The rise of the renewables

Renewables will add several percentage points to South Africa's energy reserves and address medium-term economic risks associated with energy supply deficits. Localising parts of the global value chain of renewables will create and sustain employment in manufacturing, construction, operations and servicing.

About 60 per cent of South Africa's electricity supply is channelled to industry users. While cost control continues to be a concern, these users also remain vulnerable to any new international measures on the trade of products associated with high carbon emissions. Green energy supplies will help secure the ongoing competitiveness of energy-intensive exports. Finally, a burgeoning renewables industry will boost business and policy awareness and catalyse green investments into other areas of the economy.

Savouring these benefits from renewables can only be achieved through a cost-optimised ramp up that is aligned towards strategic goals, rather than a fragmented development of the industry. Thereby, South Africa aims not merely to develop a distinct volume of renewable capacity but to develop itself as a hub for export and service.

The South African Renewables Initiative (SARi) was launched last December to support scaling up of renewables ‘in a manner that delivers economic, social and environmental benefits without incurring unacceptable domestic cost burdens'.

"SARi is a key element in ensuring that we meet emissions targets set by President Jacob Zuma who has committed South Africa to reducing its emissions trajectory to 34 per cent below business as usual by 2020 and to 42 per cent by 2025," Trade and Industry Minister Rob Davies announced.

The Integrated Resource Plan (IRP), South Africa's 2011 strategic planning framework for electricity in the energy sector, includes an ambitious ramp up of renewables with almost 19GW to be added to the grid by 2030.

Attracting investment

For South Africa, achieving economic, climate and energy goals means attracting domestic and international investments into the sector, including technology partners who are interested in exports across the continent. The IRP estimates that about $35 billion (about Dh128 billion) of new investment will be needed to roll-out renewables, with additional investment in manufacturing.

However, South Africa's participation in the energy and power generation sector is still limited. Institutional developments and reforms have been designed to overcome this and attract investments. Last year, a milestone was marked with the launch of the first independent power production procurement and 300 potential bidders responded in the initial application for 3,725MW of renewable energy.

The country is also eyeing international partnerships to help secure funding. Earlier this month, Cennergi announced plans to produce 16GW of renewable-energy generation capacity projects in southern Africa by 2025. The private energy company is a joint venture between South Africa's mining group Exxaro and India's largest private power utility, Tata Power, and already runs five renewable energy projects in the Northern Cape, Limpopo, Eastern and Western Cape provinces.

Exxaro Head Sipho Nkosi explained their stance: "As coal producers in South Africa, we felt we should start immersing ourselves in renewable energies, because we need to continue to be responsible corporate citizens. The whole continent of Africa is well endowed with renewable energy and organisations can harness these opportunities."

Tata Power MD Anil Sardana added that demand for energy across southern Africa — and the associated arduous challenges — necessitated more than one player in the sector. "It is important for people to bring all inputs together — not just to contribute to the space, but to do it effectively," he said, citing the example of Tata Power serving more than 1.7 million Indian customers in Delhi and Mumbai.

Renewables will also get a boost with partnership between the South African and various European governments and the European Investment Bank. Signed on the sidelines of the United Nations Framework Convention on Climate Change (UNFCCC) Conference of the Parties, the SARi International Partnership aims to bring together governments with development finance institutions to primarily secure funding for ambitious scale ups.

As Minister of Energy, Dipuo Peters, explained: "South Africa already benefits from international partnerships in the energy field, but this is different. It will not only contribute towards growth and deployment of renewable energy, reduction of greenhouse gas emissions and enhanced energy access, but will also enable us to boost the development of new green industries and new green jobs in renewable energy and its value chain." Great importance is also attached to last month's unveiling of preferred bidders in South Africa's first 1.4GW renewables tender. The 28 winning projects represent the first step on the energy-starved country's journey.

Energy diversification

Despite a history of placing more importance in wind rather than solar power, the tender handed out 632MW of photovoltaic capacity across 18 projects in the first window of allocations, in comparison to 634MW of wind at eight projects. All projects were backed by foreign players, but were required to have a minimum level of local ownership, and were judged for their ability to create local jobs.

The contradictory reactions this has stemmed reveal the differing perspectives of industry and government. For industry, South Africa is an alluring prospect — with its huge energy gap, enormous wind and solar resources, and developed banking and investment sectors. But the lack of local support and competition in mature markets has hitherto deterred international players from taking South Africa seriously. However, as demand declines or stagnates in the Western world, they are now desperate to unearth new markets and South Africa is ripe with potential. An interesting market in its own right, it is also a gateway into the continent.

In contrast to the industry's macro-minded attitude, the government seems focused on local jobs. Like with many developing nations, South Africa continues to place emphasis on economic growth.

South Africa has chosen to achieve its jobs-creation goal through the use of local-content rules at renewables projects. However, it has also added the controversial element of the Black Economic Empowerment programme, which mandates that all large businesses must meet requirements for minority ownership and employment.

Experts admit that there is too much emphasis on local-content rules, but predict that jobs will come automatically when the South African renewables market begins to soar.

Beyond 2012: what to expect

Employment: 35,000-40,000 new jobs created at peak.

Decarbonisation of South African exports: Green house gas intensity of exports reduced 20 per cent by 2025.

Investment: About $35 billion (about Dh128 billion) towards renewables capacity by 2030.

Public sources: Low cost loans of up to $9 billion, incremental costs of $3.5 billion and South African domestic and consumer funding.

Renewables generation: 19GW by 2025, providing9 per cent of electricity supply.

Carbon mitigation: 575m by 2049 or 27m per annumat full ramp-up.

— Source: Partnering for green growth, December 2011, SARi