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.”
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