‘Urgently waive localisation rules for cheaper energy supply’

RMB CEO James Formby says South Africa urgently needs a ‘megawatts first’ policy.
RMB CEO James Formby. Image: Supplied

RMB CEO James Formby believes the cost of wind and solar energy production is increased by local material content rules and should be waived. Import tariffs, such as those on imported steel, are making renewable energy even more expensive.

In a statement issued on Tuesday, he said steel tariffs, a material component in renewable energy projects, should be waived to help lower the cost of solar and wind installations.

“It would be preferable to let the market decide where it procures material for green energy projects rather than government trying to prescribe the minutiae of local manufacturing of key components,” said Formby.

“The more local inputs are required, the higher the cost of energy production which means consumers are paying more for energy. Given the long term nature of these contracts, these costs are baked in for many years.”

He said component parts are typically cheaper when imported and can be 20% to 50% cheaper than SA-made parts, due to production scale and that manufacturing renewable energy components is largely automated, thus fewer direct local jobs are created than one might think.

“South Africa urgently needs a ‘megawatts first’ policy. The country faces a worst case scenario of 100 days of blackouts this winter, according to Eskom’s recent statement.”

Read: Load shedding crisis as Eskom breakdowns hit record levels

To address the severe generation shortfall which is set to grow as older coal-fired plans are retired, he said the goal of energy deregulation should be to get as much energy to the grid as quickly as possible and that reliable, cost-effective energy supply is the best way to build the economy and resilient local industries.

Micromanaging

According to energy analyst Chris Yelland the issue remains with the government’s attempt to micromanage the renewable projects when it “doesn’t understand how local companies make manufacturing decisions.”

“I believe in localisation where there is competitive advantage. Localisation should not be project driven, it should be market driven.”

Yelland says that the government is “out of touch” and is slowing down the delivery of energy projects by creating “mindless localisation decrees, which only create [fewer] jobs because local manufacturers employ few people. This ultimately affects the economy.”

Reiterating Eskom CEO Andre de Ruyter’s sentiments”, Yelland says “We need to cut out the red tape because this is an economic emergency. Unrealistic localisation targets only serve as stumbling blocks.”

According to mineral resources and energy minister Gwede Mantashe, the 25 renewable projects from bid window five is expected to create a total of 13 903 job years. “Of these, 72% of jobs will be for South African Citizens – a total of 10 048 SA jobs, of which 5 450 job years will be during the construction period and 4 598 jobs during the operations period.”

Although encouraged by the profound progress in energy deregulation in South Africa over the past year, Formby says he hopes for further advances, particularly around access to local electricity distribution grids to link private generators and consumers.

Read: Companies can produce up to 100MW of power – Ramaphosa

Nondumiso Lehutso is a Moneyweb intern

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But if materials are imported, how will local BEE beneficiaries be able to inflate prices, make ridiculous profits but add no value in the process?

Localization is the opposite of individual freedom and it infringes consumer rights. It is a form of enslavement of the consumer when we consider the fact that the miracle of the market mechanism and competitive free trade motivates the lowest-cost producers in the world to manufacture the best products at the most competitive price for the benefit of local consumers.

Any socialist infringement of market forces inevitably comes at a cost to consumers who will carry the cost of this program that aims to benefit “black industrialists” as the new political elite. The program intends to remove the international competition and the freedom of choice of local consumers for the exclusive benefit of special and privileged ANC cadres.

It is not just socialist infringement, but also sometimes very right leaning governments that implement all kind of protectionist measures, eg the Trump administration. And off course, it did not work. Protectionism as a whole doesn’t work. I thought that was the Big Lesson most economists learned from the 1930s depression.
James Formby is certainly correct by stating that local procurement rules should be scrapped for new energy projects. I already mentioned that in a comment below :
https://www.moneyweb.co.za/news/south-africa/were-on-stage-2-load-shedding-to-replenish-depleted-reserves-de-ruyter/
Not only localisation requirements, but also for community projects and BBBEE. I can stil remember attending, or listening to an online webinar on BW 5, of the REIPP, to Bernard Magoro of the IPP office at the DMRE, giving a very long explanation of the BEE scorecard. It is the Holy Script for them, the Bible to BBBEE cadre enrichment
Also increasing the BW to 5-10 GW, not putting a limit of 75 mW for PV solar, and 140 mW for wind, also accepting bids for CSP +TS, and PV and wind combined with BESS, that can deliver during the dreaded evening peak at acceptable rates of 50-120 CTS/kWh. The rates for power from the renewable projects part of the very controversial RMI4P program are ridiculously high at 144-188 cts /kWh. That could be halved, when they don’t have to provide by contract power 5-21h30 for at least 300 days a year.
There is an enormous lit that can still be improved in acquiring new generation capacity.

Sorry, last paragraph : there is an enormous list of things …

End of comments.

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