How can South Africa grow total wind capacity from 1GW now to 30GW by 2030?
That is the main question that those at the South African Wind Energy Association (SAWEA) and Global Wind Energy Council’s WindABA conference in Cape Town next week will be seeking to answer. And, according to new research, such an ambitious goal should be within reach. Wind and solar plants can be built in South Africa at nearly half the cost of new coal, a report by the Centre for Scientific & Industrial Research has shown this month.
The report, which analyses the costs of different forms of new power generation in South Africa, showed that solar and wind are on par on with each other – and are over 40% cheaper than new base load coal plants. Solar and wind are at 0.62 rand/kWh ($0.04/kWh) with coal at 1.03 rand/kWh ($0.07/kWh).
This shows the great potential for South Africa to take advantage of its naturally sunny and windy conditions to address its shortage of power. Indeed, the country is in need of new capacity to satisfy the demands of its growing population and economy.
Such favourable conditions should help attract more investors to South Africa. The country has attracted renewable energy investors, both local and overseas, because of its Renewable Energy Independent Power Producer Procurement Program (REIPPPP). The REIPPPP has encouraged investment by offering developers power purchase deals with state-owned utility Eskom.
However, that is where the picture turns less rosy.
South Africa still needs to fight against domestic problems that could put hurdles in the way of the achievement of its ambitious wind energy target – and the most high-profile at present is Eskom.
Last week, SAWEA lodged an official complaint with the National Energy Regular of South Africa as it argues that state-owned utility Eskom is failing to comply with laws in the country’s Electricity Regulation Act because it is refusing to sign any further power purchase agreements with renewable energy producers.
According to SAWEA, Eskom is not entering into PPAs with preferred bidders, chosen by the government under the REIPPPP, in order to favour its own investment in new power plants.
Eskom has responded to the accusations by saying that it only refused to sign one wind deal, and that was because it was very expensive and would have cost the company around $4bn over the next 20 years. Eskom spokesman Khulu Phasiwe said the firm would keep signing wind deals as it was “government policy”.
Even so, SAWEA’s accusation does raise a concern for both local and overseas wind investors. If Eskom proves reluctant to sign other wind PPAs, it would undermine those schemes and make it very difficult for them to secure project finance.
And, if NERSA finds that Eskom is in the wrong, SAWEA has requested to NERSA to impose the maximum penalty of 10% of Eskom’s daily turnover for each day that it delays the REIPPPP programme. We can only await the regulator’s decision.
But, either way, there is a risk for investors here.
Either Eskom is allowed to continue as it has been doing or it is sanctioned, but there is no guarantee that this would lead to major change in its attitude towards wind or other renewables. This could very easily harm wind investors’ appetite in South Africa and dissuade them from getting involved. If Eskom has final say on whether it can enter a PPA then this is a risk for investors.
Ultimately, if South Africa is to achieve the 30GW target that all those gathering in Cape Town are looking for, then it will be vital to turn Eskom into a supportive partner.
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