The South AfricanSolar Water Heater IndustrySolar Water Heater Industry

Dominic GoncalvesFrost & Sullivan

Renewable Energy Africa ConferenceJuly 28, 2011

Focal Points

• South Africa’s Electricity Price Reality• SWH in Context• Carbon Benefits

G f S• Global Policy Mechanisms for SWH• BAU vs. Inclusion of New Building Code Regulations

Effi i t W t H ti i S th Af i P d t Lif l• Efficient Water Heating in South Africa: Product Lifecycle• Skills Shortage• The Barcelona Solar Experience• The Barcelona Solar Experience• Flanking Measures Needed to Facilitate Growth

2

South Africa’s Electricity Price Reality

135

South Africa’s Electricity Price Reality

115

75

95

h (200

9 Re

al) Blended Policy Adjusted

scenario set to rise from 42 cents per kWh in 2011 to 

R1.09 in 2020

35

55c/kW

15

35

1970197219741976197819801982198419861988199019921994199619982000200220042006200820102012201420162018202020222024202620282030

Source: Frost & Sullivan

South Africa has to navigate a tight course between security of supply and an increasing tariff, with impending implications from carbon taxation

South Africa has to navigate a tight course between security of supply and an increasing tariff, with impending implications from carbon taxation

3

increasing tariff, with impending implications from carbon taxationincreasing tariff, with impending implications from carbon taxation

SWH in Context

Motivation for SWH Implementation• Load shedding• Electricity crisisy• DSM• In order to provide funding for required generation capacity growth, NERSA approved

Eskom’s application for annual electricity tariff hikes of 25% for the 2012-2014 period• However until sufficient generation capacity can be commissioned security of supply isHowever, until sufficient generation capacity can be commissioned, security of supply is

still expected to be threatened for the 2010 to 2016 period• Supply gap compounded by the delay in the completion of Medupi and Kusile• Efficient water heating is identified as a prime mechanism for demand side management• Other drivers for the project include job creation skills development reduction of carbon

South • Other drivers for the project include job creation, skills development, reduction of carbon

emissionsAfrican EWH Market

Initiation

Pool Other, 12

Domestic Electricity Consumption

Water

National Electricity Consumption

Geyser, 39%

Lights, 6%

Pool Pump, 11

%

,%

Water Heating

18%

Cold Storage,

15%

Space Heating,

Laundry, 3%

Stove & Oven, 7%

Total National Energy

Consumpt

4

15%g,16%ion

82% Source: Frost & Sullivan

Carbon Benefits

18% of total national electricity supply is allocated toward the heating of water18% of total national electricity supply is allocated toward the heating of water

The heating of water consumes as much as 40% of domestic electricity usage

Efficient water heating thus provides both environmental and economic benefits

For every 1kWh of energy produced by a coal power station 0 966kg of carbon dioxide is produced For every 1kWh of energy produced by a coal power station, 0.966kg of carbon dioxide is produced

The energy saving of a single SWH will result in an annual average saving of over 2,400 kWh

This amounts to a CO2 saving of 2,320 kg of carbon dioxide per year, per SWH

If one million solar water heaters were installed in South Africa this could alleviate 578GWh of electricity from the grid If one million solar water heaters were installed in South Africa, this could alleviate 578GWh of electricity from the grid

annually, the equivalent output of a 2,000MW power station

The avoided resources depletion externality results in the conservation of 3,1 million litres of water and 1.2 million tons of coal

The carbon emissions offset possible for the installation of one million solar water heaters would save 2,320 billion tons of carbonp ,

One million SWH installed in South Africa would alleviate 2,320 billion tons of carbon

One million SWH installed in South Africa would alleviate 2,320 billion tons of carbon

Source: Frost & Sullivan, Eskom

5

carboncarbon

Global Policy Mechanisms for SWH

Rationale for SWHPolicy Mechanisms for SWH

Globally, different policy methods have beenused to foster the deployment of SWH

Primary policy mechanisms include:

Rationale for SWH

Solar water heaters globally have gained interest and popularity as a means to:

Reduce reliance on national energy supply Collector-area-based subsidies

Performance-based subsidies

Tax credits

Tax deduction

Take strain off peak-time power loads

Mitigate carbon emissions

Tax deduction

Mandatory legislation

International best practice has shown that

• National support needed due to high initial cost

often a combination of these policies providethe best framework with which to facilitatethe efficient deployment of SWH

21 countries currently have some policy

• International experience has shown that enabling policies, information, access to financing, supply side strengthening and sustainable institutional

measure in place to upscale the use of SWH support are needed in this regard

6

Global Solar Water Heater Market

The Global Solar Water Heater Market

More than 70 million households globally now have solar water heater systems installed (2010)

China is the world’s largest user of SWH Total installed capacity of SWH is estimated at the equivalent of 154GW, more than 65 per cent of global capacity

Countries with high per capita uptake, such as Cyprus, Israel, Spain and Austria, all have policy mechanisms in placeto support this uptaketo suppo t t s upta e

Cyprus’ legislation requiring SWH installation in all new buildings, has resulted in 92% of residential buildings being equipped with SWH

Spain, the world’s fourth largest SWH manufacturer, has seen significant growth since 2000, with a mandatoryordinance by the City of Barcelona to install SWH in all new buildingsordinance by the City of Barcelona to install SWH in all new buildings

Following the success of Barcelona’s municipal framework, over 60 Spanish cities have followed suit

Research indicates new building codes have been the most effective policy mechanism globally to catalyze the uptake of the solar water heater marketResearch indicates new building codes have been the most effective policy

mechanism globally to catalyze the uptake of the solar water heater market

7

Source: Frost & Sullivan, REN21

The South African SWH Experience

The South African Solar Water Heater MarketTeething Problems in the South African SWH Market

• During the first 3 years of its implementation, numerousteething problems plagued the system, causing stunteduptake

Dormant until 2007, catalyzed by the Eskomrebate program, hype, and load shedding

Between 2007 and 2010, marketl tilit lit i

Teething Problems in the South African SWH Market

• This can be attributed to the following challenges: Consumer confusion

L i f th b t

volatility, quality issues

The market began to stabilize somewhatduring the second half of 2010

Fly-by-nights became less prevalent Low price of the rebate Accreditation issues Installation issues The negative effects of installation and

Established companies with good word-of-mouth reputation formed efficientdistribution networks, franchises andpartnerships g

operational problems And the subsequent loss of interest by the

potential end-user

partnerships

Growth still relatively stunted, despitevolatility

Rebates eased

8

Source: Frost & Sullivan, REN21

BAU vs. Inclusion of New Building Code Regulations

1 000 000

Solar Water Heater Market Forecasts Excluding New Building Codes (Cumulative Units), 2010 – 2014

South Africa

700 000

800,000

900,000

1,000,000

stal

led

Bas

e)

The dotted line represents the impact of

new building code regulations on the most

likely scenario

500,000

600,000

700,000

Best

Worst

Most Likelyativ

e U

nits

(Tot

al In

s

200,000

300,000

400,000 Most Likely

With Building CodesCum

ula

0

100,000

2010 2011 2012 2013 2014

Source: Frost & Sullivan, Blue IQ

Business-as-usual falls significantly short of the 1 million SWH target, and illustrates that, without new building code regulations, achieving this target will

not be feasible

Business-as-usual falls significantly short of the 1 million SWH target, and illustrates that, without new building code regulations, achieving this target will

not be feasible

9

not be feasiblenot be feasible

Efficient Water Heating in South Africa: Product Lifecycle

ark

et

1970 - 2006 2007 - 2011 2012 - 2015 2016 - 2020

Early Adoption

EW

H M

a Development High Growth Phase Market Maturity

High demandcaused by lack of

Green buildingcodes, rollout plans,rebates, and marketsupport

Lack ofmarketdemandprohibitsgrowth

P d t

security of powersupply

Eskom rebate

Clean energydrive

Market transformation from conventionalgeysers to solar geysers and plumbinginstallation skills to EWH installation skills

Green building code regulations remain

ppmechanisms drivedemand

Rebates eased

Productquality andlow electricityprice limitadoption

Teethingproblems withproduct qualityand installationas marketrapidly expands

Further consolidation of suppliers into efficientdistribution networks and partnerships

Market forces and legislative policiesdetermine if local manufacturing hub will bedeveloped or if market will concentrate solelyon distribution and installationConsolidation of

SWH

HP

p y p on distribution and installation

Regional export hub to Africa

Consolidation ofsuppliers and/ormanufacturers toselect appropriatetechnology

Development of newEWH installation

MaturityDevelopment Growth

TimeEWH installationsector

Source: Frost & Sullivan

10

SWH Technology

Solar Water Heating

• Evacuated tube SWHs consist of multiple sealed glass tubesres lting in a concentric ac m that greatl red ces heat

Solar Water Heater Scoped Products

Evacuated Tuberesulting in a concentric vacuum that greatly reduces heatloss. Each tube contains an absorber plate connected to aheat pipe, which transfers heat to a liquid medium via a heatexchanger

er H

eatin

gor

Typ

e

Fl t Pl t• Flat plate SWHs are a network of pipes enclosed by a glass

top A pipe is connected to the water tank and water passesSola

r Wat

eC

olle

cto

Flat Plate top. A pipe is connected to the water tank and water passesthrough this pipe and back into the tank

S

Water heated by solar energy generally requires solar thermal collectors, a water storage tank, interconnecting pipes and a fluid system to move the heat from the collector to the tank

This thermodynamic approach differs from photovoltaic (PV) technology in that sunlight directly heats the water, as

11

y pp p ( ) gy g yopposed to PV cells that generate electricity from sunlight

SWH Technology

Solar Water Heating

Direct systems, or closed loop systems, circulate water directly between thestorage container and the collector

Solar Water Heater Scoped Products

Direct

er H

eatin

g Sy

stem

s

storage container and the collector Direct systems can generally only be used in frost-free areas, where the

temperature never falls below 4 degree Celsius. In South Africa, this is limitedprimarily to Northern Kwa-Zulu Natal

I di tSola

r Wat

eC

olle

ctin

g

Indirect systems, or open loop systems, use a non-toxic antifreeze heat transferfluid (HTF) in the collectorWh thi fl id i h t d ti it t fl t th t k h iIndirectS C

When this fluid is heated, convection causes it to flow to the tank where a passiveheat exchanger transfers the heat of the HTF to the water in the tank

Solar water heater systems can be direct or indirect, depending on circulationSolar water heater systems can be direct or indirect, depending on circulation

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SWH Technology

Solar Water Heating

In a closed-coupled system, the storage container and collector

Solar Water Heater Scoped Products

Close-Coupled

er H

eatin

g nf

igur

atio

n are closely joined to each other, and are generally mounted as asingle unit on a rooftop

S litSola

r Wat

eys

tem

Con

• Split systems allow for the separation of the storage container andthe collector, thus allowing a flush, more aesthetic installation of

SplitS S just the collector on a rooftop or other mounting, while the storagecontainer can be installed within the roof or elsewhere where it isnot externally visible

Solar water heater systems can be configured as one unit or separated during installationSolar water heater systems can be configured as one unit or separated during installation

13

Skills Shortage

Current skills The most labour-intensive is installation, followedby manufacturing

Research indicates that of the labour forcecurrently existing in the industry is segmented asfollows:

14000

16000 Current skills pools for EWH installation are

operating at full capacity.

To meet rising follows: 47% Installation 27% Manufacturing 26% Sales, distribution, administration and

miscellaneous Research indicates lack of installation skills needed to

10000

12000demand, EWH

market is in need of 8,000 new skilled installers

10)

Research indicates lack of installation skills needed tohandle growth in market

SWH can be 4x as labour-intensive as a conventionalgeyser\

Unique SWH skills needed6000

8000

urce

s A

vaila

ble

(20

Sales, Distribution and Administration

Segmentation of Labour Force in South Africa for the SWH Market, 2010

4000

6000

Skills Required

Current Skills: AC&R R

esou

Insallation, 47%

Manufacturing, 27%

and Administration, 26%

0

2000

2010 2014

Technician

Current Skills: Plumber

Current Skills: SWH Installer

14

Source: Frost & Sullivan, Blue IQ

International Benchmarking

9000

Job Creation Potential ‐Manufacturing vs. Installation

7000

8000

4000

5000

6000

Installation Skills

Man Skills required (High Automation)

2000

3000

4000 Man Skills Required (Medium Automation)

Man Skills Required (Low Automation)

0

1000

2011 2012 2013 2014 Source: Frost & Sullivan, Blue IQ

Manufacturing skills decreases after a certain threshold due to levels of automation, while installation skills is directly linked to the number of systems

Manufacturing skills decreases after a certain threshold due to levels of automation, while installation skills is directly linked to the number of systems

15

International Benchmarking

City of Barcelona

• The City of Barcelona has unrolled what is considered the most effectiveglobal benchmark of SWH by a range of industry experts

• Came into effect in August 2000

• The ordinance requires all new buildings, those undergoing a complete

Installed Capacity 173,340 units (2010)

The ordinance requires all new buildings, those undergoing a completerefurbishment or changing their function, to have SWH account for apercentage of their hot water usage

• This applies to residential, commercial and industrial buildings

Th di i d i 2006 t i th l h ( t 70%)

All-inclusive Pre-mortemContinued flexibility for revision

Ordinance flanked by public• The ordinance was revised in 2006 to raise the solar share (up to 70%)

and to expand the building scope by decreasing what would be excluded

• Unsatisfactory installation quality was one of the key challenges in thestarting period in Barcelona

Strategy for Successful Implementation

Ordinance flanked by public awareness

Support by construction companies and architects

Installers must sign a two year maintenance obligation

• Global benchmarking has shown this is often the case when solarordinances have been passed Quality of product, quality of

installation, and sufficient number of installers need to be formulated at the initial take-off

f th j tLessons Learned

of the projectAftersales service and maintenance plans are

paramount to combat teething problems with quality of product

and installation

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International Benchmarking

City of Barcelona

• As the Barcelona model unfolded, it was noted that initially SWH were ordered by construction companies that had little or nomotivation to choose higher quality products than what was strictly required by the wording of the regulation; once thesebuildings were solved or rented, these companies did not benefit from the energy savings

• Their main goal was to keep down the investment costs, treating SWH like any other building component

• A key success factor of the Barcelona Ordinance was the lengthy consultation process and pre-mortem, which entailed athorough debate involving: constructors; building administrators; architects; engineers; installers; consumers and tenants; aswell as the local, regional and national energy agency and the public bodies responsible for housing, urban planning,protection of architectonic heritage and environment

• This pre-mortem entailed flexibility and a debate that facilitated the correct implementation of the ordinance

• In less than five years, Barcelona multiplied its SWH use per capita by twenty times• The market was able to rise up to meet demand, due to the time lag between building plan passed and actual installation

• A large number of installers architects and building engineers were trained and gained practical experience with SWH technology• A large number of installers, architects and building engineers were trained and gained practical experience with SWH technology

• The construction companies became accustomed to include SWH from the earliest stage of planning, thus reducing the time and costs needed tointegrate it at a later point

• Citizens and potential users were informed about solar

Th B l d l d d f l it h b d i 60 S i h iti i l di M d id d S ill• The Barcelona model was deemed so successful it has been used in over 60 Spanish cities, including Madrid and Sevilla, aswell as internationally in Sao Paulo and Rome

17

International Benchmarking

Quotes from the Barcelona solar experience

• “The introduction of this regulation gave rise to numerous debates and protests. In particular, it was necessary to win over the various actors in theconstruction sector (architects, builders, investors, etc.). The most difficult group were the investors, who were not entirely convinced of the wisdom ofsuch a choice, nor of the reliability of the technology. “ World Energy Council

• “They were also concerned about the possible impact of the extra cost of solar installations on the construction market, and especially any extra timethat might be needed to obtain equipment that was not readily available. Finally a moratorium of several months was allowed before the regulation wasenforced to give everyone time to adjust to the new requirements. This is an example of a regulatory decision applicable across the board and whichwas drawn up with the general agreement of all the stakeholders.” World Energy Council

• “The extra investment incurred by the Ordinance is estimated to be 0.5%-1% in building work and materials (Stirzaker P., 2004). This extra-investmentmay be financed by interest-free credit arrangements available from IDEA and the public credit institute, Instituto de Crédito Oficial (ICO). The creditbacks up to 70% of total investment (Ibid.)” Barcelona Energy Agency

• “Even with such financing arrangements, reaching a consensus with all the stakeholders involved in the construction sector was essential to thesuccess of the ordinance. Property developers, construction companies, architecture colleges and installation contractors have all been closelyassociated to the construction and implementation of the regulation. Nevertheless, a 18-month moratorium has been introduced for all the sectors top g ,prepare for the new regulation and for installers to gain statutory certification. In parallel, the standard certification of solar systems and installation hasbeen developed in order to prevent the installation of low quality equipment as a result of the ordinance. The City of Barcelona has also implemented abroad communication program and organised periodic round tables in order to promote and facilitate the acceptance of the Ordinance.” BarcelonaEnergy Agency

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Key Findings and RecommendationsKey Success Factors for Policy-makers

New Building

CodesManufacturing

Incentive• For a EWH strategy to be

effective, flanking measures should be in place from all sidesshould be in place from all sides to support the market.

• Currently, the existing rebate program needs the multilateral support of mandatory building

Skills Development

Funding

M&V, Quality

Standards

codes, and enhanced M&V and quality assurance for products and their installation

• Funding needs to be released for kill d l t ti l l iskills development particularly in

installation, where research has indicated significant job creation potential that is imperative for the success of transformation of the

Installation Training

Programs

Rollout programs

success of transformation of the SWH market

19