Green Industrialisation story Q32015

The REIPPPP contribution:

Green Industrialisation

Outcome 4

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While the process of industrialisation has unfolded in a variety of ways across different countries, most developed economies were built from a strong industrial/manufacturing base. As a result, industrialisation has come to be regarded as synonymous with economic growth and development.

South Africa has recognized the importance of actively managing where the country locates itself in global value chains. Achieving a shift away from producing and exporting raw materials and importing finished products to greater industrialization is critical to the country’s continued growth and development. At the same time there is a growing recognition of the need to transition to a green economy; an economy that results in improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities. Industrialisation, economic growth and development and the promise of new, green jobs are furthermore considered crucial in stemming the tide of worsening unemployment, one of the country, and continent’s, greatest headaches.

IPPPP Quarterly Report | Quarter 3 2015/16

Note 1: Finance & Development, Quarterly publication of the IMF, December 2015 • Volume 52 • Number 4, p16 and Poschen, Peter, 2015, Decent Work, Green Jobs and the Sustainable Economy (Sheffield, United Kingdom: Greenleaf). Graphic credits. This page: sourced from Africa Economic Outlook 2014, special theme: Global Value Chains and Africa’s Industrlisation; previous page: http://www.123rf.com/photo_19703996_global-development-and-the-green-economy-as-a-businesss-concept-with-a-map-of-the-world-made-of-an-o.html

Growing a green, industrialised economy“A review of 30 studies covering 15 countries and the European Union as a whole found appreciable, actual or potential, net gains … in the order of 0.5 to 2.0 percent of total employment, or 15 million to 60 million additional jobs. In emerging market economies such as Brazil, China, Mauritius, and South Africa, green investment was found to accelerate economic growth and employment generation when compared with business as usual. Several studies suggest that more ambitious climate targets would generate greater gains in employment.”1


3These issues and priorities have been entrenched in many of South Africa’s strategic documents and informed the various policies, programmes and interventions during the past two decades, in particular the New Growth Path, National Development Plan (NDP) and the Industrial Policy Action Plan.

Energy infrastructure development as a vehicle for (re)industrialisation

Infrastructure investment is recognized as a concurrent, critical priority in the national economic development and planning frameworks. In a bid to transform the economy, stimulate economic growth and drive job creation, Government initiated long-term infrastructure development programmes that leverage investment and participation of the private sector. Infrastructure investment in the energy sector has become a flagship programme of this development strategy.

In 2010 the Independent Power Producer Procurement Programme (IPPPP) was introduced to procure urgently needed electricity generation infrastructure from independent power producers. Among the current infrastructure development portfolio in the country, the Renewable Energy (RE) IPPPP is one of the largest with R194 billion investments committed within five years. Such investment provides critical impetus for infrastructure development and greater security of electricity supply that may bring about a virtuous circle of investment and economic growth.In itself, energy, and hence sufficient and reliable energy infrastructure, are key enablers of a vibrant economy and economic growth. However, as a government procurement programme and infrastructure development initiative of this scale, the REIPPPP has also been designed to contribute to broader economic and socio-economic developmental objectives, including the development of a local green industry and creation of green jobs. By introducing minimum participation requirements for local content (as a percentage of project value), a percentage of the project spend is retained for local suppliers, encouraging the growth of the local industry. A programme of this magnitude, with the combined procurement spend2 projected to be R143 billion3, is a substantial stimulus for local manufacturing and the green economy. Based on procurement projections, R66 billion is expected to be spent locally for the current portfolio of projects.

Green Economy Accord – a collective aspiration

In the first bid window (BW), the minimum threshold for local content was 25%, with 50% the target. In the fourth bidding round government specified at least 40% of project spending should from local suppliers, with a target of 65%.Increasing requirements for localisation in the REIPPPP correspond with the Green Economy Accord that was signed in 2011 by organised labour, business representatives, community constituents, and Government.

The Green Economy Accord set a target to create 50,000 green economy-related jobs by 2020 and achieve “an industry-wide localisation of at least 35% by 2016 (or such higher figure as Government may mandate as a condition of any subsidy), and increase local content in the years to follow towards the aspirational target of 75%”.

The minimum thresholds and targets for local content have been set consistently higher with each successive bid window. This is the only bid obligation category for which increasingly stringent requirements have applied (refer thresholds and targets below). Increased thresholds correspond with the aspiration of the Green Economy Accord to achieve 75% localisation in the green economy.

The actual levels of local content achieved in procured projects have increased from 27% in bid window 1, but has hovered around 45% in subsequent bid rounds despite the increasing targets. It is recognised that there are lead times to creating local industrial capacity to respond to such higher targets. However, an important question relates to whether this mechanism is catalysing the desired levels of local industrialisation?

Note 1. Source: IPPPP Office data analysis. Note 2. Procurement spend is a share of the total investment. Note 3. R73 billion of the procurement projected to be during the construction phase and R70 billion during the operations phase i.e. 20 years.

Local content requirements and achievements of the REIPPPP1

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Is industrialisation happening?Industrialisation is prompted by the market demand for locally procured goods created by the obligations and signals entrenched in the IPPPP. Given the scale of the already procured RE portfolio and additional generation capacity still expected to be procured, opportunities for local industry creation along the entire value chain (refer picture) could be significant. By inducing development along the value chain components that are providing inputs into the creation of RE power plants, this mechanism has the potential to bring about deep structural transformation of the economy. Since the REIPPPP was introduced, we have seen industries beginning to form along the value chain, which is clear evidence of the intended transformation process taking shape. At least twelve new industrial facilities, capable of supplying utility scale projects, are known to have established in the country in direct response to the REIPPPP with the establishment of two more large manufacturing concerns in the pipeline [this is not an exhaustive list and there may well be others]. Seven of the 12 facilities were established in the last 2 years, implying a growing confidence in the sustainability and growth prospects of the local market – fundamental to attracting local investment.

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Establishment dates of REIPPPP suppliersNumber of facilities established per year1

National distribution of REIPPPP suppliersNumber of industrial facilities per province

From the geographic distribution of the new facilities, it is clear that investment decisions are influenced by enabling environments. The proximity to potential clients (RE site locations), ports and road infrastructure are all considerations in the location of manufacturing facilities. But, investment locations have also been informed by favourable investment conditions created by special economic zones, industrial development zones or green economic hubs, combined with supportive investment structures / forums. This is most evident in the Eastern Cape and Western Cape (refer map) where concerted effort has been made to establish clean energy manufacturing centres. In the Eastern Cape, a Sustainable Energy Forum was established to facilitate the implementation of sustainable energy in the province and to create an enabling environment for investment, implementation and entrepreneurial development. In the Western Cape, GreenCape (a special purpose vehicle) provides a comprehensive service to unlock and accelerate development manufacturing and employment potential in the green economy.

Value chain components for delivering a power plant

121 specialist transport co 1 specialist installation co4 wind industries 5 solar industries 1‘other’ (inverters)

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Note 1. 2016 projection based on indicative industry data


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Photo credit: Christiaan Botha, GRI

But wait, there is more…Clustering and incubatingAs locally-based industries are established, opportunities are being created for more industries and eventually industrial clustering. A geographic concentration (cluster) of interconnected businesses offers increased access to competences and resources, improved opportunities for collaboration, improved productivity and higher levels of innovation. This in turn attracts more opportunities and again more new businesses into the area, strengthening and growing the economy in that area.

There are indications of a cluster being formed in the Atlantis greentech manufacturing hub in the Western Cape.

In 2014 GRI, Spain’s Gestamp Wind, opened Africa’s largest wind tower factory in Atlantis. The facility was designed to deliver 150 towers per annum, but is already expanding to increase delivery capacity in order to meet the growing demand. In turn, increased production volumes require more materials and components to be supplied.

The establishment of the GRI plant was followed by Resolux, a Danish company that, among others, manufactures mechanical and electrical internals for wind turbines. Resolux established a local manufacturing facility in Atlantis towards the end of 2015. The company supplies components to 70% of the wind turbine manufacturers in the world. Thus, while the initial focus of Resolux’s local facility will be to manufacture and supply internal components for wind towers to GRI, the growing number of local tower and turbine manufacturers in the country offer enormous opportunity for their growth.

To date, most of the local manufacturing facilities are the result of international businesses establishing a local presence. While there is significant benefit in attracting foreign investors to invest in locally based industrial assets, seizing the full industrial opportunity requires strong participation by domestic entrepreneurs and knowledge transfer through learning by doing. SAREBI was established in 2012 as a business incubator to encourage local entrepreneurs in the greater renewable, clean, sustainable and efficient energy sectors.

SAREBI is funded by the dti’s SEDA1

Technology Programme and provides non-financial assistance to entrepreneurs in the renewable energy industry. The Atlantis-based non-profit company offers a range of programs, products and services to develop and grow the business sustainability of SMMEs. SAREBI provides aspiring, emerging and existing businesses in the sector with resources such as office space, shared administrative and operating resources, sector knowledge and information, access to coaches and mentors, technical expertise, assistance in business feasibility and planning, access to business networking opportunities, and access to markets, funding partners, technology and innovation development programmes.

By October 2015, SAREBI was actively supporting three new ‘incubatees’ and had identified six possible new ‘incubatees’ for development over the next 6 months.We are eagerly watching this space for South Africa’s next generation of renewable energy industries.

Note 1. SEDA | Small Enterprise Development Agency


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Downstream, reaping the benefits of industrialisation

The Gouda Wind Farm, operational since August 2015, is the first in South Africa to make use of concrete towers (as opposed to the traditional steel design). Having successfully participated in the second REIPPPP bid round, it has 138 MW installed capacity – enough to power 118 400 average households1.Located in the Cape Winelands municipality of Drakenstein, it was built at a cost of approximately R2.7billion and consists of 46 turbines. It is owned by Acciona Energía (51%), of Spain, South African construction group Aveng (29%), the Soul City Broad-Based Empowerment Company and a Local Community Trust, each of which has a 10% stake.

Gouda Wind Farm is the third of three IPP projects – the others being the Sishen Solar PV plant and the Bokpoort concentrated solar plant (CSP) – that involve Acciona, though the latter project is owned by ACWA Power, with Acciona being part of the Engineering, Procurement and Construction (EPC) consortium.

The Gouda Wind Farm project has made a significant industrialisation contribution to the Western Cape economy. It uses 3 MW AW100/3000 turbines of Acciona Windpower technology, mounted on 100 meter high concrete towers, each of which consists of 17x20m high segments, also known as keystones. These concrete keystones were manufactured by a South African company, Concrete Units (see page 61), a specialist in the manufacturing of concrete segments, in collaboration with Windtechnic, a Spanish concrete engineering company. The keystones were manufactured in Concrete Units’ existing factory in Cape Town; creating 116 jobs over the period of 10 months. An overall local content of 97% was achieved in manufacturing the concrete towers.

The quality management for the manufacturing was overseen by a 100% woman-owned company, Concrete Growth (see page 61), which is also the first 100% woman-owned Concrete Materials Enginee-ring company in South Africa.

The concrete keystones were transported by Absolute Rigging (see page 60), a 100% black-owned company that specialises in the transportation of abnormal loads.

During the construction of Gouda Wind Farm, an average of 700 jobs were created (with up to 1,000 people working at the time of peak activity), 28.6% of which came from the manufacturing, transport and assembly of the concrete towers. The Gouda Wind Farm now employs 15 full-time staff, 14 of whom are from previously disadvantaged communities, to manage the day-to-day operations of the facility.

In addition, the Operations and Management company has appointed a local, woman-owned company from Gouda, Pila Khiya (Pty) Ltd, to provide cleaning, facilities and road maintenance services. For the cleaning services she has two permanent employees, a coloured couple, Hannes and Elsie Huyster, who lived on the original farm before the industrial development took place. The local security company employs 10 people, nine of whom are from previously disadvantaged communities.

Industrialisation in practice

Note 1. Based on an annual (P50) energy production projection of 393 GWh and an average household usage of ~3 319 kWh/a/hh.


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TRANSPORT

Gouda Wind Farm has been granted consent by the Department of Energy (DoE) to continue commercial farming on the land it has bought, on condition that all revenues from the farming activities are channelled towards socio-economic development projects in the community. “We have issued a request for farming to the market and have received more than five responses, which are in the process of being evaluated,” says Economic Development Manager Masechaba Mabilu. “Once this process is complete, it will probably be one of few, if not the only South African wind farm to date, where there is commercial farming with defined community benefits.”

Rigging had to purchase new equipment that would enable it to meet its obligations while simultaneously engaging in a protracted negotiation to acquire the requisite permits from the provincial Department of Transport. “It was quite a challenge to get the permits approved. It was the biggest abnormal load transportation contract ever to come out of Cape Town. The authorities turned it down because of the perceived impact on the Western Cape road system. They weren’t prepared to take the risk, so we had to escalate the application to Minister Robin Carlisle. The dti (Department of Trade and Industry) also became involved – so thankfully permission was eventually granted.”The process to deliver the goods was logistically demanding. Each load weighed between 45 to 55 tons and had to be hauled on extendable, steerable trailers manufactured in Germany. Measuring 20 metres in length, the trailers distribute the enormous weight burden across six rear axles and, in its ponderous journey from the city to the country, required police or traffic police escorts.Since Mr Hassiem’s first overseas visit to Holland and Belgium in 2011, Absolute Rigging has raised finance through the banks and invested approximately R35 million in new equipment. In 2014, it ordered its first modular Scheuerle-Kamag K25 H trailers and wind tower adapters. Subsequently, it purchased a total of 40 axle lines of modular trailers together with three sets of wind tower adapters.This rapid expansion wouldn’t have been possible without the hand up from Acciona Energy. “They took a huge leap of faith and offered us an opportunity,” reflects Mr Hassiem. “We initially didn’t have the equipment to carry out the job, so my challenge was to give them the confidence that Absolute Rigging would be able to deliver to their standards.”

It helped, of course, that Absolute Rigging’s neighbour in Airport Industria was a company called Concrete Units (see page 61). It was in a joint venture with another Spanish company, Windtechnix, to manufacture what would eventually become 100 meter concrete columns, another first in South African Renewable Energy (RE) terms, supporting 46 wind turbines at the 135 MW Gouda Wind Farm.

A leap of faith rewarded

Mr Armien Hassiem, founder and CEO of the Cape Town-based specialised transport company Absolute Rigging, uses the phrase ‘’leap of faith’’ quite a lot. And with good reason.

Within four years of having restructured the business in 2009, Absolute Rigging landed a daunting contract with the Spanish firm Acciona Energy. Its task was to move 782 abnormal loads of massive precision-engineered, prefabricated concrete tower sections from the Cape Town Airport Industria to the Gouda Wind Farm site, situated approximately 115km from the city, for final assembly.“For us, this was a tremendous accolade,” beams Mr Hassiem. “It was the first time [since the launch of the local Renewable Energy industrial process] that a European investor and manufacturer contracted directly with a 100% black-owned transport company.”The transportation process alone lasted eight months, but this was preceded by, among others, an investment phase when Absolute

8Through Absolute Rigging’s ongoing success, a woman-owned business, Alwina van Zyl CC, which handles the transport permit application process on its behalf, has also prospered. “My turnover has improved substantially and I’ve managed to create an additional office job,” says Ms Van Zyl.

Industrial virtues set in concrete

The South African concrete manufacturing trade is a direct beneficiary of the Gouda Wind Farm project. This is reflected by the Concrete Society of Southern Africa awarding the 2015 Fulton Award for Innovation in Concrete – the industry equivalent of an Oscar – to the venture. As such, it gave recognition to all parties involved, among others Concrete Growth, a company owned by Ms Santie Gouws.

Boasting a Masters degree in Civil Engineering (her professional credentials endorsed by both Stellenbosch University and the UK-based Institute of Concrete Technology), Ms Gouws started her own, one-woman company, Concrete Growth, in 2011 in response to the launch of the Renewable Energy Independent Power Producer Procurement (REIPPPP) initiative.

Ironically, up to that point she had been Principal Engineer (Built Environment) at the Council of Scientific and Industrial Research (CSIR), only to see her ambitions thwarted by dwindling Government funding. Happily, before her departure she had participated in a research study illustrating that concrete wind towers could be built cost effectively at


Before it landed the contract, Absolute Rigging had employed approximately 50 permanent staff. During the course of the Gouda Wind Farm project it created approximately 200 additional temporary jobs, and ultimately doubled its permanent workforce to the 110 people working there today.

In addition, its annual turnover has risen from approximately R15 million in 2013 to R40 million in 2015. “We derive roughly 30% of our turnover from the RE sector,” says Mr Hassiem. “The balance is mostly generated through contracts from the Oil and Gas sector. And yes, while the market is expanding, the big challenge we continue to face is that many of the European investors still show a preference for European transport companies who have opened subsidiaries in South Africa. Despite our credentials [Mr Hassiem qualifies both in terms of BBBEE and PDI certification], we’re expected to provide the same level of service, yet at a cheaper price because we are a local company. It’s unfair.”

Despite this perception, having established an enviable track record through the Gouda Wind Farm project, Absolute Rigging appears to be going from strength to strength. Recently, it has been contracted by Nordex, a wind turbine supplier, to transport 100 steel wind tower sections (made by Gestamp Renewable Industries in Atlantis on the West Coast) to the Gibson Bay Wind Farm near Humansdorp in the Eastern Cape. In addition, it will also transport 48 steel wind tower sections from DCD Wind Towers in Coega to the same site.

While Mr Hassiem speaks glowingly of Acciona Energy, he too took a “leap of faith” when he sized up the potential of the Green Energy industry on his visit to Europe in 2011. Having joined the family business in 1997 (it was started by his grandfather in 1924), he saw a future in specialised transport given the sheer scale of the industrial projects that were in the offing.

“In South Africa, we will continue to have a huge demand for clean, sustainable energy for decades to come. I’m passionate about the transport industry and providing a specialist service in it. Making money is a by-product of what we do; I derive most of my satisfaction from helping to improve the status of South Africa as being capable of service delivery to the highest standards. I feel blessed that the RE sector has helped me explore this dream of mine.”

MANUFACTURING

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The material used was, incidentally, a self-compacting concrete with a characteristic strength of 75 MPa. Up to 95% of the raw materials were sourced locally, including the 500 MPa reinforcing steel. The use of concrete for the towers ensured structural stability, especially at the height of 100m, supporting the turbine and blades weighing approximately 170 tons.

The manufacturing process was handled by Concrete Units, in collaboration with Windtechnic, a Spanish concrete engineering company. “They sent five technicians to assist us,” says Mr Brian Cook, the project manager, “and we created approximately 200 temporary jobs, 40% of which were contracted from the Gouda area.

“Job creation aside, a huge skills transfer took place. For, say, cast-in items, we’ve managed to develop local products that are equivalent in quality to imported products.”

In addition, the experience and intellectual property gained on the Gouda project has enabled Concrete Units to bid for new Green Economy contracts, among others the proposed Nxuba Wind Farm near Bedford in the Eastern Cape.

• When The Gouda Wind Farm became operational towards the end of 2015, Ms Gouws was appointed Concrete Tower Manager in the Operations Department at Acciona Windpower. As a new business entity in a new industry, Concrete Growth continues to transform but remains ‘on the ice’ for now, with the intention of repositioning for future participation in the Green Economy.


90 metres or higher. “I saw an opportunity for the South African concrete industry,” says Ms Gouws, “and decided to follow my intuition, presenting the findings to several industry forums while launching my own business.”

It would take a while for her hunch to become a reality. Between 2011 and early 2014, Concrete Growth was contracted, as concrete specialist, to service Nordex during the construction of the Dorper and Kouga Wind Farms in the Eastern Cape. It supervised the construction of 72 wind turbine tower foundations, being responsible for the quality sign-off of the foundations and civil works.

Then things changed. The Spanish company Acciona Energía, in bidding for the Gouda Wind Farm, had resolved to manufacture the planned 100m concrete masts to the latest European specifications in South Africa. So from February 2014 to February 2015, it contracted Concrete Growth for Quality and Technical Management, overseeing the manufacturing process of the precast concrete tower segments in Cape Town.

“It was a momentous decision,” says Ms Gouws. “Because of the closure of the CSIR’s world class concrete Research and Development laboratory in the late 90s as well as the ‘brain drain’ at the SA Bureau of Standards, South African design codes had, by comparison, fallen behind those of Europe. Up to this juncture, most of the local design codes were based on British codes written in the late 1980s. The project enabled us to realign the local industry to the latest European standards.“Also, in terms of the industralisation of the precast process for large scale concrete construction, everything we did was designed with a view to reproducibility. It had not been the norm in the industry and represents a huge leap forward.”

10The consultation process has already informed refinements being incorporated into the procurement documentation for the next RE bid round (bid window 5).

In parallel, an integrated strategic approach is being developed by the key stakeholders aimed at optimising the industrialisation impacts of energy infrastructure investments.

South Africa is obliged to continue building new power capacity to enable faster economic growth. This necessitates concurrent investment in related infrastructure such as power networks. If policy frameworks and procurement design can be suitably optimised, these energy infrastructure investments have the potential to trigger substantial economic and social transformation and to rebalance economic gains in favour of South Africa’s local population.


Moving South Africa closer to an industrialised future

The design of the REIPPPP was intended to leverage the investment in the energy sector to contribute to industrialisation of the local economy.

The market signals incorporated into the design of the REIPPPP has created an appetite for investment in local industrial facilities. The growing number of local manufacturing and related industries is demonstrating some success towards this industrialisation objective.

It is apparent that by creating better enabling environments, industrial development can be facilitated and accelerated (as seen in the Eastern and Western Cape).

Despite the successes, there remain opportunity for refinement to ensure that the massive energy procurement programme (not only of RE) provides a successful and effective mechanism for achieving the targeted levels of (sustainable) industrialisation.

Numerous role players and government levers have a bearing on industrialisation and localisation. Collaboration forums have been created to facilitate stronger engagement between the relevant government partners and the private sector. Consultation is aimed at designing fair, consistent and uniform frameworks that will more effectively deliver on the country’s industrialisation objectives.

Photo credit: http://postulatethis.com

Green Industrialisation story Q32015

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