Eskom chief executive Brian Molefe, in his hallmark bravado style, has thrown into question the effectiveness of renewables as a panacea to our energy requirements as a developing nation, punching holes in the independent power producer (IPP) programme, which has been hailed the world over as a model for private-public partnerships in addressing infrastructure challenges.
To date, the IPPs have attracted in excess of R190 billion of local and international investment funds, owing to Eskom’s guaranteed 20-year offtake agreements and excellent climate change public relations machinery. However, as Molefe was quoted recently, any additional increase in allocation to IPPs would further strain Eskom’s cost base without making a useful contribution to the national grid.
Amid the debate, there are a number of factors we need to take into consideration: first, to protect South Africa’s reputation as a desired and safe destination for international investors’ funds; second, to stick to our commitments in the National Development Plan (NDP) of transitioning to an environmentally sustainable, climate change resilient and low-carbon economy by 2030; and third, fulfilling our international commitments in terms of lowering emissions. In terms of the COP21 commitments, South Africa has pledged to become a “low-carbon” economy and the energy generation sector, which contributes 48 percent of South Africa’s emissions, coupled with extensive natural coal resources, is both the most important and most challenging to transform.
The NDP further commits South Africa to explore other opportunities for diversifying its energy mix away from fossil fuels through partnership with neighbouring countries to develop hydropower resources, initially in Mozambique, Zambia and the Democratic Republic of Congo.
Investors in the renewable energy space should take comfort in the fact the policy position of the government, in terms of developing a green economy, has not changed and this has been reinforced by Finance Minister Pravin Gordhan and Energy Minister Tina Joemat-Pettersson committing the government to augmenting the work of renewables over the past four years.
Developing
Given the fact South Africa is still a developing nation with an insatiable appetite for energy, owing to its industrialisation efforts, others will argue that, it is not fair to compare us to more developed Western economies such as Germany, which, on one day this year managed to cover 100 percent of its energy needs from solar and wind power.
Importantly, therein lies the opportunity. In South Africa, renewables are not only a climate change mitigation strategy, but also an industrialisation opportunity and potential game changer in the economy, which is currently experiencing significant structural constraints.
The SA Reserve Bank recently predicted a 0 percent gross domestic product growth for this year. And there is no end in sight for South Africa’s economic woes as growth is still forecast to be sluggish for 2017 and 2018. The renewable sector has already shown glimmers of hope. The Energy Department recently said the 43 IPPs already awarded had attracted close to R200bn in investments, of which 25 percent was in the form of foreign inflows; more than 2 000 megawatts (MW) of green energy had been generated, mostly in remote areas of the country; and almost 25 000 sustainable jobs had been created.
It is clear to us in the investment community that renewables have a huge role to play in our energy mix requirements in our transition to a more sustainable and low-carbon economy. We believe market forces will lead to better energy prices, for example, tariffs for solar, or photovoltaic (PV), have more than halved from the average of 275c per kilowatt-hour (kWh) on the first bid round to 78c/kWh recently. A similar trend is being observed in other technologies, thus making the major challenge for renewables their availability during peak demand.
Diversify
We believe improved storage technologies will be a game-changer for renewables, as South Africa continues to diversify its energy mix towards a targeted allocation of 13 225MW of new electricity capacity derived from renewables in terms of determinations made to date by the Minister of Energy.
Thus in seeking the right answers to the genuine concerns raised by Eskom, we should not negate nor undo the successes of the IPP programme to date, as South Africa requires clarity of policies in our endeavour to stimulate economic growth and much needed investments in our economy.
* John Oliphant is the executive chairman of the Third Way Investment Group with interests in renewable energy, water infrastructure projects and asset management.
* The views expressed here do not necessarily reflect those of Independent Media.
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