South Africa plans to boost coal and nuclear


February 26, 2016

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It is almost two years since the African National Congress won its fifth successive election victory in South Africa, but a solution to the nation’s energy crisis is still proving elusive.

That should be no surprise. The country has experienced many years of blackouts due to historic underinvestment in energy production and transmission. This is an issue that the government and state-backed utility Eskom have been aware of since the late 1990s, but any attempt at a lasting solution has been scuppered by Eskom mismanagement.

And let’s not forget that Eskom is responsible for 95% of South Africa’s electricity supply. If it cannot manage that effectively then anyone connected to the country’s grid suffers.

The one bright spot in the country’s energy policy over the last couple of years has been the rollout of renewable energy, including wind and solar. The government launched the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) in 2011, and in five auction rounds so far it has tendered over 6GW of new renewables capacity. This has taken wind capacity from 10MW at the end of 2013 to over 1GW now.

It has also brought serious investors into the country.

Mainstream Renewable Power has completed more than 850MW of wind and solar projects since the start of REIPPPP, and is now working on 360MW more in three wind farms, including the 80MW Noupoort scheme (see news, above). Meanwhile, in the fourth round, Enel Green Power won the right to develop four wind farms totalling 419MW; and Denham Capital portfolio firm BioTherm won the right to build three wind farms totalling 232MW.

The reverse auctions in REIPPPP are not just popular with investors in new markets. They have also helped the government to drive down the costs of energy from renewables; and the local content rules have stipulated that more than 40% of parts in the wind farms have to come from South African firms, which is helping to support manufacturers.

The success of the REIPPPP has been a boon for plenty of firms — but a key statement in South Africa’s budget on Wednesday suggest things are about to get harder for wind investors.

Finance minister Pravin Gordham announced that the renewables tendering programme would be extended to include small coal and gas projects. We have not seen any details yet, but it does suggest that renewable energy companies will be expected to bid head-to-head with heavily-subsidised rivals in the fossil fuels sector.

If the government does not stipulate a certain amount of wind to be tendered in each round then it is likely to mean that fossil fuels eat into new wind capacity, and the growth of wind in Africa suffers.

This also suggests that the government is reining in efforts to diversify its economy away from coal. We would have thought the 90% of South African energy that currently comes from coal-fired power stations is enough, but apparently not.

And the government has also been looking to include nuclear in the REIPPPP too, but any moves to do this are currently on hold because the Treasury sees the costs are too high. The fact it is even on the agenda should be a cause for concern.

All of these sources can play a part in an energy mix that helps South Africa to address its long-standing problems — but we hope that growth in wind does not stall as a result.

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