South African Renewable Energy Market and Opportunity for Swiss Companies

Market and Opportunity for Swiss Companies SOUTH AFRICAN

RENEWABLE ENERGY

OFFICIAL PROGRAM

SOUTH AFRICAN RENEWABLE ENERGY MARKET AND OPPORTUNITY FOR SWISS COMPANIES

Date: September 2015 Language: English Number of pages: 76 Author: Swiss Business Hub Southern Africa (SBHSA) and SUDEO International Business Consultants

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Contents

7.1. Subsector Overview ______63 FOREWORD ______9 7.2. Potential Business Opportunities ______67 1. EXECUTIVE SUMMARY ______10 8. SA RENEWABLE ENERGY MARKET ENTRY 2. INTRODUCTION ______17 MODES ______69 8.1. Market Entry Modes to access Supply Opportunities69 3. BACKGROUND ______20 8.2. Market Entry Modes to access Investment 3.1. Renewable Energy in the global context ______20 Opportunities ______70 3.2. The Integrated Energy Plan (IEP) (up-to 2050) _ 24 3.3. The Integrated Resource Plan (IRP) for Electricity 9. PROFESSIONAL SA RE MARKET (2010-2030) ______30 PENETRATION SUPPORT PACKAGES ____ 71 3.4. Supply Side Initiative - Renewable Energy 9.1. Detailed Market Study ______71 Independent Power Producer Procurement 9.2. Identification of aligned Business Partners _____ 71 Programme (REIPPPP) ______31 9.3. Business Interaction Support ______71 3.5. Supply Side Initiative - Small Projects IPP 9.4. Business Development Support ______71 Procurement Programme (SPIPPPP) ______33 10. CONCLUSION ______72 3.6. Renewable Energy Demand Side Initiatives ____ 35 REFERENCES ______73 4. PHOTOVOLTAIC SUBSECTOR ______37 4.1. Subsector Overview ______37

4.2. Potential Business Opportunities ______45

5. CONCENTRATED SOLAR POWER SUBSECTOR ______47 5.1. Subsector Overview ______47 5.2. Potential Business Opportunities ______51

6. ONSHORE WIND SUBSECTOR ______54 6.1. Subsector Overview ______54 6.2. Potential Business Opportunities ______59

7. SMALL HYDRO SUBSECTOR ______63

List of tables and figures

Table 1: Global Renewable Energy technology power capacity (2013) ...... 21 Table 2: IEP target test cases ...... 28 Table 3: REIPPPP Allocations (2011-2013) ...... 33 Table 4: REIPPP Bid Window Three Foreign Investment ...... 33 Table 5: Annual incoming shortwave radiation ...... 37 Table 6: South African PV market segment characteristics and dynamics ...... 38 Table 7: Scenarios of Projected South Africa PV Market Growth (2030 and 2050) ...... 39 Table 8: Solar Photovoltaic REIPPPP Allocations ...... 40 Table 9: Solar Photovoltaic REIPPPP Preferred Bidders Salient Terms ...... 40 Table 10: Solar Photovoltaic REIPPPP Preferred Bidders Economic Development ...... 41 Table 11: REIPPPP PV projects awarded ...... 42 Table 12: Known Commercial and Industrial Projects Built in 2010, 2011 and 2012 ...... 44 Table 13: Annual incoming shortwave radiation ...... 47 Table 14: Concentrated Solar Power REIPPPP Allocations ...... 49 Table 15: Concentrated Solar Power REIPPPP Preferred Bidders Salient Terms ...... 49 Table 16: Concentrated Solar Power REIPPPP Preferred Bidders Economic Development ...... 50 Table 17: REIPPPP CSP projects awarded ...... 50 Table 18: Onshore Wind REIPPPP Allocations ...... 56 Table 19: Onshore Wind Preferred Bidders Salient Terms ...... 57 Table 20: Onshore Wind REIPPPP Preferred Bidders Economic Development ...... 57 Table 21: REIPPPP Onshore Wind projects awarded ...... 58 Table 22: Small Hydro REIPPPP Allocations ...... 65 Table 23: Small Hydro Preferred Bidders Salient Terms ...... 65 Table 24: Small Hydro REIPPPP Preferred Bidders Economic Development ...... 66 Table 25: REIPPPP Small Hydro projects awarded ...... 66

Figure 1: Tracking Carbon Emissions Globally ...... 18 Figure 2: Estimated Renewable Energy share of global electricity production (End 2013) ...... 20 Figure 3: Global Renewable Energy technology power capacity (GW) (2013) ...... 22 Figure 4: Solar PV Total Global Capacity (2004-2013) ...... 22 Figure 5: Concentrating Solar Thermal Power Capacity, by region (2004-2013) ...... 23 Figure 6: Wind Power Total World Capacity (2000-2013) ...... 23 Figure 7: IEP Final Energy Demand (2010-2050)...... 25 Figure 8: IEP Final Energy Demand by Energy Carrier (2010-2050) ...... 26 Figure 9: IEP Electricity Generation Capacity by Technology Type (2050) ...... 29 Figure 10: IRP New Build and Committed Electricity Generation Options (2010-2030) ...... 30 Figure 11: Scenarios of Projected South Africa PV Market Growth ...... 39 Figure 12: Potential localization in the South African CSP Market ...... 52 Figure 13: Generalised map of wind power potential in South Africa ...... 54 Figure 14: South Africa mean wind speed at 100m ...... 55 Figure 15: South Africa mean power density at 100m ...... 56 Figure 16: Scenarios for the localization of wind energy project spend ...... 62 Figure 17: Total for macro and small hydropower in SA (excluding pump storage) ...... 64

Abbreviations and Definitions

AC Alternating Current

CaBEERE Capacity Building in Energy Efficiency and Renewable Energy

Capacity Capacity in respect of a unit or the facility, at any time and from time to time, is the capability (expressed in MW) to generate and provide energy to the delivery point, net of electrical losses between the generator terminals and the delivery point and auto consumption for auxiliaries 1

CCGT Closed Cycle Gas Turbine

CO 2 Carbon Dioxide

CPI Consumer Price Inflation

CSIR Council for Scientific and Industrial Research

CSP Concentrated Solar Power

DC Direct Current

DHI Diffuse Horizontal Irradiance

DME Department of Minerals and Energy (replaced by DoE in 2008)

DNI Direct Normal Irradiance

DoE Department of Energy

DST Department of Science and Technology

DTI/the dti Department of Trade and Industry

DWA Department of Water Affairs

EEDSM Energy Efficiency Demand Side Management

EMS Energy Management Standards

EPCM Engineering, Procurement and Construction Management

ESCO Energy Service Company

Eskom Eskom Holdings SOC Limited (South Africa’s electricity utility)

Fully Indexed Price This is the price based upon the full CPI indexation of the price

1 DoE. (2013). Information document in respect of the Request for Qualification and Proposals in respect of the Small Projects IPP Procurement Programme SOUTH AFRICAN RENEWABLE ENERGY

5 Abbreviations and Definitions

G-20 “The Group of Twenty (also known as the G-20 or G20) is a forum for the governments and central bank from 20 major economies. The members, include: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Republic of Korea, Mexico, Russian Federation, Saudi Arabia, South Africa, Turkey, United Kingdom, United States and the European Union (EU)” 2

GHI Global Horizontal Irradiance

GIZ Deutsche Gesellschaft fur Internationale Zusammenarbeit

GHGs Greenhouse Gases “Gases primarily carbon dioxide, methane, and nitrous oxide in the earth's lower atmosphere that trap heat, thus causing an increase in the earth's temperature and leading towards the phenomenon of global warming.” 3

Grid “The generic term used to describe both the National Electricity Grid; being all electricity networks of licensed electricity distributors and transmitters within South Africa, and the Eskom transmission system.” 4

GSR Global Status Report

GW Gigawatt

GWh Gigawatt-hour

HTF Heat Transfer Fluid

HTSAs High Temperature Solar Applications “can be defined as endothermic (heat-absorbing rather than heat-releasing) processes or reactions driven by concentrated solar radiant energy. The requirement for fossil-derived heat or electricity is thereby displaced in the process, presenting alternative processes with reduced or eliminated carbon emissions compared with the conventional processes.” 5

IDC Industrial Development Corporation of South Africa Limited

IDM Integrated Demand-Side Management

IEP Integrated Energy Plan

IPP Independent Power Producer

IRP Integrated Resource Plan

IRR Internal Rate of Return

JV Joint Venture kW Kilowatt kWp Kilowatt peak

2 http://en.wikipedia.org/wiki/G-20_major_economies 3 DME. (2003). White Paper on Renewable Energy 4 DME. (2003). White Paper on Renewable Energy 5 DoE, DST. (2013). Draft South Africa Solar Energy Technology Roadmap, October SOUTH AFRICAN RENEWABLE ENERGY

6 Abbreviations and Definitions

Local Content “That portion of the tender price which is not included in the imported content, provided that local manufacturing does take place (SATS 1286:2011)” 6 m Meter m2 Square meter (Area)

MCEP Manufacturing Competitiveness Enhancement Programme

MJ Megajoule

MW Megawatt

MWh Megawatt-hour

NERSA National Energy Regulator of South Africa

OCGT Open Cycle Gas Turbine

PJ Petajoule

PPP Public Private Partnership

PPPFA Preferential Procurement Policy Framework Act

PV Photovoltaic

REFIT Renewable Energy Feed In Tariff

REIPPPP Renewable Energy Independent Power Producer Procurement Programme

REN21 Renewable Energy Policy Network for the 21 st Century

Renewable Energy/RE “The harnessing of naturally occurring non-depletable sources of energy, including solar, wind, biomass, hydro, tidal, wave, ocean current and geothermal, to produce electricity, gaseous and liquid fuels, heat or a combination of these energy types” 7

Renewable technology “Technology that converts a primary renewable source of energy or energy resource to the desired form of energy service” 8

RFP Request for Proposals

SA Republic of South Africa

SABS South African Bureau of Standards

SAPVIA South African Photovoltaic Industry Association

SARi South African Renewables Initiative

SASTELA Southern Africa Solar Thermal and Electricity Association

6 DTI. (2013). Designation of Sectors & Products for Local Procurement by Organs of State, Presentation, August 7 DoE. (2013). Information document in respect of the Request for Qualification and Proposals in respect of the Small Projects IPP Procurement Programme 8 DME. (2003). White Paper on Renewable Energy SOUTH AFRICAN RENEWABLE ENERGY

7 Abbreviations and Definitions

SATS SABS Approved Technical Specification

SAWEP South African Wind Energy Programme

SCADA Supervisory Control and Data Acquisition

SME Small and Medium Enterprise

SMME Small, Medium and Micro Enterprise

SOC State Owned Company

SPIPPPP Small Projects Independent Power Producer Procurement Programme

TWh Terawatt-hour

US$ United States Dollar (currency)

W Watt

WASA Wind Atlas for South Africa

WEF Wind Energy facility

WWF World Wildlife Fund

ZAR/Rand/R South African Rand (currency)

SOUTH AFRICAN RENEWABLE ENERGY

8 Foreword

Foreword

Located at the southern tip of the continent, South Africa is the most important economic partner for Switzerland in Africa. The bilateral trade volume reached approximately CHF 1.3 billion in 2014. Without energy this result could not have been achieved. But what about South Africa’s role when it comes to the generation of electricity? Is the country working towards sustainable economic growth? The emerging economy is still predominantly reliant on coal based generation technology complemented by nuclear and hydro. However, the South Africa’s energy crisis with power cuts from Eskom, South Africa’s primary electricity supplier puts a lot of pressure on the sector.

Ensuring the security of supply; minimising the cost of energy and emissions from the sector as well as diversifying supply sources and primary sources of energy are therefore key objectives of South Africa’s Integrated Energy plan (IEP): An eager plan, which opens ways for renewable energy initiatives. According to a recently published study by the South African’s Council for Scientific and Industrial Research (CSIR), renewable energy from South Africa’s first wind and solar (photovoltaic) projects created ZAR 0.8 billion more financial benefits to the country than they cost during 2014.Dr Tobias Bischof-Niemz, head of CSIR added that “Without the first solar and wind projects, we would have spent significant additional amounts on diesel, and energy would have had to be “unserved” during almost 120 additional hours in 2014.”

South Africa offers good prospects for the development of a viable and sustainable Renewable Energy manufacturing and supply industry. The publication “South African Renewable Energy” provides the reader with important background information on the sector and shows the numerous market opportunities for companies from Switzerland. I wish you a pleasant reading and look forward to welcoming you in South Africa. Sawubona!

Anita Dietiker Head of Swiss Business Hub Southern Africa

Swiss Business Hub Southern Africa 225 Veale Street, New Muckleneuk P.O. Box 2508, Brooklyn Square 0075, Pretoria 0181 South Africa

Mail [email protected] Phone +27 12 452 06 91 Mobile +27 60 966 74 75 s-ge.com

Executive Summary

1. Executive Summary

Introduction

South Africa has an energy intensive economy and is one of the large emitters of greenhouse gasses (GHG) globally and is thus party to global climate change imperatives. Electricity generation is currently predominantly reliant on coal based generation technology complemented by nuclear and hydro, however the country has actively sought to include Renewable Energy into its electricity generation energy mix. South Africa is also aware of the valuable role that the Renewable Energy industry could play to contribute to sustainable industrial and socio-economic development objectives of the country and its people, and has targeted for 17.8GW (42%) of electricity through ‘new build options’ to be sourced from renewable energy sources by 2030 9 . These recent new build Renewable Energy initiatives have also resulted in South Africa emerging as the fastest growing market destination in the G-20 for investment in the Renewable Energy sector, which attracted US$5billion in 2012 up from US$30million in 2011 (a 20,500% increase) 10 .

Renewable Energy in the global context

Globally, policy support and investment in Renewable Energy has seen it steadily increase its share of global electricity production. At the end of 2013, Renewable Energy sources accounted for 22.1% of global electricity production which includes: hydropower (16.4%), Wind (2.9%), Bio-power (1.8%), Solar PV (0.7%) and Geothermal, CSP and Ocean collectively (0.4%), and the global installed total renewable power capacity including hydro stood at 1,560GW, which included Wind power, Solar PV and Bio-power with installed capacities of 318GW, 139GW and 88GW respectively. Between 2012 and 2013, high growth rate Renewable Energy technologies included Solar PV (39%), Concentrating solar thermal power (36%), Wind power (12.4%) and Bio-power (6%).

The Integrated Energy Plan (IEP) (up-to 2050) 11

South Africa is currently engaged in a detailed process to develop an Integrated Energy Plan (IEP) long term framework to identify the most appropriate way to effectively and efficiently satisfy current and future energy service needs while also achieving broad based social benefits and reducing adverse environmental impacts. The primary energy/resources includes: Renewables (Solar, Wind, Biomass, Hydro), Fossil fuels (Coal, Crude Oil, Natural Gas), Nuclear Fuels (Uranium) and Resources extraction and sourcing. The IEP has 3 Key priorities : Social development, Environmental sustainability, Economic development and 8 Key Objectives : Ensure the security of supply; Minimise the cost of energy; Increase access to energy; Diversify supply sources and primary sources of energy; Minimise emissions from the energy sector; Promote energy efficiency in the economy; Promote localisation and technology transfer and the creation of jobs; and Promote the conservation of water.

The IEP process unpacks the demand drivers for energy which include economic growth, population growth and energy prices, which collectively contribute to the more than doubling of total energy demand between 2010 and 2050. The integrated energy system in South Africa incorporates four main energy carriers including: Petroleum products, Electricity, Natural Gas and Coal. The demand for electricity is expected to be promoted through increased residential electrification, the sustained expansion of the commercial sector and public buildings and the anticipated growth in the manufacturing sector.

The Integrated Resource Plan (IRP) for Electricity (2010-2030)

While the IEP is a long term framework that seeks to evaluate the role that all energy carriers will play in the supply of energy, the IRP for Electricity focuses on the demand and supply of Electricity. The first IRP was developed in 2010 and is currently being updated. The updated IRP indicates that the demand for electricity by 2030 is expected to be within the range of 345-

9 DoE. (2013). Integrated Resource Plan for Electricity 2010-2030 Update Report 2013, November 10 Pew Trust report. (2013). Who's Winning the Clean Energy Race? 11 DoE. (2013). Draft 2012 Integrated Energy Planning Report, June SOUTH AFRICAN RENEWABLE ENERGY

10 Executive Summary

416TWh, which translates to a peak generation capacity of 61.2GW 12 . The IRP also considers a range of test cases and scenarios including the impact of electricity generation technology options and associated costs, expected electricity demand profiles and the performance of the current Eskom electricity generation fleet. 17.8GW (42%) of electricity generated through new build options up to 2030 is proposed to be from renewable energy sources, which will be sourced through wind (8.4GW), Solar PV (8.4GW) and CSP (1GW).

Renewable Energy Independent Power Producer Procurement Programme (REIPPPP)

Following the release of the IRP, the DoE launched the first REIPPPP bidding round, which was based on competitive tendering as compared to the previous REFIT procurement process. REIPPPP allocations were the result of two determinations made by the Minister of Energy on 1 August 2011 and 19 December 2012 which determined that 3725MW and 3200MW respectively of electricity was to be generated from Renewable Energy sources.

To date four successful REIPPPP bidding rounds have been conducted. Under bid window one, 28 agreements were concluded on 5 November 2012 from 53 bids received. Under bid window two, 79 bids were received which resulted in 19 agreements being concluded on 9 May 2013. Bid window three saw yet another increase in the number of bids received which resulted in 17 bids being considered, and are subject to financial close before the end of 2014, from 93 bids received. The fourth bid window closed in August 2014 and a final fifth bid window is expected to open by mid 2015. Future REIPPPP bid windows are expected based on further increased Renewable Energy allocations that are aligned to subsequent iterations of the IRP and the IEP respectively.

The successive competitive bidding rounds have seen a dramatic decline in IPP bid prices and an increase in the compliance with economic development and local content bidding conditions. By the end of REIPPPP bid window three, a total of 3915.4MW had been allocated with 2808MW remaining for bid windows four and five. REIPPP has also enjoyed the confidence of foreign project developers, investors and funders during all the bid windows.

Small Projects IPP Procurement Programme (SPIPPPP)

The SPIPPPP follows the REIPPPP and commenced with an official tender request for qualification and proposals for new generation capacity in August 2013 13 . The main differentiator of the SPIPPPP compared to REIPPPP is that it exclusively applies to small scale Renewable Energy projects ranging from 1MW to 5MW. The SPIPPPP allocations were the result of two determinations made by the Minister of Energy on 1 August 2011 and on 19 December 2012 which determined that 3,725MW and 3,200MW respectively of electricity was to be generated from Renewable Energy sources which each include 100MW for the SPIPPPP 14 . The Renewable Energy technologies include: Onshore Wind, Solar Photovoltaic, Biomass, Biogas, Landfill gas and Small Hydro 15 . No SPIPPPP awards have been made as yet. The dates for the submission of new projects under the third and fourth Stage 1 bid submission windows are still to be announced by the DoE and are expected to be in the first quarter of 2015.

Renewable Energy Demand Side Initiatives

The effective management of electricity demand is also necessary to reduce energy intensity and energy supply as the South African economy grows. To address this, the South African government, through the DoE and several other government departments and agencies has embarked on several initiatives to encourage clean energy and energy efficiency including the Energy Efficiency Strategy of South Africa (as amended) 1617 which promotes enhanced energy efficiency nationally and called for a voluntary national energy use reduction target of 12% reduction in final energy demand by 2015.

12 DoE. (2013). Integrated Resource Plan for Electricity 2010-2030 Update Report 2013, November 13 DoE. (2013). Request for qualification and proposals for new generation capacity under the Small Projects IPP Procurement Programme - Tender number: DoE 004/13/14 14 DoE. (2013) Information document in respect of the Request for Qualification and Proposals in respect of the Small Projects IPP Procurement Programme 15 Small Hydro projects are initially excluded from the SPIPPPP, however the DoE has indicated its intention to procure under the SPIPPPP in future bidding stages 16 DME. (2005). Energy Efficiency Strategy for South Africa 17 DME. (2008). National Energy Efficiency Strategy – First Review, October SOUTH AFRICAN RENEWABLE ENERGY

11 Executive Summary

Photovoltaic Subsector

With an average daily solar radiation of approximately 7,500MJ/m 2, South Africa has some of the highest levels of solar radiation in the world, especially when compared to other western economies such as the United States of America and the European Union. The Northern Cape Province has the highest annual Global Horizontal Irradiance range of 8,001MJ/m 2 to 9,500MJ/m 2 and is thus home to some of the large PV solar installations under the REIPPPP. In South Africa, the primary applications for PV technology relate to 18 : (i) Grid connected power generation, (ii) Supporting rural electrification programmes, and (iii) The public and private sector deployment within municipalities and commercial and industrial applications respectively, to reduce grid demand and electricity expense in the medium to long term.

There are 3 unique market segments for PV in South Africa including: Utility scale (>1MW), Commercial/Industrial (30kW- 500kW) and Residential (50W to 5kW). The localization strategy for PV industry in South Africa developed various scenarios for the projected South African PV market growth from the period 2013-2017 through to 2028-2035, which indicate that the total PV market installed capacity in 2028-2035 could reach 20,133MW (10% adoption rate), 15,149MW (7% adoption rate) and 11,946MW (5% adoption rate). The strategy also indicates that the PV industry seeks to have almost 40GW of power generation capacity installed by 2050.

The market potential and demand for Solar PV has largely been driven by REIPPPP and other government supported interventions. To date three REIPPPP bidding rounds have been completed which resulted in allocations of 1,483.6MW of Solar PV generation capacity. 1,041.0MW of Solar PV generation capacity remains to be allocated in the current fourth and the following fifth REIPPPP bid submission phases. With the projected IRP utility scale targets of 8.4GW of Solar PV by 2030 19 , the remaining allocation for Solar PV generation capacity, in addition to the current REIPPPP, is 5.875GW.

The successive REIPPPP bidding rounds has generated keen interest from, and competition among, several global project developers and suppliers, which has promoted a substantial reduction of 68% in the bid prices for Solar photovoltaic projects which reduced from R2,758/MWh in bid window 1 to R881/MWh in bid window 3 (using the base of April 2011). Local content requirements are also part of the REIPPPP qualification criteria, and the successive REIPPPP bidding rounds resulted in a steady increase in local content for Solar PV projects from 28.5% (threshold of 35% and target of 50%) in bid window 1 to 53.8% (threshold of 45% and target of 65%) in bid window 3. During the three REIPPPP bidding rounds, 33 utility scale PV projects were awarded with contracted capacity ranging from 5.0MW to 75.0MW. The most common technology use was PV Crystaline – Fixed.

Since 2010, there has been a notable increase in the number of large private sector commercial and industrial PV projects arising from increased climate change awareness and escalating electricity costs 20 . The Eskom Standard Offer program which is part of Eskom’s Integrated Demand-Side Management (IDM) programme to promote energy efficiency has been a catalyst for commercial adoption of PV technology, particularly roof top systems 21 . Eskom financial constraints had led to the suspension of the IDM energy efficiency rebates in September 2013, including these business programmes, however in July 2014 Eskom announced the invitation to Project Developers to provide proposals for the Commercial/Industrial and Municipal sectors.

Given the South African market for PV systems and installations ranging from large scale utility applications, to smaller scale residential, commercial and industrial applications, potential business opportunities exist for specialised Swiss companies to supply typical PV components, systems, component production equipment and or related technical equipment including: PV modules, Mounting structures, Tracker, Inverter, Voltage stabilizer, Switchgear and Protection devices, Metering devices System monitoring devices, Distribution boards, DC and AC cabling, Charge controller and Power storage batteries.

Local content requirements also presents an opportunity for Swiss suppliers of niche PV components, products and or production equipment and related technical services to consider ‘investing in’ or ‘supplying production equipment to’ manufacturing enterprises in South Africa. Local content requirements are also driven by designation, which refers to the identification of specific sectors/products that are seen to present strategic potential for the development of the South African economy and is limited to state procurement initiatives, and verification processes. Current designated PV

18 DoE, DST. (2013). Draft South Africa Solar Energy Technology Roadmap, October 19 DoE. (2013). Integrated Resource Plan for electricity (IRP) 2010-2030 Update Report 2013, November 20 DoE, DST. (2013). Draft South Africa Solar Energy Technology Roadmap, October 21 DoE, DST. (2013). Draft South Africa Solar Energy Technology Roadmap, October SOUTH AFRICAN RENEWABLE ENERGY

12 Executive Summary

components/products for local manufacture include: PV modules, PV inverters and Metal mounting structures used in PV plants. In addition to this, an increase to 66% local content by 2015 could be achieved through localization of: Solar float glass manufacturing, Magnetic parts and transformers manufacturing, Wiring and cabling manufacturing, Printed circuit boards and miscellaneous parts for inverters. A greater local content of approximately 90% would require the establishment of a silicon cell manufacturing facility to ensure further upstream localization 22 .

Concentrated Solar Power Subsector

The main application of CSP technology in South Africa is to focus on expanding utility scale electricity generation in the country through the REIPPPP initiative. The hybrid use of CSP for High Temperature Solar Applications (HTSAs), as the solar resource required for high temperature heat supply applications necessitates the incorporation of CSP technology, is also being researched by several South African academic and research institutions. South African CSP stakeholders envision substantial growth potential for CSP technology deployment in the country across three market segments that would include:

• The development of greenfield power generation capacity of approximately 14GW by 2030 • The introduction of CSP hybrid technology to Eskom’s coal fired base load electricity generation fleet to improve the performance of ageing plants and to enhance the capacity of new plants by approximately 6GW collectively by 2030 • The offsetting of electrical demand of up to 2GW by 2030 from energy intensive chemical and mining operations through the provision of high temperature industrial process steam applications.

The cumulative impact of the above is anticipated to lead to CSP technologies generating approximately 22GW or 10% of South Africa’s annual energy mix by 2030 - 2040.

The demand and market potential for CSP has, to date, largely been driven by REIPPPP. Three REIPPPP bidding rounds have been concluded, which resulted in 400MW of CSP generation capacity being allocated, with a further 200MW remaining to be allocated in the current fourth and the following fifth REIPPPP bid submission phases. The IRP indicates a projected CSP utility scale target of 1GW by 2030 23 , which leaves a remaining allocation for CSP generation capacity of 400MW, in addition to the current REIPPPP.

CSP project prices also reduced in relation to each successive REIPPPP bidding round arising from the keen interest from, and competition among, several global CSP project developers and suppliers. This competition resulted in a bid price reduction of 6.5% for CSP projects, which reduced from R2,686/MWh in bid window 1 to R2,512 in bid window 2 (using the base of April 2011). REIPPPP qualification criteria include local content requirements, and each successive REIPPPP bidding round generated an improvement in the local content for CSP projects from 21% (threshold of 35% and target of 50%) in bid window 1 to 44.3% (threshold of 45% and target of 65%) in bid window 3. During the three REIPPPP bidding rounds, 5 utility scale PV projects were awarded with contracted capacity ranging from 50MW to 100MW.

The current and future utility scale REIPPPP project application of CSP technology presents supply opportunities for innovative CSP components and systems including: Parabolic trough components and systems, Mounting structures, Hydraulic lifting systems, Flat mirrors, Trackers, Secondary components (cables and piping etc), Heat exchangers, Storage systems, Curved mirrors, Molten salt pumps, Receivers, Power block, Heat Transfer Fluid (most typically Therminol VP-1), and Hybrid CSP systems/components that could be used for the HTSAs.

Potential business opportunities for Swiss companies arise from local content requirements regarding the South African product portion of the total project value. Local content requirements thus presents an opportunity for Swiss suppliers of niche CSP components, products and or production equipment and related technical services to consider ‘investing in’ or ‘supplying production equipment to’ manufacturing enterprises in South Africa.

22 SAPVIA, DTI, WWF. (2013). Localisation strategy for PV industry in South Africa, Presentation, August 23 DoE. (2013). Integrated Resource Plan for electricity (IRP) 2010-2030 Update Report 2013, November SOUTH AFRICAN RENEWABLE ENERGY

13 Executive Summary

in South Africa by 2020, 75% by 2025 and 85% by 2030. Recent localization studies conducted by South African CSP stakeholders 2425 , indicated promising prospects for the local manufacture of the following CSP components: Mirrors (flat and moderately curved), Steel support structures, Support systems for thermal storage and power block, Specialist piping and Receivers.

Onshore Wind Subsector

Recent updated WASA wind data for the Northern Cape, Western Cape and Eastern Cape provinces indicate wind mean speeds and wind mean power density, measured at 100m, of up-to 10m/s and up-to 1000W/m 2 respectively in certain areas. Currently the main application of Onshore Wind technology in South Africa is to focus on expanding utility scale electricity generation in the country through the REIPPPP initiative. To date, three REIPPPP bidding rounds have been concluded, which resulted in allocations of 1,983.5MW of Onshore Wind generation capacity. A further 1,336MW of Onshore Wind generation capacity remains to be allocated in the current fourth and the following fifth REIPPPP bid submission phases. The IRP indicates a projected Onshore Wind utility scale target of 8.4GW for new build installations by 2030 26 , which leaves a remaining allocation of 5.08GW for Onshore Wind generation capacity, in addition to the current REIPPPP allocations.

There has also been a 42.6% reduction in bid prices between REIPPPP bid window 1 and bid window 3, which saw fully indexed average prices fall from R1,143/MWh in bid window 1 to R656 in bid window 2 (using the base of April 2011). Local content requirements are part of the REIPPPP qualification criteria, and each successive REIPPPP bidding round generated an improvement in the local content for Onshore Wind projects from 21.7% (threshold of 25% and target of 45%) in bid window 1 to 46.9% (threshold of 40% and target of 65%) in bid window 3. 22 Utility scale Onshore Wind projects were awarded during the three REIPPPP bidding rounds, with contracted capacity ranging from 20.6MW to 139MW.

The current and future utility scale REIPPPP project application of Onshore Wind technology presents supply opportunities for components and systems (and specialized manufacturing/process control equipment related to these components and systems) including: Tower, Blades, Nacelle, Generator, Gearbox, Control system, Brake system, Yaw drive system, Anemometer and Voltage regulating device (for regulated grid connection). A further differentiation opportunity is presented to specialized Swiss companies for the supply of innovative components and systems related to 27 : Improved gearbox design with increased reliability, Gearless design, Improved blade design (weight reduction and lower fatigue loading), Improved mechanical structure design, Use of new materials and Improved reliability of wind turbines by direct-drive permanent magnet generators.

Potential business opportunities for Swiss companies arise from local content requirements regarding the South African product portion of the total project value. Local content requirements thus presents an opportunity for Swiss suppliers of niche Onshore Wind components, products and or production equipment and related technical services to consider ‘investing in’ or ‘supplying production equipment to’ manufacturing enterprises in South Africa.

Local content requirements are also driven by designation, which refers to the identification of specific sectors/products that are seen to present strategic potential for the development of the South African economy and is limited to state procurement initiatives, and verification processes. Current designated Onshore Wind components/products for local manufacture include: Wind turbine blades and Wind turbine towers. In addition to this, Wind industry stakeholders have previously proposed scenarios for the increased localization of wind energy project spend by 2020 which includes: Generator, Nacelle and most of the Turbine (except for specialized items such as the gearbox and rotor bearings).

Small Hydro Subsector

Evaluation of South Africa’s hydro potential was undertaken by Barta 28 in 2002, which assessed various renewable hydropower categories ranging from unconventional Pico (up to 20kW) to Micro (20kW to 100kW) to Mini (100kW to 1MW) to Small (1MW to 10MW) to conventional macro hydropower (>10MW). Some of the pertinent findings of the study include:

24 IDC. (2013). Feasibility Study to Determine the Viability of the Establishment of a Local Manufacturing Facility of Concentrated Solar Power (CSP) Modules and Components in South Africa, Presentation 25 SASTELA. (2012). The Case for Concentrated Solar Thermal Power in South Africa, June 26 DoE. (2013). Integrated Resource Plan for electricity (IRP) 2010-2030 Update Report 2013, November 27 CSIR. (2011). Draft South African wind energy technology platform: Preliminary wind energy research and development framework, Presentation 28 Barta, B. (2002). Capacity building in energy efficiency and renewable energy: baseline study - hydropower in South Africa SOUTH AFRICAN RENEWABLE ENERGY

14 Executive Summary

• The potential for 69MW of new Small, Mini, Micro and Pico renewable hydropower development that has been firmly established and the potential for an additional 94MW that requires further evaluation • The firmly established potential for 5,091MW (with an additional 1,900MW that requires further evaluation) of new conventional macro-hydropower (diversion fed, storage regulated head and run-of-river >10MW) capacity • The potential for new Small, Mini, Micro and Pico renewable hydropower development capacity is approximately five times that of the installed capacity, and present rural area development opportunities in Kwa Zulu Natal, Eastern Cape, Free State and Mpumalanga provinces.

The utility application demand and market potential for Small Hydro (<40MW as defined by REIPPPP) has been driven by REIPPPP and other government supported interventions (discussed below). Three REIPPPP bidding rounds have been concluded to date, which resulted in 14.3MW of Small Hydro generation capacity being allocated in the second bid submission phase at an average cost of R1,030/MWh. An additional 121MW of Small Hydro capacity remains to be allocated in the current fourth and the following fifth REIPPPP bid submission phases. Local content requirements are part of the REIPPPP qualification criteria, and the allocated Small Hydro projects in the REIPPPP second bid window generated average above target local content levels of 66.7% against a threshold of 25% and a target of 60%. Small Hydro projects were only awarded in round two of the three REIPPPP bidding rounds where two projects were awarded with contracted capacities of 4.3MW and 10MW.

While the DoE has elected not to initially include Small Hydro currently in the SPIPPPP, it intends to include Small Hydro projects, relating to privately owned dams and rivers, at a later stage of the SPIPPPP. In the interim the DoE has indicated that it intends to introduce a separate procurement programme to procure Small Hydro projects that will be developed on dams and weir sites that are owned by the DWA 29 .

REIPPPP and other utility scale project applications of Small Hydro technology presents supply opportunities for innovative and cost effective complete systems and components (and specialized manufacturing/process control equipment related to these components and systems) including: Complete Small, Mini, Micro and Pico hydro systems, Specifically designed optimized structures for intake canal, penstock and outbound flow canal, Pipelines, Valves, Hydro turbine, Gearbox, Generator, Batteries, System monitoring sensors and meters, Control unit, Power controls, Inverter, Voltage regulating device (for regulated grid connection).

Potential business opportunities for Swiss companies arise from local content requirements regarding the South African product portion of the total project value (subject to certain explicit exclusions). Local content requirements thus presents an opportunity for Swiss suppliers of niche Small Hydro components, products and or production equipment and related technical services to consider ‘investing in’ or ‘supplying production equipment to’ manufacturing enterprises in South Africa.

Local content requirements are also driven by designation, which refers to the identification of specific sectors/products that are seen to present strategic potential for the development of the South African economy and is limited to state procurement initiatives, and verification processes. There are currently no designated Small Hydro components/products for local manufacture, and currently the only local content targets are those relating to REIPPPP. While Small Hydro local installation costs related to: Civil works, EPCM, Infrastructure construction and Specialist commissioning could form part of the local content cost portion, it would be advisable for Swiss companies to also consider local production/assembly of specific components or the complete system that could also be custom built to suit the required local application.

South African Renewable Energy Market Entry Modes

South Africa’s emerging but rapidly growing Renewable Energy sector presents excellent opportunities for Swiss companies to enter the market at this opportune time and there are several market entry modes into South Africa’s Renewable Energy sector for the Swiss component/system/manufacturing technology/services company to consider. These market entry modes are distinctive and offer varying degrees of control, cost and risk exposure to the Swiss company. Ultimately the choice of the market entry mode into South Africa’s Renewable Energy sector/sub-sector will be influenced and informed by:

29 DoE. (2013). Information document in respect of the Request for Qualification and Proposals in respect of the Small Projects IPP Procurement Programme SOUTH AFRICAN RENEWABLE ENERGY

15 Executive Summary

• Knowledge and understanding of the market • Knowledge of the business and regulatory environment • Identification of the possible aligned South African business partners for the Swiss Company

Supply opportunities could be effectively accessed and harnessed either through: Distribution partnership, Joint Ventures, Licensing/Franchising, Own local presence or through Acquisition. Manufacturing Investment opportunities will necessitate a level of foreign direct investment and could be undertaken either through: Joint Ventures, Licensing/Franchising, Own local manufacturing/assembly or through Acquisition.

Professional South African Renewable Energy Market Penetration Support Packages

To assist Swiss Companies with the process of effective market entry and penetration, relevant professional support services, at a reasonable market related cost, are offered with respect to:

• Detailed customised Renewable Energy sector or subsector market study, • In-depth market search and identification of 2/3 targeted possible South African Distribution and/or Sales & Marketing and/or Operations business partners that are aligned to the Swiss Company’s specific requirements. • Business Interaction Support and • Business Development Support

Conclusion

South Africa offers relatively good prospects for the development of a viable and sustainable Renewable Energy manufacturing and supply industry. The deliberate move by the South African government to stimulate the incorporation of Renewable Energy sources in South Africa’s energy mix coupled with innovative technologies, systems, equipment and components accordingly present several industrial and supply development trade and investment opportunities for Swiss companies through possible partnership with correctly aligned South African companies relating to (but not limited to).

• Specialised Renewable Energy Products/Components • Renewable Energy Component Production Equipment • Innovative Renewable Energy system Design and Engineering • Renewable Energy Technical Services • Renewable Energy Technology, Systems and Know-how transfer

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16 Introduction

2. Introduction

South Africa has an energy intensive economy and electricity generation is currently predominantly reliant on coal based generation technology complemented by nuclear and hydro. Accordingly, South Africa is one of the large emitters of greenhouse gasses (GHG) globally (see figure below) and has actively sought to include Renewable Energy into its electricity generation energy mix.

Renewable Energy could be categorized as energy derived from natural sources including solar, wind, hydro, biomass, tidal, wave, ocean current and geothermal to produce electricity or gaseous and liquid fuels or heat or a combination of these energy types. These sources of energy are generally cyclical and non-depletable 30 .

South Africa is cognizant of, and is party to, global climate change imperatives and the critical role that Renewable Energy could play to complement existing energy sources. South Africa is also aware of the valuable role that the Renewable Energy industry could play to contribute to sustainable industrial and socio-economic development objectives of the country and its people, and has accordingly targeted for 17.8GW of electricity through ‘new build options’ to be sourced from renewable energy sources by 2030 31 . This equates to 42% of electricity through ‘new build options’ up-to 2030 being sourced from Renewable Energy sources and is in addition to the ‘current committed’ 2.145GW of electricity through Renewable Energy sources that has been committed to upto 2015 32 .

These recent new build Renewable Energy initiatives have also resulted in South Africa emerging as the fastest growing market destination in the G-20 for investment in the Renewable Energy sector, which attracted US$5billion in 2012 up from US$30million in 2011 (a 20,500% increase), according to the 2013 Pew Trust report 33 . The report also indicates that investment in the Solar sector accounted for 80% or US$4.3billion of the total investment value, followed by US$1.1billion in the Onshore Wind sector.

South Africa’s inclusion of Renewable Energy is supported by several national supply drivers to: • Ensure energy security • Ensure affordability of energy • Increase energy supply for rising energy demand resulting from population and economic growth • Improve rural energy supply and provide improved energy access • Accelerate local economic growth and development • Increase industrialization and beneficiation • Create sustainable jobs • Improve living standards • Improve public health • Reduce carbon emissions (climate change) • Reduce air pollution

30 DME. (2003). White Paper on Renewable Energy 31 DoE. (2013). Integrated Resource Plan for Electricity 2010-2030 Update Report 2013, November 32 DoE. (2013). Integrated Resource Plan for Electricity 2010-2030 Update Report 2013, November 33 Pew Trust report. (2013). Who's Winning the Clean Energy Race? SOUTH AFRICAN RENEWABLE ENERGY

17 Introduction

Source: http://philebersole.files.wordpress.com/2011/11/mmw_co2footprint_111510.jpg Figure 1: Tracking Carbon Emissions Globally

SOUTH AFRICAN RENEWABLE ENERGY

18 Introduction

To effectively address the Renewable Energy supply drivers, South Africa has the following Renewable Energy aspirations. These include:

• Development of progressive and coherent Renewable Energy policies • Increasing the Renewable Energy contribution to South Africa’s energy mix • Incorporation of secure and diversified Renewable Energy supply sources • Adoption of proven and modern Renewable Energy solutions • Implementation of cost effective Renewable Energy solutions • Use of innovative Renewable Energy technologies • Use of reliable, effective and efficient Renewable Energy technologies • Innovative Renewable Energy procurement, funding and financing options • Increased localisation and job creation • Increased social and community involvement and upliftment

SOUTH AFRICAN RENEWABLE ENERGY

19 Background

3. Background

To understand the role, scope and magnitude for Renewable Energy in South Africa, one needs to first understand the global context, the broader energy planning process, the electricity generation planning process and the current initiatives to incentivize and promote Renewable Energy systems.

3.1. RENEWABLE ENERGY IN THE GLOBAL CONTEXT

Figure 2: Estimated Renewable Energy share of global electricity production (End 2013)

As at the end of 2013, the global installed total renewable power capacity including hydro stood at 1,560GW, 8.3% higher than at the end of 2012. Apart from hydropower, with an installed capacity of 1,000GW at the end of 2013, the other significant contributors to global Renewable Energy technology are Wind power, Solar PV and Bio-power with installed capacities of 318GW, 139GW and 88GW respectively as at the end of 2013.

SOUTH AFRICAN RENEWABLE ENERGY

20 Background

Technology Unit START END 9 year END 1 year 2004 (1) 2012 Annual 2013 Growth Average % from growth End 2012 % from to End Start 2013 2004 to End 2012 Renewable power GW 85 480 21.2% 560 16.7% capacity (total, not including hydro) Renewable power GW 800 1,440 6.7% 1,560 8.3% capacity (total, including hydro) Hydropower capacity GW 715 960 3.3% 1,000 4.2% (total) (2) Bio -power capacity GW <36 83 9.7% 88 6.0%

Geothermal power GW 8.9 11.5 2.9% 12 4.3% capacity Solar PV capacity (total) GW 2.6 100 50.0% 139 39.0%

Concentrating solar GW 0.4 2.5 22.6% 3.4 36.0% thermal power (total) Wind power capacity GW 48 283 21.8% 318 12.4% (total) (1) Capacity data are as of the beginning of 2004. Numbers are estimates, based on best available information. (2) The GSR 2013 reported a global total of 990 GW of hydropower capacity at the end of 2012; this figure has been revised downward due to better data availability. Data do not include pumped storage. Note: Renewable power capacity (including and not including hydropower) and hydropower capacity data are rounded to nearest 5 GW; other capacity numbers are rounded to nearest 1 GW except for numbers <15 which are rounded to one decimal point.

Source: REN21 34 and SUDEO calculations Table 1: Global Renewable Energy technology power capacity (2013)

34 REN21. (2014). Renewables 2014 Global Status Report SOUTH AFRICAN RENEWABLE ENERGY

21 Background

1200 1000

800 Start 2004 600 End 2012 400 End 2013 200

0 Hydropower Bio-power Solar PV Wind power

Source: REN21 35 Figure 3: Global Renewable Energy technology power capacity (GW) (2013)

Solar PV capacity experienced rapid annual average growth of 50% over the nine year period ending 2012, followed by Concentrating solar thermal power (22.6%) and Wind power (21.8%). Between 2012 and 2013, Renewable Energy technologies with the highest growth rates included Solar PV (39%), Concentrating solar thermal power (36%), Wind power (12.4%) and Bio-power (6%). Concentrating solar thermal power capacity is predominantly located in Spain and the United States of America, with the rest of the world only beginning to establish new capacity.

Figure 4: Solar PV Total Global Capacity (2004-2013)

35 REN21. (2014). Renewables 2014 Global Status Report SOUTH AFRICAN RENEWABLE ENERGY

22 Background

Figure 5: Concentrating Solar Thermal Power Capacity, by region (2004-2013)

Figure 6: Wind Power Total World Capacity (2000-2013)

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23 Background

3.2. THE INTEGRATED ENERGY PLAN (IEP) (UP-TO 2050) 36

3.2.1. Scope and focus of the IEP South Africa is currently engaged in a detailed process to develop an Integrated Energy Plan (IEP) to identify the most appropriate way to effectively and efficiently satisfy current and future energy service needs while also achieving broad based social benefits. This requires the careful balancing of competing considerations and priorities including control of economic costs of energy production, enhancing the promotion of employment creation and poverty reduction and containing and reducing the adverse environmental impacts of the energy sector.

The IEP is a broad and long term framework that seeks to evaluate the role that all energy carriers will play in the supply of energy to meet the possible future demand for energy in South Africa and to determine how energy could be optimally used as a mechanism to promote the competitiveness of the South African economy. It is thus not an electricity capacity expansion plan as its broader focus allows it to consider all primary energy/resources including those used for electricity generation.

The IEP thus endeavours to consider all the key elements of the energy value chain at a national level from key primary energy/resources to end-use technologies and demand for energy services.

The primary energy/resources includes: Renewables (Solar, Wind, Biomass, Hydro), Fossil fuels (Coal, Crude Oil, Natural Gas), Nuclear Fuels (Uranium) and Resources extraction and sourcing.

The end use technologies and demand for energy services primarily relate to the Mining, Industrial, Commercial, Residential, Agricultural and Transport sectors.

3.2.2. IEP Purpose and Objectives The IEP has multiple objectives which include (but are not limited to):

• The description of the recommended energy pathway/energy sector roadmap for South Africa • Guiding the development of energy policies and where relevant to set the framework for regulations in the energy sector • Guiding the selection of appropriate technology to satisfy energy demand (i.e. the types and sizes of new power generation capacity etc.) • Guiding the investment in and development of energy infrastructure in South Africa • Proposing alternative energy strategies including the introduction of new technologies

3.2.3. IEP Key Questions Some of the key questions promoting the development of the IEP include:

“Between now and 2050... • What is the desired economic growth and socio-economic needs of South Africa? • Energy Demand : What will be the energy requirements to support this economic growth and socio-economic development? • Energy Efficiency and Demand Side Interventions : Is there a way in which South Africa can reduce these energy requirements without stifling the desired economic growth and socio-economic development? • Energy Access : What are the full energy requirements (not just on-grid electricity) for all South Africans? What strategies need to be put in place to ensure that there is universal (urban and rural) access? • Security of Supply : What supply options does South African need to put in place to ensure that it doesn’t suffer a supply deficit? What new technologies and feedstock combinations should South Africa consider? • Minimise costs : How much do different technologies cost and what will the costs be in the future? • Diversity of Supply Sources : Where should the feedstock come from and what will the costs of the feedstock be? • Diversity of Supply : Primary Resources – How does South Africa exploit its natural resource endowment while minimising overreliance on any single source

36 DoE. (2013). Draft 2012 Integrated Energy Planning Report, June SOUTH AFRICAN RENEWABLE ENERGY

24 Background

• Environmental impact : How does South Africa ensure that it does not make choices which create additional pressure on the environment in the future and to minimise the water requirements of the chosen technologies and to minimise emissions associated with technologies and primary energy resources • Localisation and technology transfer : In recommending these supply-side options/technologies, how does South Africa ensure that local industry and supply players can participate? What is the employment-intensity of energy production for these technologies and what strategies should be considered to ensure an increase in the employment-intensity of the energy sector? What level of regulation and market structure will optimise this?” 37

The balanced consideration of all these factors resulted in the IEP identifying the following three key priorities and eight key objectives:

3 Key priorities • Social development • Environmental sustainability • Economic development

8 Key Objectives • Ensure the security of supply; • Minimise the cost of energy; • Increase access to energy; • Diversify supply sources and primary sources of energy; • Minimise emissions from the energy sector; • Promote energy efficiency in the economy; • Promote localisation and technology transfer and the creation of jobs; and • Promote the conservation of water.

3.2.4. IEP Energy Demand 38 The IEP process unpacks the demand drivers for energy which include economic growth, population growth and energy prices.

Source: DoE 39 Figure 7: IEP Final Energy Demand (2010-2050)

37 DoE. (2013). Overview of the Integrated Energy Planning Approach, Presentation, August 38 DoE. (2013). Draft 2012 Integrated Energy Planning Report, June 39 DoE. (2013). Draft 2012 Integrated Energy Planning Report, June SOUTH AFRICAN RENEWABLE ENERGY

25 Background

Collectively, these three energy demand drivers contribute to the more than doubling of total energy demand between 2010 and 2050 representing an annual average rate of increase of 2%. Population growth, increased income levels and urbanisation will be the primary drivers of residential energy demand.

In 2010 the transport sector comprised 34% of total energy demand and will continue to be the largest demand of total energy. Increased mobility resulting from increased economic development will influence passenger transport energy demand, however most of this energy demand will be supplied through liquid fuels. The anticipated future penetration of electric and hybrid vehicles into the total vehicle parc may result in some shift from liquid fuels to electricity for small private passenger vehicles as diesel continues to remain the fuel of choice for commercial and public transport operators.

Other increased energy demand will be from the manufacturing industry and the commercial sector driven which will largely be attributed to economic growth and the growth in the tertiary sectors respectively. The mining sector is expected to remain relatively consistent in terms of energy demand while the agricultural sector will experience growth in energy demand, although from a low base, as energy intensive large scale farming methods and increased mechanisation enhance the growth and productivity of the sector.

Source: DoE 40 Figure 8: IEP Final Energy Demand by Energy Carrier (2010-2050)

The integrated energy system in South Africa incorporates four main energy carriers including: Petroleum products, Electricity, Natural Gas and Coal.

The significant increase in the projected demand of petroleum products is primarily driven by the transport sector, while natural gas demand will be promoted through new gas finds, increased gas infrastructure and the promoted use of this energy carrier. Coal demand is expected to remain stable to sustain current and legacy coal fired generation capacity while seeking to mitigate climate change imperatives.

The demand for electricity is expected to be promoted through increased residential electrification, the sustained expansion of the commercial sector and public buildings and the anticipated growth in the manufacturing sector.

40 DoE. (2013). Draft 2012 Integrated Energy Planning Report, June SOUTH AFRICAN RENEWABLE ENERGY

26 Background

3.2.5. IEP Potential Future Electricity Generation Capacity The Integrated Energy Plan proposes a base case and a combination of several test cases to illustrate the possible impact on potential future electricity generation capacity by technology type.

The IEP 41 thus clarifies that the base case:

• Encapsulates the state of energy demand and supply over the planning horizon, which is most closely informed by current energy market trends; the national macroeconomic outlook; assumed energy prices; existing energy infrastructure and the existing suite of policies and government programmes. • Is Not a representation of the most likely future or most likely scenario, but is rather a simplistic representation of a future outcome that could materialise in light of current policies and macroeconomic trends. • Represents a Business-As-Usual or Status Quo scenario where current trends continue into the future.

The IEP 42 also clarifies that the target test cases represents:

• Deviation from the status quo as a result of specific policy interventions. • Defines a set of circumstances and resultant outcomes or impacts which is informed by the possible impacts of policies and policy interventions. • Does not indicate what will happen but rather tests what could happen if a particular course of action is pursued. • Specifically differentiated from a Scenario in that a Scenario is largely influenced by exogenous forces which the policy maker has no control over, while a Test Case seeks to test the possible implications of active policy interventions.

A range of High Impact national policies and Key policy issues resulted in the consideration of various test cases. In particular the Renewable Energy Target Case was influenced by the key policy issue of the role of Renewable Energy Technologies in moving to a low-carbon economy.

IEP Test Case Description

Emission Limit This Test Case assumes that the country’s target (i.e. a reduction on the ‘business as Case usual’ emission level of 34% by 2020 and of 42% by 2025) for electricity generation and liquid fuel production is met at all costs. This is achieved by setting emission limits on electricity generation and liquid fuel supply only in line with the upper bound of the “Peak-Plateau-Decline” emission trajectory, as defined in the National Climate Change Response Policy. No carbon tax is assumed. This Test Case seeks to analyse the effect of the emission limit constraints on energy supply options and costs.

Emission Limit This Test Case assumes that the emission limit of the “Peak Plateau Decline” must - No Nuclear be met as described above but that the 9,600MW Nuclear Build Programme is Build explicitly excluded as a supply option. This Test Case seeks to analyse the effect of Programme embarking upon, or not embarking upon, the Nuclear Build Programme in terms of Case future energy security, as well as meeting the emission limit targets defined in the National Climate Change Response Policy.

41 DoE. (2013). Draft 2012 Integrated Energy Planning Report, June 42 DoE. (2013). Draft 2012 Integrated Energy Planning Report, June SOUTH AFRICAN RENEWABLE ENERGY

27 Background

Emission Limit This assumes that the emission limit of the “Peak Plateau Decline” trajectory must - Natural Gas be met and that the Nuclear Build Programme is excluded as a supply option, as in Case the Test Case above. However the nuclear option is replaced by natural gas options as a policy intervention. This Test Case seeks to analyse the efficacy of including natural gas in the energy supply mix as a transitional fuel towards a low carbon economy and the implications of choosing this as a supply option over nuclear. In this context natural gas includes conventional gas, coal bed methane and shale gas.

Renewable No emission limit constraints are set but renewable energy options are gradually Energy Target introduced into the energy mix from 2010 to 2030 such that by 2030, 10% of total Case energy output (electricity generation and liquid fuel production) is from renewable energy sources. From 2031 onwards, the target of 10% is maintained as a minimum. (It should be noted that given the low load factors for most renewable energy technologies, the installed capacity would effectively be much higher than 10%). This Test Case analyses the efficacy of setting renewable energy targets for reducing emissions within the energy sector.

High Crude Oil Assumes a high growth in the future crude oil price. Price Case

Low Crude Oil Assumes a low growth in the future crude oil price. Price Case Source: DoE 43

Table 2: IEP target test cases

43 DoE. (2013). Draft 2012 Integrated Energy Planning Report, June SOUTH AFRICAN RENEWABLE ENERGY

28 Background

3.2.6. IEP Electricity Generation

Source: DoE 44 Figure 9: IEP Electricity Generation Capacity by Technology Type (2050)

The Base Case and all Test Cases will see the reduced presence of Coal technologies as the existing coal technology fleet is retired from 2030. New Coal Technology is however expected to play a continued role in the Base Case through the addition of 50GW by 2050, and in the Renewable Energy Target Case through the addition of 30GW.

The anticipated declining future cost of Solar technologies will see Solar playing a substantial role in the Base Case and all Test Cases with the largest increase in contribution to the total energy mix.

In the absence of emissions limits or renewable energy targets, Wind technologies are seen to be cost prohibitive, thus favoring other lower cost electricity generation technology alternatives. However Wind technology becomes viable with increased contribution to the total energy mix under the Emissions Limit and Renewable Energy Test Cases.

The inclusion of Biomass technologies is to ensure compliance with renewable energy targets.

There is no variation in the electricity generation technology options for the Base Case and the High Oil Price and Low Oil Price Test Cases given that crude oil prices will not impact on these technology options.

IEP way forward has included stakeholder consultations on the draft IEP Report and continuing intergovernmental forums leading to the Final IEP Report in due course.

44 DoE. (2013). Draft 2012 Integrated Energy Planning Report, June SOUTH AFRICAN RENEWABLE ENERGY

29 Background

3.3. THE INTEGRATED RESOURCE PLAN (IRP) FOR ELECTRICITY (2010-2030)

While the IEP is a broad and long term framework that seeks to evaluate the role that all energy carriers will play in the supply of energy (including electricity), to meet the possible future demand for energy (including electricity), the Integrated Resource Plan for Electricity focuses on the demand and supply of Electricity and is expected to be updated biennially by the DoE. The first IRP was developed in 2010 and is currently being updated. The IRP update is thus expected to benefit from the finalization of the current IEP to ensure integration between the capacity and planning processes of each energy carrier.

The updated IRP indicates that the demand for electricity by 2030 is expected to fall within the range of 345-416TWh, which translates to a peak generation capacity of 61.2GW 45 . Similar to the IEP, the IRP considers a range of test cases and scenarios but also includes the impact of electricity generation technology options and associated costs, expected electricity demand profiles and the performance of the current Eskom electricity generation fleet.

The Base Case IRP 2010 Electricity Generation Plan up to 2030 for each electricity generation technology is as per the figure below. 42% of electricity generated through new build options up to 2030 is proposed to be from renewable energy sources. This amounts to 17.8GW and will be sourced through wind (8.4GW), Solar PV (8.4GW) and CSP (1GW).

Non - New Build Options Committed IRP Coal Nuclear Import Gas – Peak - Wind CSP Solar Coal Other DoE Wind Other Co - Imports Hydro CCGT OCGT PV Peaker RE Gen MW MW MW MW MW MW MW MW MW MW MW MW MW MW 2010 380 260 2011 679 130 2012 300 303 400 100 2013 300 823 333 1,020 400 25 2014 500 400 300 722 999 100 2015 500 400 300 1,444 100 200 2016 400 100 300 722 200 2017 400 100 300 2,168 200 2018 400 100 300 723 200 2019 250 400 100 300 1,446 2020 250 400 100 300 723 2021 250 237 400 100 300 2022 250 1,143 237 400 100 300 2023 250 1,600 1,183 237 400 100 300 2024 250 1,600 283 805 400 100 300 2025 250 1,600 805 1,600 100 1,000 2026 1,000 1,600 400 500 2027 250 805 1,600 500 2028 1,000 1,600 474 690 500 2029 250 1,600 237 805 1,000 2030 1,000 948 1,000 Total 6,250 9,600 2,609 2,370 3,910 8,400 1,000 8,400 10,133 1,722 1,020 800 325 800

Pre -IRP Commitments 2011 Determinations 2012 Determinations Uncommitted

Source: DoE 46 Figure 10: IRP New Build and Committed Electricity Generation Options (2010-2030)

45 DoE. (2013). Integrated Resource Plan for Electricity 2010-2030 Update Report 2013, November 46 DoE. (2013). Integrated Resource Plan for Electricity 2010-2030 Update Report 2013, November SOUTH AFRICAN RENEWABLE ENERGY

30 Background

The IRP new build and committed electricity generation options are formulated on the following base case assumptions 47 :

• Demand Projections are based on average estimated economic growth projections using the National Treasury projections for the 2012 Budget • IRP Committed Builds: o Pre-IRP Eskom builds include Medupi, Kusile, Ingula and Sere o Other commitments include landfill, hydro, CSP, wind and co-generation • New IRP Build Options include: o 2011 and 2012 determinations o Window 1 and Window 2 Renewable Energy Options • No constraints with Liquid Fuel • No additional emissions constraints • No carbon tax

3.4. SUPPLY SIDE INITIATIVE - RENEWABLE ENERGY INDEPENDENT POWER PRODUCER PROCUREMENT PROGRAMME (REIPPPP)

3.4.1. REIPPPP Background Following the release of the IRP in 2011, the DoE launched the first bidding round of the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP). REIPPPP is based on competitive tendering as compared to the previous Renewable Energy Feed In Tariff (REFIT) procurement process that was explored in 2009 to attract transmission grid connected Renewable Energy Independent Power Producers (IPPs) with new Renewable Energy generation projects.

While the REFIT support mechanism, that was approved by NERSA in 2009, was used by the SA Government in an endeavour to compensate IPPs for the relative cost to generate electricity from a range of Renewable Energy technology options, subsequent regulatory and policy uncertainties surrounding the REFIT procurement programme led to it being abandoned in 2011 in favour of REIPPPP.

REIPPPP allocations were the result of two determinations made by the Minister of Energy on 1 August 2011 (first determination) and 19 December 2012 (second determination) which determined that 3725MW and 3200MW respectively of electricity was to be generated from Renewable Energy sources.

The successive competitive bidding rounds have seen a dramatic decline in IPP bid prices and an increase in the compliance with economic development and local content bidding conditions. The effective and efficient manner in which the process was managed by the DoE IPP unit, combined with the relaxing of certain PPP conditions, also generated confidence between the private and public sectors.

3.4.2. Overview of the REIPPPP process The REIPPPP process seeks to balance a number of strategic imperatives for South Africa, including the need: for additional electricity generation capacity from renewable energy sources, to ensure competition to drive down RE prices, to use the process to enhance socio economic and economic develop aspirations to address current issues such as unemployment and poverty.

47 DoE. (2013). Overview of the Integrated Energy Planning Approach, Presentation, August SOUTH AFRICAN RENEWABLE ENERGY

31 Background

The REIPPPP procurement process included the following primary procurement documents 48 : • Request for Proposals which included: o Part A: General Requirements and Rules o Part B: Qualification criteria relating to: Environment, Land, Economic Development, Finance, Technical, Price and Capacity o Part C (comparative evaluation): Price (70% weighting) and Economic Development (30% weighting) including: Job Creation, Local Content, Preferential Procurement, Enterprise Development and Socio- economic Development • Power Purchase Agreement which is the contract between the IPP and the Buyer (Eskom) • Implementation Agreement which included: o Contract between the IPP and the DoE o Obligation for the IP to deliver on Economic Development obligations o On buyer (Eskom) default - the DoE to pay the IPP

3.4.3. Allocation of REIPPPP generation capacity 49 By the end of REIPPPP bid window three, a total of 3915.4MW had been allocated with 2808MW remaining for bid windows four and five.

Of this, the largest allocation went to onshore wind (1983.5 MW), Solar Photovoltaic (1483.6 MW) and Concentrated Solar Power (400 MW).

REIPPP has also enjoyed the confidence of foreign project developers, investors and funders during all the bid windows. In bid window three, total project funding amounted to R44.4 billion of which R6.718 billion equating to 25.2% of the total debt portion was funded by foreign sources while R8.884 billion equating to 50.4% of the total equity portion was funded by foreign sources.

Technology MW capacity MW capacity MW capacity MW capacity for allocated in the allocated in the allocated in allocation in First Bid Second Bid Third Bid future Bid Submission Submission Submission Submission Phase Phase Phase Phases

Onshore wind 634.0 MW 562.5 MW 787.0 MW 1,336.0 MW

Solar 631.5 MW 417.1 MW 435.0 MW 1,041.0 MW photovoltaic

Concentrated 150.0 MW 50.0 MW 200.0 MW 200.0 MW solar power

Small hydro 0.0 MW 14.3 MW 0.0 MW 121.0 MW (≤ 40MW)

48 DoE. (2013). Renewable Energy IPP Procurement Programme – Bid Window three Preferred Bidders’ Announcement, Presentation, November 49 DoE. (2012). Renewable Energy IPP Procurement Programme – Window two Preferred Bidders’ announcement, Presentation, May and DoE. (2013). Renewable Energy IPP Procurement Programme – Bid Window three Preferred Bidders’ Announcement, Presentation, November SOUTH AFRICAN RENEWABLE ENERGY

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Landfill gas 0.0 MW 0.0 MW 18.0 MW 7.0 MW

Biomass 0.0 MW 0.0 MW 16.0 MW 43.0 MW

Biogas 0.0 MW 0.0 MW 0.0 MW 60.0 MW

Total 1,415.5 MW 1,043.9 MW 1,456.0 MW 2,808.0 MW

Source: DoE 50 Table 3: REIPPPP Allocations (2011-2013)

Total funding (Rm) Foreign Portion (Rm) % of Total

Debt R26,791 R6,718 25.2%

Equity R17,621 R8,884 50.4%

Total R44,412 R15,602

Source: DoE 51 Table 4: REIPPP Bid Window Three Foreign Investment

3.5. SUPPLY SIDE INITIATIVE - SMALL PROJECTS IPP PROCUREMENT PROGRAMME (SPIPPPP) 52

Given the relevance of this mini study for Swiss SMME companies, an outline of the Small Projects IPP Procurement Programme is presented below, however readers are encouraged to refer to specific referenced documents for more detail.

3.5.1. Purpose and Objectives of the SPIPPPP The SPIPPPP follows the REIPPPP and is thus the second renewable energy procurement programme developed and implemented by the DoE and commenced with an official tender request for qualification and proposals for new generation capacity in August 2013 53 . The main differentiator of the SPIPPPP compared to REIPPPP is that it exclusive applies to small scale Renewable Energy projects ranging from 1MW to 5MW, whereas under the REIPPPP, each Renewable Energy technology is given its own electricity generation capacity limit exceeding 5MW.

The primary objectives of the SPIPPPP include:

• Providing an opportunity for South African SME’s and or emerging, smaller power developers to participate in the Renewable Energy generation sector • Providing South African power generation equipment manufacturers without international certification to supply equipment to Projects under the Programme • Limiting the cost at risk for bidding by incorporating a two stage bidding process

50 DoE. (2013). Renewable Energy IPP Procurement Programme – Bid Window three Preferred Bidders’ Announcement, Presentation, November 51 DoE. (2013). Renewable Energy IPP Procurement Programme – Bid Window three Preferred Bidders’ Announcement, Presentation, November 52 DoE. (2013). Information document in respect of the Request for Qualification and Proposals in respect of the Small Projects IPP Procurement Programme 53 DoE. (2013). Request for qualification and proposals for new generation capacity under the Small Projects IPP Procurement Programme - Tender number: DoE 004/13/14 SOUTH AFRICAN RENEWABLE ENERGY

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3.5.2. Background and Bidding Process of the SPIPPPP The SPIPPPP allocations were the result of two determinations made by the Minister of Energy on 1 August 2011 (first determination) and 19 December 2012 (second determination) which determined that 3,725MW and 3,200MW respectively of electricity was to be generated from Renewable Energy sources which each include 100MW for the Small Projects IPP Procurement Programme 54 . The Renewable Energy technologies include: Onshore Wind, Solar Photovoltaic, Biomass, Biogas, Landfill gas and Small Hydro 55 .

In an attempt to improve the efficiency of the bidding process and save bidders time and costs, the DoE has selected a two stage bidding process for the SPIPPPP which allows the DoE to comparatively evaluate only those bids that are viable at Stage 2. Stage 1 and Stage 2 of the bidding process will each have four bid submission dates. Submission of the Stage 1 bids will only be permitted on prescribed dates and subject to a bidder fulfilling the Stage 1 qualification criteria, will the bidder be requested to prepare its Stage 2 bid.

3.5.3. Update on the SPIPPPP Bidding Process The first and second Stage 1 processes have been concluded and the submission dates for the first and second Stage 2 processes are 1 November 2014 and 6 April 2015 respectively. Accordingly, no awards have been made as yet. The dates for the submission of new projects under the third and fourth Stage 1 bid submission windows are still to be announced by the DoE and are expected to be in the first quarter of 2015.

3.5.4. Overview of the Structure of the SPIPPPP RFP The SPIPPPP Stage 1 qualification criteria include the submission of basic bidder and project information to the DoE to enable the DoE to assess the conceptual background of the project and if the bidder possesses the necessary technical and commercial capacity to implement and operate the project. A Stage 1 compliant bid will enable the bidder to be invited to submit a Stage 2 bid. The Stage 1 qualification criteria include: legal requirements, land acquisition and land use requirements, environmental requirements, economic development requirements and technical requirements. No financial information is required to be provided by bidders during Stage 1.

Stage 2 qualification criteria include: detailed legal, land, environment, economic development, technical and financial information relating to the bidder and the project and are similar to the qualification applied to the REIPPPP. The economic development criteria are of significant importance and include the following key element: job creation, local content, ownership, management control, preferential procurement, enterprise development, socio-economic development and participation by SMEs.

Financial criteria for Stage 2 seek to elicit information from bidders and their projects with regard to Price, robustness and deliverability and value for money of the funding for the project. Prices (including escalations) in ZAR/MWh need to be below the capped amount stipulated by the DoE for a specific Renewable Energy technology. The Robustness and deliverability of the project funding seeks to unpack details surrounding the: funding structure, sources and proof of equity finance, sources and proof of senior or mezzanine debt funding and the funding model to illustrate the viability of the project. The bidder also needs adequately illustrate that the project as proposed presents a good value for money proposition to the DoE with regard to the: economic development commitments, the project price, the IRR and the project success payments.

The Stage 2 qualification criteria need to be satisfactorily complied with in order for the bidder to be selected and subsequently be appointed as a preferred bidder.

54 DoE. (2013) Information document in respect of the Request for Qualification and Proposals in respect of the Small Projects IPP Procurement Programme 55 Small Hydro projects are initially excluded from the SPIPPPP, however the DoE has indicated its intention to procure under the SPIPPPP in future bidding stages SOUTH AFRICAN RENEWABLE ENERGY

34 Background

3.6. RENEWABLE ENERGY DEMAND SIDE INITIATIVES 56

3.6.1. Energy Efficiency Strategy of South Africa The Energy Efficiency Strategy of South Africa 57 58 (as amended) promotes enhanced energy efficiency nationally to attain social, economic and environmental sustainability and thus called for a voluntary national energy use reduction target of 12% reduction in final energy demand by 2015.

This target led to a range of energy efficiency initiatives (below) and impacts on sectors as follows:

• Industry and mining: final demand reduction of 15% by 2015 • Power generation: interim target of 15% reduction in parasitic electricity use by 2015, based on ‘non-essential’ consumption • Commercial and public buildings: final demand reduction of 15% by 2015 • Residential: final demand reduction of 10% by 2015 • Transport: final demand reduction of 9% by 2015

3.6.2. Implementation of Energy Efficiency Demand Side Management (EEDSM) This initiative to selected municipalities provides subsidies to reduce their energy demand through installation of energy efficient lighting systems for street and traffic lights, government buildings and the installation of solar water heaters.

3.6.3. Energy Efficiency Monitoring and Implementation The initiative aims to incorporate municipal level implementation aligned to national government policy to facilitate oversight related to the development of energy efficient buildings.

3.6.4. Campaign for Energy Efficiency This campaign seeks to develop and disseminate publications related to energy efficiency and to manage the information system through a collective stakeholder approach.

3.6.5. Energy Efficiency Regulations, Standards and Labeling This aims to intensify the institutional and testing capacities as well as the regulatory frameworks and awareness among public stakeholders. Labeling specifications are also being developed for products that are selected for Standard and Labeling regulation.

3.6.6. Industrial Energy Efficiency This initiative focuses on establishing and monitoring the implementation of Energy Management Standards (EMS) across a range of industrial sectors including: chemicals and liquid fuels, automotive, agro-processing, mining and mechanical engineering.

56 DoE. (2011). Clean Energy 57 DME. (2005). Energy Efficiency Strategy for South Africa 58 DME. (2008). National Energy Efficiency Strategy – First Review, October SOUTH AFRICAN RENEWABLE ENERGY

35 Background

Other Tandem South African Government initiatives include (and are not limited to):

3.6.7. South African Renewables Initiative (SARi) Given that the cost of Renewable Energy technology is more expensive than traditional energy sources, SARi (which falls under the mandate of the Department of Trade and Industry) seeks to identify and establish financing arrangements to enable the development of critical mass in the Renewable Energy sector which will expand local manufacturing and promote local job creation.

3.6.8. Manufacturing Competitiveness Enhancement Programme (MCEP) MCEP is an incentive programme to support the upgrading of plant and value adding processes in manufacturing enterprises. It comprises two programmes.

• The Production Incentive MCEP programme includes the subcategories: • Capital Investment grant • Green Technology and Resource Efficiency Improvement grant • Enterprise-Level Competitiveness Improvement grant • Feasibility Studies grant and • Cluster Interventions grant

The Industrial Financing and Loan Facilities MCEP programme includes the components:

• Pre and post-dispatch Working Capital Facility and • Industrial Policy Niche Projects Fund

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4. Photovoltaic Subsector

4.1. SUBSECTOR OVERVIEW

4.1.1. Solar Resource potential and PV applications With an average daily solar radiation of approximately 7,500MJ/m 2, South Africa has some of the highest levels of solar radiation in the world, especially when compared to other western economies such as the United States of America and the European Union.

The table below indicates the average annual Global Horizontal Irradiance (GHI), which is a combination of Direct Normal Irradiance (DNI) plus Diffuse Horizontal Irradiance (DHI) 59 , range for South Africa, including each of its nine provinces. The Northern Cape Province has the highest annual Global Horizontal Irradiance range of 8,001MJ/m 2 to 9,500MJ/m 2 and is thus home to some of the large PV solar installations under the REIPPPP.

Location Annual solar radiation range (MJ/m 2)

South Africa (max) 9,001 – 9,500

Northern Cape Province 8,001 – 9,500

North West Province 8,001 - 9,000

Gauteng Province 8,001 – 8,500

Limpopo Province 6,501 – 8,500

Mpumalanga Province 6,501 – 8,500

Eastern Cape Province 6,000 – 8,500

Western Cape Province 6,000 – 8,500

KwaZulu Natal Province 6,000 – 8,000

South Africa (min) 6,000 – 6,500

Note: Annual solar radiation is modeled for direct plus diffuse (global) radiation received on a level surface Source: DME, ESKOM, CSIR 60 Table 5: Annual incoming shortwave radiation

59 DoE, DST. (2013). Draft South Africa Solar Energy Technology Roadmap, October 60 DME, Eskom, CSIR. (2001). South African Renewable Energy resource database

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In South Africa, the primary applications for PV technology relate to 61 :

• Grid connected power generation • Supporting rural electrification programmes • The public and private sector deployment within municipalities and commercial and industrial applications respectively, to reduce grid demand and electricity expense in the medium to long term.

4.1.2. PV Market segments There are 3 unique market segments for PV in South Africa. An overview of the characteristics and dynamics of each of these market segments is provided in the table below

Market Segment Characteristics Market Dynamics

• Average size (>1MW) • Will continue to dominate • Grid connected Utility Scale the market in the near to • Centralised electricity medium term generation

• Common size (30kW- • Grew rapidly in the past 500kW) few years • Industrial and commercial • Payback period (5-7 years) Commercial/Industrial end users • Means to reduce carbon • Off-grid with power footprint and operating supplemented from the expenses grid and stand alone

• Common size (50W to • Dominated by applications 5kW) in rural areas • Rural and Urban • Applications in urban areas Residential • Off-grid with power are picking up supplemented from the • Payback period (up to 16 grid and stand alone years)

Source: SAPVIA, DTI, WWF 62 Table 6: South African PV market segment characteristics and dynamics

61 DoE, DST. (2013). Draft South Africa Solar Energy Technology Roadmap, October 62 SAPVIA, DTI, WWF. (2013). Localisation strategy for PV industry in South Africa, Presentation, August SOUTH AFRICAN RENEWABLE ENERGY

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4.1.3. PV Market segment growth potential The localization strategy for PV industry in South Africa developed various scenarios for the projected South African PV market growth from the period 2013-2017 through to 2028-2035. These scenarios were premised on various factors including policy certainty and anticipated market demand using adoption (growth) rates of 5%, 7% and 10%.

The scenarios indicate that the total PV market installed capacity in 2028-2035 could reach 20,133MW (10% adoption rate), 15,149MW (7% adoption rate) and 11,946MW (5% adoption rate). Throughout all three scenarios, the utility scale projected PV installed capacity remains at 8.4GW (as anticipated by the IRP).

For all 3 scenarios, Commercial and Industry uptake of Solar PV is expected to be slightly higher that Residential uptake. The strategy also indicates that the PV industry seeks to have almost 40GW of power generation capacity installed by 2050.

Source: SAPVIA, DTI, WWF 63 Figure 11: Scenarios of Projected South Africa PV Market Growth

South African Market 2030 (MW) 2050 (MW)

Residential 8,184 10,000

Commercial 5,548 12,000

Utility 8,400 15,000

Off-grid 200 5,000

Total 20,333 40,000 Source: SAPVIA, DTI, WWF 64 Table 7: Scenarios of Projected South Africa PV Market Growth (2030 and 2050)

63 SAPVIA, DTI, WWF. (2013). Localisation strategy for PV industry in South Africa, Presentation, August 64 SAPVIA, DTI, WWF. (2013). Localisation strategy for PV industry in South Africa, Presentation, August SOUTH AFRICAN RENEWABLE ENERGY

39 Photovoltaic Subsector

4.1.4. PV Market Segment and Potential – REIPPPP utility scale ground mounted The market potential and demand for Solar photovoltaic has largely been driven by REIPPPP and other government supported interventions (discussed below). To date three REIPPPP bidding rounds have been completed which resulted in allocations of 1,483.6MW of Solar photovoltaic generation capacity. 1,041.0MW of Solar photovoltaic generation capacity remains to be allocated in the current fourth and the following fifth REIPPPP bid submission phases. With the projected IRP utility scale targets of 8.4GW of PV by 2030 65 , the remaining allocation for Solar photovoltaic generation capacity, in addition to the current REIPPPP, is 5.875GW.

MW capacity MW capacity MW capacity MW capacity for allocated in the allocated in the allocated in allocation in Technology First Bid Second Bid Third Bid future Bid Submission Submission Submission Submission Phase Phase Phase Phases

Solar 631.5 MW 417.1 MW 435.0 MW 1,041.0 MW photovoltaic

Source: DoE 66 Table 8: Solar Photovoltaic REIPPPP Allocations

Bid Bid Bid Window 1 Window 2 Window 3

Price: Fully Indexed (Ave Rand per MWh) R2,758 R1,645 R881 (Base Apr ’11)

Price: Fully Indexed (Ave Rand per MWh) R3,098 R1,848 R990 (Base Apr ’13)

Allocation 632 MW 417 MW 435 MW

Project Cost (Rm) R21,937 R12,048 R8,145

Source: DoE 67 Table 9: Solar Photovoltaic REIPPPP Preferred Bidders Salient Terms

65 DoE. (2013). Integrated Resource Plan for electricity (IRP) 2010-2030 Update Report 2013, November 66 DoE. (2013). Renewable Energy IPP Procurement Programme – Bid Window three Preferred Bidders’ Announcement, Presentation, November 67 DoE. (2013). Renewable Energy IPP Procurement Programme – Bid Window three Preferred Bidders’ Announcement, Presentation, November SOUTH AFRICAN RENEWABLE ENERGY

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Local content requirements are also part of the REIPPPP qualification criteria, and the successive REIPPPP bidding rounds resulted in a steady increase in local content for Solar PV projects from 28.5% (threshold of 35% and target of 50%) in bid window 1 to 53.8% (threshold of 45% and target of 65%) in bid window 3.

Bid Bid Bid Window 1 Window 2 Window 3

Local Content Value (Rm) R6,261 R5,727 R3,698

Local Content Threshold % 35% 35% 45%

Local Content Target % 50% 60% 65%

Actual Local Content % 28.5% 47.5% 53.8%

Job Creation: Construction (Citizens) 2,381 2,270 2,119

Job Creation: Operations (Citizens) 6,117 3,809 7,513

Source: DoE 68 Table 10: Solar Photovoltaic REIPPPP Preferred Bidders Economic Development

During the three REIPPPP bidding rounds, 33 utility scale PV projects were awarded with contracted capacity ranging from 5.0MW to 75.0MW. The PV technologies included:

• PV Crystaline – Fixed • PV Crystaline – Single Axis • PV Crystaline – Dual Axis • PV Thin Film - Fixed

The most common technology use was PV Crystaline – Fixed.

68 DoE. (2013). Renewable Energy IPP Procurement Programme – Bid Window three Preferred Bidders’ Announcement, Presentation, November SOUTH AFRICAN RENEWABLE ENERGY

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REIPPPP Contracted capacity (MW) Project Name Technology Bid Bid Bid Window3 Window1 Window2 Aries Solar PV Crystalline – Fixed 9.7

De Aar Solar PV PV Crystalline – Fixed 48.3

Greefspan PV Power Plant PV Crystalline – Single Axis 10

Herbert PV Power Plant PV Crystalline – Single Axis 19.9

Kalkbult PV Crystalline – Fixed 72.5

Kathu Solar Energy facility PV Crystalline – Single Axis 75

Konkoonsies Solar PV Crystalline – Fixed 9.7

Lesedi Power Company PV Crystalline – Fixed 64

Letsatsi Power Company PV Crystalline – Fixed 64

Mulilo Renewable Energy PV Crystalline – Fixed 9.7 Solar PV De Aar Mulilo Renewable Energy PV Crystalline – Fixed 19.9 Solar PV Prieska RustMo1 Solar Farm PV Crystalline – Fixed 6.8

SA Mainstream Renewable PV Crystalline – Fixed 48.3 Power Droogfontein SlimSun Swartland Solar PV Crystalline – Fixed 5 Park Solar Capital De Aar PV Thin Film – Fixed 75

Soutpan Solar Park PV Crystalline – Single Axis 28

Touwsrivier Project PV Crystalline – Dual Axis 36

Witkop Solar Park PV Crystalline – Single Axis 30

Aurora Solar Power PV Crystalline – Fixed 9

Boshoff Solar Park PV Crystalline – Single Axis 60

Dreunberg PV Crystalline – Single Axis 69.6

Jasper PV Company PV Crystalline – Fixed 75

Linde PV Crystalline – Single Axis 36.8

Sishen Solar Facility PV Crystalline – Single Axis 74

Solar Capital De Aar 3 PV Thin Film – Fixed 75

Upington Solar PV PV Thin Film – Fixed 8.9

Vredendal Solar Park PV Crystalline – Fixed 8.8

Adams Solar PV 2 PV Crystalline – Fixed 75

Mulilo Prieska PV PV Crystalline – Single Axis 75

Mulilo Sonnedix Prieska PV PV Crystalline – Fixed 75

Pulida Solar Park PV Thin Film – Fixed 75

Solar PV PV Crystalline – Fixed 75 Paleisheuwel/Electra Capital Tom Burke Solar Park PV Thin Film – Fixed 60

Source: DoE Table 11: REIPPPP PV projects awarded

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4.1.5. PV Market Segment and Potential – embedded and small scale PV generation The adoption of embedded and small scale PV generation is emerging in South Africa, and requires further policy support, incentives, innovative and cost effective products and technology, and market awareness to stimulate uptake levels. Energy availability and reliability, reducing PV technology costs and the need to conserve energy could support demand among residential, commercial and industrial consumers within this market segment.

4.1.6. PV Market Segment and Potential – Commercial and Industrial (including Roof Top) Since 2010, there has been a notable increase in the number of large private sector commercial and industrial PV projects arising from increased climate change awareness and escalating electricity costs (see Table below) 69 .

The Eskom Standard Offer program which is part of Eskom’s Integrated Demand-Side Management (IDM) programme to promote energy efficiency has been a catalyst for commercial adoption of PV technology, particularly roof top systems. 70

Eskom designed the standard offer and standard product programmes to financially reward companies for achieving energy savings and since inception in October 2011, approximately 245 projects were registered for the standard offer which realized demand savings of 118MW and energy savings of 478.6GWh. For the standard product programme, which started in January 2012, more than 4,800 projects were registered realising demand savings of 122.7MW and energy savings of 555GWh. Eskom also incorporated the ESCO model which uses energy savings companies to submit proposals to Eskom related to possible energy savings at customer premises. 71

Eskom financial constraints however, lead to the suspension of the IDM energy efficiency rebates in September 2013, including these business programmes. The suspension now also allows Eskom an opportunity to review the IDM programme to investigate localization potential.

In July 2014, Eskom announced that: “Due to prevailing electricity constraints, a decision has been taken to consider low cost, rapidly implementable projects which comply with the terms and conditions of the ‘ESCO’ Model summarised below. To this end, Project Developers are invited to submit project proposals for consideration.

Industrial and Commercial Sector: Projects with a maximum implementation periods of 12 months in the commercial and industrial sectors will be considered, priority will be given to projects with implementation periods less than 6 months. Projects must achieve peak demand savings equal to or greater than 500kW per project site

Municipal Sector (load management projects): Load management projects with implementation periods of less than 12 months operated by municipalities will be considered. Projects must achieve peak demand savings equal to or greater than 1MW per municipality” 72

69 DoE, DST. (2013). Draft South Africa Solar Energy Technology Roadmap, October 70 DoE, DST. (2013). Draft South Africa Solar Energy Technology Roadmap, October 71 http://www.engineeringnews.co.za/article/eskom-places-temporary-hold-on-energy-efficiency-rebate-programmes-2013-12-09 72 http://www.eskom.co.za/sites/idm/Industrial/Pages/SOP.aspx SOUTH AFRICAN RENEWABLE ENERGY

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Project Description Type of Installation Peak Power (kWp)

2010

Pick n Pay on Nicol Commercial Rooftop 100 Villiera Wine Estate Commercial Rooftop 132 GlaxoSmithKline (GSK) Industrial Rooftop 30 Solar Project Aquila Safari Lodge CPV Commercial Ground Mounted 82 Project Japanese Embassy in Commercial Rooftop 100 Pretoria

2011

Dube Tradeport – Phase 1 Industrial Rooftop 218 Pick n Pay on Longmeadow Commercial Rooftop 150 Impahla Clothing Industrial Rooftop 30 Khayaelitsha District Commercial Rooftop 25 Hospital Two Oceans Aquarium Commercial Rooftop 2 Valpre Spring Water Plant Industrial Ground Mounted 30 PV Project Hazelmere CPV Project Industrial Ground Mounted 500 Lethabo Solar PV Industrial Ground Mounted 575 Kendal Solar PV Industrial Ground Mounted 620

2012

Dube Tradeport – Phase 2* Industrial Rooftop 430 Vodacom Century City Commercial Rooftop 500 Vrede en Lust Wine Estate Commercial Ground Mounted 218 PV Project Megawatt Park parking Commercial Ground Mounted 400 canopies* * Under Construction Source: SAPVIA, DTI, WWF 73 Table 12: Known Commercial and Industrial Projects Built in 2010, 2011 and 2012

73 SAPVIA, DTI, WWF. (2013). Localisation strategy for PV industry in South Africa, Presentation, August SOUTH AFRICAN RENEWABLE ENERGY

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4.2. POTENTIAL BUSINESS OPPORTUNITIES

4.2.1. Supply opportunity for typical PV components Given the South African market for PV systems and installations ranging from large scale utility applications, to augment electricity grid supply, to smaller scale residential, commercial and industrial applications, potential business opportunities exist for specialised Swiss companies to supply the following typical PV components, systems, component production equipment and or related technical equipment:

• PV modules (South Africa uses both Crystalline Silicon and Thin Film Photovoltaic technologies, however approximately 95% of all Photovoltaic installations are Crystalline Silicon which are used for both grid connected plants as well as off grid structures) 74 • Mounting structures (fixed inclination angle or tracks the sun in a single or dual axis) • Tracker • Inverter (converts DC electricity to grid compliant AC energy) • Voltage stabilizer (required for regulated grid connection) • Switchgear and Protection devices • Metering devices • System monitoring devices (could be done via Supervisory Control and Data Acquisition (SCADA) systems, online (via a web-portal etc. to collect inverter yield performance data, perform overall system performance monitoring, data storage and display electricity production patterns) • Distribution boards • DC and AC cabling • Charge controller • Power storage Batteries (for off grid applications)

4.2.2. Investment opportunity in local manufacturing

Local Content

However from REIPPPP round 3 onwards (subject to any further DoE amendments for subsequent REIPPPP bid rounds), this has changed and bidders are now required to also furnish details regarding the types of goods and services that comprise local content and must also indicate details regarding the suppliers and relevant service providers. The provisions for local content now also draw a distinction between key components and/or equipment and the balance of plant.

Local content requirements thus presents an opportunity for Swiss suppliers of niche PV components, products and or production equipment and related technical services to consider ‘investing in’ or ‘supplying production equipment to’ manufacturing enterprises in South Africa, and by doing so, any supply from such a local enterprise could be favourably considered for local content, depending on the level of local value addition.

Designation and Verification

74 DoE, DST. (2013). Draft South Africa Solar Energy Technology Roadmap, October SOUTH AFRICAN RENEWABLE ENERGY

45 Photovoltaic Subsector

that only locally manufactured products with a prescribed minimum threshold for local production and content will be considered. Designation therefore refers to the identification of specific sectors/products that are seen to present strategic potential for the development of the South African economy and is limited to state procurement initiatives (i.e.: REIPPPP etc).

Designation thus provides the Public service (all spheres of the South African government) with the means to: 75

• Effectively leverage on Public Procurement • Develop local manufacturing capabilities and capacity • Assist in the development high technical skills base required by the country • Create and retain sustainable jobs and to develop the economy of South Africa

To give effect to government decisions on public procurement, the Department of Trade and Industry periodically designates components for local content/local manufacture, which are subject to a local content verification process.

Following the amendments to the PPPFA Regulations relating to local content requirements, the South African Bureau of Standards was appointed by the Department of Trade and industry as the local content verification agency as part of its mandate to ensure product quality through adherence to minimum national standards and specifications.

The SABS local content verification process includes: 76

• Application information forwarded to SABS • SABS quotation process and scoping of work • Verification audit process • Verification decision by the approval board • Verification certificate creation • Database entry and maintenance

The private sector corporations in South Africa are also encouraged to voluntarily source these designated products and/or services locally in South Africa to create a critical procurement mass to support economy of scale local production.

Current designated PV components/products for local manufacture include:

• PV modules • PV inverters • Metal mounting structures used in PV plants

In addition to this, a ‘localization strategy for PV Industry in South Africa’ 77 was commissioned, which indicated that higher levels of local content are achievable, largely based on policy certainty and market demand.

The study indicated that by 2015 a 66% local content could be achieved through localization of:

• Solar float glass manufacturing • Magnetic parts and transformers manufacturing • Wiring and cabling manufacturing • Printed circuit boards and miscellaneous parts for inverters

The study further highlighted that greater local content of approximately 90% would require the establishment of a silicon cell manufacturing facility to ensure further upstream localization.

75 DTI. (2013). Designation of Sectors & Products for Local Procurement by Organs of State, Presentation, August 76 SABS. (2013). Local content verification process, Presentation, August 77 SAPVIA, DTI, WWF. (2013). Localisation strategy for PV industry in South Africa, Presentation, August SOUTH AFRICAN RENEWABLE ENERGY

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5. Concentrated Solar Power Subsector

5.1. SUBSECTOR OVERVIEW

5.1.1. Resource potential and applications While the measure of solar resource required for PV is Global Horizontal Irradiance (GHI), which is a combination Direct Normal Irradiance (DNI) plus Diffuse Horizontal Irradiance (DHI), the measure of solar resource required for CSP technology is DNI 78 . The Northern Cape and North West Provinces have the highest annual Global Horizontal Irradiance range of 8,001MJ/m 2 to 9,500MJ//m 2.

Location Annual solar radiation range (MJ/m 2)

South Africa (max) 9,001 – 9,500

Northern Cape Province 8,001 – 9,500

North West Province 8,001 - 9,000

Gauteng Province 8,001 – 8,500

Limpopo Province 6,501 – 8,500

Mpumalanga Province 6,501 – 8,500

Eastern Cape Province 6,000 – 8,500

Western Cape Province 6,000 – 8,500

KwaZulu Natal Province 6,000 – 8,000

South Africa (min) 6,000 – 6,500

Note: Annual solar radiation is modeled for direct plus diffuse (global) radiation received on a level surface

Source: DME, ESKOM, CSIR 79 Table 13: Annual incoming shortwave radiation

78 DoE, DST. (2013). Draft South Africa Solar Energy Technology Roadmap, October 79 DME, Eskom, CSIR. (2001). South African Renewable Energy resource database SOUTH AFRICAN RENEWABLE ENERGY

47 Concentrated Solar Power Subsector

resource required for high temperature heat supply applications necessitates the incorporation of CSP technology, is also being researched by several South African academic and research institutions.

South Africa is a member of SolarPACES 80 , which has 19 member countries including Switzerland. Collectively SolarPACES stakeholders identified the following potential priority applications opportunities for HTSA in South Africa 81 :

• Solar smelting of aluminium and similar projects to reduce electricity demand on the grid • Evaluation of petrochemical opportunities • Mining and metals application (drying of slurries and possibly melting) • Reduction of metal oxides for large scale grid electricity energy storage batteries • Solar methane reforming opportunities in South Africa such as leveraging shale gas in the Karoo coupled with the high solar radiance levels found in the Karoo • Coal-bed methane gas has quite a high content of CO2 (about 20%) and is unsuitable for piping and clean power generation. Dry reforming can convert into higher energy valuable syngas for power generation • Utilization to produce cement

A range of hybridization models using CSP technology are being evaluated at existing and new coal plants in South Africa which has the potential to unlock a minimum of 2GW through augmentation of the country’s coal fleet through the integration of high temperature solar heat input into existing coal plan processes.

5.1.2. CSP Market segments and growth potential 82 South African CSP stakeholders envision substantial growth potential for CSP technology deployment in the country across three market segments that would include:

The cumulative impact of the above is anticipated to lead to CSP technologies generating approximately 22GW or 10% of South Africa’s annual energy mix by 2030 - 2040.

To enable the above CSP growth trajectory to gain momentum, the CSP stakeholders have proposed the continued incentivisation over the next decade of large scale CSP projects with proven thermal storage technologies as well as hybridization and industrial steam applications and the extension of incentives within the next two decades to promote the development of local CSP technology storage solution and large scale solar fuel projects.

5.1.3. CSP Market and Potential – REIPPPP utility scale The demand and market potential for CSP has, to date, largely been driven by REIPPPP. Three REIPPPP bidding rounds have been concluded, which resulted in 400MW of CSP generation capacity being allocated, with a further 200MW remaining to be allocated in the current fourth and the following fifth REIPPPP bid submission phases. The IRP indicates a projected CSP utility scale target of 1GW by 2030 83 , which leaves a remaining allocation for CSP generation capacity of 600MW, in addition to the current REIPPPP.

80 SolarPACES brings together teams of national experts from around the world, in an international cooperative network, to focus on the technology and market development of CSP systems. 81 DoE, DST. (2013). Draft South Africa Solar Energy Technology Roadmap, October 82 DoE, DST. (2013). Draft South Africa Solar Energy Technology Roadmap, October 83 DoE. (2013). Integrated Resource Plan for electricity (IRP) 2010-2030 Update Report 2013, November SOUTH AFRICAN RENEWABLE ENERGY

48 Concentrated Solar Power Subsector

Concentrated 150.0 MW 50.0 MW 200.0 MW 200.0 MW solar power

Source: DoE 84 Table 14: Concentrated Solar Power REIPPPP Allocations

Bid Bid Bid Window 1 Window 2 Window 3

Price: Fully Indexed (Ave Rand per MWh) R2,686 R2,512 R1,460* (Base Apr ’11)

Price: Fully Indexed (Ave Rand per MWh) R3,017 R2,822 R1,640* (Base Apr ’13)

Allocation 150 MW 50 MW 200 MW

Project Cost (Rm) R11,365 R4,483 R17,949

* The Bid Window 3 base price is payable for 12 hours every day and 270% of the base price is payable for 5 “peak” hours every day. This pricing basis is not comparable with Bid Windows 1 and 2. Source: DoE 85 Table 15: Concentrated Solar Power REIPPPP Preferred Bidders Salient Terms

REIPPPP qualification criteria include local content requirements, and each successive REIPPPP bidding round generated an improvement in the local content for CSP projects from 21% (threshold of 35% and target of 50%) in bid window 1 to 44.3% (threshold of 45% and target of 65%) in bid window 3.

84 DoE. (2013). Renewable Energy IPP Procurement Programme – Bid Window three Preferred Bidders’ Announcement, Presentation, November 85 DoE. (2013). Renewable Energy IPP Procurement Programme – Bid Window three Preferred Bidders’ Announcement, Presentation, November SOUTH AFRICAN RENEWABLE ENERGY

49 Concentrated Solar Power Subsector

Bid Bid Bid Window 1 Window 2 Window 3

Local Content Value (Rm) R2,391 R1,638 R5,627

Local Content Threshold % 35% 35% 45%

Local Content Target % 50% 60% 65%

Actual Local Content % 21.0% 36.5% 44.3%

Job Creation: Construction (Citizens) 1,883 1,164 3,082

Job Creation: Operations (Citizens) 1,382 1,180 1,730

Source: DoE 86 Table 16: Concentrated Solar Power REIPPPP Preferred Bidders Economic Development

During the three REIPPPP bidding rounds, 5 utility scale PV projects were awarded with contracted capacity ranging from 50MW to 100MW,

REIPPPP Contracted Capacity (MW) Project Name Bid Bid Bid Window Window 1 Window 3 2 Kaxu Solar One 100

Khi Solar One 50

Bokpoort CSP project 50

Karoshoek Consortium 100

Xina CSP South Africa 100

Source: DoE Table 17: REIPPPP CSP projects awarded

86 DoE. (2013). Renewable Energy IPP Procurement Programme – Bid Window three Preferred Bidders’ Announcement, Presentation, November SOUTH AFRICAN RENEWABLE ENERGY

50 Concentrated Solar Power Subsector

5.2. POTENTIAL BUSINESS OPPORTUNITIES

5.2.1. Supply opportunity for typical CSP components

The current and future utility scale REIPPPP project application of CSP technology presents supply opportunities for innovative CSP components and systems including:

• Parabolic trough components and systems (this technology, which includes a moving receiver with a single axis tracking reflector, is the most commonly used among existing CSP plants in operation and those under construction). 87 • Mounting structures • Hydraulic lifting systems • Flat mirrors • Trackers • Secondary components (cables and piping etc) • Heat exchangers • Storage systems • Curved mirrors • Molten salt pumps • Receivers • Power block • Heat Transfer Fluid (HTF) (most typically Therminol VP-1) • Hybrid CSP systems/components that could be used for the HTSAs highlighted above

5.2.2. Investment opportunity in local manufacturing

Local Content

Local content requirements thus presents an opportunity for Swiss suppliers of niche CSP components, products and or production equipment and related technical services to consider ‘investing in’ or ‘supplying production equipment to’ manufacturing enterprises in South Africa, and by doing so, any supply from such a local enterprise could be favourably considered for local content, depending on the level of local value addition.

Verification

South Africa’s Preferential Procurement Policy Framework Act (PPPFA) was enacted in 2000, and its Regulations promulgated in 2001. These Regulations were amended in 2011 and following the amendments to the PPPFA Regulations relating to local content requirements, the South African Bureau of Standards was appointed by the Department of Trade and industry as the

87 DoE, DST. (2013). Draft South Africa Solar Energy Technology Roadmap, October SOUTH AFRICAN RENEWABLE ENERGY

51 Concentrated Solar Power Subsector

local content verification agency as part of its mandate to ensure product quality through adherence to minimum national standards and specifications.

The SABS local content verification process includes: 88

Local Content Targets

South African CSP stakeholders have proposed CSP local content targets of 50% of all CSP technology to be produced in South Africa by 2020, 75% by 2025 and 85% by 2030.

Source: SASTELA Figure 12: Potential localization in the South African CSP Market

88 SABS. (2013). Local content verification process, Presentation, August SOUTH AFRICAN RENEWABLE ENERGY

52 Concentrated Solar Power Subsector

The level of local content that could potentially be achieved in South Africa would be dependent on the CSP technology used:

• Parabolic trough (40% which could increase to 60 % given sufficient scale to produce bent mirrors) • Solar tower (50% which has the potential to increase to 65%) • Linear Fresnel (50% to more than 70%, due to the comparative relative simplicity of this technology)

Recent localization studies conducted by South African CSP stakeholders, including the IDC 89 and SASTELA 90 , indicated promising prospects for the local manufacture of the following CSP components:

• Mirrors (flat and moderately curved) • Steel support structures • Support systems for thermal storage and power block • Specialist piping • Receivers

Economy of scale off-take potential would be required to justify localization of the above, which would be linked to: greater policy certainty, rollout of larger scale CSP installations and greater capacity commitments in South Africa and from the broader African continental markets.

89 IDC. (2013). Feasibility Study to Determine the Viability of the Establishment of a Local Manufacturing Facility of Concentrated Solar Power (CSP) Modules and Components in South Africa, Presentation 90 SASTELA. (2012). The Case for Concentrated Solar Thermal Power in South Africa, June SOUTH AFRICAN RENEWABLE ENERGY

53 Onshore Wind Subsector

6. Onshore Wind Subsector

6.1. SUBSECTOR OVERVIEW

6.1.1. Resource potential and applications

The evaluation of South African wind power resource potential was conducted by Diab 91 who indicated that good wind power potential existed along the entire coastal belt, with localized areas that possessed very good potential with mean annual wind speeds above 6m/s and where wind power exceeded 200W/m 2.

Source: Diab 92 Figure 13: Generalised map of wind power potential in South Africa

Subsequently, a study conducted by the DME 93 concluded, amongst other findings, that:

• “The accuracy of the prediction of wind energy resource at potential sites based on the present wind atlases is very poor. The main reason is the location of the weather measuring masts close to buildings and other obstacles. Therefore the present wind atlases should not be used to predict the energy output at potential sites to be used in feasibility studies.”

91 Diab. (1995). Generalised map of wind power potential in South Africa 92 Diab. (1995). Generalised map of wind power potential in South Africa 93 DME. (2003). Review of Wind Energy Resource Studies in South Africa, February SOUTH AFRICAN RENEWABLE ENERGY

54 Onshore Wind Subsector

• “The accuracy of the resource estimates may be improved significantly by establishing a network of high quality wind measurements including at least 30 m masts.”

These findings then lead to the initiation of the Wind Atlas for South Africa (WASA) Project, through the DME (now DoE) South African Wind Energy Programme (SAWEP), where the project objective “is to develop and employ numerical wind atlas methods and develop capacity to enable planning of large-scale exploitation of wind power in South Africa, including dedicated wind resource assessment and siting tools for planning purposes, i.e. the objective is the development of a numerical wind atlas and database for South Africa.” 94

The primary outputs of the WASA Project were to include the following results 95 :

• “Measurement program for verification for a total period of 3-years” • “First wind atlas according to standard proven and tested method after 1 year of measurements” • “Researched wind atlas after 3 years of measurements” • “All results in (the) public domain”

Following the commencement of the WASA Project in 2009, the first phase was undertaken to obtain wind data for three provinces: Northern Cape, Western Cape and Eastern Cape. This resulted in the installation of 10 measurement stations for each of the three provinces and in March 2012, the first Numerical Verified Data was released subsequent to a year’s quality assurance. Phase two has commenced and will include provincial wind measurement data for: Kwa Zulu Natal and parts of the Free State. 96 Recent updated WASA wind data (refer to figures below) for the Northern Cape, Western Cape and Eastern Cape provinces indicate wind mean speeds and wind mean power density, measured at 100m, of up-to 10m/s and up-to 1000W/m 2 respectively in certain areas.

97 98 Source: DoE Figure 14: South Africa mean wind speed at 100m

94 DME. (2010). Wind Atlas for South Africa (WASA), Presentation, September 95 CSIR. (2011). Draft South African wind energy technology platform: Preliminary wind energy research and development framework, Presentation 96 DoE. (2013). Overview of Renewable Energy Roadmap - Public Workshop on Draft Integrated Energy Planning Report, Presentation, September 97 DoE. (2014). Wind Atlas for South Africa (WASA) Western Cape and parts of Northern and Eastern Cape - South African Wind Atlas (WASA) Guide, July 98 http://www.wasaproject.info/ SOUTH AFRICAN RENEWABLE ENERGY

55 Onshore Wind Subsector

Source: DoE 99 Figure 15: South Africa mean power density at 100m

Currently the main application of Onshore Wind technology in South Africa is to focus on expanding utility scale electricity generation in the country through the REIPPPP initiative. Further growth potential is possible and will be dependent on the rollout of additional WASA wind data to inform Onshore Wind turbine installations.

6.1.2. Onshore Wind Market and Potential – REIPPPP Utility scale

The demand and market potential for Onshore Wind technology is being driven by REIPPPP utility scale applications. To date, three REIPPPP bidding rounds have been concluded, which resulted in allocations of 1,983.5MW of Onshore Wind generation capacity.

Onshore wind 634.0 MW 562.5 MW 787.0 MW 1,336.0 MW

Source: DoE 100 Table 18: Onshore Wind REIPPPP Allocations

99 DoE. (2013). Wind resource maps for WASA domain, South Africa - Metadata and further information, May 100 DoE. (2013). Renewable Energy IPP Procurement Programme – Bid Window three Preferred Bidders’ Announcement, Presentation, November SOUTH AFRICAN RENEWABLE ENERGY

56 Onshore Wind Subsector

A further 1,336MW of Onshore Wind generation capacity remains to be allocated in the current fourth and the following fifth REIPPPP bid submission phases.

The IRP indicates a projected Onshore Wind utility scale target of 8.4GW for new build installations by 2030 101 , which leaves a remaining allocation of 5.08GW for Onshore Wind generation capacity, in addition to the current REIPPPP allocations.

Each successive REIPPPP bidding round has also seen a reduction in bid prices arising from the keen interest from, and competition among, several global Onshore Wind project developers and component suppliers. This resulted in a bid price reduction of 42.6% between REIPPPP bid window 1 and bid window 3, which saw fully indexed average prices fall from R1,143/MWh in bid window 1 to R656 in bid window 2 (using the base of April 2011).

Bid Bid Bid Window 1 Window 2 Window 3

Price: Fully Indexed (Ave Rand per MWh) R1,143 R897 R656 (Base Apr ’11)

Price: Fully Indexed (Ave Rand per MWh) R1,284 R1,008 R737 (Base Apr ’13)

Allocation 634 MW 562 MW 787 MW

Project Cost (Rm) R12,724 R10,897 R16,969

Source: DoE 102 Table 19: Onshore Wind Preferred Bidders Salient Terms

Local content requirements are part of the REIPPPP qualification criteria, and each successive REIPPPP bidding round generated an improvement in the local content for Onshore Wind projects from 21.7% (threshold of 25% and target of 45%) in bid window 1 to 46.9% (threshold of 40% and target of 65%) in bid window 3.

Bid Bid Bid

Window 1 Window 2 Window 3

Local Content Value (Rm) R2,766 R4,001 R6,283

Local Content Threshold % 25% 25% 40%

Local Content Target % 45% 60% 65%

Actual Local Content % 21.7% 36.7% 46.9%

Job Creation: Construction (Citizens) 1,810 1,787 2,612

Job Creation: Operations (Citizens) 2,461 2,238 8,506

Source: DoE 103 Table 20: Onshore Wind REIPPPP Preferred Bidders Economic Development

101 DoE. (2013). Integrated Resource Plan for electricity (IRP) 2010-2030 Update Report 2013, November 102 DoE. (2013). Renewable Energy IPP Procurement Programme – Bid Window three Preferred Bidders’ Announcement, Presentation, November 103 DoE. (2013). Renewable Energy IPP Procurement Programme – Bid Window three Preferred Bidders’ Announcement, Presentation, November SOUTH AFRICAN RENEWABLE ENERGY

57 Onshore Wind Subsector

22 Utility scale Onshore Wind projects were awarded during the three REIPPPP bidding rounds, with contracted capacity ranging from 20.6MW to 139MW,

REIPPPP Contracted Capacity (MW) Project Name Bid Bid Bid Window Window Window 1 2 3 Cookhouse Wind Farm 138.6

Dassieklip Wind Energy Facility 27

Dorper Wind Farm 97.5

Hopefield Wind Farm 65.4

Jeffreys Bay 138

Kouga Red Cap Wind Farm - Oyster Bay 80

Metrowind Van Stadens Wind Farm 27

Nobelsfontein Phase 1 75

Amakhala Emoyeni (Phase 1) 137.9

Chaba 20.6

Gouda Wind Facility 135.2

Grassridge 59.8

Tsitsikamma Community Wind Farm 94.8

Waainek 23.4

West Coast 1 90.8

Khobab Wind Farm 138

Loeriesfontein 2 Wind Farm 138

Longyuan Mulilo De Aar 2 North Wind Energy 139 Facility Longyuan Mulilo De Aar Maanhaarberg Wind 96 Energy Facility Nojoli Wind Farm 87

Noupoort Mainstream Wind 79

Red Cap - Gibson Bay 110

Source: DoE Table 21: REIPPPP Onshore Wind projects awarded

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6.2. POTENTIAL BUSINESS OPPORTUNITIES

6.2.1. Supply opportunity for typical Onshore Wind components

• Tower • Blades • Nacelle • Generator • Gearbox • Control system • Brake system • Yaw drive system • Anemometer • Voltage regulating device (power electronics voltage source converter) for regulated grid connection

Grid code requirements for wind turbines are regulated by NERSA which prescribes the technical connection requirements, rules and obligations that project developers need to comply with for Wind Energy Facilities (WEFs) that are connected to transmission or distribution networks in South Africa. Part of this regulated grid connection requirement necessitates the need for a voltage regulator to address the following technical considerations: 104

• Thermal loading of lines/transformers • Voltage variations during normal operation • Over voltages • Voltage recovery after faults (incl. Low Voltage Ride Through) • Voltage sags due to breaker operation • Reactive power control • Cable/Transformer inrush currents • Short circuit currents • Impact on Power Quality aspects (Harmonics/Flicker, IEC 61400-21) • Influence on ripple control system • Limit system losses

A further differentiation opportunity is presented to specialized Swiss companies for the supply of innovative components and systems related to: 105

• Improved gearbox design with increased reliability • Gearless design • Improved blade design, weight reduction and lower fatigue loading • Improved mechanical structure design • Use of new materials

104 Eskom. (2010). Grid connection requirements of Renewable Energy, Presentation 105 CSIR. (2011). Draft South African wind energy technology platform: Preliminary wind energy research and development framework, Presentation SOUTH AFRICAN RENEWABLE ENERGY

59 Onshore Wind Subsector

• Improved reliability of wind turbines by direct-drive permanent magnet generators

6.2.2. Investment opportunity in local manufacturing

Local Content

Local content requirements thus presents an opportunity for Swiss suppliers of niche Onshore Wind components, products and or production equipment and related technical services to consider ‘investing in’ or ‘supplying production equipment to’ manufacturing enterprises in South Africa, and by doing so, any supply from such a local enterprise could be favourably considered for local content, depending on the level of local value addition.

Designation and Verification

South Africa’s Preferential Procurement Policy Framework Act (PPPFA) was enacted in 2000, and its Regulations promulgated in 2001. These Regulations were amended in 2011. Under Section 9: Local Production and Content, Paragraph 9 (1) of the Regulations empowers the Department of Trade and Industry to designate specific industries where tenders should prescribe that only locally manufactured products with a prescribed minimum threshold for local production and content will be considered. Designation therefore refers to the identification of specific sectors/products that are seen to present strategic potential for the development of the South African economy and is limited to state procurement initiatives (i.e.: REIPPPP etc).

Designation thus provides the Public service (all spheres of the South African government) with the means to: 106

106 DTI. (2013). Designation of Sectors & Products for Local Procurement by Organs of State, Presentation, August SOUTH AFRICAN RENEWABLE ENERGY

60 Onshore Wind Subsector

The SABS local content verification process includes: 107

Current designated Onshore Wind components/products for local manufacture include:

• Wind turbine blades • Wind turbine towers

In addition to this, a South African Wind Industry Roadmap and industrialization strategy is being developed, that will seek to further develop South Africa’s Wind Industry localization aspirations.

Wind industry stakeholders have previously proposed scenarios for the localization of wind energy project spend as indicated in the figure below. Economy of scale off-take potential would be required to justify localization, which would be linked to: greater policy certainty, rollout of larger scale Onshore Wind installations and greater capacity commitments in SA and from the broader African continental markets.

107 SABS. (2013). Local content verification process, Presentation, August SOUTH AFRICAN RENEWABLE ENERGY

61 Onshore Wind Subsector

Local Scenario Assumptions % Value Timeframe Spend/MW

Grid connection, civil works, Low Industrial other capital costs, fully 29% R4.64million 2015 content imported wind turbines

Grid connection, civil works, Medium-Low other capital costs, tower Industrial 47% R7.52million 2015 locally made, rest of turbine content imported

Grid connection, civil works, Medium-High other capital costs, tower, Industrial 66% R10.6million 2020 blades, generator and nacelle content made locally, rest imported

Grid connection, civil works, other capital costs, most of High Industrial turbine made locally except 87% R13.9million 2020 content for specialized items such as gearbox, rotor bearings

Source: DoE 108 Figure 16: Scenarios for the localization of wind energy project spend

108 DoE. (2010). South African Wind Energy Programme, Presentation, September SOUTH AFRICAN RENEWABLE ENERGY

62 Small Hydro Subsector

7. Small Hydro Subsector

7.1. SUBSECTOR OVERVIEW

7.1.1. Resource potential and applications

Evaluation of South Africa’s hydro potential was undertaken by Barta 109 in 2002 as part of the Capacity Building in Energy Efficiency and Renewable Energy (CaBEERE). The study assessed various renewable hydropower categories ranging from Pico (up to 20kW) to Micro (20kW to 100kW) to Mini (100kW to 1MW) to Small (1MW to 10MW) to conventional macro hydropower (>10MW).

Both conventional hydropower (“impounding water by dams, diverting water, or pumping water into storage facilities” 110 ) and unconventional hydropower (“energy generated from hydrokinetic sources … with corresponding generation technologies, which include free-flowing rivers and streams … and water movement through constructed waterways such as aqueducts and water-supply pipelines.” 111 ) types were considered.

Some of the pertinent findings of the study include: 112

• The presence of 687MW of installed renewable hydropower in South Africa, for the five categories mentioned above, which includes 33.92MW of installed Small, Mini, Micro and Pico hydropower facilities • The potential for 69MW of new Small, Mini, Micro and Pico renewable hydropower development that has been firmly established and the potential for an additional 94MW of new Small, Mini, Micro and Pico renewable hydropower development that requires further evaluation • The firmly established potential for 5,091MW (with an additional 1,900MW that requires further evaluation) of new conventional macro-hydropower (diversion fed, storage regulated head and run-of-river >10MW) capacity • The potential for new Small, Mini, Micro and Pico renewable hydropower development capacity is approximately five times that of the installed capacity, and present rural area development opportunities in Kwa Zulu Natal, Eastern Cape, Free State and Mpumalanga provinces.

109 Barta, B. (2002). Capacity building in energy efficiency and renewable energy: baseline study - hydropower in South Africa 110 Dolwick, C. (2007). Tide Turns on Unconventional Hydropower - Dam-free Hydro Taps Power of Waves, Tides, Water Pipes. World Rivers Review, 22(3) 111 Dolwick, C. (2007). Tide Turns on Unconventional Hydropower - Dam-free Hydro Taps Power of Waves, Tides, Water Pipes. World Rivers Review, 22(3) 112 Barta, B. (2002). Capacity building in energy efficiency and renewable energy: baseline study - hydropower in South Africa SOUTH AFRICAN RENEWABLE ENERGY

63 Small Hydro Subsector

Potential for Development Installed Hydropower Category Hydropower Capacity and Size (MW, Kw) Type Firmly Additional (MW) Established Long-Term (MW) (MW)

Conventional 0,02 0,1 0,2 Pico (up to 20 kW) Unconventional - - 60,0

Micro Conventional 0,1 0,4 0,5 (20 kW to 100 kW) Unconventional - - 3,3

Conventional 8,1 5,5 3 Mini (100 kW to 1 MW) Unconventional - - 2

Conventional 25,7 27 20 Small Transfers - 25 5 (1 MW to 10 MW) Refurbishment - 11 -

Subtotal for small/mini/micro and pico 33,92 69 94 hydropower in South Africa

Diversion fed - 3,700 1,500 Conventional macro Storage hydropower (> 10 653 1,271 250 regulated head MW) Run-of-river - 120 150

Subtotal for renewable hydropower in SA 687 5,160 1,994

Source: Barta 113 Figure 17: Total for macro and small hydropower in SA (excluding pump storage)

Pico and Micro hydropower systems could be applied to rural areas and isolated communities in South Africa, whereas Mini and Small hydropower systems have the potential to be connected to the transmission grid. Small hydropower could also operate as stand-alone installations or in a hybrid combination with other Renewable Energy sources. 114

Currently the main incentivized application of Small Hydro (<40MW as defined by REIPPPP) is to expand utility scale electricity generation. Further growth potential relating to Pico, Micro, Mini and Small hydropower installations exist through other initiatives within government.

113 Barta, B. (2002). Capacity building in energy efficiency and renewable energy: baseline study - hydropower in South Africa 114 DME. (2003). White paper on Renewable Energy SOUTH AFRICAN RENEWABLE ENERGY

64 Small Hydro Subsector

7.1.2. Small Hydro Market and Potential – REIPPPP Utility scale

The utility application demand and market potential for Small Hydro has been driven by REIPPPP and other government supported interventions (discussed below). Three REIPPPP bidding rounds have been concluded to date, which resulted in 14.3MW of Small Hydro generation capacity being allocated in the second bid submission phase at an average cost of R1,030/MWh.

An additional 121MW of Small Hydro capacity remains to be allocated in the current fourth and the following fifth REIPPPP bid submission phases.

Small hydro 0.0 MW 14.3 MW 0.0 MW 121.0 MW (≤ 40MW)

Source: DoE 115 Table 22: Small Hydro REIPPPP Allocations

Bid Bid Bid Window 1 Window 2 Window 3

Price: Fully Indexed (Ave Rand per MWh) N/A R1,030 N/A

Allocation 0 MW 14.3 MW 0 MW

Project Cost (Rm) R 0 R631 R 0

Source: DoE 116 Table 23: Small Hydro Preferred Bidders Salient Terms

Local content requirements are part of the REIPPPP qualification criteria, and the allocated Small Hydro projects in the REIPPPP second bid window generated average above target local content levels of 66.7% against a threshold of 25% and a target of 60%.

115 DoE. (2013). Renewable Energy IPP Procurement Programme – Bid Window three Preferred Bidders’ Announcement, Presentation, November 116 DoE. (2012). Renewable Energy IPP Procurement Programme – Window two Preferred Bidders’ announcement, Presentation, May SOUTH AFRICAN RENEWABLE ENERGY

65 Small Hydro Subsector

Bid Bid Bid Window 1 Window 2 Window 3

Local Content Value (Rm) N/A R421 N/A

Local Content Threshold % 25% 25% 40%

Local Content Target % 45% 60% 65%

Actual Local Content % N/A 66.7% N/A

Job Creation: Construction (Citizens) N/A 261 N/A

Job Creation: Operations (Citizens) N/A 7 N/A

Source: DoE 117 Table 24: Small Hydro REIPPPP Preferred Bidders Economic Development

Small Hydro projects were only awarded in round two of the three REIPPPP bidding rounds where two projects were awarded with contracted capacities of 4.3MW and 10MW.

REIPPPP Project Name Contracted Capacity (MW) Bid Window 2

Neusberg Hydro Electric Project 10.0

Stortemelk Hydro 4.3

Source: DoE Table 25: REIPPPP Small Hydro projects awarded

7.1.3. Small Hydro Market and Potential – Additional Utility Scale While the DoE has elected not to initially include Small Hydro currently in the SPIPPPP, it intends to include Small Hydro projects, relating to privately owned dams and rivers, at a later stage of the SPIPPPP.

In the interim the DoE has indicated that it intends to introduce a separate procurement programme to procure Small Hydro projects that will be developed on dams and weir sites that are owned by the DWA. This procurement programme will be in addition to the SPIPPPP, and will include different bidding requirements and criteria to those contained in the SPIPPPP .118

117 DoE. (2012). Renewable Energy IPP Procurement Programme – Window two Preferred Bidders’ announcement, Presentation, May 118 DoE. (2013). Information document in respect of the Request for Qualification and Proposals in respect of the Small Projects IPP Procurement Programme SOUTH AFRICAN RENEWABLE ENERGY

66 Small Hydro Subsector

7.2. POTENTIAL BUSINESS OPPORTUNITIES

7.2.1. Supply opportunity for typical Small Hydro components and systems

• Complete Small, Mini, Micro and Pico hydro systems (as volume flow-rate and head differential are critical to the effectiveness of the hydro power system – the systems should also be capable of handling small flow rates with high heads and large flow rates with small heads) • Specifically designed optimized structures for intake canal, penstock and outbound flow canal • Pipelines • Valves • Hydro turbine • Gearbox • Generator • Batteries (for standalone applications) • System monitoring sensors and meters • Control unit (SCADA) • Power controls • Inverter • Voltage regulating device (power electronics voltage source converter) for regulated grid connection

7.2.2. Investment opportunity in local manufacturing

Local Content

Potential business opportunities for Swiss companies arise from local content requirements regarding the South African product portion of the total project value (subject to certain explicit exclusions). As indicated above, these form part of the REIPPPP qualification criteria. Previously it was possible for REIPPPP bidders to achieve committed local content values, provided that they could only indicate the components and activities that would be sourced or undertaken in South Africa. However from REIPPPP round 3 onwards (subject to any further DoE amendments for subsequent REIPPPP bid rounds), this has changed and bidders are now required to also furnish details regarding the types of goods and services that comprise local content and must also indicate details regarding the suppliers and relevant service providers. The provisions for local content now also draw a distinction between key components and/or equipment and the balance of plant.

Local content requirements thus presents an opportunity for Swiss suppliers of niche Small Hydro components, products and or production equipment and related technical services to consider ‘investing in’ or ‘supplying production equipment to’ manufacturing enterprises in South Africa, and by doing so, any supply from such a local enterprise could be favourably considered for local content, depending on the level of local value addition.

Verification

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67 Small Hydro Subsector

The SABS local content verification process includes: 119

Local Content Targets

Currently the only local content targets are those relating to REIPPPP with a threshold of 40% and a target of 65%. While Small Hydro local installation costs related to:

• Civil works, • EPCM, • Infrastructure construction and • Specialist commissioning could form part of the local content cost portion, it would be advisable for Swiss companies to also consider local production/assembly of specific components or the complete system that could also be custom built to suit the required local application.

Economy of scale off-take potential would be required to justify this local content potential, which would be linked to greater Small Hydro policy certainty coupled to increased Small Hydro capacity commitments in South Africa and from the broader African continental markets.

119 SABS. (2013). Local content verification process, Presentation, August SOUTH AFRICAN RENEWABLE ENERGY

68 SA Renewable Energy Market Entry Modes

8. SA Renewable Energy Market Entry Modes

South Africa’s emerging but rapidly growing Renewable Energy sector presents excellent opportunities for Swiss companies to enter the market at this opportune time.

There are several market entry modes into South Africa’s Renewable Energy sector for the Swiss component/system/manufacturing technology/services company to consider. Each of these market entry modes are distinctive and offer varying degrees of control, cost and risk exposure to the Swiss company.

Ultimately the choice of the market entry mode into South Africa’s Renewable Energy sector/sub-sector will be influenced and informed by:

• Knowledge and understanding of the market • Knowledge of the business and regulatory environment • Identification of the possible aligned South African business partner/target companies for the Swiss Company

This study evaluated two broad categories of market entry to South Africa’s Renewable Energy sector and market via immediate ‘supply’ and ‘investment’ opportunities, driven by local content requirements.

8.1. MARKET ENTRY MODES TO ACCESS SUPPLY OPPORTUNITIES

Supply opportunities could be effectively accessed and harnessed either through:

• Distribution partnership, through which the Swiss company appoints a distribution partner or representative agent to market and sell its Renewable Energy product/services for a specified commission margin.

• Joint Ventures, where a new company is established and jointly owned by the Swiss company and the South African partner company for the purpose of marketing and selling the Swiss Renewable Energy products/services.

• Licensing/Franchising through which the Swiss company appoints a licensed partner in South Africa and charges a fee or a royalty for the use of the Swiss company Renewable Energy product/s, technology/ies or know-how.

• Own local marketing, sales and distribution company that the Swiss company establishes for its Renewable Energy products/services.

• Acquisition (either fully or partially) by the Swiss company of a target South African marketing, sales and distribution company through which it can market, sell and distribute its products/services

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69 SA Renewable Energy Market Entry Modes

8.2. MARKET ENTRY MODES TO ACCESS INVESTMENT OPPORTUNITIES

Manufacturing Investment opportunities will necessitate a level of foreign direct investment and could be undertaken either through:

• Joint Ventures, where a new company is established and jointly owned by the Swiss company and the South African manufacturing operations partner company for the purpose of manufacturing/assembling the Swiss Renewable Energy products.

• Licensing/Franchising through which the Swiss company appoints a licensed manufacturing operations partner in South Africa and charges a fee or a royalty for the use of the Swiss company Renewable Energy technology/ies or know-how.

• Own local manufacturing/assembly company that the Swiss company establishes to produce its proprietary Renewable Energy products.

• Acquisition (either fully or partially) by the Swiss company of a target South African manufacturing operations company through which it can produce its Renewable Energy products.

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70 Professional SA RE Market Penetration Support Packages

9. Professional SA RE Market Penetration Support Packages

To assist Swiss Companies with the process to effectively penetrate the South African Renewable Energy market, relevant professional support services, at a reasonable market related cost, are offered with respect to:

9.1. DETAILED MARKET STUDY

Detailed customised Renewable Energy sector or subsector market study of the South African (and sub-Saharan markets if required) relating to the potential market opportunity for specific Swiss Company Products and/or Services to generate an informed understanding of the domestic sector, market structure and dynamics, scope for demand and to more importantly inform interactions and negotiations with potential business partners from a stronger market knowledge position.

9.2. IDENTIFICATION OF ALIGNED BUSINESS PARTNERS

In-depth market search and identification of 2/3 targeted possible South African Distribution and/or Sales & Marketing and/or Operations business partners that are aligned to the Swiss Company’s specific requirements.

9.3. BUSINESS INTERACTION SUPPORT

These services include:

• Coordination and Organisation of business meetings (initiation, scheduling, invitation, location etc.) • Accompanying the Swiss Company representatives to business meetings to facilitate introductions and informed discussions • Facilitating follow-up business meetings on behalf of the Swiss Company and the potential business partners and preparing debriefing reports to the Swiss Company • Facilitating the development of a structured business development action plan report for the Swiss Company

9.4. BUSINESS DEVELOPMENT SUPPORT

This support relates to concluding the Business Arrangement between the potential business partner and the Swiss Company in the form of:

• Identification of service partner/s (i.e.: lawyers, accountants, auditors, bankers etc) • Facilitating due diligence of the potential business partner • Facilitating business negotiations between the Swiss Company and the potential business partner • Facilitating contract negotiations between the Swiss Company and the potential business partner

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71 Conclusion

10. Conclusion

South Africa offers relatively good prospects for the development of a viable and sustainable Renewable Energy manufacturing and supply industry. The IEP and IRP Renewable Energy targets will also promote development and growth in the Renewable Energy supply chain for goods and services and domestic manufacturing investment driven by localisation requirements.

Competition in the Renewable Energy market is expected to continue driving down technology costs thus making this energy source increasingly more affordable to residential, commercial, industrial and utility customers.

Relatively high Renewable Energy capping rates and transparent competitive bidding processes offered via the successful REIPPPP and SPIPPPP offer critical mass and provide a solid platform to enable entry into the Sub-Saharan market.

Thus the deliberate move by the South African government to stimulate the incorporation of Renewable Energy sources in South Africa’s energy mix coupled with innovative technologies, systems, equipment and components accordingly present several good industrial and supply development trade and investment opportunities for Swiss companies in possible partnership with South African companies relating to (but not limited to).

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72 References

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73 References

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74 References

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