New renewable energy deals point to a fundamental shift in South Africa’s energy investment priorities
The government of new South African president Cyril Ramaphosa is wasting little time in redefining the country’s approach to the energy sector, pushing ahead with an independent power project (IPP) programme for the renewables sector and signalling greater efforts to mobilise gas-fired power projects. A last-minute court challenge from a union is unlikely to slow progress.
Energy minister Jeff Radebe said in early March that state-owned utility Eskom would sign agreements for 27 Renewable Energy Independent Power Producer Projects (REIPPPs). The move is an effort to reboot the country’s renewables programme, which is still in its infancy, following two years of delays under former president Jacob Zuma, who was replaced by Ramaphosa in February.
These 27 projects are expected to add 2.3 gigawatts (GW) of capacity to the grid and the REIPPP programme as whole is intended to boost capacity as much as 30GW over coming years. Some 55 REIPPP accords have already been signed, but only around 20 are fully operational. These have power capacity of some 3 gigawatts of power, including wind, photovoltaic solar, concentrated solar and hydro projects, according to the South African Wind Energy Association.
Radebe has also played up prospects for gas projects, which have played a minimal role in energy provision thus far. No fresh gas projects have been announced, but the minister said in a statement on the REIPPP agreements that he would lead efforts to develop a gas market, in collaboration with neighbouring countries in eastern and southern Africa.
Radebe said he had asked the government’s IPP office to “take a lead in facilitating these initiatives, as matter of urgency, to ensure that South Africa speaks with one voice and prevent the confusion in the market and the region”.
Statement of intent
A couple of gigawatts of new renewable power capacity may look like small beer for a country seeking to wean itself off a heavy dependence on coal, in order to meet its emissions reductions commitments under the 2015 Paris climate change agreement. Coal-fired plants account for more than 90% of South Africa’s generating capacity. Coal capacity totalled around 39 GW in 2016 and may grow by another 6GW or so by 2025, even with new sustainable energy policies in place, according to International Energy Agency data.
But the speed with which the Ramaphosa government has announced the latest phase of the REIPPP programme is, at the least, a statement of intent, aimed at reassuring investors that the country is committed to diversifying its energy supply and to improve perceptions of the energy sector as a more fruitful home for investment than has been the case in recent years.
Former president Jacob Zuma had courted controversy through his support for a nuclear power programme, which could have added almost 10-gigawatts of capacity to South Africa’s over-stretched grid, but which was regarded by many, including Ramaphosa, as being too expensive-potentially costing up to $100bn. Negotiations with foreign nuclear firms were also viewed as being opaque.
While the nuclear programme is not officially dead, its pace is certainly likely to slow, following Zuma’s ousting as leader of the ruling African National Congress and then president.
Radebe has been eager to point out the potential economic benefits of the renewables programme, claiming it would bring in 56bn Rand ($4.75bn) of investment over the next three years, support economic growth and create 61,600 full time jobs. He needs to accentuate the positives for the economy to win the trust of a country where poverty is still widespread, unemployment is running above 25% and politicians of nearly any hue are widely mistrusted.
The difficulties have been highlighted by a court challenge to the signing of the new REIPPP agreements by the National Union of Metalworkers (Numsa) and pro-Zuma lobbying group Transform RSA on the eve of the planned signing on March 13. They claimed the deals would lead to job losses in the coal sector. Numsa also argues the switch to renewables would be too expensive.
While the High Court in Pretoria agreed to hold a hearing on the issue on March 27, it did not grant an interdict that would have halted the signing. However, Radebe said he would postpone the signing anyway until shortly after the hearing, “when the matter is finally disposed of in court”. He said he was doing so “in the spirit of constitutionalism and the rule of law”.
Travis Hough, business unit leader, energy and environment at consultancy Frost and Sullivan, said he believed the court’s failure to grant an interdict affirmed his belief that the action would not have any effect on the signing of the REIPP agreements. He also noted that the falling cost of wind and solar power, plus the other economic and environmental benefits of the renewables programme, made Numsa’s arguments difficult to stack up.