Energy Game Changer: Department of Economic Development and Tourism briefing

Meeting report

Update on ASEZ and SEDIC

Ms Bianca Mpahlaza-Schiff, Acting Chief Director, Department of Economic Development and Tourism (DEDAT), provided an overview and update on the Atlantis Special Economic Zone (ASEZ) and Western Cape Special Economic Development Infrastructure Company (SEDIC) since the finalisation of the Act, addressing the background and delivery during 2019/20 of both entities.

As background to the ASEZ, the Department presented the history of Atlantis as an industrial site, starting from the year 1976. Atlantis had been an industrial area for some time and had gone through a very difficult phase, where many industrialists were lost. There had since been an attempt to reindustrialise the area. By 1984, 12 788 jobs had been created in Atlantis and by 1987 there were 50 industrialists there. There was later a mini-boom in 2007, as Eskom established an Open Cycle Gas Turbine (OCGT) plant. In 2010, Tellumat had acquired Telledex assets following which, in 2012, the Atlantis Revitalisation Framework of the City of Cape Town had been implemented. Subsequently, Hisense had opened a factory in 2013. 2014 had seen the introduction of the Special Economic Zones (SEZ) Bill, Gestamp Renewable Industries and the MyCiti Bus Route. In 2015, the ASEZ application for designation was made, and in 2018 the ASEZ approval for designation was received from the Minister. The Department had currently drafted a lease agreement for Council approval.

The purpose of ASEZ was to utilise SEZ policy instruments and incentives as a catalyst for the long-term growth of a green technology manufacturing and services SEZ in Atlantis. GreenTech had the characteristics of being lower in carbon, more resource efficient and more socially inclusive. ASEZ sits squarely between Saldanha and Cape Town port. It was a complex project that relied on partnerships across government whilst including academia and citizens. It consisted of a mandating group of which DEDAT formedpart, and of which the Minister would become a shareholder. The Department worked with WESGRO, the official tourism, trade and investment promotion agency for Cape Town and the Western Cape, which developed SEDIC and ASEZ. They were being set up at the same time to avoid delays and any missed opportunities with investors. ASEZ would be moved into SEDIC within the next year, as it was always conceived as a holding company.

The targeted impact of ASEZ was R1.2 billion per annum and 3 000 jobs by year 15 of the project. ASEZ had already achieved five new investments to the value of R680 million; 300 direct jobs created, majority taken up by Atlantis residents; R240 million in upgrades by the City of Cape Town; R200 million invested by the Department of Transport and Public Works (DTP); the Atlantis Community Stakeholder Network (CSN) had been established; and it was designated as an SEZ in 2018. Broad ecosystem support in Atlantis for skills and small business development included:

• Small Enterprise Development Agency (SEDA) incubators established and 10 companies supported;
• Joint skills programme with the West Coast Further Education and Training (FET) College;
• Manufacturing, Engineering and Related Sector Education and Training Authority (MerSETA) funding for skills in 2018/19;
• 600 learners from Atlantis provided with skills opportunities for 2017/18-2018/19.

In addition, the Western Cape government and City of Cape Town funding of green economy eco-system development supports the growth of the green tech market. Conditions of designation include the SEZ entity of Schedule 3D; ASEZ must comply with the requirements, including those provided by the Minister of the Department of Trade and Industry (DTI); and ASEZ must have an Atlantis community representative and labour representative on its Board.

In the current financial year, ASEZ deliverables for 2019/20 include SEDIC legislation passed in April; company establishment documents completed in September; company registered in October; appointment of Board members in October; service provider appointed to implement certain aspects of the project in October; an application to National Treasury for listing as Schedule 3D, due in November; and finalisation of the ASEZ strategy for the DTI review in February 2020. Detailed deliverables include investment recruitment, enterprise development, skills development, property and CSN. CSN targets due by 31 March 2020 were ASEZ entity representatives being recruited for community and labour positions; CSN provided with governance training and administrative support to strengthen network; and a minimum of three broader community engagements hosted.

SEDIC’s background was that it played an important role in terms of regional international competitiveness and ensuring an investor-friendly region. Its aims were to meet the institutional requirements of the Special Economic Zone Act 16 of 2014, improve asset management of economic development infrastructure projects, support business by creating a conducive environment, and to achieve growth and job creation. Regarding the process of establishment, for 2019/20 legislation had been promulgated and the entity establishment process had been initiated. SEDIC’s role included project development, asset management, and governance and compliance management. It was expected to be as small as possible, starting off with three projects which include the ASEZ, the Cape Health Technology Park (CHTP), and the post-2021 pipeline project. SEDIC was meant to do projects and hold infrastructure, thereby de-risking the government.

In the current financial year, SEDIC deliverables for 2019/20 with a due date of 31 March 2020 include establishment of the ASEZ and SEDIC entities, implementation of CTHP deliverables, and the project pipeline developed with DEDAT and partnering departments.

Discussion

Mr A van der Westhuizen (DA) commented that obviously there were a number of SEZs in South Africa, and that it had been a privilege to visit the Coega Development. It was clear that designating an area as an SEZ was not in itself a recipe for success. A nice head office for the staff had been seen in Coega, and they were involved in other projects, but it seemed as though their primary focus did not quite render the benefits they had expected, causing them to branch out and put themselves to work, or good use, on other projects. Taking this into account, how did the Department envisage ASEZ to be different? Why would ASEZ be a bigger success than other SEZ projects? The Committee had recently had visitors from Saldana Bay. If an industrialist had to ask why ASEZ was to be considered, what would the Department’s marketing script be? It must be acknowledged that Atlantis had initially been developed and envisaged in the days of separate development or apartheid, and had struggled for many years. Taking this into account, what had changed? One of the big industries – unfortunately, not in terms of job creation -- was the Eskom emergency or peak power Duratech capacity. Were there any plans to convert this to gas and put in infrastructure that would allow that facility to be somewhat more cost-efficient?

The Chairperson referred to mention having been made of the Minister becoming a shareholder in the company. What type of shares were these, and how was it structured? Where were the shares going? Query was made into the potential for gas extraction in the Western Cape area. DEDAT’s annual report (page 80) spoke of Project Khulisa’s oil and gas growth being dependent on the development of new port infrastructure by the Transnet National Ports Authority. The Committee and Department had recently found out that Total had identified the possibility of one billion barrels that it could extract in the Mossel Bay area, but that they needed further 3D data to be gathered before drilling more exploration wells. This was possibly a future game changer. Could more information on the process be given? What was the potential and possibility of economic growth in those areas? The presentation had spoken about the particular skills that were provided to the learners in Atlantis, with particular reference to the West Coast FET College. Could the Committee receive a summary on what types of skills these learners were receiving? Were the skills accredited and how did it work? Were there different phases of skills training?

Mr Van der Westhuizen linked on to the Chairperson’s first question regarding the company and its nature. He explained that, in terms of anti-corruption measures, he had had to resign in the past as a director of certain companies or as a member of a board that hoped to find public funding. This was because it was said that one could not be a public representative and sit on an entity that might end up funding the company – even though both were non-profit initiatives, not for financial gain. Was there a potential conflict now that the company might wish to have funding from the Western Cape government?

Department’s Response

Ms Mpahlaza-Schiff referred to Coega, and said there were three things that were significantly different at the ASEZ that Coega did not have. Coega had taken a “build it and they would come” approach, so they had a huge amount of property, had built all of the infrastructure and had then gone investment finding. The Department had a current investment pipeline of 45 investors and, when looking at the master plan, had actually been over-subscribed. Of those 45, of course, there might be attrition, so the Department had looked only at the 14 that were ready to land within the next years, and caused their urgency right now. In this sense, ASEZ was a little bit different. The Department had actually engaged with Coega and had a wonderful relationship, because ASEZ had to learn from other SEZs – their mistakes had to be taken into account. 

The second area where ASEZ differed from Coega was the focus on green technology. Coega was everything to everybody, and this could be an exceptionally difficult space for anyone to work in, as was probably well known in government. By focusing ASEZ on green technology, it was involved in something that was a growing and forward-thinking industry. A lot of people spoke about the energy crisis, but some crises also offered opportunities. In this sense, ASEZ was a different to Coega.

The third was that Coega had been set up as an Industrial Development Zone (IDZ), and Atlantis was a SEZ. The difference between these two policies and approaches was actually quite significant, and in many ways, the SEZ programme had learned from the challenges identified in the IDZ programme. There was thus more of an enabling environment. Having said this, the Department was not perfect and there were always challenges that could arise. The Department did not anticipate taking as long as Coega did to fill the ASEZ, as explained above. However, these were difficult times for investment recruitment. It was also one of the reasons why the company had to get up and going, so that while the interest was still hot the Department could go and get it.

Mr Fernel Abrahams, Deputy Director: Catalytic Infrastructure, DEDAT, stressed that the key things to sell about ASEZ was the focus on green technology and the ability to link into a wider ecosystem of green technology manufacturing, service provision and research in the Western Cape. In this sense, it was an advantage. The location of Atlantis in relation to points of export, such as the Cape Town harbour and Cape Town airport, was at the heart of the West Coast corridor. If a long-term (30-year) vision was taken, then there was a slightly different story to be told around how Atlantis connects the developments around Saldana with what was happening in Cape Town. For example, if one adds the possibility of employing the first gas into the economy at Atlantis with both new and existing investors, then it starts becoming a competitive picture.

The Department would also make every effort to ensure that investors have access to the appropriate skills. The Department wanted to offer a package of support measures -- skills development and enterprise development -- that effectively link new investors into the company. This would create new opportunities for community members to graduate from being simply workers to actually being factory owners and businesses that operate in the SEZ. This was why it was an exciting project. The Department thought that they would be able to offer a test space, to a certain degree, that demonstrated green technology in practice. So when the Department built, they would try and meet building specifications and offer at least part of the energy requirements in the SEZ from renewable energy sources. The Department would look at waste and water management systems in the SEZ that not only moved companies to a lower carbon intensity, but also offered a population advantage.

Ms Jo-Ann Johnston, Deputy Director-General, DEDAT, said it was important to understand that infrastructure was a means to an end, and not and end-goal in and of itself. Atlantis had been identified primarily because of the focus on the green economy. Ms Helen Davies, Chief Director: Green Economy, DEDAT, was the director for the green economy. In the Western Cape there had been a couple of crises. One was around energy, which affected the entire country, and water. economic resilience and climate change were going to impact heavily on the South African economy and society going forward – in fact, world-wide. There was a need to make the South African economy resilient, but there were also economic opportunities attached to it.

Essentially, ASEZ was focused on realising these economic opportunities. Jobs and opportunities could actually grow and prosper as a result of the economy being more energy resilient, water resilient, sustainable in waste and having sustainable buildings. This was the focus of ASEZ and, as Ms Mpahlaza-Schiff had mentioned earlier, it had the particular focus of reliance, economic opportunities and jobs as a result of the focus on industry.

Given the fact that there was an industry focus, it essentially had a cluster system. When looking at a “Silicon Cape,” the entire ecosystem was based in Silicon Valley and this particular ecosystem essentially created a particular magic. There was just-in-time delivery and there were efficiencies that arose with the ecosystem – this was what ASEZ was trying to realise. There were some comparative advantages by making sure that the inputs were greener. When looking at the criteria as to how to define GreenTech, it was where processes were greener and as a result, products and services were greener. If inputs were greener, this involved more sustainable ways of generating energy. This was why the Department was very busy making sure that gas could be made available as a direct energy source to ASEZ. The Department was trying to promote the conversion of Ankerlig. At the moment, Ankerlig burned diesel to provide electricity. If this was converted to gas, there would be significant cost efficiencies. Thus, the Department was hoping that Eskom would agree to the conversion of Ankerlig from diesel to gas. This was one of things which the Department hoped the Committee would support them on. As Eskom owned Ankerlig as a power station, this was a decision that they needed to make. It was understood that Eskom had already done the investigation and business case analysis, which was positive for the conversion. If Eskom agreed to the gas conversion, it meant that the gas would land at Saldana Bay and would then be accessible to the ASEZ – essentially being a bulk infrastructure within the SEZ to provide gas as a direct energy source.

To understand why the Department was excited about the opportunity, when companies went through their production process, they obviously needed energy sources. These energy sources could either be received as electricity or as a direct source from gas or coal etc. If the companies get gas as a direct source, this allows for more processes and more industries to actually converge. For example, when looking at ceramics as an industry, the Department had all of the materials, but the problem was that it was difficult for companies to have gas as a direct energy source. This was why a lot of tiles were imported, rather than manufactured in South Africa. Part of that reason was because of the lack of availability of gas as a direct energy source.

There was the possible emergence of new industries in ASEZ that were green, insofar as their production was green. ASEZ also helped the Department to realise their vision of the Western Cape being the green capital of Africa, and significant progress had already been made. A couple of years ago, the Western Cape was the fastest growing green economy in the world, which the Department was hoping to maintain, sustain and strengthen going forward. ASEZ was thus a key tool in making the Department realise this vision.

With regard to corporate governance, the Department would have representation on the Board. The major issue would be that it was a public entity and not quite a non-governmental organisation (NGO), so it would not sit outside of government. It would therefore be a public entity, meaning that the Department owned the entity. While the Department was busy with the feasibility study, they had completed a detailed report on corporate governance. Before establishing it, the Department had wanted to make sure that they had good corporate governance principles applied to both SEDIC and ASEZ. Sometimes really importance lessons were learned from mistakes rather than best practices only. The framework, studies and reports that the Department had produced had basically incorporated all of the lessons into the way that it planned to govern the ASEZ. The Department was happy to share this report with the Committee.

Essentially, the Department did have a role as shareholder to be present on the Board, particularly if it was giving very large sums of money to the entity. As a public entity, there was no potential conflict of interest because shareholders, even in the private sector, generally had representation on corporate Boards.

The focus on gas was less around gas extraction and more around gas as a direct energy source and plugging it into the network. What was happening in Mossel Bay was potentially a game changer, but it was spoken of as a decade or so away. While one could anticipate this in the future, at this particular point in time it was not necessary to keep tabs on it. The Department was starting to think around possible plans for it, but at the moment it was quite a long way away. 

Ms Mpahlaza-Schiff responded on what kind of shares the Minister would have, and said they would be ordinary shares in DEDAT’s name. The shares were housed much like the Cape Town International Convention Centre (CTICC) shares were. Once SEDIC was up and running, the shares would transfer to them because of the asset management role that SEDIC had. Regarding board representation, there were independents on the Board, and to provide some comfort, she explained how the Board was held accountable was through its independents. Atlantis community members were on the Board – specifically a labour Atlantis community member. The DTI, the City of Cape Town and DEDAT also had representation on the Board. Thus, all spheres of government were involved. The advantage of the Minister being a shareholder, and SEDIC or DEDAT upholding those shares, was that ultimately it would have to come back to the Committee to be accounted for. This had been a long conversation that the Committee would remember, on how to keep both the shareholder and the Board accountable to Parliament and the people. This was why the process was the way it was, as it double-checked with SEDIC. This was because it was not just SEDIC -- it was SEDIC, DEDAT and the Minister – which was why it de-risked the Department and provided additional corporate governance.

Mr Abrahams continued that there were smallish programmes that were being implemented at various levels. The key going forward for the new financial year was to expand the scope of these programmes, now that there was a body of evidence to suggest that the Department had appropriately focused. In the foundation phase, it concerned Early Childhood Development (ECD). The Department’s involvement at the moment was to fund some programmes at the ECD stage. The idea was that this would funnel into the primary and secondary stage, where the Department supported a programme called Ikamva in Atlantis, where there was a focus on maths and science as a link to the green economy trying to be developed in the area. There was an annual renewable energy challenge that saw the participation of about 200 learners from high schools in Atlantis. The challenge seemed to be quite a successful endeavour that got quite a lot of people involved. There was also a MerSeta programme that was nationally funded, which looked at enabling young people to go into technical trades and be directly employed.

There was a challenge with regard to the suitability of what was happening at the FET College. The Department was in conversation with the College to ensure that the curricula offered were appropriate to what was required in the SEZ. The Department had done extensive research and analysis of what the investors in the pipeline required, as well as what the investors currently in Atlantis required. It was believed that the skills programmes were aligned to this. The key thing was to expand significantly on the numbers that the Department was able to involve in the programmes. 

Discussion

Mr Van der Westhuizen was interested in the alternate energy source. It was known that alternate energy had been identified as one of the risk factors for economic growth, particularly in the Western Cape. Was it correct to say that what was needed was a new gas pipeline running from Saldana to Atlantis, and hopefully for this to be extended into other industrial areas like Montagu Gardens? Secondly, the Department had said that Eskom had completed a study, but it was known that Eskom was undercapitalised at this point in time. In his book he would have loved such a pipeline to be a public good so that more entities would be able to benefit from such an initiative. Who in the Department’s book would be the right owner and driver of such a strategic development?

He said he had previously spent some time as the Head of a public technical college and had gone to the Atlantis site when he was on the Portfolio Committee on Higher Education and Training. It was delightful that the Department was engaging with them, but these entities also required a lot of support. The problem was that the funding model that they were operating on at this point in time, did not encourage them sufficiently to go into highly technical, hands-on practical training where class sizes were limited by definition. If it was not for entities such as the Culture, Arts, Tourism, Hospitality and Sport Sector Education and Training Authority (CathSeta) and others, there was no way that they would be able to offer the kind of skills training the Western Cape dearly needed. Could the Department tell the Committee more about their involvement and ability to support technical and vocational education and training (TVET) colleges, and particularly the Atlantis campus of the West Coast college?

Ms Nkondlo followed up on the question concerning skills, questioning the partnership and conversations with the college. How far were these conversations, and what was their scope? This point was being raised because the Committee had seen the Saldana IDZ going through a similar thing. The Department had spoken earlier about learning from failures and challenges from before, but once again it was back to square one after all of the planning and discussions. It was to be remembered that the Atlantis West Coast College was the same type of college, as there was a campus in both Atlantis and Saldana. Was the conversation separate? Was the conversation with a college that was supposed to be providing a skills set that was required for both IDZs in Saldana and Atlantis?

Over and above whether the college was able to provide the training, there was also the situation of the profiling of potential trainees from the communities, in that there was now a training programme, but no match could be made. Her preoccupation, together with her experience in the youth development space, was the lack of appreciation by government to actually go an extra mile. The Department and Committee had been planning and doing all of the research, but always started with doing research on socio-economic profiling of communities only when the project had started. This was why they always had to try to catch up in terms of community participation. This point was being raised because it was exactly the same thing that had happened before, and again the Department was saying that they were still having conversations with the college. The college was in a very strategic place insofar as those particular local economies were concerned.

Over and above what the Committee had raised about the challenge of capacity of these colleges, there was also a particular reality of those communities where maths and science were not “A” subjects in terms of performance. The Department would not be able to get the necessary supply of the learners. The second point would always be a twin to the first point, and concerned enterprise development. The interest was not only to have people being employed. The Department had spoken about a targeted gross domestic product (GDP) contribution of R1.2 billion per annum by year 15, while on the other hand, the target was 3 000 jobs. So much money was being spent, and the cost of a job was too high. As direct and indirect jobs were being spoken of, her interest was in the model of enterprise development that the Department was taking up. This was being raised, as once again, there was a programme of enterprise development that the Department was establishing.

In Atlantis, what type of preparation was being done with small, medium and micro enterprises (SMMEs) in the area to ensure that they were competence ready, so that they could benefit financially from the developments? What kind of issues were there? When doing public hearings where the CSN was represented, how had the Department navigated the issues? One of the biggest problems in South Africa involving representation as a concept of democracy, was that there were always those who were organised and those who were unorganised, but who had this right through the constitution. It was very easy for the Department to come to meetings and involve those in a business forum or some core in the community, and then some members of the community would say that they were not a member of any of the organisations, and were not consulted. What kind of mechanism was there, from a governance point of view, so that there was not a challenge regarding future participation that was not necessarily reaching out to everybody in the community? What could be put in place when communicating with the communities – especially in terms of information about the development of the project? 

The Chairperson wanted to find out whether there was anything that the Department needed from the Committee and Western Cape Provincial Parliament (WCPP) that could assist legislatively with the economic growth, the cutting of red tape and encouraging investment – particularly in the energy and GreenTech industry, where there was gas, renewables or electricity. What could the Committee do in order to encourage this? Was there a particular challenge legislatively, or in terms of regulations, that the Committee could sort out so that more business could be encouraged to come to the Western Cape? This was also so that the Western Cape could hold on to its position as the fastest growing green hub, whether in Africa or the world.

Ms Nkondlo asked, in light of what the Chairperson had said, how the space of creating SMME support initiatives for businesses in the green economy had been navigated. One of the things seen with SMME development, whether it was funding or access to markets, was that the type of interventions that were there were just meant for generalists. Were there specific packages that had been thought about by the Committee and the Department on how they could support those that wanted to start at a very low level in order to get into this space?

Department’s response

Ms Mpahlaza-Schiff was unsure as to how to proceed, as some of the questions would be answered directly in the next presentation, especially those concerning the alternate energy source. If the Committee did not mind, these would be held over until then.

The TVET colleges were a very complex issue, but they could not be ignored and the Department had to try to help to develop them as best as it could. Regarding the level of conversation, by the end of the year the Department would have had to have signed the contract and decided exactly where they were at, how the people would be sourced, how it would be developed, and how it would be rolled out. This had to be finalised before the end of the financial year. The Department had additional information that they would forward to the Committee at the end of the meeting, because it was quite a complex conversation and would provide the Committee with an overall report on the skills environment.

This was a key reason why the Department was not putting all of its eggs into the TVET college basket. The Department was trying to crowd in as many sources of skills development as they could possibly get. The universities had an inverse problem, where they did not necessarily provide applied education, and might be more theoretical. The approach that the Department had taken on skills was to look at the full value chain from ECD to placement. In placement, the Department had looked at what the investor needed and worked its way backwards to start creating curricula for higher education, TVET, schools and ECD, because this was a new environment still being tested out.

The Department was also looking at its own programmes of development, and how this would be done was through places which were more digitally enabled. Thus, it worked together with its own digital economics team in partnership. They had initiatives like the “I can”, so the Department was looking at whether the “I can” could be brought into Atlantis, because part of the challenges was that the SEZ was not a silver bullet that could solve all problems. The Department had to solve for SEZ and also help the community lift up into other sectors.

The three key sectors that the Department had identified for skills development purposes was tourism, construction and GreenTech – with GreenTech taking the focus. The other two purposes arose because in Atlantis there were beautiful dunes that had never been exploited properly, but were used for filming purposes, and there were no proper catering companies. Thus, there was a huge band of upliftment that could be done. Technically, this work did not sit in the SEZ, as the SEZ had to remain focused. Right now, the Department, City of Cape Town and Green Cape were working on how one would actually use it as a catalyst for even more development, if the SEZ did come about. Some of it required skills, and some it was an enterprise development process. How did the Department ensure that an investor could get a caterer, or cup made locally? Although it could be agreed that FETs were challenged, the Department was going to work with them because they could not be ignored.

One thing that the Department was doing, from an infrastructure point of view, was putting in an innovation hub that would draw on space, and then drawing in the rest of the green economy’s space to provide additional programming in skills development introduction and awareness. Green Cape had been doing this until now, but the Department would continue and formalise it. This was so that there would be an introduction to GreenTech all the way through until one could get more specific and experienced.

On the enterprise development space, part of the Department’s previous challenges had been that one did not want to start getting companies ready for an SEZ unless one was designated -- one did not want to start getting companies ready for investors unless it was known that investors were coming. The Department was here now, so what they were doing at the moment was working together with the green technology partners, as well as the broad band team and the enterprise development team in the Department. This was to develop a programme that could help it get from when it had got the idea to when they wanted it to become a large industrial plan. Part of this was to rely on the DTI’s programme of support for black industrialists and a range of programmes that needed to be crowded in. The Department was in the process of developing this so the Committee was ahead of them. What the Department had tested in the meantime was making sure that they could get on to a platform that made it easy and accessible for them to find out how to start a business. There were already supplier readiness programmes that the Department was putting into place for the City of Cape Town, covering how one became procurement ready, or how one became ready to be procured by an SEZ company and an investor.

A third project that had become helpful was the “Boost” project that was run by the enterprise development programme. Many of the Atlantis programmes had applied for this money and were in the process of evaluation, so the Department needed to see how this would work out.

Lastly, there were the SMMEs that the Department of Small Business Development had said that they would like to assist. The Department had to explore with them what this meant, because this conversation had not occurred yet. There was a slight advantage that Atlantis had over the Saldanha Bay Industrial Development Zone (SBIDZ), because Atlantis was a lot more accessible to the City of Cape Town, and to other skills not just in Atlantis. In this sense, Saldana was far from where a lot of people lived, while Atlantis was not so. This did not mean to say that Atlantis would not have any problems with supply and demand, but it did mean that they pulled resources from a broader pool. The actual challenge was ensuring how Atlantis people got the benefit – and was where the Department’s focus currently was.

When it came to the navigation of community issues, Ms Nkondlo had hit the nail on the head as this was very complex. How the Department had decided to go forward was that each member represented their own sector, and had to work with that sector with support provided by the Department through a project or community manager. It envisaged an approach where they would come up with what the Department needed in their sector -- what they needed as the CSN, what ASEZ could bring, and what else the Department needed to find in other ways. It wanted them to be a strong partner, not a dependant, because this was also part of the community challenges. It was thus a process that the Department was embarking on.

The Committee had asked about help, and the Department would definitely benefit from the help of the Committee in engaging with the Atlantis community and encouraging them to find their own way of standing together, representing themselves, and finding a cohesive response. The Department did not work only through the CSN on a communications level – this was critical. It also had open platforms that it would continue to have. It would be providing information through the local newspapers and radio stations, and people were always more than welcome to contact the Department, which would respond directly. In fact, it had recently had an amazing turnaround with one of the community members, Mr Stoffberg, who had been extremely upset about a lot of things. Mr Stoffberg had now become a strong proponent of the ASEZ which the Department was very excited about. This was a testament as to how much was being done in this community through Green Cape, the Department and the City of Cape Town. Mr Stoffberg had said that he would host opportunities for the Department to come and talk to the community. Thus, the Department was positive but cautiously so. It was one thing now, while the community was the way it was, but it could be a completely different story in a year or two when there would inward migration. This was how the Department was approaching it. If there was one thing that this team had committed to, was that investment was not just investment for investment’s sake, but that it was there to benefit South Africans – in this case, it happened to be Atlantis Capetonian citizens.

Ms Davies said that part of the Department’s funding for the green economy was being used to fund the Green Economy Ecosystem Support. This ecosystem support was essentially used for sector desks that covered energy with utility-scale energy and small-scale energy and energy services, as well as water and waste. These sector desks aimed to help businesses of every size. Most businesses that came for support were SMMEs. It was helping with anything, from access to finance to accessing markets, creating matchmaking with potential markets where possible, identifying skills needs, helping to build up skills gaps, providing matchmaking support to skills, providing networks and sharing best practices so that SMMEs did not have to reinvent the wheel but could learn from others. What could also be flagged was that the Department of Agriculture and Environmental Affairs (DAEA) also funded a green or sustainable agriculture sector desk that supported SMMEs or larger companies.

Lastly, a green outcomes fund would be launched in November. This had been set up by the University of Cape Town (UCT), the World Bank, Green Cape and the World Wildlife Fund of South Africa. It was particularly aimed at providing capital for small businesses in the green economy, and could be anything from R150 000 to R50 billion. It was really looking at the potentially smaller companies, and had pulled in a number of very exciting players in the finance sector as well. It was thus being treated as a test case, building off international models that had used a similar approach. The Department was looking at how to find the capital to really help SMMEs. There were certain areas, like the waste economy, where the Department played a key role with other departments to unlock access to municipal and business waste. At the moment there was a huge informal sector in this space, and a number of thriving businesses that were potentially not legal, yet there was a waste crisis and landfill sites were filling up. It thus concerned with how to unlock and change the waste regulations so that they actually had access to something that was a resource, and which could bring an income and create substantial jobs.

Ms Mpahlaza-Schiff added that one thing the Department had also done with the infrastructure on the ASEZ was to look at how the infrastructure being developed for investors could be used not only to support the new investors that were coming in, but the existing investors that had been in Atlantis all along. This included looking at their water and energy resource efficiency. Everything that the Department was doing now was not only just to make sure that what they were aiming for in the SEZ worked, but also that it could work for the area and the broader community.

Ms Johnston said that the questions posed around energy alternatives would best be answered by the next presentation. There were obviously difference between ASEZ and the SBIDZ. Atlantis had an advantage in that they had been an industrial area. The community was familiar and there was a history in the area, so they would probably have less of a skills challenge in terms of take-up because people knew what a boiler-maker or welder was. The SBIDZ did not have this advantage, so although there was a skills challenge, it would be less of a challenge than what had been experienced with the SBIDZ.

Progress on the Energy Security Game Changer

Dr Hildegarde Fast, Deputy Director-General, DEDAT, presented a briefing on the Energy Security Game Changer (ESGC), looking at what it was that the Department had wanted to achieve and how far they had come.

The aim of the ESGC was to diversify the energy mix through alternative low carbon supply and energy-efficiency measures, as well as to provide enough power for growth in the Western Cape that was sustainable and low carbon. This would be achieved by:

• enhancing the uptake of Solar Photovoltaic (PV);
• reduced energy consumption in both public and private buildings;
• the development of a grid management system that facilitates wheeling and manages peak demand;
• importation of Liquefied Natural Gas (LNG); and
• the roll out of Independent Power Producers (IPPs).

 

To encourage solar PV, the Department had been engaging with all local municipalities to assist them in enabling residents and businesses to install rooftop solar PV. To allow this, a municipality needed to put a policy, by-law and approved tariff in place. There were also one-on-one engagements with chief executive officers (CEOs) of businesses interested in rooftop PV. Over 60 businesses had been visited and over 60% of them had subsequently decided to install rooftop PV. There were also communications campaigns aimed at businesses, demonstrating that there was an excellent business case for installing rooftop PV. The impact had been that when the Department had started out in 2015/16, there had been 18MW of confirmed capacity installed for rooftop PV. The aim had been to reach 135MW by 2019/20, and as of 2018/19, the latest figure was 112MW compared to the target of 105MW. In 2015, there had been two municipalities that allowed small-scale embedded generation (SSEG) and there were now 23 allowing SSEG, and 19 with the National Energy Regulator of South Africa (NERSA)-approved feed-in tariffs.

To encourage energy efficiency, the Department had convened an energy-efficiency task team comprising key departments and shared programmes and best practices. It had developed an energy efficiency programme in the Western Cape, with the leadership of the Department of Transport and Public Works (DTPW), and had completed several communications campaigns aimed at encouraging businesses and households to save electricity. The Western Cape government was improving energy efficiency in government buildings and had installed 631 electricity meters since 2016; cut electricity consumption by 13% from 2015, with a current composition 38% below the industry benchmark (145 kWh/m²/year); and completed 13 PV installations with R42.6 million invested and an expected saving of 10% per year.

To promote the development of smart grids in municipalities through Green Cape, significant work had been done with a national task team to develop a “smart meter” standard. This would form the basis for mass production of one kind of meter, thereby bringing down the price. In addition, the ESGC had engaged with four municipalities to develop a “wheeling framework” that would allow businesses to provide electricity to each other. The achievement in this respect was the Smart Meter Standard which had been published in 2016, and there was a wheeling framework under development in the municipalities of Witzemberg, the City of Cape Town, Stellenbosch and Drakenstein, with a wheeling tariff in place.

To promote the importation of liquefied natural gas (LNG) into the Western Cape, LNG would drive industrialisation in the Western Cape by providing gas for industrial processes and power, as it was much cleaner than its alternatives. The Department had just completed a comprehensive feasibility study for the importation of natural gas. In addition, it had a Memorandum of Incorporation with Transnet to progress work into the development of appropriate infrastructure to facilitate a natural gas economy in the Western Cape. The achievement for LNG was the completion of seven detailed studies to date, whilst the achievement for IPPs was the City of Cape Town proceeding with its court action against the Department of Energy (DOE).

Initiatives under way were discussed next, starting with the objective to encourage municipal customers to install solar PV systems up to 1MW. This would be achieved through three channels:

• by ensuring an enabling environment was in place in municipalities for grid-tied solar PV;
• introducing a financing mode to support investment in solar PV using the Property Assessed Clean Energy (PACE) model; and
• engaging with businesses to demonstrate that there was a clear business case for solar PV while remaining connected to the grid.

 

Dr Fast said energy wheeling was where Company A sells power from a generation system it owns – such as a rooftop solar PV system – via the electricity grid to Company B, and pays a fee to the municipality or Eskom for use of the network. The potential for wheeling included opportunities for large private investment in solar PV, and could be beneficial in energy-constrained municipalities. Regarding the work under way, Green Cape had developed a wheeling framework which could be adjusted to suit each municipality. The City of Cape Town was busy testing wheeling within their system, and wheeling should be possible in some municipalities within the next two years.

Regarding the objective to objective to obtain permission for local municipalities to procure energy from IPPs, the City of Cape Town had a court case against the DOE and NERSA, that it be allowed to procure electricity directly from IPPs. The Western Cape government was also engaging with national government to authorise municipalities to procure energy from IPPs systems below 1-10MW embedded in the municipal framework.

Lastly, the City of Cape Town was looking at putting up its own power plants. As part of the commitment to diversifying energy sources, the City of Cape Town was investigating 10MW solar PV plants. 40MW solar PV plants, the potential role that natural gas could play in the economy, and the expansion of rooftop PV systems on city buildings with the initial plan of producing three sites over the next year.

 

Discussion

Mr Van der Westhuizen was interested in the conversion to natural gas. Had the Department and Committee missed an opportunity with the installation of fibre optic cable ducting in terms of the gas reticulation network? Referring to the court case, he said the impression was that the court case was about the process to achieve authorisation to buy electricity from private producers by local governments. What would the position be if private companies or users struck deals amongst one another? What were the legal impediments for someone and their next-door neighbour to start sharing? For example, where one realised that they had a roof and capital but did not consume electricity in the day time as a result of being at work, and could therefore sell it to the nearest shopping centre, what were the limitations here? One of the limitations of the current renewable energy systems (wind and solar) was the question of storage. Electricity was a wonderfully interesting topic because it not only dealt with electricity, but also the timing of the electricity being available and the storage thereof. There was already a pump storage scheme in the Western Cape, and a lot of solar energy was stored in solar geysers. Initially, when the Voelvlei dam was envisaged or constructed, there was also an opportunity for a pump storage scheme in the mountains next to the dam. Would this perhaps be a potential area of study to see what other pump storage schemes the Department could develop in the Western Cape in support of the green energy initiative?

Ms Nkondlo referred to what had been done to encourage the use of solar PV. The Committee would remember that when they were in Mossel Bay, what had been received as feedback and homework was how the Department would assist the municipality around enabling legislation and regulations within the green space. This report was being used to see what some of the current issues in this space were. What was the extent of this conversation, as the Department had said that they had met up with municipalities? Although it might be wrong, she thought that there were one or two levels. It was not certain whether the Department was working with their municipalities in an integrated way. The Committee had asked this question to the manager working on this aspect. Indeed, mention had been made that this was their challenge, and the Department had been asked to help as they were part of the National Council of Provinces’ (NCOPs’) oversight. It was not certain how, in terms of coordination and integration, the Department was speaking with municipalities in a way that parallel conversations were not being conducted on the same issues and interests. What the Department had raised was critical to municipalities. The assumption would always be made it was at the provincial level that coordinating was supposed to take place, but this was work done between the Department and local government – perhaps at a ministerial and administrative level. The Committee had spoken about it with the Chairperson when on site, as something that needed to be raised and that had to be brought to the Standing Committee on Local Government. This was a real issue. Promoting energy space could not be spoken of if the legislative environment was not enabling. The Committee had the tools and their job was to ensure that the economy grew. Were the Committee and the Department conversing in the same way? What were the vertical and horizontal methods which were spoken of within the municipalities?

Regarding the rooftop space for solar PVs, going back to Atlantis, the government had trialled the promotion of solar PV for Reconstruction and Development Programme (RDP) houses. In Atlantis, in this sense, there were all of these installations on top of the houses -- but almost all of them were no longer working. The communities thought of the solar PVs as a burden, because they were on their roofs, but they had no hot water in any way. It was not certain whether the Department had had any conversation amongst themselves on what could be done with those solar PVs which were already installed on many households but were currently not working – especially RDP houses.

During the last administration, the Committee had gone to a school to look at the type of design of schools being built now. One advantage was the rooftop spaces on schools. At the time, the DTPW was saying that at this point there was no legislation or enabling by-law that would allow a school, if it had such a space, to produce its own energy and link/wheel it back to the municipality or sell it where it had a surplus. What were the possibilities in these areas?

The last question referred to the natural gas economy. It was not certain whether the Department was speaking about the project in the Karoo, where they were drilling for shale gas. Was this part of the natural gas economy? If it was, what were the environmental impact assessment (EIA) implications? The Department had done some studies, looking at the opportunities within the province -- what were the EIA hurdles to realising this type of economic opportunity/benefit?

Mr D Mitchell (DA) referred to the municipalities with which the Department had engaged, and that needed to put in a policy or by-law. The independence of the different spheres of government was respected. However a Karoo town like Beaufort West was already making provision for this by selling the energy, but the businesses had to buy it back at a more expensive rate than what it cost for installation. It thus cost a business more to sell it to the municipality and then buy it back. Was there some sort of engagement with the various municipalities on this issue, otherwise this would not work? The rollout would not happen, as it was not beneficial. Was there any sort of engagement? The Department had highlighted the municipal chief financial officers (CFOs), but very often it was not the CFOs who drafted the policies, yet the council would adopt them. What political engagements were happening?

 

Department’s response

Mr Ajay Trikam, Director: Energy, DEDAT, answered the questions on energy which had been asked during the previous presentation.

Regarding Eskom and Ankerlig, the question posed concerned the conversion of Ankerlig. The Department had looked at this in their study, and Eskom had started the conversion of Ankerlig by retrofitting the nozzles within their systems. Eskom had even got to the point of securing a supplier many years ago, but did not have the infrastructure to do the site. The feasibility studies that the Department had been doing concerned exactly this. How would the Department get the infrastructure and transmission pipeline, etc, in place?

Since 2013, the Department had done significant studies on the feasibility, looking at both the industrial demand -- which was where the economic benefit would be seen -- and also how to supply the gas to power Ankerlig. For the latest feasibility study, forum funding of around $800 000 had been received from the United States Trade and Development Agency (USTDA). The Department had just completed the study and were hoping to release it within the next few weeks. It advanced from where the Department had been before by looking at what the costs of conversion might be, and a few of the preliminary socio-economic benefits.

The socio-economic benefits were around $9.4 billion in terms of the Gauteng Enterprise Propeller (GEP) up until 2050. The Department was looking at 13 000 full-time equivalent jobs. The fuel-cost savings were particularly concerning, compared to diesel. For Ankerlig, it was around $565 million per year. This was fairly conservative, and was based on how heavily the actual plant was being run. One of the sensitivities was the capacity at which Ankerlig was being utilised; the second was what the GEP gross outlook looked like, in terms of which the Department looked at GEP growth. The third element of sensitivities concerned the substitution rate to gas – how quickly could industries move to gas? Coupled with this was what the energy intensity use thereof was. The last sensitivity concerned the number of vessels that were docking in Saldana which required bunkering. This was related to the climate change initiatives around moving marine shipping to cleaner fuels and towards natural gas. Dr Fast had mentioned that the Department was working with Transnet, doing both at a group level. Both looked at how they would facilitate the portside/marine infrastructure that was required. This also ensured an existing pipeline business and a mandate for reporting in other parts of South Africa. Developments within Richard’s Bay had also been looked at, charting some of the regulatory paths that were required. Regarding the way forward, the Department was working hard with them to advance the current feasibility studies to provide potentially better cost estimates for the entire infrastructure.

On the question concerning the capitalisation of Eskom and other state-owned entities, the understanding was that there would be opportunities for private investment in public-private partnerships. The shape and form of this was not known yet. The current study had looked at some of the legal and regulatory funds for this, but the Department wanted a better understanding of this going forward. Some of the existing policy on certain aspects involved what the gas IPPs looked like, and the Department had accounted for this in the current study. The Department needed to understand how this could be bettered, and it had been delayed going forward. A lot of the delay was dependent on the integrated resource plan (IRP) which everyone was eagerly awaiting. In the absence of this, the Department had done the study to retain investor and private sector confidence in Western Cape opportunities.

The Department was very pleased to say that bubbling under this was significant potential. It had seen many small-scale developers wanting to offer gas both from a reliability perspective and for gas as a tool to industry in perspective. This provided an indication that there was market potential in this area, and the Department was seeking to develop it. The other significant benefit was the intermittency of the renewable supply of energy, which meant that flexible generation was needed. This could be supplied in two forms, but gas power was one of the cost-effective flexible generation modes. The second study concerned the City of Cape Town’s study on gas, which was also USTDA-funded. It also looked at old power as well as gas reticulation and distribution, and what role the City of Cape Town should play in relation thereto. The Department had tackled this from multiple aspects, looking at who the developer would be and what the offtake would be.

Dr Fast referred to the court case and the Committee’s question as to whether private companies could strike deals. Up until 2 May 2019, it was not possible for independent wind or solar farm producers to build and sell privately – they had to go through a lot of extra permissions. It was not possible to build installations up to 10MW without requiring the Minister’s permission. However, they still had to go through the EIA and participation processes. A big step forward was that it did not necessarily take that long. The obstacles in the way of private companies buying pieces of land, deciding to put power plants on it up to 10MW, and selling it to someone were not significant as opposed to municipalities – this was a big opportunity. However, it had to be remembered that if there was such a power plant, the power plant needed to sell to whatever customers they had, which meant that they needed to wheel through the network. Wheeling was more complicated than it looked, because often the wheeling went through an Eskom area, then a municipal area, then another Eskom area and then municipal area -- this was just how it worked in South Africa. Thus, it could be that the wheeling presented great difficulties.

Obviously, if one had a solar or wind farm that was very close to the business it was selling to, then there were a lot fewer problems that would happen. In some cases, there could even be a company putting up big solar installations and supplying to itself, which was the ideal because there were very few hurdles. If one actually wanted to put it on a separate piece of land, this was possible up to 10MW, and there were not too many obstacles. However, trying to get the electricity from point A to B would be a challenge.

Regarding the question as to whether someone could sell to their neighbour if they were not at home during the day, it was advised to invest in battery energy storage. If one was not using the electricity in the day, it could thus be put into a battery, to use the electricity at night. This was probably less complicated, but the pricing difference could not be addressed as the Department would need to compare apples with apples to see what it was. The Department was increasingly becoming very excited about energy storage, because it was thought that it would solve a lot of issues.

The Committee was correct about pump storage – there was an extremely successful scheme in Steenbras. There had been a couple of proposals in the last four years to explore installing entirely new dams with pump storage, or converting some to pump storage. However, it required the right geographical location as there needed to be a lower dam and upper dam, which not all places were oriented to. The amount of investment required to build a dam and then to pump up was significantly high and had a lot of environmental implications. The Department did not see any viable projects at the moment. There were some business people who thought that there might be some viable projects in the Western Cape, but an enormous amount of money would have to be spent. One had to bear in mind that electricity was lost with pump storage, as there was about a 10% efficiency loss. There were thus pros and cons, but the Department did not see much action on this at the moment. There were some quite interesting projects where there was an existing dam that had irrigation pipes with turbines inside.

The Department had a very intensive process of working with municipalities to put the legislative framework -- the draft by-law, policy and tariff -- into place within municipalities so that this could be allowed. Since this had been done, the Department checked up on municipalities occasionally but felt very comfortable that everything that needed to be done around the legal framework was in place. For example, Mossel Bay was one of the first to put it in place. The only issue with Mossel Bay was that although there was a policy, by-law and feeding tariff, and legislatively everything was in place, their feeding tariff was set very low – at around 45 cents. This related to Mr Mitchell’s comment around the price difference. For example, the City of Cape Town was paying R1.80/kWh for up to 600MW in households. If one went over 600MW, R2.20/kWh was to be paid. The feeding tariff was 76 cents. Thus, the feeding tariff was about a third less than what was actually being paid for electricity. One would almost always be paying more for the electricity being bought than what was paid for the electricity being fed in.

There was only one municipality in the Western Cape, Drakenstein, where what was paid for electricity was what would be received back. This was very unusual, and it was uncertain how long this would be kept in place, because if a lot of people put up installations, they would eventually start to lose a significant amount of money. If one was paying R2.20 because more than 600MW was being used, and a solar PV system was put in, R2.20 would not be paid because one would be using one’s own electricity – this was where one would make money. It was really only worthwhile if one had a house, to have a PV system installed if one was working from home, or at home a lot, or had batteries. However, adding batteries to a PV system doubled the price at the moment. It was thus not even worthwhile for households to put up PV installations, because they had a payback period of eight to10 years, and when adding on batteries it went well up to 15 years. It was coming down rapidly, but this was just how the pricing worked. The Department had encouraged municipalities to increase their feeding tariffs to make it more attractive and take it to R1, as this would encourage greater investment. At the end of the day the Department found that the person holding up the process in the municipalities would be the CFO. Right now, one municipality refused to do what needed to be done, and this was due to the CFO, as it was around financial challenges.

Regarding Atlantis and solar geysers, the Department had been addressing the district forums of municipalities where local representatives were present, to constantly engage around these issues. It had also presented to the Department of Local Government and other relevant stakeholders. It was constantly engaging, and it was a never-ending process. The Department had some problems that had needed to be solved, and felt that they had solved most of them. It was now moving on to the next stage, which was to try and get them to increase their feeding tariffs. The legislative framework was in place, but the Department was happy to take follow-ups later.

The solar geyser rollouts at Atlantis, especially in the poorer areas, had been really poor. This was partly because the government had given a grant, and the geyser was just installed one time, with no sustainability. There should have been people trained on the ground. It was not worthwhile to pay someone to fix the geysers, because in terms of what one got and what one paid, it did not make sense financially. This was a huge problem. During the further rollout of geysers, the National Department of Energy (DoE) had at various points gone to municipalities and said that 10 000 should be installed, but a lot of municipalities were saying no. This was because at the end of the day, when the geysers broke, the residents would not go to the DoE to fix the geysers but rather the municipality. The municipality had nothing to do with the rollout, and was very uncomfortable with the actual rollout process. This was a problem and there was no easy solution, as to fix some of those geysers would be so expensive that it would not be worth the actual value of the hot water got from them.

The issue of school rooftop space was one her pet peeves. Putting solar systems on rooftops was a fantastic idea because a school could supply its own energy, as well as supply to others. It was to be remembered that one could not feed in more than what was used by the municipality – this was a national regulation. It was against the law for the municipality to accept more than it was giving. Thus, schools were not allowed to produce too much and give the excess to someone else. However, there was great potential for them to reduce their electricity bills. It was possible to do so legally, although one had to jump through a number of hoops. The school governing body (SGB) had to enter into the contract, as the Department of Education was not willing to do so. The SGB had to take on the financial risk. However, companies were unwilling to enter into long-term contracts, because the SGBs changed every three years. So where was the security of contract?

There were different solutions. What the Department had seen over the last few months was that many companies were going to schools, asking to put up solar PV. The Department was of the view that the Department of Education had to have a team that advised those schools. The companies knew what they were talking about, and could rip the schools off. The Department had seen one school where the company gave all the figures on how much electricity the school was using, and the school looked at the figures without it making much sense to them. The school did not have anyone with the knowledge to look at the figures and say that what the company was telling them was rubbish. The Department thus felt very strongly that the SGBs were not capacitated to be able to enter into those transactions unless they got expertise. The Department was engaging with the Department of Education on this issue.

Regarding shale gas and EIAs, this was quite separate to what the Department was doing because its project was to bring gas from another country into the port of Saldana Bay. The other issue was called indigenous gas, which was South African gas either from the waters off Mossel Bay, or deep down. This matter was resting with the Department of Environmental Affairs and Development Planning. It was a long process, and the Department was not even certain that it was going to go ahead because of the lack of water and other environmental issues. It was going to be at least 10 years before any gas would be seen coming out of the Karoo, assuming that it would go ahead, although it was not clear that this would happen. It was hence a bit of a different dream.

Mr Trikam referred to the question around fibre optics, and said this was why the City of Cape Town had gone into the study around distribution, as they were trying to understand how and who should play the role of the distribution business within the city limits. There was a different set of regulations around reticulation systems within municipal networks. There were pressure restrictions at the lower level. It could not be said that the Department had missed an opportunity, but rather that the manner and rollout of the opportunity had not been very clear. There were limited networks that existed, and the business case for the rollout of those networks needed to be understood – which was precisely what the City of Cape Town was doing now.

To supplement what Dr Fast had said on the wheeling element, the challenge was that the NERSA regulator was still defining the process on generating licensing for the up to 10MW opportunity. There would be some delay over this. The Department was excited about the fact that the up to 10MW deviation had been offered, but the process was still required. The generation licences process could be similar to coal power-station licensing, which was onerous at this stage.

Regarding Voelvlei, there were some geological constraints concerning fault lines, but it was an opportunity. What had happened as a major trend in the energy storage space, had been the tumbling of battery technology and battery costs. It was coming down rapidly, and the Department was finding that it was an exciting development. After pump storage, traditionally it was compressed air energy storage which was found to be the most cost-effective. However, the Department was finding that battery storage was even competing with compressed air storage at the moment.

On the point about the solar water-heating geyser systems, the focus right now was on more flexible generators. There was a move away from solar water-heating systems into more flexible generators that could be managed. This spoke to the development of management and how the Department could have ripple control systems that would allow them to manage better at peak demand stations. There were thus electrical geyser systems.

Regarding RDP housing, he was aware that the Department of Human Settlements was looking at alternatives and how they could increase the resilience of structures. From the RDP grant funding, how could the building envelope be improved so that the heating requirements would be reduced? These were the things that the Department could do, as they did not have grant funding to do additional elements like the water-heating systems.

On the point about national regulations, one could not be a net generator, only a net consumer. All the municipal regulations that allowed for small-scale generators at the moment specified that. The technical constraint, which was something that the Committee had not addressed, was that electricity generation was seen in each of the suburbs as a sub-station. The sub-station was designed in such a way that it took a large amount of power and stepped it down through a transformer, usually oil-filled, into a lower level that could be distributed. If high amounts of power were to be wheeled through the grid, those transformers were likely to blow. There were standards set up according to these constraints, and municipalities looked very carefully at this because they had to manage their grid appropriately. Part of this was about how they upgraded their areas. Typically, in the example on selling to your neighbour, it might be easier, but if there was a sub-station between you and your neighbour, upgrading to this level cost the municipality a lot. There was thus a challenge around this.

On the element about the environmental conditions regarding shale gas, there was an operation working group around pipeline development led by the DoE. What they had done, through the national Department of Environmental Affairs, was to start a strategic environmental assessment which was just about concluded. It looked at, from the entire breadth of South Africa, what the potential area was required for the transition to national gas pipelines. The Department’s inputs were to include the shale gas region as well, on which an extensive exercise had been done. There were high sensitivities in all of these areas, because they were along the coastline, so they were either environmentally protected or inhabited.

 

Discussion

Ms Nkondlo said that although draft policies and by-laws had been developed, had they been concluded? At what stage were they, if they had been sent to be drafted? In talking about engagement with municipalities from an outcome point of view, had those meetings translated into the same language being spoken? It was an area that the Committee and the Department still needed to navigate. One would expect that what they were discussing was what had filtered through when meeting with municipalities, and that they had the same understanding. Could it safely be said that at this point, given what had been included in the presentations, there was not sufficient but at least an enabling environment that had been created through the assistance given to municipalities in this regard. This would take away from the homework that the Committee had acquired from the NCOP visit.

She said that from a broad skills development point of view, with wind farms, for example, there had been little skills transfer to locals. This also contributed to the housing side of things. Sometimes the challenge was that when these companies, a majority of which were international, came into South Africa and installed this equipment, when they left there were no locals that knew how to fix it. This was seen in the geysers installed in households in Atlantis, where the locals did not know how to fix them, to the point where everything was messed up. The investment was just too high. How were the Committee and Department considering this reality as they thought about the type of developments they were proposing? This would go back to the discussion on the role of TVET colleges and any other skills providers to enable young people to gain the skills so that when wind turbines were spoken of, they would know how they could be repaired and maintained. This would trigger enterprise development among the locals, who would then be able to take advantage of some of the economic opportunities.

Mr Van der Westhuizen asked if the Department could tell the Committee more about Smart Meters. It was presumed that they were able to measure the time of use, and set off credits or reverse flows etc. Surely the requirements in South Africa for electricity meters and that of other countries abroad could not be that different. South Africa had been paying a lot more for energy up until now, and had advanced quite considerably in encouraging people to generate their own electricity and so on. To what extent would South Africa be able to develop not only a unique South African standard, but perhaps latch on to international smart metering practices and the technology of metering itself? A number of his friends had now switched from lead acid or lead crystal deep-cycle traditional batteries. to nickel batteries, which were what was carried around in one’s cell phones. The price difference that was quoted was still quite considerable, to the extent that the newer technology batteries were five times that of a lead crystal battery. From experience, as a few had just been replaced, these lasted about seven years. Why was the Department satisfied by the new battery storage capacity if it seemed as though the cost benefit was not that real?

The Chairperson said one of the things that the Department had pointed out was that it was very expensive for households to use solar PV. What would the ideal be so that for households, the pricing could go down? For example, someone had mentioned the possibility of someone buying a solar panel through the municipality, with the municipality installing it and so on and, almost like a loan, the consumer paying the amount off through one’s rates account. There would be no interest and just the amount would be paid -- or the interest rate should be less than that charged by a commercial bank. If the interest was lower than at a commercial bank and the municipality had identified someone as having the ability to pay them back over time, this could then bring an income for those households who chose to do it, even though it was expensive at the moment.

A summary on impact farming had been requested from the Agricultural Committee. They had provided a beautiful summary on what the Fedgroup impact farming app was doing for solar panels, blueberries and beehives. For example, as an experiment, she had recently bought herself three blueberries bushes to see how this worked. The three blueberry bushes came to R900. It was R5 000 for a solar panel on the app, whereby capital was given to a farmer who farmed the solar panels and brought dividends over years. How could the Committee and Department use impact farming to allow companies, small farmers, small businesses or someone in a residential area wanting to assist others create an ecosystem? She did not even know who was farming her blueberries, but it was being farmed. How could this be encouraged, and how could it assist in economic growth within the sector?

The Department had spoken about government buildings and the energy that could be generated through the use of government buildings. Was there a way to quantify how much could be saved if all government buildings were able to provide their own energy? For example, currently there was this issue involving land where, between different spheres of government, they were paying each other for land. Ideally, this same concept was not wanted when it came to electricity and government buildings. Was there a way through legislation or policy that, if one was able to supply electricity from one government building to another, they did not have to pay each other? Could the extra energy literally just be given to each other when the departments had it?

 

Department’s response

Dr Fast said that the words “sample by-law,” instead of “draft by-law,” should be used. The Department would provide a sample, this would be taken, and the name of the municipality would be changed on top. This by-law had been finalised and provided in draft form, but it was a sample that could be used and adapted so it was actually finished. Thus, the Department felt that they had created the enabling environment that was required, and this was one of the biggest successes of the Energy Game Changer.

On the issue of schools, the process for putting a PV system on a school roof was that the SGB needed to say what they wanted to have done and apply to the Department of Education, who would refer it to the DTPW. There was already a process for including public works in the entire process. One of the reasons why it was costing so much to install PV at households was the economies of scale. Right now, if a system was installed at one’s house, it cost R130 000, one was not allowed to get an electrician to install it, and the person who installed it was not allowed to certify that it was okay. The rules of the City of Cape Town state that an engineer is required, which would cost R10 000 to R15 000. This added 10% to the price. The Smart Meter cost R10 000, and if this came down to R2 000 it would save 5-8%. The panels had come down in price, but putting them up, mounting them and getting it signed off by an engineer, was what was costing a lot of money.

The Committee had described perfectly what PACE had done. Where the municipality did not provide the loan, the municipality received funding from an international green fund which provided interest rates that were better than here in South Africa. These funds carried the risk of it not being paid back, but then it came off the property rates bill. The City of Cape Town did not take any risk, only a fee for administering the system. It was thus actually a deal being made between the consumer and the green fund, with the municipality brokering the deal. This let the municipalities off of the hook because if someone was not able to pay, the municipality did not have to pay out the money. The Fedgroup app was interesting, and she was going to buy some panels too. This was crowd-funding, which was fantastic and strongly encouraged. The app told you the expected income that you could get over a period of 20 years, and there was really good rate of return, which was 7-8%. However, the app did not tell you all of the risks. When looking on the website for all of the risks involved with solar panels, the risk was that they put the solar panel on a building and the tenant in the building was paying for the electricity, but if there was no tenant then no one would be paying for the electricity. There could thus be many months where there would be no income from the solar panels. There was no guarantee of 7-8%, only a likelihood of 7-8%. The risk was therefore on the high side.

Regarding whether the Department could quantify government savings on PV, unless wheeling became possible, electricity could not be shared with each other. The City of Cape Town or Eskom sold it directly to the departments, so it would be very difficult to manage.

Mr Trikam added that there had been a couple of initiatives taking place on skills transfer. An institute had been set up at the Cape Peninsula University of Technology (CPUT) called the South African Renewable Energy Technology Centre (SARETEC). It currently offered wind turbine technician training and solar PV installer training. This was significant, as it spoke to what the Committee was saying. These were imported skills, and CPUT had been instrumental in delivering the high level of skills required for this. The PV installer training was more significant, because it touched on the development of small businesses around it. The PV installers who were doing the installations were typically small businesses, and there was a life skill development thereof. Traditionally, across the world, there had been utility companies implementing this. In South Africa, it was quite different as there were small interested parties, usually electricians, who understood solar PV and were going ahead in collaboration with other PV manufacturers. The problem had been formal qualification and formal accreditation. The South African Photovoltaic Industry Association (SAPVIA) had set up a PV green card in an attempt to see if some sort of accreditation system could be looked at so that when an installer came, they had the right accreditation. It also spoke to where the Department wanted to go in building the ecosystem, so that the same information that one would want to share in terms of the ecosystem development support would be shared easily. Some of the installers that had this PV green card certification were likely to provide a very good system and would quote accordingly, because they met the green card certification.

What the Department had been doing was looking at competency training around solar PV installation, so it was looking at how one could channel this to ensure that the skills levels were appropriate for that particular area. In addition to that was the aspect of resource efficiency and cleaner production. There was an entity called the National Cleaner Production Centre of South Africa, which was part of the Council for Scientific and Industrial Research (CSIR). The CSIR provided training on how to limit the amount of resource usage centred within industries. This included how to limit the usage of water, energy and waste, and how cleaner production could happen. The CSIR had a longstanding programme dealing with this.

What was significant about government buildings’ energy efficiency was the proactiveness of the DTPW, which had put resources into it. There was a resource efficiency cleaner production champion, and a manager for the energy efficiency programme, within the Department. All of this allowed it to progress and get the kind of results seen, which were lower than the available benchmarks.

On the Smart Metering and time of use, the smart meter standards that the Department had looked at was informed by international standards, and it was leveraging what was there. The challenge was that there was no specific standard that any municipality could use, so there were differences between municipalities. The key was that the cost of retrofitting each household with a “time of use” tariff was prohibitive. No municipality wanted to take the first step. The Department was encouraged by the fact that Eskom had taken a stance. Progressively, it was seen that the City of Cape Town had moved all of their large power users to “time of use” tariffs. The benefit of moving to time of use tariffs was that it then allowed for more cost-reflective generation according to what the municipalities billed. The municipalities billed according to a time of use tariff by Eskom and as a result, one could start matching this up more precisely. At a residential level, the number of meters and scale and management thereof, became quite cost prohibitive. This was why residential time of use tariffs had not really been taken up. The Department was hoping that the standardisation of the meter would eventually allow for this and reduce capital outlay from R10 000 to R2 000. The challenge was that municipalities had to enter into long-term agreements. So when looking at a manufacturer of these meters, ideally a 15-year agreement had to be entered into because when a fault with the meter arose, it needed to be replaced. In addition, the backboard infrastructure for this needed to be looked at. If this meter was going to be enabled as a smart technology within the grid and one allowed for bi-directional communications, the backbone was needed. This was an additional expense. There was a little bit of cautiousness around this. It was a space that was developing. The Department was keen to understand this a little bit better and was hoping, with the City of Cape Town, to start looking at a development in this particular area.

The reason why the storage options were exciting was because there were multiple uses of storage that had revealed themselves. The first was home use. Provided one had time of use, one could start playing with optimal use, or optimal costing, models at the home level. The second was the use for Electric Vehicle (EV) infrastructure and EV charging, which also represented itself. Most EVs were charged at night at home or at businesses, not elsewhere. This was where the benefit was. As a mature technology, it was still developing so the technology learning curve for energy storage versus the technology learning curve for various other storage options was quite different. This was what the Department was excited about. The Department was hoping to get more clarity within this year around how far this had advanced.

The difference in the various types of technologies was because it was not yet mature, and there was not yet one winner. People were talking about solid state storage, which was removing the liquid chemical compositions. These alternatives were in a state of flux right now and there was no clear winner. At a utility scale there were certain options, and at a lower scale there were different options. What was clear was that costs were rapidly moving lower and lower, to the extent that there were some models in the United States that were substantially cheaper than solar PV on a cost basis.

Another example of the club funding or source funding was a company called Sun Exchange, and they had already converted the Wynberg Girls’ and Boys’ High Schools. This could be seen on their website, and their rates were around 10%. The interesting thing about them was that the Department of Education was looking at a broader rollout and how they could look at potentially programmatic support around this. So the Department was engaging with them on how this would be developed.

The Chairperson commented that all questions had been answered. Energy was a fun and interesting topic, despite it being very technical, but the Committee and Department would get there. The Department was excused from the meeting so that the Committee could continue with its own resolutions.

 

Committee resolutions/actions

The Chairperson asked that the procedural officer read out the relevant documentation The Committee would then decide, one by one, whether they wanted the particular documentation. The floor would then be opened up for any other resolutions.

The Procedural Officer said that the first document was a report on skills development initiatives for the ASEZ, as well as on the TVET and FET agreements that they had. The second document was the corporate governance study for ASEZ and SEDIC. The third document was the socio-economic impact study of ASEZ. The fourth document was the ASEZ master plan. For the Energy Security Game Changer presentation, there were seven detailed studies on the LNG.

The Chairperson asked if the Committee was happy with this.

The Committee agreed, approving all of the above documentation.

The Chairperson opened up for further resolutions.

Mr Mitchell recommended a site visit to Atlantis.

The Chairperson explained that in this particular year, the programme was populated mostly by briefings that the Committee needed to get done. However, it had been identified that the Committee needed to go to Saldana. The Committee still needed to go to Atlantis – Green Cape was in this area. Something that the Committee could consider was that instead of just going as the Finance, Economic Opportunities and Tourism Committee, an economic cluster could always be combined where different portfolios interested in seeing the various energy aspects might want to group together so that there could be a week where various projects could be identified. Ideally, she would like to identify the beginning of next year -- a full week to go and do energy oversight. It was uncertain what the new year programme looked like, but the Committee was open to make suggestions.

Mr Van der Westhuizen proposed, as a potential resolution, that the Chairperson be asked to liaise with the colleagues and cluster of committees regarding oversight visits along the West Coast. The reason for this proposal was that many Members sat on more than one committee. He had been in discussion with the procedural officer for the DEA. Both committees had in interest in water -- for example, the Clanwilliam dam. It had been informally learned that there was the possibility of the Clanwilliam dam becoming a small hydro-energy producer. The proposal was thus whether the Committee could not, in such a week, fit in a number of transversal oversight visits.

Ms Nkondlo supported the ESGC week visit. As part of this, she was interested in visiting the institute referred to at CPUT to see the type of training programmes that were being provided.

Mr Van der Westhuizen thought that it seemed as though, for the wonderful initiatives to succeed, Transnet would have to play an important role. He proposed that the Committee also monitor the engagements with Transnet and whether progress was being made in terms of them investing in such infrastructure in the Western Cape.

The Chairperson was happy with the resolution to monitor the engagement with Transnet. She was interested in going one step further, as it had been said that Transnet was actually in conversation with Saldana and Atlantis for the pipeline. The Committee could even include, in a possible oversight visit to the Saldana or Atlantis areas, that Transnet also accompany them so that they were included in the conversation as to how to optimise the area and bring more economic growth. It did not need to be an exclusionary matter, where only Transnet was spoken to on the one hand and only Saldana on the other. The Committee could include them both.

Mr Van der Westhuizen said he had learned that decisions regarding the possible closure of Saldana Steel were to be taken soon. The impression was that energy costs had played a huge role in the manufacturing of steel. If LNG could be used as an energy source at the factory, it might even influence or make the city more economically viable. He proposed that the Committee could also consider including talks with Amplax on the import of gas as an energy source.

The Chairperson replied that the Committee did not necessarily need to wait to go to them and find out what they needed. The Committee could always request whether they would like to make a submission to the Committee on their energy needs in the meantime, while the Committee was trying to put different dates together. This was between all of the briefings that it needed to have this year, and the upcoming budget season. The Committee did not have the privilege of having a lot of different dates to be able to go on oversight visits. This was why she wanted the Committee to do it in the January/February season. However, the Committee did not need to wait until then to be able to assist them and find out what their energy concerns and needs were, and how to speak to the Department and various stakeholders in order to solve some of the problems. Perhaps the Committee could invite them to make a written submission for it to go through in the meantime.

Ms Nkondlo asked whether this was going to be done through the joint oversight visit that had been proposed earlier on. As part of the Atlantis developments, it would be interesting for the Committee to include a European company that was manufacturing wind turbines. This would be interesting, as it was important to see the entire operation and how it worked in Atlantis. A side issue that had been picked up, was transport delays in the ports at Transnet. The Minister had said that follow ups would be made on Transnet, but it was uncertain how far this had progressed, so perhaps the Department should be asked about it. When the Department engaged with some of these companies, they were saying that there was a system that had been introduced in Transnet that was actually causing delays. This was costing the economy. There was interest in checking the progress on this with the Minister. If before then the Committee managed to have a meeting with Transnet, they should ask them to provide an update on the current situation. In the interest of building the economy, the Committee would not want such inefficiencies to be costing business in the province.

The Chairperson thought that with that particular matter, the Committee could request the information. However, it was uncertain which Minister to request this from. Once the Committee had this information, the documentation would be sent electronically and could be gone through. The Committee could even ask Transnet if they wanted to make a submission on the delays, or if the Committee could see Transnet before going on the oversight visit so that it could be briefed on the various matters. The first step would be to get the information from the Minister – which might be the quickest way.

The Department had spoken about the amount of money that could possibly be saved by importing gas. How much money would be saved if these companies would change to gas instead of using the diesel they had been speaking about?

The Department had also spoken about the Board structure of the SEDIC company. She requested the Board structure in the form of an organogram, with the names of the people who were filling positions, and who they were representing. The Department had spoken about the Premier writing a letter to the Minister of Mineral Resources and Energy (MRE) to not just assist municipalities with buying energy from IPPs, but for all municipalities in the whole of South Africa. She had requested this letter so that the Committee could see what it said.

Mr Van der Westhuizen said that he liked it when matters could be settled out of court. The Committee had been informed that morning that the potential scenario for the standoff between the City of Cape Town and the Minister of the MRE would be a negotiated settlement. Someone needed to propose this, and someone needed to take the lead when it came to negotiations. There needed to be a mutual will or intention for both parties to come to a solution. Could the Committee find out a little bit more about this process? Was somebody picking up a phone or writing a letter? It could well be included as a proposal in the aforementioned letter that the matter be concluded sooner rather than later, and not necessarily through the court, but rather through the intergovernmental framework.

The Chairperson was unsure how to phrase that, because one did not want to impact on any party’s court strategies as well. Perhaps the Committee could find out whether the Premier or Minister had considered a negotiated settlement with the Minister of MRE regarding the court case. It was not certain whether it would be the Minister, the Premier or the City of Cape Town.

Mr Van der Westhuizen proposed that since it was DEDAT that had informed the Committee on this, the Committee ask the Department to clarify what they meant by saying that they expected that it might be settled through negotiation. The Committee had an obligation to hear what the Department was doing, and it was the Department which had raised this issue with the Committee. It was a natural thing, and would not impact on any court applications, if the Committee asked the Department to clarify why they had said this to the Committee earlier that morning, and on what basis they were informing the Committee about this.  

The Chairperson rephrased it as a request for clarification on the matter. The Department had spoken a lot about how technical wheeling was. It was uncertain whether the Department had a document, study or step-by-step guide on the possible scenarios of how wheeling could work – whether from a municipal area to municipal area, or from an Eskom area to a municipal area, etc. Could the Department provide a summary of the different scenarios that involved wheeling so that the Committee could truly understand what the financial implications would be from one area to another?

She then went through the minutes of 11 September 2019, asking whether Members had any problems or edits that needed to be made. A note regarding page 3, number 3.3.2 was that she had already written a letter to the Premier, Minister of Community Safety and his Commissioner. This was to express the Committee’s concern regarding the safety and crime elements raised by the Auditor General of South Africa (AGSA), and to request that they assist AGSA. They had allocated persons within the respective departments to engage with the Committee and AGSA on the security concerns.

Mr Van der Westhuizen proposed that the Committee adopt the minutes.

Ms Nkondlo seconded the adoption.

The meeting was adjourned.