Assessment of Business ideas for the productive use of RE in South Africa
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Integrated Southern Africa Business Advisory (INSABA) Assessment of Business ideas for the productive use of RE in South Africa Report for Deliverable 3.2 and 3.3 Prepared by OneWorld Sustainable Investments Disclaimer: The sole responsibility for the content of this report lies with the authors. It does not necessarily reflect the opinion of the European Communities. The European Commission is not responsible for any use that may be made of the information contained therein. The authors endeavour to supply reliable analysis and believe that the material it presents is accurate, however, they will not be liable for any claim by any party acting on such information.
Business ideas for productive use of RE in South Africa Table of Contents Table of Contents ........................................................................................................1 1. Identifying Business ideas for productive use of RE in South Africa.................2 1.1 Process of identifying project ideas: ...............................................................2 1.2 Preliminary list of projects for consideration ...................................................2 1.3 Short listed projects........................................................................................4 2. Description of Business ideas...........................................................................4 2.1 Kazuko Game Lodge Project, Solar Water Heaters, Eastern Cape ...............4 2.2 Cut Flowers Farm: Solar pumps for irrigation, Eastern Cape .........................7 2.3 Dried Fruit Project, Solar Drying, Western Cape ............................................9 2.4 Green Energy Plant, Biomass, KwaZulu-Natal.............................................23 2.5 Laundromat, Solar Water Heater, Western Cape.........................................24 2.6 Austin Evans Abattoir, Biogas, Eastern Cape ..............................................48 2.7 Solar Cinema ...............................................................................................52 INSABA Business Ideas 1
Business ideas for productive use of RE in South Africa 1. Identifying Business ideas for productive use of RE in South Africa 1.1 Process of identifying project ideas: A number of projects were considered and evaluated at the preliminary stages of INSABA and some of these were short listed for in depth evaluation. A few projects developed much later in the lifecycle of INSABA as other market drivers emerged. Of note is the waste to energy conversion proposal for the Eastern Cape, which will require significant technology investment. The business case for this project has only started to make sense once the impacts of South Africa’s energy crisis were realised and this project is now set to go ahead. OneWorld spent some time in the initial stages of INSABA on developing and evaluating the biofuels project proposed for the Eastern Cape. Much work has been done on this project, including Jatropha curcas trials in different parts of the district, market up take analysis for biodiesel, technical evaluation through meetings with the Automobile Manufacturers association and with manufacturers in terms of their technical specifications for biodiesel inclusion in fuel blends in their vehicles (Volkswagen SA and Daimler Chrysler SA, both based in the Eastern Cape). OneWorld, through the INSABA project also made inputs to the development of South Africa’s Biofuel Strategy (now under consideration by the South African Cabinet). The strategy in its present form focuses on the demand side of the biofuels industry and almost ignores supply side issues, which are significant. The Eastern Cape is believed to be the primary supply province in a South African industry and the province is evaluating its position, food security and food price issues, its agricultural practices, its related natural resource base and a policy for responding to foreign interest (at the moment particularly Europe and China) and investment in securing scale of supply of biofuels. Europe is set to introduce a law that provides for the inclusion of 17% biofuel fuel blend by 2014, an undoubted key market driver for Africa, should the law be promulgated. Food security and food prices and the relationship with biofuels development in Africa needs to be carefully explored and considered and the industry has a way to go in terms of reaching a level of coordinated implementation and maturity. Whilst this development continues, it was decided relatively early on in the project to exclude the biofuels project as the timelines do not fit with INSABA timeframes and because the direct link to productive use is not easily made. This report presents projects considered at the various stages of the selection process in both regions. Section 5.1 is a preliminary list outlining those projects considered (not all chosen as projects that were viable from a productive use point of view). Section 5.2 lists projects that went ahead and Section 5.3 outlines the project mentioned above which has recently come on stream. The renewable energy resources considered were solar energy, biofuels and biogas. 1.2 Preliminary list of projects for consideration 1. Internet Cafes – Transkei (Eastern Cape)- Solar power for computers and lighting. INSABA Business Ideas 2
Business ideas for productive use of RE in South Africa 2. Television centres (rural areas – Malawi example) – Eastern Cape and Transkei powered by solar panels. 3. Aquaculture – (Somerset East, Eastern Cape) A local farmer wished to establish an aquaculture business on their farm in partnership with farm labourers. SWH and solar pumps are the identified technologies for energy supply. WP 3&4 – as described in projects above. The technology economic evaluation was completed, the market analysis (for the fish production and market take up thereof) is not. This is a lengthier exercise and previous SC experience in the aquaculture market is that rural markets can be difficult to establish. WP6 Solardome (system provider) has met with IAT and technology discussions been held.) A Nigerian based well-established aquaculture company (Durante Fish) met with the IAT and the entrepreneur and SC in the first week of December 2006. The objective was to share knowledge and expertise on tried and tested aquaculture systems as well as on market considerations. 4. Guest Lodge in Paternoster (West Coast, Western Cape) using SWH. This is a 10 bed roomed guest lodge and SWH is proposed for all bathrooms. The Entrepreneur and the System Provider (Solardome) have met (WP6) and the market analysis is underway. In this case, the IAT and the RET provider are the same entity and are receiving training in terms of WP 3&4. 5. OneWorld is working with Restio Energy on developing a Videocine project. The pre feasibility is complete and Restio and OneWorld will invest in the pilot. Feasibility study indicates that the project is viable in the peri-urban areas of Cape Town where there are no cinemas and where people have to travel distances in dangerous circumstances for this form of entertainment. The use of RETs will only become viable with subsidisation and in rural areas (replication opportunity) where grid access does not exist. The objective of the pilot will be to test the assumptions made and to learn the answers to some of the questions we have about the proposed business model before seeking investment in expensive renewable energy technology. The financials for this project can be found in Appendix 1, 10.1.1.) 6. Waste to energy conversion (Somerset East, Eastern Cape) - A waste management solution is urgently required for the district and OneWorld has identified a waste to energy conversion opportunity for the area. Municipal waste management practices do not comply with legislation and the district’s waste sites are a health hazard. In addition, the municipality has an energy deficit and thus cannot facilitate local economic growth. Significant investment opportunities have not materialised in the area as a result, for example the establishment of a substantial dairy facility in Somerset East. The waste management solution identified by OneWorld is to use both Municipal Solid Waste (MSW) and the local abattoir waste (blood and intestinal) – the latter could feed into an anaerobic digester along with livestock manure from the local pig farm and livestock farms. The proposed project combines productive use and a waste to energy solution and would secure an energy resource for the local municipality. The productive use component is in enabling a secure and reliable energy supply for the abattoir. WP 3&4: The market analysis (i.e. assessment of the demand for energy in the district has been completed by OneWorld with the BCDA. As already indicated, energy for further economic INSABA Business Ideas 3
Business ideas for productive use of RE in South Africa development is urgently required. The technology options are currently being evaluated (at the time of releasing this draft report) and include technology economic evaluation. WP 7: Funding for the waste management solution (municipal side) is available as a direct result of policy roundtable meetings with the stated local and provincial authorities. 7. Biofuels Project, Eastern Cape – as discussed in the overview to this section (section 5). 1.3 Short listed projects The projects listed below were selected for further consideration and are described in detail in section 2. 1. Kazuko Game Lodge Project using renewable energy, Eastern Cape 2. Cut Flowers Project using solar pumps and irrigation, Eastern Cape 3. Dusseldorf Dried Fruit, using solar drying, Western Cape 4. Green Energy Plant, converting biomass (wood waste and forest residue) to electricity, KwaZulu-Natal. 5. Laundromat using solar water heaters, Western Cape 6. Austin-Evans Abattoir and livestock waste to methane conversion, Eastern Cape. 2. Description of Business ideas Three of the six INSABA supported projects are located in the Eastern Cape, two are based in the Western Cape and one is in KwaZulu-Natal. The projects under discussion harnessed solar energy for heating water, drying fruits, pumping water and irrigating farmland. The biomass energy plant will convert wood waste and forest residues, using a steam turbine, into “green” electricity. The biogas project will harness methane and convert this to an energy supply for both the abattoir producing waste feedstock as well as for the local municipality. This project has been a late developer in the INSABA ‘suite’. It was not viable when evaluated in 2005, but the South African energy crisis has since established the business case for the project. The projects below have been ranked in terms of their success in relation to the INSABA project. The existence of the project, its closeness to completion and ability to complete were the key criteria used for ranking the projects. 2.1 Kazuko Game Lodge Project, Solar Water Heaters, Eastern Cape A UK investor, Mr Kim Tan who, along with a group of Transformational Leaders and Investors in Europe has interests in sustainable development projects in sub- Saharan Africa and Southeast Asia. Mr Tan decided to develop a ‘high-end market’ game farm in the Eastern Cape and sought co-finance from the Development Bank of South Africa (DBSA). The DBSA financing was for the game farm development and was contingent on a black empowerment (BEE) partner being secured. Disabled Peoples Concern (DEC) is the BEE partner and the DBSA have, after much bureaucracy and delays, invested their portion of the money. Kim Tan and his investor group have become disillusioned with investing in South Africa as a result of INSABA Business Ideas 4
Business ideas for productive use of RE in South Africa their dealings with the DBSA and are unlikely to consider other investments in the country anytime soon. The IAT for this project is Ron Begbie who is the Project Developer, through his organisation, Ingo Properties. Kazuko is an upmarket game farm situated approximately 160km from Somerset East and bordering on the Addo Elephant Park, a large game reserve that is State owned in the Eastern Cape. It has an area of 15 000 hectares. The World Bank Board approved a grant of US$ 5,5 million from the Global Environment Facility to assist with the expansion and conservation of the Addo Elephant National Park. Part of this initiative is the proposed removal of the boundary fence between the Addo Elephant Park and Kazuko. This entire area is a dedicated tourism development area, focusing on local beneficiation. The development of small- medium- and micro- enterprises (SMMEs) in local communities around the Addo Elephant National Park is beginning to benefit both the local economy and the conservation of biodiversity. Figure 1: Kazuko Game Lodge, Solar Water Heaters, Eastern Cape The Kazuko Lodge comprises a main building including a restaurant, conference centre and 24 brick and thatch luxury chalets (some of which are equipped for handicapped visitors) situated on a hillside offering views of the mountains, indigenous bush and birdlife. Also located on this reserve is the original farmhouse (occupied by the manager) and labourers residences. INSABA Business Ideas 5
Business ideas for productive use of RE in South Africa The farm was not linked to the National grid due to it being in a fairly remote rural area. The process for bringing electricity to the farm buildings involved 2 stages – firstly Eskom would have to bring the KVA line to the entrance gate of the farm and then secondly the developers would have to pay for the KVA connection to the reserve facilities. Three alternatives were evaluated: 1. Renewable energy as the only energy supply: This option was rejected on the basis that the reserve financiers and developers insisted on security and reliability of constant energy supply 24 hours per day, 365 days per annum. 2. Electricity supply from the grid: Eskom would run a KVA line to the reserve gate and the Developer to then install the on site connection line and points at their own cost. The lodge is situated a fair distance from the entrance gate. The cost to connect it to the main Eskom supply was estimated at the considerable cost of R8,000,000, subsequently deemed to be economically unviable. 3. A hybrid solution: Renewable energy used for specific purposes such as water heating and lighting, with gas for cooking and diesel generators as backup supply. Solar photovoltaic panels have been installed for lighting and solar water heaters in each chalet for water heating. Air conditioners run on diesel generation capacity. Figure 2: View over the Kazuko Game Farm OneWorld conducted market and economic analyses on these alternatives resulting in the selection of the hybrid model. The following has been implemented and also therefore completes the planned INSABA aspects of the project: 1. 24 chalets have each been fitted with solar water heaters and solar PV panels. 2. Gas has been installed for cooking. 3. Diesel generators have been installed for air-conditioning and back up supply for lights and water heating. INSABA Business Ideas 6
Business ideas for productive use of RE in South Africa Further work entailed training of the IAT as well as the farm manager in both technical and economic aspects of utilising solar energy on the reserve1. 2.2 Cut Flowers Farm: Solar pumps for irrigation, Eastern Cape OneWorld Sustainable Investments established collaboration with an IAT in the area, the Blue Crane Development Agency (BCDA). The Blue Crane Development Agency, located in Somerset East enables entrepreneurial development and emerging businesses in the district. The Cut Flower project, an already established business is situated approximately six kilometres outside Somerset East. Flowers grown in polytunnels in covered structures are primarily roses, michaelmas daisies and crysanthemums. Supply is to the local markets of East London and Port Elizabeth. The increasing demand for the flowers necessitated expansion and the INSABA project considered renewable energy for expanded productive use on this flower farm. Figure 3: Cut Flowers Farm, Solar Pumps for Irrigation, Eastern Cape 1 WP 4 & WP6: Business and Technical Advisory / Training and Coaching of SME-SP and IATs and matchmaking INSABA Business Ideas 7
Business ideas for productive use of RE in South Africa Research and economic evaluation demonstrated that solar pumps were an efficient alternative option for irrigation in the polytunnels. The first phase was established in 2004 and the second in 2005/2006. The pre-feasibility study was completed and a brief market analysis conducted. This focused on technology economics as the flower market was well established. The analysis was done with the BCDA who received training2 on the application of the pre-feasibility toolkit and were trained on the market analysis and technology economics evaluation3. Figure 4: Rows of flowers inside the polytunnels Training on the pre-feasibility study tool also included an additional IAT identified by the BCDA. This was a team of 3 consultants that comprise an ex-municipal manager and 2 ex Eskom engineers interested in doing further energy development work in the region. 2 WP 3: BCDA (Nico Lombard and Zola Skiwiya attended the workshop in Gobabeb, Namibia, October 2005 (pre- feasibility toolkit). Nico Lombard received further training in Cape Town in July 2006. OneWorld visited the district and the project to finalise the market study the week commencing 6 November 2006 where further market analysis training and actual market analysis on the project took place. 3 WP4: IATs received coaching and interaction on project developments. IATS (BCDA) have started disseminating training to their SMEs – particularly on pre feasibility assessments and RET knowledge and awareness. INSABA Business Ideas 8
Business ideas for productive use of RE in South Africa Figure 5: Polytunnels The following has been implemented: 1. The World Bank provided funding for all the flower farm expansion infrastructure costs including the solar pumps and irrigation equipment 2. Eastern Cape Development Corporation (ECDC) provided funding for the operational costs. 3. The INSABA / OneWorld project financed the renewable technology and economic viability analysis and the training for the IATs. 2.3 Dried Fruit Project, Solar Drying, Western Cape Dusseldorf Dried Fruit (DDF) is a dried fruit producing operation in Oudsthoorn in the Western Cape. The operation produces dried pears and apples for the export market. DDF purchases fruit from local growers and sun dry and prepare dried fruit for the export market. Sun drying is done in wooden trays with plastic covers for five months of the year. DDF is therefore a seasonal business, operating between May and September and closing for the remaining seven months of the year. DDF identified the need to improve the quality of their dried fruit and to increase the quantity of the fruit they export. The fruit produced by sun drying is of a lower quality limiting the selling price of the fruit. In order to increase the selling price, the quality would have to be improved and hence alternate fruit drying technologies are being evaluated. Drying, using solar technology can improve the quality of dried fruit. An economic analysis was therefore completed in order to evaluate the viability of using solar dryers as the preferred technology. Below is the technology economic analysis, demonstrating solar drying as a viable option, provided that the technology can be procured and supported locally. INSABA Business Ideas 9
Business ideas for productive use of RE in South Africa Figure 6: Dried Fruit Project, Solar Drying, Western Cape It is expected that solar dryers, currently being built by a technology provider in the Western Cape, will be installed for the May – September 2008 season. INSABA Business Ideas 10
Business ideas for productive use of RE in South Africa Dried Fruit Project, Solar Drying, Western Cape INSABA Pre-assessment of Project Proposals This tool is designed to help in the basic assessment of a proj It is very simple as it does not consider interest, depreciation y Country: RSA Fill in the white fields, the rest will be computed Pilot Region: Western Cape RE Technology: Solar Drier Business Idea: produce apple chips at higher value Proponent name, contact Rob de Clerk, Somerset In this tool, we determine the profile of the proponent entrepre Years of experience as owner of business 5 and the characteristics of the proposed business Number of employees w/contract 4 The figures in this examples are assumption based on intervie Proponent uses bank account (yes=5, No=0) 5 They need to verified during the market assessment Tool 2 Experience with formal loan (received=5, applied=3, no=0) 5 Experience in cost calculations, business plans (no=0, several=5) 5 Practice in maintaining/operating equipment (RET) (none yet=0, regularly=5) 3 The influence of these data on the ROI can be seen in the sen Total 27 Optimization can be done e.g. With the goal-function like "wha Calculation of ROI Apple Drier Determination of parameters Definitions Investment Capital 9,957 Estimated, then computed for ROI0,3 Total cost of technology investment Investment Lifespan 5 Estimated for solar dryer Life of the technology - i.e. period before it must be replaced Daily 2 kg dried apple-chips sold 5 days per week 52 Production 520 Units produced per year weeks/year= 520 kg p/a Price/unit 19.50 The current market price Sales price per unit produced and sold Revenue 10,140 Euro Sales price multiplied by number of units sold INSABA Business Ideas 11
Business ideas for productive use of RE in South Africa Costs for fresh apples: 10 * 0,55 €/kg = 5,5 €/kg (sales price of 0,55 €/kg is relevant as this is the opportunity Variable cost/unit 8.00 cost of the farmer);Costs for packaging: 0,5 Cost per unit produced e.g. material, processing packaging €/kg;Costs for preparation: 10 kg fresh apples can be prepared in 15 minutes and hourly wage is 8 €: 2 €/kg Cost of energy/unit no other energy costs of power, fuel added to variable cost Total fixed costs 1,000 Cost for display, handling Annual indirect costs such as rent, telephones, salaries Amortization/unit: 3.83 1,991 Amount needed per unit to cover investment in lifetime Direct costs per unit: 11.83 6,151 Variable costs plus amortization plus cost of energy Gross Margin/unit 7.67 Sales price per unit less the direct costs per unit Fixed costs/unit 1.92 Total fixed costs divided by the number of units produced Total costs 13.75 7,151 Direct costs plus fixed costs Net Margin 5.75 2,989 Revenue less total costs Return on Investment = net margin divided by capital ROI 30% investment Payback period capital investment divided by cash flow until initial expenses 2.00 years are compensated by the net margin INSABA Business Ideas 12
Business ideas for productive use of RE in South Africa 80% Sensitivity Analysis Capital Investment 60% Investment Lifespan 40% Units/annum 20% Price/unit 0% -20% -10% 0% 10% 20% -20% Variable cost of sale/unit -40% Cost of energy/unit -60% total fixed costs -80% percentage change of parameter INSABA Business Ideas 13
Business ideas for productive use of RE in South Africa Sensivity Analysis Variable total Capital Investment cost of Cost of fixed ROI Investment Lifespan Units/annum Price/unit sale/unit energy/unit costs - 20% 42.52% 25.02% 18.00% 9.65% 38.37% 30.02% 32.02% - 10% 35.57% 27.79% 24.01% 19.83% 34.19% 30.02% 31.02% 0% 30.02% 30.02% 30.02% 30.02% 30.02% 30.02% 30.02% 10% 25.47% 31.83% 36.02% 40.20% 25.84% 30.02% 29.01% 20% 21.68% 33.35% 42.03% 50.38% 21.66% 30.02% 28.01% - 20% 41.66% -16.66% -40.02% -67.86% 27.84% 0.00% 6.69% - 10% 18.51% -7.40% -20.01% -33.93% 13.92% 0.00% 3.35% 0% 0 0 0 0 0 0 0 10% -15.15% 6.06% 20.01% 33.93% -13.92% 0.00% -3.35% 20% -27.77% 11.11% 40.02% 67.86% -27.84% 0.00% -6.69% INSABA Business Ideas 14
Business ideas for productive use of RE in South Africa INSABA Verification & Market-Assessment of Project Proposals This tool is designed to verify the assumptions of the basic a The economic comparison considers cost of energy, in case of Country: RSA Fill in the white fields, the rest will be computed Pilot Region: Western Cape RE Technology: Solar Drier Business Idea: produce apple chips at higher value Market Context : describe In this field, we determine the market context of the business id naturally dried fruit are increasingly popular, domestic demand justifies the investment, international market survey might justify Market Size & Potential further expansion State whether the market allows a scaleable, replicable use. S market does not need dried fruit and may reject if contamination happens. For producer important for surplus harvest, which else will rot or go to juice. Risk is cheap import from Eastern countries, Market Need, Risk extended bad weather who really needs the product and which assumptions, barriers Du Plessis with sun-drier is much cheaper, with electric stove still Competitor can produce cheaper Describe direct, indirect competition Competing Technology Electricity (subsidized) What is current technology, which technology might take over natural production and natural processing go together. "Sun-dried" Appropriateness of RET gives better aroma, sells higher Why would RET be preferred, by whom competition goes for bakery market, drier targets small package Market Segment consumer market Where is the strategic focus of competition, vs. Ours solar dries faster than open air, less risk, environmentally superior to Main Differentiator electric What is the striking difference in strategy Sustainable Production increased production might require chemical/radiative stabilization Are there environmental influences in enhanced production sta Calculation of Competitiveness Apple Drier Alternative Description of Alternative Definitions Investment Capital 6,215 500 Dry apples in electric stove Total cost of technology investmen Investment Lifespan 5 5 stove lifetime Life of the technology - i.e. period b INSABA Business Ideas 15
Business ideas for productive use of RE in South Africa Production 520 520 20 kg fresh apples per day can also go in stove Units produced per year Price/unit 19.50 19.50 The current market price Sales price per unit produced and s Revenue 10,140 10,140 Euro Sales price multiplied by number of Variable cost/unit 8.00 8.00 see tool 1 Cost per unit produced e.g. materia drying of 10 kg lasts 10 h, stove needs 1 kW, price of Cost of energy/unit 2.20 power is 0,22 €/kWh, therefore costs for power are 2,2 costs of power, fuel added to varia €/kg Total fixed costs 1,000 1,000 Cost for display, handling Annual indirect costs such as rent, Amortization/unit: 2.39 1,243 0.19 100 Amount needed per unit to cover in Direct costs per unit: 10.39 5,403 10.39 5,404 Variable costs plus amortization plu Although the ROI for solar drier is good, the Gross Margin/unit 9.11 9.11 competition with electric stove can produce cheaper. Sales price per unit less the direct c If we are satisfied with the same margin, the solar Fixed costs/unit 1.92 1.92 drier may not cost above 6.215 Euro, if we want to Total fixed costs divided by the num achieve the same ROI, the goal-seek function tells us Total costs 12.31 6,403 12.32 6,404 the drier may not cost above € 649. Production Direct costs plus fixed costs considerations are: The solar drier may be able to Net Margin 7.19 3,737 7.18 3,736 produce more than the stove, but it may fall back Revenue less total costs during bad weather. Return on Investment = net margin ROI 60% 747% investment Payback period capital investment divided by cash 1.25 0.13 are compensated by the net margin years INSABA Business Ideas 16
Business ideas for productive use of RE in South Africa Mon Month- Month- Mont Mont Month- Month- Month- Month- Cash Flow Month-1 th-2 3 4 h-5 h-6 7 Month-8 Month-9 10 11 12 Total T Yea Year Year Analysis Year 1 r1 Year 1 Year 1 1 1 Year 1 Year 1 Year 1 Year 1 Year 1 Year 1 Year 1 Ye Products Sales Applechips kg 20 60 60 60 70 80 90 80 50 40 60 60 730 Bananachips kg 20 20 20 20 20 20 20 20 20 20 20 20 240 Product 3 0 0 0 0 0 0 0 0 0 0 0 0 0 Cash Inflow Turnover Price 1,17 Applechips 19.50 390 0 1,170 1,170 1,365 1,560 1,755 1,560 975 780 1,170 1,170 14,235 9 Bananachips 22.00 440 440 440 440 440 440 440 440 440 440 440 440 5,280 4 Product 3 0 0 0 0 0 0 0 0 0 0 0 0 0 1,61 TOTAL Turnover 830 0 1,610 1,610 1,805 2,000 2,195 2,000 1,415 1,220 1,610 1,610 19,515 14 TOTAL Cash 1,61 Inflow 830 0 1,610 1,610 1,805 2,000 2,195 2,000 1,415 1,220 1,610 1,610 19,515 14 Cash Outflow Material Cost Applechips 8.00 160 480 480 480 560 640 720 640 400 320 480 480 5,840 4 Bananachips 10.00 200 200 200 200 200 200 200 200 200 200 200 200 2,400 2 Product 3 0 0 0 0 0 0 0 0 0 0 0 0 0 TOTAL Material 360 680 680 680 760 840 920 840 600 520 680 680 8,240 6 Overhead Cost INSABA Business Ideas 17
Business ideas for productive use of RE in South Africa Staff A share 70 70 70 100 100 100 100 100 100 100 100 100 1,110 1 Staff B 0 Office share 10 10 10 10 10 10 10 10 10 10 10 10 120 Communication 0 0 0 0 0 0 0 0 0 0 0 0 0 Vehicle 0 0 0 0 0 0 0 0 0 0 0 0 0 Marketing 5 5 5 5 5 5 5 5 5 5 5 5 60 Investment 6,215 0 0 6,215 Investment Lifespan 8 6 TOTAL Overhead 6,300 85 85 115 115 115 115 115 115 115 115 115 7,505 1 Capital cost interest, redemption 16% 208 208 208 208 208 208 208 208 208 208 208 208 2498 2 TOTAL capital 208 208 208 208 208 208 208 208 208 208 208 208 2498 2 TOTAL Cash Ouflow 6,868 973 973 1,003 1,083 1,163 1,243 1,163 923 843 1,003 1,003 18,243 9 Operating Result -6,038 637 637 607 722 837 952 837 492 377 607 607 1,272 4 - 5,40 - - /accumulated -6,038 1 -4,764 -4,158 3,436 2,599 -1,647 -810 -318 58 665 1,272 1,272 5 Capital input 6,000 6,000 2,56 3,40 1 Cash Flow -38 599 1,236 1,842 4 1 4,353 5,190 5,682 6,058 6,665 7,272 7,272 Investments in the 2nd year Investments in the 3rd year Amount Amount Investment Lifespan (≥3) Investment Lifespan (≥3) Month (between 1-12) Month (between 1-12) INSABA Business Ideas 18
Business ideas for productive use of RE in South Africa Depreciation 64.7 64.7 64.7 64.7 64.7 64.7 64.7 64.7 64.7 64.7 64.7 64.7 776.9 Tool 3a TOTAL Cash Inflow, acc 830 2440 4050 5660 7465 9465 11660 13660 15075 16295 17905 19515 TOTAL Cash Outflow, acc 6868 7841 8814 9818 10901 12064 13307 14470 15393 16237 17240 18243 Operating Result, acc -6,038 -5,401 -4,764 -4,158 -3,436 -2,599 -1,647 -810 -318 58 665 1,272 Cash Flow -38 599 1,236 1,842 2,564 3,401 4,353 5,190 5,682 6,058 6,665 7,272 Operating Result -6,038 637 637 607 722 837 952 837 492 377 607 607 Tool 3b Year 1 Year 2 Year 3 TOTAL Cash Inflow 19515 14,150 16,540 TOTAL Cash Outflow 18243 9,978 11,198 Operating Result, acc 1,272 5,444 10,786 Cash Flow 7,272 11,444 16,786 Operating Result 1,272 4,172 5,342 INSABA Business Ideas 19
Business ideas for productive use of RE in South Africa Cash Flow Analysis: First Year 25,000 8,000 6,000 20,000 4,000 2,000 15,000 0 10,000 -2,000 -4,000 5,000 -6,000 0 -8,000 Month-1 Month-2 Month-3 Month-4 Month-5 Month-6 Month-7 Month-8 Month-9 Month-10 Month-11 Month-12 TOTAL Cash Inflow, acc TOTAL Cash Outflow, acc Operating Result Operating Result, acc Cash Flow INSABA Business Ideas 20
Business ideas for productive use of RE in South Africa Cash Flow Analysis: 1st - 3rd Year 25,000 18,000 16,000 20,000 14,000 12,000 15,000 10,000 8,000 10,000 6,000 4,000 5,000 2,000 0 0 Year 1 Year 2 Year 3 TOTAL Cash Inflow TOTAL Cash Outflow Operating Result Operating Result, acc Cash Flow INSABA Business Ideas 21
Business ideas for productive use of RE in South Africa Profitability Preview Balance Year 1 Year 2 Year 3 Year 1 Sales 19,515 14,150 16,540 Assets Liabilities Cost of Sales 8,240 6,000 7,000 fixed assets 5,438 shareholders equity 8,710 Gross profit 11,275 8,150 9,540 current assets 7,272 liabilities 4,000 other operating income 0 0 0 Σ 12,710 Σ 12,710 personnel costs 1,110 1,200 1,400 hire charges 0 0 0 Year 2 communication 0 0 0 Assets Liabilities vehicle 0 0 0 fixed assets 4,661 shareholders equity 14,105 marketing 60 80 100 current assets 11,444 liabilities 2,000 office 120 200 200 Σ 16,105 Σ 16,105 interest 498 498 498 depreciation 777 777 777 Year 3 other expenses 0 0 0 Assets Liabilities TOTAL Expenses 2,565 2,755 2,975 fixed assets 3,884 shareholders equity 20,670 annual surplus/deficit 8,710 5,395 6,565 current assets 16,786 liabilities 0 /accumulated 8710.125284 14105.25057 20670.37585 Σ 20,670 Σ 20,670 INSABA Business Ideas 22
Business ideas for productive use of RE in South Africa 2.4 Green Energy Plant, Biomass, KwaZulu-Natal Biotech Energy (BE) is a company specialising in the development of biomass pellet fuel using sawmill residue and agricultural waste and was formed to pursue projects involving converting biomass into fuel for energy. The company is currently finalising the construction of a pellet manufacturing facility in Howick (near Pietermaritzburg), KwaZulu Natal. Howick is a small town in the uMgungundlovu District of KwaZulu-Natal Province and is situated on a key tourist route, the Midlands Meander. The facility is for producing biomass pellets for the export market. The environmental Impact Assessment (EIA) is complete, with a Record of Decision (RoD) received from the KwaZulu Natal Department of Environmental Affairs and Tourism, dated 31 January 2008. Figure 7: Green Energy Plant, Biomass, KwaZulu-Natal This pellet plant is critical within the context of this project as it is expected to require approximately 1.8MWe per year from the national grid. A business plan for a 6MWe power plant (consisting of a combination of a wood pellet manufacturing plant and a green energy plant component) was developed in INSABA Business Ideas 23
Business ideas for productive use of RE in South Africa August 2007 and was presented to potential investors. Variations to the size of the power plant were considered and the decision was taken to optimise the opportunity presented, at 6MWe. Figure 8: Sawdust feedstock for the pellet plant Financing for the pellet plant has been agreed with Standard Bank plc, London in two tranches. The first amount of ZAR90 million was for the pellet plant. The second amount of ZAR176 million was agreed last year in November. This tranche included an amount of ZAR33 million for the green energy plant, which will supply energy to the pellet plant on site. The project objective is to deliver 6 MWe of electricity obtained from a renewable resource of biomass material consisting of mainly wood waste and forest residue sourced from local timber operations. The biomass will be processed through high pressure superheated steam and a steam turbine driven generator to generate 6 MWe of power. The steam will be condensed using cooling water from a cooling water system and will be re-circulated to the steam generation cycle for reuse. The 6 MWe will exceed the entire site’s electrical demand (approximately 1.8 MWe including the biomass pellet manufacturing plant on site) and the remainder of the electricity will be supplied via appropriate switchgear and equipment onto the local grid. 2.5 Laundromat, Solar Water Heater, Western Cape The Laundromat is now located in a densely populated peri-urban area, Khayelitsha, in Cape Town. Almost all homes in Khayelitsha have access to electricity but this is mainly used for lighting. Few homes and facilities have access to hot water. INSABA Business Ideas 24
Business ideas for productive use of RE in South Africa Figure 9: Laundromat, Solar Water Heater, Western Cape The business case for the laundromat was based on the fact that most of the local laundry in the area concerned is done by hand using cold water, mostly at communal taps located on ‘street’ corners resulting in substantial water wastage. The activity is time consuming and is mostly done by the women of the house who are also often the breadwinners. The more affluent homes utilise Laundromats that are situated close to their place of work (primarily outside of Khayelitsha) and this constitutes competition to the local laundromat. Pricing is therefore cognisant of this issue and the pricing model developed aims to offer a cheaper and accessible local service that can save time and money for the customer. The laundromat business model includes tailor services to the local community. Energy is required for the running of the washing machine and for heating the water, as well as for lights, ironing and sewing machine(s). Grid based electricity is available, but water heating was considered to be a significant cost component and thus solar energy was proposed as an alternative to an electric geyser. A pre feasibility study, market analysis and technology economic analysis were conducted on this business proposal, through the INSABA project. These are available below. INSABA Business Ideas 25
Business ideas for productive use of RE in South Africa The local entrepreneur was assisted by the IAT, the Development Action Group (DAG). Business Status: The following are the outcomes of the INSABA evaluation on this project: • The economic evaluation demonstrated marginal viability. Grid electricity continues to be a cheap option in South Africa and the capital cost of the SWH equipment required is considerably higher than electric geyser equipment. Solar water heater ready washing machines are however available at insignificant additional cost. • The Entrepreneur (Lulama Mqikela) who had identified this business opportunity had ZAR 10,000 to invest in starting this business. This is money she had saved over years of domestic employment. Her objective is to have a business that can earn her and her family a living income as well as provide the basis for future retirement funding. Her business goal is to open a chain of these laundromats in Khayelitsha should the model prove successful. • The evaluation demonstrated a significantly higher rate of return (44% as opposed to 21%) with a significantly lower initial capital outlay on the grid based option. This coupled with the entrepreneur’s life and business objectives, the limited amount of capital at her disposal and the cheap electricity alternative, resulted in her decision to utilise her investment in a conventional electricity based operation for the initial phase of her business. She will consider SWH for expansion and the rising electricity prices and the fact that her business has suffered in the recent energy crisis engulfing South African businesses will add to the argument for such a decision. • Eskom are in the process of launching their Solar Water Heating subsidy scheme and subsidised SWHs are slowly starting to enter the market4. • OneWorld is making an application with the Entrepreneur to try and secure one of these pilot SWHs for her business. This decision has been delayed as the pilot has seen significant delays. Further work entailed training of the IATs and whilst the work was largely conducted directly with the entrepreneur concerned, the Development Action Group (DAG) has participated in the IAT training on economic analysis tools (WP 3&4). 4 WP7: OneWorld continued to work with Cape Town City Council and the Western Cape Department of Environmental Affairs and Development Planning as well as local Counsellors (Saliem Muaser) on the Solar Water Heater by-law, which is now in its 10th draft. Four meetings and presentations have been attended and given. The by-law cannot be passed until an amendment is made to the building regulations by the Department of Trade and Industry (DTI). It is now anticipated that the by-law will be passed in December 2009. INSABA Business Ideas 26
Business ideas for productive use of RE in South Africa DAG is a Cape Town based NGO that works primarily in peri-urban areas to support SME development to achieve poverty alleviation objectives. The skills base in DAG comprises SME support, community development and participation and public awareness. DAG has been interested in RETs for some time and has developed substantial knowledge as a result. A further IAT has been identified, RAPS, a Cape Town based organisation that seeks finance solutions for rural energy applications. Training (WP4) commenced with this IAT in July 2006. Figure 10: Pellet Plant The proposed biomass energy plant site is to be situated adjacent to the pellet plant (see photograph above). The area is home to significant forestry plantations and timber industry and the site is therefore in close proximity (less than 50km) to the biomass material, namely sawmill residue (for the pellet manufacturing plant component) and forestry residue for the power plant, which will be used as the consistent and sustainable fuel source. An added benefit is that the fuel feedstock would normally be left in forest or sent to landfill where it would generate greenhouse gases (mainly Methane) through decay and not provide any added value to local communities whilst also contributing to greenhouse gas emissions. Biotech Energy is expected to conclude supply contracts with all three entities by the end of May 2008. The energy plant requirement is between 11 000 and 12 INSABA Business Ideas 27
Business ideas for productive use of RE in South Africa 000 tonnes per month to power the 6MW plant. Contracts for 12 000 tonnes are being negotiated. Figure 1 below shows the location of the proposed site and surrounding land uses. Figure 11: Map showing the surrounding land-uses of the proposed Green Energy Plant, and alternative sites of the proposed plant INFORMAL SETTLEMENT PETRONET PIPELINE APPROVED PELLET PROPERTY PLANT WOOD DEVELOPMENT SITE PROCESSING BOUNDARIES FACILITY WOOD DUMP N3 TIMBER 24 SERVITUDE ALTERNATIVE ACCESS SITINGS OF THE ROAD GREEN ENERGY PLANT STEEL COMPANY The green energy plant will comprise the following: LUMBER JACKS • Biomass receiving and storage areas • 1 Biomass sizing plant (hammer mill, screening equipment etc.) • Biomass transfer equipment (conveyors, mechanical handling plant) • 1 Surge storage for biomass storage before steam generator • 1 biomass fuelled steam generators to generate steam at 20 bar and 360- o C superheat temperature • 1 Steam Turbine Alternator to generate 6MWe of electricity at 11kV • Ash handling plant • Water treatment plant • High efficiency grit arrestors on steam generator • Electrical switching and protection equipment Once the fuel is delivered to site, it will be prepared in terms of ensuring it is appropriately sized and then stored. When required it will be combusted in the steam generator to generate steam. The steam generator will also require feed INSABA Business Ideas 28
Business ideas for productive use of RE in South Africa water, which will require conditioning in terms of hardness and pH. This will be undertaken using an ion exchange filter with a resin system. This project will displace CO2 emissions associated with the electricity from fossil fuels used by the pellet plant as well as the running of this propose plant. Furthermore, renewable energy from the Biomass plant will be used by the local communities (i.e. direct sales; PPA with municipality, Eskom etc) and will replace the current and increasing use of fossil fuel derived electricity in the area. The pellet plant (see photograph below) would otherwise continue to use fossil fuel based electricity for its operation. The local grid would also continue to receive its energy from coal-fired power stations using some of the worst low- grade coal in the world. Figure 12: Pellet Plant – inside The project will reduce approximately 139 184 tonnes of CO2e per year (32 712 CO2 and 5070 NH4 [@ 25 times GWP]) from entering the atmosphere. Therefore, the combined emissions from these will be approximately 139 184 CO2e each year over the 21-year period resulting in an estimated saving of 2 922 864 tonnes of CO2e. The crediting period is seven years (with the expectation that an additional two periods of seven years each will be allocated) This project is expected to deliver a clean source of energy (through reducing dependence on the coal based grid) to an area that is energy ‘short’ and thus has an environmental and economic development benefit. It is also expected to create 50 jobs, which can be filled from the local community during the construction phase, and 152 jobs, 80% of which can be filled by the local community, during operational phase. Decommission is expected to create INSABA Business Ideas 29
Business ideas for productive use of RE in South Africa a further 18 jobs, bringing the total number of jobs to 220 during the life cycle of this project. This contributes toward local job creation although the full socio- economic benefit is anticipated from downstream project impacts. An additional, secure, local energy supply is expected to support and stimulate local economic development with further jobs and income generation opportunities emerging. Associated Energy Services (Pty) Ltd (AES) were contracted to undertake all technical and engineering related activities prior to the operation of the plant and thereafter to be the operations and maintenance (O&M) contractor to Biotech Energy for the plant. OneWorld Sustainable Investments was contracted to develop the Clean Development Mechanism (CDM) project for the plant and to manage the validation and registration processes. The planned green energy plant at Howick will be carbon neutral and will thus make a significant contribution to reducing South Africa’s carbon footprint by utilising a renewable energy fuel feedstock. It also presents an opportunity for South Africa to increase its renewable energy generation capacity and contribute to the country’s urgent generation capacity requirements. This project requires Carbon Credit finance to be viable. South Africa’s low electricity prices make competitive pricing of alternate electricity streams difficult. Furthermore, Eskom have demonstrated little interest in paying any sort of premium for green electricity. The CDM finance stream is expected to reduce the price of the electricity produced from the plant to the consumer. This project presents a number of environmentally beneficial opportunities. Firstly, and the most obvious, is that it will displace 139 184 tonnes of CO2e emissions of coal-based electricity. Secondly, it will significantly reduce the risk of fires in the forestry areas by removing the wood residue, which is a fire hazard. Reducing this risk has social and health benefits for the local population. Thirdly, the biodiversity is likely to be improved in the surrounding area as removing the gleanings from forests will improve the soil quality, which forms a critical basis for the forest ecosystems. The following issues have been identified as potentially problematic and will, amongst other issues, be investigated during the Basic Assessment Process: • Noise impacts for neighbouring landowners; • Potential impacts on air quality; and • Impacts on traffic; The need for public input and involvement is of critical importance. All I&APs (neighbours, authorities, organisations etc.) are invited to comment on the proposed development. As mentioned earlier, there was a public participation event on the 14th of April in Howick. This was part of the EIA process and event made it possible for interested parties to meet and discuss any issues with INSABA Business Ideas 30
Business ideas for productive use of RE in South Africa Biotech Energy, AES and OneWorld. Comments have also been be solicited by post, telephone and email. This pellet plant is expected to begin production at the time of writing this report (mid-April 2008). The biomass green energy plant has the funding to go ahead and Biotech Energy are in discussions with Eskom, local companies and consultants to begin its construction. The project is expected to be completed by June 2009. Pre Feasibility and Market Study for a SWH Laundromat in the peri-urban area of Khayelitsha, Cape Town, South Africa Executive Summary Background The proposed business is to establish a Laundromat in the peri-urban area of Khayelitsha, which is situated on the Cape Flats in Cape Town. There is currently no Laundromat in the area concerned. The area is densely populated with shacks and some houses and is home to a range of income levels. Almost all the homes have direct electricity access, although this is largely used for lighting only – except in the more affluent households that can afford and have the space for appliances. Water is provided although this is mostly via a street corner tap and then carried to the home concerned. The Entrepreneur knows Khayelitsha, is local and has ZAR 10,000 to invest in a business. This she sees as an investment in a business that will generate more wealth than she currently earns, will allow her to educate her children and which should provide for her retirement. Business offering The proposed Laundromat will offer a range of services to include: ¾ Self service washing ¾ Ironing service ¾ Full washing and ironing service provided for the consumer ¾ Tailor Currently, local clothes washing is done by hand using cold water. Frequently this happens under a running street corner tap and a substantial amount of water INSABA Business Ideas 31
Business ideas for productive use of RE in South Africa is wasted. The activity is time consuming and is often done by the women of the house – who are also often the breadwinners. The more affluent homes utilize Laundromats that are situated close to their place of work and this will provide competition. Pricing will therefore need to be cognizant of this issue and the pricing model developed aims to offer a significantly cheaper AND local service that can save time and money for the customer at the same time as being convenient. The market potential is significant and growth of the business is anticipated through expanding the proposed model and through replicating it in other parts of Khayelitsha and further a field. The need for the service is established but sensitive to price and to competing uses of disposable income – in particular food and transport. Almost all employment opportunities are at some distance and food prices have seen a sharp increase over the past 6 months. Energy Source Energy is required for the running of the washing machine and for heating the water, as well as for lights, ironing and sewing machine(s). Electricity is available to the Laundromat and therefore to the running of the washing machine(s) and other equipment described. Water heating is a significant cost component and solar energy can be used through a Solar Water Heater as an alternative to an electric geyser. Assuming that there can be no extra charge can for “solar laundering”, the value of solar energy is in the saving of electricity for the water heating part. This is assumed to 4 kWh per load at 2,5 R/kWh=10 R A SWH for 150 l/d can be computed to 2 m² costing ZAR 16,700 and at 1728 loads per year, this can save ZAR 17,280 and give an ROI of 30% Investment analysis An investment cost comparison has been done using a combined grid based electricity and renewable energy model where a solar water heater (SWH) is installed for water heating as against a model that solely uses grid based electricity and the SWH is replaced by electric geysers. The Return on INSABA Business Ideas 32
Business ideas for productive use of RE in South Africa Investment (ROI) is significantly higher in the electricity only model and this is directly contributable to the cost of the technology coupled with cheap electricity. The impact of the significantly higher cost of technology is mitigated by the lifespan of the SWH, which is more than 3 times longer than the electric only model. Business model The business will be driven by a single entrepreneur who has 40% of the capital investment required to invest in the business. Her objective is to make this investment based on the expectation of a higher monthly income and a retirement annuity for her older age. She is interested in replicating the business in other parts of Khayelitsha and is confident of the market need. She plans to employ her daughter on a part time basis whilst she completes her education and unemployed women in the area on a needs based contract basis so as to keep overheads as relevant to turnover as possible. Conclusions The business case has merit but the case for the use of renewable energy technology is not robust. The entrepreneur is however interested in the longer- term lifespan of the SWH option and would like to see stronger data on the savings in electricity costs in using a SWH. She is also cognisant of rising electricity prices (Eskom have applied for a tariff increase of between 8 and 9%) in South Africa and is aware of the energy issues in the country – in particular of the costs an energy crisis such as the one experienced in May 2006 would have on her business. She will install a SWH adaptable geyser and would prefer to reconsider SWH is the growth phase of her business as more capacity is required. At this stage she will have better knowledge of her monthly electricity costs and the extent of hot water that will be heated. INSABA Business Ideas 33
Business ideas for productive use of RE in South Africa Business model analysis: Feasibility Study Getting it right – Screening the SWH Laundromat business The Business Concept and Case Business Idea Description A Laundromat in a peri-urban area using SWH technology for heating water in a washing machine (and a cold water machine) plus ironing and tailor and repair services on clothing. List Key Business Factors The business relies on clothes washing and ironing technology and hot water to differentiate the service from existing hand and cold water washing that takes place in the area considered. It is believed that the business model may be replicated and possibly franchised Identify Renewable Energy Solar Water Heating to displace some of the alternate electricity (grid Resource / Technology & based) costs. Note, this technology could provide hot water in Capital Cost situations (rural) where there is no existing means of heating water in quantities Justify RET Selection and SWH have demonstrated an up to 40% saving on electricity in South Identify the energy African markets. The technology is significantly more expensive than alternative and the cost of electric geysers, but with a substantially longer lifespan. that alternative Identify and state the key The entrepreneur concerned is a domestic worker who seeks to earn a objectives / goals of the higher income plus invest her savings into a business that will provide business and the in the longer term for her retirement. She expects to obtain as high as Entrepreneur. I.e. what possible rate of return on her investment plus a steady income that does the entrepreneur exceeds her present income by at least 100%. expect from the business and what does the business want to achieve? What does the entrepreneur expect from the business? INSABA Business Ideas 34
Business ideas for productive use of RE in South Africa Evaluating Business Indicators Business Indicator Status Statement Next Steps The entrepreneur has 8 years The experience working in debtors and entrepreneur/ creditors for a medical insurance #1 management company and then for an IT group. is qualified She manages a bank account and owns property in Cape Town (thus familiar with debt and has access to credit) The Secure balance of She is prepared to commit her finance required – #2 entrepreneur savings (90% thereof) loan/another equity is committed partner The market is expected to yield at There is a least 5 loads per day, plus extra #3 clear market services contributing to more than Conclude market 70% of the business turnover survey R15 per load of washing; R 7 per The product/ item ironing; R 25 per item tailored. #4 service is Compares favorably (cheaper than) competitive similar services in the City The cost of The costs are for salaries / wages; washing powder and water. These Run costing making sales amount to approximately R 12 per model #5 is known load INSABA Business Ideas 35
Business ideas for productive use of RE in South Africa Business Indicator Status Statement Next Steps These are estimated at R3 per load The margins are (gross) attractive #6 Rental, salaries, interest repayments The business and operational costs demonstrates #7 ability to support an overhead The environmental impact is positive if the SWH technology is utilized. #8 Positive People will have access to a service environmental & that will mean less water social impact consumption & wastage. The laundromat itself van grow in capacity (more washing machines #9 The business and staff for greater market yield); model is scalable the model is easily replicated in other and replicable peri-urban areas and rural environs This is realistically achieved as the entrepreneur has a significant #10 Capital can be investment in the capital costs. This sourced on would not be the case without that realistic terms deposit INSABA Business Ideas 36
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