Despite the South African renewables market being in its infancy in comparison to well-established markets, South Africa is ahead of the curve.
This, K2 Management South Africa country director Hebren James explains, is owing to power purchase agreements (PPAs) in the country being underwritten by the National Treasury, which ensures backing in the event that payment delays are experienced for power.
South Africa’s leap in progress in integrating renewables into the energy mix can, in part, be attributed to the depth of political support, despite the disruption in recent years.
“The country has a clear drive to deliver on its promise to reduce carbon emissions and a clear way to deliver on this is through a robust renewables programme.”
The design of the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) was instrumental in the success of the country’s renewables market so far, said James, adding that this creates an “appropriate environment to enable rolling competitive bid window procurements and maintained market confidence”.
The acceleration and roll-out of megawatts under the REIPPPP until 2015 has given South Africa a strong foundation to continue market development in the future.
Strong policy and fair evaluations needed
In addition, strong policy, fair and transparent evaluation and a standard suite of documents, which are accessible to all, will continue to support the delivery of projects as the renewables market in South Africa regains its momentum.
Meanwhile, looking beyond South Africa, James notes that power utilities in some countries do not want to issue bonds or warranties for payments in exchange for energy, lamenting that this can hinder investment as most international lenders will not invest without a warranty.
Based on experience from developed markets, he encourages the embedding of early risk mitigation measures in a government’s PPA strategy, as this encourages international investment owing to a lower financial risk.
With many country leaders having seen the opportunity that renewables present for their nations, national energy plans and targets have been announced to reflect this vision. Renewables play an important role in countries such as Ethiopia, Kenya, Morocco and Egypt, which are incorporating renewable energy into their electricity mixes.
New round of bidding coming
South Africa has recently announced plans to open a new round of bidding later this year, which James says, shows the government’s longer-term commitment to renewables, which is expected to attract another R40-billion to R50-billion in investment into the country.
The fifth iteration of the REIPPPP bid window in November, Energy Minister Jeff Radebe said, is aimed at procuring a further 1 800 MW of renewable energy from independent power producers (IPPs).
“With about 85% of the country’s energy coming from coal-fired power, more renewables projects will facilitate more diversity in the energy mix, thereby giving more flexibility to the baseload and working towards a more sustainable energy balance,” says James, adding that the grid is set up to accommodate much higher levels of renewable energy.
A clear message from the top needs to come in the form of non-discriminatory market access, James cites in K2 Management’s report titled ‘Pre-construction projects: The battle to reduce uncertainty and improve business case bankability’, which was launched on Tuesday. This message, he explains, will allow for both private and community-based investors to engage effectively in the energy transition.
“This will open up the market in terms of investment, as well as benefit economic growth through the supply of competitively priced clean and sustainable energy,” he says.
In the energy industry, there has been some talk that coal is an enabler for job creation and economic development for the country. However, as the desire for automation and smarter working becomes stronger on a global scale, James explains, it is likely to affect the coal industry.
“The renewables industry already provides about ten-million jobs globally, and, as the African market grows, so too will the employment opportunities.”
In keeping with the government’s carbon commitments and to keep the cost of electricity to a minimum for the consumer, energy transformation will need to take place to further diversify the energy mix.
“For optimal economic development, shorter power plant construction times and cost certainties are required, and renewables offer a more robust solution to these challenges,” James notes.
Unlocking growth is crucial
K2 Management’s report, which was compiled in partnership with specialist insurance broker and risk consultant JLT Specialty, identifies trends and developments in pre-construction phases of projects in the renewables sector, based on data gathered from some of the most innovative wind and solar projects in Africa and globally.
The report highlights the strong investment demand for renewables projects in Africa, particularly in relation to the amount of capacity which has so far been tendered by the continent’s governments. At the end of 2016, 102 renewable energy projects were selected under South Africa’s REIPPPP, procuring a total of 6.38 GW. However, 460 were received, which equates to a total of 26.7 GW of capacity.
“It is apparent from the report’s findings that the success and confidence in the renewables sector hinges on clear policy signals, governance and regulation; and on enabling an adequate framework that is consistent across the continent to accelerated renewables deployment. Unlocking investment, both locally and internationally, will kickstart economic growth and support development in the region,” says James.
By Simone Liedtke. Source: Engineering News