SONA offers opportunity to provide policy certainty in the renewable energy sector amid Eskom crisis
To realise its full potential and deliver real value to the South African economy, the renewable energy sector needs policy certainty – sufficient to regain investor confidence. By Brenda Martin
When President Cyril Ramaphosa is called to the podium to deliver his second State of the Nation Address (SONA) in Parliament on Thursday, two major issues will be uppermost in the SA energy sector: The future of independent renewable energy power producers and that of Eskom, the troubled state-owned utility which supplies more than 90% of the nation’s power.
Ramaphosa’s SONA provides him with the perfect opportunity to provide much-needed policy certainty in the sector and to clarify his vision for renewables in terms of energy security and boosting SA’s struggling economy, which continues to shed jobs.
Energy security is, of course, key to the country’s economic health, so how does government plan to attain that? According to the current draft update of the Integrated Resource Plan (IRP), the government’s long-term energy plan, there is no need for any new nuclear power to be added to the grid. And the plan envisages an overall reduction in coal-generated energy by 2030, with an energy mix consisting of 34 000MW of coal, representing 46% of installed capacity; 11 930MW of gas, or 16% of installed capacity; 11 442MW of wind, or 15% of installed capacity; 7 958MW of photovoltaic (PV, or solar); and 4 696MW of hydropower, or 6% of installed capacity.
The plan suggests that government has somewhat embraced renewables, which have gained traction in other parts of the world as countries recognise this economically sound means to combat climate change. However, the same cannot be said of Eskom, which holds a monopoly over power generation and the transmission of electricity, as its primary business model remains dependent on ongoing and growing coal fired power sales. It is therefore unlikely that Eskom will, in the short term, see the value of shifting to renewables as it struggles to service its debt burden of over R400bn. However, many utilities across Europe and America have adjusted their business models recognising that global investment in coal is declining.
Over the years, the renewable energy sector has demonstrated that it can be a key jobs driver and contributor to SA’s energy security both in South Africa and internationally.
The introduction in 2011 of the Renewable Independent Power Producer Procurement Programme (REI4P), a competitive tender process that was designed to facilitate private sector investment into grid-connected renewable energy (RE) generation in South Africa, was designed to go beyond the procurement of energy to also contribute to broader national development objectives such as job- creation, social upliftment, and increasing opportunities for economic ownership. And it has delivered on these expectations.
The renewable energy sector has to date invested close to R202bn (24% of which is foreign direct investment) in the South African economy. It has contributed 26 840 GWh. Perhaps more significantly, as SA battles an unemployment crisis which is hovering around 27% the renewable energy sector has created about 36 500 jobs, and has the potential to create more. South Africans own, on average, 48% equity in all Independent Power Producers while black South Africans own on average 31% of project equity.
Given this strong performance from renewables, the IRP2018 draft update does not go far enough to optimise their potential – specifically with regards to job creation and GDP growth.
The Council for Scientific and Industrial Research (CSIR) has modelled that rolling out the IRP2018 draft plan will result in stop-start procurement, with linked stop-start job-creation in the renewable sector and lower GDP. By contrast, adopting a bolder approach that smooths out the procurement allocation and raises annual procurement allocations of renewables to 2030 would boost both job creation and GDP.
Wind energy contributes 52% of SA RE power. Taking a closer look at wind energy investments, the CSIR scenarios illustrate, among other things, that over 70 000 jobs (from construction, operations and maintenance) can be realised through smoothed allocation of 1.5 GW of wind per annum between the years 2021 and 2030.This is in contrast to the IRP2018 draft update scenario which sees no new wind energy construction jobs realised between 2022 and 2024, and fewer jobs overall, realised by 2030.
The total GDP impact by the wind industry is illustrated and confirms the potential for a consistent annual contribution of around R20bn between 2021 and 2030. That is approximately R200bn in total. This in contrast to the IRP2018 draft update scenario which sees no new wind energy GDP impacts between 2022 and 2024, and extremely low contributions in 2025. That is closer to R100bn in total.
The broader renewable energy sector is hoping that the president will take heed of these numbers and the fact that the industry has already made a significant contribution to the economy, despite the policy uncertainty created by stop-start procurement in previous years. It has proven its capacity to deliver built programmes on time and within budget, and that it has the capacity to take on upfront risk and debt on its own and then rely on power purchase agreements over a twenty-year life span.
In fact, the significant risk that the industry has taken on in recent years confirms the confidence it has in SA’s future.
It is hoped that the president will share this confidence and support the industry by finalising the IRP Update in the first quarter of this year. To realise its full potential, the sector requires, as an absolute minimum, that procurement for the next round of renewables is announced by mid-2019. If this happens, the Industry can contribute to addressing security of supply within two years and create jobs in the process, thus addressing two immediate short-term needs.
Brenda Martin is the CEO of SAWEA, which represents the interests of its members who are invested in the South African wind power value chain.