National Solar Water Heater Programme Roll Out Strategy To Portfolio Committee on Small Business Development 05 November 2014 Presented by: Mokgadi Modise Chief Director: Clean Energy

Outline Background and context National Solar Water Heater Programme Objectives Sequence of Events National Solar Water Heater Programme Implementation Approach Funding for the National Solar Water Heater Programme Progress to date on the Status of SWH localisation Opportunities for Energy Services Companies Conclusion

Background & Context Improving energy efficiency has long been advocated as a way to increase the productivity and sustainability of society, primarily through the delivery of energy savings. In 2009, the DoE in its budget vote speech pronounced on 1 million SWH units installed over a five year period. In 2005, the South African National Energy Efficiency Strategy was developed and published to explore potentials for improved energy utilisation through reducing the country’s energy intensity, and decoupling economic growth from energy demand. The SA’s Energy Efficiency Strategy states the aspirational targets for the respective broad energy-use sectors as a percentage improvement in energy intensity to be achieved relative to a baseline, projected from the baseline year of 2000, and energy intensity reduction by 2015.

National Solar Water Heater Programme Objectives Interventions Target Outcome 1 Reducing electricity demand by transferring the water heating load from the grid to a renewable energy source (solar) Facilitation of switching from electric geysers to SWH in high consumption domestic segment 5 million high income households converted to SWHs Reduced electricity demand in the residential segment defers power station investment 2 Mitigation of adverse climate change through an environmentally benign technology for water heating Installation of SWH in the low- and high-income domestic segments 9.6 million low and high income households who use electricity for water heating Increased uptake of clean energy for water heating purposes 3 Cushioning the poor from rising electricity tariffs Universal access in the domestic low income segment 4.6 million low income households who use electricity and other no-conventional means for water heating Reduction in the domestic electricity bill due to water heating being provided by SWH 4 Facilitating the creating of job opportunities through increased local manufacturing and industrialization Setting up minimum thresholds for local content through the designation of the SWH Industry. Not less than 70% local content on tanks and 70% local content on collectors Manufacturing of SWH technology localized & imports phased out.

NSWH Official launch by the President of RSA Sequence of Events DATE EVENT CHAMPION 23 June 2009 DoE Budget Vote 05 November 2009 NSWH Conference 28 April 2010 NSWH Official launch by the President of RSA

Sequence of Events … DATE EVENT CHAMPION 17 November 2011 Green Economy Accord signing 22 February 2012 Budget Speech : NSWH Appropriation R4.7bn 31 December 2012 SWH Rebate programme ended Mass Rollout

Sequence of Events … DATE EVENT CHAMPION 29 January 2013 The dti’s media release on the SWH Designation study 19 July 2013 and June 2014 respectively NT signs off and release the SWH Instruction Note 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 2012 and over 400, 046 at the time of 2nd Instruction note

Funding for the NSWH Programme On 14 February 2012, the Minister of Finance announced a 1 cent per kilowatt hour increase on the Environmental Levy as a new mechanism that “will replace the current funding mechanism for energy efficiency initiatives such as the solar water geyser programme”. The anticipated revenue to be collected through the levy increase over a three year period is about R4.7bn. The above mentioned on-budget allocation (R4.7bn) was made through the Appropriation Act, 2012 (Act No 7 of 2012), via the DoE’s Vote, as an exclusive and specific allocation to Eskom. To facilitate implementation of the now DoE-funded NSWHP, the DoE and Eskom entered into a Memorandum of Agreement (MoA) that was signed on 06 November 2012, and a revised MoA covering Medium Term Expenditure Framework (2013/14, 2014/15 and 2015/16 financial years) was signed in January 2014. The agreed new SWH Contracting Model, will now for the first time allow Eskom to enter into longer term supply contracts with local SWH manufacturers that comply with the SWH industry designation requirement of a minimum of 70% local content on tanks and 70% local content on collectors. It is envisaged that such contracts will provide the local industry with the much-needed investment certainty for justifying setting up of local SWH manufacturing facilities.

SWH Installation Progress as of 30 SEPTEMBER 2014 Data Source, Eskom. DoE does not have reakdown of the installation data

IMPLEMENTATION CHALLENGES After the Instruction Note was issued by National Treasury, the roll out could not proceed outside these requirements; Local Content Verification had to be undertaken in terms of SATS 1286; Delays in rolling out on the basis of the MoA Risks that funding would not be utilised Details to be presented after Cabinet consideration

ANALYSIS AND REVIEW OF THE PREVIOUS SWH DELIVERY MODEL The following were problems identified with the previous low-pressure SWH delivery model: There is little impact on electricity demand and local manufacturing as aspiring local manufacturers cannot secure contracts that are huge enough to justify the investment; There is no technology standardization as a result too many different and mainly imported products are available; The most prevalent SWH technology installed is evacuated tube type, whilst flat plates are not being utilised although they have potential for localisation; Measuring the local content of SWH products is difficult with no technology standardisation; and The life cycle management of installed SWH systems is either inadequate or non-existent, particularly with respect to the provision of post-installation services. The distribution of the current installations is skewed towards certain provinces due to the following reasons: The majority of the current SWH footprint have been funded through an electricity tariff and delivered through a first come first serve capital subsidy scheme (the rebate programme) implemented by Eskom, thus not allowing for an equitable pre-selection of installation areas; To quickly access the rebate, service providers approached municipalities and secured approvals for signing up interested households within the municipal jurisdictions and once again this resulted in SWH installations largely happening in metropolitan areas as most service providers were not keen to operate in areas in which they have no presence i.e. mostly in rural municipalities;

ANALYSIS AND REVIEW OF THE PREVIOUS SWH DELIVERY MODEL[2] Logistical constraints most common in the poorest provinces of the country prompted service providers to rather prioritise operating in major towns than in far flung areas; and This preference led to installations that are skewed in favour of provinces such as Gauteng, Kwa-Zulu Natal, Eastern Cape and Western Cape whilst others such as Limpopo, North West, Mpumalanga and Northern Cape remained least served. Against the foregoing discussion, the DoE is now adopting a redress approach in tackling this problematic provincial spread of installations. For example, with the 2013/14 and 2014/15 financial years’ allocation funding has also been allocated in a manner that prioritises South Africa’s 23 Least Developed Districts whilst having due regard for the water quality and water reticulation status of these districts. New contracting model has thus been developed having due regard of the above.

SWH Implementation Approach 1. Social Upliftment 2. Demand Reduction Component 2.2 1 2.1 Installations of LP SWH Systems Houses without Electric Geysers Installations of LP SWH systems in houses with electric geysers Installations of HP systems in houses with electric geysers - Provision of free hot water to low income households - Cushioning the poor from rising electricity tariffs Reduce electricity consumption, and response to climate change Utilize Clean Development Mechanism (CDM) as an option for funding of maintenance and repairs

To be done on rebate basis as per the MoA Overview of the NSWHP - Suppliers Eskom Manufacturers SABS DoE Provides policy framework & funding Implements policy framework, Including procurement of systems, installation and sustainability Supplies local product that meets requirements as per designation, standards Provides the support in relation to independent local content verification, testing and compliance of SWH systems. Implementation Agreement MoA Supply Agreement To be done on rebate basis as per the MoA

Overview of the NSWH Programme - Installations Eskom Registered Installers Municipalities DoE Provides policy framework & funding Project sites selection Monitoring, Reporting and Verification of System Performance Implements policy framework, Including appointment of Installers, maintenance, and reporting Installers that meet requirements for installations and within the project site for maintenance purpose (Designated groups, SMMEs, etc) Identify project area, provide support to installation, ensure functionality of the systems DoL /UIF: Partnering on Training Draft MoA MoA Installation Agreement Status 400,046 SWH systems installed by end March 2014 Capacity building and training for local plumbers with FET Colleges underway (installation & maintenance) and discussions advanced with UIF on training of installers to an amount of R73m on a 50:50 basis (Draft MoA in progress) Local content verification for SWH suppliers completed

New Growth Path: Accord 4: Green Economy Accord Commitment on SWH The Green Economy Accord signed by Government and its Social Partners outlines the following on Commitment One: Rollout of Solar Water Heaters Accordingly, parties committed the following: Increase the roll out of one million units Improve localisation of the components Secure support from the insurance industry for replaced units Secure guarantees in installed units Promote the marketing of solar water heating systems Promote uniform technical and performance standards for SWH

Progress to Date on the Status of SWH Localisation…

Progress to Date on the Status of SWH Localisation In the beginning, the NSWH programme was dominated by imported units which ultimately, and to some extent, did not create flexibility for the programme to achieve all the much needed and committed competing national objectives. Consequently, the low-pressure SWH rebate programme was discontinued as from December 2012 and is being replaced by the New Contracting Model. The proposed SWH New Contracting Model is aimed at promoting local manufacturing and development of Small Medium Micro Enterprises (SMMEs) largely as installers within the SWH value chain. The localisation objective was intensified and affirmed by the designation of solar water heating as an industry. The designation seeks to define and determine the level of local content on solar geysers and as such the tanks and collectors as of August 2013 were indeed designated as per the SWH Instruction Note released by National Treasury. In order to allow local manufacturers ample time to ramp up production capacity necessary to meet local demand, about R700m from the combined allocations for the 2013/14 and 2014/15 financial years has been shifted to the outer year 2015/16 financial year.

Indicative NSWHP Allocations

INDICATIVE PROVINCIAL SWH ALLOCATIONS (For Load Reduction)

Opportunities for Energy Services Companies ESCOs or SMMEs on EEDSM & SWH programmes EEDSM Monitoring & Reporting EEDSM Planning EEDSM Implementation Supply and installation of energy efficient technologies Supply and installations of SWH systems & on site / live capturing of SWH units (GIS data) Project management for EEDSM & SWH programmes Supply and installation of smart metering for monitoring Provision of alternative energy carriers/own generation Skills development Monitoring, reporting and verification of energy savings Maintenance of installed SWHs Maintenance of the installed Issuing and verification of energy performance certificates for buildings Green rating of buildings Energy management Energy auditing and baseline determination Feasibility studies for SWH programme Energy Service Companies (ESCOs) includes Energy Managers, Energy Auditors, Accreditation Bodies, Energy Contractors, Installers of SWHs, SWH Suppliers, & Project Managers

NSWHP Monitoring and Evaluation To facilitate this process the provincial spread concern, the department issued a request for information to establish primarily the water quality of the different municipalities. However, many municipalities in the least performing provinces have not been responsive in providing the crucial pre-feasibility data to guide municipal allocations. The following are some of the major monitoring and evaluation activities of the NSWHP: The DoE is responsible for conducting the initial screening and pre-feasibility assessments (water quality, water reticulation, etc.) in various municipalities in order to ensure that the selected project sites have no fatal flaws and other risks that could have been avoided. The DoE and Eskom will ensure that systems installed will be tracked and geographically mapped, to facilitate monitoring and management of programme; Eskom will conduct detailed feasibility studies plus measurement and verification of energy savings and other socio-economic aspects;

NSWH programme Monitoring and Evaluation [2] The Department of Higher Education and Training, the relevant Sector Education and Training Authorities (SETAs), Eskom and Municipalities will ensure that installation companies across all provinces are accredited and also registered with the DoE; and The DoE and SABS will conduct technical audits of the SWH systems to evaluate their performance and monitor non-functional systems.

Conclusion It is recommended that the Portfolio Committee on Small Business Development: Notes that the upfront capital costs of the SWH systems have, and continue to be, one of the major barriers to wide spread dissemination of SWH systems; Notes that the jobs within the Solar Water Heater industry are created at various levels of the value chain with most jobs during installation and maintenance Notes progress on installation to date; and Notes implementation problems experienced and the review of model underway.

Chief Director: Clean Energy Email: mokgadi.modise@energy.gov.za Tel: +27 (0) 12 406 7712 Cell: +27 (0) 82 449 7550 Email: mokgadi.modise@energy.gov.za Website: www.energy.gov.za