Feito no Brasil? Made in South Africa? Boosting technological development through local content requirements in the wind energy industry

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2013

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Energy Research Centre

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Energy Research Centre, University of Cape Town.

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University of Cape Town

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How can local content requirements (LCR) boost technological capability for renewable energy? This paper investigates the implementation of LCR in the wind energy in Brazil and South Africa. Brazil tried to grow a local wind industry requiring 60% domestic content in each installation since 2004. South Africa demands up to 45% domestic content in its recent program. The benefits of these requirements are heavily debated. The rationale behind LCR is that governments in developing countries intend to stimulate jobs in new industries and to accelerate technological development. This market intervention imposes a barrier for international manufacturers, as local manufacturing can push up the technology prices. Based on evidence from Brazil and South Africa, we find that LCR fall short as a single technology policy instrument. The Brazilian case shows that LCR incentivized the domestic production of low and medium technology content. These are the heavy parts, such as the towers, which are difficult to transport. Recently, parts of the nacelle, hubs and blades have increasingly been manufactured locally. High technology-intensive components, however, continue to be imported. Boosting local industries requires not just restrictive measure such as content requirements but, more importantly, it requires active support of technological capability.
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