Solar geyser target intact, but financing and regulatory challenges persist

27th March 2009 By: Guy Copans

There was much enthusiasm at the beginning of 2008 for the mass deployment of solar water heaters (SWHs) to deal with South Africa’s then obvious power constraints. But as demand has slowed and the system has seemingly stabilised, that enthusiasm seems to have ebbed somewhat and there are persistent questions about whether it is indeed an urgent priority for South Africa’s authorities.

In an effort to put an end to any doubt, Eskom renewable portfolio manager Cedric Worthmann has provided the reassurance that Eskom’s SWHs programme is definitely going ahead.

He even explains why the programme has appeared to have been slow in taking off.

“We had to first regulate the solar industry, as there was no minimum standard.

“We have been spending a lot of time creating a platform in the background, so as to create comfort and ease with the programme,” he explains.

He also labels the start of the programme as a success and adds that he is positive about the direction in which it is heading.

“As with any fledgling industry, there are many barriers, and we are working to remove those barriers,” he says.

Last year, on September 26, Engineering News reported on government and industry initiatives to convert conventional geysers in South African households into solar-powered geysers.

This publication also reported that Eskom intended a mass roll-out of SWHs in South Africa, through its SWH rebate programme, while City Power MD Silas Zimu said City Power planned to install SWHs in all households in Johannesburg before 2010.

There has, however, appeared to be little obvious movement on the matter, sparking some speculation that the initiative was moribund. Not so, says Worthmann.

Eskom spent the first year of the programme trying to open up the market, to make the consumers and all the stakeholders, such as financial institutions and manufacturers, comfortable with solar equipment.

He states that the first goal was to establish the market, and, in this regard, Eskom is satisfied with the progress made so far. He notes that Eskom had an internal target of 1 000 units to be installed for the first financial year and, to date, 850 units have been installed and 800 rebates paid out.

The ultimate goal, he says, is to install about one-million SWH geysers in a five-year period.

IS THE PROGRAMME STILL NEEDED?

Former Eskom CEO Thulani Gcabashe, who is involved in the programme, says that SWHs provide ample opportunity for an energy-stressed South Africa.

“There is no more ideal source for water heating than SWHs, and if introduced at scale, it will impact on the peak demand and the overall baseload supply.

“It has also been proven that one can expect as much as a 35% or 40% reduction in household bills by using SWHs in the home,” he says.

Gcabashe says that, over the past ten years, South Africa has had a steady decline in its reserve margin from 27% in 1999 to about 5% in 2007.

“Supply has not kept up with demand. Without other supply options and energy- efficiency programmes, it will take over ten years to recover reasonable reserve margin on our power system.

“However, with effective supply- and demand-side options, a target reserve margin of about 15% could be realised within the next five years. SHWs are, therefore, a significant opportunity for realising these benefits,” he states.

Gcabashe notes that there is ample solar energy opportunity in Africa. In sub-Saharan Africa, there are 229 days on average in a year of adequate sunlight, and in the Southern African region, on the worst day of the year, there is still five to seven hours of adequate sunlight.

BUT HOW DO SUPPLIERS GET INVOLVED?

If a supplier wants to be part of the programme, the supplier needs to obtain South African Bureau of Standards (SABS) approval. The supplier is given an 18-month window to get the required test reports and mark of approval.

The next step is to register the company, the product, and the installation team (individual plumbers or in-house installers) with professional services company Deloitte & Touche, which is managing the fund.

Once a company is registered with Eskom, it will be listed on Eskom’s website as an accredited supplier in the rebate programme, and can then sell SWHs to any homeowner. Eskom currently has 50 systems that have SABS test reports or marks of approval.

Suppliers will install a registered product for which the consumer pays in full, for installation and equipment, and will issue a two-page claim form, half of which is filled out by the customer and the rest by the supplier. This is dropped off at, or posted to, Deloitte, which will refund the consumer directly.

Worthmann claims that the current turnaround time, from installation to payment to the consumer, is six weeks to eight weeks.

MIXED SUCCESS SO FAR

Meanwhile, the South African National Energy Research Institute (Saneri), which has been jointly running the SWH programme with Eskom, says that while there have been successes in the programme, there have also been setbacks.

“With the growing pains that have been experienced, there have been opportunities and further challenges, so we are in a cycle at the moment in which we take two steps forward and one step back in terms of how we will proceed with this industry,” Saneri CEO Kevin Nassiep admits.

Saneri ran a pilot project two years ago, on behalf of the Central Energy Fund (CEF), which oversaw the installation of 500 incentivised SWHs in middle- to higher- income urban households, while simultaneously standardising the national SWH quality and testing regime.

The project sought to consolidate a widened distribution and maintenance infrastructure, offer attractive financing options and ensure continued public awareness of both the supply and the demand sides.

The project had two main aims: environmental, to achieve climate stabilisation by reducing carbon dioxide (CO2) emissions; and developmental, to improve the quality, accessibility and affordability of SWHs, and increase job prospects within the South African SWH industry.

The programme reportedly showed a saving in energy equivalent to 2,3 MWh, as well as a CO2 saving of 1 000 t. A standard product range has been created, as well as a testing facility for products, and 200 new suppliers have entered the market.

The results from stakeholder surveys, he says, suggest that it has been a success, and has led to some of the initiatives under the Eskom incentive programme, in which it has been able to share the experiences gained as a result of the set pilot programme.

The programme has had 700 installations completed in the past year, with an average rebate of R4 200. Most of the installations took place in Gauteng, in winter.

THE ROAD AHEAD

Worthmann says that Eskom has developed programmes with financial institutions, which will now allow consumers to add SWHs to consumers’ home loans, and provide coverage with the insurance industry.

He says that Eskom has approached the insurance industry, which currently replaces 25 000 to 30 000 conventional burst or failed geysers a month. Two companies have been engaged, and the first will launch this year, he notes.

As Eskom now has greater supply capacity, it is aiming to market on a larger scale, says Worthmann. This, he says, will automatically start driving the market harder.

The energy utility has seen the growth of conventional geyser manufacturers in the programme, and has engaged all South African municipalities, which are conducting their own SWH marketing within their municipal boundaries.

The high cost of installing SWHs is probably the main barrier at present. While Worthmann acknowledges that the installation of a SWH is high, he adds that Eskom has a number of suppliers coming into the market that are marketing their product installed for less than R10 000 for a 200-l unit.

“We are seeing a trend towards lowering the price of SWHs. As demand is starting to grow, and consumers are walking away from expensive equipment, people are finding ways to make a quality product cheaper, and price competitiveness will start becoming a factor, especially when the larger players start entering the SWH market.

“The problem we have had is that we have had to create confidence in the larger companies coming into the market to create price competition. The prices will, therefore, drop, and by the end of this year, one will see cheaper, quality systems coming into the market,” he says.

This year, four of the major municipalities across South Africa are tendering to supply solar geysers to their consumers on a monthly lease option, rather than a capital cost. Eskom has also engaged with the four major financial institutions to have the same option added onto the home loan. Worthmann expects these initiatives to start by the third or fourth quarter of this year.

CHALLENGES & OPPORTUNITIES

If we look at the rest of 2009, where should the focus lie to ensure progress continues?

Gcabashe maintains that South Africa requires regulations to facilitate certification, installation, and use of SWH units, as well as building codes for SWHs, especially for new buildings – and tax exemptions for a limited period on import duty.

He also says that the cost of SWHs needs to be reduced, through direct grants, low interest loans, and the leveraging of Clean Development Mechanism (CDM) benefits on a programme basis. Gcabashe also suggests that there needs to be training of installers and support for local production.

Adding to this, Sustainable Energy Society Southern Africa chairperson Trevor van der Vyver maintains that the cost of electricity has to go up, and the roll-out of SWH has to be commercially driven.

But he also has a more forthright suggestion. “I personally believe that the renewables sector should be taken away from Eskom, and should be a standalone industry, with a SWH utility being set up,” he says.

Worthmann says that the cost of equipment has been one of the main barriers to entry into the SWH market. He agrees that there has been a lack of sufficiently trained SWH installers. To solve this problem, he notes, Eskom has a programme in conjunction with other government organisations, to develop new unit standards to upskill installers.

Another barrier, Worthmann says, has been the necessity to enforce SABS tests. “The SABS has only one piece of equipment, and it has taken quite a bit of time to get suppliers’ equipment through the SABS. This has resulted in a bit of a bottleneck.”

Worthmann says that consumer and supplier education and awareness of the programme and product are another major issue.

“A lot of the suppliers coming in are new, don’t understand the technology they are marketing, and merely see SWH as a way to make money. Therefore, the consumers are caught up in this misunderstanding, and do not trust what they are getting,” he says.

Nassiep notes that Sanieri was able to leapfrog some of the developmental challenges experienced in other countries rolling out SWHs. He says it also found, however, that as the SWHs industry is a fledgling industry, it lacks structure to a certain degree, and creating this will be work intensive.

He admits that setting up an industry association has somewhat failed, and says that the concept needs to be resuscitated.

Nassiep also cites a host of challenges that the CEF pilot programme has experienced in the past year, including a lack of research, as well as isolated and limited local manufacturing capacity, and he suggests, therefore, that there needs to be a move towards a more centralised manufacturing of SWHs, while simultaneously having a broader focus.

He also notes that there has been a disjuncture between CDM potential and the actual returns from the carbon market. He suggests the need for some reconciliation, with other entities coming forward with suggestions on how more value can be drawn from this market.

WHAT IS STILL REQUIRED?

Nassiep believes that the SWH industry requires an entity or individual that will be the SWH ‘champion’, that will be able to negotiate, motivate and facilitate the systematic and measured development of the SWH industry.

He says that there is a need to phase out at some stage the existing subsidies and replace them with something that is more sustainable, such as certificates, or a refit in the feed-in tariff. Local manufacturing capability is essential, he says, and there is also a need to ensure that the socioeconomic benefits of SWHs make their way to the target market.

From a capacity point of view, he says, there is a need to support the SABS, and acquire additional testing facilities, as well as an artisan development programme, together with the Sector Education Training Authority and the South African Qualifications Authority.

Nassiep maintains that the regulatory framework surrounding SWHs also requires attention.

He says that while there have been draft regulations published by the Department of Minerals and Energy, there is a need to upscale efforts around legislation.