Background

Between November 2011 and July 2016, South Africa received commitments of investments to the value of nearly R200-billion through an innovative and efficient programme which encouraged private investment into the South African power generation sector. The Renewable Energy Independent Private Producers Procurement Programme (REIPPPP) came about in a hurry because the lights went out in South Africa – literally – in 2008. Officials within Treasury were mandated to set up a programme to attract private investors.

According to figures released by the Department of Energy, the REIPPPP by 2016 had not only delivered multiple millions in investments, but also created more than 30 000 jobs and benefited local community development to the tune of R256-million.

Whereas national utility Eskom’s supply of power was insufficient for a booming South African economy in 2008, the global economic slowdown that kicked in later that year meant that by the time independent producers were selling to the grid (also controlled by Eskom), electricity demand was much reduced. Eskom itself had been adding power to the grid and improving the maintenance of its existing fleet.

Eskom is investing heavily in two new coal-fired power stations. Medupi and Kusile power stations will jointly generate 9 564 MW. These factors resulted in Eskom refusing to sign any more power purchase agreements with independent producers.

Although Eskom’s shareholder, the Minister of Energy, said that the REIPPPP was still government policy, it was not until the third quarter of 2017 that the process was started again, but this time with a limit imposed by the state on how much could be charged for energy in new contracts. Many in the renewable energy sector believe that the price cap of 77 cents per kilowatt-hour (kWh) will deter many possible investors and make small-scale renewable energy projects (such as small-hydro) impossible.

One of the consequences of the policy uncertainty of 2016-2017 was that DCD Group sold its share in the Coega IDZ-based DCD Wind Towers joint venture for R1.

South Africa’s electricity comes mainly from Eskom’s coal-fired power stations. The Koeberg nuclear power station supplies about 5% of the nation’s needs and has been operating since 1984.

Integrated Energy Plan

South Africa’s long-term energy plan is underpinned by the Integrated Energy Plan of which the electricity-specific Integrated Resource Plan (IRP) forms a part.

There is considerable debate about the methodologies and scenarios which underpin the Draft 2016 Integrated Resource Plan Base Case. The South African Renewable Energy Council represents four industry associations, one of which is the South African Photovoltaic Industry Association (SAPVIA). The CEO of SAPVIA, Mike Levington, had this response to the new plan: “The biggest issue with the draft IRP2016 is that it artificially limits the amount of renewable energy that can be added to the grid over the next 20 years with no rationale for imposing them. Under this constrained scenario there will be greater allocations given to nuclear and coal in the IRP at significantly more expensive cost than new solar and wind energy.”

Proponents of coal and nuclear argue that there are some hidden costs that renewable energy advocates don’t reveal. They also argue that coal and nuclear are necessary to provide stable supply. There are also questions about the ability of the grid to cope with multiple sources of energy.

Two recent reports (a “Flexibility Study” and a CSIR study) have concluded that South Africa’s grid could be flexible enough and renewables supported by gas could provide base load.

Strengths

The Northern Cape is South Africa’s hotspot for solar power and the Eastern Cape has attracted most of the approved wind power projects.

Although KwaZulu-Natal received few REIPPPP bids, the Richards Bay Industrial Development Zone is positioning itself to be a hub for renewable energy, with the proximity of the rich gas fields off the shores of Mozambique a major selling point. The huge forestry, timber, paper and pulp industries of the province can provide feedstock for the renewable energy sector.

KwaZulu-Natal’s most widely grown crops, sugar cane and sugar beet, are among the most efficient and cost-effective feedstock for the creation of biofuel.

The Provincial Government of the Western Cape is another entity prioritising energy and this includes generation (gas, biogas and renewables), distribution and energy-saving. In the REIPPPP, the Western Cape has so far been allocated 11 projects, six wind projects and five photo-voltaic solar power projects.

Western Cape Minister of Economic Opportunities Alan Winde says that Cape Town alone has 2 000 private producers. These range from a solar panel on the roof of a single household to major installations in the Waterfront. Winde is lobbying for the allocation of a gas-to-power plant to Saldanha Bay where there are already bulk power consumers like ArcelorMittal Steel. This could be a catalyst for the use of gas in many other sectors.


Online resources


Don’t miss the upcoming Africa Energy Indaba, 20 – 21 February at the Sandton Convention Centre, Johannesburg.

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