Presentation outline

Presentation outline

1-Confidential-

Solar Water Heating Programme

Progress Report

28 February 2011

04/22/23


2-Confidential-04/22/23

Strategic Plan - Intermediate Outcome 1 of 2: Demand side, efficiency and diversified energy mix programmes implemented

– In her 2009 budget vote speech, the Minister of Energy, Ms Dipuo Peters announced a target of 1 million Solar Water Heaters installed by 2014 /2015.

– The overall programme focused on both tariff and fiscal funded programmes in residential and commercial sectors.

– Initially, the SWH programme took off very slowly till mid 2010.

– The fiscal funded were are rolled out through both Schedule 6 (i.e. Direct transfer to the municipalities) and through Schedule 7 – (i.e. Transfer to Eskom as an implementing agent) of the Division of Revenue Act (DoRA) .



Strategic Plan - Intermediate Outcome 1 of 2: Demand side, efficiency and diversified energy mix programmes implemented

– In 2011/2012 financial year, the SWH programme started on a baseline of 55,000 units installed, with target of 250, 041 units.

– There was an overlap on implementation from 2010/2011 for completion of a roll out with: Tshwane, Naledi and Sol Plaatjie.

– In all the municipalities implementation was through Schedule 7 of the Division of Revenue Act (DoRA).



Implementation overlap from 2010/2011 to 2011/2012

Municipality Approved project value (m)

Planned Units

MW GWh Status Actual Units Installed

Naledi (i.e. Stella and Vryburg)

R54,450 7 837 2.2 5.9 Incomplete 1 362

Sol Plaatjie R54, 450 7 837 2.2 5.9 Installationcompleted

7837

Tshwane R74 15 094 4.2 11.9 Installationcompleted

15094

Total R182,900 30 868 8.6 22.7

Jobs created per municipality: Sol Plaatjie – 156 persons appointed; Naledi: 9 persons; Tshwane: 130 persons



Implementation challenges in Naledi Municipality

– In July 2011, water quality challenges experienced in Naledi Municipality:

• Some beneficiaries had no water connected directly to the house

which is one of the fundamental requirements to SWH installation –

this challenge was resolved by providing the required funds for water

reticulation (connection and maintenance);

• Bad roof structures and old pipes that cannot be tapped into;

• Hard water – the prevalence of hard water could have a severe

impact on the direct functionality of SWH and its lifespan;

• Naledi Municipality later confirmed the hard water condition for the

entire area;



Implementation challenges in Naledi Municipality Cont’

• Two solutions were presented:

• Solution 1: Removing calcium and iron mass;

• Solution 2: Chemically treat the water through reverse Osmosis;

• Cost breakdown for solution 1: the budget cost per SWH was R1 195

and the cost of 7 837 was R 9 365 215. 00

• Maintenance for solution 1: the filter needs to be changed as soon

as it is visibly blocked and the replacement depends on the solids

present in the raw feed to the geyser (i.e. at most within six months);

• Cost breakdown for Solution 1: Cost for filter at R25.00 and Cost of

NanoPhos at R125.80 per kg = R7 837 every six months, or to R 1 2m

• After analysing all the project challenges, it was clear that the cost

associated with water quality would make the project unviable and

that systems would need to be replaced on a regular basis.



Implementation challenges in Naledi Municipality Cont’

• Cost breakdown for solution 2: Reverse Osmosis (operates at high pressure and removes all ions, bacteria, viruses, etc).

• Solution 2 excludes maintenance and running costs.

Areas Daily Consumption Remedial Costs

Stella 6 M l R15, 000, 000.00

Huhudi 9 Ml R18, 600,000.00

Vryburg & Coldridge

18 Ml R45, 000,000.00

Dithakwaneng 2 Ml R6, 200, 000.00

Devondale 1 Ml R3, 100,000.00

Total R88, 400,000.00



Recommendations to resolve water quality problem

• Based on an analysis of all the costs presented above, projects are moved

to a new and more suitable area. All SWH Units for Naledi had already

been procured when the project was terminated.

• Selection of a new area: Relocation form Naledi to Maluti-a-Phofung.

• Free State Province had already engaged the DoE on a Business Plan to

roll out SWH Units.

• Maluti-a-Phofung was then approved to take over the roll out from Naledi

Municipality .

• Eskom has submitted a report confirming that a feasibility study is

underway prior to the start of the actual installations.



2011/2012 SWH Fiscal update

• Emfuleni , Musina and Umsobomvu approved for the current financial

year. An allocation of R54,400m each was approved for the current

financial year under schedule 7 of DoRA, whilst

• R60 million was allocated to Umsobomvu municipality, under schedule 6.

• 1st and 2nd Quarters of the financial year focused on the finalisation of the

business plans and contracts.

• A feasibility study is necessarily undertaken in each municipality to allow

clear remedial actions prior to the start of the roll out.

• Musina Municipality has appointed Roschcon to undertake the feasibility

study and Umsobomvu has issued an advertisement in January 2012 and

currently finalising the procurement process. The actual installations

planned to start in March/April 2012.



SWH Rebate Level Revision

• In June 2011, Eskom revised the claim rates due a threat on diminishing rebate funds. The above constraint prompted Eskom to review the Rebate Progamme as follows:– On 11 April 2011 Eskom announced the downward revision of the rebate

levels as shown on the table below and later approved R500 million to continue.

– :



Installations per Region

Above graph represents total installations to date, including installations received but not yet processed. This includes Eskom funded (rebate and contracts) and DoE funded (Tshwane, Sol Plaatjie and Naledi).

khanyiso.zihlangu

I would have loved to have this regional spread but Eskom's numbers do not tally at all. My reading of the weekly reports we have been receiving tells me that since the advent of the programme, 132 038 systems have been installed. Yet the latest regional installations indicate a total of 80 039 over the same period. So I suggest that this slide be omitted until I have received clarity from Eskom.



No. SWH MW GWhHP 42,207 21 110 LP 168,830 17 89

211,037 38 199

SWH installation inception to date - Dec 2011

Installations to date

khanyiso.zihlangu

I would have loved to have this regional spread but Eskom's numbers do not tally at all. My reading of the weekly reports we have been receiving tells me that since the advent of the programme, 132 038 systems have been installed. Yet the latest regional installations indicate a total of 80 039 over the same period. So I suggest that this slide be omitted until I have received clarity from Eskom.



Standard Offer Model Update

• Concept of the Standard Offer Model has been finalised;

• A one year Business Plan for SWH Pilot phase has been completed and

ready for approval and implementation as of 1 April 2012;

• The SO implementation will start with the roll out of about 250 000

units within the allocated R1 billion.



Standard Offer Model Recap

• The Standard Offer Concept is based on the energy savings to be derived from an initiative, irrespective of the technology applied to achieve such savings. It is an intervention that is outcome based with the incentive flowing after delivery of the intervention, and subject to verification of the savings. The solar water heating system will have a deemed savings value. It is envisaged that the rebate will be attractive initially, in order to kick-start the market. Over time, it is predicted that costs will be reduced through economies of scale.

Pool of funding required to service

debt

Funding requirements

Fiscal

Carbon Credit

MYPD

Grants

Owner /user

Source of immediate

funding

Commercial Debt

Concessionary Debt

To be obtained

from

Total funding required for Solar

Water Heating units

Cost of installed

units (making allowance for reduced cost

due to volume)

Interest on debt

To be serviced

by

15



Cost Benefit Analysis

Residential market targets Total Potential %

Reducing electricity

demand MW

Universal access

Offset rising electricity cost

Accelerated service delivery

Renewable energy targets

GWh/annum

Climate change

'000 tons

Upper income geyser replacement560,000 1,200,000 47% 347

Completely equitable across the markets. Plus

frees grid capacity

<60% of water heating costs

672 679

Mid/low income geyser replacement1,750,000 3,000,000 58% 1,085


Major impact

2,100 2121

Non Geyser delivery2,690,000 6,600,000 41% 1,668


Major impact

3,228 3260Insurance geyser replacement 55,000 0 34 66 67New build 110,000 0 68 132 133

5,165,000 10,800,000 48% 3,202 6,000 6,060

Residential market targets Total Potential %

Reducing electricity

demand MW

Access across all markets

Offset rising electricity cost

Accelerated service delivery

Renewable energy targets

GWh/annum

Climate change

'000 tons

Upper income geyser replacement236,500 1,380,000 17% 142

Completely equitable across the markets. Grid

capacity freed


284 358

Mid/low income geyser replacement440,259 3,550,000 12% 264


Major impact

528 1248

Non Geyser delivery383,389 6,320,000 6% 115


Major impact

460 842Insurance geyser replacement 31,343 19 38 91New build - SWH over geyser 123,631 74 148 182New build -non geyser delivery 142,000 43 1,458 2,721

1,357,122 11,250,000 12% 657



Cost Benefit AnalysisProgramme MYPD Subsidy Needs

Residential market targets 2010 2011 2012 2013 2014 2015

Upper income geyser 92,089,800 143,250,800 255,805,000 270,130,080 252,735,340 212,829,760

150 litre SWH System 10,788,525 16,782,150 29,968,125 31,646,340 29,608,508 24,933,480

200 litre SWH System 49,838,085 77,525,910 138,439,125 146,191,716 136,777,856 115,181,352

250 litre SWH System 9,468,360 14,728,560 26,301,000 27,773,856 25,985,388 21,882,432

300 litre SWH System 21,994,830 34,214,180 61,096,750 64,518,168 60,363,589 50,832,496

Mid/low income geyser 76,708,800 150,409,412 270,736,941 391,064,471 451,228,235 752,047,059

Closed coupled 61,367,040 120,327,529 216,589,553 312,851,576 360,982,588 601,637,647

Split unit 15,341,760 30,081,882 54,147,388 78,212,894 90,245,647 150,409,412

Non Geyser delivery 14,016,324 60,834,740 134,761,117 225,407,313 363,159,065 730,016,883

100lt Roof mounted 8,806,068 38,220,779 84,666,670 141,617,160 228,162,764 458,649,351

100lt Pole mounted 4,403,034 19,110,390 42,333,335 70,808,580 114,081,382 229,324,675

55lt Pole with hand pump 807,223 3,503,571 7,761,111 12,981,573 20,914,920 42,042,857

Insurance replacement 11,475,403 26,775,940 33,469,925 33,661,182 29,071,021 24,480,860

Totals 194,290,327 381,270,892 694,772,983 920,263,046 1,096,193,662 1,719,374,562

Programme MYPD CDM Needs

Residential market targets 2010 2011 2012 2013 2014 2015

Upper income subsidy 0 0 0 0 0 0

150 litre SWH System 0 0 0 0 0 0




Mid/low income geyser 77,333,357 151,634,033 272,941,259 394,248,486 454,902,099 758,170,165

Closed coupled 61,866,685 121,307,226 218,353,007 315,398,789 363,921,679 606,536,132

Split unit 15,466,671 30,326,807 54,588,252 78,849,697 90,980,420 151,634,033

Non Geyser delivery 10,502,649 45,584,416 100,978,597 168,901,200 272,120,727 547,012,987

100lt Roof mounted 6,301,590 27,350,649 60,587,158 101,340,720 163,272,436 328,207,792

100lt Pole mounted 3,150,795 13,675,325 30,293,579 50,670,360 81,636,218 164,103,896

55lt Pole with hand pump 1,050,265 4,558,442 10,097,860 16,890,120 27,212,073 54,701,299

Insurance replacement 0 0 0 0 0 0

Totals 87,836,006 197,218,449 373,919,857 563,149,686 727,022,826 1,305,183,152



SWH: Localisation

• Government and our social partners signed a Green Economy Accord on 17

November 2011, as an outcome of social dialogue on the New Growth Path.

• The Accord has been signed on behalf Organised Labour, Business, Community

and Government.

• The Green Economy Accord recognise that the installation of SWH systems can

help with climate-change goals and increase the number of South Africans who have

access to hot water while creating jobs in manufacturing and installation.

• Business committed to working with Government to develop, establish and then

publicise a sustainable funding plan to support the installation of 1 million SWH

systems.

• It should be noted that the success of localisation within the Green Economy Accord

depends on its implementation together with other Accords such as Local

Procurement Accord, National Skills Development Accord and Basic Education

Accord because of cross cutting elements



SWH: Localisation

• The following localisation issues are addressed under Commitment One (Green

Economy Accord):

• Increase the rollout to one million units: In order to achieve the targets for

SWH installations, it will require financing, enterprise development, training and

policy coordinated across all stakeholders. Business committed to working with

Government to develop, establish and then publicise a sustainable funding

plan to support the installation of 1 million SWH systems

• Improve localisation of the components: All parties commit to the drive to

increased localisation of the components of the SWH systems. Government

committed to ensure that incentives and regulatory measures are in place to

promote greater local manufacturing of components of the SWH systems.

Specific opportunities for localisation to be identified and support localisation

accordingly

• Secure support from the industry for replaced units: Approximately 200

000 electric geysers are replaced annually by householders through payments

via the insurance industry, to promote the use of locally-manufactured SWH for

replacement of a damaged electric hot-water geyser



SWH: Localisation...

• Secure support from the industry for replaced units : Business will work

with the insurance industry to approve a manageable selection of suitable

systems to be used by insurers. Business will implement a pilot by 2012

followed by a wider SWH roll-out by the insurance industry in 2013.

• Secure guarantees on installed units: The parties identified a potential risk

with the guarantees on the SWH units, particularly i.r.o start up companies who

may no longer be in business when warranties needed to be honoured.

Business, government and various funding institutions including Eskom are

engaging to develop proposals on warranty systems, standards and funding

mechanisms to address this risk.

• Promote the marketing of SWH systems: The parties recognise that it is

imperative that consumers embrace the technological shift to SWH. Business

therefore committed to develop with Government as well as organised labour

and community organisations, national communication campaign, linked to

local community initiatives and campaigns like Lead SA, Proudly SA and 49m,

to educate South Africans about SWH and its benefits



SWH: Localisation...

• The following localisation issues are addressed under Commitment One of the

Green Economy Accord:

• Promote uniform technical and performance standards for SWH: The

parties recognised that given South Africa’s unique climate conditions, the

need to develop local standards for the different component parts of SWH, in

order to not only support local technological development, but to also ensure

that we can facilitate the introduction of imported technologies for local

manufacturers. Government committed to develop the standards for the

different components that make SWH units, through SABS. Business

undertook to support the development of local standards for SHW at

component level.



SWH Allocation for 2012/13 – 2014/2015

• An amount of R 4.7 billion has been allocated to achieve 1 million SWH units by

2014/2015

Financial Year Amount (R)

2012/2013 1 billion

2013/2014 1.7 billion

2014/2015 2 billion



Conclusion

• Progress made to date on the Solar Water Heating programme,

challenges encountered and they are being resolved;

• That from the above figures, it is evident that the cumulative target of

250, 041 installations for the current financial year is still in sight

given that about 82% of the targeted units have been installed.

• Budget allocated to achieve 1 million SWH units by 2014/2015.

• Commitments already made with respect to the Green Economy

Accord to address the localisation issues to create more jobs.

• That work is in progress with all stakeholders to intensify the

operationalisation of all identified key factors to localisation.

• Energy savings will only be improved through penetration of high end

market, through the Standard Offer Concept

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