Sustainable Energy Resource Handbook Volume 7

The

Sustainable Energy Resource Handbook South Africa Volume 7 The Essential Guide

EN ERGY ISSNISBN 0251-998X 1-00000-000-1

9

07 06

7 79 0 7285110 090 9080 80 00 079

SUSTAINABLE ENERGY RESOURCE HANDBOOK

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Corobrik’s Environmental Sustainability Profile PREFACE: Corobrik continues to take active steps in the business to reduce environmental impacts and carbon footprint and compound the value that the intrinsic properties of clay brick contribute to energy efficient sustainable built-in environments.

These attributes, coupled the well recognised thermal performance properties of clay brick to maintain thermal comfort conditions for longer and reduce cooling and heating energy usage, provide the necessary basics for achieving a more energy efficient and lower carbon footprint future.

CLAY BRICK – INTRINSICLY SUSTAINABLE: Fired clay brick is one of only a few man-made walling materials that is proven reusable and/ or recyclable. Robustness, colourfastness and extreme durability mitigates future carbon debt associated with refurbishment and replacement of less durable walling materials while longevity provides the time opportunity for embodied energy to dissipate over the lifecycle.

The University of Pretoria study, ‘A Thermal Performance Comparison Between Six Wall Construction Methods Frequently Used in South Africa’, that modelled energy usage of three building typologies, well showed clay brick walling specified in compliance with SANS 10400 Building Regulations and SANS 204 Energy Efficiency Standards consistently outperformed insulated LSF as specified in SANS 517.

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SUSTAINABLE ENERGY RESOURCE HANDBOOK

Cavity brick with insulation to SANS 204 deemed to satisfy standards, was the consistent best performer.

Translating operational energy usage to Greenhouse Gas (GHG) emissons the full Lifecycle Assessment by Energetics in Australia – see table below - found that over a 50 year lifecycle clay brick wall constructions afforded a lower heating and cooling carbon footprint than timber frame with insulated weatherboard. The lower operational GHG emissions of cavity brick wall construction offset its higher embodied energy to provide lower ‘total’ GHG emissions [embodied plus operational] in most situations, with insulated cavity brick walling providing lowest ‘total’ GHG emissions in all situations.

FOCUS ON REDUCING COROBRIK’S CARBON FOOTPRINT Quarrying clay materials within a sustainable development framework, achieving greater resource efficiencies, and lowering the consumption of non-renewable resources has been Corobrik’s focus.

Progress made has elevated the environmental integrity of Corobrik’s products beyond the sustainable qualities generic in fired clay.

LOCATION

ORIENTATIONS UNINSULATED DOUBLE BRICK

INSULATED INSULATED DOUBLE TIMBER BRICK (R1.3) FRAME

INSULATED TIMBER MORE/(LESS) GHG THAN DOUBLE BRICK

INSULATED TIMBER MORE/(LESS) GHG THAN DOUBLE BRICK INSULATED R1.3

N,S,E&W

54137

51236

60457

11.67%

18.00%

Melbourne Climatic N,S,E&W Zone

73050

63641

72570

-0.66%

14.03%

Melbourne Climatic N,S,E&W Zone

64924

65010

72554

11.75%

11.60%

Average GHG

64037

59962

68527

7.01%

14.28%

Newcastle Climatic Zone

N,S,E&W

THERMAL MODELLING OF VERDANT AND SIROCCO HOUSE PLANS AVERAGE HVAC GREEN HOUSE GAS (kg CO2-e) EMISSIONS OVER 50 YEARS EXTRACTED FROM ENERGETICS FULL LIFE CYCLE ASSESSMENT

SUSTAINABLE ENERGY RESOURCE HANDBOOK

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3.1 DEMATERIALISATION Through investment in advanced extrusion technologies dematerialization with enhanced product quality, performance attributes has been achieved. Resultant energy usage reductions through dematerialization include: • Reductions in drying and firing energy usage in the order of 20 percent.

• Reduced diesel usage per thousand bricks delivered.

• An 8% reduced mortar usage on site reducing the carbon footprint associated with the cement component of mortar.

South African market clay bricks with embodied energy values in line with best international practice for the clay types and the manufacturing technologies employed.

3.2 LOWERING THE CARBON FOOTPRINT THROUGH THE USE OF CLEANER BURNING FUELS For each giga joule of energy, natural gas releases just 48kgs of CO2 compared to 97kgs of CO2 emitted from coal. Today, Corobrik has six major factories using natural gas as a primary fuel for the firing of its kilns, bringing to the

3.4 USE OF RECYCLED MATERIALS IN THE PRODUCTION PROCESS ‘Green’ brick waste is recycled back into the clay production processes. Burnt brick waste is either crushed as aggregate for use in road building applications, or the manufacture of concrete products. Surplus aggregate is returned to the quarry from where it came.

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SUSTAINABLE ENERGY RESOURCE HANDBOOK

3.3 LOWERING ELECTRICAL ENERGY CONSUMPTION Power correction interventions and modifying shift activities have circumvented high electrical energy usage at peak periods.

Electrical energy usage has dropped significantly throughout and further savings are being explored.

3.5 ISO 14001:2004 ENVIRONMENTAL MANAGEMENT SYSTEMS CERTIFICATION AT FACTORIES Corobrik has 8 factories with ISO 14001 Certification with others busy with the accreditation process The process of achieving Environmental Management certification has helped drive down Corobrik’s carbon footprint and enhance eco systems around operations.

THE CARBON FOOTPRINT OF COROBRIK BRICKS COROBRIK FACTORY

AVOCA 1 TRANSVERSE ARCH KILN

LAWLEY 2 TRANSVERSE ARCH KILN

MIDRAND TUNNEL KILN

Product Type in Imperial Format

Clay Plaster Bricks

Clay Face Bricks

Clay Face Bricks

Kg CO2/m² Single Skin Brickwork

29.3

33.8

23.2

As calculated by CSIR Built Environment, the embodied energy of clay bricks from 3 typical technologies Corobrik employs, ranges between 23.2 and 33.8 Kg CO2/m² single skin of brickwork. This equates to between 215 and 250 tCO2 per tonne of bricks against the international average of approximately 300 tCO2 per tonne of bricks.

LOWERING OUR CARBON FOOTPRINT IS A JOURNEY Ideas and interventions with the potential to effect incremental reductions in emissions are continually being assessed and implemented where appropriate.

Along with that Corobrik will be continuing to invest in research towards developing specifications for masonry walling in South Africa better able to facilitate optimal thermal performance outcomes for different building typologies most cost effectively.

www.corobrik.co.za | info@corobrik.co.za

SUSTAINABLE ENERGY RESOURCE HANDBOOK

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The

SUSTAINABLE ENERGY RESOURCE HANDBOOK

South Africa Volume 7

EDITOR Gregory Simpson

DISTRIBUTION & CIRCULATION MANAGER Edward MacDonald

CONTRIBUTORS Dominic Milazi, Hemal Bhana, Tobias Bischof-Niemz, Charles Marias, Brenda Martin, Jack Ward, Crescent Mushwana, Paul Jorgensen, Hartley Bulcock, Matthew Turner, Lucy Baker, Steve Nicholls. Peer reviewers: Robert Jeffrey, Ernst Uken and Philip Lloyd.

PROJECT MANAGER Louna Rae

LAYOUT & DESIGN Colin Carter

CHIEF EXECUTIVE Gordon Brown

EDITORIAL & PRODUCTION Gregory Simpson Shannon Manuel

DIRECTORS Gordon Brown Andrew Fehrsen Lloyd Macfarlane

ADMIN MANAGER Chevonne Ismail

ADVERTISING EXECUTIVES Deon Baatjes Munyaradzi Jani

PUBLISHER

MARKETING MANAGER Nabilah Hassen-Bardien CLIENT LIASON Linda Tom

www.alive2green.com

The Sustainability Series of Handbooks PHYSICAL ADDRESS: Alive2green Cape Media House 28 Main Road Rondebosch Cape Town South Africa 7700 TEL: 078 023 0853 FAX: 086 694 7443 Company Registration Number: 2006/206388/23 Vat Number: 4130252432 ISBN No:978 0620 45240 3 Volume 7 First Published 2010 PRINTER: FA Print

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SUSTAINABLE ENERGY RESOURCE HANDBOOK

The

Sustainability and Inte REPORTING HAND South Africa 2014

All rights reserved. No part of this publication may be reproduced or transmitted in any way or in any form without the prior written consent of the publisher. The opinions expressed herein are not necessarily those of the Publisher or the Editor. All editorial contributions are accepted on the understanding that the contributor either owns or has obtained all necessary copyrights and permissions.

IMAGES AND DIAGRAMS Space limitations and source format have affected the size of certain published images and/or diagrams in this publication. For larger PDF versions of these images, please contact the Publisher.

DISTRIBUTION AND COPY SALES ENQUIRIES edwardm@hmpg.co.za ADVERTISING ENQUIRIES Louna Rae lrae@alive2green.com

ED’s LETTER

2016: More questions than answers

W

elcome to another edition of the Sustainable Energy Resource Handbook, I am honoured to have taken over as editor for the seventh instalment of this vital resource for the energy sector, which to be honest has been taking a bit of a hit over the last 12 months.This has not been helped by the sliding rand and poor investor confidence.

It would appear that the honeymoon period is over for the renewable energy sector, with only the strong surviving the recent economic downturn and political manoeuvring.

There is also a clear conflict of interest between the ‘state’ run Eskom, which operates in large part on coal, and to a lesser degree nuclear, which is a debate in of itself. If a parastatal is in the business of selling electricity, why would they want to promote renewable energy that would ultimately cut into their bottom line?

Feeding back into the grid is another issue for those companies that have already taken the leap into rooftop solar, wind and an ever growing supply of biogas from landfill sites.

Forward thinking companies are taking the guess work out of energy supply, and rather than waiting on Eskom for the next round of load shedding, are producing energy in various forms. One such company is BMW, who have invested heavily into renewable energy projects for onsite generation. We hear from dynamic Managing Director Tim Abbott for the inside story.

The Renewable Energy Independent Pow-

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SUSTAINABLE ENERGY RESOURCE HANDBOOK

Gregory Simpson, Editor

er Project Procurement Program (REIPPPP) has been an example of business and government getting things right in South Africa. Sure, there has been the odd failure along the way, but in large part the program has been excellently run, making a noticeable dent in renewable energy production figures.

However, for South Africa to truly embrace renewable energy it needs to introduced and legislated for greater residential useage. I’d go so far as to say any new house should have a thermal geyser, proper insulation and a grey water system as a basic requirement. Business should have stricter measures to ensure that more companies start feeding their own energy needs, and reduce in greenhouse emissions. But therein lies the problem with a state dominated energy provider, there is no incentive to think too far out the box, because you are the box.

But don’t be discouraged because we’ve got a cracking line-up of top energy professionals and academics who have tackled these issues in their valuable contributions to the handbook. Special thanks to peer reviewers, Ernst Uken, Robert Jeffrey and Philip Lloyd, who took time out of their busy schedule to make sure that the high standards of this publication are maintained.

So as we look to the rest of 2016, the industry will hold its breath for more stability in the economy, and a stronger rand to help those importers of renewable hardware that have been taking a hiding of late.

FOREWORD

Energy the life blood of the economy

E

nergy has traditionally been one of the most pivotal driving forces behind mass industrialization within emerging economies such as China and South Africa and allowed hundreds of millions of people to enjoy noteworthy improvements in their social conditions, standard of living and material well-being. Energy is an input to almost every type of good and service in the economy and has therefore earned the reputation of the life blood of industrial growth and the oxygen supply of a nation.

Largely underpinned by the effects of globalisation and market deregulation, the rapidly growing populations of the modern-day era are consuming a disproportionate amount of energy and in the process depleting the Earth’s non-renewable resources at a rate faster than ever before. According to the International Energy Agency (IEA), this consumption is set to increase almost three-fold by 2050, which brings into question the detrimental accompanying climate change effects of this consumption.

Responding to these challenges fundamentally requires a multi-faceted approach that includes increasing energy efficiency and productivity – to make the most of our energy supplies. The IEA has estimated through its Blue Map Climate Change Mitigation Strategy, that the deployment of energy efficiency practices will have the potential of reducing greenhouse gas emissions by approximately 45% in 2030 and 58% in 2050. While energy efficiency offers an attractive solution, the key to sustaining these savings lies in embedding these performance improvements in a systematic manner. Thus energy management is quickly becoming one of the most fundamental areas of focus across all business sectors.

Energy management essentially includes all the measures that an organisation has implemented or plans to implement in order to ensure minimum energy consumption for the

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SUSTAINABLE ENERGY RESOURCE HANDBOOK

current activity. Based on the International Energy Management Standard ISO 50001, the Energy Management Systems (EnMS) framework is built upon the Plan, Do, Check, Act (PDCA) cycle which focuses on continuous improve- Milisha Pillay. ment of energy usage, processes and systems and can easily integrate energy management into existing ISO standards like 14001 and 9001.

While the earliest adopters of ISO 50001 have largely been European companies, South Africa is steadily starting to embrace energy management systems as a holistic solution to cutting energy costs, reducing greenhouse gas emissions, improving stakeholder relations and public image and most importantly increasing security of supply by embedding energy efficiency practices and reducing demand on the national grid.

Although the ISO 50001 standard may prove to be too complex for the purposes of some entities, the adoption of it is a key feature within an effective Energy Management System and it continues to afford many companies the opportunity to maximize the benefits of energy performance improvements and sustain them going forward- whether it be in a manufacturing environment, a campus, or across an entire building portfolio.

While energy efficiency has undoubtedly become a modern day imperative, it is only a sound energy management system that can assist an organization fully exploit and sustain the value of their untapped potential with regards to energy consumption.

Milisha Pillay, NCPC, SA Industrial Energy Efficiency Regional Project Manager

CONTRIBUTORS DOMINIC MILAZI Dominic Milazi joined the Energy Division at the Council for Scientific and Industrial Research (CSIR) in May 2015, where he is the Research Group Leader for Energy Market Design and Policy Analysis. Prior to joining the CSIR, he served as Project Manager (Renewable Energy Initiatives) at the National Department of Energy. In this post, he was responsible for the South African Wind Energy Program working in partnership with the United Nations Development Program (UNDP) and the Global Environmental Facility (GEF).

DR. TOBIAS BISCHOF-NIEMZ Dr Tobias Bischof-Niemz is the Centre Manager: Energy at the Council for Scientific and Industrial Research (CSIR) in Pretoria, where he leads the establishment of an integrated energy research centre and a growing team of scientists and engineers. Before joining the CSIR, he was with South Africa’s electric utility Eskom in the Energy Planning Unit, where he was part of the team that developed the long-term power-capacity expansion plan (Integrated Resource Plan – IRP) for South Africa. Dr. Bischof-Niemz is a member of the Ministerial Advisory Council on Energy.

CHARLES MARIAS Charles Marias heads up the energy department at top law firm Hogan Lowells. He is a former merchant banker with experience in project and export finance. As a result, he has an in-depth understanding of lenders’ requirements and their approach to risk and risk mitigation. Charles has extensive experience in the finance, energy, mining, construction and infrastructure sectors.

BRENDA MARTIN Brenda Martin joined the Energy Research Centre at UCT in October 2014 as Research Projects Manager, to support internal and external research cooperation, and assist the Director to proactively identify, develop and establish new strategic research areas. She has an undergraduate degree in Business, and has worked at senior level in the Southern African development and education sectors for about 20 years.

JACK WARD Jack Ward is managing director of Powermode, a leader in the field of advanced power provisioning systems for medium to large corporations. The company designs, supplies and commissions a broad spectrum of innovative, turnkey power protection, management and generating solutions. He has more than 35 years of experience in the IT, telecommunications and power protection industries throughout Africa in senior executive roles.

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SUSTAINABLE ENERGY RESOURCE HANDBOOK

CONTRIBUTORS CRESCENT MUSHWANA Crescent Mushwana is the Principal Engineer: Energy System Planning and Operation at CSIR. Mushwana holds a MEng degree in electrical engineering from the University of the Witwatersrand. His research interests are in energy-systems planning and operation, and power system analysis (dynamic and steady-state) with a special focus on future energy/ power system scenario modelling.

HEMEL BHANA Hemel Bhana has thirteen years of work experience fulfilling roles as programme manager (National Business Initiative), management consultant (Accenture) and mechanical engineer (Sasol Synfuels) within mainly the energy sector. He also has experience within the mining, banking and manufacturing sector; and has worked in South Africa and Nigeria. His academic qualifications include an MBA from the University of Cape Town.

PAUL JORGENSEN Paul Jorgensen is an Environmental Scientist at SRK Consulting working in their environmental division, focusing on Natural Capital, Ecosystem Services, Climate Change, Biodiversity, Environmental and Social Systems, Sustainability, Policy and Governance Strategies. Previous experiences include: visiting researcher at the United Nations Institute for Environmental and Human Security, Sustainability Consulting at Thorn Ex Group, Lecturer at the University of KwaZulu Natal Geography Department.

HARTLEY BULCOCK Hartley Bulcock serves as Senior Hydrologist at SRK Consulting. Specialisation: Hydrology, forest hydrology, design flood and rainfall estimation, water balancing, hydrological modelling, storm water management, GIS and Remote Sensing. In 2011 he was awarded the Emerging Scientist and Water Resources Engineer prize at the South African National Hydrology Symposium in Grahamstown.

MATTHEW TURNER Matthew Turner is business development manager for commercial and industrial solar at juwi Renewable Energies. juwi Renewable Energies is a full-service partner in all aspects of project development, and plan, construct, and operate renewable energy power plants with a particular focus on the wind and solar energy sector in South Africa.

SUSTAINABLE ENERGY RESOURCE HANDBOOK

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CONTRIBUTORS LUCY BAKER Lucy Baker is a research fellow in the Centre for Innovation and Energy Demand in the Science Policy Research Unit at the University of Sussex and a visiting fellow at the Energy Research Centre, University of Cape Town. Between 2013 and 2015 Lucy worked in the School of Global Studies, University of Sussex as a research fellow on an ESRC-funded project, Rising Powers and the Low Carbon Transition in Sub-Saharan Africa.

STEVE NICHOLLS Steve Nicholls leads the Climate Change, Water and Green Economy programmes at the National Business Initiative (NBI). In this role Steve runs the programmes that harness the collective effort of business across the areas of Climate Change, Water and the Green Economy. This affords him excellent exposure to company best practice as well as the opportunity to connect NBI members with academic and civil society specialists as well as a number of large donors.

PEER REVIEWERS: ERNST UKEN Ernst Uken: Director: Energy Institute at Cape Peninsula University of Technology. The Energy Institute was established in 1990 by Prof Ernst Uken to promote renewable Energy and energy efficient practices.

ROBERT LLEWELLYN JEFFREY Robert Llewellyn Jeffrey MA (Cantab), MBL (Unisa), BSc (Wits). Jeffrey is Managing Director and Senior Economist of Econometrix (Pty) Ltd. The peer review was undertaken in his private capacity.

PHILLIP LLOYD Philip Lloyd is a chemical engineer and nuclear physicist by training. He worked for 15 years in the South African mining industry, and for 15 years in international construction He then started on a third career partly as a consultant and partly as an academic, first at the University of the Witwatersrand, then University of Cape Town, and now the Energy Institute of the Cape Peninsula University of Technology.

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SUSTAINABLE ENERGY RESOURCE HANDBOOK

ENERGY EFFICIENT

LIGHTING

Lumotech has used their extensive experience in Automotive Headlight & Taillight manufacturing to design and develop an energy-efficient streetlight which delivers major savings in energy usage.

Our manufacturing process includes Injection Moulding, Vacuum Metalizing, Base Coat Spray, Bulk Moulding Compounds & Assembly.

Our range includes warehouse, perimeter and floodlighting.

Quality Assurance System Certification by Underwriters Laboratory Inc. ISO 9001:2008 • ISO 14001:2004 • ISO/TS16949:2009 • Ford Q1

Fitzpatrick Street • Niven Industrial • Uitenhage • 6229 • P.O. Box 277 • Uitenhage • 6230 • South Africa Tel: (041) 995 3111 • Fax: (041) 995 3001 • E-mail: contact@lumotech.co.za • Website: www.lumotech.co.za

CONTENTS 1 2 3 4 5 6

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Success of the REIPPPP and potential future considerations Crescent Mushwana, Tobias Niemz and Dominic Milazi

20

Impact of Rand devaluation on existing and planned REIPPPP Projects Dominic Milazi & Dr Tobias Bischof-Niemz

32

Understanding the challenges and solutions to integrating RE into the local power grid Matthew Turner

40

How effective is the economy for renewable investment?

Steve Nicholls and Marijke Vermaak

52

Nuclear energy from an African perspective: Is it really worthwhile?

Brenda Martin

64

The pinnacle of energy efficiency in the workplace Gregory Simpson

76

When great opportunity lies in waste Faith Mkhacwa

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SUSTAINABLE ENERGY RESOURCE HANDBOOK

energy Swiss Confederation

Energy

Federal Department of Economic Affairs FDEA State Secretariat for Economic Affairs SECO

CONTENTS 7

SA at forefront of solar power, battery technology advances Jack Ward

90

8

Drivers to reduce energy costs still in place Hemal Bhana

98

9

Energy efficiency on mines: all about balance Paul Jorgensen and Dr Hartley Bulcock

104

10

Legal challenges in setting up Renewable Energy Projects Charles Marais

110

11

Political power play shaping South Africa’s energy outlook Baker, L., Burton, J., Godinho, C & Trollip, H. 2015

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The National Energy Regulator (NERSA) makes a valuable contribution to the socio-economic development and prosperity of the people of South Africa, by regulating the energy industry in accordance with government laws, policies, standards and international best practices in support of sustainable development.

NERSA is a regulatory authority established as a juristic person in terms of Section 3 of the National Energy Regulator Act, 2004 (Act No. 40 of 2004). NERSA’s mandate is to regulate the electricity, piped-gas and petroleum pipelines industries in terms of the Electricity Regulation Act, 2006 (Act No. 4 of 2006), Gas Act, 2001 (Act No. 48 of 2001) and Petroleum Pipelines Act, 2003 (Act No. 60 of 2003).

Mr Jacob Modise Chairperson

Ms Maleho Nkomo Deputy Chairperson

Mr Thembani Bukula Full-Time Regulator Member: Electricity

Dr Rod Crompton Full-Time Regulator Member: Petroleum Pipelines

Ms Nomfundo Maseti Full-Time Regulator Member: Piped-Gas

Ms Khomotso Mthimunye Part-Time Regulator Member

NERSA’s mandate is further derived from written government policies as well as regulations issued by the Minister of Energy. NERSA is expected to perform the necessary regulatory actions in anticipation of and/or in response to the changing circumstances in the energy industry.

The Minister of Energy appoints Members of the Energy Regulator, comprising Part-Time (NonExecutive) and Full-Time (Executive) Regulator Members, including the Chief Executive Officer (CEO). The Energy Regulator is supported by staff under the direction of the CEO.

Kulawula House, 526 Madiba (former Vermeulen) Street, Arcadia, 0083 P O Box 40343, Arcadia, 0007 Tel: (012) 401 4600 | Fax: (012) 401 4700 Website: www.nersa.org.za | E-mail: info@nersa.org.za

Mr Fungai Sibanda Part-Time Regulator Member

1 RENEWABLE ENERGY DEVELOPMENT

Success of the REIPPPP and potential future considerations

South Africa’s Renewable Energy Independent Power Producers Procurement Programme (REIPPPP) reaches it 5th Bid Window in 2016 after successfully concluding 4 windows since inception of the programme in 2011. Here are the facts about what’s happened thus far.

To date, over 90 preferred bidders have been announced spread across all nine provinces

with over 6000MW in renewable energy generation capacity procured. The following table lists the number of successful bidders and capacity procured since 2011: (Table 1) Despite this impressive narrative, the REIPPPP is not without its detractors. Among the concerns that have been raised are: • Delays between bidding windows,

PROCUREMENT BID WINDOW

RECEIVED NUMBEROFPREFERRED PROCUREDCAPACITY BIDS BIDDERS (MW)

1

53

28

1425

2

79

19

1040

3

93

17

1456

3.5 (CSP only)

3

2

200

4

77

13

1121

4.5 (extended window)

(window 4 bids used)

13

1084

Table 1: Overview of REIPPPP outcomes Rounds 1 to 4 SOURCE: NATIONAL DEPARTMENT OF TOURISM

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SUSTAINABLE ENERGY RESOURCE HANDBOOK

RENEWABLE ENERGY DEVELOPMENT 1

• High bid preparation costs, • Increasingly limited access to grid connection capacity, • Domination of large corporates in the bidding rounds, and • High tariffs in projects that successfully made it through the earliest bidding windows.

2.1 Value of early grid connection: Within the REIPPPP, bidding teams submit the tariff at which they are willing to sell generated electricity to the Eskom Single Buyer Office. In addition, they must submit plans for contributing to economic development particularly in the communities surrounding the location of the proposed renewable energy generation plant.

Despite these criticisms, the more positive narratives from the REIPPPP have consistently come to the fore and resulted in global acclaim for the IPP Office and its implementation approach, which may now be used not only for deploying renewable energy, but also for the Gas IPP and Coal IPP procurement programmes. The REIPPPP is recognised by the international clean energy stakeholder community as a stellar programme and a model for public-private partnership for development of critical infrastructure projects.

There is a 70:30 weighting on the tariff and economic plans respectively for the proposed project. In terms of timing for connection to the electricity grid, the REIPPPP only sets a restriction on the longest permissible time for finalizing grid connection – the so-called “long stop date”. In principle therefore, with all other factors identical, there would be no difference between two projects with different Commercial Operation Dates as long as they are connected prior to the long-stop date. In 2015, the CSIR conducted a study that assesses the merit of this approach and attempts to quantify the value of earlier grid connections.

With so many positives to point to, energy sector stakeholders have recognised the good foundation set by the REIPPPP programme and proposed improvements to the current screening, evaluation, and selection metrics to further optimise renewable energy deployment.

Over the past several months a few studies have been conducted which may highlight some areas for further optimisation of the procurement process. The purpose of this article is to sensitise the reader to these studies and present the findings in a manner that allows policy makers to consider the implications for long term, power-system planning, procurement processes, selection criteria, and decisions on the electricity generation mix over a 20-30 year horizon in the Integrated Resource Plan.

The following section gives an overview of 3 research studies conducted locally in 2015 by the GIZ and the CSIR for consideration by policymakers

2.2 Spatial distribution and cost of electricity supply: With a 70:30 weighting in favour of electricity tariff pricing under the REIPPPP, there is a strong incentive for the project developer to pursue locations of highest primary renewable energy resource (i.e. highest wind speeds and highest solar irradiation). This happens because the quality of the energy resource is a major driver for the economics of the overall project. Although the primary energy resource is prioritised by the individual project developers, selecting project sites using this single driver does not necessarily translate into the lowest electricity supply costs for the whole power system.

In addition to quality of the primary energy resource, it may also be important to consider the transmission of electricity from the point of generation to the point of consumption.

In South Africa, transmission distances often

SUSTAINABLE ENERGY RESOURCE HANDBOOK

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1 RENEWABLE ENERGY DEVELOPMENT

extend over hundreds of kilometres hence there is merit in attempting to incorporate the impact of grid losses on optimal siting of generation units. This was the focus of the “Analysis of options for future allocation of PV farms in South Africa”, a study completed by the GIZ-SAGEN (South Africa Germany Energy Programme) in 2015.

2.3 Aggregation of spatially distributed solar and wind gnerations plants: Output from wind and solar renewable energy generation plants is variable in line with prevailing weather conditions. At a single location, these variations can be quite substantial particularly for wind projects where there is a non-linear relationship between wind speed and the amount of kinetic energy in the wind mass. There is also a non-linear relationship between the kinetic energy in the wind mass and the power output from the wind turbine as shown by the wind turbine power curve.

Such variability presents challenges for power production forecasting and ensuring sufficient flexibility in the overall power system. Forecasting accuracy and adequate flexibility in generation both speak to the ease of integrating high penetration levels of renewable energy into the existing grid network. In most cases, weather conditions are not identical across a large geographical area, which means that power production from renewable energy generation units at different locations will also not be identical. With wide spatial distribution of renewable energy projects, there is thus a possibility that the combined or aggregated power output from widely distributed projects either exacerbates power output variability or reduces it.

The wind and solar aggregation study conducted by the CSIR seeks to quantify the aggregation effect within the South African geographical area. The outcome of this study will have a direct bearing on the selection

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SUSTAINABLE ENERGY RESOURCE HANDBOOK

criteria of the REIPPPP, and may support the case for higher amounts of renewable energy procured by showing that wide spatial distribution of projects drastically reduces power output fluctuations, making power system management easier and less expensive.

3. Key outcomes 3.1 Financial benefits of renewables in South Africa, CSIR: In 2015, the CSIR published two widely acknowledged studies on the financial costs and benefits of the first renewable energy projects onto the existing power system in South Africa. These studies were published in January and August 2015 and found that the value of renewables per kWh (i.e. value from saving coal use, diesel use, and avoiding “unserved energy” or load shedding) exceeds the REIPPPP tariff by a considerable margin, leaving a net benefit to the economy.

RENEWABLE ENERGY DEVELOPMENT 1

ies mentioned above (i.e. study on financial cost and benefits of renewables). A forecast on future savings was done by assuming a scenario over the next 15 years until 2030, by simulating the entire South African power system and quantifying the fuel-saving and expected avoidance of unserved energy until 2030.

Subsequently, the NPV per kWh of renewable energy fed into the grid was calculated for different Commercial Operation Dates (COD).

The study found that renewable energy projects create approximately 6 c/kWh more NPV over their entire lifetime for every year they are connected earlier to the grid.

This result implies that the IPP Office can therefore, based on economic grounds, penalise projects by 0.5 c/kWh for every month that they are connected later to the grid. That is if one only looks at the pure fuel-saver value of renewables.

As the power system gets less constrained and as cheaper fuels than diesel (such as natural gas) are introduced into the system, the fuel-saving value gradually decreases every year. As a result, earlier grid connection yields a higher Net Present Value (NPV) per kWh of renewable energy over the entire lifetime of the project.

The NPV of renewable energy per unit output was defined as: • Total lifetime value that a wind/PV project creates - total lifetime tariff payments Eq. (1) • Total lifetime energy produced • Both the total lifetime value and total lifetime tariff values were discounted to bring them into present value.

The CSIR quantified the expected fuel-saving value from using wind and solar PV today based on actual data provided in the two stud-

Taking the economic value of avoided unserved energy into account on top of the fuel-saver value, the earlier grid connection has a value of just over 1 c/kWh for each month that grid connection is achieved earlier. However, avoided unserved energy is a macro-economic benefit and therefore difficult to ring-fence (unlike the fuel-saver effect, which is ringfenced in Eskom’s profit and loss statements).

The key recommendations coming out of the study were therefore to: • Adjust the proposed tariffs for wind/PV projects downwards for evaluation purposes by 0.5c/kWh for every month that projects are connected earlier to the grid versus a certain base month.

• At the same time, increase penalties for not achieving stated the COD in order to prevent “gaming” the rules where developers set artificial early Commercial Operation Dates.

As a result, a wind project with COD in Dec

SUSTAINABLE ENERGY RESOURCE HANDBOOK

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1 RENEWABLE ENERGY DEVELOPMENT

2018 at a tariff of 0.65 R/kWh will win against another wind project with COD in Dec 2019 at a tariff of 0.60 R/kWh (because the difference

chance of winning against very large projects, because they can get connected to the grid earlier.

According to the IRP 2010, 8400MW of solar powered electricity capacity is planned for installation until 2030.

3.2 Analysis of options for future allocation of Solar PV farms in South Africa, GIZ-SAGEN: According to the IRP 2010, 8400MW of solar powered electricity capacity is planned for installation until 2030. Although the IRP does not specify whether these will be small or utility scale projects, the dominant trend so far is that many utility scale solar projects have taken off and are located in the Northern Cape Province within the so-called “Solar Corridor� where some of the highest solar irradiation levels in the country are found.

In general however, solar irradiation levels across the entire country are relatively high

of 5 c/kWh is less than the NPV difference of 6 c/kWh for the year).

Introducing this into the existing evaluation mechanism has the additional positive effect that smaller, more distributed projects close to existing grid infrastructure have a

24

SUSTAINABLE ENERGY RESOURCE HANDBOOK

RENEWABLE ENERGY DEVELOPMENT 1

when compared to many areas globally, such as Europe, where much more solar PV capacity has already been installed. More importantly, locating new renewable energy projects closer to electricity demand centres may potentially require less electricity grid strengthening and perhaps, lead to lower project costs overall. A study spearheaded by the GIZ-SAGEN in 2015 investigated the economic impact of having Solar PV projects located closer to load centres.

The study evaluates the economic impacts by using a scenario based approach. Three scenarios are formulated as follows: Scenario A: Maximum Energy Yield where most Solar PV farms are located in the Northern Cape Solar Corridor (under this scenario the total of 6.4GW is located in the Northern Cape while 2GW is distributed across the country)

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1 RENEWABLE ENERGY DEVELOPMENT

Scenario B: Minimum Grid Enforcements where most Solar PV farms are located close to electricity demand centres (under this scenario 2.6 GW is located in the Northern Cape while the remaining 5.8 GW is distributed across the country) Scenario C: REDZ based siting where most Solar PV farms are located within earmarked Renewable Energy Development Zones developed via a Strategic Environmental Assessment (SEA) conducted by the CSIR Built Environment Team for the Department of Environmental Affairs.

To assess the most economical scenario, the levelised cost of electricity is calculated followed by an assessment of the grid strength-

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SUSTAINABLE ENERGY RESOURCE HANDBOOK

ening required at the transmission and distribution voltage levels. In the final step, an assessment is made on how the spread of So-

With a 70:30 weighting in favour of electricity tariff pricing under the REIPPPP, there is a strong incentive for the project developer to pursue locations of highest primary renewable energy resource. lar PV generation units affects grid losses. The cumulative impact of all these outcomes is then determined to yield a more holistic view

RENEWABLE ENERGY DEVELOPMENT 1

on the most beneficial approach regarding the siting of Solar PV projects across the country.

The final calculation allows an objective comparison of the 3 scenarios. The total Levelised Cost of Electricity across all 3 scenarios after calculating the above mentioned impacts only differs by approximately 0.0015 USD/kWh which converts to roughly 3 c/kWh in South African currency. A difference of 3 cents in local South African currency shows, in principle, that there are very similar costs associated with using any 3 of the approaches as an implementation pathway for deploying renewable energy.

A 50% increase in the current share of wind energy in South Africa’s electricity supply does not increase the daily gradients or ramp up in net electricity demand if the wind fleet is widely distributed.

This may provide valuable insight for the REIPPPP. Because overall costs from the three scenarios are almost identical, strategic decisions can be taken to incentivise certain patterns for project placement without fear of adversely affecting project economics at the national power system level. This may simplify consideration such as environmental aspects, socio economic benefits or the timely grid connection of projects. Determining exactly how the results of this GIZSAGEN study translate into amendments to the REIPPPP selection criteria may be a task best left to the relevant authorities at the Department of Energy.

As one looks ahead to future procurement of renewable energy capacity, it may be advisable to consider incentives that encourage a more disbursed geographical spread of solar PV projects where primary renewable energy resource may not be as high, but the economics of siting projects there is still favourable due to lower grid losses and strengthening costs.

A more disbursed fleet of renewable energy generators will also yield aggregation benefits which were quantified by a 2015 study spearheaded by the CSIR. 3.3 Solar PV and Wind Resource Aggregation Study, CSIR: In March 2016, the CSIR completed an investigation into the Aggregation effect of Spatially Distributed Solar and Wind projects. In a similar manner to the GIZ study, 3 scenarios are investigated where solar and wind projects are arranged according to 1) “scientific” scenarios 2) designated area scenarios and 3) grid-oriented scenarios. The aggregated output from all the projects is then examined using metrics that are important for national grid operations and energy planning. Key conclusions from the study are as follows: Wind and solar resources are abundant almost everywhere in South Africa; therefore the areas where grid capacity is available should be prioritised. Firstly, this will ensure speedy grid connection, and secondly, it will ensure cost saving due to lower grid strengthening costs.

Early grid connection is also a cost saving on its own, because delays are costly to the country both in terms of unserved energy and lost economic opportunity. The REIPPPP should provide incentives for connecting where there is grid capacity; but there is currently no incentive for this.

Renewable Energy Development Zones (REDZ) are therefore a good starting point in terms of earmarking areas for projects. When expanding the REDZ further, the wind and es-

SUSTAINABLE ENERGY RESOURCE HANDBOOK

27

pecially solar primary energy resources should not be a limiting factor given their abundance nationally. Only environmental considerations should apply when restricting areas for developing projects.

Short term fluctuations in aggregated wind-power output are significantly reduced by wide spatial distribution. A 50% increase in the current share of wind energy in South Africa’s electricity supply does not increase the daily gradients or ramp up in net electricity demand if the wind fleet is widely distributed.

This outcome shows that higher penetration of renewables places no additional difficulty from a grid and power systems management point of view.

Widely distributed wind power projects lead to an error improvement of approximately 85% for day-ahead and approximately 60% for

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SUSTAINABLE ENERGY RESOURCE HANDBOOK

intra-day forecasts on aggregated electricity output from the renewable energy fleet. This is a very important outcome for power system operators who are responsible for coordinating generation units that are called upon at a given time of day (i.e. unit commitment scheduling). A lower margin of error makes this task easier to manage; resulting in fewer instances where generation units are called upon on very short notice due to differences in actual output from the renewable generation units versus forecasted output.

In addition, the correlation between wind and solar PV energy output is low (i.e. solar and wind units are not generating at full output capacity at the same time). As a result, at least 20% additional wind/PV power plants can be installed per transmission substation with no curtailment. This will open up capacity at additional grid feed in points.

RENEWABLE ENERGY DEVELOPMENT 1

The REIPPPP is a landmark programme for South Africa which has stimulated growth in the renewable energy sector and provided many lessons for streamlining procurement of power in the country. Despite this success, there is room for further refinement. Three studies conducted in 2015 by the GIZ and CSIR provide pointers for where these refinements could come from. In quantifying the value of earlier grid connection, it has been shown that there is a sound economic basis in South Africa for placing a premium value of 6 c/kWh for a project that is connected a year earlier to the grid. This outcome can be applied within the selection processes of the REIPPPP when comparing projects with different Commercial Operation Dates.

From the GIZ-SAGEN, another valuable study was completed demonstrating that the overall cost of electricity supply remains relatively constant if solar PV projects are located away from the solar corridor in the Northern Cape and close to load demand centres or areas where grid connection capacity is available.

This is primarily because the lower solar irradiation outside the solar corridor is offset by lower grid transmission losses and strengthening costs. This outcome may point to a potential refinement in the IPP programme that more actively recognises issues around grid losses and constraints thereby diluting the effect of current REIPPPP selection criteria which lead

to an overconcentration of solar projects in the solar corridor.

Lastly, the wind and solar aggregation study demonstrates that integration of renewable-based electricity generation is not prohibitively difficult. Through spatial distribution of solar PV and wind projects, critical challenges are materially mitigated that would normally pose formidable problems power system operators.

Among the key benefits of aggregation is increased accuracy on forecasted electricity output, reduced variability on output, while having negligible effect on required electricity supply ramp-up rates heading into daily peak periods. Therefore, increasing penetration of renewable energy from current levels by up to 50%, and doing it with optimal spatial distribution, has negligible impact in terms of requirements for flexible supply capacity. Additionally, the low correlation between wind and solar PV resources will allow for higher penetration of wind or PV per grid connection point without high risk of curtailment.

Crescent Mushwana, Dominic Milazi and Dr Tobias Bischof-Niemz

References CSIR, 2015 (a). Financial benefits of renewables in South Africa in 2015 CSIR, 2015 (b). Solar PV and Wind Resource Aggregation Study GIZ, 2015. Analysis of options for future allocation of PV farms in South Africa.

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CASE STUDY

AECOM has a strong African footprint

A

ECOM has a strong African footprint in integrated engineering and environmental services for sustainable energy solutions through expert wind and solar, hydropower, transmission and distribution, and geothermal services.

The point of entry in the project lifecycle starts with feasibility (technical and economic), through permitting and authorisations to design, construction monitoring and commissioning, or at any point in-between. Recognition of this experience was seen in AECOM’s appointment as Environmental Adjudicator on the DoE’s IPP Tender Programme.

Locally, AECOM is actively involved in feasibility studies for waste-to-energy plants, biofuel research and licencing of refuse derived fuels.

Globally, AECOM is pushing the boundaries of technologies that are more energy efficient and less reliant on traditional energy needs.

In Rustenburg, AECOM has been implementing the Integrated Waste Management Plan.

Of interest is the trade-off needed between recycling at source and the consequent reduction in available material for refuse derived fuel (RDF) plants. The economic feasibility of a RDF plant is dependent on certain waste, and if this is diverted away from the waste stream, the fuel recovery potential may not be realised.

AECOM is working with agricultural institutes to research multi-use crops for high-nutritional produce and biofuel production. Focusing on indigenous plants, the research aims to provide emerging farmers with opportunities

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SUSTAINABLE ENERGY RESOURCE HANDBOOK

to boost employment, improve health and to provide the fuel to nurture the economy.

At the cutting edge of technology, AECOM has unique experience utilising nano-enabled materials in its designs and specifications to reduce energy footprints. There are significant opportunities for nano-aerogel insulation, the most thermally efficient material known; nano-enabled LED and OLED lighting, which is significantly more efficient than fluorescents; and nano-enabled thermochromic window insulation. The Halley VI Research Station in Antarctica, engineered by AECOM, features panels of translucent nano-aerogel.

AECOM has recently become involved in Hyperloop Tech’s project to develop a rapid transport system using tubes at near vacuum conditions to propel passenger pods at three times the speed of rail, using renewable energy to power the system.

For large and small projects, low and high technology systems, AECOM is well suited to use global expertise and leadership to develop African solutions for effective energy resource management.

It is one thing to imagine a better world.

It’s another to deliver it. aecom.com

2 ECONOMICS OF ENERGY

Impact of Rand devaluation on existing and planned REIPPPP Projects

Renewable Energy Projects developed under the South African Independent Power Producers Programme (REIPPPP) occur within a framework designed to ensure efficient risk allocation and favourable conditions for raising finance for renewables based IPP Projects in South Africa.

Critical elements of this framework are: • The existence of a creditworthy off-taker for electricity generated • Long term power purchase agreement providing tariff certainty • Clear project evaluation and selection crite-

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SUSTAINABLE ENERGY RESOURCE HANDBOOK

ria from the procuring authority • Clarity on permitting processes for implementing projects Outside of these critical elements, several other factors exist that have a bearing on the bankability of a utility scale renewable energy project. Among the most important of these are the financial risks that respective parties are exposed to in structuring finance for utility scale renewable energy projects. Financial risks are related to the stability of future cash flows available to service debt as a result of capital intensiveness of the investment.

The most common among these is interest

ECONOMICS OF ENERGY 2

rate risk and currency risk. These two may be linked to some extent but the focus of this text will be on local currency devaluation since inception of the REIPPPP and the impact this potentially has on projects already implemented.

An attempt will also be made to understand how currency risks and the possibility of further local currency depreciation may affect future projects. A general overview is given in Figure 1 for the parties assuming currency risk at various stages of the renewable energy project development process under the REIPPPP. As illustrated, the risk changes hands between the IPP and Single Buyer Office at Bid Submission and then back again at financial close.

Entity holding currency risk

Single Buyer Office IPP or Project Developer

TIMELINE

Each renewable energy project within the REIPPPP is unique in terms of participating project sponsors, lenders, financing arrangements, contracting, technology, and quality of primary energy resource. This diversity means that impacts on specific projects due to currency depreciation will not be identical. Moreover, it is very difficult to quantify the impact on any single project without a full analysis of the relevant financial model. In light of this, the following attempts to highlight general impacts and sensitize the reader to questions that need to be asked (and answered) when considering a future characterised by a steadily depreciating local currency – a future that many believe South Africa faces IPP or Project Developer today.

20 years

RFP announced

Bid submssion

Preferred Bidder Status

Financial close

Commercial Operation date

Historical currency exchange trends and poLocal content % Foreign % tential future trajectory TARIFF ADJUSTED TARIFF As demonstrated in the Tariff structure at Bid Submission at financial close and Figure 2, the South AfriNon indexed % adjustments can Rand has depreciated CPI Indexed % adjustment over 30% against both the FY1 FY2 FY3 United States Dollar and Figure 1: Allocation of currency risk at various stages of project development under Euro since 2010; the year the REIPPPP prior to launch of the CAPEX

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2 ECONOMICS OF ENERGY

12h

.110 .095 .080 .065 .050

2012

2013

2014

2015

1D 1W 1M 1Y 2Y 5Y 10Y

2016

Euro/ZAR exchange rate (2010-2015) 12h

.135 .115 .095 .075 .05

2012

2013

2014

2015

1D 1W 1M 1Y 2Y 5Y 10Y

2016

USD ZAR exchange rate (2010-2015) Figure 2: Historic exchange rate trend of South African Rand (ZAR) vs. United States Dollar (USD) and Euro (EUR)1

REIPPPP. There are diverse views on whether current exchange rates levels as depicted above reflect an undervalued South African Rand, or whether a further depreciation is still to tbe expected. According to a November 2015 survey of over 200 forecasters in 27 countries conducted by UK-based research firm Consensus Economics, the South African Rand may be undervalued by as much as 25-30% perhaps providing some basis to forecast a recovery against major currencies in the short to medium term.2 On the other hand, nothwithstanding any views that it is undervalued, the South African Rand was ranked among the 5 worst performing currencies worldwide in 2015.3 A continuation of this trend impact projects in several ways and with each impact, it is important to distinguish between those that concern projects already implemented (i.e. Commercial Operation Date already achieved), those that are various stages of development, as well as

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SUSTAINABLE ENERGY RESOURCE HANDBOOK

those that are yet to come.

A number of aspects of REIPPPP projects that will be impacted by a depreciation in local currency are introduced in the sections that follow. These include: • Procurement Components sourced outside South Africa • Operations and Maintenance (O&M) Contract • Debt costs and requirements for currency hedging • Cost of Equity • Renewable Energy Projects as Assets • Impact on loan guarantees Procurement Components sourced outside South Africa Within the REIPPPP, seven technologies have capacity allocation for procurement thus opening opportunities for project developers to participate in the competitive bidding process. For each renewable energy project developed using any eligible technology, a substantial portion of the goods and services required to complete the project are sourced from outside of South Africa. This share of foreign goods and services is captured in the local content metrics tracked by the Department of Energy (DoE) Independent Power Producers (IPP) Office and the Department of Trade and Industry (DTI). Local content levels for various technologies through the first 3 procurement windows in the REIPPPP are shown in Figure 3: The most immediate and easily discernable impact of currency devaluation is therefore, to increase the Rand based cost of renewable energy projects by increasing the Rand purchase price of imported goods and services. This in turn increases the amount of rand-denominated financing required to bring the project to realization. A brief scan of figures across all projects reveals that 40- 50% is a representative range for local content in the South African context on most utility scale renewable energy projects. Although the exact currency

ECONOMICS OF ENERGY 2

TECHNOLOGY

FIRST BID

SECOND BID

THIRD BID

Threshold

Target

Actual Bid

Threshold

Target

Actual Bid

Threshold

Target

Actual Bid

25%

45%

27.4%

25%

60%

48.1%

40%

65%

46.9%

35%

50%

38.4%

35%

60%

53.4%

45%

65%

53.8%

with South Africa’s risk profile.

Operations and Maintenance Solar CSP 35% 50% 34.6% 35% 60% 43.8% 45% 65% 44.3% (O&M) Contract Biomass 25% 45% No bids 25% 60% No bids 40% 65% 40% A critical compoBiogas 25% 45% No bids 25% 60% No bids 40% 65% No bids nent for bankable Landfill Gas 25% 45% No bids 25% 60% No bids 40% 65% 41.9% Small Hydro 25% 45% No bids 25% 60% No bids 40% 65% No bids renewable energy projects is the Figure 3: Local content level through bid windows 1, 2, and 3 of the REIPPPP for eligible participation of a technologies 4 well-qualified and experienced engineerdevaluation effects would have to be evaluat- ing contractor for design and construction of ed within the relevant financial model, an ap- the power generation facility. In addition to proximation can be made that, with all other construction of the facility according to acfactors kept constant, a 30-40% depreciation ceptable standards, it is as important to ensure in Rand exchange rate against major curren- that the facility is properly operated and maincies such as the United States Dollar or Euro tained to ensure optimal performance over would lead to a nominal Rand-based tariff in- its operational lifetime. This task is conducted under an Operations and Maintenance (O&M) crease in the region of 15-20%. contract that typically runs for a major portion However, as has been documented in many of the operational lifetime of the generation other publications, the tariffs seen through facility. successive bidding rounds of the REIPPPP since 2011 have decreased despite South Af- The performance of the facility is critical to enrica’s currency devaulation. This is primarily sure adequate revenues from electricity sales because all other factors have not remained used for servicing debt. In light of this, the constant. The counteracting effects such as in- O&M contract typically runs until most or all creased competition between bidders, global debt obligations have been fulfilled. For a facildecreases in equipment prices (especically PV ity operating under a 20-year Power Purchase modules), and optimization of renewable en- Agreement, the duration of the O&M Contract ergy dealmaking (i.e. learning by doing) has would ideally be for all 20 years but it is relaoffset currency trends that would have led to tively common to see the responsibility for the increased tariffs. The most striking illustration O&M contract change hands over the course of these conteracting effects is in the latest Bid of this period. The obligation from the original Window tariffs for solar PV projects that have O&M contract may remain in place for 10-15 dropped by approximately 60% since Bid Win- years after which, with skills transfer to an alterdow 1 submitted in November 2011.5 Several native contractor and payback on the majority renewable energy sector stakeholders have of the debt already achieved, the responsibility raised concerns over the sustainability of these of the O&M may be transferred. low tariffs. They propose that these low tariffs indicate a strategy on the part of project de- In many instances, very specialised skills are velopers to maximise market share rather than required to conduct operations and mainhave a project portfolio with returns aligned tenance activities and these contracts are with international benchmarks for a country very often quoted in foreign hard currency Onshore Wind Solar PV

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– demonstrating that such services are often provided by a non-South African entity. Importation of major critical spare parts may also marginally add to foreign exchange exposure.

Over a period of 10-15 years, the Rand- based cost of servicing the O&M Contract would escalate in line with devaluation of the local currency. Using historical trends, a renewable energy project that started commercial operations in 2011 would by now have suffered a 30% increase in the Rand-based costs of the O&M contract. This revenue would place an ever increasing burden on the free cash flows from electricity sales and hence also reduce the overall investment return calculated in foreign currency terms.

For renewable energy projects, the O&M cost components is relatively modest at 10% as a proportion of total levelised cost of energy.

The impact of O&M contracts on foreign currency based returns would be noteworthy mostly in CSP projects where O&M costs can amount to as much as 15% of total generation costs.6 Debt costs and requirements for currency hedging Closely related to currency depreciation is the broader issue of currency risk which arises with asset- liability mismatches due to project loans and project revenues not being of the same currency. This is particularly important in South Africa where the Power Purchase Agreements under the REIPPPP are indexed for only inflation and not for currency fluctuations.

Without certainty on future exchange rates, mitigation measures are required to address this risk and such measures may add to overall project financing costs.

Several instruments already exist for hedging currency depreciation including forward contracts, swaps, and futures. For the currency volumes under consideration in major infrastructure projects, the purchase of such hedging

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instruments can be significant and in emerging market countries particularly, may potentially constitute roughly 5% of overall capital project costs.7 This pricing typically increases with increased currency exchange volatility.

The hedging costs in an environment of relatively rapid and unpredictable currency depreciation can therefore compound the upward pressure on nominal electricity tariffs required to make future renewable energy projects viable. In addition, it may not be possible to obtain a hedging instrument to completely neutralize Rand foreign exchange risk over a 15-20 year period and this potentially renders several financing options from international lenders inaccessible.

In addition to increased hedging costs, local currency depreciation increases general economy-wide inflationary pressures due to increasing prices for imported goods and services. To prevent more general price inflation resulting from this, central bank authorities typically increase base interest rates. In so doing, higher financing costs arise across multiple infrastructure intensive sectors including renewable energy power generation projects.

Cost of Equity Along with the debt funding tranches, equity also forms a substantial portion of total financing. The spilt between debt and equity funding on a project in many cases reflects a view taken on the strength of future cash flows and the project risk profile. A typical debt-equity split would be 70:30 in most instances where project finance is used. Where forecasted returns are very strong, lenders may allow higher leverage of up to 80-85% of total financing.

Very high leveraging creates higher returns for equity investors in the renewable energy project.

With high currency uncertainty or perceived risk however, the debt equity split permitted

ECONOMICS OF ENERGY 2

by lenders may be reduced to 65-70% indicating a risk re-allocation over to the project sponsors with more stringent debt funding covenants. This creates the dual challenge of firstly having higher equity tranche requirements and then secondly, also having to ensure that equity investors are secured despite having higher hurdle rates on expected equity returns due to increased risks. The current tariff levels may not yield equity returns high enough to attract a wider range of international equity investors who face negative leverage after accounting for debt costs, currency swap rates, and project risk margins. This may ultimately lead to a concentration of few equity players coming through the REIPPPP.

income stream in its own right for local lenders but it also allows lenders to participate in further lending activities on other energy project without burdening their balance sheets.

Challenges with moving debt off domestic balance sheets could limit the amount of renewable energy projects that can be funded through local lending institutions. This could place a material constraint on how quickly further renewable generation capacity can be rolled out. Any international funding would require the relevant hedging measures mentioned earlier which may lead to higher financing costs overall.

Renewable Energy Projects as Assets Infrastructure projects with stable investment returns and low regulatory risk are typically attractive assets for institutional investors. In many instances, debt held by lenders participating in syndicated loans to finance renewable projects may be sold to pension funds, endowments, or insurance companies. The effect of currency devaluation and a deteriorating economic outlook for the project host country is potentially two-fold. Firstly, a weakening currency would lead to low returns denominated in more stable foreign currencies.

This essentially makes debt held on South African renewable energy projects less attractive to buyers.

Impact on loan guarantees A final component regarding the impact of currency devaluation is the indirect effect on overall economic sentiment, credit rating of the off-taker or single-buyer, and on sovereign credit rating. This broader downturn may limit the benefit of government guarantees whose value is commensurate with the country risk and financial standing. A depreciating local currency diminishes any country’s capacity to service its foreign debts. This in turn, in the long run, may contribute to a rating downgrade with widespread implications for virtually all economic sectors. There is also potential for a vicious cycle where downgrading accelerates deterioration of economic prospects and capital outflows leading to further currency depreciation.

This effect would not be unique to South Africa but typically also applicable to any emerging market that suffers the same fate from a currency perspective. Secondly, it is also conceivable that under the current challenging economic circumstances, South Africa could lose its standing as an investment grade destination for capital. This would in effect reduce possibilities for on-selling of debt to investors globally who have restrictions on the assets classes they can invest in based on rating. Being able to sell-off this debt is not only a viable

Although currency value is an important factor, several other elements affect sovereign ratings including assessments of current and future trends in economic growth, inflation, standard of living, and unemployment. As in any other sector that relies upon international investment for growth and development, the local renewable energy sector is also affected by how the international community views the risk associated with investing locally. A deteriorating economic outlook characterised by capital outflows, markedly lower foreign investment, and commonlyalso a

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2 ECONOMICS OF ENERGY

devalued currency would negatively affect the strength of the government guarantee offering no comfort to investors. As higher financing costs are increasingly reflected within the financing structures for renewable energy projects, there may be an increase in the tariffs seen on renewable energy project selected through the REIPPPP. Lower credit ratings may also limit the extent to which government guarantees may support large infrastructure programmes. In 2011, prior to launch of the REIPPPP, government guarantees via National Treasury proved to be a key ingredient in South Africa’s attractiveness as a market for renewable energy – especially in light of Eskom (the offtaker for the Power Power Agreements) recently suffering ratings downgrades With any further deterioration in sovereign credit ratings, government may opt to reprioritise away from renewable energy and provide such guarantees for other state driven programmes.

Given the importance of reliable energy supply in enabling sustained economic growth, the competition for government guarantees may, in fact, come from other energy procurement programmes such as the Gas and Coal Independent Power Producer Programmes as well. In essence, poor credit ratings increasingly raise issues around affordability and sustainability of such guarantee schemes relative to available fiscal resources and political priorities.

Summary and overview Current economic sentiment in South Africa remaining subdued, there is still general optimism about the future of renewable energy in South Africa. This optimism is partly underpinned by key elements that place South Africa among the preferred investment destinations in Africa including: good infrastructure, a developed finance services sector, and relatively stable economic and political outlook. Even with substantial currency depreciation since

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2011, this trend seems not to have slowed the enthusiasm for South Africa’s REIPPPP. The effects of currency depreciation have remained concealed by technology price trends, local competition effects, and better financing terms as lenders and investors have become more experienced with structuring renewable energy projects in South Africa. As the difficult economic circumstances persist and the local currency depreciates further, some real adverse effects may start becoming more visible and influence the perception around South Africa as a competitive destination for renewable energy projects.

With further currency depreciation, more serious questions start to emerge on currency risk, hedging costs, strength of government guarantees, cost of capital, and capacity for funding in local currency. These are challenges that will be relevant regardless of the generation technology being considered in the REIPPPP. With coal, gas, and co-generation based procurement programmes also under way or on the horizon, the challenges mentioned here will need to be addressed outside the renewable energy arena as well.

It is important that at least some attention is channelled towards the effect of the currency’s performance on such major programmes and that such effects are brought into the mainstream discourse on our common energy future. In the years to come, South Africa may have to face these realities more directly as these effects start to present themselves more boldly. This will add to the complexity of ensuring affordable and sufficient electricity supply but such risks may be effectively handled if the most appropriate mitigation measures are discussed, understood, and are readily implementable well before more severe depreciation of the local currency.

Dominic Milazi and Dr Tobias Bischof-Niemz.

ECONOMICS OF ENERGY 2

References: XE Online 5 Year Historical Foreign Exchange Rates: EUR/ZAR; USD/ZAR http://www.xe.com/currencycharts/?from=ZAR&to=USD&view=5Y http://www.xe.com/currencycharts/?from=ZAR&to=EUR&view=5Y Preuss, H “Survey finds rand is undervalued” Business Day Live 16 November 2015 http://www.bdlive.co.za/markets/2015/11/16/survey-finds-rand-is-undervalued Primary Source: Consensus Economics http://www.consensuseconomics.com/South_Africa_Economic_Forecasts.htm CNN Money Worst currencies of 2015 http://money.cnn.com/gallery/investing/2015/12/31/worst-currencies-2015/3.html Eberhard, A. Kolker, J. Leigland, J. “South Africa’s Renewable Energy IPP Procurement Program: Success factors and lessons” Ch.5: Trade-off between prices and economic development outcomes Page 26 May 2014 http://www.gsb.uct.ac.za/files/PPIAFReport.pdf South African Department of Energy (DOE) “Bid Window 4: Preferred Bidders Announcement” 16 April 2015 http://www.ipprenewables.co.za/#page/2183 United States Energy Information Agency (EIA) “Levelised cost and levelised avoided costs of new generation resources in the Annual Energy Outlook 2015” Estimated levelised cost of electricity (LCOE) for new generation resources 3 June 2015 Ali Farooquee, A. Shrimali, G. “Reaching India’s Renewable Energy target costs effectively: A foreign exchange hedging facility” Climate Policy Initiative / Bharti Institute of Public Policy June 2015 http://climatepolicyinitiative.org/wp-content/uploads/2015/06/Reaching-Indias-RenewableEnergy-Targets-Foreign-Exchange-Hedging-Facility_Technical-Paper.pdf

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3 ENERGY SOLUTIONS

Understanding the challenges and solutions to integrating RE into the local power grid South Africa’s traditionally ‘cheap and plentiful’ electricity in the 1990’s led to a lack of investment in generation and transmission infrastructure over the past few decades. Many of our power plants, which were built many years ago, are becoming increasingly unreliable and expensive to maintain as they reach the

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SUSTAINABLE ENERGY RESOURCE HANDBOOK

end of their operating life and need to be retired.

These factors, combined with a growing energy demand to meet GDP growth in post-democratic South Africa, have resulted in a highly constrained electricity supply situation since 2008. South Africa is increasingly faced with

ENERGY SOLUTIONS 3

coming on line: South Africa has abundant wind and solar resources, and where low-cost financing is available; utility-scale Renewable Energy (RE) projects provide electricity at a lower cost (without any fiscal support or government subsidies) than most other new-build power plants. Solar PV’s growing competitiveness is a radical departure from conventional thinking, which positions renewables as a more expensive source of power than traditional generation technologies.

Despite being critiqued for its heavy reliance on coal-fired power in the past, South Africa has recently developed what is commonly regarded as one of the most successful IPP-driven RE programmes globally. The Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) has, in three short years, ensured that the cost of electricity from wind and solar PV has dropped below that from new coal-fired power stations. Measured using the Levelised Cost of Energy (LCOE ), REIPPPP costs are reflected by the bid tariff, which recovers plant capital cost, operating costs and expected investor returns over a 20year power purchase agreement (PPA) period.

pressure from two sides: rising electricity costs (“cost per kWh”) and lack of energy security (“cost per lost kWh”) from traditional electricity sources.

Growth of Commercial & Industrial PV solutions Aside from utility scale projects, many businesses are turning to Small Scale Renewable Embedded Generation (SSREG) to provide relief. The private sector solution largely consists of rooftop and ground-mounted Solar PV Plants with an installed capacity of between a few hundred kilowatts (kW) and one megawatt (MW). Above-inflationary electricity tariff hikes have combined with significant reductions in the cost of installed PV systems over the past few years.

The rise of alternative options for electricity supply in South Africa Utility Scale Renewable Energy Plants are

Now even smaller scale solar generation has dropped below the rates businesses currently pay from Eskom and municipalities in many

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key industrial hubs across South Africa. The business case for investing in an on-site Solar PV Plant offers highly favourable returns when compared to many other capital investment options.

Alternatively, businesses that prefer to keep ‘non-core’ investments off their balance sheets have the luxury of a variety of financial options from Solar Lease or Power Purchase Agreements (PPAs). These lower risk options are structured to offer immediate cost reductions that typically increase over time as grid tariffs rise. Businesses additionally benefit by being able to accurately model future capital investment strategy based on accurate electricity cost inputs.

How the price of RE compares with electricity from other new-build options?

Eskom has calculated that existing electricity generation in South Africa (predominantly from decades-old coal-fired power plants) costs around R 0.44 per kilowatt-hour on average . Compare that to the LCOE of a new-build coal plant, which ranges from anywhere between R 0.54 and R1.05 per kilowatt-hour .

The integration of decentralised generators to create Virtual Power Plants is dependent on upgraded two-way metering and improved communications technologies.

By some estimates, an analysis of existing natural gas, nuclear, and hydroelectric resources will reveal similar trends - each produces electricity at a substantially lower cost than its forward-looking LCOE would indicate.

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Figure 1: LCOE of new-build generation options in SA

While it is true that electricity from existing power plants costs less to generate than the electricity from new plants, there comes a time when we need to retire old plants and replace them with new generation assets despite the higher costs. Because of this, consumers can expect the cost of electricity to rise faster than it would have had we been able to keep existing power plants in service.

The challenge to understanding how much to expect tariffs to increase is finding credible new-build LCOE’s for ‘traditional’ power plants in South Africa - coal, gas, hydro and nuclear - to compare to widely published utility-scale wind, solar PV, concentrator photovoltaics (CPV) and concentrated solar power (CSP). Estimates on the LCOE from various third-party sources are included in Figure 1. From this, it becomes apparent that implementing RE is going to be critical in terms of managing the cost of future electricity supply.

How RE and the rise of decentralised energy solutions will impact the future of electricity supply in South Africa?

Other than the predictable noise from the coal and nuclear generation sectors, many critics of

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renewable energy continue to highlight the fact that RE plants only produce energy when the wind is blowing or the sun is shining. While this certainly is a disadvantage of renewable energy generation, the challenge of integrating intermittent energy resources into the grid is largely being exaggerated. This is why: Grid integration of RE requires a new approach The difficulty associated with integrating variable sources of electricity stems from the fact that power grids (including Eskom’s national transmission and distribution infrastructure) were initially designed to incorporate large, centralised and controllable (albeit slow to respond) baseload generators. Because traditional grids have very little storage capacity, the balance between electricity supply and demand must be maintained at all times to avoid grid balancing issues, or in the most extreme case, a total blackout of the grid. Up until now, faster response times to load fluctuations have been accounted for by peaking plants (gas and diesel turbines) and to a lesser extent installed storage capacity (to date, this has consisted largely of pumped storage hydro-electric systems).

Renewables, especially wind and solar PV which make up the bulk of currently installed RE capacity in South Africa, are challenging because they disrupt the conventional methods for planning the daily operation of the electric grid. Their power fluctuates depending on the availability of these resources, forcing the grid operator to adjust its operating procedures to incorporate day-ahead, hour-ahead, and real-time generation.

Breaking the traditional business model of utilities Adding further to these challenges, as the cost of unsubsidised RE undercuts the cost of more traditional baseload generation to a larger extent over time, generators that used

to typically run all day every day will now be switched off during windy periods or during the middle of the day so that the cheaper energy produced from renewables can be used.

Although this will have a massive influence on lowering electricity tariffs and reducing carbon emissions, it is likely to wreak havoc on the commercial models for new-build baseload plants. This is especially true for nuclear power, which needs to run constantly for long periods between refuelling to justify the massive upfront capital expense. This means that nuclear power is likely to be orders of magnitude more expensive than wind and solar generation during the times these RE resources area available.

Many utilities have started to realise that they need to update their way of operating to ensure profitability as RE penetration increases (both on a centralised utility scale and decentralised C&I generators). In the 2015 Berkshire Hathaway annual report, Warren Buffet warned shareholders of Berkshire Hathaway Energy (“BHE”) that the business of electricity now operates within a changing economic model. “Historically, the survival of a local electric company did not depend on its efficiency” he said. “In fact, a ‘sloppy’ operation could do just fine financially… because utilities were usually the sole supplier of a needed product and were allowed to price at a level that gave them a prescribed return upon the capital they employed.”

RE generation has shifted traditional demand response requirements As additional wind and solar generation is added to the grid, the residual load starts to ramp up steeply in the evenings as the demand increases and PV generation drops off.

This is referred to as the “duck curve” for its resemblance to a sitting duck.

Critics (often those with vested interests) often turn to the duck curve to support the argu-

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ment that integrating renewable resources is nearly impossible, and to support increased investment in coal and nuclear build programmes. For others, the duck phenomenon actually presents an opportunity for utilities and regulators alike to retire inflexible generating plants with high off-peak must-run requirements and evaluate resource decisions to move towards those with greater efficiency, enhanced flexibility, better reliability, increased energy security and lower cost than conventional generation.

going to require an efficient and effective electricity market that incentivises electricity generation when and where it is most needed. Many existing competitive electricity markets already have prices that vary over the day depending on electricity supply and demand. This is an extremely effective means by which to drive consumer behaviour, with people tending to switch off unnecessary loads during peak times (think dishwashers, pool pumps, water heating, etc.).

With the advent of the “Internet of Things” (IoT ), increased intelligence can be built in to closely coordinate the control of various generators, storage and load control. On the macro level, this creates a more efficient system with less energy wastage and lower carbon emissions, while on a micro level this enables businesses and individuals to significantly reduce their electricity bills.

Will Eskom’s static pricing models evolve to incorporate real-time pricing that reflects the real value of electricity?

Figure 2: The ‘duck curve’ before and after interventions

The bottom chart in Figure 2 demonstrates how the application of already-existing technical opportunities in energy storage, strategic energy pricing, smart demand response, and renewable energy technologies flattens out the load curve when compared to the existing load curve depicted in the top chart. Note that these strategies have the benefit of reducing the requirement for installed capacity even before RE is introduced (blue line).

Pricing models can drive efficient energy use Accomplishing the optimal energy mix is

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Reducing system intermittency through geographic diversity Critics often claim that adding too much renewable energy into the grid will increase the complexity and cost of keeping the grid functional. However, the Law of Large Numbers tells us that renewable energy actually becomes more predictable as the number of renewable generators connected to the grid increases thanks to the effect of geographic diversity. Put another way, the combined output of every wind turbine and solar panel connected to the grid is far less volatile than the output of an individual generator.

Reduced intermittency allows for increased predictability, making it easier to balance the residual load.

This concept is well demonstrated by a study

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commissioned in 2013 by Eskom on the impact that cloud cover has on the predictability of solar generators conducted by Stellenbosch and GeoModel Solar, as shown in Figure 3.

Figure 3: Widespread spatial distribution makes aggregated PV power output very predictable and smooth.

Dealing with intermittency through smarter forecasting The yield from a Solar PV plant, for example, while easy to predict in terms of daylight hours (we know when sunrise and sunset will occur), can pose issues during cloudy or stormy weather. Wind, although easier to forecast with current meteorological tools, still requires response levels that were not previously required when only baseload plants made up installed capacity. This means that utilities will need to install generation and/or storage assets that are able to quickly ramp up and down to compensate for the fluctuations in solar and wind assets.

While the law of large numbers and the effect of geographic diversity results in the smoothing out of fluctuations from renewable energy generators in the immediate term, it can still be challenging to accurately predict the expected level of renewable generation over the next few days.

Fortunately, experience has shown that it is possible to effectively model and predict the

aggregate renewable power available to the grid. Both wind and solar depend on natural systems that can be modelled and forecasted with increasing accuracy, which has enabled some utilities to successfully add significant amounts of RE into the energy mix .

Distributed energy systems of the future: Smart Grids and Virtual Power Plants As discussed earlier in this article, increased pressure is being placed on grid operators to reduce carbon emissions at the same time as many energy environments are becoming increasingly constrained. With the advent of intelligent systems and the ‘Internet of Things’, it is now possible to migrate to a true supply-on-demand system that offers increased energy security, lower costs and decreased emissions.

Before the advent of “smart” sensors and control systems, grids needed to be based around highly controllable supply that tried to match a largely uncontrolled demand. However, increasing levels of penetration of RE have begun to challenge conventional system balancing methodologies and are forcing utilities to rethink the traditional supply-demand balancing model.

More flexible management of the system can be achieved in many ways from active demand-side management (DSM) to temporary storage technologies, whether dedicated to electricity (e.g. centralised or decentralised, BTM storage) or sourced through multi-functional storage assets (e.g. electric cars).

One of the key advantages of a smart grid is the ability to make instantaneous decisions on how to operate the power system on both the supply-side and the demand-side. Real-time, relevant feedback from multiple sources is required to ensure the correct decisions can be made at the right time.

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Smart grids allow distributed generators to be integrated into traditional ‘centralised’ grids The integration of decentralised generators to create Virtual Power Plants is dependent on upgraded two-way metering and improved communications technologies. Consumers of

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various sizes (these could be residential, commercial or industrial) are able to evaluate the business case for exporting electricity from their on-site generators to the grid. Off-takers can become energy suppliers instead of energy consumers, giving rise to the term ‘prosumer’. Electricity sales could be from excess

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generation or the business may decide to curtail their load to earn proportionately higher revenue from electricity exports.

Smart grids rely on the ‘Internet of Things’ to align demand with supply Bi-directional communication provides an in-

terface between individual point loads (e.g. machinery, appliances, HVAC ) and the power grid (e.g. baseload generators, RE generators, storage). This enables off-takers to have better control of their energy usage by providing choices as to exactly how they wish to control their load – which can allow businesses and consumers to reduce bills without disrupting operations.

Two-way communication can also be used by the system operator, who may be given control of certain loads in the system to execute faster, smarter responses to overall system supply by controlling demand in real time.

Peak load periods – with corresponding spikes in consumption charges - can be communicated system-wide, with the market most likely to respond by load shifting (or switching off low priority loads like geysers, pool pumps of non-critical HVAC loads). As a result, the peak loads will be reduced and the need for expensive flexible generation technologies and centralised storage will be reduced.

Smart grids make the best use of various components of the power system Real-time communications facilitates optimal routing of power flows over the existing transmission infrastructure by connecting generators and loads over the shortest or least constrained path. This results in improved system reliability and avoidance of capital expenditure on transmission upgrades.

Smart grids use advanced computing to limit human intervention: An intelligent system allows the grid to respond to multiple inputs, collected from networks of smart sensors. Automation of the smart grid allows limited human interventions, enabling real-time decision making using advanced algorithms. Advanced intelligence will be able to sort out interruptions in the grid and could assist in identifying critical areas in

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Figure 4: Overview of a smart grid ecosystem

order to rebalance the system, providing stability and security.

ture, and electricity tariffs would be more competitive due to market efficiency.

Smart grids create an opportunity for public private partnerships (PPPs): More intelligent integration of multiple generators into the grid will allow Independent Power Producers (IPPs), smaller ‘prosumers’ in the C&I and residential PV space, companies focused on centralised utility-scale batteries and individuals with distributed BTM storage to all participate alongside SOEs in the local energy market. Eskom would be able to avoid the inefficient roll-out of expensive infrastruc-

In summary Although critics will continue to give reasons why they think South Africa shouldn’t consider large-scale integration of RE into the grid, hopefully this article has demonstrated that the potential drawbacks of intermittent power sources can be avoided through cost effective, currently available technologies and interventions.

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Additionally, as the cost of battery storage continues to be driven down, both carbon in-

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tensive power plants (such as coal, diesel and gas generators) and generators dependent on expensive, outdated technologies (such as nuclear reactors) will be replaced by cheaper, cleaner, safer and more reliable generation.

The success of these distributed energy sys-

tems of the future will be dependent on the adoption of smart grids and the creation of virtual power plants.

Matthew Turner

References: [1]LCOE represents the cost per kilowatt hour of constructing and operating a power plant over a specified generator’s lifecycle, taking into account factors such as cost of capital, operations and maintenance costs (including fuel) and the anticipated plant load factor over its operating lifetime [1] In a Solar Lease or Power Purchase Agreement, the off taker pays for the Solar PV Plant over a number of years, rather than in an up-front capital payment. This enables customers to purchase solar electricity with no upfront payment, allowing them to achieve immediate savings on the energy bill.

[1] Figures from Eskom financial results [1] Figures from WWF Technical Report, Renewable Energy Vision 2030 – South Africa, University of Cape Town Energy Research Centre Analysis, and Council for Scientific and Industrial Research (CSIR) Energy Centre Study [1] http://www.berkshirehathaway.com/2015ar/2015ar.pdf [1] Graphic courtesy of the Regulatory Assistance Project [1] The Internet of Things is based on machine-to-machine communication between everyday objects using cloud computing and vast networks of data-collecting sensors. By allowing them to send and receive data, it allows “smart” interaction between multiple devices that until now operate independently.

[1] The “law of large numbers” is one of several theorems expressing the idea that as the number of trials of a random process increases; the percentage difference between the expected and actual values goes to zero.

[1] Today, wind energy makes up over 10 percent of Texas’s annual electricity supply, thanks in part to effective wind generation forecasts. This is especially significant because Texas has a unique isolated grid, with no way to access extra conventional electricity generation from outside the state.

[1]Behind the meter storage, typically consisting of a battery system on the client side of the utility billing meter which aims to reduce or schedule export of energy back into the grid [1]Heating, Ventilation and Air-conditioning [1]State Owned Enterprises, namely Eskom in South Africa

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How effective is the economy for renewable investment?

It does not make sense to view the green economy in isolation of the general economy as the effective funding of new technologies requires the cooperation of different sources of funding, with differing risk tolerances, across the financial value chain from research to full commercialisation.

Further, the emergence of fundable projects depends on clear, unifying policy signals and policy certainty. A successful economic transition, dependent on new behaviours and new technologies, requires project developers, policy setters and the finance institutions to work towards a common goal.

In the interim there are many technologies that are mature and could have a significant sustainable development impact, according to a recent report entitled, ‘It’s the economy, stupid’.

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Funding this latter category also requires overcoming barriers but given their maturity and potential sources of finance is likely to be easier to implement. Understanding your context in terms of funding a green transition is critical.

The international context It is relatively more difficult to achieve economic transition in developing countries. For many developing countries progress cannot be made by purely thinking about deploying financial instruments differently as there needs to be equal attention to the enabling environment and available institutions. Furthermore, the generally smaller size of the economies means fewer transactions and fewer opportunities to harness economies of scale. A lack of domestic financial institutions and available instruments means finance must be sought through regional bodies or international multi-laterals.

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To illustrate the magnitude of the challenge the project team has developed a framework that illustrates these differences between countries. Plotting financial services maturity against the log of GDP per capita presents a revealing picture. A clear pattern emerges with African countries (the least developed, with least mature financial services) in the bottom left, followed by South America and Asia, with the more developed Europe, Oceania and North America faring well.

The reality is that least developed countries face structural barriers that relate to available institutions, governance, the presence of uniting visions and government plans, the presence of project pipelines and enabling policy, in addition to the challenge of deploying instruments that can balance risk across the value chain. See Figure 1 below, with African countries highlighted for the period 2008-9.

The framework above was developed using World Economic Forum Global Competitive-

Country Green Economy Maturity Index - 2008-2009

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ness Report data from 2008-2009 to 20132014.

GDP per capita provides two potential insights.

GDP per capita represents a proxy for the size of the economy and also potential deal flows and the potential to aggregate many smaller deals into attractive programmes. It also however indicates the potential for private savings (through longer term pension and insurance products) and therefore longer term asset-liability matching.

Furthermore some people we engaged with also felt that private savings allow for retail banking which can be used as a cheaper source of capital for investment banks and therefore subsidise the cost of capital.

The financial ranking is a self-assessed ranking by a sample of respondents in each country and reflects respondent confidence in their country’s financial services. We believe that this is therefore a good proxy for the maturity of financial services and the presence of certain kinds of risk tolerant institutions and instruments.

In order to simplify the framework, we divided the countries into three bands that reflect the primary challenge for a particular country.

While all frameworks represent an abstraction of reality we believe that the general principles hold true but acknowledge that there will be exceptions across the framework.

The progression of country financial maturity For example, where countries are least developed they may not have the governance and financial institutions to implement a sophisticated financial product (for example an effective debt collateralisation vehicle) and often don’t have the assets whose value and cash flows could underpin sophisticated financial instruments. Their challenges are more funda-

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mental and relate to having the in country sophistication to manage and execute large and potentially complicated deals. Having a conversation with a country in this zone around complicated financial instruments is futile.

These countries require institutional solutions before they can progress. This may be at a regional level in the short to medium term.

These countries are traditionally neglected by

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Furthermore they may lack a development plan that provides the vision for companies, investors and government to align behind.

These countries are the typical focus of international environmental finance and climate readiness programmes and it is typically these countries that attract much of the available development funding. At the very least you would need to seek solutions in parallel across each zone. With increased maturity in the bottom two zones you would be able to deploy more and more sophisticated instrument based solutions.

South Africa: Man in the middle South Africa sits on the middle line of GDP per capita and is fortunate to have extremely sophisticated financial services (in the top 10 in the world). Given the sophistication of our financial services one would expect South Africa to be investing in significant infrastructure and especially the green infrastructure necessary for our transition. We would expect a high degree of financial innovation in this space. We also have some excellent planning documents including the National Development Plan and the Strategic Infrastructure Programmes. One would expect these plans to be well progressed in terms of implementation.

existing green economy finance programmes and climate readiness programmes who assume too much in country capacity.

Institutional capacity A second category of countries is those that have sufficient institutional capacity but lack an enabling environment for appropriate development. These countries may have economic or financial sector structural challenges.

However, as previous studies have shown, this is not the case. Despite our sophisticated planning and institutional infrastructure we face specific structural challenges. Amongst other reasons, the potential for South Africa to move forward is constrained by institutional decline and corruption, which threaten to drop us towards the zone of requiring institutional solutions. While many of these structural barriers relate to the economy as a whole, it is worth focussing on the structural barriers that relate specifically to the provision of finance.

After considering the international context and reflecting on South Africa’s specific po-

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sition in the framework we need to consider specific structural barriers as they relate to financial services.

National structural impediments to financial services Despite the sophistication of our financial services, the finance of green projects in South Africa is limited to specific instruments, including commercial debt, concessional debt, private equity, grants, venture capital and sweat equity. We believe that this limited set of instruments and instrument innovation is common for many developing countries, irrespective of the sophistication of their financial services sector. We can therefore simplify this

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framework for a developing country context and for ease of communication, where we group sources of finance into 3 broad bands, taking out the less commonly available sources of finance.

It commonly raised by finance and project experts we spoke to that project developers in South Africa are largely required to push projects through the development cycle focussing on grant money and concessional debt.

Should this hypothesis be true this would have an inherent limitation on scale. Grant funding is limited in size and without the leverage of private equity concessional loans (especially without first loss guarantees) can only take

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you so far. The framework is therefore useful to understand immediate structural barriers in the provision of financial services.

It also accounts for some stakeholder sentiment where individuals express their frustration with the private sector for not investing in early stage projects. The majority of capital is held by banks and private companies whose fiduciary duty and balance sheet management prohibit them from taking too much risk. In the case of the banking sector this is regulated and getting stricter with the implementation of Basel III. Basel III has a further potentially inhibiting factor in that it requires banks to hold greater levels of capital in reserve when holding higher risk, longer term investment in their portfolio. This has the net effect of pushing up the cost of capital.

By tweaking policy and encouraging financial innovation, can we unlock that will drive similar levels of investment experienced during the REIPPPP. The project team has two hypotheses Firstly, the low levels of private equity in South Africa have the knock-on impact of inhibiting venture capital investment (which in theory is borderless). Venture capitalists rarely take on long term investments and in South Africa, when it comes time to sell their investment they have very few buyers (who would typically be private equity houses). As a consequence, venture capitalists are forced to invest for longer periods or not invest at all. Given the culture and mandate of many venture capital firms they choose the latter.

Secondly, the inability for our government (common in developing countries) to under-

write the risk of the national development banks means that these banks are forced to adopt a profit mandate. The necessity for development banks to therefore hold a portion of their portfolio on traditional debt markets has the psychological impact of setting up development banks in competition with commercial banks. Ideally these two institution types would work as partners, with the development banks (having an inherently higher risk tolerance) leveraging the commercial banks capital through first loss and mezzanine debt to create greater scale.

Instead of working together across the financial value chain in a strategic manner the banks are at odds and collaborate in an ad hoc manner. A further impact of the profit mandate is a lower tolerance for private equity levels in the development banks. Some people interviewed felt that given that these institutions are a traditional source of private equity in developing countries this exacerbates the lack of private equity available and limits leveraging opportunities.

Finally, the limited engagement from long term investors (asset owners and managers, and the insurance sector) especially in private equity requires further exploration. While this is a topic we will continue to explore our initial thinking relates to the continued impressive performance of the Johannesburg Stock Exchange (JSE). During a half decade of challenging economic conditions the JSE has doubled in value. There is little incentive for long term investors, and for that matter equity, to invest outside listed entities on the JSE. The exception of the Renewable Energy Independent Power Producers Procurement Programme The fascinating exception in the South African market for leveraging finance is the Renewable Energy

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Independent Power Producers Procurement Programme (REIPPPP). In a relatively short space of time R80 to R90 billion (the first two bidding rounds) was invested in the renewable energy industry, dwarfing existing investments. This was possible because of several things but principally: • Reforms to policy that effectively secured a long term price for renewable energy (via the conclusion of ‘take or pay’ power purchase agreements). This allowed developers and financiers to reliably model cash flow certainty and predictability making debt finance easier • Innovations in financial services relating to the structuring of deals (the scale demanded a greater number of partners leading to greater levels of collaboration) and the provision of equity, especially in relation to Broad-Based Black Economic Empowerment equity and social equity

Despite the sophistication of our financial services, the finance of green projects in South Africa is limited to specific instruments.

The result of this increase in investment had a number of significant impacts beyond the obvious sustainable development outcomes.

These impacts included the following: • The process built investor confidence attracting international foreign direct investment, often in the form of equity • The learning process lead to more realistic assessments of project risk resulting in greater levels of capital allocation and a lowered cost of capital While on a limited scale, there was the development of local ancillary expertise and production capacity. This strengthens the support

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to projects, reducing their cost and their risk and therefore the cost of capital for future rounds While there are emerging challenges to the REIPPPP process the initial, rapid success was inspirational in the development of this research programme. The overriding question we seek to ask is what other areas, by tweaking policy and encouraging financial innovation, can we unlock that will drive similar levels of investment experienced during the REIPPPP. These areas may be technologies not yet mature that will require a longer term planning horizon and a greater level of incentives or established technologies that can be implemented to great effect in South Africa.

Understanding systemic intervention level factors While systemic interventions do not exist independently of their international and national contexts it is necessary to explore their implementation in detail. Given that newer, innovative technologies (those required to engender economic transformation) tend to be more capital intensive, the cost of capital is a key variable in project selection.

Typically the cost of capital is weighted by risk and the riskier (real or perceived) the intervention or technology is the higher the cost of capital. Given that many of the interventions required to transform our economy are relatively new and possibly unknown they typically have a higher cost of capital than their traditional counterparts. In addition the case can be made that we underestimate the risk for traditional options based on a false sense of comfort. In both the case of new investments and established technologies the role of cost of capital is fundamental.

De-risking renewable energy Therefore we propose that for each systemic

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Effectively the method proposed by Waissbein et al (2013) establishes the relationship between the risk environment and the local cost of capital for a particular intervention, as measured against the best in class cost of capital for that intervention anywhere in the world.

intervention considered we apply an assessment methodology developed by Waissbein et al (2013) in the paper “De-risking Renewable Energy Investment - A framework to support policymakers in selecting public instruments to promote renewable energy investment in developing countries”, published by the United Nations Development Programme.

While the original paper (using a South African case study) was aimed at policy developers and was developed to “address the existing investor risks that effect financing costs and competitiveness of renewable energy in developing countries” we believe that the first two steps in the proposed four step process are applicable to establish the relationships between identified risk and cost of capital for any technology category (or systemic intervention).

Solution development and barrier identification Two steps in the recommended process are energy specific and we would need to adapt them for each systemic intervention identified, namely “solution development and barrier identification”.

As a further way of approaching the challenge of evaluating the relationship between the investment conditions and the proposed systemic intervention, we also propose exploring how projects are selected in comparison to other projects. One common method is the Net Present Value (NPV) approach. Capital has a time value, for example R1000 today is worth more than R1000 in 5 years. If we are comparing a series of separate cash flows we need to know what value those cash flows have today.

This is the purpose of the NPV formula, which effectively discounts future cash flows to today’s values, allowing you to compare projects on a like-for-like basis (approximately).

Cash flows modelling Critical to this is accurately modelling cash flows and the timing of payments, as well as an accurate assessment of the project length. The appropriateness and timing of cash flows can make a significant difference to project selection. Should a cash flow prediction be altered by policy or subsidy measure one may choose a less optimal intervention. Furthermore, the formula uses a discount rate which includes a premium based on actual and perceived risk.

Should the perception of risk be too high or the actual risk be artificially raised for a particular intervention, this would lead to the incorrect selection of a different intervention.

Capital premium impact Understanding the capital premium impact on project selection is superbly described by Waissbein et al (2013). By supplementing this approach with an understanding of the NPV calculation nuances one is able to explore the

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sensitivity of systemic intervention selection to modelling error and explore the impact of a wider range of policy and financial innovation measures.

Taking the frameworks illustrated above together we should be able to structure conversations that get to the key challenges in selecting systemic interventions with people from a variety of backgrounds and financial expertise.

Their visual nature allows us to describe complex interactions in a simple manner.

We hope that by drilling down from an international context, through the national context to systemic intervention specific frameworks, drawing on input from a range of stakeholders, we should be able to establish a strong set of barriers and specific risks as well establish the impact of those risks on the finance of the project. In addition this granular understanding of barriers should enable a discussion on how to apply financial innovation and policy interventions to scale up implementation.

Green bonds The Green Bond concept was developed in 2007/2008 by SEB and the World Bank as a response to increased investor demand for engagement in climate-related opportunities Bank of America - 2013 – issued a “green bond” consisting of a three-year, fixed-rate bond that is $500 million in aggregate principal amount. This issuance of bonds is part of the company’s ongoing commitment to advance renewable energy initiatives and promote energy efficiency. Bank of America’s green bond is a senior bond where the funds will be used specifically to finance green investments such as renewable energy and energy efficiency projects. The proceeds from this offering will be used in furtherance of Bank of America’s 10-year, $50 billion environmental business initiative to help address climate change, reduce demands on natural resources and advance lower carbon economic solutions.

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2014 - The World Bank (International Bank for Reconstruction and Development, IBRD) announced a Swedish Kronor (SEK) 1.5 billion 5-year fixed rate green bond - lead managed

by Skandinaviska Enskilda Banken AB (SEB) and sold to a group of eight investors.

GDF SUEZ – a global energy player and an expert operator in the three key sectors of electricity, natural gas and energy services. To support its ambitious development strategy in renewable energies and energy efficiency, GDF SUEZ issued a Green Bond of €2.5 billion The bond has two tranches: a 6-year tranche of €1,200 million with a 1.375% annual coupon, and a 12-year tranche of €1,300 million with a 2.375% annual coupon. The average coupon amounts to 1.895% for a 9.1 years average duration. The bond was 3-times oversubscribed and very successful with French, German and UK institutional investors. Strong demand came from investors focused on environmental and socially responsible investing who bought 64% of the issue.

The funds of this bond issue will be used to finance the Group’s growth not only in renewable energy projects such as wind farms and hydroelectric plants, but also in energy efficiency projects such as remote (smart) metering and the construction of integrated district heating networks powered by low-emission biomass plants.

To be eligible, the projects financed must meet a number of social and environmental criteria in five areas: environmental protection, contribution to local development and the well-being of local communities, fair and ethical relationships with suppliers and sub-contractors, human resources management, and good corporate governance for the selected projects.

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Defining the green economy: “A green economy is one that results in improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities” UNEP, Towards a Green Economy: Pathways to Sustainable Development and Poverty Eradication, 2011 “Green economies are defined as economic systems that take into account holistic remedial measures in incorporating economic, environmental (including ecological) and social challenges that stop or reduce economic activities and growth.Central to the green economy is the desire to improve people’s lives by combating climate change, energy insecurity and ecological instability.” South African Institute Of International Affairs, South Africa’s Green Economy Transition, 2013 Green growth should: “contribute to eradicating poverty as well as sustained economic growth, enhancing social inclusion, improving human welfare and creating opportunities for employment and decent work for all, while maintaining the healthy functioning of the earth’s ecosystems” UNCSD, 2012: The Future We Want “Means fostering economic growth and development while ensuring that natural assets continue to provide the resources and environmental services on which our well-being relies.” OECD (Organisation for Economic Cooperation and Development), Inclusive Green Growth: For The Future We Want 2012

World Bank - Green Bond Issuance The World Bank had a record year for green bond issuances raising a total of almost $3 billion in FY14 (July 2013 to June 2014). With its first green bond issued for FY15 – a green bond linked to a sustainable equity index – World Bank’s total issuance reached $6.4 billion through 68 bonds in 17 currencies, supporting 62 projects in 20 countries.

Recent issues also include more than $1 billion issued through two U.S. dollar transactions, an inaugural All World Bank bonds support sustainable development, poverty reduction and inclusive growth. They fit well with investment strategies that incorporate Environmental, Social and Governance factors into the decision-making process.

IFC, a member of the World Bank Group, issued a 500 million renminbi-denominated green bond (approximately $80.29 million) that will be used to support climate-friendly investments in emerging markets. The bond is listed on the London Stock Exchange and sets a precedent as the first green bond issued by a multilateral institution in the offshore Chinese markets.

City of Johannesburg 2014 – R1.46bn bond issued by the City of Johannesburg and listed on the Johannesburg Stock Exchange’s (JSE), which will be used to fund green initiatives. The money raised through the bond will be used to finance green initiatives such as the Bio Gas to Energy Project and the Solar Geyser Initiative, as well as all other projects that reduce green-house emissions and contribute to a resilient and sustainable City.

Steve Nicholls and Marijke Vermaak

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PROFILE

A

berdare Cables is the largest, preferred and trusted manufacturer of electrical cable since 1946. The Aberdare Cable group has international manufacturing and sales sites in Portugal, Spain and Mozambique.

We bring a high level of creativity, quality and safety to the design and manufacture of general wire and cable products. We consider electricity to be the lifeline of development and a vital resource to people. Aberdare has built up a reputation for producing quality products with public and environment safety in mind.

Our cable range includes cables of various sizes and specifications that are rigorously tested to SANS and BASEC standards for higher and safer performance.

Aberdare specialises in manufacturing of low and medium voltage electrical cables for application in power generation, power transmission, power distribution. Aberdare Cables engages the market through sectors like Building & Construction; Mining; Energy; Renewables; Transport; Large Industry; OEM; Retail and Agriculture.

Aberdare’s three manufacturing sites and seven customer service centers in South Africa enable the business to provide personalised

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service to the entire customer base. With 70 years’ experience, Aberdare’s focus remains on its customers, embracing technology and embodying high standards of quality.

The company offers cable design, product development, as well as installation support, commissioning and diagnostic testing through the company’s Engineering Services division. In addition comprehensive value added services such as Key Account Management, Customer Relationship Management, product and application training, laboratory testing and a Technical Help desk is offered.

Aberdare Cables is a proud level 2 BBBEE contributor, under the amended BBBEE codes, which places us in an advantageous position to secure business in the industry.

Aberdare Cables has a sound strategy which has been developed and adjusted over the last few years. The focus of the strategy is to have the right people, grow profitable sales, continually improve operational efficiency and offer engineering services to the market. The continued successful implementation of this strategy has demonstrated that the company has the ability and resources to maintain market leadership and industrial efficiency.

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Nuclear energy from an African perspective: Is it really worthwhile?

Toward the end of 2014, the growing interest in nuclear energy generation from African governments prompted members of the Heinrich Böll Foundation (HBF) based in South Africa, Nigeria and Kenya to commission a study that would take a closer look at nuclear energy from an African perspective. The study would review the arguments presented by these three African governments in support of nuclear power investment, the related public response and consider emerging literature on nuclear power and optional investments.

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The research was conducted by South African Energy policy researchers Dr David Fig and myself, Brenda Martin. This article summarises some of the key findings which were published in August 2015. A copy of the report can be downloaded online.

Of the three countries reviewed, South Africa’s nuclear ambition is the largest – with plans to add 9,600 MW of nuclear power to the country’s 40,000 MW installed capacity. Nigeria and Kenya both plan to add 4,000 MW of nuclear power to existing relatively low national installed capacity.

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tariffs and indirectly due to slowed economic growth. With economic growth as a driving imperative, most countries have to make choices about their energy mix. Affordable, clean, reliable energy is a priority for many countries on the continent.

Due to the scale at which it is technically able to supply electricity at a steady output rate, governments are looking to nuclear as a ‘silver bullet’. Nuclear vendors make attractive offers; projects are presented as prestige, modern and desirable. The impression that developed nations have benefited from early adoption of nuclear power, is pervasive. Accepting arguments on climate, and beneficiation at face value, is tempting for any government seeking to find a silver bullet solution. As numerous build programmes are illustrating however, nuclear power comes with a range of important cost and safety considerations which are even more significant where governance is weak. Let us step away now from the continent for a moment and consider nuclear power globally.

According to the research, government representatives in all countries cited economic growth and energy access, as key motivations for investment in nuclear power. The theory of change is: boost grid-based electricity supply and access and the economy will naturally grow. In addition, in response to growing global awareness of the need to transition away from fossil fuels, nuclear power generation is considered a ‘low carbon solution’.

Africa and energy access In Africa access to electricity remains extremely low, often due to national grid technical limitations but also directly due to escalating

The global nuclear power sector Globally, the nuclear power sector is in decline, particularly post-Fukushima (2011). Construction delays, escalating costs, changing financial models, lack of transparency in terms of risk allocation, secrecy and lack of public consultation at policy level, are all common features of the international nuclear industry.

Some of the facts that support the view that the nuclear sector is in decline include: • According to the 2014 World Nuclear Industry Status Report (WNISR), the declining share of nuclear energy in power production is clear: 17.6% in 1996, 10.8% in 2013.

• More than 200 reactors are due to face shutdown in the next two decades and 44% have operated for 30 years or more, including 39 that have run for over 40 years[1].

• In 2014 the WNISR introduced a new classification: “long term outage”, i.e. reactors

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that have not generated any power in the entire previous calendar year, and in the first semester of 2014. 43 nuclear power stations fit into this new category.

• Not surprisingly, in Japan, four-fifths of the fleet have not operated since March 2011, when the Fukushima disaster occurred.

• Current annual nuclear electricity generation corresponds to a level previously seen in 1999 [2].

Should these global trends be seen as irrelevant, it is still worth considering some of the associated risks of moving ahead with nuclear power investment. Please note at this point that while providing insights from the report in the context of broader African interest in nuclear power investment, the rest of this article starts to focus more directly on aspects of the report which relate to South Africa.

The associated risks Nuclear ambition, transparency and oversight In the case of all three countries reviewed, where nuclear ambition has moved toward a build programme, this has been due to a combination of the highest level leadership oversight of such investment (with the President often heading up any implementing body), little or no accountability on contracting or implementation activities to parliament or the public, and secretly concluded government-to-government deals that have not borne the scrutiny of institutions charged with oversight. The study found this to be a common feature of nuclear power-related decision-making: low transparency and accountability. Nuclear power is commonly treated as ‘a special case’ which is exempted from routine good governance.

Safety, peace and security In the literature and in public opinion within the three countries reviewed, the most widely recognised and respected risk is that of safety and security. While global treaties on non-pro-

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liferation are formally recognised, there are no guarantees that future governments with access to enrichment technology will not turn to proliferation of nuclear weapons.

South Africa’s admission to the BRICS[3] group of nations brings it closer to three key nuclear weapons states. BRICS was formed specifically to create a new global order as a counterweight against Western dominance. BRICS members together yield considerable influence on nuclear issues, as members of the IAEA Board of Governors. Additionally, BRICS includes nuclear and defence cooperation.

Of the nuclearised BRICS partners: Russia is in a position to threaten nuclear war, India is testing nuclear-capable missiles and hinting that it may abandon its ‘no first use’ policy on nuclear weapons, and it has been speculated that China’s nuclear arsenal may be invoked in growing tensions in the East Asia region and beyond.

Nigeria and Kenya are both under threat of insurgent groups such as Boko Haraam and Al-Shabaab respectively. Today, the acquisition of nuclear power must include consideration of how countries can safeguard stocks of enriched uranium from falling into terrorist hands.

Construction timeframes, construction delays, halts According to the WNISR (2014), the average building time of units under construction stands at 7 years. However, of the 67 reactors under construction at least 49 have encountered construction delays. For the remaining 18 reactor units, either construction began in the last 5 years or the reactors have not yet reached projected start-up dates so it is not possible to assess whether they are on schedule or not. In Taiwan, two units which had been under construction for the past 15 years saw further construction halted in 2014.

The average construction time of the last 37

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units that started up in 9 countries since 2004 was 10 years. The formal range is between 3.8 to 36.3 years. None of the next generation (or so-called Generation III or III+) reactors has entered service as yet.

Costs and investment Investment costs for nuclear power plants have escalated in the past ten to fifteen years.

These currently stand at around US$8,000 per installed kW. Initial construction cost estimates have been found to be too low in virtually all countries with build programmes currently under way.

In 2011, the South African Nuclear Energy Corporation (NECSA) estimated the over-

night costs of nuclear power construction at R300-billion to R400-billion. More recently, based on economic analysis, the University of Greenwich’s professor of energy policy, Stephen Thomas has indicated that the most relevant guide for figures estimating South Africa’s costs are those agreed between EdF (France) and the British government in October 2013 to build two 1.6GW reactors at Hinkley Point.

Using 2014’s exchange rate and extrapolating this to the 9.6GW, Thomas estimated a cost of R855-billion. Given the exchange rate in 2015, local stakeholders in SA civil society and business estimated a bill of at least R1.4 trillion including the costs of finance, insurance, operation, fuel, waste disposal and final decommissioning of plants. It is worth noting here

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that generally final nuclear construction costs tend to be double that of initial estimates.

tives and why the renewed fascination with nuclear power investment?

In SA, the Department of Energy’s IRP2013 Update report has been ignored as official policy.

Perhaps this is because it stated that “in 2015, even if demand is high and there is no prospect of shale-gas power plant, that if nuclear costs exceed $6500/kW, then the procurement programme should be abandoned?

Current nuclear construction cost estimates on any build programme underway anywhere in the world, exceed $6500/kW.

Even without taking into account the declining ZAR/$ exchange rate, and declining credit ratings, current nuclear construction cost estimates on any build programme currently underway anywhere in the world, exceed $6500/ kW. The case of South Africa: what are the alterna-

How does Renewable Energy (RE) investment compare?[4] Given that research for the nuclear study was conducted at the end of 2014, 2013 data was mainly relied on. More up to date (and more favourable) data is available in the Renewable

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Figure 2: global RE growth rates – 2004 to 2013 (REN21, 2014)

Between 2004 and 2014, out of the three end-use sectors (power, motive, and heating and cooling) renewables’ share grew fastest in the power sector. Total renewable capacity (excluding large hydro) increased seven-fold. Solar photovoltaic (PV) power generation grew by a factor of 70 – from 2.6 GW to 139 GW[6].

Figure 4: Renewable Energy Jobs – 2004 to 2013 (REN21, 2014)

New technologies open new market opportunities and create new jobs. Jobs range from low- to very high-skilled.

Methodologies for calculating RE employment growth are inconsistent, however a conservative estimate indicates that between 2004 and the start of 2014, the level of employment within the sector doubled, from about 3 million to 6.5 million[7].

Energy Policy Network for the 21st Century (REN21) 2015 report.

Global investment in RE totalled US$214 billion in 2013, four times the figure for 2004.

Since 2000, the annual international growth rates for wind power have averaged 25% and for Solar PV, 43%. At the end of 2013 China’s solar installed capacity (18 GW) for the first time exceeded operating nuclear capacity. In 2013

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Spain generated more power from wind than from any other source, outpacing nuclear for the first time. This was also the first time that wind became the largest electricity generating source over an entire year in any country.

In 2013 growth rates for generation from wind power above 20% were seen in North America, Europe & Eurasia and Asia Pacific. North America more than doubled its Solar PV power generation and Asia Pacific grew by 75%. In 2013, Germany produced 56% more electricity from renewables than from nuclear.

A commonly repeated argument against renewables is that they are unable to provide base load electricity supply. Here it is worth considering that as with many other rapid technology shifts in the 21st century, traditional models of supply are becoming obsolete.

With increasing RE penetration into national grid systems and the growth of smart grid investment as illustrated by the REN21 2014 global status report (and further illustrated in the 2015 report)[5], reliance on centralised power supply is changing. As the 2014 report indicates: “In the ‘spot market’, several countries experience extended periods of very low or even negative RE electricity prices”. Nuclear plants are the least flexible in reaction to unfavourable economic conditions and keep operating for hundreds of hours at spot prices below their average marginal operating costs.

Prior to democracy, the ANC was very clear: nuclear power was dangerous, always decided on in secret, and should be actively rejected.

Why the fascination with nuclear power in democratic SA? Part of South Africa’s apartheid legacy is a nuclear industry long shrouded in secrecy and

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extensive government support which originated in a context where government was facing growing international condemnation for its oppressive and destructive regime. Uranium resources have been plentiful for decades and co-operation with US, UK, West German, French and Israeli nuclear expertise ensured that until early in the 21st century, local nuclear technology capacity was strong. Whilst it could develop its own weapons, however, the South African nuclear industry has never been

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of the apartheid regime. Prior to democracy, the ANC was very clear: nuclear power was dangerous, always decided on in secret, and should be actively rejected. From about 1996 onward, this sentiment slowly but surely evaporated as increasingly ANC leaders began to speak of the need to ‘be realistic’ and to ‘explore all technology options’. Deputy President Thabo Mbeki (later SA’s second democratic president) included expansion of local nuclear expertise within his ambition for an African renaissance grounded in intellectual, economic and political leadership focused on continental progress.

Although canvassing support from a very different platform, today, South Africa’s third democratic president – Jacob Zuma – is also a firm advocate of nuclear power supply. Since 2010 and until recently, he has made it clear that nuclear power investment in South Africa has already been decided and all that remains is for necessary actions toward realisation to be taken. Perhaps taking into account some of the contemporary global shifts described above, it was refreshing to hear the President possibly reframe his position during his State of the Nation address on February 11th, 2016: “Let me emphasise that we will only procure nuclear on a scale and pace that our country can afford.” [9]

able to build its own reactors[8]. Also, during apartheid, the state possessed conversion, enrichment and fuel fabrication plants, but these have all been dismantled and will require extensive investment if they are to be reinstated.

Today, SA’s uranium has to be sent abroad to be enriched. Thus any claim of extending energy independence is currently threadbare.

Within the anti-apartheid movement, anti-nuclear sentiment was widespread and the industry seen as a significant pillar and prop

A commonly repeated argument against renewables is that they are unable to provide base load electricity supply.

For South Africa the report concludes that if affordability, job creation, growing energy access and growing the economy are indeed the most important considerations for national energy supply and security; if the country

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really wants to capitalise on its plentiful and renewable natural resources while staying abreast of global energy investment trends and even potentially leading the field on the

continent – it is not short of sustainable, wise options.

Brenda Martin

Sources: [1] World Nuclear Industry Status Report, 2014 [2] World Nuclear Industry Status Report, 2014 [3] BRICS is the acronym for an association of five major emerging national economies: Brazil, Russia, India, China, and LSouth Africa [4] The Renewables Energy Policy Network for the 21st Century (REN21), Global futures report, 2013 [5] REN21 Renewables 2014 Global Status Report [6] REN21, 10 Years of Renewable Energy Progress, 2014 [7] REN21, 10 Years of Renewable Energy Progress, 2014 [8]This fact applies to the Koeberg reactors and to the failed Pebble Bed Modular Reactor project.

[9] SONA 2016, President Jacob Zuma

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Common nuclear power investment arguments and two Case studies of current nuclear power investment projects underway, extracted from the 2015 study: “Nuclear plants are more capital intensive than most other power plants. However, they last for 60 years, compared to only 25 years for wind turbines. They also produce power as much as 90% of the time, compared to much less than 30% for wind turbines. So if you fund nuclear plants with the cheap loans that are currently available, then nuclear plants will produce reliable, clean power cheaper than coal, wind, and solar. The New Generation III nuclear reactors are also much more efficient and are some of the safest machines on the planet.”

- Dr Dawid Serfontein, Nuclear Power is more profitable than Coal, 2013 “A nuclear plant costs more to build initially, but then costs become less to run later.

Overall the consumer wins. That is why we are building more nuclear. That is good, sound planning for the economy” - Dr Kelvin Kemm, Fin24, January 2015 Case study 1: Hinkley Point C, UK October 2010 – in accordance with a 2006 declaration by Tony Blair that nuclear power was “back with a vengeance”, the UK government announced a deal between the British government and the French Electricit (EDF) to build a 3,200 MWe two-reactor nuclear power station at Hinkely point C. EDF led a consortium – NNB Genco – which would build own and operate (BOO) the plant. No subsidies would ensure market competition on equal terms, electricity generated would be competitive with other technologies and would not exceed £44/MWh. Construction cost per reactor would be £2 billion and first power would be generated by 2017.

October 2014 –government loan guarantees cover about 70% of the expected construction cost plus an unknown price escalator contract for 35-40 years has been agreed. A likely generation fixed/strike price at £95 to £100/ MWh (UK wholesale electricity price average in 2013: £48/MWh). Construction costs now estimated at £7 billion per reactor. First power to be generated now estimated likely by 2023.

Summarised from Pay more for nuclear series, Report 3. Professor S. Thomas, Earthlife Africa Johannesburg, 2014 and other public domain information Case study 2: Finland’s Olkiluoto deal December 18th, 2003 – government announced that a Vendor consortium (AREVA NP (major shareholder, 90% French government-owned) and Siemens AG) would supply an AREVA Generation III reactor at a fixed price at a cost of €3 billion which would generate a net electricity output of 1,600 MWe. The Finnish Utility owned by electricity intensive industries guaranteed purchase of all power generated. In addition, the highly credit worthy French and Swedish governments offered export credit loan guarantees worth €700 million. The risk would be fully covered by the vendor, industrial electricity consumers and French and Swedish taxpayers.

October 2014 – since construction started in 2005 costs have nearly tripled and the plant is still at least four years from completion. The vendor has reneged on the initial fixed price deal and the cost of power from Olkiluoto may be so high that the industrial customers will not be able to pay for it and the utility is likely to be bankrupted. If this happens, French and Swedish taxpayers will be liable for the guarantees they made, and the banks will be liable for some of the remaining €1.3 billion worth of loans.

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CASE STUDY

Protection of smart power grids and data networks

I

n the future, the structures for power generation, transmission and distribution in the high, medium and low-voltage range will be more complex and flexible than they are today.

New topics such as smart grid, smart metering or smart home require innovative solutions. But also the rapid rise of distributed, renewable energy sources, in combination with centralised power stations, energy storage systems and intelligent technologies, need a reliable and coordinated overall lightning and surge protection system.

The global trend towards the transition to sustainable energy is multi-faceted. To this end, it is important to keep the three objectives of energy policy (environmental compatibility, cost-effectiveness and supply reliability) in balance.

Supply gaps quickly cause enormous economic damage, whilst the rapid developments in the energy sector inevitably result in higher demands on technology. This not only affects power generation and transmission networks, but also distribution network structures, where 90 percent of the transition to sustainable energy takes place.

The standard The IEC/EN 62305 standard includes four distinct parts: general principles, risk management, physical damage to structures and life hazard, and electronic systems protection. It was fully adopted by SANS (SANS/IEC/EN 62305-1-4) and for the sake of this article shall be referred to as the standard.

Today, the radius of destruction around the point of strike is considered to be more than two kilometres due to highly networked power grids and data networks. In addition, surges are also caused by switching operations, earth faults and short-circuit or tripping fuses (SEMP/ Switching Electromagnetic Pulse).

To minimise the damage caused by the effects of lightning, the following solutions are out-

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lined in the relevant protection standards: • Material damage and life hazard in case of direct lightning strikes to a structure can be minimised by a conventional lightning protection system (LPS) according to part three of the standard. • To ensure protection of structures with electrical and electronic systems from conducted and radiated interference resulting from the lightning electromagnetic pulse (LEMP) in case of direct and indirect lightning strikes.

Numerous different lightning and surge protection components are available for preventing such damage in smart grids depending on the relevant requirements.Space-saving and powerful arresters with CI technology and lifetime indication can offer additional benefits. To achieve a consistent and functioning surge protection concept, energy coordination between the arrester types according to part four of the standard must be ensured.

To complement surge protection and to ensure a complete and comprehensive protection system, an external lightning protection system (air-termination system, down conductor and particularly earth-termination system) should be additionally installed and safety equipment should be worn in the intelligent transformer substation.

The market leader DEHN offers innovative products and solutions as well as comprehensive services in the field of surge protection, lightning protection and safety equipment.

DEHN focuses on the protection of system and building technology, the transportation, telecommunication and process sector, photovoltaic systems, wind turbines, etc. The company’s continuous growth is based on more than 100 years of tradition and experience as well as highest quality standards and consistent customer and market orientation throughout the world.

The pinnacle of energy efficiency in the workplace The Dow Jones Sustainability Index is the most influential stock index for sustainability-driven companies worldwide, and the award confirms that, since 2005, the BMW Group has been the world‘s most sustainable premium automobile manufacturer. We have the inside story from the boss of BMW in South Africa (SA).

Reinventing mobility with sustainability in mind takes more than just a vision. You need

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answers to a plethora of emerging questions, the first of which is: Where does sustainability begin? The answer: In exactly the same place in which it ends.

Sustainability characterises the thoughts and actions of the BMW Group from floor level to the boardroom. The Group uses a wealth of innovative technologies and goes even further: From design to production; from the useful life of the vehicle to its disposal, every detail is based on sustainability,

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rector of BMW Group UK, a post he has held since February 2009, and educated at Loughborough University. He has a keen interest in motor sport and golf and a broad experience of the motor industry, spanning both manufacturer and retail environments.

He first joined BMW in 1986 and held several positions in the regional and then national sales teams. In 1996, Abbott left BMW to further his career but rejoined BMW Group UK as sales director in 2006.

which is an attitude that doesn’t have a beginning or an end.

To find out more about this dynamic company, Gregory Simpson sat down with knowledgeable managing director of BMW SA, Tim Abbott, for more on the energy efficiency principles that have made BMW a leader in sustainability.

The 58-year-old, who is married with three children, was previously the managing di-

You came to South Africa with a lot of experience running BMW in the UK, what lessons did you bring in, and what have you learned while you’ve been in the country?

The lessons I brought here were about having a good balanced network, and that’s a mixture of entrepreneurs, small provincial dealer groups and then what we call larger groups like Imperial. You need that balance because the economy is changing all the time, so we had that model in the UK, and we’re developing that model here as well. Finance in the UK is very developed and that’s something that’s becoming developed here as well, so we do more car financing that we did probably five years ago and we will continue to do that as well. It’s still lagging behind Europe, solar power, I mean on a beautiful day like today why are we not using more solar panels, solar ports, car ports to run vehicles, so that’s something which I will be championing over the years. We actually have a joint memorandum with Nissan where we’re putting a charter infrastructure in place.

What have I learnt? I’ve learnt that it doesn’t matter how tough things are you can still fight, and South Africans have a wonderful opportunity to find solutions to the problem. In Europe we give up very easily, I mean if we had the problems I assure you the industry would just fold. Here we get on with it, if our dealerships don’t have any power but they continue

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to service cars, sell cars, and it’s that resilience which I really admire the South Africans for.

If we look at the Rosslyn plant, with bio gas on site and other developments therein – is this putting the power in your hands so to speak?

Eskom didn’t drive that decision but it probably helped it on the way as well. Out of all the projects we do around the world this is the one where we need it most, so 30% is through the bio to watt programme, and the 4.4 megawatt developments, using cow dung.

We’ve been up there to see the farm and it’s just amazing to see what they’ve created, but if we go from 30% to 50% in the short term that would be a great success for the plant. It gives us stability, it gives a bit of leverage as well going forward, but could we get to 100%?

Yes, we could. It’s no good if we don’t have any power but our wheel supplier does, you can’t deliver a car without wheels, so we need everybody in the supply chain from tier 1 to tier 3 supplies to get power and if it that doesn’t happen then we’ll stop.

What sort of time frame are you looking at for 100% off the grid?

We put a time frame on to say we could do it by 2020, I’m not sure whether we can or not but it’s a good target figure, it’s the same whether we get there or not but if we could just progress in increments and keep going forward. When the buyer for that project talked to the owner they felt that it could go to 50% very quickly – but could he do more? That would mean more investment, so that’s another discussion that would probably need another string of supplies to come into the plant.

If you look where Rosslyn is, there’s a landfill site close by so again the City of Tshwane is keen to talk to us so that we could we do more work with those guys. They are literally on our doorstep, so we could produce more power than we need – that’s an option as well,

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so these are ongoing discussions we’re having at the moment. I see it as – 100% would be our dream, 120% would give something back to the grid and would be even better, but we will wait, a step at the time.

Please explain about the global strategy for green production from that perspective?

Obviously sustainability in BMW is why we have been on top of the sustainability index for the last seven years. We won that because it isn’t just about the production side, but if you take that as a first step, and look at i3 production, it comes out of carbon fibre and reinforced plastic. The carbon fibre is made in America, that plant is driven by hydro power.

So every ounce of electricity going in there is from water power. The car then, that part goes to the plant which has four huge wind turbines that provide the power to build the car, so that’s i3 and i8, so no reliance at all on the grid whatsoever.

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parent open way. We try to say – how can we help the environment, so when we build new plants, if you look at the Rolls Royce plant in England, it’s built into a hillside, if you came from one direction you wouldn’t even know the plant was there, because it’s actually covered in grass over the roof of the building, it’s incredible. So it comes from the top, it comes from the management; every board member sits on the sustainability committee. We’re one of the only companies in the world where that happens. People have a sustainability officer, but not every board member, so you imagine every month the board sit down and discuss ‘what is our strategy’, where are we going to go, what we can do to support the environment.

“Today we’re now looking at a plug-in hybrid on mainstream vehicles, so the X5 which was just introduced to SA, the new seven series, so the 740E will come with a plug-in hybrid, and the three series will come with that as well.”

In terms of the products we use, in terms of the finishes they use, this is core to BMW. Our office in Midrand is a five star green building, so we’re using new technology around air conditioning, to get the cost down basically, that’s around lighting, it’s around heating, it’s around cooling and it’s a wonderful environment to work in.

Has sustainability always been a core value of BMW? Everything we do we try to do in a very trans-

Can you talk a bit about the new development; you mentioned hybrid cars and new fuels?

BMW was one of the first companies to embrace, what they call a lightweight structure and electric power, but in a newly built vehicle. I was very lucky; back in 2007 I went to this very secret area of Munich where the decision was made to make the hybrids. Build a completely sustainable electric car from the ground up – so they would take a Mini or a One Series and convert it into electric power.

So forget traditional steel, it’s too heavy, steel is 50% heavier than carbon fibre, it’s 30% heavier than aluminium, so straightaway the decision

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was taken that the car needs to be carbon fibre and that was made back in 2007.

BMW went out straightaway and bought SGL, a company in America to provide the carbon fibre for these vehicles and then it was a decision in terms of what can we build that’s going to give customers what they want. Back in ‘2007/2008 the range was a big concern. If you map what’s happened to mobile phones it’s the same thing, we all had one years ago the size of a television set, and now today it’s the size of smart phone. We are in that phase at the moment, so we came in very early, and I was involved in the electric programme in the UK where we took Mini’s and the whole rear seat of the car was a battery. I mean, the thing gets quite hot I assure you, but it was to test whether these things would work.

We tested it on 50 couples who lived in and around London and every single one of them wanted to keep the car within the programme.

So they bought into electric, they said this really works for us, so we knew we were on the track.

But then it was a question of matching a very lean, efficient, small engine, like a motor cycle

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engine to the car, and that’s what we have with the I3 in fact, it’s a range extender, to take away ranger anxiety. The batch it will give us is about a 100 kms range, depending on weather conditions.

The I8 had a three cylinder engine, matched to the electric motors and that gives us a 200/300 km range on the vehicle. To me it overcomes all the ranger anxiety issues, so that’s all where the programme started, but then today we’re looking at a plug-in hybrid on main stream vehicles. The X5, which was just introduced to SA, the new 740E will come with a plug-in hybrid, and the three series will come with that as well. In the next five years BMW, across the whole range, will virtually offer electro mobility on every model, and that includes the Mini as well by the way.

Battery development has been another big talking point?

If you look at BMW, we looked at the electric motor, we looked at teaming up with big companies like Bosch, but in the end we decided actually it’s our technology, we can do it; we’re

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probably better ourselves for the car industry.

The battery technology is slightly different, so we’re having to match up with the Samsungs as well but they have the technology and of course every year they will get more capacity out of the battery, it will be lighter, it will be smaller, so the car design, if you look at the I3 it’s the base platform, its where the battery sits, but eventually that will get smaller, there’s no question about it, as the power gets higher.

Would you say innovation is what separates BMW from the pack?

If you think of the ‘i brand’ we did that when the world was in recession, everybody else packed their bags and said let’s just stay where we are. We spent two billion euro’s developing the i brand back in 2007/2008, it’s was a very, very brave decision, but it’s part of our strategy number one, which is about future mobility, future connectivity.

It isn’t just about the car; it’s about what you do in the car. The new Seven series is evidence of that, so you’ve got a luxurious product that also delivers, it’s like an office environment in the back of the car, it is the

first class seat of Lufthansa. We actually had the CEO of Lufthansa with us last week, he said this is identical to a first class seat, and he said actually you’ve got more technology to offer to your customer than we have first class and we’ve got to learn something from you. So yes innovation, technology is what makes us stand out from the pack.

What are your targets for the next three years for the i series?

Well worldwide we said by 2020 electric cars will be about 3 or 4% of the total volume, that’s now starting to accelerate, people are beginning to understand electric, so we haven’t set a time, we said let’s see what the demand is. We build to demand, but as people get to understand electric cars it will become more prevalent. And often it’s around government as well – they need to say okay we need a charging infrastructure, we need to support that, you need all parties.

We’re just trying to say to the government in SA that it’s not about incentives, okay they have got the taxation wrong on the

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car I believe, its taxed at 25%, the next five is taxed at 18%, so where’s the logic? They admit it’s wrong but it takes time, but if you look at the successful countries like Norway where today 50% of all vehicles being sold are electric, why? They get incentives. They also get the chance to drive down dedicates lanes, bus lanes, they get dedicated parking in Oslo so as a consumer you’re saying okay it’s cheap to run, I get to work quicker, I get parking easier, I get an incentive to buy the car, why not? So, therefore, 50% of vehicles are electric. But that collaboration means you see change, and I wouldn’t be surprised if similar to Beijing, I was there recently, you’ve got eight lane highways, the day I was there you couldn’t leave the office because the air quality was so poor. That can’t be sustainable, eventually somebody has got to say enough is enough, and have the strength to introduce changes, and electric is probably the quickest way of doing it.

Talking about China, German luxury cars are a big hit over there?

Yes, they are but it’s not just German, any luxury brand, so whether its Prada handbags, whether it’s Samsung, Apple, BMW, Mercedes or Audi they all resonate highly there, they’re

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well thought of, they’re well built cars. The Chinese are very good at imitating, they’re coming, and the day will come when we will have more Chinese brands in SA, it’s coming quickly, and they’re building very, very good cars today.

“We actually had the CEO of Lufthansa with us last week, he said this is identical to a first class seat, and he said actually you’ve got more technology to offer to your customer than we have first class.”

CO2 reductions as we move forward, that’s another big talking point?

If you look over the last five years BMW reduced our CO2 by about 25%, and it isn’t just through engine output either, it’s about low friction wheels, the way we have air ducting in the car, the aerodynamics of the vehicle, so all that is called efficient dynamics, we packaged it all together to get a reduction. There’s only so much you can do with an engine and we’ve

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and obviously the biggest issue is storing hydrogen so you can put it into a tank in the car and the car can be constructed. The seven series actually has a tank in the boot, so it didn’t take up a lot of space, but you could build it into the frame of the vehicle. Another issue is producing hydrogen, so again this whole weighing up of what it costs in terms of power to produce the hydrogen to drive the car, but that is the ultimate solution, it’s hydrogen, not a waste product, it’s water. So again for the environment it is absolutely carbon neutral, so it’s got to be the ultimate solution.

made a big stride so now it’s the 1% we are aiming for. However, what’s happened over the last few months is going to make us all look at our CO2. We’re all working very hard and as an industry we have done an incredible job so far, with even stiffer objectives from governments, especially in the States, and probably in China and in Europe. It’s inevitable that as we continue, development costs will be very high.

This will mean the car in the street will need to keep on selling a certain number of vehicles, for that reinvestment, but it’s there, the capability is there but it won’t be the strides we’ve had over the last five years.

Is hydrogen a viable long term fuel solution?

Hydrogen is definitely being talked about a lot, and again it will accelerate in terms of this development, so people will say actually we do need alternative fuels – is the electric car the Panacea? No it’s not so therefore hydrogen has to come into play and probably hydrogen is the long term solution. BMW had a seven series hydrogen vehicle, five, six years ago,

How far are we away from fully autonomous driving?

Well the first steps will probably be announced in under a year and autonomous driving means efficiency of driving, because constantly going 100kph in a controlled way without stop starting, that’s got to be good news. That’s the next stage, autonomous parking and all that is there today in all our cars or will be over the next few years. But it’s about legislation, what will they allow us to do on the roads; if you look at every highway there’s a level above the highway so why can’t you have highways going both ways – instead of it going this way why don’t they go that way.

“We’re just trying to say to the government in South Africa it’s not about incentives, okay they have got the taxation wrong on the car I believe, its taxed at 25%, the next five is taxed at 18%, so where’s the logic.”

Fuel supply in SA is another hot topic, especially when one looks at diesel quality and how that hinders manufacturers introducing the latest technology?

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The biggest issue in SA about fuel is fuel quality, so that’s something we have to work with the oil companies to make sure the quality is there, because we are having to run combinations of engines here which accommodate the weakness of the fuel. We want to use X-type engines but it needs a certain type of quality fuel, so again there’s an industry through NAMSA which is all the OEM’s, we are working very hard with the petroleum industry to make sure we get clean fuel, because without consistently clean fuel we will have problems.

How does the rand devaluation effect you operations in SA? It fell so dramatically I don’t think any of us were ready for that, and of course the .5% interest rate increase as well, so it’s all conspiring

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against us. The bottom line is we have to look at the rates and we have to decide on how we’re going to price our cars, it’s not just facing our industry, it’s across every industry, so you can’t operate in a negative situation.

“If you look over the last five years BMW reduced our CO2 by about 25%, and it isn’t just through engine output either.”

We just have to do the calculations to decide where the rand will be in the short or media term, so you can’t make an immediate deci-

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sion; you’ve got to look further forward than that. The rand will stabilise, it will get stronger again and we will make decisions as at when that happens. But a weak rand is not good news, it helps the plant because if we produce locally then the components are cheaper, so export is good and export record volumes at the moment out of SA for all car brands are good, so this is a good place to do business.

And finally, do you plan to increase the manufacturing base here?

Well our first plan is to change to X3 production in around 2018, to the new generation car.

Gregory Simpson

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CHP FOR SOUTH AFRICAN INDUSTRY

When great opportunity

lies in waste Let’s face it; the biggest challenge for industrial plants in South Africa is not just the price of energy, but the availability thereof Considering that the industrial sector is responsible for approximately one third of the country’s total energy consumption, Combined Heat and Power (CHP) presents the biggest, untapped potential for increased efficiency in the industry, that is highly beneficial.

CHP, also known as cogeneration is a method of energy conservation that involves the utilisation of two types of energy from a single energy source. This involves capturing (instead of wasting) energy and reusing for another process. Even though some energy may still be lost due to the nature of energy transfer and entropy, the bigger percentage of it will be captured and reused in another process. The total energy conserved through CHP could amount to nearly 40% in the processing, transportation, and overall use of energy.

CHP is a thermodynamically sound and efficient use of energy. In an industrial site, some energy is discarded as waste heat after a first stage of a production process, but in cogeneration some of this thermal energy is put to use. Essentially, the same amount of energy

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that one uses for one process can be utilised for two processes but without having to pay twice as much.

It is a well-known fact that CHP projects never made much financial sense in SA but the drivers for CHP have changed and SA industry has fewer excuses for not considering CHP. The proven technologies for CHP are not cheap but the benefits far outweigh the cost in sectors such as: Pulp and Paper, Refineries, Chemicals, Glass manufacturing, Sugar cane and Breweries.

In other countries, CHP has long been seen as an essential technology to increase secondary energy and significantly reduce CO2 emissions, whereas the lack of knowledge of CHP as an energy efficient technology is a historical challenge that prevented SA from gaining the utmost efficiency in the industrial plants.

Although the greatest potential for increasing cogeneration in SA is in the industrial sector, the technology is increasingly available for smaller-scale applications in commercial facilities. CHP appeals to business operations requiring a constant supply of reliable power too.

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CASE STUDY

Grid connection policies and compliance insights

BP Headquarters in Cape Town

D

ue to the cost of rooftop photovoltaic (PV) becoming more affordable, the technology is receiving more attention from property owners and businesses. As the technology is relatively new in the South African environment, there remains a few challenges in connecting these to the grid.

Grid connection policies for different municipalities: Justin Wimbush, Arup Renewables Leader explains, “At present there is no specific grid connection policy that covers all municipal areas within South Africa. Of the big municipalities, only City of Cape Town (CoCT) has a readily available guideline for connecting embedded generation. Other municipalities have a published tariff for embedded generation, but regulation requirements differ between them.�

The National Energy Regulator (Nersa) consultation document does provide guidelines; however, the standards are still under development and only certain parts of it is currently published. CoCT requires certification for small scale embedded generators by a professional electrical engineer to confirm compliance with safety standards SANS10142, NRS 097

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and best practice industry standards. Inverters installed in rooftop PV installations have to be compliant to NRS097-2-1[1]. Some municipalities allow G59 certification in addition to this.

Unfortunately, Eskom only allows their customers to connect to the MV network at this stage, [6] as low voltage connections are considered a safety risk due to the absence of SABS national standards and regulations.

Grid code compliance The Nersa consultation document for Small Scale Embedded Generation (SSEG) [3] suggests that all projects smaller than 1MW be registered by the energy regulator. The process involves applying to the local network operator who will assess the network status and capacity for the connection of an embedded generator. This may however cause an additional burden on municipal resources and may also cause delays.

The Nersa document indicates that there are currently no approved mandatory standards to govern SSEG in South Africa, however the NRS 097 series of specifications will be used to facilitate interconnection with the network.

CASE STUDY

that are available in all municipal areas within South Africa. Three municipalities use a net metering system [2], or the option of no export tariffs, with the proviso that an export limiter be installed. This may be an attractive option for smaller generators that do not want to incur the cost of a new metering system [5].

Alan Gilbert Building Melbourne University.

At the moment, the standards series is under development and not complete. Standards that are applicable are: NRS 097-2-1 and NRS 097-2-3.

A number of inverters are listed as compliant with NRS 097-2-1, and using one of these units will reduce the challenge of proving compliance of an unknown unit, as the type testing procedure is not confirmed.

The grid code requires that grid tied generators be willing to undergo technical compliance tests, to ensure good quality of supply as well as safe and sustainable operation of the network [3]. However the testing procedure of small scale embedded generation is not fully developed.

Feed in tariff At present there are no blanket feed in tariffs

Some municipalities indicate that a grid connection charge will be added to the account of the generator, and a feed in tariff will be negotiated with the client [4].

The Nersa consultation document suggests that municipalities adopt a fixed charge for network service costs, with a rate for energy consumed and energy delivered to the network [3].

Conclusion “The process for connecting a new embedded generator, such as a rooftop PV system has some challenges, but it is not impossible. In other parts of the world, legislation has been developed to stimulate the growth of the rooftop PV market. South Africa can learn from these countries to develop legislation that will enable, rather than hinder the growth of the rooftop PV market.

As the market in South Africa matures, policies and standards will continue to be developed to make the process clear.� concludes Wimbush.

Sources [1] http://goingsolar.co.za/solar-grid-tie-legalities-in-cape-town-south-africa/ [2] Implementing Embedded Generation on a Municipal and Small Scale 27 May 2015 [3] Consultation Paper Small-Scale Embedded Generation Regulatory Rules 25 February 2015 [4] SolarPV and Embedded Generation in South Africa 30 September 2013 [5] Guidelines for Embedded Generation: Application process to become an embedded generator in the City of Cape Town 31 October 2014 [6] The Road to connecting customer-owned small-scale generators to the Eskom Grid (SMG Bulletin 1)

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SA at forefront of solar power, battery technology advances Energy efficiency is one of South Africa’s greatest challenges complemented by the need for an affordable, sustainable energy supply. The most practical and immediate route to success is not the building of new power generating plants, but

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the use of less energy from the national grid.

Eskom has long called for a voluntary 10% reduction by users to assist with the balance of electricity supply and demand, particularly at

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peak periods. It’s the only recourse, as Eskom is unable to offer a ‘quick fix’ to this on-going problem. It will take years for the government-backed utility to commission a sufficient number of new power stations to catch up with the backlogs in supply.

A clear indication of South Africans’ belief in the ‘use less Eskom-supplied energy’ dictum was the unprecedented interest in solar power - nature’s free alternative – for domestic, commercial and industrial applications in 2015.

Rooftop solar photovoltaic (PV) power solutions are among the most practical and they’re in use the world over by those looking to act responsibly to boost their energy needs, control of their carbon footprints and minimise harmful emissions.

In SA, concerns over power reliability, possible load-shedding and looming electricity price hikes – as opposed to eco-friendliness - have persuaded an increasing number of consumers to opt for solar power which is increasingly seen as an attractive, cost-effective solution, particularly when compared to noisy dieselor petrol-powered generator options. It is also seen an ideal hedge against electricity price rises which seem inevitable in SA. Sustainable buildings As consumers from all sectors of the economy show their determination to reduce their reliance on Eskom, so South African architects are realising the benefits associated with designing buildings that follow energy-saving guidelines for this new generation of buyers.

Architects are being called up to design ‘green’ or sustainable buildings for residential, commercial and industrial use. Solar power is seen as an ideal complement to the classical building design goals of economy, utility, durability and comfort.

There are countless ways for solar PV to be developed and optimised in future. Many are sure to lead to new architectural concepts - in combination with other types of renewable energy resources.

That said, there are a number of pitfalls to dodge when it comes to selecting a solar PV solution. For example, while small-scale systems are increasingly sold in hardware stores and builders’ supply depots, users should resist the temptation to effect a DIY installation.

Although most roofs can support the added weight of a solar energy system, some can’t.

It takes a professional – preferably a structural engineer - to check the condition of the rafters and assess the capability of the roof to safely support the added dead load of the solar array, the mounting rack and the temporary live load imposed by the installation crew. (Unsurprisingly, the latter calculation is often omitted by DIY’ers.)

At the core of any solar PV system are its solar panels or ‘modules’. Choosing an appropriate solar PV system to meet specific needs can be a technically challenging exercise particularly when it comes to matching off-take with system capacity demands.

It is also challenging because there are so many differing standards of solar PV modules on the market, ranging from the ‘cheap-andnasty’ all the way up to high quality, specialised panels.

Developments in solar technology Decisions to select solar power as the ‘go-to’ option are increasingly supported by developments in the field of solar technology, including the release of utility grid-connected, hybrid solar PV power systems capable of functioning as back-up rather than complementary power sources in the event of a power outage.

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These systems can be operated in three modes: linked to the electricity grid (grid-tied); as grid-tied unit with battery backup (in a hybrid configuration); or as a stand-alone hybrid unit. In line with uninterruptible power supply (UPS) and other conventional solutions, switchover time from mains to batteries is a rapid 15 milliseconds.

Conventional wisdom maintains that solar PV panels should be orientated towards north in the southern hemisphere to allow for the most efficient power generation. The result, from a power production standpoint, is a ‘bell curve’ reflecting power increases throughout the day peaking at midday and gradually falling again to zero at sunset.

Decisions to select solar power as the ‘go-to’ option are increasingly supported by developments in solar technology.

In mid-2015 an iterative evaluation process involving a grid-linked hybrid solar PV application for a Johannesburg-based company was undertaken in which various solar PV system configurations were tested. The tests initially evaluated power production from traditionally north-facing panels. Subsequently, various directions were tried culminating in a convention-breaking east-west configuration.

Mirroring advances in solar PV technology have come breakthroughs in system design and application. South Africa’s Soltra Energy recently released an innovative solution to provide businesses with more effective energy returns from rooftop solar systems.

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The outcome has proven that a convention-breaking, east-west orientation of solar panels can often be more advantageous for a business application.

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The motivation for the tests was an Eskom electrical power supply historically incapable of meeting the business’ full demand. A complementary challenge was also met. This was to reduce the aggregate electricity cost for the facility.

cost of the entire system is maximised, and the lower cost of installation is taken into account, an east-west orientated installation is seen to provide significant advantages – always depending on application and based on desired results.

The initial goal of the test programme was to match energy production to the measured load profile, while the second objective was to maximise the financial benefit.

One of the keys to the success of similar installations going forward lies with their management. Sophisticated ‘smart’ power management solutions can now be installed and tailored to users’ needs.

For simulations conducted with an equal number of panels and inverters, the east-west configuration showed immediate advantages as it provided power production earlier in the day, with a slightly lower peak. It was thus a better match for the facility’s demand curve (see graph).

While a more advantageous match was achieved, concerns were nevertheless raised about the loss of yield. A number of different angles of inclination were subsequently tested and eventually an angle of 20 degrees from the horizontal was chosen as the best compromise between ‘flattening’ the production curve and loss of yield.

It was noted that the east-west installation results in approximately 5% lower installation cost because the brackets and mounting material are used more effectively, while the panel density on the roof can be as much as 30% higher, allowing for a greater energy yield per square metre.

These systems will, for example, complement grid power with solar power when necessary (at peak times); divert excess solar power to possible battery storage for later or after-hours use as appropriate.

A range of micro smart-grid solutions that measure the generated solar power on a minute-by-minute basis, compare it to current grid power availability and assess current load states is available.

South African expertise in this field has proven that unconventionally-designed solar PV systems will be able to complement grid power when really necessary and provide a solution robust enough to meet business as well as domestic requirements.

When all the factors are taken into account, it is clear that the east-west oriented system is comparable to a north-facing system on a ‘cost of energy’ versus a ‘kilowatts peak (kWp) installed’ basis. (kWp is essentially the rate at which a solar PV installation generates energy at its rated peak performance.)

Step up in battery storage SA has also seen a major step up in battery storage technology in recent months. The prevalence of routine load shedding and power outages has exposed one of the Achilles heels of standby power devices. This is the shortened lifespan of energy storage batteries when subjected to full depletion on a regular basis. Arguably as important as the design of the solar PV system itself, batteries need to be correctly specified and then maintained and serviced regularly.

Furthermore, when the added advantages of over-panelling the inverters at a fraction of the

It’s vital that every battery storage solution be tailored to the user’s energy requirements,

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which can vary from one application to another depending on the number of appliances to be supported and the number of solar panels installed. The batteries’ type and construction could also differ.

Battery storage solutions almost always centre on the ‘deep-cycle’ variety. Popular deep-cycle batteries are either sealed lead-acid batteries, or new-generation lithium-ion batteries. Both types are designed to be deeply discharged using a sizable percentage of their capacity.

A South African company, Powermode, has designed and developed a purpose-built, longrun battery pack which comprises a number of sealed deep cycle VRLA (Valve Regulated Lead Acid) Absorbed Glass Matt batteries.

This battery-pack’s ‘long run’ attributes are due to ‘smart’ technology built into each pack which is sized according to load. Central to the solution is a battery charger with a computerised battery balancing harness that automatically reports - via the Internet and a ‘cloud-based’ portal - on a wide range of parameters associated with individual batteries in the pack.

Data streams including temperature, state of charge, load and depth of discharge are monitored. A tally of the number of discharge/charge cycles is also logged. Should an individual battery’s performance not meet design criteria or fail for any reason it is replaced immediately by a support team in terms of a performance guarantee.

With this in mind, one of the most significant features of the Powermode-supplied battery pack – which can be retro-fitted to existing systems - is its three-year, on-site guarantee – acknowledged as a ‘first’ for the industry.

The key to battery longevity lies in a thorough understanding of the status of individual batteries. The management of the battery pack not only distributes and balances the load, discharge and charge regimes across all batteries but takes steps to ensure that no battery is compromised through over-cycling.

The Lithium-ion option arrives Perhaps one of the world’s more memorable advances in the power provisioning field in 2015 was the launch of the Tesla Powerwall.

The Tesla Powerwall is a revolutionary concept, but not necessarily because the battery system is based on lithium-ion (Li-ion) technology – which has been around for many

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ENERGY EFFICIENCY 7

ergy, whether it is derived from the Eskom grid, from solar panels or a combination of both as found in increasingly common hybrid systems.

The space-saving unit represents a leap forward in battery storage and is expected to boost the acceptance of rooftop solar PV-plusbattery solutions in 2016 and beyond, giving SA consumers greater control over their energy usage.

Although most roofs can support the added weight of a solar energy system, some can’t. It takes a professional – preferably a structural engineer - to check the condition of the rafters and assess the capability of the roof.

years powering cell-phones, lap-top computers and now electric cars. It is revolutionary because it is the first solution that makes it possible for the wide-spread use of alternative energy sources - such as solar PV. If the Tesla Powerwall was seen to be ideally positioned to address the power provisioning problems and challenges faced by South Africans, the news of a locally-designed and manufactured challenger – the Soltra Energy Wall – can be viewed as a game-changer in the local marketplace.

Like its American (Tesla) counterpart, the Soltra Energy Wall is designed to store excess en-

The Soltra system is ideally suited to meeting the power provisioning challenges faced by South African businesses and individuals on a regular basis – load-shedding and power-outages caused by any number of factors, including cable theft. These issues are not commonly experienced in the US where the ‘green lobby’ is more assertive as a technology driver.

Time-of-day billing South Africans will increasingly have to deal with regular hikes in the price of electricity and will soon face the introduction of time-of-day billing (or ‘smart-metering’) which will further increase costs.

Eskom is in the process of installing smart meters that will effectively boost the price of electricity at peak times. With the lowest rates being charged in the middle of the night – when demand is low - and high rates in the morning and afternoon/early evening - when demand

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is at its peak – it will make increasing economic sense to store energy in batteries in off-peak times and consume it in peak times. It’s even better if the energy storage is boosted by solar PV during the day.

These inevitabilities will underpin the broad acceptance of the Soltra Energy Wall concept as a cost-effective, efficient and professionally-supported alternative. The Soltra battery can be charged from the grid during off-peak periods, supplemented by solar energy, or it can form the basis of an off-grid installation, relying entirely on solar PV/alternative energy sources.

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‘Grid parity’, the moment when a rooftop solar PV system makes economic sense, has been achieved in parts of Europe. It can’t be that far off in South Africa where it can be expected to disrupt business models across the electrical industry and provide a sizable boost to the renewable energy market.

As a result, many industry-watchers expect demand for solar solutions to break all records in SA 2016, particularly in the light of Eskom’s proposed tariff hikes. Against this backdrop, efficient battery storage could quickly become one of the biggest advances in the South African energy landscape, which will continue

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to be characterised by a mismatch between demand and supply.

What’s needed now is for government to throw its weight behind rooftop solar PV initiatives as they would help to create thousands of new jobs, establish many new small businesses and upskill hundreds of technicians on a long-term, sustainable basis.

According to estimates, there is a sizable market with potential for growth for solar PV installations in SA. Sales of this many systems Did you know?

“The first solar battery was developed in 2014 by researchers at Ohio State University.

The researchers used a dye-sensitized solar cell using ruthenium that stores the power that it uses air to decompose and re-form lithium peroxide. It used three electrodes rather than the typical four. It featured a lithium plate base, two layers of electrode separated by a thin sheet of porous carbon and a titanium gauze mesh that played host to a dye-sensitive photoelectrode.

Porous materials allowed the battery’s ions to oxidize into lithium peroxide, which chemically decomposes into lithium ions and stored as lithium metal. The device used conventional liquid electrolyte consisting of part salt and part solvent (perchlorate mixed with organic solvent dimethyl sulfoxide.

could well help create many new small-scale businesses and hundreds of thousands of new jobs in the near term.

Let’s not ignore the strides that have been made locally and overseas in solar PV implementation and look forward the many innovations that are in the pipe-line relating to this technology.

Jack Ward

In 2015 the same team announced modifications to their design such that compared with traditional lithium iodine batteries, energy savings reached 20 percent. The new design no longer needs air to pass through it in order to function.

Water was the solvent and lithium iodide is the salt. The result is a water-based electrolyte and a prototype now classed as an aqueous flow battery. The device is topped with a solid solar panel in a single solid sheet. Over 25 charge/discharge cycles, the battery released around 3.3 volts. While typical batteries are charged with 3.6 volts and discharge at 3.3 volts, the solar flow battery only needed 2.9 volts to charge with the solar panel making up the difference, almost 20 percent.”

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Drivers to reduce energy costs still in place This chapter seeks to show the clear business case for conducting energy audits and implementing energy saving opportunities in a structured manner; based on the experience of the Private Sector Energy Efficiency Programme.

will have to submit energy consumption data whilst companies consuming over 400 Terajoules per annum (roughly over R 400m per annum on energy) will have to submit energy consumption data and energy management plans every 5 years.

Electricity prices are set to continue to rise at above inflation rates to help fund Eskom’s costs. Nersa approved a 9.4% increase for 2016/2017 effective 1 April 2016; slightly less than the 12.69% increase granted for 2015/2016. This together with the high costs of liquid fuels is forcing businesses to look at ways to reduce consumption.

Standards and Incentives: More companies are beginning to adopt the ISO 50001 standard on Energy Management Systems, for reputational as well as financial reasons.

Furthermore, the 12L tax incentive for energy efficiency implementation has also seen a steady uptake of companies. (Visit for further information: www.saneditax.org.za

Legislation: The draft regulations regarding registration, reporting on energy management and submission of energy management plans published in March 2015 still needs to be ratified. Once this is approved, all companies consuming over 180 Terajoules per annum

Energy Auditing Energy auditing is the first step in a systematic process to identify and then implement energy saving opportunities in order to reduce energy costs. Ideally energy audits should be done annually and needs to have support

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from senior leadership for meaningful implementation and results.

Other key benefits include a better understanding and tracking of energy costs, enabling the setting of a baseline and realistic targets as well as helping to create a positive environment and culture of energy awareness for the company and its employees.

An energy audit involves an evaluation of the current energy management practices within the company and identifying tangible opportunities to reduce energy costs. Typical elements of an energy audit will comprise of an analysis of historic energy data (electricity bills etc.), understanding the energy profile and main users of energy, identifying and quantifying energy saving opportunities (what the potential savings will be per year, how much it will cost to implement) and then defining the plan in order to realise these potential savings.

A simple checklist for conducting an energy audit of a small company in the light industry/ commercial sector would include checking the following key equipment and behaviours:

Energy auditing is the first step in a systematic process to identify and then implement energy saving opportunities in order to reduce energy costs.

Lighting • Are lights switched off (is daylight sufficient/ room not in use)?

• Are any old large diameter fluorescent tube lights or tungsten bulbs still in use?

• Is there an opportunity to use more natural light through perspex sheeting on roof?

• Are light switches arranged conveniently and labelled?

• Is exterior lighting switched off when not needed?

In the office • Have computers got built-in energy saving features and are they activated?

• Are computers left on overnight?

• Are monitors switched off when not in use?

• Are photocopiers located in air conditioned areas?

• Are printers and photocopiers left on overnight/at weekends?

• Are vending machines/water coolers left on all the time?

Heating , Ventilation and Air Conditioning • Have heaters/boilers been serviced in the last 12 months?

• Are portable heaters being used?

• Are heaters and air conditioning units operating in the same space?

• How is hot water provided?

• Is the room thermostat working and set to the correct temperature?

• Are the timers working and on the correct settings?

• Are windows and doors open when heating or air conditioning is on?

• If possible, are HVAC systems turned off out of hours? Consider installing automatic controls to • ensure equipment stays off when not needed.

• Has the ceiling insulation been evaluated?

• Can the building be ventilated at night where electricity is cheaper so that the chillers can be switched on later?

In the factory/warehouse • Are pumps/fans/compressed air switched off when the equipment they serve is not in use?

• Do you hear compressed air leaks?

• Are refrigeration units being run efficiently?

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The Private Sector Energy Efficiency Programme The PSEE programme was a national effort run by the National Business Initiative from June 2013 to November 2015 which aimed to assist companies to improve their energy efficiency.

The programme was funded by the United Kingdom Department for International Development and supported by the Department of Energy.

The programme found that the energy audits conducted typically identified opportunities which could reduce energy costs by 5% - 25% with typical payback periods of less than 3 years. Renewable energy opportunities, in particular roof mounted solar pv, was also an opportunity commonly identified. This opportunity has a longer payback period (typically 5-7 years) but will lower reliance on the electricity grid.

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Furthermore, the fact that the programme managed to achieve its ambitious targets within the short lifespan of the programme indicates the appetite and further potential for energy efficiency in South Africa.

One of the key constraints to implement the identified opportunities was found to be the capital required; the PSEE programme therefore created a guide to Energy Efficiency Finance which provides further information on the funding sources available. (Go to http:// www.psee.org.za/resources.php - Guide to Energy Efficiency Finance) The following sample of testimonials show what companies have been able to achieve by focusing on their energy costs: “From the PSEE initiatives implemented so far, we have saved R 900 000 in just 4 months, which is fantastic for a business of our size�;

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Teboho Moseme, Engineering Manager, Coleus Packaging “Standard Bank has achieved ISO 50001 certification as part of our journey to be a responsible bank ”; Nkosinathi Manzana, Head of Professional Technical, Standard Bank “We as Woolworths have helped 80 of our small to medium suppliers to reduce energy consumption by making use of the free energy auditing service of the PSEE programme”; Justin Smith, Head of Sustainability, Woolworths

INDICATOR

“If you don’t know what you’re wasting, how are you going to rectify it? Villiera Wines have managed to reduce our energy consumption by 50%, from 1,2 million kWh to 0,6 million kWh. 60% of these savings came from implementing energy efficiency measures whilst 40% of these saving came from installing a solar photo-voltaic system.”; Simon Grier, Director, Villiera Wines.

Hemal Bhana

TARGETFORENDOF ACTUAL ACHIEVED NOVEMBER 2015 (DECEMBER 2013 – NOVEMBER 2015)

Number of companies that registered on the PSEE website and number of com2 000 panies that received awareness raising call or advice over the phone.

2 732

No. of participants at workshops.

933

1 999

No. on-site surveys implemented at sites of medium sized firms (annual energy spend between R1m and R45m)

765

991

No. of site surveys implemented at companies that accessed follow-up services as a result of having received site-surveys.

275

178

No. large companies (annual energy spend in excess of R45m) engaged in strategic energy management interven- 37 tions (measured as no. companies who have signed SEM contracts)

37

Lifetime GHG emissions savings from projects implemented as a result of PSEE interventions

2.19 MtCO2e*

2.0 MtCO2e

Reduced energy consumed from non-renewable sources against business as 2 576 GWh usual in targeted companies (GWh) over life time of projects implemented.

2 850 GWh*

The Private Sector Energy Efficiency Programme * FORECAST BASED ON IMPLEMENTATION LEVELS ACHIEVED DURING THE PROGRAMME AND ASSUMING FURTHER IMPLEMENTATION REQUIRING CAPITAL TO CONTINUE DURING 2016

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low voltage

Silently Protecting Lives & Property

The only manufacturer of Circuit Breakers on the African continent.

More than 65 Years of Service Excellence.

Quality, Energy Efficient Electrical Protection Equipment.

CBI-electric: low voltage (CBI) is a truly South African success story. As the only manufacturer of circuit breakers and related devices on the African continent this locally grown organisation, established in 1949, exports the majority of its products to countries across the world. The organisation has established subsidiaries and distribution channels in North America, Australia, Asia and Europe.

To be able to be successful in international markets it is imperative to maintain a leadership position within your home market, notwithstanding strong international competition. Coen Esterhuizen, Managing Director of CBI-electric: low voltage states, “We maintain our leadership position by investing extensively in skills development, machinery, systems, facilities and equipment. This is supported by leading edge in-house research complemented by our design, development, manufacturing and testing capabilities.”

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Purposefully Differentiated

CBI is also the only manufacturer in the Southern Hemisphere with its own 65 kA, 44,000v SANAS accredited test station with certifications witnessed

by SABS, UL, VDE and CQC. The organisation holds numerous international certifications including American, Canadian, Australian, Russian, European, Chinese, Japanese, Ukraine, South African and others.

Products supplied by CBI are for the Residential, Commercial, Industrial, Mining, Utilities sectors and Original Equipment Manufacturers (OEM’s). These products include Protection devices; Distribution devices; Control devices; Metering devices; Automation and Control systems as well as Specialised Application Devices.

The Company also holds a strong position internationally as an equipment supplier to the Telecommunications, Rail and Solar industries.

low voltage

CBI-electric: low voltage recently launched a new 240 V alternating current SA / Euro / USB socket outlet that comprises two plug sockets and two integral USB ports.

“At CBI we continually develop new products to meet the needs of our customers. With the addition of this product to our highly successful standard range customers no longer require a USB adapter, they can plug right into the wall socket outlet to charge their electronic devices”, Manuel Ribeiro, CBI-electric’s Product Manager states.

With the rise in electricity cost and the drive to live greener, households need to adjust their energy consumption habits. The CBI NanoView is the ideal tool for managing water and electricity consumption.

The NanoView monitor allows users to easily and conveniently manage electricity and water usage, by providing live cumulative consumption for the past day, week or month. By displaying live consumption the user can quickly determine which appliances consume more energy and utilise them sparingly.

Providing effortless installation and ease of operation, the socket outlet is rated at 16A, 240V with the USB ports rated 2A (cumulative), 5V direct current. The socket outlet is fully tested and complies with SANS 164 as well as SANS 60950.

Other company projects in the pipeline focus on supply stability for appliance protection, which are mainly aimed at the residential market, as well as a wireless class 1 metering concept. CBI plans to launch these products in early 2017, Osborne concludes.

“The product’s design takes into account the industry application, with a configuration that is the first of its kind,” says CBI commercial executive Charl Osborne.

He explains that the configuration includes one threepin SA, one Euro and two USB outlets. Osborne believes this is ideal for the tourism industry, stressing that the USB outlets can charge all types of communication and universal data devices.

CBI-electric: low voltage offers solutions-driven customer support, both locally and internationally. CBI provides peace of mind through exceptional service and support through an extensive network of branches and authenticated wholesalers and dealerships. 24/7/365 support is provided via their customer service line.

CBI is also currently involved in numerous projects, including real-time energy monitoring. The company plans to introduce a new product that provides this realtime energy monitoring to the market at the African Utility Week and Clean Power Africa conference and trade exhibition, which will run from May 17 to 19 at the Cape Town International Convention Centre.

Tel: +27 (0)11 928 2000 E-mail: cbi@cbi-electric.com Web: www.cbi-lowvoltage.com

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Energy efficiency on mines: all about balance So serious has the issue of reliable, affordable and sustainable energy on mines become, that a leading South African mining company announced last year it would spend R3 billion on a solar power facility to help meet its energy requirements.

Its plans are significant for a few reasons, and highlight some vital themes that mines increasingly have to consider as they navigate their way through the commodity price slump toward a more secure future.

The first interesting aspect about the plan is its sheer scale. The billions that will be spent is a reflection of energy’s place on mine’s ranking of its operating costs: around 20% in most cases, but up to 40% of a mine’s total cost, according to global consulting group EY.[1]

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Secondly, the initiative speaks to the erosion of reliability of the SA national power grid in recent years – although this has been a common problem for mines around the rest of Africa for decades. The World Bank reports that close to half of companies in sub-Saharan Africa identify unreliable electricity as one of the biggest constraints to doing business.[2] Its report says that outages cost these firms about 5% in lost annual sales, and about 44% of firms cope by owning or sharing a generator, fueled typically by diesel or heavy fuel oil.

This introduces the third point of interest, which is the fact that the mine’s choice of solution has been renewable, solar power. This is an encouraging step into a field of opportunity where the cost-benefit ratio is improv-

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ing, especially in the context of South Africa’s favourable climate for solar power generation.

SA’s sunlight could generate 220 kW/m2, for instance – which is over double the potential 100 kW/m2 in the United Kingdom.

However, this innovative example – and there are others such as hybrid schemes involving a combination of photo-voltaic and gas turbine power generation – should not belie the complexity of the energy efficiency issue as there are no easy solutions that are universally applicable to all mines. This article will describe some of those factors that must be weighed before strategies are decided and implemented, and will outline the kind of processes that can lead a mining company in the appropriate direction.

What’s at risk?

Mines face a number of risks related to their energy consumption, including the following: Rising electricity prices, which threaten commercial sustainability; Lack of reliable supply, which disrupts operations and erodes efficiency; and Generating emissions, which is subject to air quality regulations and may soon also attract a carbon tax.

This combination of operational, financial and regulatory risk form a growing part of the company’s risk profile – so there is a need to be properly understood and addressed through appropriate risk management strategies.

Most mines have generator sets for back-up supply in the case of grid-failure or load-shedding, but it is an expensive option and – for cost-sensitive operations – presents a risk in itself. While the record-low oil prices have given some breathing space, its potential volatility adds to the risk. The actual machinery is also a substantial cost, especially when maintenance and breakdowns are taken into account.

On the compliance front, a large operation with diesel-powered generators may need to consider the demands of the National Atmospheric Emission Reporting regulations (in Section 21 of the National Air Quality Act) – including the development of Pollution Prevention Plans and registering on the online National Atmospheric Emissions Inventory System (NAIES).

Another compliance risk is the much-discussed carbon tax, as contained in the Draft Carbon Tax Bill which Treasury published for comment last year. The tax is expected to be implemented in 2017, in two phases that would allow businesses to transition over to cleaner and more efficient technologies and corporate strategies.

Initially, the marginal carbon tax rate will be R120 per tonne of carbon dioxide equivalent (CO2e), with thresholds, reflected as allowances in the Draft Bill, that are likely to bring the effective tax rate down to between R6 and R48 per tonne.[3] In the first phase of the tax’s implementation, the mining sector will be allowed up to a 90% allowance on their tax liability. The system is to be administered by the South African Revenue Service (SARS) and verified through the NAEIS. There are, however, many uncertainties with the proposed carbon tax as it stands, so mining companies need a firm understanding of the risks faced with this additional tax burden to benefit from the tax relief incentives built into the bill.

As renewable energy has become more affordable and efficient, it can certainly address aspects of these risks. However, the key to improved energy security and efficiency lies not primarily in the technologies but in the management systems and organisational processes that integrate and apply these solutions.

Measuring in order to manage An energy-efficient approach has been im-

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plemented on many mines, and begins with an understanding of both the sources (inputs) of energy – not just electricity but also energy sources like diesel in mining trucks – and the respective outputs. An energy audit, conducted in accordance with ISO5001 standards, is

one of the ways of accomplishing this, by measuring inputs and outputs on which to base a conceptual energy mass balance.

The mine’s energy balance – rather like the water balance that mines are more familiar with – creates the framework for measuring and monitoring the flow of energy, so that losses can be identified and targets set for future improvements in efficiency.

As Figure 1 shows, the energy flow can be mapped along with the mass associated with other mine inputs, allowing the representation of energy and mass flows, losses and outputs.

Specialised expertise is frequently required to conduct the necessary studies behind these measurements, but the systems must be integrated into the mine’s daily routine of monitoring, evaluation and continuous improvement. For instance, an expert can establish whether the capacity of the electrical motors at work are optimally suited to their respective applications; ideally, they should be operating at close to 75% of capacity for increased longevity.

Social benefit in the sustainability journey In addition to the operational and regulatory risks discussed above, mining comFigure 1: Example of a high-level energy and mass flow map for mine site, prior panies’ social licence to mine to processing. (Source: Energy Efficiency Opportunities – Energy-mass balance: has emerged as a key risk Mining – Version 1.0 Australian Government, Department of Resources, Energy needing attention at every and Tourism) level of an operation.[4] Even

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Getting the mine ‘energy balance’ right Just as a mine needs to locate and measure the water entering a mine site to make best use of this resources, so the energy inputs on every mine need to be well understood and quantified – creating the foundation to estimate energy outputs and investigate where unnecessary losses may be found and corrected. energy efficiency has a role to play in addressing this risk.

At a corporate level, the decision to go partly or completely ‘off-grid’ in response to national supply disruptions – and perhaps even to realise energy cost savings – may seem the responsible route to take. It offers smoother operations, less risk to investors and a higher level of overall efficiencies.

However, the social licence that mines seek from stakeholders like governments, citizens and local communities is generally based on the principle of shared value, where inputs and benefits derived from mining are shared more fairly among all affected parties. The danger to be avoided lies in creating an ‘energy island’ that serves the mine and does not integrate with the wider world.

Energy efficiency and social licence The social licence to operate (SLTO) has a wide impact on all communities — from governments to locals and activists as well as the mining and metals organisations.

It is the way these groups interact with each other on projects, which results in whether a miner receives the SLTO. And, when billions of dollars in investment are at stake, it is critical that this juggling act between project viability and SLTO is not seen as a trade-off, but rather as a mutual collaboration. These are the issues most at stake that impact the SLTO.

A common and positive response that many mines already make in this regard is to share their water or energy resources with neighbouring communities – which is generally well received. There is a growing argument, though, that calls for a higher-level and more strategic engagement between mines and their host countries on the transformative opportunities within “power-mining integration”.

Integrating power and mining in Africa In a recent report, the World Bank argues against self-supply of power by mines, saying that this arrangement “imposes a loss for everyone—people, utilities, mines, and national economies”[5]. It says that, since 2000, mines in Africa have spent over $15 billion to cover their own electricity investment and operating costs – installing nearly 1,600 MW. “None of this power made it onto a national grid,” the report says. The argument is that, as well as being costly for companies, self-supply has not benefited the local community. By contrast, better power-mining integration creates a win-win situation.

“Mining companies could be anchor customers for utilities, facilitating generation and transmission investments by producing the economies of scale needed for large infrastructure projects, in turn benefiting all consumers,” continues the report. “Utilities can also secure large revenues from creditworthy customers. Grid supply in turn costs mines less than self-supply from diesel and HFO and allows the mines to focus on their core business.”

The benefits of such high-level arrangements are not hard to see, but of course take time, patience, resources and willing networks of well-placed executives and government officials. SRK has seen first-hand the positive outcomes of such processes; in our recent role as technical advisors to the government of

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Cameroon, we were able to contribute to the negotiation of complex project arrangements involving not just a mine but rail and port facilities. The value of these processes cannot be over-stated, and should in fact form an important focus for the private sector – especially in downturns like the present when there is time to take stock and plan ahead in preparation for the next economic upswing.

Many mining companies already have policies in place – regarding environmental and social impact, for instance – that could pave the way into such engagements with the relevant stakeholders. By integrating their energy efficiency efforts with government’s national or local programmes in their host country, the drive to improve energy efficiency could be enhanced while reinforcing the social licence to mine. (For examples of SA government initiatives, see the sidebars alongside: ‘Better rebates for energy efficiency’ and ‘Government agencies on hand’.)

Potential for renewables This is not to undermine the role and potential of renewable energy sources in the mining sector; on the contrary, it would seem that Africa is already taking the lead in pursuing renewable options for both large-scale and localized power generation Better rebates for energy efficiency Among the government incentives to the private sector to become more energy efficient, Section 12L of the Income Tax Act provides for tax deductions if energy use improvements are made and can be measured and verified. The deduction was recently improved from 45c to 95 cents per kilowatt hour or kilowatt hour equivalent of energy saved, dating back to 1 March 2015.[7] The South African National Energy Development Institute (http://www.sanedi. org.za) is a useful resource for information on these issues.

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– potentially leap-frogging over the coal age on which most developed countries based their industrialisation.

A strong indication of future trends is emerging from the unexpectedly positive impact of South Africa’s Renewable Energy IndepenStrategic approach to energy efficiency The National Cleaner Production Centre of South Africa (NCPC-SA) is a national programme of government that promotes the implementation of resource efficiency and cleaner production (RECP) methodologies to assist industry to lower costs through reduced energy, water and materials usage, and waste management.

It is hosted by the Council for Scientific and Industrial Research on behalf of the Department of Trade and Industry. The NCPC-SA is a member of United Nations Industrial Development Organisation and the United Nations Environment Programme’s global resource efficiency and cleaner production network; it also plays a leading role in the African Roundtable on Sustainable Production and Consumption.

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dent Power Project Procurement Programme (REIPPPP). In a few short years, private investors – working in partnership with public authorities – are adding some 5,000 MW to South Africa’s generation capacity.[6]

Government agencies on hand The National Cleaner Production Centre of South Africa (NCPC-SA) is a national programme of government that promotes the implementation of resource efficiency and cleaner production (RECP) methodologies to assist industry to lower costs through reduced energy, water and materials usage, and waste management.

It is hosted by the Council for Scientific and Industrial Research on behalf of the Department of Trade and Industry. The NCPC-SA is a member of United Nations Industrial Development Organisation and the United Nations Environment Programme’s global resource efficiency and cleaner production network; it also plays a leading role in the African Roundtable on Sustainable Production and Consumption.

In doing so, this process has brought both inspiration and practical lessons to Africa’s electricity-starved countries – of which over 30 now experience power shortages and regular interruptions in service, according to the African Development Bank.

Energy efficiency on mines is about more than the insertion of the latest technologies. It is about strategically understanding an operation’s energy balance, and contextualising the available options within a broader risk profile.

This requires not just expertise in energy-related fields, but a full appreciation of all the factors that make a mine successful – from environmental impact assessments, geotechnical engineering, hydrology and rock mechanics to mine planning, waste management and stakeholder engagement. Only then can an effective energy management system be aligned to the company’s strategic objectives and make a real impact on efficiency and capitalise on opportunities.

Paul Jorgensen and Dr Hartley Bulcock

References: [1] EY, 2015 - Business risks facing mining and metals 2015–2016, page 28.

[2] World Bank Group, 2015 - The Power of the Mine: A Transformative Opportunity for Sub-Saharan Africa, page 1.

[3] http://www.thecarbonreport.co.za/the-proposed-south-african-carbon-tax/ [4]EY – page 20 [5] The Power of the Mine: A Transformative Opportunity for Sub-Saharan Africa 2015, page xi.

[6] By 2014, a total of 64 renewable energy projects – representing a commitment of US$14 billion and generating almost 4,000 MW between them – had been awarded to the private sector. Source: South Africa’s Renewable Energy IPP Procurement Program: Success Factors and Lessons (May 2014)

by Anton Eberhard, University of Cape Town, Joel Kolker, World Bank Institute, and James Leigland, Private Infrastructure Development Group (http://www.gsb.uct.ac.za/files/PPIAFReport.pdf). South Africa’s integrated resource plan 2010 (IRP 2010) identified the energy sources mix required over a 20 year planning horizon to 2030, of which 17 800 MW should be met from RE by 2030, with 5000 MW to be operational by 2019 and a further 2000 MW by 2020 (http://www.ee.co.za/wp-content/ uploads/2015/06/Energize-RE-Vol-3-june15-p9-12.pdf).

[7] https://saneditax.org.za/Symfony/web/app.php/homeDisplay/21

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Legal challenges in setting up Renewable Energy Projects The REIPPP is well regulated and various South African policies and laws make up the legal framework within which the REIPPP operates. It is perhaps, partially at least, regulatory certainly that has been responsible for the success of the programme to date – the rules of engagement are clear.

The Renewable Energy Independent Power Producer Programme (REIPPP) is an initiative of the South African Government, through its Department of Energy. The aims of the programme are (a) to help alleviate South Africa’s electricity generation shortfall by using independent power producers to generate electricity from renewable sources such as solar, hydro, biomass and wind, and (b) to introduce an element of clean energy to the country’s generation mix, currently heavily dependent on coal base-load.

The programme also seeks to address broader national economic issues such as poverty

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alleviation, inequality and unemployment by encouraging infrastructure investment, skills transfer and social development in the areas where the projects are located.

At the end of February 2016, a total of 6,326 MW had been allocated to various bidders with bids for a further 1,800 MW under adjudication. The next bid window (round 5) is expected to be launched by the end of the second quarter of 2016.

Legal Framework of the REIPPP The sector is well regulated and various South African policies and laws make up the legal framework within which the REIPPP operates.

It is perhaps, partially at least, regulatory certainly that has been responsible for the success of the programme to date – the rules of engagement are clear.

Potential sponsors of renewable energy projects in South Africa face numerous challeng-

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es as bidders must comply with the formal requirements of the Requests For Proposals (RFP’s) issued for each bid window.

model in the presence of an official who needs to be satisfied that the financial model actually works as intended.

Bid Requirements Before submitting a proposal, each bidder has to pay a prescribed fee to obtain a copy of the RFP and register its bid with the Independent Power Producer office of the Department of Energy. In addition, the bidder must, on or before the bid submission date, lodge an original bid guarantee calculated according to the size of the project. The guarantee must be valid for the duration of the bid evaluation period.

Bidders must deliver proof of finance, in the form of commitment letters from financial institutions.

Each bid should contain an organogram of the project company, indicating debt and equity providers as well as details of key contractors (such as construction and operation counterparties) and equipment suppliers. Once the proposal has been submitted, the consent of the DOE will be required before any change in shareholding can be made.

The bidder must indicate willingness to sign, inter alia, the power purchase agreement (PPA) with Eskom (South Africa’s state-owned utility) and the Implementation Agreement with the Department of Energy, amongst other agreements in published forms.

When adjudicating a proposal, the authorities need to be satisfied that the rights to land are secure, at least for the duration of the project.

This is a key issue for lenders as well. For bid purposes, options to purchase or lease land are sufficient provided the option is conditional only on achieving preferred bidder status and has appended to it a fully developed lease or deed of sale.

The proposal must provide details of the selling price of the electricity to be produced, the financial standing of the sponsors, and functionality and robustness of the financial model. This last item entails physically running the

The bid should demonstrate clearly the technology to be employed in the project, details and experience of the contractor employed to build the plant, resource data and a cost estimate from Eskom of connecting the plant to the grid.

Bid Adjudication Compliant bids are judged on two criteria: (a) proposed tariff (70% weighting) and (b) economic development (30% weighting). The latter is subdivided into several sub-categories such as job creation, local content and ownership, management control, preferential procurement, enterprise development and socio economic development.

When adjudicating a proposal, the authorities need to be satisfied that the rights to land are secure, at least for the duration of the project.

Licences A generation licence will be a requirement for financial close. If the project owns the distribution infrastructure required to get the electricity to the nearest connection point with the national grid, a distribution licence will also be necessary.

The terms and conditions of the licences will be subject to lender scrutiny and this may mean having to apply for changes to the licences to meet lender requirements.

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Land There can be no project without unfettered ownership of or access to land. The legalities and processes for gaining access to land are extensive and complex. Issues that could impact on the project timetable include (a) rezoning (e.g. from agriculture to industrial), (b) the subdivision of agricultural land (not permitted without ministerial consent), (c) servitudes and rights-of-way to link the generator with the transmission infrastructure, (d) environmental impact assessments and records of decision, (e) third party mineral or mining rights, (f ) proximity to airports (g) water use licences, (h) national heritage sites, (j) waste disposal, and more. Public participation is part of the process in some of these matters and that can lead to unforeseen delays.

The Process of negotiating a land purchase or lease should be initiated at an early stage.

Servitudes and Rights-of-Way Servitudes are often required to obtain access to key points over someone else’s’ land (for example, water access and grid connection points). Consents from landowners and existing servitude holders can be done by way of an option, conditional only on achieving preferred bidder status. The option must include a fully developed servitude agreement as an annexure.

The option route is sufficient for bid purposes, but the timeframe for acquring consents from existing right holders can be protracted, and the process must be set in motion as soon as possible.

Mineral and Mining Rights All rights to minerals are held by the State.

However, mineral and mining rights are granted to private sector applicants and the holder of a mineral or mining right can halt a project.

Therefore, developers should take all steps

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necessary to obtain the consent of the licence holders prior to financial close. Speculative applicants have been known to apply for mineral and mining licences which places them in a position to demand high prices for the necessary consents.

Environmental Matters Each Bidder must produce evidence, acceptable to the authorities, that the bidder has in place an environmental authorisation, as required by relevant legislation, for each project. Alternatively, each bidder must provide a full description of the progress made in obtaining any environmental consent which may be required for the project which has not been obtained at bid submission date,

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and indicate when the consent is expected to be given.

An Environmental Impact Assessment (EIA) can be onerous and time consuming, as it involves public interest hearings in which any interested party may raise an objection to the project, which would require assessment by the authorities before being processed further.

Public hearings open the door for competitors to frustrate a bid.

A bid without a valid EIA would be non-compliant, and any change to the technology or footprint of the project would require a re-evaluation of the EIA, with a new public participation process being required.

Water Use Licence The applying for and granting of a water use license has proven to be a stumbling block for renewable energy projects requiring a license.

The Department of Water Affairs is tasked with assessing applications for water use licenses and has experienced capacity constraints, resulting in backlogs. In practice, it has been accepted that prove of application is sufficient for bidding purposes.

Other Permits These include (a) a permit from the Civil Aviation Authority if a project (such as a CSP tower or wind farm) could potentially be an obstruction to airline traffic, (b) a permit in pursuant to the Biodiversity Act if there is endangered

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flora or fauna in the project site, (c) a permit in terms of the National Heritage Act if any archaeological sensitive sites are present on the project site, and (d) a waste licence where waste will be produced such as air, water or soil contamination.

Grid Connectivity A critical requirement for a valid bid is the Budget Quote Letter (BQ Letter) from Eskom. The receipt and acceptance of the BQ Letter confirms that Eskom will commence with any upgrades or construction required to ensure that grid connectivity of the relevant renewable energy project is achieved. This letter creates a binding obligation on Eskom for the construction of the

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required connection infrastructure. Capacity or budgetary constraints have resulted in caution on the side of Eskom in issuing BQ letters.

Once the project reaches Commercial Operations date, it must be connected to the grid. Another challenge is Substation Capacity. As a result of technology specific requirements certain geographical areas have been focus areas for renewable energy projects which, in turn, has led to sub-station saturation. Substation upgrades can be challenging and potential delays should be factored into the project timetable.

Project Finance Renewable energy projects are expensive. As a

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result, they are heavily dependent on third party finance in the form of limited recourse lending, or Project Finance. Financial institutions have shown good appetite for these projects and gearing of seventy per cent is common.

But it does not come easily. Lender scrutiny is intense and the credit criteria are strictly enforced. Risk mitigation strategies are not always convenient for sponsors as they result in an erosion of returns. However, without such loan finance, the project will not see the light of day. Lender involvement at an early stage is advisable (a) to understand what’s bankable and what isn’t and, (b) as it is difficult to reopen negotiations to address lender requirements.

Many lenders are commercial banks and the preponderance of lending opportunities in the sector results in concentration risks for those banks. This gives rise to securitisation opportunities, which, in turn, offer further benefits for banks in the form of structuring fees and the liberation of capital to enter into further lending opportunities.

Advice comes at considerable cost and sponsors should budget accordingly.

Equity Considerations As mentioned above, these projects can attain a high level of gearing. But even with seventy per cent debt, the equity requirements are significant. A high level of equity commitment is expected of the sponsors and it is one of the rules of engagement that the larger shareholders in a project may not dispose of their shares within a certain period of time after financial close without the consent of the authorities.

Certain long-term investors, such as financial institutions, are keen to invest in these projects but only after the project has achieved certain

milestones which indicates a lower level of risk. The concomitant premium at which they will purchase these shares is an attractive exit for the early investors.

Advisors Sponsors surround themselves with various advisors in bringing a project to fruition. The list is long but the most essential are technical, legal and financial. Advice comes at considerable cost and sponsors should budget accordingly. In many instances fees can be negotiated and even put on risk, thereby making it easier for the sponsor to structure a winning bid. In process of compiling a bid and building up to financial close, the sponsors acquire significant rights and intellectual property. These assets will be sold to the project company at a premium so that the sponsor can get an early return on its investment.

The REIPPP programme in South Africa has been regarded internationally as a well-structured programme which has attracted much needed foreign investment in the country.

Given the success of the model, it is likely that other African countries with good natural resources, will adopt and adapt the programme to address their own energy challenges. The programme is set to continue in South Africa, the only real impediment to a more rapid rollout being access to the national transmission grid, a problem which is being addressed by Eskom as the owner of the system.

Charles Marais

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Political power play shaping South Africa’s energy outlook South Africa’s electricity landscape is undergoing rapid change. The state-owned monopoly utility Eskom, historically dependent on the country’s until recently low-cost coal supplies is now in financial and supply-side crisis, subject to growing indebtedness and downgraded to non-investment grade or ‘junk’ status. South Africa has gone from one of the world’s cheapest electricity generators in the early 2000s to a 270% increase in electricity tariffs by 2015, with further increases predicted in the future.

Since late 2014 the country has experienced regular load-shedding, a symptom of a larger electricity supply shortage that began in 2007, and which is likely to continue for at least five to ten years. Meanwhile, a successful programme for the procurement of renewable energy from independent power producers (IPPs) has procured 6300 MW since it was introduced in 2011, generating approximately 2% of total electricity at the time of writing in September 2015.

Processes are also underway to procure independent power from other sources, including coal, cogeneration and gas, as well an embedded generation programme for rooftop solar photovoltaics (PV). A 9600 MW nuclear fleet is also currently under discussion and shale gas extraction is being explored, both of which are the subject of contested debate.

National emissions South Africa’s coal-dependent electricity sector is responsible for 45% of national emissions (237

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Mt CO2-equivalent in 2010). Coal-fired plants account for 85% of installed capacity and 92% of electricity produced. Therefore decarbonisation in the electricity sector cannot be achieved without reducing the absolute contribution of coal-fired power at the same time as integrating a range of low-carbon energy supply options such as wind, solar photovoltaics (PV), nuclear and concentrating solar power (CSP) and new energy storage technologies.

Demand side management measures such as energy efficiency and increased numbers of installed of solar water heaters are also significant options. Further, decarbonisation of the electricity sector has to involve the adaptation and restructuring of network infrastructures and accompanying institutions, markets and policy frameworks that in their current form are supporting a carbon intensive system of production and consumption. Finally, if decarbonisation is also to incorporate a ‘just transition’ to a lower-carbon economy, then it must also address questions of economic inequality and welfare and an inclusive and sustainable growth path.

In South Africa’s case this is particularly challenging. As one of the most unequal countries in the world, the question of access to energy in South Africa is paralleled by its major development challenges. These challenges are linked to a history of racial oppression and inequality, poor access to services such as health and education, high levels of violence and an unemployment rate of around 25% (if discouraged work seekers are excluded) or 37% (when using the broader definition).

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Decarbonisation therefore goes far beyond what is technologically or even economically feasible, to encompass a complexity of political, social and economic factors. Choosing pathways that avoid long-term technological ‘lockin’ whilst prioritising socio-economic wellbeing, transparent and democratic policy processes is crucial to the realisation of decarbonisation.

Structural dependencies While there are positive cases of decarbonisation in South Africa’s electricity sector, there are also structural path dependencies in the electricity and energy sector more broadly, around coal fired generation and security of supply for pre-existing Eskom plants. These path dependencies are compounded by a lack of transparency in decision making on electricity and power struggles in the policy sphere, all of which present key challenges to decarbonisation.

South Africa’s electricity sector sits at the heart of the country’s highly energy intensive economy. Coal accounts for 65% of the country’s total primary energy supply and 92% of electricity produced. With an economy structured around an evolving system of accumulation known as the minerals-energy complex, South Africa has historically relied on cheap coal and cheap labour for cheap electricity, for the disproportionate benefit of mining and minerals-based export oriented industry, with approximately 40% of the country’s electricity consumed by its energy-intensive industrial users.

Endogenous and exogenous factors Such a system is, however, subject to change due to a combination of endogenous and exogenous factors. This includes an electricity crisis and the disintegration of closely knit relationships between actors in Eskom, coal and other mining companies, and the state. The country’s mining industry has been beset by strikes and labour unrest while national economic growth is in decline.

Increasing electricity prices along with declining prices in international commodity markets have reduced the international competitiveness of many of South Africa’s raw and beneficiated products. With changes in international demand for the country’s coal, depletion of the country’s cheaper coal resources and the end of long-term coal contracts between tied coal mines and Eskom, the era of cheap coal is coming to an end, despite the continued fundamental significance of the resource to the country.

International pressure At the same time, South Africa is under international pressure to reduce its carbon emissions. In 2009 President Jacob Zuma pledged to reduce carbon emissions by 34% by 2020 and 42% by 2025 below a business-as-usual trajectory. South Africa’s Copenhagen pledge has since been codified in the National Climate Change Response White Paper (NCCRWP) and formalised in the international regime through South Africa’s Intended Nationally Determined Contribution (INDC).

Eskom was downgraded by Standard & Poor’s to a negative credit rating in March 2015 and has experienced ongoing uncertainty in board and executive level governance. It is applying for further tariff hikes from the national energy regulator and there are ongoing discussions over the sale of some of the utility’s assets with the aim of attracting external investment, though, given the utility’s negative credit rating this is unlikely to be on favourable terms. Delays in the construction of Eskom’s new coal plants, Medupi and Kusile, have resulted in substantial cost overruns and the utility has increased its reliance on expensive diesel to power the country’s open cycle gas turbines in order to make up the supply side gap.

REIPPP In the midst of such changes there are various

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cases of decarbonisation taking place within the country’s electricity sector which have been encouraged by a diversity of factors. Some are due to conscious attempts driven by environmental and/or social concerns while others are driven by concerns such as energy security or power sector reform. One evident site of decarbonisation is found in the case of the country’s Renewable Energy Independent Power Producers’ Programme (REIPPPP).

This was launched in 2011 following the inclusion of a carbon constraint in the country’s Integrated Resource Plan for electricity (IRP). Since then, the growth of a utility-scale, private sector renewable energy industry has developed its own momentum, supported by financial interests and those with an ideological interest in power sector reform.

REIPPPP is internationally celebrated as a successful programme for the procurement of independent power from renewable energy and South Africa is now twelfth in Ernst and Young’s latest Renewable Energy Country Attractiveness Index. The prices of these renewable energy technologies have decreased dramatically in the past three years and wind and solar PV are now cost competitive with Eskom’s new build coal. But as we explore, in the short-to-medium term such developments are unlikely to replace the important contribution that coal makes to the electricity sector and the economy, including its influence over national decision making.

system is limited. As we demonstrate, there are quite separate groups of actors in the energy and climate change spheres. Many emerging trends in the energy sector have little to do with climate change mitigation even if they may be associated with low-carbon energy. The country’s electricity supply-side crisis and the increasing cost-competitiveness of renewable energy appear to be far greater drivers of change than concerns over climate change. That the IRP and REIPPPP may have had environmental spin offs is more of a side effect.

Further, those actors whom we would consider to be the likely natural allies of the Department of Environmental Affairs – notably environmental groups and the nascent renewables industry – either do not involve themselves in the mitigation policy space or have not developed the sorts of relationships and dependencies that would drive mitigation policy in the face of firm opposition from carbon and energy-intensive firms. Similarly, the poor have largely been excluded from policy processes and inclusion in a more equitable energy system.

Path dependencies of coal The path dependencies of coal will pose a significant obstacle to any moves to decarbonise as high carbon development continues to take place alongside a growing contribution from renewable energy. This is in addition to a potential (and highly controversial) nuclear fleet.

Collaboration essential While electricity connections have increased significantly in the post-apartheid era and the state has introduced a Free Basic Electricity allowance for low-income households, energy policy continues to be geared towards meeting the needs of large industrial customers. While there appears to be limited collaboration between the architects of environmental policy and the renewable energy industry, it is of note that new coalitions and networks are emerging between conventional and entrenched energy intensive users and more recent renewable energy bodies – for instance, between the energy intensive users group and the South African Wind Energy Association.

While South Africa has an ambitious national climate change strategy, the ability of climate policy to drive shifts in South Africa’s energy

These growing networks are collaborating on issues such as the ability of renewable energy IPPs to secure wheeling agreements with

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electricity consumers. Such shifts are taking place independently of national initiatives on climate change mitigation that are being carried out by the Department of Environmental Affairs, largely in isolation from the rest of government.

Fuel security In addition, the unquestioned assumption that coal is the optimal fuel to provide affordable security of supply is on the wane amongst certain consumer groups. The main priority for some factions of business and industry now appears to be for security of supply at an affordable tariff, regardless of the technology choice that generates it. There are also emerging concerns amongst companies that they may be held to account for the carbon that is emitted as a result of their electricity consumption with the implementation of carbon regulation. Renewable energy may, therefore, present an attractive alternative.

There are evident tensions in South Africa between a growing ideological commitment to a liberalised electricity market and an attempt to hold on to a crisis-ridden state-owned utility that some critics have referred to as ‘crumbling and bloated’. However, it is clear that South Africa’s electricity supply-side crisis, which currently sees regular load-shedding across the country, has served as a catalyst for a number of initiatives, some of which are more low-carbon than others.

First, it has accelerated independently procured utility-scale renewable energy under REIPPPP. Secondly, there are processes on-going for the procurement of co-generation, gas and base-load coal. Thirdly, rooftop solar PV is rapidly emerging despite the absence of an appropriate regulatory framework, as commercial enterprises and wealthy households seek to buy their independence from an unreliable and increasingly expensive national grid.

Institutional blockages This is in addition to further measures to facilitate the connection of non-Eskom generation to the grid, including wheeling agreements.

Wheeling and embedded generation, both of which have historically faced institutional blockages suddenly appear much more attractive in the context of a supply-side crisis and an inability by Eskom to meet demand for the foreseeable future. In this sense it can be argued that there is opportunity in crisis, which has facilitated moves towards decarbonisation.

A fundamental factor in any analysis of the political economy of decarbonisation is that of decision-making in the electricity sector, which has long been and continues to be highly politicised. It is clear that there is a battle over which technologies should be prioritised in addition to which procurement models and institutional arrangements should facilitate them.

Carbon tax The National Treasury initially introduced the idea of a carbon price as part of a broader process of environmental fiscal reform in the early 2000s. After a discussion document was released in 2010 (NT, 2010) outlining the reasoning for implementation, a carbon tax policy paper was released in 2013 that included the design elements of the tax (NT, 2013).

Implementation of the tax was targeted for 2016, but Treasury had yet to release a Bill for approval by Parliament by mid-2015, even though this needs to be approved by Cabinet before it is presented to the legislature, and a January 2016 commencement is increasingly unlikely given that Parliament closes mid-November.

The Carbon Tax Bill (2015) was released for comment in November 2015, with a new targeted commencement date of January 2017.

The policy work has been underpinned by several economic analyses including by Treasury itself, academics, and the World Bank (Legote,

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2012; Caetano & Thurlow, 2014 for a review of modelling work on the tax). Industry has undertaken its own analysis, (usually at a sector- or firm-specific level) though the modelling is seldom made public. At this stage, executive and legislative approval is a ‘political process’ according to one government member.

While the Minister of Finance is supportive (as is the DEA, who are driving mitigation policy but are known to be a less powerful ministry), Treasury faces opposition in Cabinet from the DTI and Department of Economic Development (EDD), which are ‘strongly opposed’ to the tax. It is unclear whether the DoE is politically supportive, but the IPP Office has incorporated the carbon tax into the base load coal programme bid documents, and IPPs will be expected to pay the tax.

Treasury also faces significant opposition from carbon-intensive business such as Sasol and Eskom, mining and minerals companies, and business groupings such as Business Unity South Africa, the Chamber of Mines, and the Steel and Engineering Industries Federation of Southern Africa (SEIFSA). Other parts of business have not been strong supporters of the tax, including those that stand to benefit from a shift in relative prices of technologies. The renewable energy industry, for example, has not seen the need to support the carbon tax in public.

As one industry interviewee said, ‘the market has been won for them, so why fight when they don’t need to?’ Treasury’s analysis of the comments received on the tax found that most respondents were supportive of mitigation policy in general, but with caveats around the use and design of the tax. This is contradicted by the ongoing public opposition and lobbying, especially by business; it The political economy of decarbonisation: Exploring the dynamics of South Africa’s electricity sector may also indicate growing opposition as implementation of the tax approaches. At this

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point, some business groupings are stating that they no longer support either the tax or mitigation policy more generally.

Within government, DTI and EDD remain strongly opposed to implementation of the tax. It is understood that within DTI there exists a constituency who see any threat to industry as something to be prevented due to the risks of de-industrialisation (interview with government) and the concomitant (assumed) impact on jobs and growth. This is despite a ‘green industries’ component in the Industrial Policy Action Plan and the inclusion of the green economy in the EDD’s New Growth Path. As one interviewee pointed out, this may reflect a bias within those departments towards the interests of large energy-intensive industry as opposed to small and medium business.

In short, DTI have ‘adopted the business line’.

They view South Africa as a small player in the international negotiations with relatively small emissions that will be unfairly prejudiced by action. As business has argued, South Africa is a ‘minor player’ (Chamber of Mines), the country’s emissions are ‘tiny’ (AngloGold Ashanti), and South Africa accounts for less than 1% of global emissions and requires space to grow (Chemical and Allied Industries Association) (all presentations to the Davis Tax Committee).

In terms of costs, BUSA has stated that the “economic impacts are likely to be substantial’ (BUSA, 2013). This is in line with DTI’s public concerns around electricity price increases, which is ‘informed by the often repeated perspective that sharply escalating electricity prices… constitute serious dangers to the viability of the manufacturing sector’ (DTI, 2013). As one government interviewee summarised, the tax comes at ‘too high a cost. It is not the right time for a carbon tax. If you are going to increase the electricity price you might as well raise taxes and give that money directly to Eskom. If you want to raise taxes then you should do so.’

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Furthermore, as the Minister of Trade and Industry, Rob Davies has said: On the climate change front, our view is that great caution must be exercised to ensure that emergent carbon mitigation policy interventions and environmental regulation – including the proposed carbon tax – are carefully sequenced and calibrated, taking into account the concrete circumstances of the most vulnerable sectors, so that important domestic capabilities are not destroyed and jobs lost in the process.

This is partly due to real concerns about affordability for firms currently impacted by low global commodity prices and rising costs; yet macroeconomic analysis has also shown that the impacts of the tax on the economy will be relatively small, provided the revenue is recycled (Alton et al, 2012). But business has also used arguments that go to the core of the DTI’s (and the ANC’s) ideas about industrial development and mineral resources. Although the DTI has several streams within its industrial policy, energy-intensive sectors remain important within the Industrial Policy Action Plan and the IPAP includes a Minerals Beneficiation Strategy taken over from the Department of Mineral Resources (DMR, 2011) some years ago.

This strategy is currently being developed into a Minerals Beneficiation Action Plan (MBAP) by the DTI. It reflects support for beneficiation in DMR and equally, in the African National Congress’s policy on minerals. Thus, arguments such as the ‘Shift to significantly lower carbon intensity [is] not possible concurrent with beneficiation objectives’, made by BUSA (2013), are received receptively.

Initially, commentators characterised this opposition as ‘misalignment’, assuming that the viewpoint of different departments on mitigation could be aligned. However, there are far more fundamental oppositions, related to un-

derstandings of how industrial development in South Africa can take place, how to use the country’s resources, and the risk and opportunities of climate mitigation and international censure. While a narrative around ‘green growth’ opportunities does exist, it does not clearly outline the complexities and difficulties of transition and how to manage the process of winners and losers. As one government interviewee pointed out, ‘the cost of transition is critical and this is what we need to focus on’, yet there does not appear to be co-ordination within government about understanding short-, medium- and long-term impacts of mitigation policy.

One business interviewee said succinctly: ‘Without understanding the short-term dynamics of industry and business, government will make a decision’, yet ‘we are not having a conversation about [the] short-term economic transition’. Opposition has not only arisen from energy- and carbon-intensive industry, though they have been the primary actors. Criticism from labour and civil society have centred primarily on design issues and impacts on the poor, i.e. how to protect the poor from price increases or how best to recycle the revenue. NUMSA, for example, have agreed that tackling climate change is a necessity and supported the introduction of the tax subject to design changes related to revenue recycling.

Indeed, unions in general ‘are progressive until it affects their workers’, including in energy-intensive industry such as aluminium smelters. Their interests are clear, and the unions ‘are on your side until their members suffer’.

Despite evidence that the current carbon tax would not be high enough to encourage significant shifts in emissions; the impacts on firms may still be substantial. Business has therefore not been supportive of the implementation of the carbon tax, and opposition has increased as the process has progressed. The concerns of other parts of society – who are supportive of

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mitigation policy and carbon pricing in principle – have centred on equity and welfare impacts on the poor.

Despite ongoing debates around design issues, the enactment of the Carbon Tax Bill will be a key emissions reduction mechanism, especially as in the short-term it will be the only legally enforceable mechanism besides the IRP. Cogeneration In June 2015 the IPP Office released a Request for Bids for 800 MW of cogeneration (though the IPP Office are in the process of expanding this to 1800 MW). The technology options are split into 200 MW of combined heat and power, 250 MW of waste-to-energy, and 350 MW of industrial biomass. Round 1 bids were due in August 2015 but the announcement of preferred bidders for round 1 and 2 have been delayed, with no information on when the preferred bidders will be announced. Unlike the supply options for coal and renewables, the cogeneration programme does not have set local ownership, economic development or community trust requirements/criteria. This is partly because the initial rounds were intended to encourage brownfield expansion at existing industrial facilities in response to the power crisis.

Transmission constraints Key challenges in the rollout of utility-scale renewable energy is the cost and time-line for the creation of grid capacity to connect new projects. The location of generation plant in relation to the grid directly impacts on grid connection scope, cost and timeline. The proximity of new generation plant to the existing grid is not necessarily an indicator of availability of grid capacity, as the existing grid may have little or no capacity to accommodate additional generation.

Grid constraints are becoming more prevalent as the REIPPPP progresses, and the limited spare capacity, especially in areas with good resources, is depleted. Grid connection will continue

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to be an increasing challenge in future bid windows. As we discuss proactive plans are required to procure grid capacity in alignment with the spatial generation plans of the country.

This relates to the very real technical challenges to the realisation of decarbonisation as much as economic and political challenges. These technical challenges were recognised when the REFIT became the REIPPPP, but there continue to be inconsistencies between the DoE’s procurement process and the technical capacity to absorb further renewable power, exacerbated

by Eskom’s financial constraints and limitations on capex.

The South African grid has evolved historically with a high generation and high load centre concentrated in the north-east of the country, around the mines and power plants. Eskom is the sole transmitter of electricity via a transmission network that supplies electricity at high voltages to a number of key customers and to the distribution network.

Power struggles Power struggles across government and within the ruling African National Congress (ANC) are

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evident at the level of national policy making and regulation in the electricity sector as much as they are in other policy sectors. Such power struggles have contributed to the substance of decision-making on policy being subordinated not only to ideological inconsistencies within the ANC and its tripartite alliance with the Congress of South African Trade Unions and the South African Communist Party, but also to factional rivalries.

Meanwhile the Presidency is trying to hold on to the closed decision-making system that was an important feature of the country’s minerals-energy complex as illustrated by the battle for nuclear procurement which appears to be driven by the Presidency. This raises the question of the extent to which tensions in policymaking can be resolved, with decarbonisation as the end goal.

Finally, despite the emergence of new forms of generation, particularly renewable energy, uncertainty surrounds the ability of Eskom’s transmission and the country’s municipalities that control 40% of distribution to accommodate and integrate this. Such an issue may pose a serious obstacle to the realisation of decarbonisation measures. In addition, in a country that has consistently had one of the highest levels of inequality globally, the moves that are taking place towards decarbonisation will not necessarily benefit South Africa’s poor and marginalised.

REIPPPP implementation issues While the REIPPPP does contain potentially progressive requirements for community development and economic development, there are concerns over how they are being implemented. In addition, as the country’s wealthier consumers seek to buy their own energy security from rooftop solar PV or, less sustainably, diesel generators, low-income users who are connected to the electric grid risk being cut out of a system that they can no longer afford to use, given the country’s increasing electricity tariffs.

Such developments evoke the question of whether we are witnessing a fundamental change in the country’s electricity sector. Finally, in South Africa there is a recognition that the conventional supply-demand paradigm of electricity at the national level and elsewhere is shifting. This, it has been argued forms, part of a global transformation in the way in which electricity is generated and consumed and offers new opportunities and challenges for both consumers and producers of energy and is resulting in new regulatory models (PWC, 2014).

The key question is whether new modes of power generation and consumption that are emerging in South Africa have the potential to disrupt Eskom’s business model and the institutional structure in which it has evolved, and whether Eskom as a key element in the country’s MEC is subject to change. Finally, will shifts in the electricity sector herald fundamental changes to the economy, to society and to the environment, or will emissions continue to rise as established technologies and interests continue to dominate in the electricity sector in particular and the energy sector more broadly?

Baker, L., Burton, J., Godinho, C & Trollip, H. 2015. Extract from: The political economy of decarbonisation: Exploring the dynamics of South Africa’s electricity sector. Energy Research Centre, University of Cape Town, Cape Town Author affiliations and contacts: Dr Lucy Baker, Research Fellow, Science Policy Research Unit, University of Sussex (L.H.Baker@sussex.ac.uk) Jesse Burton, Energy Research Centre, University of Cape Town (Jesse.Burton@uct.ac.za) Hilton Trollip, Energy Research Centre, University of Cape Town (Hilton.Trollip@uct.ac.za) Catrina Godinho, University of Cape Town (Catrina.

Godinho@gmail.com)

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CASE STUDY

ENERGY EFFICIENCY IN EMERGING RESIDENTIAL MARKETS Stephané Burger Interior Designer Professional Senior Architectural Technologist Shaluza Projects Worldwide discussions are held with regard to the global energy crisis. The cost for energy in form of electricity, natural gas and fossil fuel has been rising and is expected to increase further.

Locally another tariff hike from ESKOM has been approved by NERSA putting business and residential consumers under more financial strain.

According to David Hallowes a researcher at the non-profit organisation groundWork, coal mine-powered stations such as Medupi and Kusile are emitting 30 million tons of carbon dioxide a year and will probably have to be turned off before 2050 due to the impact of climate change.

Hallowes added to his statement that renewable energy and building a renewable capacity should be the solution to South-Africa’s electricity crisis rather than people paying for more pollution1.

A valid point in the current situation of an energy crisis and the fact that South Africa as a water-scare country are among the Top 20 countries in the world with the highest levels of CO² emissions, our current and future goals should be geared towards efficient technologies and renewable sources.

In the carbon emission debate buildings are responsible for: • 40% of end-user energy consumption • 12% fresh water usage • 40% of solid waste generation While engineers and scientists in the field of construction materials develop innovative ways to overcome these challenges and reduce the impact on manufacturing level, the professionals in the design and construction level are prioritising energy efficiency of buildings in the residential

property market. The latest addition of Green Star Rating Tools for certification in the residential sector - the EDGE (Excellence in Design for Greater Efficiencies) certification programme, created by the International Finance Corporation (IFC), a member of the World Bank Group; is already resulting in a shift in perception according to Graham Cruickshanks, EDGE Technical Manager2.

The perception amongst developers, building owners and banks is no longer one where certification of a project is nice-to-have but rather one of must-have because of the advantages that lie in the EDGE certification. Cruickshanks says: “What sets the EDGE rating tool apart is that it is comparatively simple and inexpensive to use, making it invaluable to developers looking for smart and effective ways to differentiate their product in a tough economic climate, whilst also tackling important environmental issues”.

Globally, IFC’s aim is to transform 20% of new residential and commercial building in rapidly-industrializing countries within the next seven years, led by local green building councils and global certification providers. “From the most humble homes on the outskirts of Johannesburg to high-end residences on Cape Town’s coastline, all South African homebuyers and their families now have the opportunity to enjoy a better quality of life,” says Prashant Kapoor, IFC’s Principal Green Building Industry Specialist and the entrepreneur who invented EDGE. In South-Africa where housing delivery according to statistics from 2013/14, show a 43% reduction in housing opportunities provided; there is a major backlog in provision of government funded houses. Nedbank Corporate and Investment

1 Public Hearings hosted by National Energy Regulator of South Africa (NERSA), ICC Durban, 21 January 2016

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CASE STUDY

Banking (NCIB) together with the Green Fund, managed by the Development Bank of Southern Africa (DBSA) on behalf of the National Department of Environmental Affairs (DEA), concluded an agreement to jointly fund the development of approximately 400 affordable green housing units in the Western Cape and Gauteng Provinces. (Nedbank 2015) According to the UN-Habitat, about 3 billion people will need proper housing and access to basic infrastructure and services such as water and sanitation system, by 2030.

(UN-Habitat Organization 2016) This translates into the need to complete 96,150 housing units per day with serviced and documented land from now till 2030. Investments like the fund and development by Nedbank Corporate and International Housing Solutions, will lead the way in South Africa.

IMPACT OF EDGE CERTIFICATION It is anticipated that these EDGE certified housing units could save the average family of four in a two bedroom unit up to R450 per month or R3200 annually on utility bills compared to older conventional housing units (RDP or GAP housing), not compliant to SANS 10400-XA with no energy efficiency features. To achieve the EDGE standard, minimum savings of 20% energy, water, and embodied energy in materials must be met. Ravenswood Residential Development in Gauteng has received preliminary design certification. According to Myles Krizinger, Internation-

al Housing Solutions (IHS) Dealmaker, a total savings of 250,000kWh of electricity and more than 10,000Kl of water has been demonstrated in the EDGE design rating3.

Efficient energy usage will be maximized at Ravenswood through the use of solar hot water collectors and efficient water usage through the installation of smart meters and low-flow bathroom and kitchen fittings. Reduced window-towall ratios and roof insulation will ensure optimal energy efficiency. Local industries will be stimulated through the increased demand for green housing technologies such as insulating materials, efficient lighting, heat pumps and solar water heaters, thus leading to the potential of creating new jobs.

Conclusion Energy Efficient housing is no longer an unreachable achievement for developers and home owners and though it might seem like a luxury for most, projects like Ravenswood in Boksburg, has indicated the ability to provide Green affordable housing while containing carbon emissions.

It combines social and environmental sustainability to promote access of affordable energy services; sustainable clean water and sanitation; improved employment rates; savings and investments that support national development objectives; and good, cost-effective health and educational outcomes.

REFERENCES Green Building Council of South Africa (2015), Green Star SA: Green Building and the GBCSA. Maxwell, K. (2016). Real Estate Magazine [Blog] Myles Kritzinger - The ‘Missing Middle’. Available at: http://www.realestatemagazine.co.za/blog/2016/03/04/myles-kritzinger-international-housingsolutions/ [Accessed 7 Mar. 2016].

Nedbank (2015), Corporate and Investment Banking News. Available at: https://www.nedbank. co.za/content/nedbank/desktop/gt/en/news/corporate-and-investment-banking-news/pressreleases/2015/nedbank-and-dbsas-green-fund-to-make-affordable-green-housing-po.html [Accessed 6 Mar. 2016] 2 EDGE Face to Face Workshop hosted by GBCSA, Hotel Verde Cape Town, 3 March 2016 3 EDGE Face to Face Workshop hosted by GBCSA, Hotel Verde Cape Town, 3 March 2016

SUSTAINABLE ENERGY RESOURCE HANDBOOK

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INDEX OF ADVERTISERS COMPANY

PAGE

AECOM

30 - 31

Aberdare Cables

62 - 63

African Utility Week

127

Arup

87 - 89

Juwi Renewable Energies

11

Circuit Breaker Industries

102 - 103

Corobrik

IFC; 1-3

DEHN Africa

74 - 75

Innomatic Solar

9

LMC Lomacor

128; IBC

Lumotech

15

NCPC / CSIR

17

NERSA

19

Shaluza Projects

7, 124 - 125

Sika South Africa

4-5

University of Johannesburg

OBC

Wegezi Transformers

50 - 51

126

SUSTAINABLE ENERGY RESOURCE HANDBOOK

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CASE STUDY

Lomacor Electric Diversion Load Resistors Why is a dump or diversion load necessary?

Wind turbines are designed to be under a load when operating. For a wind turbine, the load is almost always an electrical load which is drawing electricity from the wind turbine’s generator. The two most common loads for wind turbine are (1) a battery bank and (2) an electrical grid. Although this is most likely well known to many of you reading this article, it is very important to understand that an electrical load (i.e. battery bank or the electric grid) keeps a wind turbine in its designed operating range.

If a wind turbine operates under no load in high wind conditions, it can self destruct. In high winds and no load the wind turbine, at the very least, put intense stresses and strains on the wind turbine components which will cause them to wear out very quickly. Or, in other words, a wind turbine operates safely and properly when it is under a load.

As stated previously, wind turbines are generally used to charge battery banks or feed an electrical grid. Both of these applications required dump loads but let’s examine the battery bank application in more detail.

A wind turbine will continue to charge a battery bank until the battery bank is fully charged.

For a 12 volt battery bank, this is approximately 14 volts (The exact fully charged voltage of a

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SUSTAINABLE ENERGY RESOURCE HANDBOOK

12 volt battery bank depends on the type of batteries being used). Once the battery bank is fully charged, it is necessary that the wind turbine stop charging the battery bank as overcharging batteries is very bad for several reasons(i.e. battery destruction, risk of explosion, etc.). We have to keep the wind turbine under an electrical load! To accomplish this task a diversion load charge controller is used.

In the simplest terms, a diversion load charge controller is a voltage sensor switch. The charge controller constantly monitors the voltage of the battery bank. In the case of a 12 volt battery bank, when the voltage level reaches approximately 14 volts, the charge controller senses this and disconnects the wind turbine from the battery bank. Now, we said that a diversion load charge controller is a voltage sensor switch. So a diversion load charge controller is not only capable of disconnection the wind turbine from the battery bank, it is also capable of switching the wind turbine’s connection to the diversion load! And this is exactly what the diversion load charge controller does which keeps the wind turbine under a constant electrical load.

Once the battery bank’s voltage drops a little, the charge controller senses this and switches the wind turbine back to charging the battery bank. This cycle is repeated as necessary which keeps the battery bank from over charging and the wind turbine always under load.

CASE STUDY

Construction and Materials Lomacor Electric diversion load resistors are constructed using a cordierite fluted, ceramic core which has air channels for efficient heat dissipation.

The wire used is a copper nickel alloy and in the element design process a low “watt density” approach has been adopted for superior life as well as efficient heat dissipation.

Lomacor Electric diversion load resistors are both robust and will last under any conditioning that they are applied. Housed in a ventilated enclosures that are nickel plated will ensure that corrosion is minimal. Stainless steel 12 Volt

24 Volt

36 Volt

48 Volt

WATTAGE RESISTANCE 0.37Ω 300/500 600/1000 0.185Ω 1200/1500 0.123Ω 1000W 0.676Ω 2000W 0.338Ω 3000W 0.2525Ω 1000W 1.521Ω 2000W 0.760Ω 0.507Ω 3000W 1000W 2.704Ω 2000W 1.352Ω 3000W 0.901Ω

or powder coated enclosures are available on request.

One enclosure is used across the range and can house 1, 2 or 3 resistor elements, or can be added to as the need arises. They are wall or floor mountable and can be stacked for larger applications requiring heavier loads.

BEE Lavel 4 Rating Managing Member: Douglas Lotriet Cell: 0836481244 e-mail: doug@lomacorelectric.co.za Sales: Shirley e-mail: shirley@lomacorelectric.co.za Address: Unit A10 Wadeville Business Park Corner Steenbrass and Sardine Roads Wadeville Germiston, Gauteng, South Africa Tel: +2711 824 2484/5 Fax: +2711 824 2482

NO. OF RESISTORS One Two Three One Two Three One Two Three One Two Three

RESISTOR ENCLOSURE Enclosure Dimensions: 480mm Enclosure Dimensions: 480mm L x 230mm W x 140mm H

L x 230mm W x 140mm H

Nickel plated resistor enclosure Complete resistor bank

Typical air cooled resistor element

Nickel plated resistor enclosure

1 Resistor Element 300/500W 12V 1000W 24, 36 & 48V

Complete resistor bank

2 Resistor Element 600/1000W 12V 2000W 24, 36 & 48V

3 Resistor Element 1200/1500W 12 V 3000W 24, 36 & 48V

2 Resistor Element 1 Resistor Element 600/1000W 12V 300/500W 12V Enclosure Dimensions: 480mm L x 230mm W x 140mm H 2000W 24, 36 & 48V 1000W 24, 36 & 48V Managing Member – Douglas Lotriet – 0836481244 e-mail: doug@lomacorelectric.co.za Sales – Shirley e-mail: Shirley@lomacorelectric.co.za Unit A10 Wadeville Business Park Corner Steenbrass and Sardine Roads

Typical air cooled resistor element

3 Resistor Element 1200/1500W 12 V 3000W 24, 36 & 48V

SUSTAINABLE ENERGY RESOURCE HANDBOOK

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Ms Heidi Robertson Tel: +27 11 559 3760 130 SUSTAINABLE ENERGY RESOURCE HANDBOOK