In October the South African government announced a R150 billion, 5 000-MW solar park to be built in the Northern Cape. Analysts have questioned why this project did not appear in the Integrated Resource Plan (IRP 2010) currently under development, and according to which all new generation capacity must be specified in order to be licensed.
Is the new park just another “announced target”, meant as a sop to renewable energy proponents, or will it lead to action and real investments in renewable energy power supply? The announced cost for the solar park of R150 billion is far lower than both the official costs of solar used in the IRP and international norms, and since the announcement investors have made no firm statements of interest. The government has been announcing renewable energy targets for some time, but with little happening. What are the real prospects for renewable energy in South Africa, and are these about to be realised?
In 2008 worldwide investments in renewable energy electricity generation, excluding large hydro-electric power projects, exceeded investments in conventional generation (coal, gas and nuclear) for the first time. After more than a century of dependence on fossil fuel, the world has entered a new era. Why isn’t South Africa keeping up?
Worldwide over the past decade, renewable energy has moved from a marginal energy source into the mainstream. The transition has been very rapid, and the evidence is that the rate is increasing. However, even though renewable energy offers significant benefits, world electricity sectors have been structured to favour conventional sources: coal, gas and nuclear. The industries promoting these sources have become very large and influential. These industries typically involve very large, technologically complex facilities, and are often viewed as strategic - that is, these facilities’ owners and managers often get close to government centres of influence and control.
Thus, large renewable energy programmes worldwide have not merely emerged from enabling conditions: they have had to take on powerful and influential incumbents, and have faced deliberate, strategy-driven, dedicated regulatory frameworks. All of this, plus interventions associated with financial incentives and research and development (R&D), has exacted significant cost and effort from the successful countries.
The Status of Renewable Energy in South Africa
South Africa recognised the beginning of the rapid global transition towards renewable energy, and published a renewable energy policy in 2003. The Renewable Energy White Paper (REWP 2003), developed by the Department of Minerals and Energy, set a target for renewable energy contribution, over and above the existing renewable energy contribution. The REWP 2003 also committed the country to developing a practical implementation strategy on renewable energy.
However, the level of implementation to date has been very low. The implementation plan has not yet been developed - it simply has never been done, and no explanation has been given. A Renewable Energy Summit held in March 2009 resolved that the mid-term review specified in the REWP 2003 be undertaken by the end of the 2009/2010 financial year. A World Bank-funded contract for the review was awarded in February 2010, and the South African Department of Energy (DoE) announced that the Renewable Energy Policy Review would be released by the end of the first quarter of 2011.
A number of recent legislative, regulatory and planning process developments have picked up speed with the publication of the Renewable Energy Feed-In Tariff (REFIT) regulatory guidelines, but no substantial progress has been made in renewable energy implementation. Less than 10% of the targeted new renewable energy capacity has been achieved to date. This can largely be ascribed to the absence of the implementation plan required in the REWP 2003, and very low levels of capacity - and, consequently, of activity - for renewable energy at the DoE.
Renewable Energy Potential in South Africa
South African renewable energy resources have the potential to make a large and vital contribution to the South African energy sector, society and the economy.
Electricity price is a key variable in determining the cost-competitiveness of renewable energy technologies. Price rulings issued by the South African National Energy Regulator (NERSA) from 2008/2009 to 2012/2013 have effectively increased the average electricity price by 250% in real terms - from18 cents/kWh in 2007 to 66 cents in 2013. If Eskom representations to Parliament in 2010 are successful, the price will reach 103 cents/kWh by 2015.
Grid-Connected Wind-Powered Electricity Generation
There are many renewable energy resources, and many technologies for utilising these resources. Each of these has its own particular characteristics and needs for implementation.
Wind farms offer the largest immediate potential for input into the national electricity grid, and for significantly alleviating South Africa’s power supply shortage. The technology is mature, and is mainstreamed globally.
The Energy Research Centre at the University of Cape Town has employed the Markal model, using similar costs and assumptions as those in the current Integrated Resource Plan 2010 (IRP 2010), to investigate potential electricity generation from a wind programme of some 10 GW. This model predicts a 20% increase in average electricity generation cost over a least-cost coal generation system by 2020. If a US$30/tonne carbon tax were imposed, the increase would be only 5%.
This research suggests that a medium-sized wind-generation programme over the next ten years would be affordable and offer considerable benefits.
Biomass Co-Generation
Biomass co-generation offers the next biggest potential to wind. This technology involves burning biomass, such as agricultural and forestry residues, and using the heat produced to simultaneously generate electricity and supply heat to industrial processes. Some 2.7 GW could be implemented over the next ten years at competitive costs. A combination of wind and biomass co-generation has been researched, using the Markal model, and found to be robust within the operating parameters of the South African electricity system.
Concentrated Solar Power
Concentrated solar power (CSP) is a relatively mature technology, but still quite costly. Although full-scale plants have been built, the total global capacity remains low. By September 2009, there was only 395 MW in service worldwide. However, 9 GW of capacity is planned, and licenses for large plants have recently been granted in California.
Typically, as larger quantities of a technology are deployed, costs decrease. This is called ‘technology learning’, and the rate at which it takes place is the technology learning curve. The curve starts off steep, with costs decreasing rapidly when only small amounts of the technology have been deployed. The rate of decrease becomes more gradual when large amounts have been deployed.
It is conceivable that CSP will have advanced down the learning curve sufficiently for multiple 100-MW-scale installations to be implemented by the end of this decade, and for these to become cost competitive with wind and conventional power generation. Given the excellent South African solar radiation resource, CSP could provide multi-GW capacity in the 2020s, possibly at costs competitive with those of coal. CSP’s potential capacity could approximate the tens of gigawatts currently generated by coal, which now supplies 90% of South African electricity.
Eskom has announced that it will construct a 100-MW CSP plant in Upington, probably before 2016. This Northern Cape location, with its excellent solar radiation levels and huge areas of suitable land, could contribute a significant proportion of South African electricity demand.
Solar Photo-Voltaic
Solar photo-voltaic (PV) electricity generation involves turning solar radiation directly into electricity in a solar panel. It is a mature technology, but much more costly than alternatives for large-scale electricity production.
As with CSP, solar PV is also still on a relatively steep part of the technology learning curve. However, costs have decreased significantly over past years, and are expected to continue to decline. In the longer term, this means that solar PV could eventually become cost competitive for large-scale electricity production.
Biogas Digesters
Biogas digesters turn waste, such as kitchen scraps and cow dung, into methane gas that can be used for cooking and heating. Tens of millions of households in Asia use them, but they have not been deployed on a large scale in Africa. There is estimated potential for at least 300 000 households, mainly rural, to benefit from biogas digesters in South Africa . Biogas digesters can also process organic waste streams at a commercial scale, producing methane for energy. This application has become increasingly common worldwide.
Solar Water Heating
Solar water heaters use solar radiation to heat water directly. They should not be confused with solar photo-voltaic (PV) panels, which actually produce electricity. Solar water heating is a mature technology: heaters are readily available commercially, and have been mass installed in other countries . For a typical household, the overall cost of solar water heating is less than for the electricity required to heat the same amount of water at the same levels of service.
Solar water heaters could effectively provide hot water for households that currently use paraffin stoves and coal and wood fires to heat water. This would result in significant social and poverty-alleviation benefits, through lower fuel costs. In addition, there would be substantial environmental and health and safety benefits.
Solar water heaters could provide an equal level of service to the 4.2 million households that currently use electric geysers in South Africa. In addition to the savings to consumers already mentioned, the country would avoid having to invest in significant amounts of additional power supply. The use of solar water heaters would further prevent the burning of millions of tonnes of coal currently powering conventional electric geysers, thus doing away with the associated environmental pollution and mining impacts.
Government has recognised this, and has launched a number of implementation programmes. These include the 2007 Eskom programme to install one million solar water heaters, and the recently announced DoE programme to roll out another million.
However, by January 2010 only a tiny fraction of these programmes had been implemented. Only around 77 000 solar water-heating units had been installed, replacing fewer than 2% of existing electric geysers. Further, most of these had been installed in the normal course of commercial business, i.e., not under government or Eskom roll-out programmes.
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Box 1: Worldwide, Renewable Energy is Mainstream During each of the past two years, in both the United States and Europe, more renewable energy power capacity was added than conventional (coal, gas, nuclear). Renewables accounted for 60 % of new power capacity in Europe in 2009, and nearly 20 % of annual power production. World wind power additions in 2009 reached a record high of 38 GW. Leading the pack was China, which added 13.8 GW. This represented more than one-third of the world market, up from just a 2% market share in 2004. China is expected to manufacture nearly half of the world’s wind turbines and more than half of the world’s solar panels this year. Currently, that country’s renewable energy sector employs more than a million people. Globally, solar photo-voltaic (PV) additions have reached 7 GW. Manufacturing of solar PV has increased to 11 GW. Concentrated Solar Power (CSP) shows promise and is beginning to take off. The California Energy Commission recently licensed 1 400 MW of CSP, and is contemplating another 2 829 MW of projects by the end of 2010. Fifty-five countries submitted renewable energy targets to the Copenhagen Accord. The European Union has issued a directive requiring the EU to derive 20% of its energy from renewable sources by 2020. The United Kingdom Renewable Energy Strategy estimates that implementation will lead to the creation of half a million new jobs in the UK renewable energy sector, and £100 billion of new investment. Worldwide, more than 30 million households use biogas from household-scale biogas digesters for cooking, lighting and heating. A programme to install some 300 000 plants is being followed in Asia, and a large programme is planned for Africa. About three million households worldwide get power from small solar PV systems. |
Wind Power and Electricity System Reliability
The power from a number of wind generators with a wide geographic spread can be included in an integrated system with a calculated capacity credit (the capacity credit is the amount of conventional capacity that can be displaced by wind generation). A soon-to-be-published study, done in collaboration with the DoE and the German Technical Cooperation Organisation (GTZ), estimates a capacity credit for South Africa of some 21% in summer and 25% in winter. This means that, for example, installing 1,000 MW of wind generation can dispense with the need to install at least 210 MW (21% of 1 000 MW) of conventional power.
This wind power would not replace conventional power on its own. Extra “reserve” generation capacity would need to be installed; but extensive and detailed studies of similar initiatives in Europe and the USA show that this extra capacity would initially not affect overall system costs significantly. These costs would only kick in when wind power contributed more than 10% of gross energy consumption, which a 10GW South African programme would not. Such a programme will easily be absorbed by the system, with significant impact on neither reserve requirements costs nor system reliability.
Moving to Implementation
The current national power generation system consists largely of a few very large generators, just about all owned and operated by Eskom. A wind-power system generating 10 000 MW would comprise hundreds of wind farms with different owners and separate power purchase agreements (PPAs). The investment and revenue flows involved would be on the order of hundreds of billions of rands. Boosting this power by supplementing wind with biomass, CSP, PV, mini-hydro and the many other appropriate technologies, South Africa would transform the existing centralised grid into a fragmented, decentralised infrastructure supported by a plethora of myriad independent power producers (IPPs).
The institutional arrangements necessary for such a transformation are currently not in place. Significant expansion of capacity would be required in order to assess potentially thousands of applications and bids from private interests; to negotiate and manage hundreds of PPAs; and to coordinate operations with hundreds of new IPPs. Institutional roles would need clarification, and the necessary institutional structures and capacity would have to be built. A clear vision and associated actions plans will be required to achieve this.
Policies, Strategies and Plans
A number of processes are underway that directly impact on renewable energy. The most important of these are the Integrated Energy Plan (IEP); the revision of the REWP 2003; the development of the IRP 2010; the Industrial Strategy Plan II (IPAP); the Department of Science and Technology (DST) Energy Grand Challenge; and the DST South African Energy Research, Development and Innovation Strategy. The climate change policy, currently still at the green paper stage, will also have a determining effect on energy choices made in the IRP 2010. This latter process specifies the amount of renewable energy electricity generation capacity to be put into service each year for the next 20 years.
The IEP, which the National Energy Act of 2008 requires to be published annually, should ideally inform the IRP 2010. However, the IEP is still under development, and its delivery date has not been announced. A best-case scenario would see the IRP 2010 informed by the mid-term review of the REWP 2003. As currently projected, however, that review is due only after the IRP 2010 is expected to be complete.
Internationally, appropriately focused research and development have been identified as key to success in renewable energy implementation. South Africa has not yet refocused energy-specific R&D accordingly. The interaction between the DST processes mentioned above and renewable energy policy development and implementation is also not clear.
A 10 000-MW wind programme warrants local manufacture of most of the equipment, the capital cost of which will be more than R160 billion. This local manufacture will stimulate greater benefits than would the installation of conventional technologies, much of which would have to be imported. The IPAP will need to integrate industrial planning with national energy-systems planning to establish local manufacturing. Consideration of such integration and its benefits have not been mentioned in the context of the evolving IRP 2010 .
CSP could also open opportunities for global export, as well as stimulating a large local industry. Again, however, it is not clear whether CSP investment plans are being integrated into the IRP 2010, DST R&D strategies and the IPAP.
Laws and Regulations
The South Africa REFIT guidelines, published in March 2009, specify the compensation rate for renewable energy generators. They also oblige the Renewable Energy Purchasing Agency (REPA) - in this case, Eskom - to purchase power at this price. In short, renewable energy generators who meet NERSA’s specified conditions have the right to be connected to the grid, and to be paid the REFIT rate for the power they feed into it.
In practice, however, REFIT has been unworkable. On January 30, two months after NERSA published its consultation paper, the DoE published conflicting draft regulations. These would establish a bidding system for the procuring of new generation, an approach contradictory to the REFIT. According to the DoE regulations, the system operator (in this case, again, Eskom) would invite bids from IPPs, including renewable-energy generators, for specified quantities of new generation. The draft regulations make no mention of REFIT.
On 5 August, the DoE substantiated the draft regulations in a document titled “Electricity Regulations on New Generation Capacity” - a set of regulations essentially at odds with the REFIT approach. These new regulations defeat NERSA’s initial aim, as indicated in REFIT, to kickstart and stimulate the renewable-energy sector through a simple and streamlined process.
What Needs to Be Done
First, the REFIT guidelines and the “Electricity Regulations on New Generation Capacity” must be harmonised. Essentially, DoE and REFIT should establish regulations orientated to the same end result. Based on this clarified, coherent regulatory structure, appropriate targets for the many different renewable energy technologies must be set. These must reflect the technologies’ significantly different characteristics, and specify the respectively apposite measures required.
Second, the system operator’s central role in the planning, initiating and operating centralised electricity generation must be aligned with Eskom’s institutional configuration, and with its position in and relationship to other sector structures. Eskom is a legacy conventional-energy company, and realistically, as long as the system operator is an integral component of the Eskom structure, only limited progress can be anticipated. The solution to this conflict was identified when the president pledged in his State of the Nation Address that “we will establish an independent system operator, separate from Eskom Holdings”.
However, despite published plans for legislation to establish an independent system operator, there is no evidence of implementation - and ongoing reports suggest that Eskom does not support this latest effort. Yet it is a key executive decision requiring urgent implementation.
Third, the IEP, REWP 2003 and IRP 2010 processes must be logically sequenced. It appears that IRP 2010 cannot reasonably be expected to be delayed further; therefore, it should be made conditional on the strategies reflected in the subsequent REWP 2003 and IEP. Until it can be informed by these processes, the IRP 2010 must not lock South Africa into binding investment commitments relating to the scope and size of renewable energy’s contribution to the national energy mix.
Also, the IRP 2010 modelling approach and its underlying assumptions need revising, so that the various renewable energy technologies’ costs and benefits can be accurately compared to those of conventional technologies.
Fourth, the relevant institutional formulation and implementation configurations must be restructured to reflect the requirements of renewable energy.
The DoE’s traditional orientation and capacity, built up over decades of conventional energy activity, requires revision. Understandably, given South Africa’s legacy, the department has been orientated towards very powerful incumbent conventional energy expertise and interests. To effectively amplify the voice of renewable energy in government agencies thus presents a challenge, which extends to university curricula and R&D expertise and funding.
The DoE must be held accountable for its responsibility to implement policies such as the REWP 2003. Parliament has mechanisms for receiving progress reports on such matters; but although parliamentarians have often questioned the DoE and Eskom, they typically do not probe deeply enough, and to date there has been little follow-up. Consequently, seven years into the ten-year period for achieving the REWP targets, less than 10% of these targets have been achieved.
South Africa has not yet joined the global renewable energy transition. Virtually all moves in this direction have been thwarted by policies lacking follow-up action strategies, contradictory regulations from different government agencies, and a failure to actually commission significant renewable energy production. Unless the challenges are faced now, with clear vision and active leadership, South Africa could miss another decade of the global transition to renewable energy.