Solar Water Heating outlook for 2016

James Green, SESSA Solar Water Heating Chair

Only a few days after the extraordinarily successful global agreement at COP21 in Paris, where 196 nations agreed to contain global temperatures to a maximum of  2 °C temperature increase, in South Africa the Department of Energy hosted a briefing session for the new procurement of solar water heaters by government.

Eight hundred and thirty-nine days after a similar but more comprehensive briefing by both DOE and the dti at Birchwood Conference Center, little has changed.  

It is clear to those who have been in the solar water heating industry for years that the lessons from the past have been ignored. South African solar water heating manufacturers hoping to play are not on a level playing field. The opportunities for those who invested before, and lost, are unlikely to recoup the financial losses sustained.  

The previously advised funding of R4,7b by National Treasury back in 2011 for solar water heaters seems to have disappeared, and future roll outs will be dependent on DOE securing funds from National Treasury year by year up to 2018. 

Targets for supply and installation of low income home solar systems have been missed by some 500,000 units or 60%. The numbers going forward have now been slashed by 85%.

The reality is that more than 3 years will have passed since the end of the socio economic uplift program for low income homes being supplied with ‘free solar water heaters’ (Dec 31st 2012), and all incentives for consumers using electric geysers to go solar have been terminated in April 2015. 

The carnage that was left when the previous program terminated was severe. Thousands lost their jobs, small investors lost homes and pensions when their businesses went under.  Today factories still sit mothballed, and stock manufactured back in 2013 remains stored in warehouses.  

While “at last” there is some movement progressing to a new government plan going forward into 2016, the questions that have been asked before remain and many are the same. 

Against a backdrop where South Africa faces huge challenges, the majority of those hoping to be involved in a future government solar water heating initiative are likely to be disappointed, irrespective of which area they focus on. 

Is this new initiative reason for optimism, or a further reality check, where hope springs eternal, to be dashed as a result of failing to learn the lessons of the past. Only time will tell.  

The Interpretation of Local Content

The elephant in the room - the interpretation of local content for solar water heaters procured by government - that cropped up on July 19th 2013 (amended on June 17th 2014) remains at large.

The major irony relating to the current local content rules is that the subject of government preference for local content goes back to as early as 2009. 

Under Eskom’s stewardship of the low income solar water heating programs during 2010 and 2011, Eskom constantly raised the subject of government’s local content preference at the briefing sessions they held with the whole industry. 

Eskom held additional discussions with manufacturers and suppliers, and debated local content thresholds, components and source materials.  

Some listened, others didn’t, but as a result at least 10 manufacturers set up factories in South Africa. The future looked bright. Ambitious targets had been set, the private sector responded, investment in equipment and factories made, jobs were created.

Additional subcontractors and factories also invested and made additional components in South Africa, for example header cisterns, float valves, frames, copper pipe and plumbing fittings.  

Many tens of millions of Rands were invested by the private sector. 

In 2012 Eskom undertook local content audit inspections of factories. Additional rebates of 10% to 20% were given to a number of manufacturer systems that qualified following audits for local content. 

In early 2013 the rebate program that had existed for low income solar water heaters was replaced by the tender route, (as is proposed currently some 3 years later).  The first tender in February was suspended in May 2013.

In June 2013 the revised second tender was launched. 

All Change For Local Content Rules Interpretation

In July 2013 new local content rules were introduced by the dti, which were different to those under Eskom’s rebate program. They were done without consultation with the private sector industry participants (Eskom had at least done that) or indeed formally with the SABS or even Eskom who were still in charge of the program. National Treasury advised the new rules through a letter to municipal accounting managers (July 19th 2013), but not to the industry. 

The changes resulted in the tenders from Eskom of June 2013 being suspended in November 2013, as no manufacturer or supplier qualified, despite their carrying the SABS Mark, the systems having met the overall objective of 70% local content on value and the systems being manufactured and installed in South Africa for over 2 years.

With hindsight it is even more extraordinary that the dti, where a number of their senior officers have publicly and repeatedly admitted that they know little about solar water heaters or the technology, became the experts on solar water heaters and the components that they are made of.  

The ill-defined description for local content did not use a SANS standard as the description for solar water heaters, but an informal description which did not cover all types of solar water heating design. In particular the description of a solar collector using an evacuated tube very adequately described such technology that is used in a high pressure solar water heating system, but does not describe a solar evacuated tube as used in low pressure solar water heaters.

The dti directive was the catalyst that ultimately resulted in government policy for socio economic uplift through solar water heaters being curtailed.   

Designation Issues

The biggest issue relating to local content procurement for solar water heaters remains the interpretation of the designation of local content components. 

The components designated are the tank and the solar collector at 70% local content each, rather than 70% local content of a complete operating unit.  

This is complex, in that most low pressure solar water heaters are integrated units, or in other words the solar collector is part of the tank, or the tank is part of the solar collector. They are not split but a complete solar unit attached to a frame. 

There is then the question of what actually constitutes a solar collector. Is it glass evacuated tubes, or a flat plate, or indeed a combined unit? Clearly both the DOE and the SABS undertaking the audits for local content under SATS1286:2011 were also confused, as the definition changed from time to time where for example parts of the frame were included but not others, and the same went for cup holders, seals and the like.  

But the real problem comes in that all the SABS Mark local content manufacturers at the end of 2012 used evacuated tubes, and the EVT’s are predominantly made in China. 

The result is disqualification of all those SWH systems for DOE bids. 

The dti have confirmed at December 17th 2015 that this remains the case. 

Solar Water Heaters for Low Income Homes

At the end of 2012 there were some 46 low pressure solar water heaters that had passed the necessary SANS standards and were registered on the Eskom approved systems. 

Approximately 10 had tanks, frames and other components manufactured in South Africa, but in all cases they used low pressure evacuated tubes, most sourced from China and the Far East. 

Why had the private sector embraced evacuated tubes in preference to using a flat plate type collector? Quite simply because it makes practical and financial sense to do so. 

EVT’s are very efficient, competitively priced, enable a low pressure SWH to be used in freeze areas, and require less maintenance. 

99% of all low income (low pressure) solar water heaters in India and China use EVT’s, because it is the cheapest, most reliable product for generating solar heated water. 

Was Political Influence the Reason for Component Designation?

Back in 2013 extensive rumors of corruption surfaced with a manufacturer being granted a major part of a tender for R800m, who claimed to assemble glass evacuated tubes of 47mm, (gluing them together), and where the son of the President was (allegedly) a director or shareholder. 

Whether true or not, it was a bizarre move to set up a factory to assemble glass EVT’s and be awarded a tender when importing a better product was both cheaper and easier. 

It was probably no coincidence that the dti designation for solar collectors came out shortly after this tender was awarded to this company allegedly connected to the President.

Not surprisingly it resulted in an expose with Carte Blanche (CB). A further CB program showed the same company using electricity illegally connected and circumventing the meter, which was used to glue the tubes together. A further investigation by CB showed product that the company claimed was locally manufactured was actually being imported.

At the time the tender was awarded, the company did not have a SABS compliant system.  

dti’s Justification for Local Content Component Designation

The dti’s argument all along has been to promote jobs and local manufacturing, but for a component (an EVT) that only represents approximately 20% of the overall value, to result in the disqualification of all the manufacturers who were making 80% of the components (on value) in South Africa, the rules are clearly unfair and prejudiced. 

It is also surprising that the dti, where the SABS are within their portfolio, did not use the definition of a solar water heater as defined within SANS 10106. If they had, and they constantly refer to the SANS everywhere else, for both technical standards and local content, there would be no ambiguity or confusion. 

Despite representation being made to the dti from the time of the Birchwood conference by many industry players and industry bodies, the dti have remained intransigent, refusing to alter their stance and irrespective of talking with SABS experts. An informal description prevails that results in the exclusion of the majority of the manufacturing industry. 

Over the years many industry players and glass manufacturers have considered and analyzed the commercial feasibility of setting up an EVT factory. The costs are high (R100m+), the volumes required to reach breakeven need long term commitment for supply, and importantly a 100% reliable electricity supply.  The numbers of jobs created are minimal.

With the track record of promises, and numerous factories mothballed that supply 80% of the components on value, why would anyone that did not have an inside track, even consider such a gamble?     

Government Procured Solar Water Heating Solar Performance

Where government is going to procure product, buying product that delivers what is necessary is critical. 

In the case of solar water heaters this means hot water. If UN recommendation directives are to be observed this means 25 litres per person per day of 40 °C. With 4-6 occupants in a low income home, a figure of 135-150 litres at 40 °C is required. 

To achieve this a 100-110 litre solar water geyser needs to have an equivalent output of 4,17 kWh on an average day in South Africa at 20Mj m2 p/d of solar insolation. 

In winter when the cold water in Johannesburg is as low as 11 °C the performance output has to be even higher at 5,06 kWh. In areas such as Cape Town where the cold water in winter is warmer than Johannesburg, the performance output needs to be even higher due to the much lower levels of sunshine and insolation. 

The reality is that the SANS 1307 baseline thermal performance where the minimum stipulated is 5MJ per 50 litres per day at 20MJ m2/pd and the maximum is set at 10MJ per 50 litres per day at 20MJ m2 p/d is designed to cater for the whole country. 

However applying the minimums (as described in the DOE documentation) will result in many solar water heaters, which meet the DOE requirements, failing to give hot water at all in winter. 

Why would one buy a car without wheels, and in the same way why would one buy a solar water heater for a low income home that is useless for several months of the year. 

Unfortunately in South Africa the purchase of trains for some R4b has resulted in the question and scandal as to whether they can be used at all on some routes due to their height, and potential arcing problems. Previously the development of the nuclear pebble reactor ended in tears. 

For low income homes the reality is that the thermal baseline minimum needs to be 13,5MJ at 16MJ m/2 p/d which is nearly 50% more than the minimum stipulated in the DOE tender documentation.  

A further government spend on socio economic uplift that doesn’t work would be a travesty when the information as to what needs to be achieved is known.

Types of Technology and Cost

There is no argument as to what type of solar collector is better or worse. If it produces the necessary hot water, the intellectual argument of one type over another is purely academic. 

However while EVT’s solar collector components cannot currently be manufactured from scratch in South Africa, a flat plate collector can be, and under the PPPFA rules may also be eligible for material exemptions.

However there is a reason why EVT’s are so popular in low pressure systems in both India and China, and to date in South Africa. They are competitively priced, can produce the required kWh outputs for lower cost than flat plate collectors, and in integrated systems (where the tank and collector are a single unit) they easily pass the required freeze resistance tests, and consequently are suitable in all parts of the country. With flat plate collectors in order to pass freeze resistance, they need to be filled with glycol (a vegetable antifreeze) and therefore require more periodic maintenance and associated cost than EVT’s.

Under the Eskom rebate program for low pressure SWH, the level of rebate was determined by the ‘Q’ factor or kWh output /savings over 5 years. This typically worked out at R0,52 per kWh saved over the 5 year period. A low ‘Q’ figure of 10 at 16 MJ m2 p/d (just above the minimum under SANS 1307) would only have generated a rebate of R3 122 including VAT. The SWH system had to be supplied and installed for this figure. The better performing systems had ‘Q’ factors of 13,5 or above, producing a rebate of approx. R4 250. Not only did these systems generate more revenue (approx. R1 130) their performance was adequate to guarantee hot water in line with UN directives throughout the year. 

So using a flat plate collector for low income installations was not only more expensive than evacuated tubes, its performance was less, resulting in a lower rebate, thereby making it uneconomically viable for installation under the rebate program. 

Going forward, if only flat plate collectors are used, (EVT’s being disqualified) government are likely to pay considerably more for less kWh savings, and for the consumer getting less hot water, or indeed any hot water at all.   

Like for like EVT collectors are far more popular on low pressure systems globally, while flat plates still maintain a higher market share in Europe on high pressure solar water heaters.

With respect to the DOE proposed roll out, for the time being ignoring the arguments outlined above re local content, flat plate collectors are likely to be considerably more expensive and most will not be freeze resistant.

New Department of Energy Targets for Solar Water Heaters

With the demise of the low income program at the end of 2012, it is a certainty that most manufacturers have lost substantial monies on their investment in factories and equipment.  

Investment by local companies had been made to fulfill government stated policies of 1m solar water heaters. At the end of the low income SWH program managed by Eskom (Dec 2012), where 300,000 units had been installed in just over 2 years, new targets of an additional 500,000 low income solar water heaters were to be installed by March 2014. Nothing was installed.  The target date was moved to March 2015. Again nothing was installed, despite stock sitting in warehouses, and factories in a state of being mothballed. 

What confidence can the private sector really have going forward? The goal posts were moved with new revised SWH targets announced by the Minister of Energy, Mrs Joemat-Peterson earlier in June 2015. These were effectively an 85% reduction in the target numbers. 

Unfortunately this was confirmed again at the DOE briefing, with estimates of approx. 100,000 units to be installed over a period of 1 year.  

But back at the end of 2012, the local manufacturers with SABS Marks, already had the capacity to manufacture 50,000 units per month without scaling up. Of course the DTI interpretation for local content knocks this out despite the products meeting all the overall objectives. 

Perhaps on a more positive note a reassuring speech by the new Minister of Finance on the same day as the DOE briefing may give cause for optimism for public private partnerships to work closely together.

The Overview for Solar Water Heaters Going Forward

‘You can lead a horse to water but you can’t make it drink’ and ‘you can’t make a silk purse out of a sow’s ear’ are idioms that come to mind when thinking where we have come to in the solar water heating industry and where it would appear to be going. 

It was confusing enough when Eskom managed the program and manufacturers and installers supplied systems and installed them and claimed the rebate. The SABS set the rules for the required minimum standards, and Deloitte as administrators processed the paperwork. It really only fell over on the back end when not every system was signed off by photos and GPS, or by visual inspections by an independent auditor. 

Going forward the sheer logistics of the program are massive despite the intended volumes being a fraction of the past. Consultants being used for Social Facilitation and Technical Feasibility Assessments, Municipalities (100 so far reported) coordinating with them, then Manufacturers who can provide local content product, which may not meet minimum performance requirements, and with freeze considerations, and additional maintenance requirements, then Installers, and then Auditors to sign off. 

The sheer numbers of interested parties hoping to play in the game is extraordinary. Where one might have expected 30 people to attend the recent briefing as SABS Mark manufacturers some 300 people attended.  The numbers at the previous briefing were even more, and when it comes to the potential installers, the numbers may reach thousands. Most of course will be disappointed. 

The opportunity for failure (dare one say it) is huge. For a ministry involved generally in policy, going into operations on a project like this is a huge challenge, particularly when it is evident that there are poor communications with other key parties such as the SABS or dti, the private sector that have the experience, let alone limited real understanding of the issues that cropped up on a much simpler program. 

KISS (keep it simple) is an idiom that might be a policy better employed to succeed. 

Extraneous factors, such as an extraordinarily volatile currency, local politics, trade relations with BRICS partners, external credit rating agencies (junk status), fiscal prudence, unions, political parties, are all additional considerations that can derail a worthy objective.  

Of course, there are a number of people saying that they have already been identified as a winning preferred bidder, and that the parade is just window dressing. With South Africa’s track record on tenders, that may be the case. 

I wish the DoE good luck, as the objective is admirable, as are the climate change agreements signed at COP 21.  

The question is, is it fair or equitable to exclude numerous manufacturers who invested, had solar water heaters tested, passed and with a SABS Mark, to be denied participating when they meet and exceed the overall local content objectives of 70% local content?

Can it be right to procure product that fails to deliver hot water and in sufficient volume?

Are government going to spend monies on another initiative that is overburdened with expense rather than the end product delivering what is needed?