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Report on the ANC Progressive Business Forum (PBF) Energy Summit

8 June 2017

Background and objective of the discussion

The PBF is the business programme of the African National Congress with the objective of promoting honest, frank and open dialogue between the business community of South Africa and the movement, as the primary policy developer of South Africa. The programme director was Sisa Njikelana and the aim of the summit was to expose business to opportunities in the value chain in the energy sector beyond power generation.

The meeting was attended by Elizabeth Marabwa, Chief Director at Department of Energy; Thami Mazwai, Advisor to the Minister of Small Business Development; Ruby Ramatsui, Executive Director of the South African Nuclear Energy Corporation (NECSA); Sashay Rhamdharee and Mkhulu Mathe, CSIR; Moegsien Seedat, Central Energy Fund (CEF); Vivian Ramatuba, Industrial Development Corporation (IDC); Nhlanha Ngidi, South African Local Government Association (SALGA); Philisiwe Mthethwa, National Empowerment Fund (NEF); Tsholofelo Mokotedi, EWSETA; Mike des Pontes, iGas; Brian Dames, CEO of African Rainbow Energy and Power; Khwezi Tiya, Standard Bank Corporate and Investment Banking; Thiru Pillay, MD Deloitte Consulting; Sisa Ntlango, Shamal Sivasanker, Daryl Eliott, Claude Illy, Nazeer Essop, and other members of Deloitte; representatives of the PBF, and members of the broader business community.

Summary of the opening address by Shamal Sivasanker, Deloitte

In terms of key power trends in South Africa and the SADC region, six particularly disruptive trends stand out. Poor African economic growth is an obvious trend, but changes in technology are also having a major impact, especially as it becomes more affordable: key trends are a shifting energy mix, the changing role of customers; and changing market structures and dynamics. The trend to renewable energy is also notable, as is the development of smart grids and smarter utilities. Traditional utilities will have to evolve, as they are no longer the only stakeholders in the power sector. Instead, this changing environment offers opportunities for innovators and entrepreneurs in Africa.

Another trend highlighted in responses to the address was the role of SMMEs and local suppliers in transforming the energy sector, especially in creating competition and moving away from a single provider.

SESSION 1: A case for a full value chain in the energy industry

There are many opportunities for the manufacturing sector to get involved in the energy sector; however, these opportunities present challenges as well. The energy landscape in South Africa is rapidly evolving, and industry needs to identify where value can be added to the existing value chain - and what the key distinct components of the value chain are.

Exploiting opportunities in energy in South Africa requires the building of skills and a knowledge base, on a par with international standards as international players are ready to compete for participation in the energy sector. Investment and commitment from government and the private sector will be essential for this upskilling across the entire value chain, particularly for the creation of local technology, as job opportunities are developing in services rather in traditional manufacturing, as seen in the United States solar energy industry. Focus should be on emerging and renewable technologies, including nuclear power and gas; however, it was felt that South Africa is not prepared for these technologies and will need to actively create demand.

Manufacturing aside, opportunities also exist in Energy Data Interchange (EDIs) and distribution of energy. The current distribution model is primitive and has efficiency issues. Significant investment of around R3 trillion is necessary to upgrade and drive a grid to minimise distribution losses and meet South Africa's energy ambitions - possibly through smart grid infrastructure. Innovative solutions also are needed in terms of storage, for instance, the use of digital models, including technologies such as tracking dips and power factors, which would provide data-rich opportunities to improve the grid.

Apart from the investment required in manufacturing and distribution, government commitment also comes in the form of policy development that facilitates local and international investment, technology transfer, manufacturing, and international agreements, including quality control, in all areas of the energy sector. Negotiations with suppliers, buyers, manufacturers and contractors are currently hampered by policy, resulting in lack of localisation and slow roll-out.

There is also a role for the private sector, possibly through Public Private Partnerships (PPPs), although critics felt this role was unclear.

SESSION 2: Opportunities in the energy industry

2.1 Summary of input by Elizabeth Marabwa, Department of Energy

The energy sector has delivered positive economic growth to South Africa, particularly in the area of renewables. There are still many business opportunities in South Africa and Africa, considering that the energy sector is more than electricity provision, for example, in liquid fuels, where new refineries are needed, as well as in gas.

To facilitate these opportunities, government is developing policy, including the draft Integrated Resource Plan (IRP) that reiterates its commitment to reduce South Africa's carbon footprint by using green and mixed energy and renewables, and to increase access to energy for all South Africans, supporting the UN's aim of universal access to clean energy by 2030. Another important part of government's policy is to transform ownership of the energy sector through its programmes for historically disadvantaged companies and communities, including women, youth and those with disabilities. The successful application of the IRP depends not only on government commitment and policy change, but also on collaboration with the business sector.

2.2 Summary of industry input

Africa remains un-electrified in relation to the rest of the world, but as such, it is the largest global energy growing market, which offers a variety of opportunities to the government and private sector. One area of growth is in clean energy. For example, natural gas currently provides 3% of South Africa's energy, but studies show that by 2025, gas will play a much larger role. Although South Africa has limited major gas reserves, Mozambique has huge reserves which could transform energy resources for the whole region. The Rompco pipeline, 50% owned by Sasol, supplies gas to South Africa from Secunda, and is a successful example of regional government partnership and a potential model for future opportunities. In fact, no government can deal with issues of energy security, access and climate changes alone.

In order to make renewable energy successful, competitive pricing is necessary, which depends on a regular supply. Global gas prices are already competitive, particularly in the United States. Hence, a particular private sector opportunity is in the development of energy storage solutions that exploit South African minerals and skills to produce market tested and proven mobile and stationary storage. Examples of minerals include lithium and manganese, to create economically viable solutions such as batteries and pump storage. However, such innovation requires investment in research and development.

This stored supply would then support a flexible grid, which would in turn require less baseload capacity. One scenario considered by Eskom was that the utility would no longer exist in its current form by 2050. Instead, it would enable power in smart grids, for instance using blockchain technology. Customers would begin developing their own energy, as in Germany, and improve energy efficiency rapidly. However, questions were raised as to whether such a scenario was likely, especially with Eskom building new power plants.

Policy development needs to continue, with South Africa having lost momentum when the Department of Energy stopped their successful renewable energy programme. The draft IRP offers possibilities of change. SALGA, however, are critical of the IRP's centralised position, which overlooks the role of municipalities as participants in the energy sector: local government could play roles as generators, off takers and facilitators of renewable energy, including by developing municipal grids and suppliers of gas. Removal of an energy supply role from municipalities could lead to bankruptcy. On the other hand, municipal mismanagement was raised, suggesting that privatisation was key. The IRP was also criticised as being a policy, not a strategy to either reform the energy market structure or leverage electricity for growth, and implementation timelines were queried.

At the same time, the private sector has a role to play, including SMMEs and entrepreneurs, which are in a good position to engage with local government; again, questions of private sector access to opportunities, including capital investment, supply, and manufacturing were raised.

SESSION 3: Support programmes and finance in the energy sector

3.1 The Department of Energy

The Department of Energy does not specifically offer programmes, but instead enabling initiatives, such as empowering youth and those with disabilities. There is a large focus on empowering women, in association with the UN's projects where women are involved in developing renewable energy opportunities, which could help to build rural communities. In fact, the inclusion of women in the energy sector is a priority. An interactive platform is being developed to allow disadvantaged groups to apply for opportunities, with preference given to local owners and cooperatives. However, respondents felt that government is not doing enough to educate the business sector about opportunities, instead, experiencing barriers to opportunities.

3.2 The Department of Small Business Development

The Department is engaging in a new strategy, acting as a coordinator between small businesses and government departments. This will allow SMMEs access to programmes (including the Black Industrialist Programme) and finance opportunities, particularly through the Small Business Finance Funding Agency (SEFA), which also offers guidance, and support. The industry perception, however, is that government and state entities such as Eskom or Transnet are not interested in engaging with and developing small business.

3.3 The Department of Trade and Industry (DTI)

The Black Industrialist Programme has three pillars: access to capital, access to markets, and access to non-financial resources. The programme has been running for two years and has been involved in 42 projects across various sectors and with entities with turnovers of over R30 million. In terms of the energy sector, black industrialists are struggling to enter the market and are focussed at the bottom of the value chain. The DTI is working with other departments to ensure that each has a focal point for black industrialists, and to centralise the support for areas that the DTI cannot fulfil.

3.4 The Industrial Development Corporation (IDC)

The IDC partners with entrepreneurs to co-develop projects and to co-partner with banks to take up debt. This funding is based on BEE principles (as encapsulated in the Black Industrialist Programme) and hence requires an operational involvement, where skills transfer takes place, as well as 50% local content in all projects. The IDC particularly targets youth, women and black industrialists. The IDC is willing to participate along the whole value chain of the energy sector, from manufacturing to generation and sees particular opportunities for BEE participation in off-grid solutions. Although the IDC is known for its rigorous “checklist” and emerging businesses feel that they need a big partner, SMMEs are encouraged to apply for funding by completing a pre-feasibility study to show that the project is bankable.

3.5 The National Empowerment Fund (NEF)

The NEF has a portfolio of over R4 billion, which provides funding between R1 million and R10 million for feasible, large-scale projects, and limited funding for high-risk projects. As such, it works closely with the Black Industrialist Programme, co-investing with the DTI and having provided cost-effective funding solutions for five projects so far. The NEF is eager to fund renewable energy projects, both in infrastructure and manufacturing.

3.6 The Energy and Water Sector Education and Training Authority (EWSETA)

The EWSETA's role is to develop a sector skills plan, which will identify and define the needed skills in the sector and put in place a curriculum and grants system. However, fewer than 15% of energy sector stakeholders have submitted workplace skills plans and paid levies. This low participation rate is caused by both a lack of awareness nationally, as well as by a slow system of feedback by EWSETA. However, without submitting plans, industry cannot benefit from discretionary grants, and SETA income remains low at R230 million per annum. EWSETA remains committed to assisting companies and mobilising programmes in association with the Department of Energy. However, the lack of training and skills development opportunities in the energy sector was raised, as South Africa has a crippling scarcity of skills.

3.7 Standard Bank Corporate and Investment Banking

As a commercial bank, Standard Bank is not a development organisation, however investment, information and research can be provided to clients through relationships with the IDC. Funding depends on customers establishing an early relationship as a project or plan is developed, as the bank can then be part of the journey. Currently, Standard Bank is interested in investment into exploration licences off the coast of South Africa. Many entrepreneurs are unaware that they qualify for government grants, support and opportunities and so will also need to work with development organisations, as well as funders such as the IDC and SEFA.

5. Conclusion

Although the energy sector in South Africa faces a variety of challenges, both government and the private sector have a role to play in seizing the many opportunities needed for growth. Indeed, the mega projects pursued by the Gauteng province, for example, are evidence of these opportunities. Government has undertaken a variety of support programmes and financing options, but state-owned entities and the business sector also have a responsibility to demonstrate their commitment to transformation and small business development, as well as increasing access to energy for all South Africans.

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