Foreign Policy Blogs

South Africa’s Innovative Energy Policy

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Photo credit: Kalle Pihlajasaari

South Africa is leading the charge of developing renewable energy in sub-Saharan Africa in part due to policy that provides a conducive investment environment to entice developers to investigate projects within the nation. As load shedding is a too frequent event, the nation is adding new options to its energy mix.

Recently in South Africa’s Eastern Cape Province the Jeffreys Bay wind farm was inaugurated. The facility has a generating capacity of 138 megawatts (MW), trailing only the 300 MW Tarfaya wind farm in Morocco for largest project on the continent. Jeffreys Bay’s capacity factor is estimated to average 41 percent and is expected to power more than 100,000 homes per year. In addition, it will offset 420,000 tons of carbon dioxide per year.

The wind farm was stimulated in part thanks to the Renewable Energy Independent Power Producer Procurement Program (REIPPPP).

What is it?

REIPPPP was initiated in 2011 to encourage private-sector investment to add 3,725 MW of wind, solar photovoltaic (PV) and concentrating solar power (CSP) to South Africa’s energy mix, to contribute toward socio-economic and environmentally sustainable growth, and to start and stimulate the renewable industry in the country.

The REIPPPP represents progress toward realizing the energy mix outlined in the National Development Plan and the Integrated Resource Plan (IRP) 2010. In terms of the IRP 2010, by 2030 about 42 percent of the electricity generated in South Africa is required to come from renewable resources. The program was implemented instead of a discussed renewable energy feed-in tariff plan.

The basic framework for the REIPPP is structured in a five round auction system for renewable power projects to be procured through a tender process with various criteria. Interested project developers (bidders) are required to bid on a tariff and to meet the identified socio-economic development objectives set by the Department of Energy (DOE). The tariff will be payable by the buyer, Eskom, the wholly state-owned national utility which also owns and operates the national electricity grid, in accordance to the terms of a Power Purchase Agreement (PPA) and an implementation agreement (IA) with the DOE. All successful developers are required to meet agreed commercial deadlines or their contracts can be voided.

The socio-economic development and environmentally sustainable criteria of the bid are strongly weighed. Each developer in the Program is required to aid local development including job creation, skills development to sustain the industry over time, local content, social development, and transferring technology. Bidders will also be judged partly by their contribution toward broad-based black South Africans economic empowerment and management opportunities.

The Jeffreys Bay wind project’s consortium of developers, for example, signed a 20-year PPA with Eskom, which supplies about 95 percent of South Africa’s electricity, an IA with DOE, and has committed to primary education programs in a 50 km radius of the project.

The Progress

The first two bidding rounds resulted in the government signing agreements with 47 projects. More recently 17 new preferred bidders in the third round were selected for almost 1,500 MW of capacity. By sector, seven bidders were picked for 787 MW of onshore wind farms, six for 450 MW of photovoltaic parks, one for 16.5 MW of biomass, one for 18MW of landfill gas and two for 200 MW of concentrated solar power. The first Program project was commissioned in November 2013 – a 7 MW solar PV power generation facility – and many more are being built.

Financial close for the third round is set down for July 30. The 64 signed projects, representing foreign and domestic investment of over R100-billion (as of July 25, exchange is one South African Rand to .095 USD), will add 3,916 MW of renewable energy to South Africa’s energy mix, already clearly surpassing the government’s target set in 2011.

The South African publication Business Day reported in November 2013 that the average price offered for power generated from wind — which received the bulk of the third-round allocation — had dropped from R11.43 per kilowatt hour (kWh) in the first round to R6.65/kWh in the third round.

Despite the price dropping, competition continues. The fourth bid-submission date has been set for Aug. 18, which entails the procurement of a further 1,105 MW. A member of the Jeffreys Bay wind farm consortium acknowledged his company will participate in the round, even though the price for renewable energy has fallen “dangerously low” since the first round as a result of the market pressure.

Bidders need to meet some requirements that include a minimum megawatt per technology of 1 MW, a maximum capacity per plant of 10 MW for hydropower, biomass and biogas plants, 140 MW for wind plants, 75 MW for PV plants and 100 MW for CSP plants. Bidders are also required to specify the price per technology and the price must not exceed the provided caps. “The market determines the price and the department is comfortable with the level of competition, which means that there is no need for a cap in these two sectors,” said a DOE representative.

The DOE rep continued, “Based on the statistics of previous rounds, we are expecting more bidders to come on board during the fourth round.”

Along way to go

The IRP 2010 stated that by 2030 about 42 percent of the electricity generated in South Africa is required to come from renewable resource. While renewable energy accounted for less than one percent of South Africa’s energy mix in 2012, this is expected to reach 12 percent by 2020, according to Former Energy Minister Ben Martins. Thanks to REIPPPP, about 1,000 MW of renewable power is due to come on line by the end of this year — there are 19 other projects under construction. Currently, Eskom’s operating capacity is 42,000 MW.

However, there is a huge mountain to climb. According to DOE, about 77 percent of the country’s primary energy needs and almost 90 percent of South Africa’s electricity are provided by coal due to its low cost, base load ability and vast resources (fourth-largest exporting country in the world). The globally very controversial Medupi coal power station in Limpopo, which is planned for a capacity of 4,800 MW, has seen repeated delays, but it is believed there can be generation starting this year. Needless to say, the coal and mining industries are a huge part of the economy and daily life.

This is not even accounting for the potential of nuclear energy or shale gas. President Jacob Zuma has stated nuclear energy has the potential to generate well over 9,000 MW of electricity and shale gas would be “a game changer” for the economy. Energy shortages are frequently cited as a main cause of the country’s slower economic growth. Energy Minister Tina Joemat-Pettersson announced on July 21 allocating $81 million for nuclear energy research and development.

Energy Access

Often overlooked are those without access to electricity. South African access to electricity increased from 35 percent of households in 1990 to 84 percent in 2011, according to the South Africa Statistical Association. When the government realized that poor households could not afford to use electricity, Free Basic Electricity (FBE) was introduced in 2004, which provides 50 kilowatt hours (kWh) of free electricity to the poor per month. This plan has kept access growing with the addition of the new energy sources, and infrastructure expansion and upgrades. There is a continued push to increase off-grid solutions to those in remote areas that are difficult for Eskom to reach.

Global Ascent

When attempting to claim market share from coal, there have been many positives in the renewable market in South Africa. According to Pew Research, South Africa’s clean energy sector brought in $4.9 billion in 2013, and it moved up from the tenth largest market in the G-20 to the ninth. In addition, South Africa’s market has grown the second fastest in the G-20 over the past five years. Of the investment, $3 billion came from the solar sector and $1.9 billion from wind. South Africa has become a very attractive investment opportunity, and based on trends of the bidding rounds and DOE’s optimism, there is no reason to think the REIPPPP and possibly an extension or a separate program down the road will continue to accelerate the electrons on the grid.

 

Author

Joe Gurowsky
Joe Gurowsky

Joe Gurowsky focuses on energy, environment, geopolitics, trade, international development and climate related issues. Recently, he worked in Kenya, Ethiopia and Tanzania regarding different energy related programs . Joe has also traveled to Costa Rica, Ghana, the UAE, Germany and Alberta, Canada for aspects of energy and environmental policy.

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