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May03

SA pays high price as state dithers over renewables

I’m SAD that a good friend of mine will soon pack up her bags and leave South Africa, possibly for good. She arrived in the country about seven years ago, full of excitement for two things. 8a051389c82647a3b8af7ee1fdb15ace

The first was the opportunity to finally experience this country in person and scratch out a long-standing hot entry from her bucket list – to live in Cape Town. Like me, she’s an outdoors enthusiast of note. I can argue with little fear of being contradicted that when the universe carved up Cape Town – carefully lining up its chains of mountains led by the iconic Table Mountain, its many lagoons and rivers, all sights to behold, and positioning the Mother City in the middle of one of the world’s most richly endowed floral kingdoms – it had outdoor enthusiasts in mind.

My friend is also an engineer who works in the energy sector. She came here to head up a global company in the growing renewable energy sector. This was the second thing that she had been excited about. Just over a year ago, South Africa had been successfully positioning itself as a nascent global, and certainly continental, leader in the development of the renewable energy sector.

It all made a whole lot of sense on a continent rich with wind and sun that could be used to light up many homes, schools, clinics, hospitals and cities and integrate whole communities into the global village of electrified societies if carefully and consistently rolled out. My friend was excited to be at the forefront of this energy revolution.

 

Jobs toll rises as government stalls renewable plans

Just over a year ago, her company employed 150 South Africans. That number has since come down to 30 as I write this, and it will most probably go down to zero in a few months’ time if government continues to stall the signing of agreements reached under the much-touted Renewable Energy Independent Power Producer Procurement Program (REIPPPP).

At the 2016 South African International Renewable Energy Conference in Cape Town, local and foreign delegates ate out of then energy minister Tina Joemat-Pettersson’s hand as she unpacked government’s plan to invest millions of rands in the sector. It had already paid more than R2bn to independent power producers, facilitating the contribution of just over 4 000 GW of energy into the national grid, and more was still to come.

While the Department of Energy (DoE) had facilitated the development of the agreements Eskom, which was to see to their implementation, had other ideas. It refused to go ahead with them, ostensibly on the basis of costs, despite renewable energy prices having come down significantly in recent times.

In addition, Eskom cited the problem of storage for renewable energy, a weakness also admitted by many in the sector, but one which is receiving attention. The Eskom delays led to business discontinuity and the closure of the manufacturing facility at my friend’s company.

Consequently, many employees had to be retrenched. None of this was helped by President Jacob Zuma’s promise at the 2017 State of the Nation Address that government was still committed to investing in renewable energy, as it came too late for my friend’s company.

 

Saddened by wasted opportunities

Many independent energy suppliers feel saddened by the wasted opportunities caused by government inaction. They agree that South Africa still enjoys three competitive advantages relative to renewable energies not found in other African countries, even despite the recent credit downgrade.

The country has:

  • One of the best solar and wind resources on earth, distributed across its entire surface;
  • A first-class finance sector enabling capital investment at relatively low/reasonable cost; and
  • A robust and relatively dense low voltage, medium voltage and high voltage electrical grid operated by a technologically competent utility company (Eskom) with well-designed renewable energy grid codes.

My friend is even more saddened because she believes that the construction of additional renewable energy power plants would enable South Africa to produce and possibly export massive amounts of renewable energy at lower cost than coal and nuclear power.

All trends indicate that wind and solar PV electricity tariffs will keep going down over the next decades.

 

It ain’t rocket science

Government simply needs to ensure that the ongoing process to update the Integrated Resource Plan (IRP) is transparent and inclusive of all key industry players, ensuring that it results in a trusted blueprint for future investment in energy for the country.

Interestingly, some national and international institutions have already commented on the IRP Base Case released by the DoE in November 2016. The CSIR proposed a “least-cost” new-build mix that deviates materially from the IRP Base Case. This would be made up of renewable energy capacity supported by flexible gas power plants with guaranteed grid stability.

But going by government’s insistence of going ahead with investing in 9.6 GW of nuclear new build despite the recent Western Cape High Court judgement, it seems like the road ahead will be long.

Were the whole process approached dispassionately by government, and given the global growth in the renewable sector, all indications are that renewable energy stands to progressively replace South Africa’s ageing fleet of coal power plants over the next 20 to 30 years.

Fossil fuels will be a thing of the past, replaced by cheaper and cleaner renewable energy. And the need for massive investment in nuclear energy is also set to wane.

 

Send the right political message

It is well known that capital is volatile; foreign direct investment may come and go. This is particularly the case when it comes to liquid assets. But investing in manufacturing facilities is a different story, as it is often a commitment based on business viability over a minimum period of five to 20 years.

Many renewable energy industrialists in South Africa have faced significant challenges and painful stop-and-go scenarios, thanks to government indecision or lack of coordination between the DoE and Eskom.

While the SA economy still boasts good fundamentals in the medium to long term, representing good opportunities for investors, more needs to be done to boost investor confidence. This cannot happen in the current climate filled with emotionally powered noises from people who, clearly, seem to neither understand nor appreciate how the integrated global economy functions.

The threats of a still ill-defined radical economic transformation, fuelled by political expediency, and the heaping of blame onto the new bogeyman in the form of white monopoly capital for all our sociopolitical ills do not help.

The recent credit downgrades should be taken as warnings to be heeded. The cost of finance can be a major factor impacting the price of renewable and other forms of energy, especially nuclear, because new capacities require high initial capital expenditure that the country can ill afford in the current circumstances, even if eventual operating expenditure might be low.

The downgrade will therefore raise finance costs and have a negative impact on the future cost of electricity in SA.

I asked my friend to give me a parting shot before she gets onto that plane, and she had the following to say:

  • Ensure that the process to update the IRP includes both experts and representatives of civil society;
  • Include distributed energy, such as PV rooftops, in the base case;
  • Get Parliament to endorse the process before going ahead with the nuclear new build procurement process;
  • Develop a fresh electricity generation process now by signing the REIPPP round 4 power purchase agreements with independent power producers, and announce the Expedited Bid Window tender results with a further continuous ramp-up plan; and
  • Develop grid interconnection with African countries to make future renewable electricity exports possible.

I also asked my friend if her company would invest in South Africa again anytime soon. “I fear we’d think twice before doing so,” she told me.

  • Posted by donvalley
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