The great hope in SA, as in the US and other countries, is that renewable energy will spawn a large new industry employing thousands as it helps to increase power capacity and to contain carbon emissions.
Thembani Bukula, Nersa’s regulation manager for electricity told Moneyweb: “When Nersa agreed to Eskom’s 24.8% tariff increase last month, it earmarked R2.3bn for 2010/11, R4.8bn for 2011/12 and R5.8bn for 2012/13 specifically for renewables.”
Nersa has already published its Renewable Energy Feed-in Tariffs (Refit). Wind is the cheapest, coming in at R1.25 per kw/h. That is still a lot more expensive than Eskom’s tariff to municipalities, after the increase, of about 65c/kw/h. Solar is even more expensive at R3.14 to R4.80 per kw/h.
While the upfront capital costs of wind and solar are more expensive, they are cheaper to run over the long run.
But Bukula hopes that costs in both solar and wind will come down as local companies get involved in producing components for both.
Sasol (JSE:SOL) has already announced plans to manufacture new flexible solar panels that are not based on silicon. They are based on new technology developed by Professor Vivian Alberts of UJ.
Multinationals are expected to start producing wind turbine components in SA once they are satisfied that the local industry has sustainability.
Bukula said: “Price is not everything. One of the most important criteria, when it comes to a decision on licences, is ease of finance.”
Mainstream, a builder of wind farms, says R1.25/kw/h is an acceptable price. If it gets a licence, it will self-fund its wind farms. It wants only two things: an ability to connect to the grid and guaranteed payment for its power.
Nersa is also looking at the role of co-generators in electricity, steam and heat supply. The sugar mills, Mondi (JSE:MND), Sasol and other industrial companies will be able to sell power excess to their needs into the grid.
Because Eskom’s balance sheet is so stretched, Nersa foresees it supplying only 70% of SA’s power in the future and other suppliers the balance. Companies, including Anglo American (JSE:AGL), are reportedly looking at generating power not only for their own needs but for the grid.
As the system operator in law, Eskom will initially be the buying office. This is controversial, as Eskom might be expected to buy in power only when and if it suits its own monopoly. JSE-listed Ipsa (JSE:IPS) has been waiting for a feed-in tariff agreement and nearly gone insolvent since it brought a plant on stream at Newcastle in Eskom’s darkest days. It remains interested in SA and is eager to build a peak power unit at Coega in the Eastern Cape.
Bukula said: “This is necessary, as Eskom has a balance sheet and credibility with the banks.”
A separate system operator’s office backed by the necessary government guarantees is expected to take over the purchasing role.
Some of the requirements for independent power producers are:
- Acceptable proven technology
- Ability to alleviate power shortages
- Well placed to connect to the grid
- Acceptance of a standardised agreement
- Benefits to the previously disadvantaged
- Advanced environmental impact assessments completed
- Ability to raise finance
- A preference for small rather than large generators
- Commissioning in quick time
- Generates local employment