European Biomass Conference and Exhibition 2017 ...

25th European Biomass Conference and Exhibition, 12-15 June 2017, Stockholm, Sweden

SMART REGIONAL PLANNING: UNLOCKING INNOVATIVE RESOURCE USE AND ECONOMIC COMPETITIVENESS - A LOOK AT BIOMASS ENERGY INFRASTRUCTURE PROVISION AT LOCAL MUNICIPAL SCALE IN ETHEKWINI AND ILEMBE, SOUTH AFRICA Beires, L, Csir Integrated Energy Centre, 359 King George, V Avenue, Glenmore, Durban 4001, [email protected], Tel: +27715746307 Lincoln, G.M., Department of Town and Regional Planning, Durban University of Technology, Durban, 4001, [email protected], Tel: +27313732220

ABSTRACT: The sustainable generation and use of innovative energy alternatives continues to be the contested dominant discourse for municipalities and civil society. Key objectives for regional development planning are the need to support economic competitiveness, territorial cohesion and sustainability. In developing countries like South Africa, unemployment, poverty and inequality are key concerns. The current global context is one of climate change, dwindling and increasing costs of fossil fuels, growing urban populations and affordability challenges. In this context, unlocking innovative energy infrastructure at a regional scale has the potential to support competitive and affordable energy supply. The aim of the paper is to use regional planning concepts and tools to redefine traditional views on resource use in infrastructure provision with specific focus on biomass energy infrastructure. The paper aims to show the linkages between regional planning, competitiveness and infrastructure provision and the potential for sustainable, smart innovation options relating to energy provision. Place based regional planning literature is used to explore energy infrastructure provision through the unlocking of innovative resources using a case study of the neighbouring municipalities of eThekwini and ILembe. Global trends in municipal energy provision are identified, and contrasted with the South African legislative and policy context. The study is supported by a review of relevant documents, empirical evidence focussing on the dominant local sugar industry as a contributor to unlocking energy resource use for the region. The biomass resources and potential contribution were analysed, as well as the legislative issues that need to be addressed to unlock the biomass potential in the region. Keywords: competitive regionalism, innovation, sustainable energy infrastructure, biomass

1

INTRODUCTION

attention and debate. This is because in the metropolitan municipalities, electricity accounts for the majority of its revenues. According to the South African National Treasury [8], cities account for 34% of energy sales at Eskom (the national utility) and are the largest category of user – larger than industry and mining. In 2015, metropolitan municipal electricity revenue in South Africa totalled R55 billion. This indicates the size and significance of electricity for municipalities. In the province of KwaZulu-Natal, there are significant existing biomass resources, which can be used for electricity production or biofuels. To date there has been little progress tapping into this resource. The purpose of this work is to highlight the potential that exists from the use of these resources to promote regional competitiveness, innovation in electricity and fuel provision, local economic development and revenue generation. This is to be achieved through the establishment of a strong regional planning framework, which is currently lacking in the region. The paper is structured in the following way: Section one defines the policy landscape in South Africa with a particular focus on economic, planning and energy policy. It outlines that in all three of these spheres there is a perceived lack of policy coherence on a national level which strengthens the argument for a local, place base development focus. This section spells out the relationship between regional planning and sustainable energy infrastructure in which contested notions and definitions are spelt out. It also defines the institutional and administrative context of local government, regional planning, and the current role and constraints facing municipalities in energy generation. Section two focuses on the case study of eThekwini and iLembe in relation to sustainable energy infrastructure, focusing on biomass as a resource example for innovative and smart reallocation

Since the 1990’s the face of local government in South Africa has undergone restructuring and administrative changes in line with the Constitution of the Republic, with the key intention of bringing local government and associated delegated responsibilities to communities that have previously been denied such provisions under apartheid. These delegated responsibilities have put pressure on local governments and regions to assume increasing levels of responsibility for economic planning, development and implementation of sustainable basic services. However, these increased responsibilities over the past 22 years, are not having the desired impact. Local governments’ efforts to cope with the effects of rapid global socio-economic challenges in the context of slow transformation of the South African economy has resulted in enduring structural spatial impact [1-4]. On the other hand, most local municipalities face income stream deficits, a result of histories, current land arrangements, and affordability challenges. Furthermore, income inequality associated with high unemployment within municipalities persist. A four tiered system of government with separation of powers, vested and entrenched interests, and deep technical capacity constraints at a local level adds to complexities [5, 6]. Compounding the complex local government environment is an economy that is increasingly divided between a formal economy that is not creating jobs, and a growing informal sector that contributes approximately R160 billion into the economy, and an estimated 28% to GDP [7]. There is an increasing pressure on municipalities to find innovative ways to increase existing revenue streams and find ways to create new ones. Currently the bulk of local government outside of the metros is grant financed. Electricity supply in municipalities has received much

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and usage of energy. It is noted that both state monopoly (over electricity) and private monopoly (over land ownership) behaviour inhibit local competition. Section three outlines the findings in which gaps and opportunities are identified. The paper argues that there is a implementation gap in planning and sustainable energy provision because of current institutional arrangements and separation of powers, with the effects of this being felt at a local level. Furthermore, the impact of localised generation and production of energy is one way of preventing revenue leakage from the municipality, supporting local value capture, and generating vital new income streams to support sustainable municipal finance. This is particularly seen in the context of the biomass resources in the region, which would be able to contribute to local electricity and fuel supply. Potential innovative partnerships between the local sugar industry, municipalities, local business and domestic consumers, is suggested.

2 ECONOMIC, PLANNING AND LANDSCAPE IN SOUTH AFRICA

infrastructure and 2010 World Cup related opportunities. 2010 New Growth Path This policy highlighted that the unemployment in South Africa was structural in nature and that societal inequalities were on the increase. Aimed to create 5 million new jobs through 5 key drivers – public investment in infrastructure and energy; support main economic sectors, support new economies (green and knowledge economy); social capital and spatial development opportunities in rural areas and broader economy 2012 National Development Plan 2030 Multiple development objectives with a 20 year time frame and 5% growth target. This policy is hailed as South Africa’s long-term socio-economic development roadmap and provides the framework for choice and decision making in an environment of limited resources.

ENERGY

2.1 Economic policy landscape Post 1994 South Africa has had five key economic policy regimes aimed at reintegrating the South African economy into the global context, while at the same time ensuring inclusive growth for all citizens. Table I outlines the five key policies, their main objectives and the observed success and failures. Table I: Key economic policies and main objectives from 1994 – 2017 Economic Policy and Main objective 1994 Reconstruction and Development Plan (RDP) Create a dynamic and balanced economy and democratise the state and the economy. Supply driven and redistributive focus. 1995 Growth Employment and Redistribution (GEAR) This policy tried to encompass the social objectives of the previous RDP but also focused on reducing fiscal deficits, lowering inflation and maintaining exchange rate stability, cutting government spending and introducing austerity measures 2006 Accelerated and Shared Growth Initiative for South Africa (ASGISA) The stated aim was to reduce poverty by 2010, halve unemployment by 2014 from 28% to 14%. Key investment spend was in

Success and Failures

Source: Authors documents.

The RDP did not deliver the desired economic growth and didn’t focus strongly enough on creating a new revenue base for the country. GEAR followed a neo liberal approach and despite keeping a strong macro-economic environment, private investment, job creation and GDP growth were lower than anticipated. The policy therefore had little success in reducing unemployment and distributing wealth.

compilation

This policy was in place for three years before the National Development Plan was introduced. In many respects the New Growth Path was very similar to the GEAR and ASGISA policies, both of which did not have a significant impact.

Questions have been raised regarding the social support and acceptance that the NDP has received. It is also felt that it does not fully address the structural problems that face the South African economy.

using

various

government

Economic policy post 1994 shows that despite successes, it has been insufficiently transformative nor had significant positive spatial effect. Analysis suggests that economic policies have neglected the comparative advantages of regions. This has led to many regions in South Africa developing the same sectors for economic growth rather than focusing on their comparative advantages. From 2009, spatial targeting supporting sectoral interest and agencies within government has been supply side driven, in response to declining employment in mining and manufacturing and overall contraction of the market. This has particularly been evident in the post 2008 global financial crisis and continuing recessionary environment. Supply side driven policies has seen high levels of state expenditure in social welfare grants to mitigate poverty, large-scale infrastructure projects and state aided industrialisation aimed at attracting private sector investment. In contrast, the structural problems pervading the South African economy show a contracting economy, declining manufacturing base, an economy that is heavily indebted and driven by consumerism coupled with high unemployment rates in a climate of skills shortages. Industrial strategy in this context proposed through governments Industrial Policy Action Plan (IPAP)[9] has largely been ineffectual. South Africa’s current budget is R1.56 trillion of which R1.4 trillion is accounted for by taxpayers, while the remaining R149 billion has to be borrowed [10]. Recently the country’s credit rating was downgraded to a

While there was a reasonable level of success of this policy it lacked political support at the time due to changes in leadership of the ruling party.

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foreign currency rating of BB+, which is officially subinvestment grade. Despite this overall country credit rating to sub-investment grade, many of the metropolitan municipalities still have very good credit ratings. An example is seen in eThekwini municipality, which still has an A- credit rating. Investor response to this recent development indicates that they would like to focus on local municipal economies as places to do business. The economic analysis suggests that in a national policy and financial rationale vacuum, a place based regional economic development approach in South Africa is appropriate [11]. As indicated, South Africa’s economy faces structural economic weaknesses and multiple challenges. Innovation provides an important opportunity to help overcome some of these challenges, to generate and apply new knowledge to economic opportunities as well as addressing social concerns. This must effect material changes to the living conditions of people, and particularly the poor. This is highlighted using the energy sector and biomass resources as a case study. Analysis of existing resources and finding new opportunities to support innovation activities, develop new supply and value chains, and developing local comparative advantage that could lead to competitiveness are key. The literature identifies principal partners in developing innovation systems that include knowledge institutions, business, industry, government and community organisations, in which each have an important role to play in developing innovation [12-14]. For the purposes of our case study, building an innovative local energy system requires a coalition of forces and includes inter alia, an expansive view of the economy, its sectors, innovation and entrepreneurship. This also has spatial effect as these activities take place either in three or four dimensional spaces, nodes, or districts and have agglomeration effects, needing to be supported by physical infrastructure and resources. Furthermore, government innovation and energy policy, funding resources, institutional and legislative support and collaborative efforts are key ingredients to developing a shared regional planning agenda.

Schedule 4 Part A, provincial planning listed in Part A of Schedule 5 and “municipal planning” listed in Part B of Schedule 4 whereby overlapping functions between the different spheres of government exists. Regional/provincial planning and development is perhaps the least developed of all the planning instruments, and allocated to provinces in terms of Schedule 5 of the Constitution. Recent enactment of national planning legislation, the Spatial Planning and Land Use Management Act, 2013 (SPLUMA)[17], has opened opportunities for regional planning and greater coherence in the planning system. In line with this legislation, the planning system is mandated to establish “wall to wall” local government systems. Figure 1 outlines the new provincial and local government boundaries. The recent National Development Plan 2030 (NDP) proposes strategic spatial planning and a Spatial Development Framework (NSDF), in which alignment of scaler planning, competitive corridors and nodes concepts and a strong emphasis on spatially targeted investment is suggested.

Figure 1: Map of South Africa showing Provincial and District Municipalities and case study area of eThekwini Metro and iLembe District Municipality Source: J. Kitching

2.2 Planning policy landscape The transition into new local government occurred in a context of global economic uncertainty in the 1990’s, slow domestic economic growth, growing unemployment and increasing inequality and poverty. It is in this context that new policy, political and administrative systems, institutions, and legislative reform was undertaken at a local government level. From 1994 regional planning has largely fallen away as an instrument for growth and development, and has been replaced with newly demarcated political and administrative boundaries defined by the Local Government Municipal Government Demarcation Act of 1998, the Municipal Structures Act of 1998 and the Local Government Municipal Systems Act of 2000, and others, with defined responsibilities [15]. The Constitution [16], defines that the purpose of spatial planning is to provide ethical, fair, just and sustainable solutions to the built environment and mandates local government to provide equitable and efficient services, build local democracy, promote social and economic development, collect revenues, ensure safe and healthy environments and create sustainable local government systems. The current spatial planning framework in South Africa is derived from the Constitution [16] listed in

The government system is complex, with a total of 45 ministries at national government level, 9 provinces, 8 metropolitan municipalities, 44 district municipalities and 213 local municipalities (http://www.gov.za/), to service a population of 54,9 million [18]. Moreover, an intergovernmental system to achieve maximum impact on government investment in a given locale was introduced through the Municipal Finance Management Act 2003 and the Intergovernmental Relations Framework Act of 2005 (IGR). The Medium Term Strategic Framework is governments 5 year electoral plan, that provides a mandate to provinces, districts and local municipalities. Hence, a multilevel governance system with associated powers has emerged since 1994 as shown in Table II. Generally, the District and local municipalities do not enjoy autonomy primarily due to an absence of jurisdictional independence at some levels of administration, limited fiscal powers to raise local taxes and with a high reliance on the Treasury for conditional grant funding. Similarly, policy and legislation are in the main, driven from the centre. An example of this is seen in the energy landscape in South Africa. Although the South African Constitution and NDP are clear in terms of what it

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would like to achieve for low carbon development, at times confusion relating to implementation at a municipal level is apparent. The Constitution clearly sets out the powers and functions of municipalities to develop policy and legislate in the energy environment as per Sections 152 and 156.

collection of rates and taxes

District Municipality (iLembe District Municipality) Integrated planning, local economic development, bulk infrastructure supply (water and electricity), sewage and sanitation, storm water systems, refuse removal, firefighting services, municipal health services, decisions around land use, municipal roads, municipal public transport, street trading, abattoirs and fresh food markets, parks and recreational areas, libraries and other facilities, local tourism, collection of rates and taxes, Local Municipalities (KwaDukuza, Ndwedwe, Mandeni, Maphumulo) Integrated development planning, local area planning, disaster risk planning, service delivery, social welfare, housing, sports and recreation

Table II: South African governance system and associated poker Government tier and powers

Main policies / plans

South African Government National Development of all policy, monetary and fiscal policy, trade and tariff regime, economic regulation (Competition Board), Agrarian reform and land management, defence, foreign policy, education and training, labour relations, energy, transport (airports, national roads, rail, ports and harbours), health and welfare, environmental affairs, treasury and tax collection, housing, regional planning and urban policy Provincial Government (Province of KwaZuluNatal) Administration and oversight of national funds to local municipalities, road and transport infrastructure (provincial infrastructure), bulk water, Local economic development (LED) promotion

Reconstruction and Development Programme (1994) Growth Employment And Redistribution (1995) National Spatial Development Perspective (2006) National Development Plan (2012) Integrated Energy Plan and 2011 Integrated Resource Plan: 2010-2030 National Infrastructure Plan (NIP) (2012) Industrial Policy Action Plan (IPAP) (2014) Master Spatial Plan for Human Settlements (2014/15) Integrated Urban Development Framework (2015)...

Metropolitan Municipality (eThekwini) Integrated planning, local economic development, bulk infrastructure supply (water and electricity), sewage and sanitation, storm water systems, refuse removal, firefighting services, municipal health services, decisions around land use, municipal roads, municipal public transport, street trading, abattoirs and fresh food markets, parks and recreational areas, libraries and other facilities, local tourism,

Provincial Growth and Development Strategy (PGDS) Provincial Spatial Development Framework (PSDF) Integrated Development Plans Regional Spatial Development Frameworks (RSDF) Rural Development Plans (RDP) Integrated Urban Development Frameworks (IUDF) Spatial Development Plans (SDP) Performance Planning and Evaluation Sector plans (housing, education, infrastructure…) Integrated Development Plan (IDP) Municipal Spatial Development Frameworks (MSDF) Spatial Development Plan (SDP), Local Area Plan (LAP) Land Use Management System (LUMS) Local Economic Development Plan (LED) Environmental Management Framework (EMF) Risk Management Plan (RMP) Service Delivery Plan Social services

Integrated Development Plan (IDP) Regional Spatial Development Framework (RSDF) Municipal Spatial Development Frameworks (MSDF) Land Use management System (LUMS) Local Economic Development Plan (LED) Environmental Management Framework (EMF) Risk Management Plan (RMP) Service Delivery Plan Social services

Integrated Development Plan (IDP) Land Use Management System (LUMS) Spatial Development Framework (SDF) Spatial Development Plan (SDP) Local area Plan (LAP) Wall-to-Wall Schemes

Source: Constructed by authors using various planning related documents

The promotion of energy efficiency and the investigation of renewable energy alternatives can therefore be deemed necessary for the effective performance of a municipality’s function as a provider of electricity. Section 24 of the Constitution adds impetus to this as it indicates that electricity must be provided in a manner which recognises and is sensitive to environmental rights. Section 152 highlights that the provision of electricity must be done efficiently and therefore the mandate to promote energy efficiency should be a core function of the municipality. This confusion arises as the mandate of municipalities as set out in the Constitution, are not always supported by the necessary financial resources. In recent implementation of renewable energy and energy efficiency projects, issues around the Municipal Finance Management Act (MFMA) have been flagged. This has particularly been in the context of restrictions placed on the ability of municipalities to enter into long term power purchasing agreements (PPAs), which most clean energy projects require to be bankable. This, in the context of a monopoly energy market dominated by Eskom the South African utility, owning the generation, transmission and distribution aspects of the energy market.

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2.3 Regional planning definitions and a case for place based planning A key objective for planning in an increasing complex world, is the need to support economic competitiveness, territorial cohesion, equity, and sustainability through governance and management of geographically defined areas. Regional planning approaches are reflected as heterogeneous and with common elements that include territory that is regionally defined, that form part of subnational administrative units, and that require spatial planning. At least seven elements are identified in the building of such a regional planning system. They include: competitive and comparative advantage [19-21], cluster theory [22], flexible specialisation and agglomeration, networking and co-operative competition [23, 24], territorial [25], co-operative governance and institutions as complex - including government agencies, trade unions, civil society and multi-lateral agencies [26, 28-30], strategic spatial planning [31], regional identity [32], and redistributive concerns [33]. The importance of local context and particular growth experience, or placebased concerns have been highlighted by Barca et al [34] and Markey et al [35] as the core of economic development and success in which spatial inequalities invoking redistributive concerns are expressed. Characteristics of a place-based approach include those that enhance and build on the comparative advantage of an area, its human and natural assets, social, cultural and institutional capabilities. The quality, capacity, regulatory environment, leadership and adaptive learning capability are also emphasised [34, 36]. In addition there is public policy focus on revitalizing local economies through the generation of new technologies and commercialization and production thereof, improving effectiveness of supply chains, public and private sectors, civil society, building social capital and collaborative efforts, and co-operative competition [37]. For purposes of this research we recognize a complex government system, under developed regional planning practices, and extremes of poverty and wealth experienced in one place, in this case the eThekwini metro and iLembe District. We argue that a local place based approach to renewable resources could provide opportunity for a collaborative approach to sustainable economic development. A limitation to the place based approach in the context of developing countries is the experience of informality, potential around capital formation, and spatial impact, and the lack of focus on empowering of people. In this paper we hope to show how a place base approach can be used to address these concerns and provide sustainable development choices. The key planning objectives, of the need to support comparative economic advantage, competitiveness, territorial cohesion, addressing social concerns and sustainability, in which community empowerment and development of capital formation are key, reinforces the role for greater local state autonomy over sustainable infrastructure provision. Type, quality and sustainable infrastructure provision at a local level are key pillars in supporting regional competitiveness as well as creating expanded revenue opportunities for municipalities. Innovation in the green economy sector in KwaZulu-Natal has the potential to bring together the collaborative interests of government, and the private sector in which co-opetition and the use of the digital economy has the potential to support smart grids and decentralisation of energy provision.

2.4 Energy Policy Landscape The electricity supply industry globally can be broken down into four connected operations that of generation, transmission, distribution and supply. Historically due to economies of scale most of these functions have been undertaken by vertically integrated utilities which are often state-owned monopolies. Recent technology innovations have challenged this status quo, with competition becoming evident in the generation and the transmission segments. Reform in the electricity sectors globally is being driven by the desire to improve efficiencies; technological change and environmental pressure [38]. The issue of finance has also become a significant game changer as public finance for large infrastructure projects has been put under pressure due to a need to reduce fiscal borrowing requirements. The simultaneous occurrence of these factors has driven the commercialisation of public utilities; increased competition; introduced market trading mechanisms and changes in regulatory oversight [38]. In South Africa the electricity sector has not followed global reform trends and is still wholly governed by Eskom which is the South African Electricity Utility and controls all four of the above mentioned operations. As a whole South Africa is grappling with the dilemma of following a global trend of liberalised electricity markets or attempting to hold on to a fragile state-owned utility. Baker et al [39] note that due to pre 1994 political ideologies Eskom evaded the global trend of power sector liberalisation in the 1980’s and 1990’s. Currently as a utility Eskom is under threat due to historical electricity prices not being cost reflective, nor reflecting the true economic cost of supplying power to the economy. This has led to poor investment decisions, and very often a misallocation of resources. Between 1978 and 2008 the real average price of electricity fell by more than 40% from 39.7c/kWh (in 2011 Rands) in 1978 to 22.7c/kWh in 2008 [40]. These artificially low prices are graphically represented in Figure 2 which shows that South African electricity tariffs for the industrial sector has historically been one of the lowest globally.

Figure 2: Global comparison of electricity tariffs for industrial sector 2006 Source: Deloitte [40]

This has resulted in an unsustainable situation and has led to South Africa experiencing significant tariff hikes since 2008, as shown in Figure 3.

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uptake of small scale embedded generation and the rise of the “prosumer”, where households are now becoming their own producers and consumers of energy is on the increase. It is estimated that small scale photo voltaic (PV) could account for 30GW of electricity generating capacity by 2050 in South Africa or as much as 6 million households. Global trends are showing that cumbersome big utilities or municipalities that cannot move at pace are part of a historic regime whereas modern utilities and municipalities need to show ability to adapt and reform if they want to stay in the market. The overarching theme is that the electricity sector across many jurisdictions globally is transforming away from a centralized electricity supply system to one that is more distributed and smart. Arguably it is one of the critical sectors that is lending itself to the principles of regional planning and place based planning. Although vertically integrated utilities and heavily regulated markets still exist in many countries, there is increasing evidence of an electricity sector that is transforming to a highly competitive market where consumers can now choose from an array of power suppliers. This has planning implications and highlights the need for regional approaches that embrace innovation and compensate for decentralisation in all sectors. An energy system of the future will require operational strategies and plans that allow for the integration of decentralised and intermittent electricity. This will largely result from renewable energy sources, with the benefits being accrued to all citizens and not only those who can afford it. A smarter grid is not necessarily about increasing the efficiency or technological sophistication of the grid but it can also rather be about improving the planning processes, the flexibility in operations and achieving the right mix of policies for decentralised energy generation [42]. The largest barrier currently preventing municipalities from procuring local generated electricity is the Municipal Finance Management Act, that governs financial procurement in municipalities. According to this Act, municipalities cannot enter into contractual agreements of longer than 3-5 years, this is in stark contrast to the 20year power purchasing agreements that most energy projects require to constitute a bankable project. Municipalities have started to examine innovative ways to overcome this barrier, an example of this is eThekwini having structured a feed in tariff into their tariff regime for any excess power produced from Rooftop PV systems. This will allow home owners to feed energy back into the grid and be compensated for this energy. The monetary compensation will be operated through the municipal billing system and based on this feed in tariff pilot project there would be opportunity to expand it to other renewable energy technologies. The issue of tariff setting and timing of energy supply is a critical area of innovation which could lead to successful procurement of biomass energy resources. This will be expanded on in the case study section. The European Union [43] has identified the concept of “economization of municipalities”. This specifically refers to three aspects:

Figure 3: Electricity Tariffs in South Africa 1998-2012 Source: Sustainable Energy Africa [41]

Despite this period of significant increases in electricity tariffs, Eskom as a utility is still in a fiscal clench. The ability for Eskom to raise more debt financing in the market has also become severely limited with the downgrading of Eskom in March 2015 by Standard and Poor rating agency to a negative credit rating. Not only has the supply of electricity at a national level come under debate, but municipalities have also received much attention and focus. As previously indicated, cities are the largest category of user. The trends of innovation and decentralisation of energy generation has resulted in questions being raised over the future sustainability of these revenue flows. The fact that electricity is the revenue generator which cross subsidises other services in municipalities can be seen in the recent sharp tariff increases in electricity within municipalities. Metropolitan municipalities have used Eskom price hikes to increase their own gross surpluses, with them gaining more than R7.3 billion per year [8]. Metropolitan (metros) municipal retail tariffs have increased on average by between 0.50-1.00 R/kWh compared to Eskom tariff increase to metros of 0.39 R/kWh between 2007 and 2015. These statistics show that municipalities have in fact gained financially from Eskom price increases. Figure 4 shows the magnitude by which municipal tariffs have exceeded the Eskom price increases, highlighting that electricity is a major revenue generator for municipalities.

Figure 4: Electricity tariff increases in Metros in South Africa Source: National Treasury 2015

This background highlights that municipalities cannot afford to be left behind in the growing global trend of decentralization of energy provision. It is in municipalities’ best interests to be proactively managing the transition that is taking place in the energy sector and at the same time refining and adapting their own business models. One area where it is becoming particularly noticeable is in embedded generation. The trend in the

1.

2.

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An increasing transfer of management elements practiced in business companies brought into public management to allow municipalities to become more efficient and service orientated. Privatization of formerly public bodies, this is particularly in the areas of supply of electricity,


3.

public transport, waste and housing. There is also a trend for partial privatization whereby municipalities form private-law companies which are municipal owned. Move away from government to governance, this is resulting in increased public participation and civil action in the processes of municipal policy and strategy drafting.

Table III: Socio-economic characteristics of study area

Municipal Category

Population (7,1% of SA population) Population growth rate Age profile

These trends have implications for the energy and renewable energy space. The increased focus on service delivery and privatization of certain elements of municipal functions may provide municipalities with different ways of looking at the energy environment and functioning thereof. For example, municipalities may establish energy trading entities which could carry out energy related economic activity and possibly open up new ways of securing and managing funding. Thirdly, the increasing focus on governance rather than government also brings into sharp focus co-operation with other neighbouring municipalities which becomes increasingly important. A regional approach will have to be taken in securing some of the resources for renewable energy projects, as these will not all be available within the municipal boundaries. Historically the energy market in the municipal context has been designed for revenues to be generated from number of kilowatt hours sold. This is changing globally and municipalities have to rethink their position in relation to selling kilowatt hours in the past to selling energy services in the future. Innovation has taken place in the generation of energy from alternative sources, this needs to be matched by innovation on the contracting and selling of this energy to create competitive economic regions. This calls for greater local state autonomy over the procuring, usage and contracting of energy provision and reinforces the argument for the stronger role of regional planning.

Gender breakdown Unemployment rate Youth unemployment Size of informal sector %GDP Contribution to economy Grant financing

Electricity for lighting

3 CASE STUDY OF ETHEKWINI METROPOLITAN GOVERNMENT AND ILEMBE DISTRICT MUNICIPALITY

eThekwini Metro A

3 443, 361

iLembe District Municipality B (4 local municipalities, KwaDukuza, Mandeni, Maphumulo and Ndwedwe) 606,809

1,08%

0,8%

-25% under the age of 15 -67% (between the age of 1665) working age population -8% are 65 and over 51% female 49% male 30,2%

-34% under the age of 15 -61% (between the age of 16-65) working age population -5% are 65 and over

39% (aged 15-35) 16%

37% (aged 15-35)

57,9%

3,8%

18, 3%

69, 8% of population (40% of households earn no income, the majority of the population live on less that R500 per month and are grant dependent) KwaDukuza – 90,2% Mandeni – 82,5% Maphumulo – 33,7% Ndwedwe – 37,3%

89,9%

52% female 48% male 31%

23%

Source: Constructed by authors using various sources [44-46]

The choice of this case study is to demonstrate the current complexity in jurisdictional and administrative boundaries that currently inhibit the roll out of strategic and innovative infrastructure between municipal entities that share common boundaries. Furthermore, consequences of globalisation in relation to flows of people, ideas and finance has the effect of stimulating new ideas and economic and social opportunities that go beyond the traditional economy. The study demonstrates that through smart use of innovation in the green sector, the possibility for co-opetition exists in which use of the digital economy linked to the rise of smart grids and decentralisation of energy provision is possible. The eThekwini Metropolitan Municipality and iLembe District Municipality are located adjacent to each other on the east coast of KwaZulu-Natal, as shown in Figure 5. Table III compares the social and economic profile of the study area.

The economy of eThekwini contributes some 57, 9% to the KZN GDP and iLembe some 3,8% [47] . eThekwini is ranked as one of the most effective municipalities in terms of financial management whilst iLembe is largely dependent on grant financing from the state. Whilst the eThekwini economy is fairly developed, it is significant that in the iLembe District, the majority of the population are dependent on the state for grants for survival (69, 8% and in eThekwini 18, 3%), representing a portion of the 3 billion rand monthly social grant injection into the provincial economy [48]. Analysis suggests that most of this is spent in medium and larger towns and in monopolistic trading enterprises.

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using corridors, nodes and targeted grant investment, however implementation has been largely shifted to a reporting and monitoring framework for government. At a local municipal level, the KZN-PGDS has no local implementation authority and remains an indicative guide. Notwithstanding these concerns, we argue that the potential for supporting a regional planning framework in which local comparative advantages are addressed is present. In assessing these potentials, the case for bioenergy and electricity is explored in the next section.

Figure 5: Locality map of eThekwini and iLembe in relation to KwaZulu-Natal Province Source: J. Kitching 2017

Both the Integrated Develoment Plan’s (IDP) of eThekwini and iLembe 2014/15 Review [44, 46], define themselves as well located between two of Africa’s busiest ports, Durban and Richards Bay, having good proximity to the King-Shaka International Airport and Dube Trade Port, and being on the primary KwaZulu-Natal Provincial economic development corridor. This results in them being well positioned to local and international markets. The main economic activities for Durban include manufacturing, financial services, retail, tourism, construction, port, transport and logistics related activities, and some agriculture and milling (Maidstone mill). For iLembe these include commercial farming (mainly sugar, some forestry and emerging mixed farming), and associated milling industry (Gledhow and Darnell mills), Sappi Paper mill at Mandeni, and tourism. Land holdings in the iLembe District present an interesting case. According to the iLembe IDP, the majority of land (63%), is controlled by Traditional Authorities, jointly owned by the State and Ingonyama Trust, 31% contributes to commercial farming and is under mainly privately owned sugar cane. It is worth noting that Tongaat Hulett is a major private land owner in both eThekwini and iLembe. They are primarily engaged in agricultural activity and the release of land for high end residential and resort development. This has resulted in a land monopoly market that determines land price and usage. This has the potential to constrain local municipalities who may have different development objectives. Figure 6 identifies the multisector economic potential in which both eThekwini and iLembe weighted score are higher than most areas in the province, and suggests that they are well positioned to explore new opportunities. Analysis of the planning frameworks and the local economy of both municipalities indicate prospects relating to locational advantage associated with cross border resource use and development that has socio economic potential. However, attempts at institutional co-ordination and implementation are largely ineffectual, representing a lost opportunity. Each are focussed on their own planning processes and plans, where some duplication of priority setting is evident, but is largely uncoordinated, and in which civil society and business input is limited. An example of this is the sugar industries inability to reach agreement with government over the last 5 years over ethanol and electricity, and have yet to establish a meaningful partnership with government. Some attempts at coordination of a policy framework for the KwaZuluNatal province have been made through the Provincial Growth and Development Strategy (KZN-PGDS) [49],

Figure 6: Map showing eThekwini and iLembe economic potential in relation to KwaZulu-Natal Source: J. Kitching 2017, Adapted from PGDS, 2011

3.1 Bioenergy and Electricity Generation Opportunities in eThekwini Metro and iLembe District Municipality An examination of bioenergy opportunities in the eThekwini and ILembe districts indicate that significant opportunity exists for biogas projects and electricity generation from lignocellulose, due to the presence of forestry and sugar cane resources. The research suggests that the top two biomass resources in the iLembe and eThekwini region would be sugar cane and waste water treatment plants. The obvious advantages for the two municipal regions is the combination of a strong local biomass resource together with natural resources in close proximity to infrastructure for processing, transportation or final use. These are two of the most important drivers leading to successful business cases for turning the resource into tangible economic opportunities. Figure 7 show both the proximity to infrastructure of the bioenergy resources and the volumes of the resources that exist in these two regions.

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local municipalities may be able to make significant financial gains from procuring local, compared to the peak tariffs they have to pay the national utility for energy at those times.

Figure 7: National biomass resource and location of basic transportation infrastructure Source: South African Bioenergy Atlas [50]

With a diverse range of energy user types within the regions’ perimiters, there are multiple offtakers for bioenergy particularly where process heat is required. In addition to the traditional residential and commercial sectors, eThekwini hosts a range of industrial companies producing automobiles (in particular Toyota), consumer goods, petroleum, petrochemicals, tyres, paper, beverages, and packaging materials. These industries have process heat requirements and hence present potential offtakers for total or partial switching from electricity based heating to bioenergy based heating. The ILembe region’s access to sugar fields and sugar refineries makes it an ideal location for use of this biomass resource in production of bio-ethanol, process heat, or electricity. Figure 8 shows the location of sugar resources in Kwa Zulu Natal as well as the mills. Currently in the sugar mills, co-generation is mainly used to power on-site operations. Further large scale investment is required to allow these mills to produce excess energy and this will only be undertaken if a guaranteed tariff framework or Power Purchasing Agreement is put in place. The Sugar Industry in South Africa has been advocating for this framework with national government for the last 5 years. The potential for large scale cogeneration driven primarily by the timber and sugar cane industry is estimated at being between 1000 MW and 1500 MW. In the absence of achieving this tariff framework at a national level, local regions can actively pursue opportunities together with big business to become the off takers of some of this power. If innovation occurs as to when the energy from the mills is fed into the grid,

Figure 8: Location of Sugarcane residue primary sources and sugar mill areas in KwaZulu-Natal Sources: Bioenergy Atlas [50] and J. Kitching

From a place based regional planning approach the changing industry ownership and operational structure has potential for transformation and economic development of the region. Of the 12 mills in KZN, 4 are owned and run by Tongaat-Hulett (Darnell, Maidstone, Amatikulu and Felixton) and 8 others are independently run. Important to note is the high degree of monopolisation of the sugar industry, in which transformation outcomes have been mixed. Tongaat-Hulett landholdings in the eThekwini and iLembe district are considerable and account for 121 530 hectares (own and third party) [51]. According to SASA [52] registered farmers include 21 889 mainly in KwaZulu-Natal and Mpumalanga and some in the Eastern Cape. 20 562 are small scale growers, and produce 10,3% of crop. 1 327 are large scale growers, of which 323 are black emerging farmers and together they produce 83,8% of sugar production. Land reform in the sugar industry has transferred some 21% of freehold land from white to black owners since 1994. Outstanding land claims constitute some 130 000 hectares and continues to be a challenge. Table IV shows the potential economic impact that could be achieved if there was a framework in place for sugar mills to sell their excess power. If a viable tariff and/or purchasing power parity (PPP) were in place the sugar industry could invest in 14 new projects with significant innovation effects in processing and value chains, and the potential to create a total of 34 000 jobs.

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Historically the market has signalled that biomass tariffs should be in the range of R1, 20-R1.60/kWh to allow projects to become bankable and to stimulate investment. This has proven to still be relatively expensive in comparison to other energy generating technologies. Research in the sugar industry shows that part of the tariff required is to compensate for the large job creation potential that those investments will generate. It is a labour intensive process and technology that produces more jobs per kilowatt hour than any other technology. This provides an opportunity for local government and the sugar industry to collaboratively agree on a tariff that is workable for both, with the job creation element factored in.

contracts that are longer than 3-5 years, whereas the sugar industry is looking for 20-year power purchasing agreements. The possible innovative options that could be implemented to address this barrier, would be the following: 1. Sugar mills could enter into 3-5-year agreements with the municipalities for part of the output at a set tariff. This can be done within the longer term framework of both the municipalities and the sugar industry, jointly approaching national treasury to invoke section 33 of the MFMA which gives municipalities the exemption and allows for longer contracting periods for catalytic projects. This also provides the sugar industry an opportunity to collaborate across its value chain of growers and millers. There is an opportunity for the sugar industry either to contribute to co-generation through its mills, or alternatively in the form of biogas through its growers. Energy provision may therefore also be used as a catalyst to strengthen stakeholder engagement within the Sugar industry and open up the sugar industry to broader community resource ownership. 2. Sugar mills could enter into offtake agreements with end user industrial customers directly. EThekwini has a large industrial user base which may be interested in procuring green power. In this arrangement the municipality will take on the role of pure grid operator and take a fixed grid charge fee for the usage of the grid, to wheel the power from the mills to the end customer. 3. eThekwini and iLembe together with the industrial and commercial sector could examine the option of developing an energy trading market. In this market energy generators can place their power capacity onto the market and a bidding system can be put in place for buyers to purchase the electricity. This would not be limited to biomass but could apply to all power generation technologies. This is the approach that has been followed on a much larger inter-country scale in Europe.

Table IV: Potential energy generation from sugar industry DESCRIPTOR

Primary Renewable Fuel

Typical Sugarcane Harvest Season Proposed MW Allocation Total MW as per current projects No. of projects Locality Total Project Cost (ZAR million) Total Revenue – real (ZAR million) Local content value – Construction (ZAR million) Local content % - Construction Job creation – Construction Phase Job creation – Operations Phase Job creation – Fuel Phase Total Jobs Job creation per plant during construction phase (Job/MW) Job creation per plant during fuel phase (Job/MW) Total job creation per plant (Job/MW) Socio-Economic Development (ZAR million) Enterprise Development (ZAR millions)

RENEWABLE SUGARCANE FIBRE TECHNOLOGY Sugarcane fibre (includes bagasse and leaves) April - December 1000 780.5 2015-2019 KwaZulu-Natal Mpumalanga 18,847 111,693 11,795 62.6 12 972 433 20 701 34 106 16.8

3.2 Bioenergy and biofuels findings Although there are technologies in place for conversion of biomass to biofuels, as with the electricity conversion, an endorsed national framework to allow the biofuels industry to flourish is still awaited. This is especially so in a context of lagging indicators in significant spatial areas of the case study area with high unemployment and poverty levels. Potential new opportunities exist for small farmers to enter into the formal market, new supply chains to be developed and support for socio-economic development. The initial South African National Biofuels Industrial Strategy released in 2007 envisaged a five-year pilot phase, covering 2008 to 2013, during which a 2% penetration level of biofuels in the national liquid fuels pool was to be achieved. The original pilot period of 2008 to 2013 was then shifted to 2015 -2020. This reflects the strength of the oil industry interests and SASOL, where South Africa is a net importer of fuel. Initially sugar cane was left out as a feedstock in the biofuels strategy, however the Department Of Energy released a revised strategy that included both sugar and sorghum as a feedstock. Two other provinces namely Mpumalanga and the Eastern Cape are sugar producers. In KwaZulu-Natal the sugar industry could make a significant contribution to thisstrategy.

26.8 44.1 1,400 2,300

Source: South Africa Sugar Association 2013

In examining the variable cost that municipalities like eThekwini pay for electricity from the national utility Eskom, in winter peak they pay R2, 40 per kilowatt hour and in summer R1, 80 per kilowatt hour. It is evident that if power is substituted by sugar mills during these peak times there is an incentive for municipalities to buy local power, particularly during winter. For this to work in the case study area the following parameter need to be taken into account. Most of the sugar mills are located in iLembe therefore if power needs to be ‘wheeled’ through the utility (Eskom) grid to the eThekwini grid one is looking at an additional 20-30c/kWh grid use cost per kilowatt hour. In terms of the pricings identified above there would still be scope to offer the sugar mills the necessary tariff they require to make the investment into their projects. As mentioned earlier the MFMA (Municipal Financing Management Act) prevents municipalities from signing

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comparison to other metro’s in South Africa. It is largely fuel consumption that is driving this energy intensity. This is because transportation and logistics is a significant driver of the local economy, in which the biggest port in Sub-Saharan Africa, Durban, is located and where goods feed into the hinterland through the N2 corridor. This data suggests that it is a local economy that is well suited to an intervention in the biofuels sector, where fuel represents a growing proportion of input costs into economic activity. This is further supported by Figure 9 and Table V. Figure 10 shows the relative inelastic demand for petrol and diesel and shows the significant amount of money that is effectively exported out of the municipality each year. If a proportion of this can be diverted to locally produced biofuels such as in the neighbouring ILembe region, this would make significant contributions to local economic development and unlock new development opportunities. In particular for small scale and medium sized farms, where opportunities for supply chains associated with the transport sector potentially exist.

Table V: Energy intensity of eThekwini Municipality in comparison to other metros in South Africa Energy Intensity of eThekwini Municipality in comparison to other Metros Energy Intensity Measure

Total Energy/Capita (excl marine & aviation) GJ Total Energy/GVA (constant 2005) GJ Electricity/Capita (GJ) Petrol/Capita (GJ) Diesel/Capita (GJ) Petrol & Diesel/Capita (GJ) Paraffin/Capita (GJ) Coal/Capita LPG/Capita (GJ) tCO2e/Capita tCO2e/GVA GVA/Capita

eThekwini Municipality

2011 52.30

2013 65

Avera ge Across other Metro’ s 2011 34.7

Nati onal Aver age

986

1 183

664

1587

11.33

11

12.7

14.1

10.66 13.45

11 16

10.88 8.4

7.9 8.3

24.11

27

19.2

16.2

1.18

2

0.5

0.4

5.48 1.76 8.03 137 53043

5.48 1 8.4 153 55046

1.6 0.5 5.2 100 52293

2011 52.2

9.9 0.4 7.6 236 3291 1 Source: eThekwini Data is CSIR calculated, other metros and national averages is taken from State of Energy Report 2015 by Sustainable Energy Africa

Figure 9: Total Cost of Petrol and Diesel Consumption eThekwini Municipality 2007-2013 (2005 Constant Prices) Source: CSIR Calculation Table VI shows the energy spend on petrol and diesel by the municipality itself on its own operations. The municipality spends R3.1 billion on energy sources with diesel accounting for the largest proportion of energy consumption and spend within the municipal bill. This diesel consumption comprises of the city fleet and city buses and provides an opportunity for the city to look into alternatives for a replacement for diesel. It also represents an opportunity for biofuels to compete on a cost competitive basis and attempt to not only assist the municipality in diverting exported money but also providing a more cost effective local solution.

At full processing capacity and with a potentially expanded sugarcane agricultural industry, the industry could produce in the order of 1 150 500 m3/annum or 9% of the national petrol pool (SASA 2014). A phased approach for participation of the sugar industry in a local biofuels industry would be considered. Faster implementation could be linked to diversion of export sugar into fuel ethanol production and the expansion of sugarcane production. The sugar industry produces 600 000 to 1 million tons of surplus sugar and this could potentially be converted to 360 to 600 million litres of bioethanol. The additional revenue stream and re-optimisation of the value chain will incentivise the sugarcane industry to re-establish lost production, secure at least 28 000 direct jobs currently under threat and re-create approximately 18 500 direct jobs, as well as a significant number of indirect jobs (SASA 2014). This also provides for community empowerment opportunities in the value chain. The potential in the biofuels sector is significant but, unfortunately the national framework is yet to be fully implemented therefore the envisaged benefits have not yet arrived for the country. Here again there could be an opportunity for the two local governments identified in this case study to pro-actively step into the partial void that national government is yet to fill. Table V shows the energy intensity of eThekwini Municipality in comparison to other metros and shows that eThekwini is a highly energy intensive municipality in

Table VI: Estimated eThekwini Municipality Energy Use and Spend for 2014 Estimated eThekwini Municipality Energy Use and Spend for 2014 CITY kWh/L COST TOTAL COST ENERGY PER (ZAR) USE UNIT (ZAR) Total kWh 195 222 0.60c R 117 133 385 308 Total Litres 3 674 248 138,00 R 507 046 324 of Petrol Total Litres 19 449 841 129,00 R 2 509 029 594 of Diesel TOTAL R 3 133 209 303 Source: CSIR Calculations based on data from eThekwini Energy Office

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It is also interesting to note that South Africa is exposed to volatility in crude oil prices on two levels, one is the per barrel price and secondly there is an exposure on the exchange rate. South Africa has a total of six refineries that have a total capacity of 703 000 barrels per stream day (BPSD) (2014). The different capacities of the six refineries are shown in Table VII. What is noticeable is that all six of these refineries are producing close to their maximum capacity. This is evident in the lack of growth of output from these refineries from the period 1992-2014. Although these refineries are showing capacity constraints they could also present a strong local lobby against the development of locally produced biofuels as this would further impact their business model which is heavily based on fossil fuel. Again this could offer opportunities for a partnership approach where these role players could be brought into the process of developing a local biofuels regime which may provide them with opportunity for business diversification.

4.1 Finding 1: Opportunities for developing a strategic vision, using place based territorial regional planning approach The initial analysis of the institutional and operational aspects of the planning and related governmental system suggests numerous gaps and challenges for place based planning. These include: 1. poorly developed institutional capacity to facilitate and develop cross border planning institutions, 2. mechanisms for collaborative planning efforts are not effectively utilised to include a wide range of stakeholders around policies, organisations and actors, in particular the private sector, and civil society, 3. lacking a strategic approach to sustainable energy and resource use – in particular around developing the comparative advantages of the region, and having a long term view of investment in infrastructure, in developing skills, ideas and techniques to do more complex tasks, 4. lacking local leadership and resistance to adaptive learning in a rapidly changing environment in which the 4th industrial revolution will have impact down the line, and 5. Contrasting status quo of a metro vs a district municipality, but in which common challenges of poverty, unemployment, in particular amongst the youth, and a stagnant economy are evident.

Table VII: Capacity of South African Refineries Capacity (bbɩ/day) Refine ry Sapref Enref Chevr ef Natref Sasol PetroS A Total

199 2 120 000 70 000 100 000 78 000 150 000 45 000 513 000

1997

2007

2010

2013

2014

165 000 105 000 100 000 86 000 150 000* 45 000* 651 000

180 000 125 000 100 000 108 000 150 000* 45 000* 708 000

180 000 120 000 100 000 108 000 150 000 45 000 703 000

180 000 120 000 100 000 108 000 150 000 45 000 703 000

180 000 120 000 100 000 108 000 150 000 45 000 703 000

Furthermore, affordable energy supply particularly to the poor continues to experience significant backlogs and a lost opportunity. Energy provision continues to be supply driven and based on sectoral rather than territorial dimensions. A major opportunity is the potential to generate new income streams for local government whilst GOVERNANCE APPROACH 1. Shared collaborative approach to regional planning 2. Development of value proposition for territorial strategy

Source: SAPIA 2014

3. Build knowledge teams 4. Accumulate data and evidence 5. Mobilise and build strong coalitions 6. Identify and secure investment sources 7. Monitor and evaluate progress

South Africa’s largest demand for liquid fuels is in the inland market which is supplied by the coastal refineries via pipeline. Historically the 12-inch DurbanJohannesburg pipeline has supplied a large portion; however this has reached the end of its design life. In 2012 work was begun on a new multi-product pipeline which is a 24-inch pipeline, 555km long and has the capacity of transporting 26.7 billion litres of fuel. This pipeline has an 80 year lifespan and has created much needed new supply capacity in the fuel sector.

4

Government Tiered local government system Limited mandate (5 years) Limited resources Limited powers Multiple municipal strategic approaches

PRELIMINARY FINDINGS

As noted from the above discussions, the findings of the research are based on a review of the institutional, policy and legislative arrangements as they relate to spatial planning of municipal energy provision in the case of the eThekwini metro and iLembe District municipality. This was analysed using territorial place based planning to the case of the sugar industry in the study area, in which bioenergy and electricity generation opportunities are considered.

Business Organised but fragmented Divisions relating to transformation agenda Fragmented competition

Civil society Fragmented Under resourced Divided

STATUS QUO

Figure 10: Institutional change and collaboration model Source: Constructed by authors

creating new employment based on sustainable industries. In particular in areas where leakage is contained and potential for local accumulation stimulated. Whilst recognising that planning and administrative complexity is not unique to South Africa, opportunities for a place based approach are clearly evident where the potential benefits of a local industry facing challenges

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could be used as an opportunity to develop a win-win scenario with the potential to benefit numerous stakeholders. Figure 10 proposes a potential model for developing institutional change and collaboration. The model suggests a governance system in which the value proposition and territorial strategy is developed, including building knowledge teams, strong coalitions, exploring funding mechanisms and setting up monitoring and evaluation systems at appropriate territorial scale. The comparative advantage analysis in this study suggests developing appropriate competitive indicators in which developmental outcomes are tracked and assessed, is indicated in Figure 11. This is considered to be more appropriate for a developing country such as South Africa, than traditional competitive indicators such as those suggested by the World Economic Forum [53], in which global indicators are uniformly applied.

Indicator New supply chain development Agriculture and agro-processing Milling: biofuels – electricity, fuel, aviation fuel new machine technology and processing plants Transport and logistics: cars, public transport, government fleet, taxis, tractors, private trucking companies Auto sector: auto conversions Digital connections

4.2 Finding 2: Unlocking of biomass energy for electricity and biofuel potential Evidence suggests that since 2000 the sugar industry has been in decline, with sugarcane production decreasing from 23 million tons to 18 million tons per annum. Small -scale farmers have been the hardest hit from 29 000 to 14 000. In the same period, mill capacity utilisation has dropped to less than 75% and 18 500 direct jobs have been lost (South African Sugar Association). This trend will continue as long as the industry depends only on sugar revenue. It has become apparent that to arrest this decline a change in product mix is urgently required. The industry can no longer be reliant only on sugar for its revenue but rather the production of electricity and ethanol have become vital markets for the industry and would enable the extraction of the full value of the sugarcane stalk. This has become international best practice, with the likes of Brazil and India both having a very successful ethanol and renewable energy regime in place for their sugar cane industries. Although KZN controls 80% of the South African sugar industry, it is also not without national importance. Nationally direct employment within the sugar industry is approximately 79 000 jobs, which represents a significant percentage of the total agricultural workforce in South Africa. Indirect employment is estimated at 350 000 jobs. It also contributes more than R2 billion annually to foreign exchange earnings and is the 6th largest agricultural product. In addition, there are approximately 29 130registered cane growers, with approximately one million people, more than 2% of South Africa's population, depending on the sugar industry for a living (South African Sugar Association). It is therefore crucial that a solution for the sugarcane industry is found, with renewable energy and ethanol production being the obvious choices. If the sugar industry were to be given a proper market regime for the sale of their renewable energy, they could produce in the region of 1000-2000MW and create 34 106 jobs (South African Sugar Association). The following market innovations were suggested in the paper:

Circulation of money locally contained

Open land market access and opportunities

Labour development Appropriate technology transfer New forms of local capital accumulation

Anticipated Outcome Employment opportunities; Increased skills and new skills opportunities; Informal sector development; Increased market size; Technology absorption at firm level; Improved collaboration with research institutions / universities / industry and communities in R&D; Private sector investment

Community empowerment; Development of co-ops; Social enterprise; New business networks; Improved education outcomes; Enhanced local entrepreneurship; Private companies; Banking services; Improving market share of local enterprise and business Improved local business activity environment; Local accumulation and wealth creation stimulated; Stimulation for local demand of product and services; Reduction in inequality Diversification of land ownership; Land ownership and title deed reform (Communal land); Growth of small farmers; New entrants into agriculture; New entrepreneurial opportunities Improved skills, diversification of skills; Improved productivity; Increased employment Time saving; Improved productivity; Access to broadband / smart technology / www Wealth creation and reduction in poverty and inequalities; Bankable asset base developed and expanded for new market entrants; Increased availability of financial services

Figure 11: Indicators for competitive developmental outcomes Source: Constructed by authors

If a local biofuels regime were also to be considered the fastest implementation could be linked to diversion of export sugar into fuel ethanol production and the sustainable expansion of sugarcane agriculture. The sugar industry produces 600 000 to 1 million tons of surplus sugar and this could potentially be converted to 360 to 600 million litres of bioethanol. Figure 12 identifies the comparative advantages and value chain potential in biomass energy that could support the revitalisation of a dominant local industry into a competitive local market with agglomeration effects.

1. New agreements between the sugar mills and the municipalities for part of the output at a set tariff. 2. Sugar mills could enter into offtake agreements with end user industrial customers directly. 3. eThekwini and iLembe together with the industrial and commercial sector could examine the option of developing an energy trading market.

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biomass market and allows the owners of the biomass resources to invest in the necessary technological innovations to unlock the sector. This is done in the context of a local sugar industry which is in decline, hence the innovation that this brings is not only the localisation of energy provision but the promotion and revival of the economic competitiveness of an entire region. For example, potential for supply and value chains that could be developed in terms of auto sector, airlines, local municipality transport fleet are evident. Furthermore, the potential to allow new entrants into the market, and be a game changer in other areas of the agriculture value chain. For small scale and subsistence farmers for example, this could bring refrigeration, affordable electricity, time saving activities that improves productivity and lead to changes to material living conditions and prospects for economic participation, either formal or informal. The benefit of the fixed nature of the landholdings has the advantage of developing a locally based industry with local benefit, as well as the future research and innovation related to the industry. Several benefits for local municipalities and society are evident. The potential new revenue streams for municipalities, affordable energy provision for consumers and overall sustainable benefits to society and the poor in particular could lead to transformational development opportunities for the most vulnerable. The study suggests that placed based planning can be effective, albeit viewed in the context of national reform measures to the planning and energy sectors where monopolistic activities are challenged, and where local competitiveness can emerge. The study is still to be completed however the preliminary results indicate that significant job creation and economic development opportunity could be unlocked if the correct regional planning and economic market creation is introduced.

Comparative advantage of sugar industry and biomass energy Catalyst for New Supply Chains Changes to energy users at scale

eThekwini

Midstream Downstream

Port and related activities transport and logistics Auto sector Airport and trade port Public transport Business and Commerce Services sector Tourism Agriculture and milling Informal sector

Up stream

Existing economic sectors

Small, medium and large scale farmers - increased sugar production and technology adaptation to harvesting techniques Mills with associated capacities, new technologies and conversions to ethanol biofuels

iLembe Existing economic sectors Tourism Small scale industry Sugar farming Milling Agro-processing Business and commerce Emerging services Informal sector

Storage and distribution facilities / innovation and technology Transport and auto industry parts / converters Farming equipment Public Transport bus and taxi New pumps and technology Government fleet Airline fuel – conversion of domestic fleet

6

[1] Todes, A., New Directions in Spatial Planning? Linking Strategic Spatial Planning and Infrastructure Development. Journal of Planning Education and Research, 2012. 32(4): p. 400-414. [2] National Planning Commission, National Development Plan: Vision 2030. 2011, The Presidency: Pretoria. [3] Oranje, M., Spatial Transformation And Urban Restructuring: Lessons For The 20-Year Old PostApartheid South African City?, in Spatial Transformation of Cities Conference. 2014, City of Johannesburg and South African Cities Network. p. 1-37. [4] van Huyssteen, E., et al., An Overview of South Africa's Metropolitan Areas - Dualistic, Dynamic and under Threat…. European Spatial Research and Policy, 2010. 17(2): p. 23-40. [5] Treasury, N., Review of Local Government Infrastructure Grants. Draft Report to Budget Forum - September 2014. 2014, National Treasury. [6] South African Cities Network, Strategy Framework 2012 – 2016: South African cities as effective drivers of local and national development. 2012, SACN: Johannesburg. [7] SALGA. The informal sector. 2016; Available from: www.led.co.za › LED in Practice.

Figure 12: Comparative advantage of sugar industry and value chain potential in biomass energy for eTehkwini and iLembe Source: Constructed by authors

5

REFERENCES

CONCLUSIONS

The conclusions resulting from this work, show that using a planning approach of territorial place based planning has significant contributions to make in using comparative advantage to promote the economic competitiveness of a region. In the context of a national vacuum in relation to renewable energy from biomass there are significant opportunities that exist for local governments to provide a stable and constant market for renewable energy producers. In this instance the sugar industry has significant appetite to enter into partnerships with their surrounding local governments to make use of their biomass resource potential. The innovation resulting from this case study is the unlocking of a biomass energy sector through establishing a local economic off take market both for electricity and biofuels. By creating the appropriate regional planning and legislative framework, it allows for the implementation of a tariff and economic regime that signals confidence in the

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ACKNOWLEDGEMENTS

The authors wish to acknowledge the role of Joe Kitching, DUT Department of Town and Regional Planning, for the GIS mapping.

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