IDC’s approach through developing Green Industries - Focussing on Energy Efficiency 24 May 2012 Presented by: Rentia van Tonder Head: Green Industries SBU. Contents. Introducing the IDC; South Africa: Energy approach; Growing the Green Economy; IDC Green Economy focus areas;
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IDC’s approach through developing Green Industries - Focussing on Energy Efficiency24 May 2012Presented by:Rentia van TonderHead: Green Industries SBU
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The vision of the IDC is to be the primary source of commercially sustainable industrial development and innovation to the benefit of South Africa and the rest of the African continent
Provides financing to entrepreneurs engaged in competitive industries and enterprises based on sound business principles
Pays income tax at corporate rates and dividends to the shareholder
The IDC’s Head Office in Sandton (Johannesburg)
Aims to maximize developmental and financial returns within an acceptable risk profile
Source: The New Growth Path - The Framework
Source: Industrial Policy Action Plan 2011/12 – 2013/14 – February 2011
The development of Green Industries in the Green economy is becoming a key focus area for development in South Africa and especially the Industrial Development Corporation of South Africa (IDC).
IDC has been at the forefront in supporting industrial growth and development in South Africa since its inception in 1940. More recently, IDC adopted a pro-active approach in developing the green economy and specific focus and effort has been given to green industries and technologies. The objective is to develop, grow and investin green industries focusing on investments to enhance the environment, support carbon emission reduction, avoidance and adaptation.
The IDC’s role in growing the Green Economy would be through investments in:
A value chain approach will apply with the emphasis on industrial development (including localization) and job creation.
GREEN INDUSTRIES SBU FORMED 1 APRIL 2011
IDC is closely aligned with government, especially in implementing strategies and developing new emerging sectors by providing support at various levels. R100bn has been earmarked for investment over the next 5 years with R25bn for the green economy.
Ownership and IDC funding
Round 1 & 2 ( ca R7,5bn, 19 projects)
Strategic Equity Partners
IDC Funding with Preference Shares
# This could also be a BBBEE or NPO
Developing other sectors of the Green Economy through innovation ...
Loan size: R1 – 50 million
Interest rate: Prime less 2%
Term: Up to 15 years, based on payback period of the investment
Standard fees will apply
IDC has structured the repayment of these loans to effectively match the savings profile of the technology installed.
e.g. On a Roof Top PV the savings over 15 years are equivalent to the debt service repayment and hence the facility of 15 years is then proposed.
This is to ensure that the savings justify the investment without the business incurring out of pocket expensesGEEF characteristics
A Cape Town-based company that produces sport wear and leisurewear under license to an international brand.
The company has embarked on a project to install a grid connected (grid-tied) rooftop PV system to generate 25% of the company’s annual electricity requirement
“Electricity accounts for more than 90% of our carbon emissions and is a scarce resource that is vital to the successful operation of our business. We are confident that the solar installation will generate between 30 – 40% of our energy requirement, thereby reducing our carbon footprint, save money and improve our sustainability into the future.”
William Hughes, MD, Impahla ClothingFunded cases
Case Study 1: 25% Reduction in Grid Electricity Consumption by Installing a Solar Photovoltaic (PV) System
The chemical production company wants to use the waste gas as fuel for a 7.8 MW CHP plant to replace part of the power supply from the grid.
This results in 18% savings from using the waste gas to feed the CHP plant.
“The company spends close to R7-million on electricity a month, and this new co-generation plant will cut this bill by about 20%. The additional 8 MW capacity will enable the company to operate at full production compared with the 70% capacity because of electricity constraints. „
Claudio Siracusano, GM, SACCCase Study 2: 18% Energy Savings from Utilisation of Waste Gas to feed a Combined Heat and Power (CHP) Plant
ESCOs have been classified in several ways in the literature depending on their origin, target customers and type of services, etc. ESCO markets in the developing countries generally adopt the following classification
Scope :10 countries covered
US, Canada, UK, Germany, Italy- fully matured ESCO industry
Brazil, India, China, Japan and Australia- market transformation and developing
Survey Size and Range: 30 responses from 146 questionnaires covering ESCOs , Financial Institutions and End users
Inception and history of development
Present size and scope
Key barriers and enabling factors
Future growth potential
Categorization and Grouping of barriers
The various barriers identified and discussed were grouped in seven different characteristics in the development of any emerging industry.Benchmarking exercise
There is a low level of awareness and a lack of information and understanding of the ESCO concept, capabilities and benefits in South Africa.
This extends to a common definition of what an ESCO is. As a result of this potential customers are not in a position to assess the benefits of the ESCO’s offerings.
Limited knowledge of the industry exists within FI’s, resulting in a lack of funding products.
Trust and scepticism
Trust and Scepticism is considered by all stakeholders within financial institutions, end user group and ESCOs. This is due to lack of accreditation within the ESCO industry.
No common definition and standards for ESCOs leading to the perception that many “fly-by-night” ESCOs exist that are not capable of providing a professional service.
Complex contracting with no standard contracts create uncertainty for end-users in terms of cost, savings potential, risk transfer, etc.
Financing and resources
No tailor made financing instruments: lack of financial instruments designed for the ESCO industry, combined with a lack of understanding of the industry, means that many start-up and small ESCO’s struggle to raise capital for projects.
ESCOs and projects perceived as high risk: Conventional financial institutions tend to view ESCO’s and energy efficiency projects as “business as usual” finance applications, and do not apply credit assessment criteria specifically designed for the ESCO industry. As a result of the nature of energy efficiency projects, limited collateral associated with energy efficiency projects, the EPC model and uncertain cash flow, these projects can be assessed as high risk by FI’s.SA barriers
The measurement and verification (M&V) process and the base-lining of projects was relatively well understood in principle, however the survey found that the M&V protocols are not well understood
National policies, legislation, regulations and incentives
There are a number of national policies, legislation and incentives within the South African Industry, however many stakeholders do not know or understand these policies, regulations or incentives.
There two main external factors are the relatively low energy prices that make energy efficiency projects and the payback on energy efficiency savings more difficult than in other markets globally.
Project approval times
The time taken to approve project funding means that ESCO’s loose project opportunities as clients sometimes decide that they no longer require the ESCO’s services.Other barriers identified by South African ESCOs
End Users results
Lack of dedicated staff to EE projects – require ESCO interventions
Often no dedicated EE department
Fear of rolling black out/Interrupted supply
King III sustainability – more focus by IEU
Some believe that ESCOs will be important in meeting their EE savings
Carbon Tax 2013/2014Enablers : Financial Institution and End User View