South Africa gets renewables boost
Alternative sources of energy attract investment, help ease blackouts
Near a massive iron ore mine in the Northern Cape, almost 320,000 photovoltaic panels mounted to track the sun cover the rust-coloured earth. Spanish developer Acciona SA built the 94-megawatt Sishen solar project in about 16 months under some of the strongest sunshine in the country.
In South Africa, the fifth-biggest producer of coal, which is burned to generate most of the country’s electricity, solar and renewable power are gaining fast. The alternatives have attracted 193 billion rand ($14.4 billion US) of investment since 2011, helping the government ease blackouts. Two coal-burning power plants first approved in 2007, now costing $17 billion US, are over budget and more than seven years behind schedule.
South Africa’s experience shows how renewables are spreading across the developing world, opening new markets with a reputation for convenience and plunging costs. That’s challenging the traditional selling point for the most widelyused fossil fuel, which prides itself on being the easiest way to boost power supplies.
“In the past we all looked at green and everybody was thinking, ‘Well that’s great, but it’s very expensive, and it’s for the rich,’” said Karen Breytenbach, head of the Independent Power Producer office, a group established by the government to procure energy from private sources. “We have moved the market from very expensive green power to affordable power.”
Renewables are a lone bright spot in South Africa’s power industry. State-owned Eskom Holdings SOC Ltd. has struggled to meet demand, cutting power supplies on 99 days this year to protect the grid while the shortages stunt the economy. Eskom’s older power stations are susceptible to breakdowns from lack of maintenance.
Trouble with bringing the coal plants online is emblematic of the industry’s difficulties worldwide. Coal prices have tumbled 50 per cent since the start of 2011, tipping more than three dozen mining companies including Patriot Coal Corp. and Alpha Natural Resources Inc. into bankruptcy. Envoys from more than 190 nations including South Africa will try to reach a historic deal in Paris in December limiting fossil-fuel emissions everywhere, suggesting more regulations against coal.
Renewable installations, meanwhile, are surging in South Africa and elsewhere in the developing world. Minister of Energy Tina Joemat-Pettersson in April accelerated the program, which follows the country’s National Development Plan. Auctions first started in 2011 under a framework the government designed with developers and banks.
Starting with almost zero utilityscale photovoltaics in 2010, South Africa now has procured solar capacity of more than 1,000 megawatts, a little more than what a nuclear reactor produces. Instead of offering fixed incentives in the form of feed-in tariffs as Germany did, South Africa designed a competitive tender process for developers to bid on the renewable energy projects.
The government will procure over 6,000 megawatts of wind, solar and hydro plants in South Africa, as part of the biggest surge in power capacity since the 1980s. The nation saved four billion rand in fuel costs and avoided some blackouts in the first half of 2015, according to a study by the Council for Scientific and Industrial Research, a Pretoria-based research group that found renewables may be the cheapest way for the nation to prevent shortages.
“Changing from a feed-in tariff to an auction has been a blessing and turned what many thought would be an expensive exercise into one where solar and wind are extremely cost competitive in global standards,” said Derek Campbell, an analyst at Bloomberg New Energy Finance.
India and Brazil are also using auctions like South Africa’s to boost renewable capacity. By 2040, $12.2 trillion US will be invested in power generation worldwide, 78 per cent of that in emerging market nations, and two-thirds of the total will be in renewables, according to Bloomberg New Energy Finance.
For South Africa, the interest in the renewables program “was far beyond our wildest dreams,” said Breytenbach at the Independent Power Producer’s office. It pushed the costs of solar and wind power lower, allowing the government to reduce the price paid for power, through successive auctions.
The program has been praised for its clarity and transparency and “could be a useful model for private funding of other types of infrastructure projects,” McKinsey & Co. said in a report on Tuesday. “Backing (particularly long-term debt) from South Africa’s deep financial market has been strong,” it said.
Coal remains South Africa’s dominant power source, accounting for 88 per cent of electricity supplied in the first half of the year, according to the CSIR. Solar and wind together were 1.8 per cent.