Renewable energy: leading infrastructure growth in South Africa

The South African Renewable Energy Independent Power Producers Programme (REIPPP) has received much attention from power sector role players and investors globally. The initial phase of REIPPP sought to establish about 3 725MW of renewable generation capacity to the South African grid, made up predominantly of wind and photovoltaic solar power.

Concentrating solar power (CSP), in the form of tower and trough technology, had also received a reasonably sizable allocation, with the balance made up in small parts of biomass, biogas, landfill gas, and small hydro. Subsequent to this, a second determination of 3 200MW was announced; however, bidding for this second determination has not yet begun.

The programme has been conducted in the context of a power deficit in South Africa, the emergence from a global financial crisis, European revisions of feed-in tariffs affecting renewable power feasibility, and South Africa’s status as one of the lowest cost power producers globally. Numerous concerns have been expressed about the programme, including market liquidity (both debt and equity) for renewable investments of more than R100-billion, the price of renewable power in comparison to the long-established coal-fired power base, long-term financial performance of the technology providers, and the socio-economic performance measures required by the programme for local community upliftment and black economic empowerment.

REIPPP has been a success from a process perspective and is expected to be applied to coal and gas‑fired power generation soon. Despite the delays, approximately R47-billion of projects reached financial close in the first round of REIPPP and another R28-billion reached financial close in the second round. The programme structure and process have received critical acclaim in comparison to other such programmes run globally, and the third round of bidding is currently being heavily contested. In terms of contributing to South Africa’s gross fixed capital formation, the first round of the planned projects accounted for 12.7% and the second round for 7.1% of private sector fixed investment. In a country where electricity supply places a ceiling of approximately 3.5% on GDP growth, this will make a positive contribution to raise the potential growth rate of the economy. 

The question, however, is whether continued renewable investments are sustainable. At 3 725MW, about 10% of installed capacity has been added to the South African generation mix — roughly the amount required to fill the reserve margin gap previously considered inhibitive. This power, however, is not dispatchable: it depends on sunshine or wind blowing and therefore cannot be turned on or off in accordance with consumption requirements. Also, a significant proportion of the new capacity will only be available during the day, while South Africa’s peak demand times are in the morning and evening. In the absence of the long-anticipated and ailing Medupi and Kusile power plants coming online, an argument can be made for further considered investments into renewables. Given the recent commencement of construction of the 1 000MW DoE peaking power plants, should Medupi and/or Kusile come into operation successfully, the feasibility of renewables in the absence of a structural increase in economic growth would need to be reconsidered.

REIPPP has demonstrated the ability of South Africa to engage in large infrastructure programmes in the context of a sluggish global economy, despite challenges and setbacks in other renewable energy programmes globally. It has served its purpose of increasing South Africa’s reserve margin by adding ‘green’ power to a very dirty generation pool, while supporting black economic empowerment and empowering local communities.

More importantly, however, it has provided a template for infrastructure investment programmes in other sectors in the country. While the IPP programme necessarily needs to continue, it cannot do so in a vacuum, and requires economic growth to materialise for continued investments to be justified. This in turn requires strategic infrastructure initiatives in targeted growth sectors of the economy and the resultant GDP growth. Once this occurs, another round of thermal and renewable energy investments will be justified.


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