New White Paper assesses South Africa’s solar and wind potential

A recently produced NewEnergyUpdate South Africa White Paper has found that, despite there being some significant barriers to market, South Africa’s wind and solar markets, “could boom.” Given the uncertainty over the government’s Renewable Energy Independent Power Procurement Programme (REIPPP) there is the potential for new markets and opportunities to be found in South Africa’s commercial and industrial (C&I) sector who are likely to increasingly have a need for solar and wind generated energy sources. However, some significant challenges are currently in place that will have to be addressed.

Regulatory framework

South Africa’s framework currently makes it very difficult for independent power producers (IPPs) to sell electricity unless they have been granted a license by the National Energy Regulator of South Africa (NERSA). At present, there are only around 10 private power-purchase agreements (PPAs) in place but if regulation was relaxed or the license became easier to obtain many more PPAs would develop and build projects. In addition, conflicting messages have been issued by Eskom over the future of REIPPP.

Market challenges

Currently private PPAs face many market challenges. Existing agreements between municipalities and the energy purchased by their residents are likely to change if an increased number of private PPAs are allowed. Wealthier citizens could be in a position to generate their own power or purchase it from a PPA thereby reducing the revenues collected by the municipalities who use the sale of electricity to subsidise the supply of power to poorer sections of the population. Distribution charges, for consumers wishing to make use of Eskom’s grid network and consume energy away from the point of production, are also subject to change and could go up in the future. Finally, a lack of a secondary market also makes it difficult for projects to attract backers and funding.

Business models

The main objective of C&I renewable energy projects is to “offset grid electricity fees” but “even then, the regulatory hurdles in the South African market require developers to be imaginative when it comes to business models.” The White Paper proposes three business model options that private PPAs could follow. Firstly, they could follow the official process for private PPA approval, a process that has not been all that successful to date. Secondly, they could enter into leasing agreements where a developer pays for a system to be installed on a customer’s property, who then pays regular lease payments to cover the cost of electricity, maintenance charges and guarantees. The final option is to ignore the official approval process altogether. This is already a common practice amongst small-scale project developers and it has been estimated that as many as 50% of C&I installations across South Africa do not have approval.

During 2016 it is believed that up to 100 MW of small-scale power plants were installed across South Africa representing a 100% increase on the 2015 amount. Although the growth rate might be considered impressive the market remains small and is expected to continue growing, and would do so more rapidly, if the challenges outlined above are addressed by the government and other stakeholders. One estimate claims that as much as 15 GW of capacity could be installed by private PPAs across South Africa within the next five to ten years. Many large industrial sized businesses are likely to develop their own projects while “the market for residential-scale installations could continue growing for longer.”

In order to help promote and grow the market further, the Africa New Energy 2017 Conference and Exhibition, has been organised and will take place in Cape Town on 7-8 March 2017. Solar and wind power company executives, financiers, EPCs, regulators and local suppliers, who will all be in attendance at the conference, will network with one another and “strive to unlock new development potential in South Africa and beyond.”