The solar water heater market in South Africa has recorded phenomenal growth during the past four years expanding from less than 20 suppliers in 1997 to more than 400 by the beginning of 2011, finds Frost & Sullivan, the global market intelligence and growth consulting company.
In line with global trends, South Africa’s domestic water heating market is moving away from traditional water heating methods, such as conventional geysers, towards more energy-efficient measures, namely solar water heaters. Such a development may be due to the fact that domestic water heating accounts for approximately 40% of a household’s electricity bill. 18% of South Africa’s national electricity consumption is allocated toward the heating of water, for residential, commercial, and industrial use.
“Eskom’s load-shedding power crisis of 2007-2008 resulted in a raised awareness of solar water heating as the general public demanded hot water during times of load-shedding, and Eskom advocated the saving benefits that this mechanism could provide,” says Dominic Goncalves, Frost & Sullivan’s Energy and Power Research Analyst.
Eskom subsequently developed a demand-side management program, propagating solar water heaters as a prime mechanism to conserve energy off the strained national grid. The Eskom Rebate Program was established, and a target set for the installation of one million solar water heaters by 2014. “The rationale was that such demand-side management could relieve up to 578 gigawatt hours of electricity from the grid, the equivalent of building a 2,000 megawatt power station, ” explains Goncalves. “Furthermore, solar water heaters are often used during peak times (early morning and evening), the precise time when strained power stations are struggling to produce the required peak-time power, ” he says.
However, between 2007 and 2010, the market experienced volatile growth, plagued by malfunctioning products, fly-by-night companies, and incorrect installation and application of the products. Nevertheless, market growth continued, albeit slower than expected, as many suppliers experienced a hush after this initial boom. “This was caused by the negative reputation that solar water heaters were receiving, due to conflicting information and incorrect product application, as well as initial challenges in the development of the rebate program,” comments Goncalves.
The market began to stabilize somewhat during the second half of 2010 – many fly-by-night companies selling cheap, imported Chinese products out-the-box left the market or changed their strategy, while established companies with good word-of-mouth reputation formed efficient distribution networks, franchises and partnerships. As these suppliers and installers began to grasp the intricacies of South African climactic conditions such as solar irradiation and the myriad different applications of installing a solar water heater, market development has proceeded in a more ordered manner.
Frost & Sullivan believes that this slow-down in sales is misleading however. New building codes have been announced that will change the face of the market, and conventional plumbing, as we know it. When the new building codes are officially instated, new buildings or those undergoing refurbishments will be required to account for at least 50% of their hot water consumption to be generated by energy efficient methods, for example solar water heaters or heat pumps.
The demand pressure that this will place on the market to manufacture and install these products is exciting. Frost & Sullivan research has shown that solar water heater manufacturing in South Africa can be conducted at internationally competitive levels for flat plate product types.
Current and potential future manufacturers are preparing for this legislation-driven demand and are set to compete with foreign imports, which are categorized either by low price, large quantity (and often inappropriate technology) products on the one hand, or reputable, global solar water heater manufacturers with developed global distribution networks and more expensive products on the other.
“The key challenge facing the development of the solar water heater market is installation. Solar water heaters require a mix of plumbing and electrical skills, as well as unique solar installation skills, which must be learned,” says Goncalves. Solar water heater installation is approximately four times more labour intensive than installing a conventional geyser. In addition to this, many skills variables of installing products in different applications needed to be acquired, some of which can only be learned practically: different roofs, roof-restructuring, buildings, piping, latitudinal tilt irradiation, and other variables.
The plumbing industry is currently operating at full capacity; a pool of 3,000 skilled plumbers need to be bolstered by an additional 8,000 if the market is to cope with mass demand of solar water heaters in the next 4-6 years. The transformation of skills from conventional plumbing to energy-efficient plumbing also requires a different set of skills in order to install heat pumps. These skills are similar to that required for air-conditioning and refrigeration technology.
“To facilitate the transformation of the market, the coordination and communication of planning and implementation between key industry players and government will be required,” comments Goncalves. He adds that adequate skills development is the key to success or else the initiative is doomed to fail.
The manufacturing of some product types is an opportunity for new entrants, who can benefit from manufacturing incentive schemes recently proposed by government in its New Growth Path (NGP). This initiative falls within the key focus areas for development by government, namely job creation, manufacturing, skills development, and the green economy.
For the market as a whole, Frost & Sullivan believes the development of installation skills (both qualitatively and quantitatively) remains the largest challenge. The policy of ordaining energy efficient building codes is a market support mechanism that has been successful in numerous overseas markets including the cities of Barcelona and Madrid, as well as Austria, Israel and Cyprus.
Ultimately, the solar water heater market is preparing for a second, high growth phase that will be larger than the previous growth surge in South Africa. The key is to address the gaps in the market and be ready to support the change.
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Frost & Sullivan (frost.com), the Growth Partnership Company, enables clients to accelerate growth and achieve best-in-class positions in growth, innovation and leadership. The company's Growth Partnership Service provides the CEO and the CEO's Growth Team with disciplined research and best-practice models to drive the generation, evaluation, and implementation of powerful growth strategies. Frost & Sullivan leverages 50 years of experience in partnering with Global 1000 companies, emerging businesses and the investment community from 40 offices on six continents.
Written by Dominic Goncalves, Africa Energy and Power Research Analyst.