South African Renewables priorities

It is difficult to overstate the significance, both practical and symbolic, of last month’s unveiling of the preferred bidders in South Africa’s first 1.4GW renewables tender — for the ­industry, the country and the continent.

The list of 28 winning projects represents the first step on energy-­starved South Africa’s marathon journey to nearly 18GW of new renewables by 2030.

Yet while the industry and the government are keen to display a façade of unity, it is clear they are viewing the target from very different perspectives. Those positions have contradictory impulses, and the tension between them is certain to get worse.

For the industry, South Africa has long been a tantalising prospect, due to its enormous wind and solar resources, its First World banking and investment sectors, and its huge energy gap.

But for a variety of reasons —from the lack of a local support scheme to more interesting markets elsewhere — most wind and solar companies have not taken South Africa seriously until fairly recently.

“If we were talking three years ago, there wouldn’t have been much attention in this part of the world,” says Peter Brun, head of government relations for Vestas.

“The wind industry was fully occupied with mature markets,” he tells Recharge. “There was simply no appetite for higher-risk markets.”

The financial crisis turned that attitude on its head. With the demand for energy stagnating or even declining in much of the Western world, project developers and suppliers are desperate to unearth new markets.

South Africa is an unusually appetising opportunity. Not only is it an interesting market in its own right, but it represents a beachhead for the continent — a modernised country where renewables companies can set up shop, make a name for themselves, then advance on the rest of sub-Saharan Africa.

“We’re not here just for South Africa,” Brun says. “We’re here for the region.

“We’re having discussions in Namibia, Angola, Ghana, Tanzania and Kenya. Maybe they won’t move at a huge scale, and maybe not tomorrow, but project by project you start to collect an interesting pipeline.”

In contrast to the industry’s gigawatts-minded attitude towards South Africa, the government is focused on one thing only: jobs. It is desperate for new generation capa­city, and genuine in its desire to ­lower its carbon emissions, but ­everything takes a back seat to economic growth and poverty ­alleviation.

“This is a tension that will crop up again and again in developing countries,” says ­Lettemieke Mulder, director of non-­governmental organisation and community relations for First Solar. “Is the aim to achieve maximum gigawatts on the ground, or to create as many jobs as possible? You can pursue both at the same time, but inevitably one takes precedence over the other.”

Like many governments, such as India with its National Solar Mission, South Africa has chosen to achieve its jobs-creation goal through the use of local-content rules at renewables projects.

However, South Africa has the added complication of its controversial Black Economic Empowerment (BEE) programme, launched after the fall of apartheid to redress the gaping economic inequalities between different ethnic groups.

BEE mandates that all large businesses must meet certain requirements for minority ownership and employment — a particularly onerous challenge for foreign developers and equipment suppliers.

The local-content threshold for the first renewables tender was about 25%, with PV given a slightly higher target since it is relatively easy to make inverters and racking systems locally.

While the government has made clear that the thresholds will be raised in the future, it has been vague about the specifics.

Most renewables companies say the existing targets are realistic, but they caution that lifting them too quickly would be counterproductive — and may, perversely, drive investment away.

“I’m all for increasing local content when possible,” says Duncan Ayling, head of development for RES Southern Africa. “But if it gets to the point where companies can’t find the parts and services they need, or find they are forced into using less-proven technology and thereby compromising on health and safety, then you’re just tying the industry’s hands behind its back at a make-or-break moment.”

Denmark’s LM Wind Power is understood to be planning a blade factory in South Africa.

Five foreign turbine makers — Nordex, Vestas, Siemens, Suzlon and Sinovel — have their names attached to winning first-round wind projects. But with an estimated annual wind market of about 400MW until 2030, sources say South Africa probably does not have the scale to lure a turbine factory of its own, regardless of what turbine makers may be telling the ­government.

As for PV, the global market is already grossly oversupplied, and it is unlikely that a new South African factory would be able to compete on price alone.

“Some of the best module factories in the world are shutting down in the US and China because of Chinese competition,” notes Christopher Clarke, a director at South African investment fund Inspired Evolution. “As much as the government’s intentions are good, the reality is these things are commodities now, and if you’re not in at the right price you’re going to be dead in the water before you even get off the starting block.”

There is too much emphasis on local-content rules when, in reality, jobs will come if the local market takes off, Clarke adds.

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