SAnews.gov.za (Tshwane)

15 November 2012

South Africa: Nation's Renewable Energy Future Looks Bright

Pretoria — November 5 will always occupy a place of special prominence in the history of South Africa's quest to secure the stability of energy supply in the country, especially as it forges ahead with its massive infrastructure build programme.

The day marked the signing of contracts between government and independent power producers (IPPs), which will see the addition of 1 400 megawatts to the country's power grid -- a move that has been hailed as 'historic' for the renewable energy sector.

"This is a very proud day for us. It's a great day for South Africa. It's easily the most important day in the renewable energy sector globally this year," said Mainstream Renewable Power head of procurement and project delivery, Barry Lynch.

The global renewable energy developer, Mainstream, together with its partners, was in December 2011 named as part of the preferred bidders in Window 1 of the Energy Department's Renewable Energy Independent Power Producer Programme (REIPPP).

The total 28 approved bidders, announced during COP17, signed implementation agreements and direct agreements with the department, with power utility Eskom signing power purchase agreements with the bidders.

The majority of the companies that won the bids are foreign companies, with 67 South African companies having formed partnerships with these companies.

Mainstream's partners include Thebe Investment Corporation as well as local engineering firms Enzani Technologies and Usizo Engineering, who will have a shareholding in the projects.

The consortium was awarded three projects, namely: the Jeffreys Bay 138 megawatts wind farm located in the Eastern Cape; the De Aar 50 megawatts solar PV farm in Emthanjeni, Northern Cape as well as the Droogfontein 50 megawatts solar PV farm near Kimberly, also in the Northern Cape.

Energy Minister Dipuo Peters described the signing ceremony as an auspicious day for the South African government, the African continent as well as the energy sector.

Speaking to SAnews, Lynch echoed Peters's sentiments, saying the programme, introduced in August 2011, was impressive.

"It's been a very impressive programme run by the government of South Africa and the department. It has been excellent from the original bid rules... to the way they've been able to clarify things through the process and [up until now]. It's an amazing achievement and I take my hat off to them," said Lynch.

South Africa will gain R47 billion worth of investment in renewable power generation through Window 1. Peters said the foreign direct investment would have a positive impact on the county's economy.

"I am looking forward to the sod turnings," she said of the wind and solar PV projects that are expected to be integrated into the country's national energy grid during 2014.

"They have worked very hard and the results are the investment. It speaks for itself; that level of investment in South Africa is very important," said Lynch.

The renewable energy sector is expected to contribute to job creation and to the development of rural areas where plants will be built. Government expects the bidders to contribute to the development of communities from where they will be operating.

According to the Integrated Resource Plan (IRP2010) - which is a 20-year projection on electricity supply and demand - about 42% of electricity generated in South Africa is required to come from renewable resources.

The plan places specific emphasis on broadening electricity supply technologies to include gas, imports, nuclear, biomass, renewables (wind, solar and hydro), in response to both the country's future electricity needs as well as to reduce its CO2 emissions.

Under the country's 18-project Infrastructure Plan, Strategic Integrated Project (SIP) 8 focuses on Green Energy in support of sustainable green energy initiatives on a national scale through a diverse range of clean energy options as envisioned in the IRP2010.

Kelley Starke-Dow, group chief executive officer of Kensani Capital - one of the local companies who have formed partnerships with foreign companies - said the programme would assist greatly in the development of entrepreneurs.

The black advisory business (that does debt and equity, capital raising and projects infrastructure) is involved in two projects - the Lesedi Power Company and Letsatsi Power Company.

A presentation prepared for a clean power conference held in September said the projects total 128 megawatts, with a total funding requirement in excess of R5 billion.

"We will create entrepreneurs from the areas in which projects take place. That's what we're going to do going forward because opportunities for entrepreneurship in the communities are massive," she said.

Starke-Dow said the minister's call for bidders to involve women in the projects as a means of empowerment was imperative.

"When you benefit a woman you benefit a child," she said.

South Africa had also encountered criticism from those who were of the view that the country was not committed to cleaner forms of energy and that even it were, it would not be able to deliver on its commitment.

The country had also received a downgrade from two rating agencies, given the current global situation.

"In recent weeks and months, people have been looking at South Africa from an economic perspective and this is just one huge signal that South Africa is open for business. It's simply the first round of investment with lots more to come," said Lynch.

Lynch said he was disappointed to see the downgrade but this didn't dampen the mood for the consortium.

"Our investment partners and the banks were happy to proceed. It didn't change the landscape for us and this is still a very good place to do business and we intend to do so for the next 20 years," he said.

The bidding process had been a challenge, which Lynch described as a "complex" process with difficult rules.

"The rules needed to be complex to ensure we comply with all the various requirements that South Africa needs to ensure the industry brings local production, local ownership and local investment. So we're okay with tough rules.

"There were some movements of dates but that's completely understandable given the scale of the investment," he said, adding that the road to financial close had been quick -- a commendable achievement for the government.

South Africa, said Lynch, was a great place to do business.

"It's a great country to do business. I think what's been very impressive is the professionalism of the financial and the legal industry here, the various advisors and the government. It's an efficient place to do business.

"People can sometimes think that when you're in a new market for renewables, it's going to be difficult for everyone to understand it but that has not been the case. It has been top class," explained Lynch.

Eskom managing director of the system operations and planning division, Kannan Lakmeeharan, said the parastatal looked forward to connecting new power producers to the grid and buying power from them.

The future of electricity provision, Lakmeeharan said, would be one of a hybrid nature with Eskom still retaining a significant position, with a vibrant private sector developing too.

"The industry will be driven by the need for security of supply and climate change concerns, energy efficiency and technological advancements. It will look very different in 2030 to the way it looks now."

Nersa also welcomed the move to connect IPPs to the country's power grid, saying that the introduction of renewable energy IPPs would ensure a sustainable energy mix.

"The signing of the agreements is an indication of South Africa's commitment and readiness for the introduction of IPPs. Future electricity tariffs will be in line with the electricity pricing policy for tariffs to be cost reflective," it said.

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