Is South Africa A Global Solar-Power Role Model?

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Written by D.A. Barber

The accolades just keep coming for South Africa’s renewable energy program despite the country’s powerful coal lobby.

For three consecutive months in January, February and March, the largest global market research firms have each released reports saying South Africa is the place to be if you are a solar power developer. As if to put icing on the celebratory cake, this month the world’s two largest solar convention planners have collaborated to bring the first Africa PVSEC conference to Durban, March 27-29.

Solar industry analysts have been watching international developers and financiers flock to South Africa’s renewable energy market ever since its government put in place the Renewable Energy Independent Power Producer Program (REIPPP) with a target of building 8.4 gigawatts of solar capacity by 2030.

“There is a significant power shortfall in South Africa,” said Davin Chown, president of South Africa Photovoltaic Industry Association (SAPVIA), in an AFKInsider interview. “Our economy needs to grow at 4 percent over the next three-to-five years to ensure job creation and upliftment for South African.”

The Solar Roadmap, the Integrated Energy Plan and the Integrated Resource plan all make significant allocations for solar photovoltaic and this, together with the emerging rooftop market, will drive a longer term expansion, said Chown, who is also a director at Genesis Eco-Energy.

Due to a combination of favorable economic conditions, solar market potential and an open bidding process, South Africa was rated best in the world in the January and March 2014 quarterly reports by research company IHS.

According to a January Commerzbank report, South Africa’s successful procurement program has paved the way for solar expansion in other sub-Saharan African countries.

And the February Ernst & Young Renewable Energy Attractiveness Index report concluded that South Africa is “the most attractive emerging photovoltaic market globally.”

All these reports reiterate an October forecast by Frost & Sullivan that South Africa is on track to becoming one of the fastest-growing renewable energy markets in the world.

Solar Accolades

Despite the challenges faced by South Africa, “the ongoing success of the country’s flagship renewables procurement program and the growing interest of international developers and funders is a strong sign that South Africa is blazing a trail across the global renewables sector, ” the Ernst & Young Renewable Energy Attractiveness Index (RECAI) report, released February 2014, concluded.

South Africa scored 66 out of 100 in the IHS PV Index for the fourth quarter of 2013 — 17 points ahead of the second most-attractive market, Thailand. And in the first quarter of 2014, South Africa’s index score rose to 67, followed by Turkey at 45 and Mexico at 43, according to the latest IHS numbers released March 12.

According to HIS, the attractiveness index rates the allure to prospective investors, developers and manufacturers of emerging solar markets in countries throughout the world. Countries are rated in four categories, including macroeconomic climate, potential market size, project profitability and pipeline maturity.

“South Africa’s target of building 8.4 gigawatts of solar photovoltaic capacity by 2030, combined with the success of its large-scale tendering process in attracting investment to fulfill that goal, positions the country as the most attractive emerging PV market globally,” the report concluded.

The Oct. 8 forecast from Frost & Sullivan said the execution of South Africa’s renewable energy procurement program will stimulate investments in large utility-scale renewable energy systems, driving the growth of the country’s renewable energy industry.

“From what I’ve seen, raising capital is not the biggest constraint in this market,” said Cornelis van der Waal, head of energy at Frost & Sullivan, in an AFKInsider interview. “In fact, there is a lot of appetite… significant appetite for renewable investment.”

South Africa’s Solar Renaissance

South Africa’s Renewable Energy Independent Power Producer Program is a public-private partnership designed to shift the country’s “energy mix” and allow state utility Eskom to buy solar and wind-generated electricity from private developers through power purchasing agreements.

In 2012, renewable energy accounted for less than 1 percent of South Africa’s energy mix. This is forecast to grow to 12 percent by 2020 and electricity from solar is expected to be the cheapest energy source in South Africa by then. The study predicts that Eskom will be selling coal-fired electricity for $0.171 per kilowatt hour by 2020. As the country continues to commission more solar power, the cost of electricity from could fall as low as $0.075-to-$0.127 per kilowatt-hour.

Since 2012 when private companies began bidding for contracts to supply renewable power, investors have enthusiastically stepped up for each of the first three bidding rounds.

While projects in round one were priced high based on a perception that it was a high-risk endeavor, bidding prices have fallen 46 percent since then.

The Ernst & Young report notes that, “Funding appetite for these projects also seems to have remained high. Barclays Africa Group Ltd., for example, is to fund almost a third of the $3.3 billion of projects awarded under Round 3, while Rand Merchant Bank has signed up to underwrite senior and mezzanine finance for 17 bids participating in the latest auction. In October, the Development Bank of South Africa said it would offer as much as $401 million in additional funding for the (Renewable Energy Independent Power Producer Program).”

Round 3 saw “high levels of competition generating the lowest-bid prices to date” and drew significant interest from international developers, which represented more than 75 percent of the bids, according to Ernst & Young.

From 2012 to date, 47 contracts for renewable energy projects across the nine provinces are on line to add 2,460 megawatts of power to the grid with total investment of $6.5 billion. In fact, the large number of competitive bids has prompted the government to consider awarding additional capacity, although no further details have been announced.

“The program is reviewed on a sort of biannual basis, though it’s up for review at the moment so that could change in terms of composition as well as the volume of projects,” van der Waal told AFKInsider. “But at this stage it seems like the government will continue to procure additional renewables, but with a big condition that there will have to be changes to the overall feedstock mix before we can have additional large-scale rollout.”

For the current fourth round, the government has invited bids for smaller-scale projects, which pleases groups such as Greenpeace Africa that would like to see more solar roof-top installations.

“Encouraging citizens to produce their own power will catalyze a solar rooftop revolution,” said Michael Onyeka O’brien, executive director of Greenpeace Africa, in an AFKInsider interview. “A solar rooftop revolution is possible in South Africa – a country that has at least nine hours of sunshine – but the government needs to provide an enabling legislation and monetary support that will allow for every roof in South Africa to be used to generate power.”

The Solar Corridor

The Northern Cape region is vying to become South Africa’s renewable energy hub, said Northern Cape Premier Sylvia Lucas said during her State of the Province address Feb. 21.

“We (will become) a net producer of renewable energy to the rest of the country by 2020,” Lucas said. “The planned solar corridor stretching between ZF Mgcawu and the Pixley ka Seme regions, and the solar-themed special economic zone (SEZ) to the station in Khara Hais municipality is a manifestation of this.” A Provincial Renewable Energy Strategy has been developed to harness the region’s renewable potential and attract both local and foreign investment.

The strategy seems to be working.

The Renewable Energy Independent Producers Procurement Program has already approved 31 projects for the province, which are expected to result in an estimated direct investment of $2.4 billion, as well as create more than 6,502 jobs during construction and 8,736 permanent jobs.

In May, Google invested $12 million in the Northern Cape Jasper solar farm, a 96-megawatt solar power plant capable of powering 30,000 homes. The project is being developed and funded by SolarReserve, Intikon Energy and the Kensani Group, and backed by Rand Merchant Bank, the Public Investment Corporation, Development Bank of South Africa and the PEACE Humansrus Trust, according to Google.

The Upington concentrating solar power facility is another Northern Cape project. In October 2013, Agence Francaise de Developpement (AFD) and Eskom committed to a $140-million credit agreement for the project backed by the African Development Bank, Clean Technology Fund, European Investment Bank, KfW (German government-owned development bank) and the World Bank. The massive 100-megawatt Upington project is projected to generate enough electricity to power 200,000 homes.

Countering Rolling Blackouts

The strain on South Africa’s electric grid and the need for fuel-less energy supplies such as solar was underscored when forced blackouts began hitting South Africa on March 6.

“Blackouts are fairly common, even in economically well-developed South Africa,” according to the January Commerzbank report, Renaissance in Sub-Saharan Africa. “Over the past several years, energy supply problems have even increased because of robust economic growth in many countries and a subsequent increase in energy demand.”

Southern Africa has some of the world’s largest coal deposits – making it the world’s sixth-largest coal exporter and seventh-largest coal producer, according to the World Coal Association. But despite coal industry arguments that South Africa’s electricity grid is incapable of handling the intermittent power produced by solar and wind farms, coal power plants recently showed just how vulnerable they are. Eskom, which produced about 94 percent of its electricity from coal in 2012, said the recent rolling blackouts were caused by seven days of rain that soaked the utility’s coal supply.

While new coal power plants are being built in South Africa, they have been delayed. This may be a good thing, giving the renewable energy program’s projects time to get in sync with the energy grid.

“The current energy mix is not optimized to support renewable energies, because we have an energy mix of about 90 percent coal-fired electricity and nuclear,” Frost & Sullivan’s van der Waal told AFKInsider. “And those two technologies are not optimal to a significant renewable load since they are very unresponsive.”

Photovoltaic is one of the only technologies that can be deployed rapidly, at scale and close to load centers, South Africa Photovoltaic Industry Association’s Chown told AFKInsider.

Solar supporters point to Norway-based Scatec Solar’s 75-megawatt solar photovoltaic plant, which went online in September three months ahead of schedule. The solar plant is the first renewable energy project awarded under the REIPPP to become operational, showing just how fast such renewable projects can be up and running compared to traditional coal- or gas-fired plants.

“However, more is still required if South Africa is to remain on track to install its target 3.7 GW by 2016 and 6.9 GW by 2020,” notes the February Ernst & Young report. “Electricity demand growth is putting strain on the grid, necessitating significant levels of investment in infrastructure, while the third quarter of 2013 saw South Africa’s economy expand at the slowest pace since the 2009 recession.”

Grid interface issues can be smoothed out by switching to a smart grid,” Greenpeace Africa’s O’brien told AFKInsider. “Regardless of power sources, the South African grid is old and needs upgrading. It’s similar to the choice between repairing an old VCR or buying a new DVD player.”

Sub-Saharan Economic Role Model?

An April 2013 report by U.S.-based Pew Charitable Trusts praised South Africa for being a cornerstone of clean energy development for the entire African continent.

“South Africa was the fastest-growing market in the G-20 (a group of finance ministers and central bank governors from 20 major economies), with investment growing from less than $30 million in 2011 to $5.5 billion in 2012,” according to the report. “The South African solar sector attracted $4.3 billion in 2012, or 80 percent of the total.”

South Africa’s evolving experience illustrates to other regions that investment obstacles don’t seem to be a problem when the world’s leading solar manufacturers and developers are jostling for position.

But will utility-scale solar power plants be built when the Renewable Energy Independent Power Producer Program program ends?
“We are not sure when REIPPPP will end, if at all,” South Africa Photovoltaic Industry Association’s Chown told AFKInsider. “Government is driving the Renewable Energy Development Zones hard (REDZ) and is keen to see a longer term procurement program in place. Industry is however keen to see the implementation of the Independent System and Market Operator as promised by government as this will help drive longer-term procurement in the market.”

South Africa A Global Solar-Power Role Model

According to Ernst & Young, South Africa’s program is also creating significant job opportunities and higher wages, helping to bring down unemployment levels that have averaged 25 percent over the past four years. The influx of foreign workers to support construction and operation programs has also helped boost local economies.

This just might be a lesson for the rest of the region pursuing renewable energy.

“I think that Africa is really the last frontier in terms of development. I think this is the next big thing in terms of growth,” van der Waal told AFKInsider. “So, I don’t only think that South Africa is attractive, but sub-Saharan Africa is becoming attractive.”

The short turnover time of solar power projects could bring relatively quick relief to other sub-Saharan economies plagued by energy issues, according to the Commerzbank report. “The imbalances in the domestic energy markets could be overcome by a more intense use of renewable energies, such as solar, wind and water energy, which could catapult even underdeveloped rural areas into a new age,” the report said, noting that “technological ‘leapfrogging’ allows for the use of environmentally friendly, inexpensive and effective technologies, providing foreign investors with the necessary know-how with opportunities as well.”

Those developers and investors will get their chance this month.

The first Africa Photovoltaic Solar Energy Conference and Exhibition (AfricaPVSEC) will take place March 27-29 in Durban, South Africa, underscoring the fact that there is not only a rapidly growing African community interested in developing solar power, but also that solar power is accelerating in many other African countries with the promise of jump-starting their economies.

This is not just any conference. AfricaPVSEC is an initiative of EUPVSEC — which dubs itself the “World’s Largest Specialist PV Solar Conference” — now in its 29th year, and its Asian counterpart, the SNEC International Photovoltaic Power Generation Exhibition — which describes itself as the world’s largest PV show — now in its eighth year.

“It is possible that more investors will look to Africa as European markets become saturated,” Greenpeace Africa’s O’brien told AFKInsider. “However, what will truly open up the market is policy change with clear political backing of renewable energy.”

The rapid economic growth that demands an increasing energy supply now being experienced in other parts of Africa is creating the right environment for an explosion in solar power development in  Uganda, Kenya, Sierra Leone, Angola and Rwanda.

In fact, at a meeting in Abu Dhabi in mid-January, the International Renewable Energy Agency (IRENA) launched an initiative to create the Africa Clean Energy Corridor from Cairo to Cape Town to promote a regional approach to developing “the vast renewable energy resources (that) will help optimize the energy mix and attract more investment.”

But solar developers eying these countries need to understand the realities of the various business climates, says South Africa Photovoltaic Industry Association’s Chown.

“Investors and developers will need to have a strong appetite for taking on the kinds of business risk profiles that are very different to the established markets,” Chown told AFKInsider. “They will need to learn to operate in the African environment, understand the ways of doing business and the diversity of Africa’s cultures. Africa is alive with opportunity, but one needs to temper returns expectations and learn to invest for the long term.”