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1 DATE: 25 February 2014 NATIONAL SOLAR WATER HEATER PROGRAMME STATUS UPDATE NATIONAL SOLAR WATER HEATER PROGRAMME STATUS UPDATE BRIEFING OF THE SELECT.

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Presentation on theme: "1 DATE: 25 February 2014 NATIONAL SOLAR WATER HEATER PROGRAMME STATUS UPDATE NATIONAL SOLAR WATER HEATER PROGRAMME STATUS UPDATE BRIEFING OF THE SELECT."— Presentation transcript:

1 1 DATE: 25 February 2014 NATIONAL SOLAR WATER HEATER PROGRAMME STATUS UPDATE NATIONAL SOLAR WATER HEATER PROGRAMME STATUS UPDATE BRIEFING OF THE SELECT COMMITTEE ON ECNOMIC DEVELOPMENT VENUE: COMMITTEE ROOM V227, SECOND FLOOR, OLD ASSEMBLY WING Presenter: Ms Mokgadi Modise Chief Director: Clean Energy BRIEFING OF THE SELECT COMMITTEE ON ECNOMIC DEVELOPMENT VENUE: COMMITTEE ROOM V227, SECOND FLOOR, OLD ASSEMBLY WING Presenter: Ms Mokgadi Modise Chief Director: Clean Energy

2 PRESENTATION OUTLINE 1.INTRODUCTION 2.NSWHP MILESTONES 3.SWH FUNDING 4.SWH INSTALLATIONS PROGRESS 5.THE REVISED SWH CONTRACTING MODEL 6.SWH RFRI OUTCOMES 7.MEASURES OF SUCCESS 8.CLOSING REMARKS 2

3 INTRODUCTION The installation of solar water heaters (SWHs) pronounced in 2009 and over the current medium term expenditure framework remains government’s short-tem target. In 2011, Government signed a Green Economy Accord which affirmed the collaboration between government, business, organised labour, community and civil society. Commitment 1 of the Accord is made on the Solar Water Heating Programme. Over and above the National Development Plan’s (NDP’s) outlines a 4 million SWHs target by 2030 and the above target seeks to lay a solid foundation for the establishment of a robust local SWH manufacturing base for South Africa. To date a sizable quantity of the current footprint were imported. In addition to this, the SWH programme is supported by the Preferential Procurement Policy Framework Act and SATS 1286 to implement the required localisation objectives. The national SWH rollout needs to be viewed in the above mentioned localisation context.

4 INTRODUCTION This localisation stance has been strengthened by the Department of Trade and Industry’s (the dti’s) Designation of major SWH components (through a Treasury Instruction Note), an obligatory (legal) instrument for facilitating local manufacturing of tanks and collectors. The ultimate for South Africa is to better utilise public expenditure in a manner that addresses other persistent developmental challenges such as the high levels of unemployment. The national SWH rollout needs to be viewed in the above mentioned localisation context.

5 NSWHP MILESTONE 5 DATEEVENTCHAMPION 23 June 2009 DoE Budget Vote 23 June 2009 DoE Budget Vote 05 November 2009 NSWH Conference 05 November 2009 NSWH Conference 28 April 2010 NSWH Official launch by the President of RSA 28 April 2010 NSWH Official launch by the President of RSA

6 NSWHP MILESTONE … 6 DATEEVENTCHAMPION 17 November 2011 Green Economy Accord signing 17 November 2011 Green Economy Accord signing 22 February 2012 Budget Speech : NSWH Appropriation 22 February 2012 Budget Speech : NSWH Appropriation 31 December 2012 SWH Rebate programme ended 31 December 2012 SWH Rebate programme ended R4.7bn Mass Rollout

7 NSWHP MILESTONE … 7 DATEEVENTCHAMPION 29 January 2013 The meadia release on the SWH Designation study 29 January 2013 The meadia release on the SWH Designation study 342, 001 SWH installations recorded at the time of the dti’s media release. The SWH designation was informed by a Designation Study that was conducted in July 2013 NT signs off and release the SWH Instruction Note 19 July 2013 NT signs off and release the SWH Instruction Note

8 ESKOM’s 2013 SWH TENDER EVENTDATE Tender First Issuance19 March 2013 Tender Closing Date30 March 2013 Tender Re-issue28 May 2013 Tender Re-issue Closing Date14 June 2013 Revised Closing Date27 June 2013 Tender Feedback to DoE12 September 2013

9 BACKGROUND: SWH FUNDING  Previous SWH Funding Mechanisms: o Division of Revenue Act Allocations (DoRA) – 2009 – 2011 FY o The total DoRa allocation was R , o Tshwane – +/- R , 000 o Sol Plaatjie – +/- R59 450, 000 o Naledi - +/- R59 450, 000 o Polokwane & Musina – R54 400,000 o Buffalo City – R , 000 o Demand Side Management budget under the second Multi-Year Price Determination (MYPD2) committed approximately R1,45 b to the SWH rebate programme: 01 April 2010 – 31 March 2013 Musina was initially allocated R54 400, 000 however there were no enough low cost house hence the inclusion of Polokwane

10 BACKGROUND: SWH FUNDING  Since 2012: o The Allocation was made through the Appropriation Act as an “exclusive and specific allocation to Eskom” via the DoE Vote  SWH Fiscal Allocations: o 2012/13 = about R821m; o 2013/14 = about R1.2bn; o 2014/15 = about R1.6bn; and o 2015/16 = R700m Medium Terms Expenditure Framework Plans are subject to change

11 SWH INSTALLATIONS PROGRESS Installations clearly skewed and biased towards certain provinces (WC, EC, KZN and GP)

12 INDICATIVE PROVINCIAL SWH ALLOCATIONS  Request For Information (RFI) issued to municipalities in 2012: o The response was well below the Department’s expectations - not many Municipality responded. o However, Municipal interest has shown growth since last year.  Municipal Allocations: o First 54 Municipalities spread across all provinces to participate under the geyser Load Reduction Programme (LRP). o LRP allocations favour bigger municipalities who responded to the DoE’s RFI. o Mass rollout allocations are biased towards the LEAST-SERVED provinces and municipalities. o However, municipalities need to express their intention to participate in the programme through responding to the DoE RFI DoE urges municipalities to actively participate in the RFIs

13 INDICATIVE PROVINCIAL SWH ALLOCATIONS (cont’) DoE URGES MUNICS TO ACTIVELY PARTICIPATES IN THE RFIs

14 THE REVISED SWH CONTRACTIG MODEL  A Revised Contracting Model (RCM) has been designed to maximize local content and creation of local jobs.  RCM envisages:- o Compliance with the SWH industry designation requirements (min. Local content threshold of 70%) in terms of the Preferential Procurement Policy Framework Act o Competition for manufacturing contracts to be based on highest local content achieved in the shortest possible time o Manufacturing contracts to be separated from installation – this closes the import opportunity and forces local manufacturing. o BUT….. We need to achieve about installations over the current MTEF. o AND…. Local manufacturers are not keen to make a capital layout for only 2-3 years. A high volumes production will come in at a higher than expected cost. 14

15 THE REVISED SWH CONTRACTIG MODEL … 15 #PartiesDescription 1DoE-EskomFunding Agreement (MoA) with all the conditions imposed on Eskom as the Implementing Agent 2DoE-SABSProvision of services such independent measurement and verification of local content 3Eskom-Local Manufacturers Agreement, with a duration of up to 3 years, for the supply of designation-compliant SWH systems, signed after following a competitive bidding process, and subject to entering into an Implementation Agreement with the DoE 4Local Manufacturers- Installers Service Level Agreement regarding the training of successful installers by Local Manufacturers on the installation of their SWH systems 5Eskom-Municipalities Framework Agreement Implementation Agreement which, among other things, will spell out participation requirements for municipalities, satisfaction of municipal and Eskom needs under each individual municipal SWH project. The Revised SWH Contracting Model encourages and emphasise a collective implementation by all the stakeholders

16 SWH RFRI OUTCOMES  To inform the decision with respect to the implementation of the NSWH Instruction Note, the DoE issued a Request for Registration and Information.  Request for Registration & Information (RFRI) was issued by the DoE on 19 August  A compulsory briefing session was held on 26 August 2013 which attracted over 100 attendees.  Responses were received from 50 different companies by the closing date (05 September 2013).  Companies that mainly utilise imported collectors struggle to meet the stipulated minimum local content threshold for collectors.  Those that self-declared local content that meets the stipulated threshold have limited manufacturing capacity particularly low-pressure SWH manufacturers. 16

17 SWH RFRI OUTCOMES …  Contracting frameworks required by respondents in order to localise & scale up production: o Required contracting period = 3 months – 5 years; o Promised Quantities = up to 15,000/month; and o Promised jobs (max) = 120  Some are still geared towards evacuated vacuum tubes importation: o Local tank manufacturers to be linked with local manufacturers of collectors.  However, some Respondents claim to have collectors that can be used in both LP & HP systems. 17

18 SWH RFRI OUTCOMES …  Summary of Self-declared local content :  On 30 January 2014, the RFRI Respondents were given the opportunity to submit more information and the responses were as follows:  The RFRI process went through a detailed Internal Audit process to qualify compliance with all the legislative prescripts including sharing the audit results with Eskom;  This included seeking legal opinion which was also shared with Eskom.  All the recommendations of the Internal Audit process were addressed (i.e. corrective measures put in place) to alleviate any potential risks. 18 Technology Type Quantit y Monthly Production Capacity Monthly Ramp- up Potential Ramp-up Period (month) HP Flat Plate09About LP ,

19 SWH RFRI OUTCOMES … 19 CategoryQuantity Total SWH RFRI Respondents50 Number of Letters Sent (additional info requests)49 Total Responses Received37 Compliant Responses28 Non-compliant Responses9 Compliant Responses: all the relevant outstanding documentation were received & Non-compliant: Did not submit the required documentation

20 CURRENT ACTIVITIES  The DoE appointed SABS to conduct independent measurement and verification of self-declared local content.  This is based on the dti’s appointment of SABS as the local content measurement and verification organisation.  Local content verification (LCV) process to be conducted in less than 8 weeks and will be done two parts, that is, technical and financial phases  It is planned that the participating municipalities will be workshoped in parallel with the LCV process.  Transitional arrangements (LRP) will kick-off once approved SWHs have been identified through the LCV process.  The ultimate is to install just under SWHs over the current MTEF. 20 Framework for the procurement of fully-subsidised SWHs is legislated

21 21 Problems that have been identified include: o subsidization of imported products o poor quality installations o unreliable verification of the number and location of installed systems (about ) due to lack of systematic reporting and independent verification, o poor alignment with the objective of reducing electricity demand due to focusing installations in low electricity consumption areas only, and o lack of maintenance obligations on the suppliers CHALLENGES ON SWH PROGRAMME

22 NSWHP CHALLENGES & REMEDIES 22 CHALLENGESREMEDIAL ACTIONS The quality of the SWH installations data needs improvement. Technical audits to be done on all new installations. A web-based SWH Monitoring System has been developed to capture and monitor future installations real time. A countrywide SWH maintenance programme is necessary will be used to verify the all reported installations. Funding is required for fixing and maintaining, on a sustainable basis, the already installed SWH systems as well as future installations. Maintenance of already installed SWH systems will be piloted in Sol Plaatje (in 7,837 SWH systems) whereupon a funding model will be developed to cover the entire current footprint. The turnaround times for concluding contractual arrangements (the DoE- Eskom Memorandum of Agreement) are quite lengthy. The MoA has been jointly developed by the lawyers representing the DoE and Eskom. It covers the current MTEF to minimise the lengthy contract negotiations.

23 NSWHP CHALLENGES & REMEDIES 23 CHALLENGESREMEDIAL ACTIONS Repeated complaints regarding poor workmanship which results in SWH system that are dysfunctional and in disrepair. The DoE is piloting a SWH capacity building programme for plumbers and hot water installers within beneficiary municipalities. The aim is for SWH training to precede SWH installations in all the targeted sites, thus ensuring the sustainability of the SWH project during and beyond the installation phase. Eskom’s procurement process is quite lengthy. A rebate-based geyser Load Reduction Programme, which has quicker turnaround times, will be used to keep the programme going. The DoE’s RFRI process has the potential to leapfrog certain Eskom’s procurement steps.

24 NSWHP CHALLENGES & REMEDIES 24 CHALLENGESREMEDIAL ACTIONS The capacity of local manufacturers to supply the anticipated SWH volume that is compliant with the localisation imperatives. Subject to the provision of firm off-take commitments by government, local companies claim to stand ready to deliver the desired volumes, though not necessarily within the targeted period. Such commitments will be made through signing Eskom’s Supply Agreements with successful local suppliers.

25 25 To resolve these problems: o a Revised Contracting Model was adopted in terms of which o (A) the Rebate Scheme targeted a minimum of 70% local content of products that would qualify for subsidies, o (B) the Standard Offer Scheme provides a savings incentive targeting high electricity consumption residential areas, o (C) the installation programme is set out separately to allow for training of youth and local installers, and o (D) a web-based portal is created for the electronic tagging of the GPS coordinates with pictures to aid the verification of each installation. from December 2012 exclusive space has been created for local manufacturers to take up the opportunity to create local jobs through the new SWH rebate programme Preliminary indication is that manufacturers (out of 50 RFRI respondents) are ready to produce compliant products. offtake commitment has to be secured from Eskom to allow suppliers to ramp up their production to systems per month (assuming 10 compliant suppliers this means each to supply systems per month, which makes the target of systems in 2 years feasible ). CORRECTIVE MESAURES TO ADRESS THE CHALLENGES ON SWH PROGRAMME

26 MEASURES OF SUCCESS  Amount of avoided demand & reduced energy consumption;  Amount of avoided & reduced carbon emissions;  Number of SWH value chain jobs created (youth, women, females, military veterans, etc.);  Number of SMMEs established & supported;  Extent of SWH technology localisation re the maximum local content level achieved (particularly local vs. foreign spend);  Extent of participation by designated groups (military veterans, youth, women, people living with disabilities);  Reduced reports of dysfunctional SWH systems;  Improvement of local skills set (number of trained & certified installers); etc. 26

27 CLOSING REMARKS  Municipal participation are key players in the successful delivery of the NSWHP  Municipalities need to seek capacity building interventions, where necessary  DoE-Municipality Communication lines should remain wide open  Necessary support needs to be provided to local companies for them to be equal players in the Programme  The overarching support and coordination of provinces is crucial. NSWHP Interactive Map: / /

28 Recommendations  It is recommended that the Select Committee on Economic Development notes:  Overall Progress made to date with respect to the SWH implementation;  The SWH Instruction note;  Delays encountered due to the processes that had to be put in place prior to the implementation of the said SWH Instruction Note;  Note the implementation of the Load Reduction Programme and the outcomes of the RFRI  Challenges identified including corrective measures thereof. 28

29 THANK YOU 29 CONTACT DETAILS Ms. Mokgadi Modise Department of Energy Tel: Fax: Mob:


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