South Africa Report

InterviewsMay 12, 2016

GreenCape is Unlocking Investment Potential for Green Business in the Western Cape Economy

Mike Mulcahy, CEO of GreenCape

: Written by Scherzando Blaise Karasu; Published: May 12, 2016

Interview with Mike Mulcahy, CEO of GreenCape

What are some of the biggest drivers for the uptake of green technologies and practices in South Africa?

The biggest driver is the shifting economics that are involved in the prices of energy in South Africa. About ten years ago energy in South Africa was very cheap and largely driven by coal power generation. Over the last ten years we’ve seen a fundamental shift in those economics. Both with renewables becoming increasingly competitive and with the shortage of energy generation supply in South Africa. From 2007 the country started to experience load shedding which is where areas are switched off from the national grid for two to four hours. That shortage of supply in combination with the increase in competitiveness in renewable energy has really exploded the growth of the renewable energy sector in South Africa. The last leg of that has been the procurement program run by the national treasury and department of energy. Through an independent power procurement office that has been a world leading program in terms of transparency and competitiveness as well as the results they have been able to generate.

What is the predominant policy and legal framework for environmental resource management in the Western Cape?

The Western Cape has been a leading region in trying to develop and design policies that are supportive of the green economy. They’ve published a green economy strategic framework. In 2010 a combination of the city of Cape Town, the trade investment promotion agency and the regional government established GreenCape. As an entity we specifically focus on the green economy. It was about understanding the shifting economic fundamentals and positioning the province to take advantage of this new economy that was emerging. In the last two or three years we’ve seen a real push towards this becoming the main stream economy in the region rather than an alternative or new economy. The principles that are imbedded with the green economy have translated into almost run of the mill business in the region.

The Western Cape has been a leading region in trying to develop and design policies that are supportive of the green economy.

South Africa is ranked as the thirtieth driest country in the world with extreme climates and rainfall fluctuations and the Western Cape Province itself is classified as a water stressed region. What are some of the policy initiatives in place to insure integrated and sustainable management of water?

Water has been a huge focus and recently in the last six to eight months there has been a drought in South Africa which has increased the focus on water. There are a range of interventions that the provincial government has supported through GreenCape. These revolve around increasing the quality and quantity of water supply. Positive steps Such as removing alien invasive vegetation along the berg of the catchment are a start, so if you pull out all the blue gums it increases the quantity of supply. There is also the work we have been doing in the Saldanha Bay region which is an incredibly dry part of the province. With the industrial development that is scheduled to happen there it is a real requirement to insure that there is enough water for industrial development and one of the projects we have been involved in is looking at a water exchange network which basically means decreasing the requirement of possible water to industries. For example; if there is a steel mill it will eject water that is perhaps too high in temperature or contains too much chlorine so there should be a downstream industry that can use that as their primary water rather than using fresh potable water. There is a big opportunity in Saldanha Bay to look at the types of interventions such as this. The drive behind all of that sentiment is the fact that we are trying to see what you can do before you reach desalination and if there is sufficient planning done upfront you will find that there are a range of interventions that make more economic sense than desalinization. With all of this said there is still a large amount of work to be done looking at where the appropriate sites are. There is a gas to power program that has been driven by the IPP office and they’ve included desalinization as part of the broader aim of what that program could achieve which is looking at some of the technologies that have been internationally available. I think AQWA is probably the company that has done the most work on its seawater cooled LNG-to-power stations that have combination desalinization plants.

South Africa is in the midst of an energy crisis that is resulting in rising energy prices, rolling blackouts and the changing energy policies and incentives. To what extent have end users begun exploring alternative means to ensure their energy security?

Great question and the answer is that the last year has been an incredibly exciting time from an international investment perspective which you see in companies like Tesla opening an office in Cape Town and BYD the Chinese electric vehicle manufacturer who are investigating the process of establishing here. You see it in local battery manufacturers that are doing vanadium batteries. There’s a huge appetite for energy independence and for both industry and residential areas to look at what they can do to make sure that their energy is secure. What we have done as part of the regions energy security game changer with the city of Cape Town is to try to look for opportunities that we can have some quick wins to try to increase the security of supply for the region as well as getting the price trajectory of new build electricity under control. Much of this has revolved around the city of Cape Town being the first municipality to allow small scale embedded generation. That basically entails putting PV on your roof and you can sell it back to the city. There’s a lot work in electricity grid optimization and supply and demand management. From South Africa’s perspective no one cared about these ten years ago. There was no imperative. It was cheap and plentiful. Now there is both scarcity and price concerns so the appetite for all sectors of the economy to understand what they can do about their energy has increased. One of the programs we are working on at the moment is to try to make sure that all of the municipalities in the Western Cape have a mechanism to allow them to buy power back from residential and commercial customers. At the moment there are two and we hope that by June there should be ten and by the end of 2017 all twenty-five should have a mechanism to allow them to purchase power back. Underpinning that is a lot of work to design a smart meter standard for South Africa. GreenCape is the technical lead to develop that standard so working together with the city of Cape Town, the city of Johannesburg, Eskom and a range of stakeholders we have advanced to being able to have a smart metering system that meets the local condition requirements which will allow this embedded generation technologies to really take off. Linked to that is South Africa’s legacy structured around how they have handled electricity pricing and making sure that the pricing, price signals and the embedded subsidies and cross subsidies that are in their electricity price are well thought through, so you end up in a situation that people are making decisions based on economic fundamentals rather than having crazy subsidies flying around. The examples of when it goes badly have been seen in Spain and Europe where you have inflated prices that overheat and crash the market. We think that South Africa has an opportunity to learn from those lessons and to really have the value of the underlying energy reflected in the tariff. The natural resources that are available in South Africa have meant that the revealed prices for utility scale renewable energies are in the region of four to five euro cents per kilowatt hour which opens up a massive opportunity for how renewables are perceived in the country and where they fit in relative to other technology choices. The last point on this is the renewable energy programs; the 6,000 megawatts that have been allocated of which about 3,000 are connected to the grid. Those renewables are now the cheapest new build electricity that South Africa can buy. The revealed prices are cheaper than new coal and are cheaper than new gas so renewables form the first layer of procurement and the rest of the system will be put into place to balance the variability of those technologies.

The Cape Town area particularly has emerged in the last five years as South Africa’s renewable energy and green tech hub. To what extent would you argue that the Western Cape government has made both the ease of doing business and the green economy key priorities of its administration?

The evidence is here. The underlying focus that the provincial government has had on the green economy started in 2009-2010 with the establishment of GreenCape and to demonstrate this here are some of the high level figures of the successful renewable technology developers. Over sixty per cent are based in the Western Cape. Of the manufacturing capacity that has been set up to service those projects, close to seventy per cent of those are based in the Western Cape. GreenCape has been the first African member of the international clean tech cluster network. This is a network of world leading green regions and the cluster development agencies that support those regions. There are about a dozen clusters which include Japan, Europe and USA that are part of this network and GreenCape is the first African member. The intention with that international cleantech cluster network is to try to link to the C40 cities network. There is now a formal signed agreement between the ICN and the C40 network and all of it is about how cities and regions can deal with these mega-challenges and what they can learn from each other. Companies in the Western Cape can teach companies in Denmark or in the USA and they can teach us how to promote the green economy.

What factors are providing and adding the impetus for transitioning to more sustainable methods used in Western Cape agriculture?

Agriculture is one of the primary economic drives of the region and recently we’ve had a big focus together with the department of agriculture to look at what alternatives there are such as rotational cropping and looking at the viability of bio-fuels. Water is a massive concern and there is an interesting ground-breaking program called FruitLook which uses satellite images to measure the transpiration of water losses on agricultural fields and give farmers real-time information of where they should water and when they should water. When you overlay how much water is evaporating with what the expected weather conditions are you get a much higher yield from the water that you’re effectively putting into that field. We’ve set up an agricultural portal that is accessible to farmers in the region and the intention is to show the farmers case studies where a farmer has tried out this sustainable farming technique whether it’s using thermal solutions for pasteurizing milk or rotational cropping or putting PV on pack houses, we can capture many of these investments that the agricultural sector has already broadly made and make those available to a range of farmers so that they can essentially figure out which things make sense in their contexts and then push a bunch of that information through the various agricultural industry associations conferences and meetings.

Would you say that it is becoming more economically feasible for farmers to adopt green technologies?

Yes it is. It’s about understanding the niches within each market. For example; there is a big apple and a big citrus industry in the Western Cape which necessitates large pack houses that have cold storage for long periods of time. Cold storage is a natural match for PV. The more the sun is shining the harder you have to run the fridges so your load profiles match really well. This means that the business case for why you would invest in rooftop PV on a pack house is significantly different to the business case as to why invest in rooftop PV for another process. And finding the niches where the economics are changing is a lot of the work that we are doing and then making that information available to the farmers. The rotational cropping using triticale is another fantastic example and there’s a lot of farming happening in the Swartland that is for wheat and on a five year rotational cycle planting triticale has increased the yield on almost all of the farms that have experimented with it. The results are now being seen from many of the attempts that were made in 2009-2010. It’s no longer a case of arguing why should you go green, for the environment or because it’s green and supports the environment. Now it makes sense because it’s commercially viable and it’s in your best interest. This is the shift from it being seen as an alternative economy to it being the mainstream economy. This is how we do things in the Western Cape.

Tell us about some of the forthcoming projects that you have in the pipeline for growing the green economy in the Western Cape?

The most exciting one is the proposed special economic zone in Atlantis. We are the project management office to turn an industrial area in South Africa, in Atlantis, into a special economic zone that will have a specific focus on green technology manufacturing. This is a program that we are working on with the national department of trade and industry as well as the city of Cape Town. We started about two or three years ago trying to turn Atlantis into a green technology hub and there are many results that we have started to see. In the last year there has been close to seven hundred million rand of direct investment into Atlantis and into manufacturing for green economy components. It includes a big international investor called Gestamp renewables. They’ve invested into Atlantis to manufacture steel towers for the wind industry but there are many other investments that have happened in Atlantis around renewable energy. Business incubation, around clustering, around the Gestamp investment and there’s a Danish company called Resolux which has opened up in Atlantis to manufacture the internals for the towers, the ladders, the platforms, the wiring and so on. There has also been a large investment in two companies expanding. One looking at green building materials for residential use such as double glazed glass and the other one looking at geotextiles such as recycled PET that is turned into a geotextile that is used for retention banks and constructions programs such as the Gautrain or skyscrapers. Basically to hold sand and dirt and it’s a very green process using a hundred per cent recycled water bottles. We are very excited about the possibility of Atlantis being designated as a special economic zone.

When are you hoping that it will be official?

We submitted the application in February this year and the statutory time frames are six months for the department of trade and industry to evaluate it. We are very optimistic that the evaluation will happen next month and then there’s a period of public comment so we anticipate that before August this year that the designation should hopefully take place which really opens up a broader opportunity for Atlantis. Another project that we are working on in Atlantis specifically is around LNG-to-power. The same IPP office that has run all the renewable energy procurements has also begun running LNG-to-power as a procurement. LNG is broadly seen as a transition fuel as well as a complimentary fuel to manage the variability of renewables. Atlantis is a really interesting region because there is a peaking power station that is owned by Eskom, the national utility, which is effectively running on diesel. It’s a 1,000 megawatt facility and is extremely expensive to run. The hypothesis is that if we can develop a site that’s owned by the city of Cape Town and that’s adjacent to Ankerlig for a 1,500 megawatts and make that site available to a range of private sector players to bid in this ipp office program, then that site will allow the infrastructure requirements to have both importation in saldanha as well as the pipeline to Atlantis to supply both Ankerlig as well as this ipp project. If you have two and a half gig watts of gas you have a sufficient justification to build that infrastructure. At the moment with just the 1,000 megawatts at Ankerlig you don’t have enough financial viability for someone to make the investment into building that infrastructure. Added to that we think there’s a very interesting grid stability argument. A lot of the renewable energy projects are located in the Northern Cape which is all on the western region grid. Ankerlig is also on that western region grid so you have a power station close to a load centre in the city of Cape Town that is on the same infrastructure as the renewable energies. It’s an elegant solution for balancing power. We've commissioned an environmental impact assessment on that site and the expectation is that the city will make that site available to any project developer that would like to bid into this upcoming procurement for gas to power.

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South Africa Report

GreenCape is Unlocking Investment Potential for Green Business in the Western Cape Economy

Mike Mulcahy, CEO of GreenCape

Interview with Mike Mulcahy, CEO of GreenCape

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