The local low-pressure solar water heater industry says it has been killed because of "technical red tape" that has disqualified almost all South African companies from manufacturing these geysers for the governments mass installation programme.

Cape Town - The local low-pressure solar water heater industry says it has been killed because of “technical red tape”.\

It says almost all South African companies have been disqualified from manufacturing these geysers for the government’s mass installation programme.

For the last 18 months the industry has made appeals to the Department of Trade and Industry (DTi) to change the technicality, which deals with the percentage of local content required.

In December 2012, Eskom stopped the mass roll-out of its low-pressure solar water heater scheme to the poor, intending to replace it with a contract tender scheme.

But this never happened and Eskom says it was because no companies qualified under the DTi’s requirements.

A survey by Sustainable Energy Society of Southern Africa (Sessa), which represents about 400 solar water heater companies, estimated that at least 4 500 jobs had been lost, with some investors having lost their homes and pensions. Factories have closed down or have been mothballed and thousands of brand-new low-pressure geysers have been sitting in warehouses for 18 months.

James Green, chairman of Sessa’s solar water heating division, said yesterday: “An industry has been destroyed by red tape. It is a tragedy that hundreds of companies have been put out of business. This has caused severe financial hardship to many small SMMEs that set up locally around the country, creating local employment.”

In July 2013, the department made the low-pressure solar water geyser a “designated product” under government procurement rules. It ruled that both the tank and the collector tubes, which absorb the sun’s radiation to heat the water, must each have 70 percent local content. However, there is not a single manufacturer of tubes in South Africa.

Green said local companies made the tanks and frames, but although several companieshad looked into setting up tube factories, they could not compete with the low costs of China, which had cornered the world market.

“You would have to import the raw material from China or Turkey, you would need a 100 percent reliable electricity supply and you would have to have a workforce cheaper than China,” he said.

With no local tube manufacturers, companies could not qualify under the government procurement rules, and the industry ground to a halt.

“If the DTi made it a 70 percent overall local content, there would be no problem, because overall we’re already at over 80 percent local content. But they won’t.”

Most jobs were created in the installation and maintenance of solar geysers.

President Jacob Zuma had said 1 million solar geysers would be installed by March this year. The Treasury allocated R4.7 billion to the Department of Energy, of which R3bn was to be used for a mass roll-out of low-pressure solar water heaters installed at no cost to consumers on low-cost houses. About R1.5bn would go to pay consumers rebates on solar geysers of between 25 to 40 percent for high-pressure geysers.

Eskom spokesman Andrew Etzinger said to date about 400 000 solar geysers of the government’s million target had been installed, of which about 80 000 were high pressure and 320 000 low pressure. Eskom had received R2.471bn from the Department of Energy and would be returning R1.8bn to the department at the end of the month when it takes over as the implementing agent.

Etzinger said: “The industry can do 75 to 80 percent local content overall. A solution would be to combine the two parts and look at an aggregate level.” Eskom had gone to tender for the low-pressure systems, but no system had complied with the requirement, so no tender had been granted.

The DTi’s Gerhard Fourie said it had no intention of changing the 70 percent requirement for both the collector tubes and the tank. He believed nine companies did qualify under the rules for local content in collectors. However, these were for flatplate, not tube, collectors.

But Green said flatplate collectors were not used with low-pressure solar geysers because they were inefficient, expensive and not freeze-proof. “DTi’s asking us to make a product that doesn’t work.”

The Department of Energy said it would comment later this month when it announced how it would take over implementation of the solar water heater programme.

Cape Times

UPDATE

On January 23, the Department of Trade and Industry responded to this article in a letter to the Cape Times. Here is the text of the letter:

 

 

In the lead story (DTi rule pulls plug on solar geysers, Cape Times, January 21), the Cape Times has chosen to ignore the facts provided by the Department of Trade and Industry (DTi) in favour of information and a flawed analysis provided by importers, some of whom sit on large quantities of imported product.ignore the facts provided by the Department of Trade and Industry (DTi) in favour of information and a flawed analysis provided by importers, some of whom sit on large quantities of imported product.

In fact, the original e-mail query refers to 300 000 low-pressure solar water heaters. This large inventory is based on a speculative, high-risk, private and public sector demand analysis by importers – a speculative approach which has apparently now come to haunt the importers concerned.

The essence of the information provided by the DTi is as follows. Both importers and local manufacturers of Solar Water Heaters (SWH) are free to sell their products into the domestic and export market, subject only to the building and safety standards that apply in South Africa and export destinations. 

However, with respect to public sector procurement, the government stipulated a 70 percent local content threshold in order to support local manufacturers, with a focus on tanks and collectors. The government designated the tank and the collector precisely because the administrative and regulatory burden to prove local content for all the other components in SWHs is high. Thus the designation of these components relieves manufacturers of the burden of providing local content for a wide variety of small components such as screws, glue, bolts and paint. Fully imported collectors – evaluated separately – would not qualify under government requirements. 

Thus the article is factually incorrect. Another example is the statement that the DTi “made the low-pressure solar water geyser a ‘designated product’ “. This is factually incorrect. The government designated the tank and the collector, in any configuration, without specifying whether high- or low-pressure units would qualify or whether collectors should be of the flatplate or evacuated tube type.

The singling out of a low-pressure solar water heater integrated system and the exclusion of other configurations reflects a bias towards a complainant to promote a particular section of the market. The DTi, on the other hand, is under obligation to take a broader, inclusive view of the economy and ensure that all participants in the market are afforded a fair chance to compete, with a strong focus on local manufacture.

The renewables sector is a new market in which demand is uncertain and risky. New markets are characterised by volatility and, unfortunately, given demand and market dynamics, there is an ebb and flow both in demand and employment. However, what is indisputable is that long-term, sustainable job creation will flow from maximising local production and installation, and servicing of high quality product. There are numerous examples of sub-standard imports and a strong body of opinion that suggests that low-pressure geysers carry low levels of safety and poor operational standards.

Finally, temporary exemptions from the local content designation for public sector procurement can be granted where exceptional supply constraints exist. This is the prerogative of the procuring entity – the Department of Energy. To date, the DTi has received no indication from the Department of Energy that such an exemption is necessitated by supply constraints from local manufacturers.   

Garth Strachan

Deputy Director-General

Department of Trade and Industry