Renewables at risk in SA
FOREIGN INVESTORS BAULK: AMID POLICY UNCERTAINTY AND POLITICAL VOLATILITY
Rollout of key energy projects at an impasse; private sector and funders put on hold as major policy decisions are delayed.
Over the past several years, there’s been a great deal of optimism and goodwill surrounding SA’s renewable energy strategy. The country’s approach has been largely guided by the Renewable Energy Independent Power Producer Procurement Programme, designed to encourage private investment and attract foreign capital.
The national renewable energy target is for 18 800Mw to be supplied by renewable energy by 2030. According to reports, the renewable programme alone has already delivered 5 243Mw through 79 different projects, which account for over a quarter of the target (in just four years).
However, that progress has faltered – along with optimism from local and international funders.
According to Mike Peo, head of infrastructure, energy and telecommunications for Nedbank Corporate and Investment Banking, the programme is now 18 months behind schedule – with Round 4 projects yet to come to market.
This after the Independent Power Producer Procurement (IPPP) office granted up to five extensions. Delays in the programme are costly for investor confidence, job creation, localisation and BEE participation, among others.
“We are sitting at an impasse, with Eskom and the department of energy not committing to a timeline for the completion of these projects,” says Peo. “In the current [energy] oversupply scenario, Eskom maintains it cannot afford to buy the power, but the private sector view is that there is a contractual obligation to complete the Round 4 projects.”
Nedbank provides project finance to Independent Power Producers (IPPs) under the renewable programme, and has 42% market share across the rounds. The lender’s committed R35 billion in debt investments, and is the single largest lender to that particular sector.
Given the ongoing political volatility, coupled with policy uncertainty around the future rollout and framework for renewables, Peo warns that foreign capital may be withdrawn from the sector.
“International development finance institutions, project developers and sponsors are aware of what is happening politically, and they will invest less [into SA renewables] and ultimately adjust their investment destinations,” he says. “They have infinite options and opportunities for investment, so when the risk-reward quotient becomes unattractive, they will leave.”
Despite this gloomy scenario, Peo insists the lender remains optimistic about the sector and will strive to maintain its current market share in the renewables space. “Provided that we can achieve some policy certainty some time soon, we think international investors will return,” he notes. “It’s critical that we get the policy framework [for renewables] sorted out.”
As we enter the second half of a tumultuous year, local and foreign investors will be keeping a close eye on SA’s ever-changing energy framework – with cautious optimism all round.