgetary terms • Improved sector development as a result of well-formulated strategies This project was executed to be aligned to the South African Department of Trade and Industry’s Customised Sector Programme. This report has been structured to have three parts to it as follows: • Part 1: Global Wind-energy Market and Industry; • Part 2: South African Wind-energy Market and Industry; and • Part 3: Strategic analysis; with the objective to research the opportunity to establish a local wind-turbine and component manufacturing and services industry in South Africa in support of the DTI’s Industrial Policy Action Plan (IPAP). Part 1 covers the work that was done primarily by Risø-DTU of Denmark. Parts 2 and 3 were undertaken by the CSIR of South Africa. As part of this project a one-day workshop was undertaken on 8 September 2010 to inform and to solicit comments and feedback on the work done on the project. This workshop was for the benefit of the South African Wind-energy Programme Steering Committee and stakeholders from government departments and the private sector. Niels-Erik Clausen, one of the authors from Risø-DTU also participated in this workshop. Part 1: Global Wind-energy Market and Industry The astounding growth of the wind industry continued in 2009, with a 35% increase in total installed, wind-energy capacity compared to 2008, and an average growth in the last five years of 36%. This growth is expected to continue, with strong drivers being, among others, the increasing demand for new capacity in electricity generation, security of energy supply, environmental issues and the benefits to the local industry and economy. The strongest growth took place in China and secondly the USA, with China more than doubling its installed capacity in 2009 and coming in second place in cumulative installed capacity after the USA. The wind-turbine market still favours vertically integrated manufacturing for several reasons: • in order to guarantee supply (due to component shortage); and • to protect their know-how and secure product quality. This can be achieved either by investing in sub-suppliers of key components or make long-term agreements with suppliers of key components. However, new component suppliers are entering the market, especially in Asia and the U.S. The new large industrial conglomerates entering the market are gaining in market share and tend to outsource, iii e.g. GE wind and Chinese manufacturers, while traditional suppliers of wind turbines that in-source, e.g. Vestas and Enercon, are losing market share. Guarantees of quality via the IEC certification and standards procedure are essential with the new suppliers. Furthermore, with the supply of components that are sourced externally, two types of sub- supplier groups are identified: Firstly, components where the focus is on the reduction of price rather than innovative design, in which case it is easier for new suppliers to enter the market and local manufacturing is preferred. Secondly, components in which experience and innovative design are required and where the turbine manufacturers prefer to keep the know-how in-house. Some new sub- suppliers enter the market with joint ventures. The development of international, uniform standards for Wind Turbines is done under IEC, the International Electrotechnical Commission. Representatives from all member countries of IEC can participate in the working groups developing the standards. The standards that are being developed are summarised in Table 0.1 Table 0.1: Standards series issued from the Wind turbines Standardisation Committee IEC TC88 IEC 61400-1 Design requirements for wind turbines IEC 61400-2 Design requirements small wind turbines IEC 61400-3 Design requirements for offshore wind turbines IEC 61400-4 Gears for wind turbines IEC 61400-11 Acoustic noise measurement techniques IEC 61400-12-1 Power performance measurements IEC 61400-13 Measurement of mechanical loads IEC 61400-14 Declaration of sound power level and tonality IEC 61400-21 Measurement of power quality characteristics IEC 61400-22 Conformity Testing and Certification of wind turbines IEC 61400-23 TR Full scale structural blade testing IEC 61400-24 TR Lightning protection IEC 61400-25-(1-6) Communication IEC 61400-26 TS Availability IEC 61400-27 Electrical simulation models for wind power generation IEC 60076-16: Transformers for wind turbines applications Under development: IEC 61400-5 Wind turbine rotor blades Small wind turbines will never compete with large wind turbines in terms of efficiency, annual production or even specific cost, but there are significant markets or niches where they are or can become a viable means of satisfying local electricity consumption. A number of factors in the success of promoting the small wind-turbine industry are identified, e.g. government policy support, transparent and standardised performance assessment. Due to poor quality, poor performance and a weak maintenance organisation small wind turbines have previously earned a bad reputation. Recently the American Wind Energy Association (AWEA) have launched a voluntary certification scheme that might serve as a model in other markets and contribute to restore the reputation of small wind turbines. iv Part 2: South African Wind-energy Market and Industry As the resource is quantified, it is being established South Africa has a good wind resource. Risø- DTU has done preliminary calculations of meso-scale modelling at 50m and a grid resolution of 5km. Figure 0.2 shows one of a series of three results that shows the meso-scale results for the coastal regions of South Africa. South Africa currently has an active small turbine industry that not only supplies wind turbines to the local market but is achieving success through the export of small wind turbines. South Africa also has one wind-turbine company that manufactures a medium-sized wind turbine of 300kW. This turbine size was influenced by a study undertaken by Frost and Sullivan who investigated wind energy for the African market. Research and development are undertaken at various institution and universities in South Africa. Notable research and development is being done at the University of Stellenbosch on permanent- magnet generators. The use of permanent-magnet generators eliminates the need for gearboxes. Preliminary calculations for South Africa Mean wind speed (m/s) at 50 m unverified output, do Risø DTU, Technical University of Denmark not use these numbers Figure 0.2: Unverified meso-scale wind results for the Western Cape Province During the course of this project a range of stakeholders were consulted with the objective being to solicit data and information on the current status and future potential of the South African wind industry. v Part 3: Strategic Analysis A possible industry evolution path is illustrated in Figure 0.3 below. A successful wind-energy industry expansion process leads to exports and foreign operations, and to a global industrial profile. This has been the case for many wind-energy companies and industry growth may happen through acquisitions, organic growth, mergers etc. However, for such an evolutionary path to grow, a stable home market is requires expansion phase growth phase Domestic Foreign Global production production production exports start-up phase imports home foreign global market market market Figure 0.3 Typical production and market growth strategy (after