– A Case Study of successful Local Content achievement, B-BBEE & Youth participation on Zero Point Energy’s recently completed public-sector 70kWp Solar Photovoltaic (PV) projects
Date: 10 June 2018
In recent years, there has been a major push for Broad-Based Black Economic Empowerment (B-BBEE) participation of investors, industrialists and engineering procurement and construction (EPC) contractors in South African public-sector renewable energy projects. This has been coupled with a drive to enhance local content on equipment and services on these projects.
“The amended B-BBEE Codes of Good Practice came into effect on 1 May 2015 with a clear mandate to increase the number of black people (i.e. previously disadvantaged people of black African, coloured and Indian descent) participating in the country’s economy in an attempt to redress the structured exclusion imposed by the historical South African Apartheid government that spanned almost 50 years prior to democracy in 1994.”
It is also encouraging that youth and women involvement in the renewable industry will be emphasised in the latest upcoming round of the government’s utility-scale Renewable Energy Independent Power Producer Procurement Program (REIPPPP) as noted in Department of Energy (DOE) Minister Jeff Radebe’s recent announcement where he said “(sic) In the new [REIPPPP Round 5] bid window there would be specific requirements for women-owned business participation and special opportunities for the youth”.
Regarding local content, South Africa through its Industrial Policy Action Plan (IPAP) identifies local content as a strategic industrial policy instrument, which can be used to leverage the power of public procurement; reduce the country’s trade deficit; address market failures; foster infant industries; and increase the governments tax base (Department of Trade & Industry (DTI), 2016). This has resulted in commendable (yet sometimes criticised) targets already set by the Department of Energy (DOE), with some encouraging results achieved in each evolving REIPPPP bid round to date. In the latest REIPPPP rounds (both utility-scale Round 4 and small projects under 5MW), targets as high as 65% local content & 20% black ownership in the EPC & O&M contractor have proven not altogether impossible asks, with the trick still required to instil confidence in original equipment manufacturers (OEMs) to warrant investment in manufacturing facilities locally, and to provide meaningful EPC scope and lead responsibilities to locally owned contractors with youth participants. This will ensure tangible skills development and knowledge transfer that creates sustainable value and expertise within these teams that can be taken forward onto future projects.
The revised Preferential Procurement Policy Framework Act (PPPFA) regulations which came into effect on the 7 December 2011 empower the South African DTI to designate industries, sectors and sub-sectors for local production at a specified level of local content. Within the past few years, the following industries, sectors and sub-sectors have so far been designated for local production with minimum local content thresholds in the solar PV industry as indicated in Table 1 below. The public sector in South Africa is a significant market and comprises all government-affiliated organisations including all National and Provincial Departments, Metros, District Municipalities, Local Municipalities, Municipal Entities, Development Agencies, Constitutional Bodies and large State Owned Enterprises (SOEs) such as Eskom, Transnet, SANRAL, ACSA, etc.
Table 1: DTI Designation for local content thresholds in the solar PV industry
|Solar PV Components:||Minimum %|
“Zero Point Energy, as one of a few Level 1 B-BBEE EPC players in the South African commercial & industrial solar PV sector, was appointed as main contractor to construct 70kWp of solar photovoltaic (PV) projects in competitive public-sector tender process”
Zero Point Energy, as one of a few Level 1 B-BBEE EPC players in the South African commercial & industrial solar PV sector, was appointed as main contractor to construct 70kWp of solar photovoltaic (PV) projects that were won in competitive bids for a public-sector agency looking to enhance rural agricultural economies in South Africa. These projects have now been successfully closed out proving tangible electricity operational cost savings to the client. While many of the B-BBEE and empowerment targets were not specific requirements for this project, Zero Point Energy used the project as an opportunity to stress-test just how many of these important aspirational empowerment targets can be met without comprising cost-competitiveness and quality. This article shares some of the positive results and learnings achieved on these projects with the hope that it will trigger wider collaboration and solution-driven thinking amongst all stakeholders to enhance the public-sector solar PV industry.
Zero Point Energy’s leadership team had in previous roles been fortunate to interact and understand the challenges faced by solar PV EPCs & OEMs in meeting DOE & DTI local content and empowerment targets, and grateful that some of the learnings from the REIPPPP could be taken across to industrial-scale solar PV projects in the South African public-sector where local content and empowerment targets are rightfully just as important pre-requisites. This was achieved through some innovative approaches to design & technology selection, contracting, in-house team empowerment and meticulous attention to supply chain improvements where we identified, vetted and negotiated directly with equipment, material and service suppliers that scored highly on both local content and empowerment status, without compromising cost competitiveness and quality.
Figure 1: The Zero Point Energy installation team using fall-arrest safety gear to install roof mounting structures early in the solar PV project execution phase
Despite being in a rural setting with logistics challenges, not having the same economies of scale as utility-scale PV projects, nor having as large civil works scope (where major local content spend often sits in the utility-scale projects), the team managed to bid these projects cost-competitively with just over 60% local content – well above the consolidated local content target (+-23%), and completed them successfully ahead of schedule and on budget.
“The team managed to bid these projects cost-competitively with just over 60% local content – well above the consolidated local content target (+-23%), and completed them successfully ahead of schedule and on budget.”
Local content was calculated according to SATS 1286:2011 – the SABS standard for measurement and verification of local goods, services and works in South Africa. Zero Point Energy factored in comprehensive project costs, pre-requisites and regulatory compliance expected on public-sector solar PV projects, including (non-exhaustive list):
- Professional Engineer (Pr.Eng) design & engineering requirements
- Tier 1 equipment selection and industry-leading performance guarantees
- Department of Labour compensation fund (COIDA) good standing
- Related NRS, Distribution Grid Code, Eskom utility & SANS specifications
- Government Central supplier Database (CSD) clearances
- Broad Based Black Economic Empowerment (BBBEE) certification
- Relevant contractor insurance, guarantees and workmanship warrantees
- Construction Industry Development Board (CIDB) accreditation
- Accredited Department of Labour and associated registered electricians
- Issuance of Certificates of Compliance (CoCs)
- South African Revenue Services (SARS) & tender tax clearances
- Eskom grid access unit (GAU) processes and approvals
- Occupational Health & Safety (OHS) Act Safety Health & Environment (SH&E) requirements
A high-level breakdown of local content achieved on these projects is presented in Table 2 below.
Table 2: Local content breakdown (in %) on 70kWp solar PV Projects recently completed by Zero Point Energy
|Solar PV Project Bill of Quantities||Client’s Minimum Local Content bid criteria||Zero Point Energy’s final Local Content offering|
|Equipment & Material:|
|Laminated Solar PV modules||15%||15.5%|
|DC combiner (junction) boxes||65%||65%|
|Grid-tied string inverters (incl. inverter accessories)||40%||40%|
|DC, AC power & earthing cabling||0%||85%|
|Steel cable trays||0%||100%|
|Electrical balance of plant consumables||0%||100%|
|AC Distribution boards (incl. protection, metering, control & earthing components)||0%||80%|
|Remote monitoring & logging system||0%||100%|
|Roof fall arrest & prevention system & training||0%||100%|
|Electrical + Mechanical installation/Testing/Commissioning/CoC (in-house)||0%||100%|
|Pr.Eng Design + Engineering + Quality Management + Eskom liaison (in-house)||0%||100%|
|Project & construction management (in-house)||0%||100%|
|Safety, Health & Environment (SH&E) + Dept. Labour permitting (in-house)||0%||100%|
|Delivery of Material & equipment to site & logistics (various)||0%||100%|
|Total Projects Local Content||+-23%||60%|
|ZPE Future Identified Solar PV Project Local Content Opportunities:||Achieved Currently||Short-term Future Projection**|
|Solar PV Modules||15.5%||22-25%%|
|Grid-tied string inverters||40%||60%-90%|
|DC junction boxes||65%||100%|
|DC Solar cable||0%||100%|
|Male & female MC4 PV connectors||0%||100%|
|Surge Protection Devices (SPDs) Type 1 & 2 surge + lightning protection devices||0%||50%|
|Total Projects Local Content||60%||>72%|
* – Module supplier could not confirm local content as per DTI component breakdown, but could confirm total PV module local content of 15.5%
** – Short-term defined as within the next 12 months based on our on-going discussions with local manufacturers, suppliers and distributors.
As can be noted, there was opportunity to provide local content on several additional equipment and services beyond the DTI designated list of PV components. There was also a conscious effort to empower Level 1 suppliers if and where possible. Some recommendations for future local content improvements are also shown above. It is acknowledged that some equipment/services on above list that may already be manufactured locally or available with higher achievable local content, yet Zero Point Energy weren’t in a position to verify equipment specifications for this particular project or current pricing made it infeasible to consider at the time of bid submission. The team is continuously learning and looking to improve our offering to clients, and will surely include these learnings going forward.
Zero Point Energy had gone out to market to obtain quotations for both internationally leading Tier 1 equipment available through local suppliers, in parallel to the strategic local content procurement sourcing exercise that was conducted for these projects. A summary of the cost comparison is shown below in Table 3, with results indicating that overall pricing would’ve been 5% cheaper without a local content requirement. This may be a surprising result given previous claims that local content on PV projects throws out competitiveness owing to 20-30% increase in pricing due to onshoring.
Table 3: Comparison of equipment pricing for global vs local content
|PV Equipment & Material||Pricing of Global Tier 1 supplier vs. Local Content Supplier||Local Content Percentage|
|some Electrical Balance of Plant Components||-15%||Various|
|Total Project pricing difference||-5.00%|
Some of the prominent insights on the improvement opportunities that were identified on these projects:
- PV Modules – competitive economies of scales will only be achieved once MW order books can justify further manufacturing investment by PV module OEMs locally. This trickle-down benefit to the commercial & industrial PV sector will likely only occur once certainty around future utility–scale REIPPPP bid windows is achieved. Until this happens, it is unlikely that local content can increase beyond 22-25% in the short-term (attributable to PV module framing, testing & quality assurance done locally) unless major OEM manufacturing investment takes place
- Inverters – 100% locally manufactured off-grid, hybrid and grid-tied inverters in the <10kWp range are available currently. Obtaining larger grid-tied inverters at competitive pricing and meeting all necessary NRS specifications prove more challenging, but market growth in the sector will ensure a change to this trend
- Mounting structures can be manufactured to a high standard using local steel thus proving to be cheaper than imported industry leading mounting structure suppliers from Europe
- DC solar cable, MC4 connectors and lightning protection & SPDs – A definite opportunity and a re-look into local cost-competitive and SANS certified equipment will be conducted
While there is still a slight cost advantage to forego local content, it has been shown that through some small incremental improvements in only a few key component channels, the price parity to compete with global solar PV OEMs can be closed thus enhancing local cost competitiveness. Through continuous interaction between the DTI, DOE and other industry stakeholders, we are confident that South Africa can achieve the improvement areas outlined above while maintain competitive costing and quality standards in the industry.
Figure 2: Zero Point Energy mechanical installer surveying the completion of the roof-top module installation
The 3 priority pillars of B-BBEE are ownership, skills development and enterprise/supplier Development (ESD). Enterprise development is aimed at providing contributions to assist in the operating, financial and development towards small black businesses that are start-up businesses or new entrants. Regarding empowerment targets, these projects were executed by our 100% local black youth-owned company (including 30% black female-ownership) with a team compliment of 90% black-youth professionals (project & construction managers, engineers, electricians, mechanical installers, SH&E and admin staff) and 33% of engineering-compliment being women-youth.
These projects were executed by our 100% local black youth-owned company (including 30% black female-ownership) with a team compliment of 90% black-youth professionals (project & construction managers, engineers, electricians, mechanical installers, SH&E and admin staff) and 33% of engineering-compliment being women-youth
The statistics are summarised below in Tables 4 and Table 5. Zero Point Energy prioritised broad empowerment participation across all designated groups despite the tender not stipulating any specific or minimum criteria for black, youth or women participation nor any preferential procurement minimum targets. There has also been improvement areas identified, which the company intends to continuously work on to ensure a sustainable and inclusive environment.
Table 4: Zero Point Energy’s Empowerment Statistics on Solar PV Projects
|Solar PV Project Bill of Quantities||Contracted Equipment/Service Supplier BBBEE Level Contributor Status|
|Equipment & Material:|
|Laminated Solar PV modules||Level 2 contributor*|
|Module frames||Level 2 contributor*|
|DC combiner (junction) boxes||Level 1 >50% black-owned contributor*|
|Mounting Structure||Level 1 100% black-female owned company|
|Grid-tied string inverters (incl. inverter accessories)||Level 4 contributor|
|DC, AC power & earthing cabling||Level 1 >50% black-owned contributor*|
|Steel cable trays||Level 1 >50% black-owned contributor*|
|Electrical balance of plant consumables||Level 1 >50% black-owned contributor*|
|AC Distribution boards (incl. protection, metering, control & earthing components)||Level 1 >50% black-owned contributor*|
|Remote monitoring & logging system|
|Roof fall arrest & prevention system & training||Level 1 100% black-owned company|
|Electrical + Mechanical installation/Testing/Commissioning/CoC (in-house)||ZPE (Level 1 BBBEE – 135%)|
|Pr.Eng Design + Engineering + Quality Management + Eskom liaison (in-house)||ZPE (Level 1 BBBEE – 135%)|
|Project & construction management (in-house)||ZPE (Level 1 BBBEE – 135%)|
|Safety, Health & Environment (SH&E) + Dept. Labour permitting (in-house)||ZPE (Level 1 BBBEE – 135%)|
|Delivery of Material & equipment to site & logistics (various)||Including Level 1 100% local black-owned company|
* – Company in process of updating/re-calculating B-BBEE level owing to re-structuring or annual review
Table 5: Zero Point Energy’s Empowerment Statistics on Solar PV Projects
|Zero Point Energy’s Empowerment Statistics on solar PV Projects||Black Participation (%)||Youth Participation (%)||Women Participation (%)||Notes|
|Ownership||100%||100%||30%||Level 1 BBBEE EME|
|Management professionals||100%||100%||0%||Identified future Improvement area for women participation|
|Skilled Installation professionals||100%||90%||0%||Identified future Improvement area for women participation|
|Project Administration team||100%||100%||66%|
Table 5 presents statistics for the team that was entirely responsible across the project life-cycle from bid submission to project close-out. There was significant knowledge transfer and skills development across all work-streams owing to both structured and on-the-job training. Zero Point Energy also makes substantial efforts to mentor vacation work student engineers, and offer skills advancement training to its solar PV, battery, hybrid and off-grid installation teams on projects. To enhance skills development, a focus has been placed on accredited training and learnerships aligned with the South African Photovoltaic Industry Association (SAPVIA) and the Engineering Council of South Africa (ECSA).
Figure 3: Completed inverter and PV AC electrical distribution system
The case study bears testament to the existence of proficient local solar PV equipment & material manufacturing capabilities, and the availability of empowered skills & expertise in South Africa. Despite these projects being relatively small, the experience can be replicated with better results on bigger projects with better economies of scale. Also, the outcomes from these public-sector projects can be similarly replicated in the private sector with minimal tweaks, despite the same B-BBEE and DTI thresholds not being mandatory in the private sector. There is tremendous potential for the solar PV industry to flourish if DOE & DTI policies attract the necessary investment and confidence, and valuable lessons from the DOE’s REIPPPP program are allowed to trickle down and expand into other sectors of the SA green economy.
It also shows the positives that can be achieved on the empowerment front if local and youth-owned EPC contractors are given the opportunity to succeed. There are undoubtedly challenges that remain in the industry such as local cost competitiveness, skills shortages and by no means can we claim that these issues have been resolved. Zero Point Energy stresses a company ethos of continuous learning and development, and a passion to transform the energy industry without compromising on safety, quality and client satisfaction. We are confident that we all will build Southern Africa’s sustainable energy infrastructure inclusively, and that this can be achieved shortly, if not already. The important rider being that we continue taking the smalls steps forward on this shared journey with all stakeholders who have an interest in making a sustainable and positive difference in South Africa.
NB: Details regarding end-client, other stakeholders and pricing have been purposely omitted from this article owing to client confidentiality agreements signed between Zero Point Energy and related parties.
Zero Point Energy (Pty) Ltd is a proudly South African sustainable engineering company that provides professional engineering consulting & turn-key solutions in the areas of energy efficiency, renewable energy, off-grid and energy storage solutions, water efficiency and responsible waste management. The company is a 100% black youth-owned, 30% black female-owned EME achieving a Level 1 BBBEE Contributor status, and has a passion to transform the energy industry without compromising on safety, quality and client satisfaction. Email: firstname.lastname@example.org Web: www.zpenergy.co.za
Author Bio: Muhammad T Khan is the co-founder and Managing Director of Zero Point Energy. He was previously involved in developing & executing utility-scale solar PV and wind power projects in the South African Renewable Energy Program (REIPPPP), in roles including lead project engineer, engineering & design manager, and commercial EPC manager. He’s a qualified Electrical Engineer (BScEng), registered Professional Engineer (Pr.Eng), holds a Masters degree in Engineering Management (M.Eng) and completed CFA Certified Financial Analyst Level 1 studies. He has also conducted research in the energy policy, electrical engineering and renewable energy fields that have been published in international energy journals Elsevier & Cigre and has recently been awarded as a Mail&Guardian Top 200 Young South Africa leader in 2018 for involvement in renewable energy & off-grid electrification business & entrepreneurship. Email: email@example.com