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Wind energy to benefit communities in South Africa

Wind energy in South Africa is set to contribute more than R7-billion to communities and socioeconomic development over the next 20 years.

“Utility-scale wind energy is already boosting economic development in South Africa,” South African Wind Energy Association (Sawea) chairperson Dipolelo Elford told delegates at the WINDaba conference, in Cape Town.

He said government and industry were committed to ensuring that small business and local communities benefitted from wind farms.

In terms of the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), wind energy project developers were required to allocate between 2.5% and 40% of shareholding to legal entities representing local communities. The dividends need to be invested in local economic development projects and programmes.

But residents might have to be patient. Funds would be released once the wind farm started generating profits, which could take up to ten years, depending on the energy generated and the initial cost of development.

Wind energy had taken off in South Africa, with five wind farms in full operation and another 22 large-scale farms under construction. Another 700 MW was expected to be awarded soon. 

Elford said infrastructure in certain areas where wind farms had been set up had helped communities. “There are areas which used to be in darkness and now, for the first time, they have lights.”

Sawea believed the R7-billion figure, which was based on current allocations, compared favourably to that of direct investments made into communities in more mature wind energy markets in Europe and the US.

Elford noted that South Africa had rapidly advanced its wind power generation.

“In 2011, the first preferred bidders were announced. This time last year, the independent power producers had broken ground and turbines were popping up all over the place. Now we have five wind farms in full operation. We hope to get to a stage where wind is fully integrated into the electricity grid of the country.”

While the wind energy industry was not labour-intensive, Sawea estimated that investment in the industry would result in a minimum of 3 600 direct long-term and sustainable jobs, mainly for semiskilled and skilled people in local communities.

Thousands of jobs were expected to be created during the construction phase of the wind farms.

Meanwhile, there was still plenty of international interest in South Africa, Global Wind Energy Council (GWEC) secretary-general Steve Sawyer told delegates at WINDaba.

He commended South Africa’s power procurement system.

“Because of the success of Brazil and South Africa’s ‘auction’ system for wind power procurement, it’s now all the rage,” he told several hundred delegates, but added that delays in the REIPPPP were a concern.

Globally, China had the biggest annual market size for wind energy, with its share of the global market being 28.7%. The US, Germany, Spain and India made up the rest of the top five countries in terms of market share.

The GWEC believed Asia would surpass Europe by the end of this year in terms of total installed capacity.

After a sluggish 2013, Sawyer expected a much better industry performance for 2014.

Wind energy a pillar of Danish investment in South Africa

Danish companies are keen to set up a green hub on renewable energy in South Africa, with an eye on developing markets in Southern Africa, Danish Minister of Trade and Development Cooperation Morgens Jensen has told Engineering News Online.

He said he saw tremendous opportunity in South Africa, particularly in terms of wind energy, but that Danish companies needed to expand into Africa to make their investments worthwhile. 

“Danish companies are ready to invest, but they need the volumes and movement into Africa.”

Jensen was speaking on the sidelines of the yearly WINDaba summit in Cape Town, which has drawn investors, suppliers and developers, as well as a large contingent of Danish companies. They include Vestas, which is supplying and installing wind turbines for several wind power plants in South Africa, including Chaba, Waainek and Grassridge in the Eastern Cape, as well as Hopefield in the Western Cape.

Jensen commended the government’s Renewable Energy Independent Power Producer Procurement Programme, but emphasised that providing certainty that renewables would remain a high priority was all-important for investors. Grid connection was also key.  

Power utility Eskom’s financial difficulties have put grid connection under pressure, while the government has reduced its requirements for renewable energy by 10 000 MW by 2030.

Jensen encouraged South Africa to learn from Denmark’s experience in the renewables sector.

The Danish government funded the Wind Atlas in South Africa, which is helping industry and government identify excellent wind development zones. Ten 60-m-high wind masts have been installed at various sites across the country to measure wind.

Jensen also encouraged South Africa to learn important lessons from the current energy crisis it was facing.  

“Never let a good crisis go to waste…The 1973 energy crisis was a game-changer in Denmark. It underlined our need to diversify. Wind energy is affordable.  It compares very favourably to coal-power in terms of price – and the silos don’t crack,” he quipped.

Denmark has set itself a target to generate half of its energy requirements from wind energy by 2020. The long-term goal was to shift the entire energy system, including transport, to renewable energy by 2050.

Jensen also encouraged the South African government to be more flexible on granting visas for business purposes. He said he had discussed this with South Africa’s Trade and Industry Minister Dr Rob Davies, during an official visit this week.

The Danish Minister later told the WINDaba it was crucial to engage local communities and get public support for renewable energy. He said Denmark had managed to maintain a green energy mix, partly through regional power pools.

When renewables like wind are not performing optimally in Denmark, it’s able to import solar power from Spain and hydropower from Norway.

“This is how we control the mix between fluctuating sources.”

During the meeting with Davies, Jensen said his country planned to boost its overall trade with South Africa by 50%. According to Jensen, 27 000 Danish citizens visit South Africa every year.

Significant wind farm jobs benefit

WIND energy will contribute R7 billion over the next 20 years to the socio-economic development of communities living around South Africa’s wind farms, delegates to the Windaba conference in Cape Town heard yesterday.

Dipolelo Elford, chairwoman of the SA Wind Energy Association (Sawea), said, in addition, jobs would be created at all stages of the average two-year construction phase and during the wind farm’s 20-year lifespan.

Local residents living within a 50km radius of a wind farm would benefit from projects through a percentage of shareholding, a government requirement. Wind farm developers will allocate between 2.5 and 40 percent of shareholding to legal entities representing local communities. The money will be released once the wind farms begin to generate profit, which could take up to 10 years, depending on the amount of energy generated and the cost of development.

There are five South African large-scale wind farms in commercial operation, generating a total of 484MW, and 22 under construction. Another round of wind farms are due to be selected by the government through a fourth round of bidding by wind farm developers. This will add another 700MW of wind power.

Johan van den Berg, chief executive of Sawea, said wind could generate power at one fifth of the cost of Eskom’s open-cycle gas turbines. The diesel-run turbines, used by Eskom to keep the lights on when electricity demand is high, cost R10bn to run last year – R8bn above budget.

Van den Berg said South Africa had a lot of excess pumped-storage generating capacity, but did not have enough power to pump it. Wind power could be used to do this.

“You would be saving R5 by spending R1.”

Wolsley Barnard, acting director-general of the Department of Energy, said it was doubtful if the fourth round of bidding would be held on schedule on November 24. Companies bidding competitively to build wind farms are selected by the government on a range of criteria, cost being a major one.

Barnard said because Eskom was “in a tight situation”, the deadline might not be met, but bidding would happen “as soon after as possible”.

Eskom has to upgrade the grid to be able to connect the renewable energy power plants. In some cases it has been unable to do so and has had to pay renewable energy companies for power they were not generating.

Barnard said part of Eskom’s rescue package from the government was to be used to connect renewable energy power plants to the grid.

Asked about the updated Integrated Resource Plan (IRP), Barnard said there would be an overall reduction of 10 000MW across all generating sectors, including wind, in the IRP’s projections for 2030. This was because the demand forecast for 2030 had been recalculated and was lower than originally forecast.

The IRP, a 20-year electricity blueprint, was established in 2010. It is currently waiting approval by cabinet.

IN DEPTH: South African promise

South Africa is well on the way to becoming a significant wind-power market, with a cumulative capacity of more than 2.6GW expected in the next few years.

 

Wind could supply nearly 20% of global power by 2030 – report

Installed wind power capacity could swell by 530% to 2,000 gigawatts (GW) by 2030, supplying up to 19% of global electricity, a report from a trade association and Greenpeace said on Tuesday.

It said installed wind energy capacity totalled 318 GW at the end of last year worldwide and provided around 3% of global electricity supply. Capacity is set to grow by another 45 GW to 363 GW this year.

In some parts of the world, particularly in Europe, people have objected to wind power due to government subsidies which they claim have contributed towards rising energy bills.

But Steve Sawyer, chief executive of the Global Wind Energy Council (GWEC), said: "Wind power has become the least-cost option when adding new capacity to the grid in an increasing number of markets, and prices continue to fall."

The GWEC, which represents 1,500 wind power producers, looked at the future of the wind energy industry to 2020, 2030 and 2050 under three scenarios based on existing and future emissions reduction and renewable energy policies.

Based on International Energy Agency forecasts, it said cumulative installed wind energy capacity could reach 611 GW by 2020 and 964 GW by 2030.

Under the report's "moderate" scenario, based on existing renewable energy policies and assuming that emissions reductions agreed next year in Paris under a global climate deal will be modest, installed wind capacity could reach 712 GW by 2020, nearly 1 500 GW by 2030 and around 2 670 GW by mid-century.

That means wind energy could meet 7% and 8% of global electricity demand by 2020, 13% to 15% by 2030 and 17% and 20% by 2050.

Under the "advanced" scenario, based on more ambitious growth rates and assuming that a robust global climate deal is in place, installed capacity could reach 800 GW by 2020, nearly 2 000 GW by 2030 and over 4,000 by 2050.

That means wind energy could provide 8-9% of global electricity supply by 2020, 17-19% by 2030 and 26-31% by mid-century.

"Given the urgency to cut down CO2 emissions and continued reliance on imported fossil fuels, wind power's pivotal role in the world's future energy supply is assured," Sawyer said.

The report identified Brazil, Mexico and South Africa as areas for new growth in wind energy. Brazil is set to install nearly 4 GW this year alone, while Mexico should add around 2 GW a year for the next 10 years.

Bad Policies Hinder Africa’s Renewable Energy Growth

Continuing technology advances, falling prices and new financing models means renewable energy projects have become increasingly practical in sub-Saharan Africa.

But while the sharply falling price of renewable technologies means projects are less dependent on subsidies, policy and regulatory uncertainty in some key African markets is driving a slowdown in renewable energy investment, according to a number of recent reports.

“The policies in a large portion of African countries are either non-existent or very vague,” Derek Campbell, Bloomberg New Energy Finance analyst for sub-Saharan Africa told AFKInsider.

”The trends are, if you look at the regional level, as ambiguous in Africa as they are anywhere else,” Alexander Ochs, director of the Climate and Energy Program at Worldwatch Institute told AFKInsider.

The International Energy Agency’s IEA ‘Africa Energy Outlook’ report released Oct. 13 estimates “the sub-Saharan economy quadruples in size by 2040, the population nearly doubles (to over 1.75 billion) and energy demand grows by around 80 percent. Power generation capacity also quadruples: renewables grow strongly to account for nearly 45 percent of total sub-Saharan capacity, varying in scale from large hydropower dams to smaller mini- and off-grid solutions.”

But the report warns that this growth “must be accompanied by broad governance reforms that include transparent management of energy resources and revenues if they are to put sub-Saharan Africa on a more rapid path to a modern, integrated energy system for all.”

“Governance indicators are generally weak in sub-Saharan Africa, compared with other parts of the world (although stronger in some southern parts of the region, notably Botswana, Namibia and South Africa), implying substantial risks arising from policy and regulatory uncertainty, inadequate protection of contracts and property rights, poor-quality administration and the actions of governments that are only weakly accountable to their citizens,” states the report.

More renewable-energy projects will be commissioned this year in sub-Saharan Africa than were added from 2000 through 2013, according to an August 21 report from London-based research firm Bloomberg New Energy Finance.

According to Bloomberg, renewable energy investments – not counting utility-scale hydropower – in the region is estimated to hit $5.9 billion this year and $7.7 billion in 2016. That’s compared to an average annual investment of $1 billion from 2006 through 2011.

“In Sub-Saharan Africa there are some good examples of strong policies and long-term power purchase agreements and these are the countries attracting the majority of clean energy investment,” Bloomberg’s Derek Campbell told AFKInsider.

While sub-Saharan Africa is one of the best new markets for onshore wind, small-scale and utility-scale solar, and geothermal power, the Bloomberg report noted that the investments are predominantly expected in South Africa, Kenya and Ethiopia.

“The three largest markets for utility-scale renewable power over the 2014-16 period are forecast to be South Africa with 3.9 gigawatts likely to be installed, the largest part of which will be wind, followed by solar PV with a smaller amount of solar thermal; Kenya with 1.4 gigawatts, mainly geothermal and wind; and Ethiopia with nearly 570MW, largely wind with some geothermal,” states the report

The annual market rankings of the world’s 100 most attractive power markets from London-based analysis firm Precergy, shows only four sub-Saharan countries in the top 50, with even South Africa only ranking 42nd. According to the report, though sub-Saharan Africa is an increasingly attractive investment option, there are many reasons for the overall low scores, “not least the greater levels of political risk and increased difficulty in doing business.”

South Africa and Kenya also ranked high in Ernst & Young‘s Renewable Energy Country Attractiveness Index released in September.“The opening of Round 4 of South Africa’s renewable energy procurement program sees a further 1.10 gigawatts of capacity up for grabs, with preferred bidders expected to be announced in late October, notes the report. “The removal of import duties on solar PV equipment in Kenya, though sparking outrage from domestic manufacturers, is likely to improve deployment prospects by pushing down project costs and offering developers greater flexibility.”

”There are countries that have become very, very serious about sustainable energy solutions, including renewables,” Worldwatch Institute’s Ochs told AFKInsider, citing Kenya, Tanzania, South Africa and Ethiopia. ”And then you have countries where the situation is a lot more difficult like Nigeria and many other countries throughout the continent where there are no commitments in place yet, or where earlier commitments have been somewhat weakened.”

Nigeria is left out of these rankings because even though Nigeria has seen ambitious plans for large renewable power projects mooted over the years, they “have yet to put in place the stable policy regime to reassure investors,” according to Ernst & Young.

“While Nigeria has introduced an attractive feed-in tariff (FiT) and ambitious renewable energy targets in their Nigeria Renewable Energy Master Plan we feel there are still some outlying issues that need to be addressed,” Bloomberg’s Campbell told AFKInsider.

Bloomberg’s concern is the FiTs multi-year tariff order (MYTO) where it’s reviewed every five years and so will impact existing power purchasing agreements.

“The MYTO only runs till 2023 and for developers who for a utility scale project will generally seek project finance with a tenor of 15-20 years the risks are just too high and lending institutions would more than likely not borrow to developers.” Campbell told AFKInsider.

Growth Trends

Solar could be the world’s largest source of electricity by 2050, outpacing fossil fuels, wind, hydro and nuclear power, according to two International Energy Agency technology roadmaps released in September estimates that solar photovoltaic systems would account for 16 percent, while solar thermal electricity could provide an additional 11 percent.

The renewable energy industry accounted for 22 percent of total global power generation in 2013, according to the June REN21 2014 Global Status Report, with renewables accounting for 56 percent of all net additions to global capacity. According to an Oct. 2 Bloomberg New Energy Finance report, “$175 billion was spent globally on renewable energy projects during the first three quarters [of this year], up 16 percent from the same period last year.”

But while the African solar PV market has now reached 11 gigawatts, “Growth constraints for PV across Africa include weak energy infrastructure, corruption, and political and social instability,” according to a September market report from NPD Solarbuzz which tracks 29 African countries.

Policy Uncertainty

The central message of these reports is the need for clear policies which can lower risks and inspire confidence for investors. According to the International Energy Agency, where there is policy incoherence or confusion – dubbed “stop-and-go policy cycles,” investors pay more, consumers have higher energy costs, and many projects simply fail to materialize.

“Many countries have announced plans for creating feed-in tariffs or renewable energy targets, but at the moment this is not enough,” Bloomberg’s Derek Campbell told AFKInsider. “Tax-based mechanisms are the most prevalent, but these are for import duties and VAT (Value Added Tax) exemptions which any sector can apply for,” said Campbell.

But policy mechanisms did evolve a bit in 2013, according to REN21’s 2014 report, including an increasing differentiation by technology and an increase in competitive bidding. The report also notes that a growing number of countries are developing targeted strategies to transition to renewable energy. Djibouti and Ghana are targeting 100 percent electricity from renewables by 2020. For Madagascar the target is 75 percent by 2020; Gabon is 70 percent by 2020; Uganda is 61 percent by 2017; and Cape Verde targets 50 percent by 2020, according to REN21.

“We’ve looked more into the countries on the western side of the continent with a new report that we’re coming out with soon where ECOWAS (Economic Community of West African States) is now aiming at providing guidance based on a regional policy for haw national policy and implementation plans would look like,” Worldwatch Institute’s Ochs told AFKInsider.

The Oct. 13 Africa Energy Outlook report notes that three actions “could boost the sub-Saharan economy by a further 30 percent in 2040, including an additional $450 billion in power sector investment, deeper cross-border cooperation on large-scale generation and transmission projects, and more transparent policies and governance of energy projects.

“Tackling these (governance) weaknesses will require actions across a broad front; particularly important elements from an energy perspective are investment in the skills and knowledge required for a modernizing energy economy and the transparency and consultation on energy policies that is essential to winning public consent,” notes the Africa Energy Outlook report.

”More and more countries are becoming very serious in terms of policy commitment and we’re seeing results now coming in,” Ochs told AFKInsider. “I think overall, most countries have a commitment in place, but the difference is how far a long they are in terms of redesigning the concrete policies and plans.”

“What we really need to see is policy certainty and renewable energy specific policies and not general policies,” Bloomberg’s Campbell told AFKInsider.

Eskom grid study highlights major future shifts in power-flow patterns

The transmission unit of South African electricity utility Eskom has completed a strategic grid study for the period to 2040. The study signals major shifts in future generation and demand patterns that will have implications for the domestic network and future investment decisions.

Strategic grid planning senior manager Ronald Marais says the ‘2040 Transmission Network Study’ has drawn on various scenarios to determine the grid’s development requirements, as well as to identify critical power corridors and network constraints.

The 2010 Integrated Resource Plan (IRP) provides the base case, but the draft IRP Update, together with scenarios that envisage higher levels of renewable energy (a ‘green’ scenario) and regional imports, have also been interrogated.

All show marginal implications for the transmission network for the coming 10 to 15 years. However, from 2030 onwards, major changes are expected in the provincial distribution of generation, with Mpumalanga – the current dominant source of generation – playing a relatively smaller future role.

“There is going to be a significant change in pattern,” Marais reports, adding that the ‘greater Cape area’ will become a major exporter of electricity.

Generation from the sun-drenched Northern Cape, for instance, is set to expand under all scenarios, and could be a major contributor by 2040, depending on the generation mix pursued. Likewise the wind-rich regions of the Western Cape and Eastern Cape are poised to become more significant sources of electricity supply.

Marais indicates that these shifts have implications for the direction of electricity flows, which are currently primarily from east to west, owing to the dominance of coal-fired generation in the north-eastern provinces and the dearth of generation in most other territories.

Under the ‘green’ scenario, the Northern Cape could have has much as 7 100 MW of surplus capacity by 2040, with the IRP base case suggesting a net generation surplus of nearly 2 000 MW. Similarly, the Western Cape and Eastern Cape could move from being net importers of electricity to net exporters through a combination of additional wind and new nuclear capacity.

Mpumalanga, meanwhile, which currently has a net surplus of over 22 000 MW, could see its contribution to the rest of the country decline to around 9 700 MW by 2040 as mature coal-fired stations are retired and South Africa moves to diversify its power mix.

Under all scenarios, the coal-rich Limpopo province’s power generation contribution is anticipated to grow materially, while Gauteng, KwaZulu-Natal and Free State are forecast to remain net importers.

The analysis identifies five major national corridors for future strategic development, including the western and eastern coastal corridors, a solar corridor, a central corridor and a northern import corridor, through which capacity from Mozambique, and potentially the Democratic Republic of Congo, would enter.

The direction of electricity transport will be much more varied when compared with the current patterns, with south-to-north and west-to-east flows anticipated. In addition, Eskom is planning to match generation centres to load centres using the shortest routes possible, so as to reduce the environmental footprint of the network, the investment costs and technical losses associated with moving electricity over long distances.

Marais reports that the national power corridors have been further refined and consolidated into five transmission power corridors, which are being used by the Department of Environmental Affairs for a strategic environmental assessment (SEA).

The SEA forms part of the Presidential Infrastructure Coordinating Commission’s strategic infrastructure project 10, or SIP 10, and the aim is to fast-track all the environmental approvals required for transmission infrastructure within the corridors.

Marais says corridors of 100 km in width have been identified and that the SEA will seek to identify environmentally acceptable routes over which long-term environmental impact assessment (EIA) approvals can be secured.

This is seen as important as EIA determinations, along with servitude acquisitions, are currently major impediments to the rapid deployment of grid infrastructure. On average it is taking Eskom between six and eight years to secure the servitudes and EIA records of decision and a further three years, thereafter, to construct the lines.

Marais says that, while the shifts in power flows fall outside of Eskom’s current grid-planning horizon, as outlined in the Transmission Development Plan (TDP) for 2015 to 2024, the modelling is assisting with project prioritisation.

More immediately, however, the TDP is being heavily influenced by the utility’s financial constraints, which has led to the deferment of certain projects.

The overall budget, which was estimated at R163-billion, remained more or less as it was in previous versions of the TDP, with R146-billion required for capacity expansions and the balance split between refurbishments, spares, servitude acquisitions and environmental and corporate costs.

However, the latest version also rescheduled much of the actual investment into the fourth multiyear price determination period, or MYPD4. This is partly attributed to the fact that Eskom has received lower-than-requested tariff increases from National Energy Regulator of South Africa for the MYPD3 period from 2013 to 2018, but it also takes account of delays associated with securing land, servitudes and environmental approvals.

The rephrased plan envisages the building of 13 396 km of new transmission lines and the introduction of 81 385 MVA of additional transformation capacity by 2024.

WINDaba 2014

As Eskom continues to declare regular ‘emergencies’ and black outs persist, renewable energy including wind, has the potential to rescue the situation over the next five years – we just need to mix small and large scale technologies, says the South African Wind Energy Association (SAWEA).

Attend WINDaba from 03 to 05 November 2014 in Cape Town and have access to a broad range of topics with the view to a robust and sustainable wind energy sector. All calculations indicate that our current electricity supply cannot provide the power we need to grow the economy to its full potential.  Projections show that the country will not have the energy required to fully realise its economic ambitions until 2020 or later, without intervention from a cost effective source.

The country’s renewable energy procurement programme (REIPPPP) has procured thousands of megawatts (MW) in the last three years at increasingly competitive rates with more in the pipeline. Many turbines are already providing power to the grid. Local content levels have been near 50% with the result that there are huge spin-offs in the supply chain to a wide variety of large and small South African companies and also individuals, boosting the flagging economy. The obstacle to filling the energy gap with renewable energy is timing.

Frank Spencer, Chair of SAWEA’s Technical Working Group and speaker at WINDaba explains: “The disparity between the success of the REIPPPP and the energy shortage of the country relates to the time energy is generated versus the time at which it is most in need.”

“Wind plants often deliver energy during peak periods but are obviously dependent on the wind blowing. Solar photovoltaic plants deliver their maximum output around the middle of the day. Solar Thermal power can be stored, but the construction time for such plants is longer than for the aforementioned technologies and there is some work to do in bringing down costs.”

The solution is to maximise the energy output from renewable sources to impact the grid at peak times.  Alongside commercial-scale renewable power plants there is huge potential for small scale technologies to relieve pressure on the grid. “We have one of the best climates in the world for solar energy and the potential to install millions of solar water heaters at very affordable rates in a short period of time. Letting sun heat our water instead of diesel will drop the electricity demand curve over the entire course of the day so that we won’t need to use diesel peaking plants as often,” says Spencer.

Rooftop Solar PV can store power in batteries to feed back into the grid during peak hours at significantly less than the cost of power generated from peaking plants. “Solar water heaters and solar rooftop can address the bulk of the peaking problem and utility scale wind and solar (both PV and solar Thermal) will deliver the extra capacity required. This is how we can resolve our energy shortage while boosting local manufacturing and job creation and enabling the economic growth envisioned in the National Development Plan,” concludes Van den Berg.

WINDaba is Africa’s largest Wind Energy platform hosted by the South African Wind Energy Association (SAWEA)  in proud partnership with the Global Wind Energy Council (GWEC).

To book your delegate participation at WINDaba please visit www.windaba.co.za or contact 021 448 5226

SA’s Carbon Tax obsession – fiddling while industry is burning

I was more than a little irritated after this interview. Not because of the guests – although having a lawyer on one side and a banker on the other has its challenges. But rather, that the studio guests missed the real point. Which is why South Africa, as a developing country with under half a percentage point of global GDP, insists on trying to position itself as the world leader in reducing carbon emissions. Ah, said the hairless lawyer after the programme, but if we don’t our manufactured products won’t be able to be sold anywhere. What manufactured products is a more appropriate question.

The national de-industrialisation is gathering momentum through a combination of labour unrest, the world’s least flexible labour laws and the drained confidence that comes with communists forcing through their utopian but unworkable Developmental State. The idea of a Carbon Tax is a bit like Nero fiddling while Rome burned. South Africans need incentives to invest. Urgently and desperately. Lots of carrots, and a breaking of some of Government’s sticks., Instead industry is now threatened with another dis-incentive on top of the long list we already have. We need another tax like a hole in the head. Especially one that will be paid for in part through another electricity price increase. For once I wish we’d take a lead from the Australians and can this damn thing, at least for now. And focus our collective effort on fixing rather than fiddling. – AH 

ALEC HOGG:  The Department of Environmental Affairs and the Treasury are busy finalising an approach to carbon tax for South Africa. The idea is to reduce greenhouse emissions, as we heard earlier from Chris Yelland, some people think it is just a way of raising more revenue. Here to give us their perspectives are Andrew Gilder who’s from the South African Wind Energy Association and Marco Lotz from Nedbank Group Sustainability. He’s a Specialist on Enterprise Governance and Compliance at Nedbank. Marco – Carbon taxes: the Australians have said they’re a lot of bung. Chris Yelland has said ‘it is just a way to raise money. It won’t actually drop carbon omissions……

MARCO LOTZ: Well, for me, there are two separate issues, so one is we should definitely price in externalities, environmental externalities. We cannot continue using resources, whether it is coal or water or the way in which we are currently doing. As you also said, in between the different sessions, the young people of today will not stand for it. Completely separate to that, we’ve got to the discussion of a carbon tax and the question is, “Is that the correct mechanism to address the externalities, the use of water, and the use of coal that we should be pricing and that’s a very difficult question.

ALEC HOGG: Andrew, you are on the other side of the fence. You are representing the Wind Energy Association, I’m sure you would like to see benefits coming to you, via a carbon tax.

ANDREW GILDER: Well, there will be benefits to the economy. I take the point that the idea is that all Treasury is doing is trying to raise more revenue. That is one way of looking at it but the fact of the matter is that it is a component of National Climate Change Policy. It is not the only mechanism that is being proposed, it is part of what is called a mix of measures, with the unfortunate acronym of MOM, but in any event, it is part of a mix of measures that the country is proposing to the international community around the reduction of the carbon profile of our industry. If we don’t do that, we become increasingly uncompetitive in the industrial space. For example, we have a very ‘carbon emissions’ heavy baseline, in the generation of things, anything from steel to consumer goods.

ALEC HOGG: 80 percent of the carbon emissions from industry, come from Eskom and Sasol.

ANDREW GILDER: True.

ALEC HOGG: So Eskom and Sasol, how are they going to be affected if there’s a carbon tax?

ANDREW GILDER: Well, at this point, Eskom has said to us what they are going to effectively be doing is passing that carbon tax responsibility through to its consumers.

ALEC HOGG: We’ve got a 12.7 percent electricity price increase that has just been approved.

ANDREW GILDER: Correct.

ALEC HOGG: What is that going to do to the electricity prices in the future?

ANDREW GILDER: It will, potentially increase electricity prices, and so the question is then, how clever are you, as industry? Are you able to capitalise upon the ‘so-called’ allowances that have been built into the carbon tax, and work your industry, in a much more efficient emissions manner, into the future? It must be very clearly understood that Treasury has not simply said and, by the way, we are talking only about a policy document, at the moment, although we kind of have a timeline about it now. Treasury has not said, “We are simply going to slap a tax on you, relative to this amount of your emissions.” In fact, it is not to do with your emissions anyway. It’s about the intensity of your fuel input. They’ve said, “We are going to do that but, at the same time, we have a number of allowances built into the system that would allow you to operate in a much more efficient manner.”

ALEC HOGG: I get that but, surely Marco; South African taxpayers are now ‘gatvol’. We’ve had many new taxes that have been brought into the system. We’ve had very good examples of the tax Dollar/Rand being wasted. Isn’t that the danger here? Yet another tax coming in on carbon emissions, as Andrew has said, we are going to pay for it because it will go through Eskom (higher prices). Isn’t there just one more straw that is going to break this South African taxpayer’s/camel’s back?

MARCO LOTZ: I think, with that in mind we definitely need to be very sensitive, to some of the industries that cannot change or cannot change that quickly. Andrew, from the Wind Energy Association and some of those big projects, sits with their bank, that’s a fascinating place and a good market position to be in but imagine going to a warehouse or to a hardware shop and trying to find a normal, incandescent bulb today. It is very difficult, so positioning is crucial, so that companies also move their product offerings – their service offerings – as quickly as possible. If it is not for the carbon tax then it will be due to international pressures.

ALEC HOGG: I’ll tell you what I’m getting at here. Andrew, you’ve explained earlier that we want to tell the rest of the world how to handle greenhouse submissions, and South Africa has got this wonderful ability to try and be the first in the world at certain things. If we are point-three-percent or point-seven-percent of global GDP, depending on how you want to slice and dice the purchasing power parity. That’s a tiny, little fraction of the world. Who are we to be starting to impose on our citizens the responsibility for being world leaders, in a field like this?

ANDREW GILDER: It is to misunderstand that we are not world leaders. There are a number of organisations, and there are a number of initiatives across the world that are seeking to price carbon into emissions and tense baseline. For example, earlier this year under the auspicious of the World Bank was launched, the 2014, World Pricing Report, if you would like. We are one of some 39 initiatives, internationally that are looking at mechanisms that will bring carbon pricing into economies, so a much less subtle way of doing it would be simply a ‘command and control’ approach. May I point out, just for your interest, at a session run by Treasury last Thursday? There’s a very strong push from civil society that says, “We should immediately be bringing in a carbon price that is equal to the social cost of carbon in the economy.”

ALEC HOGG: Which civil society?

ANDREW GILDER: Well, there’s a large group of…

ALEC HOGG: Taxpayers? No, no you tell me. If you go to a taxpayer and you say ‘we are pushing up vat by one-percent because of carbon tax’.

ANDREW GILDER: Yes, sure.

ALEC HOGG: Do you think your taxpayers are going to say ‘yes, fine. We’d rather pay more VAT’?

ANDREW GILDER: But you have to take into account, Marco has already, is kind of the technical aspect. We have to take into account that we do not and have not taken into account environmental externality cost, in our production baseline to date. Do you know that it costs the State approximately R5bn that is never taken into account, in the generation of electricity, in respect of increased incidents of lung disease on the East Rand, related directly to the Eskom Power Station.

ALEC HOGG: That needs to be proven but, from your perspective, should we have a carbon tax, I think that is what we’re getting at? People like me are saying, “Hang on, one more tax, ‘eish’.”

MARCO LOTZ: Okay, for me, there’s two points. The one is we should internalise environmental externalities. What that implies is we can’t continue as we are doing now. Completely separate to that is, is the carbon tax the right implement at the right time and where will the money go to? That is what we need answer.

ALEC HOGG: I agree. Do you agree with that one, too?

ANDREW GILDER: I agree. It needs to be appropriately designed and Treasury has agreed that it needs to relook at the design.

 

Eskom warns on IPP connections as it defers some transmission capex

State-owned power utility Eskom has made significant changes to its transmission infrastructure expansion plan for the coming ten years, owing to financial constraints that made its previous plan “no longer realistic”.

Group executive for transmission Mongezi Ntsokolo reported on Friday that the latest Transmission Development Plan (TDP), covering the period from 2015 to 2024, had been revised to align with available funding.

The outcome, which would be detailed in a document to be published on Eskom’s website by the end of November, was a reprioritisation and rephrasing of a number of network strengthening and expansion projects.

Eskom also confirmed that the lack of capital posed a risk to the integration of future renewables and baseload independent power producers (IPPs), especially where such projects required “deep” grid strengthening.

However, discussions were under way with the Department of Energy (DoE), National Treasury and the National Energy Regulator of South Africa (Nersa) about alternative funding models, including self-provisioning of both dedicated and shared infrastructure by IPPs on a case-by-case basis.

Ntsokolo also confirmed that the revision would result in a delay to the migration of the network to full redundancy as stipulated by the South African Grid Code.

The compliance schedule had been shifted out from 2016 to 2022, a move that was described as regrettable, but unavoidable.

R163BN ROLL-OUT PLAN

The overall budget, which was estimated at R163-billion, remained more or less as it was in previous versions of the TDP, with R146-billion required for capacity expansions and the balance split between refurbishments, spares, servitude acquisitions and environmental and corporate costs.

However, the latest version also delayed or deferred much of the actual investment into the fourth multiyear price determination period, or MYPD4.

This was partly attributed to the fact that Eskom had received lower-than-requested tariff increases from Nersa for the MYPD3 period from 2013 to 2018 – it had sought 16%, but was granted 8%.

However, the new TDP also took account of delays associated with securing land, servitudes and environmental approvals for transmission-line and substation projects.

The rephrased plan still envisaged the building of 13 396 km of new transmission lines and the introduction of 81 385 MVA of additional transformation capacity by 2024. But over 8 100 km of new lines and 51 895 MVA of transformer capacity would now only be rolled out after 2020.

Ntsokolo said that plan was focused on ensuring that the network met minimum reliability criteria, while being robust enough to ensure the connection of new generation capacity being developed by both Eskom and IPPs.

He also said the utility was looking for opportunities to “smooth” the awarding of contracts, as it was sensitive to the fact that a “stop-start” approach was disruptive to suppliers and contractors.

Meanwhile, GM grid planning Mbulelo Kibido confirmed that it was becoming increasingly difficult and expensive to integrate IPPs, with the easy-to-connect projects having been selected during the first two bid windows under the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP).

Eskom had connected a total of 32 bid window one and two projects with a combined capacity of over 1 600 MW. However, it was concerned about finding a viable financial model to deal with the connection costs of projects arising from bid window three onwards.

The financial close for the third bid window had been delayed largely as a result of connection issues, but the DoE was still hoping that the preferred bidders would be in a position to close before the end of November.

The connection concerns were not confined to the REIPPPP programme with the DoE planning to issue tenders soon for baseload coal, gas and cogeneration IPP programmes. But there was particular concern about connection capacity in the Northern Cape, where many of the current and future REIPPPP projects were located.

Senior manager: infrastructure investment Leslie Naidoo indicated that a budget of higher than R163-billion would probably be required to deal with the integration of new IPPs.

However, he stressed that the figure was based on the best available information as to where future projects could arise and that the figure would be revised as greater certainty emerged.