Due to the increasing threat of climate change, the key role that energy plays in the interactions between societies and resources towards a sustainable development has gained broad attention. As renewable energy sources (RES) become more competitive in relation to other energy sources, they create another opportunity to attract additional investments in favour of a greener economy.
In 2008, South Africa experienced a game-changing energy crisis due to severe capacity constraints in its energy infrastructure, thus forcing the country to tackle its energy challenges and initiate a transition to a low carbon economy. It is therefore no surprise that the potential of RES has gained increasing traction in South Africa.
On the eve of a global energy shift, South Africa has developed the Renewable Energy Independent Power Producer Procurement Programme (REI4P) to increase the share of renewables in its energy mix. Stemming from private sector participation in the electricity industry, the 2003 South African White Paper on Renewable Energy had set ambitious targets to facilitate future power generation capacity. Against this background, REI4P launched in 2011 with an initial target of 3,725 MW, divided into three bidding windows. The first and second bidding windows took place in 2013 through the Department of Energy, and the third one concluded this year.
Besides an increasing share of RES in the South Africa energy mix, further benefits have been derived from the REI4P, such as job creation in the renewable energy sector and the reduction of renewable energy prices. For example, between the first and second bidding windows, wind energy prices have fallen by 22 per cent, and solar prices by 40 per cent. In September 2013, South Africa incorporated its first solar power plant into its national grid under the REI4P. In three years, the REI4P has contracted 64 projects, and unprecedentedly managed to attract private investors in the South Africa energy infrastructure sector.
However, the REI4P has faced several setbacks. Among other issues, connection to the national grid backbone has encountered difficulties, due to insufficient investments in infrastructure, as well as national grid extension, with people in remote areas remaining off-grid. In addition, while the two first bidding windows were dominated by a wide range of developers, the third one witnessed a decrease in local and small companies, which found it harder to compete in a context of decreased prices.
In the process of an increasing RES share in the national production of energy, two main lessons can be learned from the South Africa REI4P experience: the need for comprehensive distribution and transmission planning on the one side, and the establishment of stronger links between the national bulk electricity provider and the Independent Power Producers (IPP) on the other side.
Fresh on the heels of the REI4P success, South Africa has also gained a stronger position on the international energy scene. The REI4P has propelled the country as a top three investment destination worldwide for renewables, and South Africa has therefore rapidly grown into a key energy partner. In 2010, US Secretary of State, Hillary Clinton and South Africa’s Minister of International Relations and Co-operation, Maite Nkoana-Mashabane, launched the US–South Africa Strategic Dialogue to advance co-operation on energy issues, among others. It includes the pursuit of common interests regarding RES, energy efficiency, peaceful nuclear co-operation, carbon capture, and shale gas exploration technologies. In 2013, both countries agreed to work more closely on solar, wind and biogas as clean energy sources, in particular for the REI4P’s extended fourth and fifth windows in 2015.
Written by Dr Agathe Maupin, SAIIA researcher working on energy and climate change. This article was written from the 20th annual Conference of Parties of the Nations Framework Convention on Climate Change (COP20), in Lima, Peru, and first published in Outreach magazine on 2 December 2014.
This is a short video with the author, Dr Agathe Maupin, on the 20th annual Conference of Parties of the Nations Framework Convention on Climate Change (COP20), in Lima, Peru.
Tvind, in Denmark’s west Jutland region, was an experiment in alternative schooling that included the concept of a travelling school, which would visit Third World countries and help to find ways to beat poverty. Although the Tvind schools can claim to have had an effect on pedagogy in Denmark — and they attracted a lot of controversy along the way — it is the large concrete tower that was under construction when I visited that has had the biggest effect. What the school was building was one of the country’s first big wind turbines.
The Tvind wind turbine started producing power in 1978. Thirty-six years on, Denmark’s wind industry employs 25,000 people in 350 companies with a turnover of more than R160bn.
As a visiting teenager, I thought the idea of the wind turbine was quite cool, but part of the attraction was that it was so alternative, so far removed from the mainstream. It was not possible to imagine back then that Denmark, just more than three decades later, would be providing almost 30% of its energy needs from wind power. The goal is to reach 50% by 2020.
One of the reasons that the forward-thinking teachers of Tvind started on the wind turbine was to prove to the world that nuclear power was not the only way forward. The antinuclear movement in Denmark was very strong in the 1970s. "Atomkraft? Nej Tak" (Nuclear? No Thanks) stickers were everywhere.
In 1985 the Danish parliament ruled out nuclear power stations being built on Danish soil. About 80% of the country’s wind turbines are owned by private shareholders or co-operatives. The island of Samsø has so much renewable energy it is now "carbon positive" and all of the inhabitants have a stake in the island’s wind turbines and solar panels.
SA’s journey into the realm of wind energy began quite recently, but there are some advantages to being a late entry into an industry. For one thing, the South African and Danish governments have a Renewable Energy Programme co-operation agreement, which was signed in 2013. This includes assistance in the creation of a comprehensive wind atlas that will map wind resources around the country.
Working with the scientists and engineers at Denmark’s Technical University (DTU), the same institution that worked on Tvind all those years ago, brings huge benefits to the South African partners such as the South African National Energy Development Institute, the co-ordinator of the atlas project, the South African Weather Services, the Council for Scientific and Industrial Research and the University of Cape Town.
The Renewable Energy Independent Power Producer Programme (REIPPP), whereby private companies bid for the right to build projects, has so far favoured wind. By the end of the third round of bidding, 1,983MW had been allocated to onshore wind projects. The simple average cost of kilowatt hours was reduced by nearly 30% to 74c by the time the third round was completed, the South African Wind Energy Association (SAWEA) said.
The association further calculated that round three of the REIPPP would save SA more than R15bn over the next two decades, using the price of power to be generated by the Medupi coal-powered power station as a comparison.
The Danish ambassador to SA, René Dinesen, has described the programme as "very transparent and very effective, setting new international standards in the field".
SA’s wind sector is growing fast. Before the programme began, the country had a total of eight turbines. The first two rounds of the programme will see 500 constructed and by 2030 about 9,000MW of wind power will be available to Southern Africans.
A good transmission grid is vital if renewables are going to play a big role in power generation in the subcontinent. When Denmark has excess wind power, it is sent to Norway to pump water uphill into reservoirs for later use in hydroelectric power generation. Lisbeth Jespersen, the deputy head of the Global Green Growth Forum in the Danish foreign ministry, says getting turbines to Africa presents "no problem" but the key is "getting the energy out to the people".
A few kilometres north of Tvind, where the old wind turbine still produces energy after all these years, there is a test site for wind turbines that are quite staggeringly big. The national test centre for large wind turbines at Østerild is run by Denmark’s Technical University and hosts turbines being tested by Siemens, Vestas Wind Systems and EDF Enérgies Nouvelles, a French company using Alstom technology.
The latest 8MW turbine being tested by Vestas stands a total of 222m above ground, with a tower measuring 140m and rotor blades measuring 80m.
What a few teachers started in the 1970s has morphed into something really big. The huge moving towers looming over a hillside north of the Limfjord in northern Denmark are a sure sign that wind power is growing and it is coming to SA very quickly.
• Young was an exchange student in Denmark in the 1970s. He has recently visited the country on a study tour as a guest of the Danish foreign ministry, International Media Support and the State of Green.
Previous rounds of the renewable energy independent power producer procurement (REIPPP) process have been a great success, with 21 renewable projects, which will provide 1,076MW, connected to the grid. The renewable programme is viewed as important means to help close the power gap in a period when SA’s energy supply is extremely constrained.
However, the third round ran into problems, initially due to a delay in undertakings by Eskom.
Eskom has also indicated that it cannot invest in grid connections for further rounds of the REIPPP.
Eskom said on Tuesday that it had now provided quotations for all the third round project connections. The next stage, which is the management of the financial close, is the responsibility of the Department of Energy. An initial deadline of the end of July was shifted to November 24. As the close must be staggered to avoid a knock on the currency, the South African Renewable Energy Council has raised doubts over whether the deadline will be met.
The Department of Energy did not respond to several inquiries over two days on whether it would make Monday’s deadline.
The outstanding success of the first two rounds of renewable bids, generated about R120bn in investment, says the council. It says that these investments are now in jeopardy as uncertainty grows over subsequent rounds.
CEO of the council Johan van den Bergh says at some firms production of wind turbines was stalled due to the delays while several manufacturers of photovoltaics were running at 2% capacity, despite millions made in investments.
"The viability of manufacturing facilities and the accompanying jobs and companies may be threatened if finality does not come before year-end. Uncertainty about the timing of announcing the preferred bidders for round 3.5 (for concentrated solar power only) and round 4 has also added to discomfort."
Eskom recently made it clear that it is unable to fund grid strengthening any further than the requirements of round 3.
In reply to questions Eskom said on Tuesday it was investing in the transmission infrastructure in the Northern Cape to accommodate about 500MW of renewable energy. This would be more than adequate to meet the requirements for rounds one, two and three of the renewable energy bids, it said.
However, the power utility would not be able to provide for the needs of round four as this was not included in the plans submitted to the National Energy Regulator of SA under the multiyear price determination which runs from 2013-14 to 2017-18.
Manufacturers of renewable-energy inputs have called on government to urgently finalise the financial closure for the 17 projects identified as preferred bids following the third procurement round under the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP).
It was estimated that successful closure could represent a R10-billion opportunity for the local supply industry, with the first two REIPPPP bidding rounds having facilitated investments worth about R120-billion for foreign and domestic independent power producers.
The third-round preferred bidders were identified on October 29 last year and the projects were initially scheduled to reach financial close on July 30, 2014.
However, financial close was subsequently delayed, primarily as a result of grid-connection problems and a senior Department of Energy official recently indicated that the revised deadline of the end of November might also be missed.
In a statement released through the South African Renewable Energy Council (Sarec), green-economy manufacturers warned that the viability of their facilities, together with the accompanying jobs, could be threatened unless there was finality before year-end.
DCD Business Manager Henk Schoeman, whose company has invested R300-million to set up a wind-tower manufacturing plant at Coega, in the Eastern Cape, said the delays were having adverse consequences.
“The stellar success of the programme and rapid growth in the industry has meant that we are under pressure to manage our production with extreme care to ensure we deliver to all our clients on the contractual dates, given our present capacity.
“But the present delays have extremely adverse consequences as we now have to wait with production until financial close occurs. Moreover, our future is dependent on the comfort of our clients that the programme is proceeding,” Schoeman said.
Similar distress was building, Sarec said, in the solar photovoltaic sector, where module manufacturers such as Jinko Solar, SolaireDirect and ARTsolar had collectively invested R245-million in facilities in Cape Town and Durban over the past four years. The investments had created 510 jobs.
“These companies have less than 2% of their production capacity taken up by local orders and have, as a result, been forced to seek foreign markets in the short term,” Sarec warned.
Concentrated solar power (CSP) developers were equally concerned, owing to the fact that the outcome of the CSP-only tender, which closed in March, had not yet been announced.
Speaking at a recent CSP Leadership Dialogue, European Solar Thermal Electricity Association president Dr Luis Crespo, said certainty was vital to ensuring the industrialisation, localisation, job creation spin-offs from CSP investments.
Disquiet was also expressed about the current uncertainty surrounding bid-window four, under which preferred bidders were scheduled to be named on November 24.
My company, Mainstream Renewable Power, has supported this initiative for the four years because we believe SA needs young engineers who will help build a new sustainable future for the country. This is increasingly important as SA, like many countries, faces a long period of economic slowdown, described as secular stagnation.
Former US treasury secretary Larry Summers has revived this economic theory, which was first articulated in the 1930s, to describe the extended slump that followed the US’s great crash, where the difficulty of "maintaining sufficient demand to permit normal levels of output" was addressed only by Franklin Roosevelt’s New Deal and the very significant stimulus to the US economy that occurred through the country’s mobilisation for the Second World War.
A recent report from the International Monetary Fund has analysed the effect of secular stagnation on economies such as SA’s, where "serial disappointments in growth have led to a ratcheting down of medium-term growth forecasts". Its remedy for this cycle of weak demand and anaemic output is to develop infrastructure, both to stimulate demand, and to create the framework for a more robust economy. Infrastructure investment boosts demand, says the report, "through the short-term fiscal multiplier, similar to other government spending, and by crowding in private investment…".
In a report written in 2012 economic analysts at the Centre for Economics and Business Research argued that investment in renewable energy in the UK would have a larger than normal multiplier effect due to the stagnation of the economy. I suspect that this effect would apply in SA as well.
It was the opportunity to develop new infrastructure with the government and other partners that enabled us to create Mainstream SA. The government’s Renewable Energy Independent Power Producer Procurement Programme has delivered 1,400MW of operational plant with an immediate further pipeline of 3,700MW of new electrical infrastructure, which is providing additional electricity to the national grid to help relieve unserved demand, and bringing economic activity to many economically marginalised rural areas of the country. It stands as a successful global model of the benefits of delivering infrastructure in a weakened economy, both in terms of stimulating demand and attracting investment.
It is important not to underestimate the programme’s effect of "crowding in private investment". In only three years the programme has attracted $14bn of private sector capital, which has in itself acted as a significant stimulus to the local economy. It is quite probable that these projects will be self-financing for the public purse — although the government provides a fixed price for the electricity produced, the cost of doing so will be paid back through general economic growth, and a reduction in the country’s debt-to-gross domestic product ratio.
Companies such as mine have grown in SA as we seek to develop and build new infrastructure under the programme. As the government looks to review its medium-term energy strategy I would urge it to extend this programme, and procure a consistent amount of new renewable energy every year for the next 20 years.
At present more than 40% of the capital expenditure necessary to build wind and solar power plant in the country is used to acquire goods and services supplied from SA. This figure could be much higher if the government were to commit to the programme over the next 20 years. I have made the point with the government on a number of occasions that no matter which boilers are chosen for a coal plant, or which steam or gas turbines are deployed, they are unlikely to be manufactured locally. However, with wind and solar photovoltaic, broadly everything can be manufactured here, given sufficient demand.
This month’s opening of the GRI wind turbine tower plant at Atlantis, Cape Town, is a clear example of this developing trend. Not only will equipment be manufactured for the domestic market but the rest of sub-Saharan Africa could also be supplied from here.
In addition, the renewable energy producer programme has delivered new generation plant to the grid on time and on budget, with a levelised cost (the net cost to install a renewable energy system divided by its expected lifetime energy output) of energy less than that forecast for a new coal plant. This is a remarkable achievement for the government, and is indicative of the extensive solar and wind resources available in SA.
Why is all of this important to the 60 Kimberley graduates? In a powerful analysis of the effects of secular stagnation on SA’s economy Sanlam group economist Jac Laubscher wrote last week that one of the dangers was the potential for this stagnation to reduce the contribution of education to the development of human capital.
His remedy lies in structural reforms that would include improving the education system, investing in physical infrastructure and increasing incentives for low-skilled workers to enter the labour market.
I agree. That is why Mainstream is backing the Kimberley Academy and investing in new national infrastructure. The academy’s stated vision is to provide support and opportunities to foster success and ultimately increase the number of future scientists, engineers and leaders of the calibre needed for the growth of SA’s economy. That is an ambition that we, and the other supporting partners across government and the private sector, fully endorse.
I anticipate that the Kimberley graduates will have a huge part to play in helping to design and build the new infrastructure that will return this country to a period of significant growth.
There is another factor at work, which gives rise to optimism that we are headed in the right direction, and that there is a route out of secular stagnation. It is the effects of new technology, such as renewable energy, on the economies of developed and developing nations.
In a book published this year, The Second Machine Age, the authors argue that it can take some time for breakthroughs in technology to fully affect productivity. Though US factories first used electricity in the 1890s, productivity growth didn’t accelerate until the 1920s. This, they argue, was because electric motors at first just replaced steam ones. It was only when staff accustomed to the steam era retired, to be replaced by younger colleagues familiar with electricity’s potential, that plant was reorganised to take advantage of electricity.
In a recent review, a commentator asked, in the context of secular stagnation, whether behind the apparent global slowdown, we may also be seeing a pause as we adjust to new technology. That is certainly the case in SA, as we shift from old and dirty fossil fuels to the sustainable renewable resources of the future. It will be our Kimberley graduates who will deliver this future for us.
• O’Connor is CEO of Mainstream Renewable Power.
The factory, built by the Spanish corporation GRI Renewable Industries, will make 50 turbine towers a year, employ 200 people and contribute to the government’s requirement of having a percentage of local content in all renewable energy projects.
Trade and Industry Minister Rob Davies said at the opening that 26 percent of the cost of a wind turbine was in the tower.
“It doesn’t make sense for us to be importing them when we can very well make them in our own country. We believe there is significant space in South Africa for investment of this sort and a bright future for renewable energy for solving the energy crisis which is constraining investment generally,” Davies said.
The government’s renewable energy programme, a partnership with private companies which bid to be able to build power plants, had won accolades internationally.
He quoted Bloomberg’s New Energy Finance Climatescope 2014 report which had ranked South Africa third, after China and Brazil, for new investment in clean energy.
The renewable energy programme had also won the Green Infrastructure project of the year last year in the Global Infrastructure Leadership Conference in New York.
“This shows our ability to support a big shift to renewable energy and help avoid catastrophic climate change by reducing our carbon footprint,” Davies pointed out.
He said the green economy was a key focus in Trade and Industry’s industrial policy and provided significant opportunities for job creation and economic growth.
The amount of local content required by government in renewable energy plants had been steadily increasing, starting at 25 percent in the first round of bids to build from the private sector, and would be 40 percent in round four, scheduled to take place on November 24.
The Western Cape government is to apply to Trade and Industry to have some of Atlantis declared a Special Economic Zone to help speed up industrialisation through a suite of tax and other incentives.
Transport and Public Works MEC Donald Grant said last year that 652 sections of wind-turbine towers had been transported on provincial roads, 221 blades, 111 nacelles and 98 hubs. The impetus of the renewable energy investment must be used to expand the country’s rail freight, and move more freight from road to rail.
Currently, 89 percent of freight was transported by road. The congestion and damage to roads from this was untenable and would offset the gains in the green sector.
Mayor Patricia de Lille said the GRI factory was the first major investment the city had attracted through its pilot investment incentive scheme in Atlantis.
The city had established a green-technology manufacturing cluster on vacant city land in the Atlantis industrial area in 2011, and had fast-tracked business applications in the green-technology sector. Other incentives included exemption from application fees and waiving development facilitation fees.
“Factories such as GRI have gone from blueprints to being built in record time,” she said.
Johan van den Berg, SAWEA CEO, speaks about the importance of Wind Energy in South Africa in the very near future.
Various stakeholders have taken part in the National Climate Change Response Dialogue Conference. Dr Velaphi Msimang from Mistra, Tsakani Mthombeni from TIA and Johan Van Den Berg from SAWEA are interviewed.