Study: Manufacturing localisation potential in renewable energy value chains in South Africa

• In support of enhancing the impact of the South African Renewable Energy Masterplan (SAREM), the LSF commissioned a study to analyze the local manufacturing capacity and capability for components used in the three main renewable energy technologies namely, Solar PV, Wind and Battery energy storage systems. 
• The LSF is a non-profit network orchestrator within the localisation ecosystem facilitating the connection between Supply and Demand participants, enhancing the value of the interactions by funding industry research and the deployment of technical expert resources to accelerate or unblock opportunities for growth in the manufacturing sector.

The LSF partnered with B & M Analysts to conduct this study. The objective of the study was to unpack the required value chains and technologies and then to compare to existing capability and capacity within South Africa thus identifying the challenges and opportunities that may exist to localise the manufacturing of Renewable Energy (RE) components in South Africa. The next element of the research was to then determine the ramp-up curve that would be required for those components to meet the specification, demand and competitive positioning to supply against the anticipated requirements for both public and private sector energy programmes. Despite the challenges presented by South Africa’s energy crisis, there are a range of RE generation opportunities in the private and public sectors, and as importantly, related opportunities to develop local manufacturing capability and capacity.

This project was delivered in two phases. Phase one encompassed both desktop and primary research and culminated in a value chain review, anchor demand analysis and an industry engagement summary. Phase two involved a localisation ramp-up analysis which presented a roadmap to localisation for various components in the value chain, as well as cross-cutting opportunities to support localisation within a value chain or across renewable energy value chains.

South Africa’s renewable energy value chains as drivers of manufacturing growth.

The creation and development of new industrial value chains linked to renewable energy (RE) (and specifically as discussed in this study in the wind energy, solar photovoltaic (PV) and battery energy storage sectors) can act as a catalyst to support South African economic growth – ultimately providing a growth path out of the country’s energy crisis. In addition, expanding productive capacity and enhancing competitiveness in these value chains has significant associated socio-economic and development-related benefits for the country. As demand for RE grows, so too must South Africa’s ability to localise and expand manufacturing capacity in key components of the RE value chains.

This is not without significant challenges, however. Strained public-private relationships, a relatively unattractive manufacturing investment environment, a comparatively and historically small local market with highly variable demand, weak policy and regulatory frameworks, and poor controls mean that the value proposition for localisation is heavily scrutinised by global technology owners and OEMs.

The study makes it clear that if South Africa wants to re-industrialise behind RE opportunities, substantive changes will be necessary in the policy and regulatory landscape, along with the introduction of globally attractive manufacturing investment incentives. As the private sector increasingly moves into RE, market fundamentals become increasingly important compared to the public sector’s procurement based on designation rules. Whilst there may be various obstacles to overcome in order to take advantage of the localisation opportunities, the appropriate response is to tackle the transversal challenges of policy and regulatory frameworks, and attractive manufacturing investment incentives. Addressing these creates meaningful and significant progress towards localisation in all three RE value chains.

It is worth noting, however, that RE value chains are not a homogeneous group. Although many of the interventions to unlock localisation overlap, there are still significant differences between the value chain dynamics. For example, in the wind energy value chain, the industry is recovering from hugely inconsistent demand in the market, which has resulted in little appetite for localisation in the industry. For solar PV, the dramatic surges in demand, juxtaposed with price sensitive customers in residential, commercial & industrial (C&I), and utility scale markets, has led the industry to become flooded with unregulated cheaper imported products with limited enforcement of existing tariffs or implementation of relevant standards. This has set a market price that undermines local production and growth and further erodes the investment business case with the outcome that localisation capacity and capabilities have been undermined. In battery energy storage, challenges remain in capitalising on high value components with safely guarded intellectual property (IP) in the hands of foreign companies and finding a way to overcome the perpetual problem – the beneficiation of local minerals.

A window of opportunity does show itself in many components across the value chains. With the right supportive policies and partnering with the right firms, the potential to expand production in these sectors and potential can be unlocked. There is capability and opportunity to increase capacity of certain components in Wind (Concrete Towers, Steel Towers, Tower Internals, Primary steel and collector transformers); Solar PV (Cables, Transformers, Mounting structures and trackers & string inverters); and Battery (Minerals, cooling components, battery pack casings) etc. It must be highlighted that the list of manufacturers and other value chain players listed in this report is not exhaustive.

This report notes that the growing demand for renewable energy, especially in South Africa which is facing an energy crisis alongside a climate driven need to transition, presents a unique opportunity for local manufacturing, which in turn will provide significant benefits to the economy. While complex, ramping up localisation in these value chains will be achieved through prioritisation and addressing interventions that impact the sector in its entirety. The report closes by identifying these interventions, which include ensuring that there is consistent demand, implementing and enforcing mechanisms that exist to enable local production over imports, and investing capital and expertise in service of enhancing the competitiveness of local manufacturing.