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The Green EconomyNational Climate Change Response Strategy

Status Report Briefing Note to Portfolio Committee of Water and Environmental Affairs07 June 2012Cape Town

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Climate Change: an EDD Perspective

The Mandate of the Economic Development Department

•Promote economic planning and co-ordination through economic planning proposals •Provide oversight and policy co-ordination of identified development finance institutions and economic regulatory bodies.• Contribute to the development of the Green Economy

Purpose: The Green Economy provides a unique opportunity for South Africa to create a large number of sustainable jobs by, developing new industrial sectors, while addressing concerns about climate change.

Process: The country can draw on its technological research and manufacturing base to generate new process and products, it is the responsibility of government to create an enabling environment and for citizens and business to do things differently

Outcome: Combined efforts of all constituents will be harnessed to achieve the goals of creating at least 300 000 jobs in the Green Economy by 2020. (green economy accord, EDD, 2011)

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The Challenge to Green Economy

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1.Abundance of Natural resources2.Exploitation of Natural Resources Prioritized 3.Externatlities related to Exploitation Overlooked4.Externalities and Electricity fundamentally linked5.Resource Inefficient in-built in Economy

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Managing the Transition

• Fundamental Problem: The transition to greener growth is economically costly for South Africa, because, alternatives to externality intensive production are few and expensive . Policy should focus on reducing externalities (carbon intensity, water use) of economic activities through the development and diffusion of low carbon technologies (carbon taxing vs tax credits, incentives, rebates)

• All new policies should be assessed in terms of their likely impact on growth, employment and resource use to ensure coherence in policy design and implementation

• Policies should be phased out over time to permit adaptation to ensure change in long-term behaviour without overburden on current economic output. (balance between jobs, economic growth and climate change mitigation) (The cost of going green vs not going green)

• In South Africa, market-based approaches alone are insufficient due to unequal impact of on stakeholders such as the poor. Need to focus on complementary polices such as regulations & standards, R&D investment, labelling. - dissagregation

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Managing the Transition

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Time to phase out, time to market, time to innovate

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Key Designated Areas of GE• Energy generation, which pertains to the generation of energy from sustainable,

renewable and/or alternative sources with low or no carbon emissions;

• Energy efficiency, which captures initiatives aimed at reducing energy consumption through green buildings, solar water heaters, industrial equipment, public transportation and others;

• Emission and pollution mitigation, relating to the utilisation of technologies aimed at reducing the harmful emissions associated with highly polluting industries, including air pollution control, electric vehicles, cleaner stoves, recycling, carbon capture and storage and water treatment; and

• Natural resource management, which covers the sustainable management and restoration of natural resources, specifically water, soil and land management, as well as the conservation and restoration of eco-systems.

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USA Study

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Dr Gordon Rands,

Univ Western Illinois, 2010

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SA Energy Mix

• IRP2010 baseline – revised balance scenario

• Increasing Renewable contribution in energy mix

• 3725MW for first allocation, phase 1 (2011),2,3 (2013)

• Wind, CSP and Co-gen are major energy players in the energy generation mix

• These energy generators must satisfy the medium and long term job creation requirement of country

• Technology shall follow the skills development to support these segments

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Renewable energy and job creation

Job creation estimates as per IDC projects:

(Currently under development)

Concentrated Solar Power

Permanent: 0.9 job per MW

Construction 9.8 jobs per MW

Wind

Permanent: 0.3 job per MW

Construction: 1.4 jobs per MW

PV

Permanent: 1 job per MW

Construction: 4 jobs per MW

IDC’s current pipeline:• 5 CSP• 19 Wind ca R 62bn• 18 PV (total project value)

Total pipeline job creation expectation: 5 500 jobs

Opportunities for job creation through Manufacturing of components for RE

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Potential Job Creation in RSA

• Short term – 2011 – 2012 - ~97 000 jobs

• Medium Term 2013-2017 - ~250 000 jobs

• Long Term 2018-2025 - ~450 000 jobs

• Natural Resources (44%-51%)

• energy generation(16%-26%)

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Job Types

• Energy generation prominent job contributor

• Short term – biofuels, waste-energy, co-gen

• Medium term – biomass, combustion

• Long Term – Wind, solar PV, CSP, Gasification

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Job Types

• Less contribution by energy and resource efficiency

• Natural Resource and Energy Generation are major contributors – Sustainability

• BRT, SWH, Green build programs support job expansion

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Key Challenges

1. Regulatory Framework – public sector co-ordination

– Lack of readiness, timescales, uncertainty, investment impact (REFIT, BIOFUELS)

2. Skills shortages

3. Commitment and Readiness to ensure growing Green demand

4. Localization & industrialisation

– Beneficiation, local manufacture, value add, imports, jobs

5. Financing and investment costs

1. High capital cost of projects, REFIT, carbon financing, Climate of uncertainty, certainty of demand, fuel price, bankability, lack of comprehensive financing strategy

6. Sustainable resources

1. Water supply, licensing, pollution, GHG emission commitment, human and industrial need, recycling

7. Immature Technologies

1. Old vs new integration, gas-powered vehicles, marine power, carbon capture, storage sites,

8. System weaknesses

1. Ability to manage, integrate consolidate and direct.

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Actions• EDD is increasing its activity and function in national

projects and programs under the purview of the NGP in activities such as,

• SARi- South African Renewable Energy Initiative with dti , DOE and NT as part of the oversight steering committee- Lead departments are preparing a draft declaration being compiled with ODAs by COP17.

• Strategic support for Provincial Climate Innovation Centre by Gauteng for SMME and green innovation incubation

• Evaluation of solar farm bids as part of the bid team through CEF

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EDD Actions

• Signing of national green economy accord- pledge by business labour, government and communities @ COP17, Dec 2011.

• Green Jobs Report commissioned by IDC and DBSA launched December 2011 outlining key job areas in green economy over next 20 years including renewable energy generation, energy efficiency activities and waste and water management technologies, including biofuels and bio-technologies as key areas.

• Green Growth Economic Cluster Committee formed in Q1 2012- policy leadership- objective to formulate an economic green growth strategy including implementation of national climate change response strategy – NT, dti, EDD, DEA

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SWH implementation

• Project Steering Committee established (EDD, DOE, DTI, DPE, DST, DPW, Eskom, IDC, NT, DHET)

• Committee discussed the following issues/challenges:– Localisation plans

– Even provincial distribution

– Youth employment

– Funding proposals

– Amendments to regulations/regulatory interventions

– Guarantees for installed solar heaters (in event installers go out of business)

– Set-asides for cooperatives (installation)

– Scale-up financial support for achievement of the target of a million solar water heaters installed by 2014,

– Different financial programs for LP and HP systems using either contractual (combination of carbon tax pool and IDC support)or SOP (employed on REIPPP) model is being simulated for workability and achieving objectives.

– Increase local production of components mandatory in selection process

– IDC & ESKOM partnership in CDM project with World Bank creating 500 jobs

– By Dec 2011, Eskom rolled out up to 200 000 units with Eastern Cape leading the rollout

– 2012/2013 approved MTEF allocation R4.7Bn to rollout with 80% for LP

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SWH workstreams

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1.Funding

EDD working together with the IDC, DBSA and Eskom is exploring alternative sources of funding for the SWH industry. Our work in this regard has included the use of carbon credits and possible synergies from the national mitigation framework

Employment Creation

EDD working together with DHET is developing a training and skills development plan for the SWH

Rural Development 2.Localisation

EDD workinghas through dti also initiated the designation study for Minister of DTI to approve designation for SWH(-related) components for special consideration. This legislation was approved in December 2011. Hereunder, under state funded projects government can apply special tender requirements for variables such as localisation and content in order to ensure we use South African systems. The study is due for completion in June 2012

Communication

EDD working together with the DRALR is developing a strategy into how the1 million SWH project can be used to stimulate the rural economy, our work in this regard will includes the use of co-operatives as a delivery vehicle

The EDD working together with GCIS had developed a marketing and communication strategy for the 1 million SWH project and for the SWH in general. The objective of the campaign is to change consumer behavior and stimulate demand for SWH thereby create a sustainable ind ustry EDD working together with the DoL is developing a strategy if managing sectoral shifts for workers into the Solar industry

EDD working together with the DST ahs developed a locatlisation strategy for the SWH industry leaverageing on existing public institutions and resources

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Designation• Cabinet Approved – minister can designate for special

strategic support key sectors.• Influence state procurement programs in order to

effect required impact • December 2011, first round of Designated

(sub)sectors• Dti –Department of Trade and Industry mandated

area- study completed May 2012• Seek to apply for new round of 1 million geyser

rollout• Study completed- identifies component and system

designation potential• up to 11 million units as market potential

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Biofuels rollout• The Biofuels Industrial Strategy aims to facilitate job creation and rural

development

• Cabinet memo October 2011 in support of the dti and other departments.

• Bio-ethanol - Cradock project

– IDC partnership in pilot project

– Phase 1 - 6000 hectares of grain sorghum and sugar beet (2nd phase) – DRDLR land

– Creation of in excess of 2000 jobs

– Phase 2 – double capacity and create up to 20 000 in total

• Implementation issues

– Feedstock

– Regulations on blend mix published for public comment

– Agricultural vs Industrial Water Licenses

– Strategic support/subsidy measures for growers and refineries

– Fuel levy exemptions for bio-diesel be increased and for bio-ethanol be introduced

– Streamlining licensing for small producers

• However, the latest taskteam meeting in March 2012, the DOE advised that Biofuels was put on hold until they had concluded industry consultation and a study on the impact of blending regulation and break-even study for the industry as a whole. This put a hold on the project and outcomes are still awaited from DOE on the matter. In the interim, due to apparent lack of clear next step from DOE, the IDC has suspended its funding for the project.

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Biofuels rollout

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Bio- diesel• The Economic Development Department has assisted Phyto Energy (Pty) Ltd develop a

biofuels project in the Eastern Cape. – 2011- German Technology, biodiesel from phytoplasm

• The rationale for EDD ‘s involvement in the project is that the project is expected to stimulate the rural economy and SMME development as small holder farmers are expected to supply feedstock for the project

• Working with DRDLR – small scale co-operative feedstock farming

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IDC investment in the Green Economy

• The IDC has aligned its sectorial focus areas with the requirements of IPAP2 and the NGP.

• The IDC will use a value chain approach with the emphasis on industrial development (including localization) and job creation.

• The IDC’s role in growing the Green Economy would be through investments in:

1. clean production,

2. clean energy,

3. energy efficiency,

4. demand side management interventions,

5. emission and pollution mitigation,

6. waste reduction and

7. bio fuels.

• IDC has created an enabling environment by securing cheaper funding, with long debt tenures to act as a catalyst in the Energy Efficiency Markets.

• Green Energy Efficiency Fund was launched recently that offers the market debt at concessionary rates with debt tenures up to 15 years by partnering with the German DFI – KfW.

• IDC has structured the repayment of these loans to effectively match the savings profile of the technology installed. eg. On a Roof Top PV the savings over 15 years are equivalent to the debt service repayment and hence the facility of 15 years is then proposed. Hence not an out of pocket expense for the company.

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Developing Renewable Energy in South Africa

• IDC has pro-actively sourced and developed projects for Renewable Energy

• Significant pipeline of projects that are bidding under the Renewable Energy Independent Power Purchase Procurement Program (REIPPPP) introduced by by the DOE on a capped tariff basis.

• The Bid structure effectively was on a competitive bidding process whereby a TARIFF CAP was set for each technology. A total of 3 725MW will be available under the program with 5 bidding rounds.

• IDC’s portfolio of projects for round 1 (4 November) of this process was in excess of 800MW and ca R27 Billion project value.

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REIPP Procurement Programme RfP Highlights

• Up to 5 Phased Bid process pending subscription by Bidders of total allocation of 3 725MW spread across renewable energy technologies;

• First phase: submission November 2011; announcement December 2011, June 2012- Financial closure – 1 416MW - R46Bn

• Second phase: submission early Mar 2012, announcement of preferred bidders May 2012 – 1043.9MW - R28Bn

• Third Phase: Expected August 2012 - 1 165.9 MW

• 100MW from 3 725W set aside for small <5MW projects

• Key qualification criteria: Project Structure, Legal, Land, Financial, Environmental, Technical, Economic Development, Bid Guarantee;

• Proven technology - equipment must have been installed on two previous projects;

• Track record of contractor - must have constructed two similar projects;

• A bid bond of R100k/MW must be provided with the bid, increasing to R200k/MW when the Project is selected as preferred bidder;

• If Qualification is met the bid will be evaluated mainly against Price (70%) and Economic Development (30%);

• Price not to exceed price caps for each technology;

• Economic development matrix with focus on Jobs, local content, community and skills development.

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Green Economy Catalyst through investment in RE by IDC

NumberTotal value approved

BBBEE/BEE

NumberTotal value approved

BBBEE/BEE

CSP 2 3,042 776 1 1,177 376 Wind 4 1,289 416 4 904 272 PV 6 876 142 1 135 135 Hydro 1 159 17 Total 12 5,207 1,338 7 2,375 800

Round 1 (R'm) Round 2 (R'm)

IDC participation summary (preferred bidder status round 1&2)

Total community funding approved R1,5bn in all projects

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Thank you/Siyabonga!

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