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Amid the frenzy of excitement and goodwill surrounding South Africa’s recently concluded renewables tender, developers and government officials acknowledge that many challenges still lie ahead — from grid problems to the lack of local skills.
But looming large are two potential problems with the ability to derail the entire 18GW programme — one spoken of openly, the other whispered behind closed doors.
The South African government is doing everything in its power to overcome the first — a lack of finance — by wooing foreign investors and multilateral financial institutions.
It cleverly leveraged the media spotlight at the COP17 climate talks in Durban to launch the South African Renewables Initiative (SARi), which it hopes will draw together a range of international partners and lenders willing to pool their finances to create a “virtuous circle” of clean-energy investment.
A handful of European governments and the European Investment Bank are already on board as partners.
Some of the money may come from the Green Climate Fund or other instruments to emerge from the UN climate process, and SARi itself may become a blueprint for developing nations looking to build renewables sectors of their own on the back of the Cancún Agreements.
But quite what happens for South African renewables if SARi fails to pick up steam, or if the UN process fizzles out, remains unclear.
The short-term picture, at least, appears secure. South Africa has set aside about 12bn rand ($1.47bn) to cover the first handful of tender rounds, which are intended to bring 3.7GW of wind, PV and concentrating solar power on line by 2016.
Beyond that, however, things get iffy. The full 18GW to be built by 2030 is estimated to cost nearly $36bn — $8.5bn more than alternatives such as coal at current prices.
The price tag for renewables is sure to fall in the coming years, but the additional cost is nevertheless beyond the government’s means, and a political impossibility in a country where 35% of the population lives on less than $2 a day. President Jacob Zuma concedes that “the biggest barriers to developing renewable energy in Africa to date are not technological, but financial”.
Depending on whether SARi (or something like it) takes off, South African renewables face two divergent future scenarios, says Nimrod Zalk, deputy director general of the Department of Trade and Industry.
Either the government is able to mobilise a range of creative financial instruments from international partners, from low-cost loans to pay-for-performance grants, allowing for a smooth and co-ordinated roll-out of renewables over the coming two decades; or the finance does not come easily (or at all), and the government is forced to fund new projects as and when it can.
“In that case, we’ll inevitably have a more hesitant, lumpy, uncertain roll-out,” admits Zalk. “That will lead to higher overall costs for renewables, less confidence and lower net economic benefits.”
And then there is the second, more pernicious problem: the government. Despite marked improvements over the past year, many developers still question its efficiency, transparency and ultimate commitment to renewables. A failure — or even the perception of failure — of any of the three would be disastrous.
Two years ago, South Africa mooted a feed-in tariff (FIT), the extremely generous rates of which drew the attention of major developers from around the world.
But to the industry’s immense frustration, not a single power-purchase agreement was ever signed under it — partly because the government belatedly realised the rates were too high, and partly because it became the victim of political infighting.
To the government’s credit, it did not abandon the sector altogether, and over the past year the FIT has essentially been repackaged as a competitive tendering process, with the original rates now acting as the ceiling at which developers start their bidding.
“We are now locked into what looks like a legal process, rather than the [FIT], which never took that final step to legality,” explains Andrew Gilder, a senior associate at Johannesburg-based law firm Warburtons.
But the switch from FIT to tender inevitably left a bitter taste in the mouths of many developers, some of which are known to have exited the market as a result. Many say the FIT is just one example of the lack of transparency and steadiness of purpose within the government.
“Frankly, the government can be difficult to deal with,” says one developer, who claims the media was informed of the first-round winners before the bidders themselves. “That’s typical,” the source tells Recharge. “You’ll often hear what the government is doing through the media, when really you should be sitting around a table with them, deciding how to make this industry work.”
The government has also come under fire for being too vague about its plans to upgrade and expand South Africa’s relatively modern grid — a critical challenge once the first few gigawatts are in place. The grid is configured towards flowing electricity from massive coal-fired power plants near Johannesburg outwards to coastal populations. The one key exception is the 1.8GW Koeberg station, which was commissioned in 1984 near Cape Town and remains Africa’s only nuclear power plant.
More uncertainty surrounds the future local-content thresholds the government will impose.
But perhaps the deepest fear among developers is that, despite all its outward enthusiasm, the government remains insufficiently committed — particularly if a windfall of green jobs fails to materialise immediately. Much rides on the success of the first generation of projects.
“I really hope those projects do succeed,” says Duncan Ayling, head of development for RES Southern Africa, which is developing a number of projects in the country, but did not bid in the first tender round. “If any of them start failing… it will reflect poorly on the whole industry.”
Many people within the government, the state-run utility Eskom and the general public are still not sold on renewables, Ayling says. “If a few projects fall over, it’s just going to put fuel on their fire.”
All the problems facing South African renewables are surmountable, as long as the government puts its cards face-up on the table and keeps them there, says Peter Brun, head of government relations for Vestas.
“You’re always going to deal with policy risks in renewables — that’s a concern in every market,” Brun says. “The government’s job is to reassure investors.
“The only difference here is that in developing countries, in sub-Saharan Africa, the bar is much higher because the risk is that much greater.”
Karl-Erik Stromsta, Cape Town
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