Green Economy and Its Potential to Create Jobs: Minister and Economic Development Department and the Industrial Development Corporation briefing

Meeting report

Minister and Economic Development Department and the Industrial Development Corporation briefing
Professor Richard Levin, Director-General, Economic Development Department (EDD),and Ms Rentia van Tonder, Head: Green Industries, Industrial Development Corporation (IDC), gave a joint briefing on the green economy to the Committee. Professor Levin said the policy basis for greening the economy was the New Growth Path (NGP) and the Industrial Policy Action Plan 2 (IPAP2).

The NGP was targeting the creation of 300 000 jobs in the green economy by 2020. Strategies to achieve these targets were; encouraging the local production of Solar Water Heaters (SWH), support for energy efficiency and renewable energy, public employment and recycling schemes, increased research and development, and continuing to reduce the cost of, and increase access to, broadband.

In IPAP2 the key sectors were wind power generation, photovoltaic power generation, concentrated solar power generation, industrial energy efficiency, water efficiency, waste management, biomass and waste management, and energy efficient vehicles.

The IDC had aligned its sectoral focus with that of the NGP and the IPAP2. The IDC role in the green economy would be through investments in clean production, clean energy, energy efficiency, demand side management intervention, emission and pollution mitigation, and waste reduction and bio fuels.

It had secured cheaper funding and launched the Green Energy Efficiency Fund (GEEF) in partnership with KfW Development Bank of Germany.

The Government had three key priority projects:
⚫Solar Water Heaters
⚫Biofuels
⚫Renewable Energy Independent Power Producers Procurement Process (REIPPPP).

It wanted to scale up the financial support and increase local production of components for solar water heaters. A key challenge to solar water heating was the financial funding model to be applied, while guarantees remained a vexing problem.

The roll-out of solar water heaters was of the low pressure system which would use a contractual model and the high pressure system which targeted demand side management through a standard offer programme.

The bio-ethanol value chain encompassed agriculture, feedstock, logistics and product. The value chain included by-products like electricity and other possible added value products, including pectin.

The Cradock Bio-ethanol project was done in partnership with the IDC. Phase one had seen 6 000 hectares under grain sorghum and sugar beet and created over 2000 jobs while phase two would double the capacity and create 20 000 jobs in total.  Key issues were ensuring feedstock security and the high ratio of off take to feedstock prices.

South Africa was targeting 50 000MW of energy generation by 2030 of which 19 000MW should be renewable energy. The IDC would be investing R14 billion out of a total R22 billion in the green economy in the next five years and was expecting to create 5 500 jobs.

The request for Proposals (RfP) in the REIPPP programme had completed its first phase, the submission of bids, on Friday 04 November 2011.

The key concepts for the Conference of the Parties (COP) 17 were the adaptation of processes and activities for the effects on climate change and mitigating the effect of Green House Gas emissions through alternative energy use and the use of new technologies.

The EDD and the IDC would have a stand at the expo on the solar water heaters rollout plan.

Discussion
Dr P Rabie (DA) asked if the solar water heaters rollout had been thoroughly researched and investigated in other countries.

Mr N Singh said most new low income housing had the solar water heaters. Where were they produced and to what extent could the local economy benefit? He said he had contacted Ethekwini Metro for solar water heaters but there had been no response. How did one go about getting one installed? He asked what biofuels entailed. In KwaZulu-Natal (KZN) if the land was to be used to grow biofuels there would be no land to graze cattle.

Mr Z Ntuli (ANC) asked what the guarantees were. He said there were different levels of implementation in the different provinces and provinces charged differently too. Was any money set aside for capacity building and for the maintenance of the solar water heaters? Did the Government have the capacity to sustain the solar water heaters programme?

Mr S Marais (DA) asked if the solar water heaters could last for 20 years.  He saw the main challenges as being implementation and the time frame for implementation, of which more information was needed. What were the reasons for the uneven distribution between the provinces? What was the role of the EDD - was it as enforcer, facilitator or policeman?

Ms D Tsotetsi (ANC) asked who would be targeted for the local production of components.

The Chairperson wanted more information on the Green Energy Efficiency Fund. She wanted the Director-General to provide consolidated progress reports. She wanted to know whether the guarantees were to or from commercial banks of from the IDC itself.
 
Prof Levin replied that the EDD was trying to play a co-ordinating role between the Departments of Energy, Public Enterprises, and National Treasury, and the IDC and the Development Bank of Southern Africa. It was not controlling the levers. He said it was difficult to give specifics as they were grappling with it. They wanted to install 17 000 low pressure and 5 000 high pressure systems.

With respect to installing the low pressure systems, a contracting model could be put in place where the localisation content could be specified. Some components, like the vacuum tubes could not be produced locally.

There was a need to focus on the primary objective which was local production and job creation.

He said the programme was predicated on water availability.

The key funding mechanism was the rebate. Certain provinces like the Eastern Cape had taken it up.

The youth employment question raised fears of substitution taking place, where youth weighting might possibly result in the displacement of older workers.

Ms Van Tonder said Eskom had a dashboard for the solar water heaters programme. 34 500 had been installed. R464 million had been spent on low pressure systems and R 203 million on high pressure systems.  She said the rebate method was the best way to start the programme. She said the IDC had three companies that it dealt with. There were many fly-by-night companies but the IDCfs role was not that of industry watchdog.

Many factors played a role regarding guarantees for funding, these included sustainability, service and maintenance. The IDC did not give guarantees on behalf of companies. The IDC had not funded any cooperative models yet.

There was significant rollout activity in the Nelson Mandela Bay Municipality and in the Free State. It varied according to municipal involvement. Because Eskomfs key requirement was a reduction in energy, the high pressure system was prioritised.

It was expected of bidders to have the financial capability, be able to implement the project and that the projects have a proven 30 year lifespan.

The Cradock sugar beet and grain sorghum project generated most of its jobs in growing the feedstock. Government's policy was that no land or food be used that would impact on food security.

Mr Ntuli said he was concerned over the use of intermediaries.

Ms Van Tonder replied that companies needed scale to survive, thus, while they were growing, intermediaries were used, but this was only for the high pressure system. Since last July there had been a huge spike in demand for SWH high pressure systems because of the increase in the electricity price. She said she would like to see municipalities taking a more proactive stance and driving the change.

GEEF was a unique opportunity for companies who wanted to change to more energy efficient products but could not because of the high cost. Loans were paid off through the savings generated and thus did not affect the companyfs cash flow. The IDC had launched the loans a week ago.

At this point the Minister, the Hon. Ebrahim Patel, joined the meeting. He said that he wanted to highlight some priorities. There was a need to unlock the green energy of Inga (a river in the Congo) as what  it was producing was below what it could produce. South Africa currently had 15% of the global market share of auto-catalytic converters. Climate change was not only for urban dwellers but for rural people too, half a million Africans could be saved (WHO figures). He said the country had set itself ambitious targets of 17 000 MW, which was the entire electricity output of Nigeria. A green economy was more expensive but with investment the cost would come down.

In reply to Mr Ntulifs question he said South Africa could not walk away from coal. Coal was cheaper but it could be used to cross subsidise a green economy. Not using coal at all would be a cost shock; rather South Africa would look at clean coal technologies like coal gasification to lower the carbon footprint.  The green economy offered a big opportunity to those able to invest and fund opportunities. Projects needed tighter co-ordination and delivery. Each component of the solar water heaters had been investigated for local manufacturing and export market potential.

The Chairperson said that the programmes lacked targets and time-frames.

The Minister said that the Government was trying to build a market on a big scale and therefore needed a critical mass so that local manufacturing was possible. Five years ago it had been a niche market, and then Government had tested the market and then the economics and costing models. It was at the point where it was localising off a growing market. South Africa had 200 000 burst geysers a year. There was dialogue with the insurance industry to mandate the solar water heaters as a replacement. High pressure versions also allowed for pressure to be taken off the electricity grid, while 140 000 low pressure solar water heaters would be installed in low income housing.

With regard to Mr Singhfs question he said that coal was cheaper. The question was how to get it cleaner; one could possibly use the savings to cross subsidise.

The green economy also had a commercial economic objective and needed to do cost benefit analyses.  Over the long term however, it was environmentally necessary.

On Mr Maraisfs questions, he said that the Government was open to solar technology to generate energy outside of the grid and for rural areas. It was watching closely European technology which used solar even for cooking. What could be implemented right now were solar water heaters and this was being done. The talks with insurance companies over funding should be completed very soon.

On the uneven provincial response he said they had taken a bottom-up approach; an unintended outcome had been the uneven take up from different municipalities. The delivery model was being reviewed to get a balanced distribution.

Ms Tsotetsi had made a good planning point as current models played catch-up, whereas it should be integrated into the building of new houses.

The solar water heaters installation programme could be celebrated. It had exhausted all resources for solar water heaters installations. The solar water heaters assisted in the rapid electrification of rural areas and showed that renewable energy could be produced on a small scale. Coal could not be abandoned because it contributed towards cheaper electricity.

The IDC should perhaps within the programme develop a capacity building fund to develop smaller companies in the solar water heaters programme.

Responding to Mr Rabie, the Minister said that a portion of the Inga project (Inga 1) was complete.  When the whole project was completed it would have the capacity, theoretically, to generate hydroelectricity equivalent to all of South Africafs current power capacity.

Eskom was working with cooperatives on rebates and there was a need to look at complementing the system.

The green economy was a new technology which therefore had risk attached and not all would be successful. It was a cash hungry sector and the market was much contested. He saw the role of the IDC as becoming a ggreen industrialiserh.

The meeting was adjourned.