1. REIPPP Bidders Conference 16 August 2012 Green Industries, Department of Trade and Industry

2. Content Why Localisation Definition of Local Content Local Content Requirements Monitoring

3. Why localisation National Industrial Policy Framework Industrial Policy Action Plan PPPFA Designation Re-Industrialisation Manufacturing = Job creation

4. Manufacturing employment and manufacturing share of GDP 4 4 A large renewable energy programme can put electricity on the grid, support industrialisation and jobs and address South Africa’s climate commitments

5. Motivating Factors Addressing the country’s energy needs Meeting greenhouse gas (GHG) emission reduction commitments (climate change) Very good solar and wind resources Existing industrial capabilities in a range of relevant areas e.g. engineering, metal fabrication, composites etc. Growing number of component suppliers into renewable energy value chains Job creation

6. The dti’s proposed approach to defining local content SATS 1286:2011 “Local Content is that portion of a tender price that is not included in the imported content, provided that local manufacturing takes place and is calculated with the local content formula” LC = (1-x/y) x100, where ’x’ is imported content and ‘y’ is the total tender price It is therefore important to first calculate imported content “ Imported Content is that portion of a tender price that is represented by – (a) The cost of imported components – (b) The cost of parts or materials which have been or are still to be imported – (c) Inclusive of the costs abroad, plus freight and other indirect importation costs (landing costs, import duty, dock duties, etc.) excluding VAT”

7. The dti’s proposed approach to defining local content – Local content calculation excludes land costs and finance costs – When bidders calculate local content, all tiers of the value chain should be considered, and where declarations cannot be obtained from suppliers, such components should be considered as imported content. – All local spend including civil works, engineering, project management, etc. forms part of the local content calculation, however, as local content targets are aimed at stimulating local manufacturing of renewable energy products, project developers are advised to procure locally manufactured products/components as much as practicable.

8. The dti’s proposed approach to defining local content – All raw (unprocessed) steel, regardless of origin is considered to be 100% local. – It is further recommended that all raw (unprocessed) aluminum, regardless of origin be considered to be 100% local – In the case of aluminum, as a control major the following formula will apply in determining the price of aluminum: average London Metal Exchange price previous quarter plus conversion expressed as a percentage – the dti reserves the right to revoke the deeming of aluminum should pricing irregulariries be observed

9. The dti’s proposed approach to defining local content Guidance document available for ease of calculation Excel Templates available for ease of calculation Aim to achieve standard calculation of local content, in order to achieve fair assessment of bids

10. Local Content Requirements

12. Local Content Declaration

14. Wind Power Illustration ComponentProject Component Cost Percentage of total project cost Local Content Committed Key EquipmentBalance of Plant Nacelle - Interior fittings R5 000,005% Nacelle – Drive TrainR19 000,0019% Nacelle – Exterior Fittings R3 000,003% HubR6 000,006% BladesR10 000,0010% TowerR16 000,0016% Total Key Equipment R59 000,0059% FoundationR12 000,0012% Transport and Erection R9 000,009% Balance of Plant Electrical R13 000,0013% Crane Erection and Labour R3 000,003% LC and Bank Charges R2 000,002% Project ManagementR2 000,002% Total Balance of Plant R41 000,0041% R100 000,00100%

15. REIPP Local Content requirements LOCAL CONTENT Technology First Bid Submission Date Second Bid Submission Date Third Bid Submission Date Current Threshold Current Target ThresholdTarget dti Threshold recommend- dation Target Onshore Wind25%45%25%60%40%65% Solar Photovoltaic 35%50%35%60%45%65% Solar CSP w/o storage 35%50%35%60%45%65% Solar CSP With Storage 25%45%25%60%40%65% Biomass25%45%25%60%40%65% Biogas25%45%25%60%40%65% Landfill Gas25%45%25%60%40%65% Small Hydro25%45%25%60%40%65%

16. Possible change to local content targets and thresholds Concerns from local industry – increase local content commitments vs local procurement?? For the purpose of Third Bid Submission Date, the threshold and targets remain as previously communicated It is the view of the dti that in order to fast-track local manufacturing and local procurement the thresholds and target could be split between the balance of plant and key equipment commitments

17. Possible split of local content targets and thresholds Local Content Technology ThresholdTarget Balance of PlantKey Equipment/ Components Balance of PlantKey Equipment/ Components Onshore Wind 80%13%90%50% Solar Photovoltaic 80%20%90%50% Solar CSP Without Storage 80%20%90%50% CSP with storage80%13%90%50% Biomass80%13%90%50% Biogas80%13%90%50% Landfill gas80%13%90%50% Small scale hydro80%13%90%50%

18. Monitoring and Verification Monitoring and Verification of compliance with local content commitments will be incorporated in the monitoring and verification for the entire projects, which will be facilitated by the DoE. SABS a possibility

19. Thank you Ntombifuthi Ntuli Director: Renewable Energy Department of Trade and Industry PNNtuli@thedti.gov.za (012) 394 5699