Posted on Monday, 16 June 2014 17:06

Renewable energy: Investors excited about South Africa

By Jana Marais in Johannesburg

The solar industry offers new jobs and training for rural South Africans. Photo©Per-Anders Pettersson/CorbisThe sector is attracting investors from Silicon Valley to Beijing, especially for new solar and wind projects that will reduce dependency on coal.


Aimed at reducing unemployment and South Africa's reliance on coal-fired power stations, the department of energy's Renewable Energy Independent Power Producer Programme (REIPP) has succeeded in attracting investment of an estimated R150bn ($14.3bn) in its first three phases.

There is a lot of interest in doing business here, helped by the fact that Europe continues to struggle economically

Previous attempts to attract renewable energy investors in 2009 had failed due to uncompetitive tariffs and a hostile regulatory environment.

The REIPP was launched in 2011, bringing a competitive bidding process for tariffs and 20-year contracts with government.

Despite teething problems, especially around the close of deals, the process has been "remarkably successful", says Johan van den Berg, chief executive of the South African Wind Energy Association.

"There is a lot of interest in doing business here, helped by the fact that Europe continues to struggle economically," he explains.

The government has approved 64 projects with a combined capacity of nearly 3,900MW.

The country's first major solar plant, a 75MW project near Petrusville, Northern Cape, delivered its first electricity to the grid in November 2013.

The Kalkbult project is owned by Norway's Scatec Solar and local partners, and was commissioned in 10 months. Interest has been growing.

In the third bidding round, which concluded in November, the government received 93 bids for a total of 6,023MW, while only 1,473MW was on offer for development.

The government is now counting on an additional 3,200MW by 2020 on top of the 3,725MW it was initially planning to buy.

The next bidding round, for 1,000MW, will close on 14 August.

The last round under the current programme is expected in August 2015.

Bids have become increasingly competitive, with average tariffs for wind energy, for example, declining by 35% from 2011's first round.

While the renewable energy programme has interested foreign investors, local partners are required.

Projects also have to comply with local content requirements and demonstrate socioeconomic benefits and job-creating potential, which count 30% towards a final bid score.

Local companies building projects include Exxaro Resources, which formed the Cennergi joint venture with Tata Power, and Shanduka Group, which has partnered with China's Tsinghua Solar and Spain's Gestamp Wind.

South African financial institutions, including Standard Bank, Nedbank, Investec and the Industrial Development Corporation, have provided billions of rand in debt funding.

Google invests

Many of the major international players are also active in South Africa, including Suzlon Energy, BrightSource Energy and China Longyuan Power Group.

Technology firm Google has invested $12m in the Jasper solar project, with a capacity of 96MW.

Most of the projects are being built in remote regions, raising concerns about the efficiency of transmission.

Van den Berg says the current projects are all located near existing substations.

"There haven't been any deep connection issues that would have a drastic impact on transmission costs," he explains.

As most of Eskom's power is generated by coal-fired stations in Mpumalanga in the north-east of the country, the utility already experiences transmission losses of around 15%, Van den Berg says.

As many renewable energy projects are being built in the south, this will help to lower those losses.

Energy minister Ben Martins says that work is under way to upgrade grid infrastructure and to include storage capacity in the procurement process. ●


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