+ THE STATE OF PLAY IN RENEWABLE ENERGY IN SOUTH AFRICA Amcham, - - PowerPoint PPT Presentation

+

THE STATE OF PLAY IN RENEWABLE ENERGY IN SOUTH AFRICA

Amcham, Sept 2015 Johan van den Berg CEO, SAWEA

SOUTH AFRICA AT A GLANCE

• About 50 million people
• GDP USD 550 billion 2011
• Growing at 3%+ - JSE 18th globally
• In top 30 economies world-wide
• “Two worlds” – 1st and 3rd – unemployment 20%+
• “Gate” to sub-Saharan Africa
• Historically a country highly efficient at technological innovation

LEGAL SYSTEM

• Constitutional democracy
• Extremely modern and progressive constitution – occasional tension with
• ften conservative and diverse values of large parts of population
• Traditionally very strong and sophisticated, (common law) Roman-

Dutch/English legal system

• Independent Constitutional Court

ENERGY IN SA

• 45,000 MW’s installed
• Traditionally a vertically integrated , parastatal monopoly (Eskom) that did all

generation, transmission and distribution

• Prices regulated through NERSA
• “Minerals-energy complex” plays important role
• Municipalities largely funded through profits in electricity
• SA has highly carbon intensive economy
• Efforts since 1998 to deregulate
• IPP growth very halting
• Upward pressure on tariffs

SUMMARY OF CONTEXT - SOUTH AFRICA

• South Africa is a top 30 global economy with about 45,000 MW installed, and a

very good wind regime

• Policy is favourable to wind power and envisages about 9,000 MW‘s installed by

2030

• Growth in the past years has been rapid
• Localisation, socio-economic development and the advancement of previously

disadvantaged South Africans are factors that are important alongside the cost of energy delivered.

• Successful bids over the three procurement rounds averaged around ZAR 1.14 in

Round 1; ZAR 0.88 Round 2; ZAR 0.74 in Round 3 and about ZAR 0.65 in Round 4

• Average windfarms are large ( > 80 MW)
• Capacity factors on successful bids on P50 are 35% +

RENEWABLE ENERGY – ROCKET LAUNCH AFTER A LONG COUNTDOWN

Date Event Significance 1960 - 1990 South Africa builds a fleet (35,000 MW) of large, coal fired (fossil fuel based) electricity generation plants. These are now all amortised (paid) and only maintenance needs to be paid, making electricity cheap. They are however highly polluting and nearing end of life 1988 Concern about climate change gets momentum Fossil fuels are recognised to endanger human well-being in the long run 1990 IPCC brings out a sobering scientific report Negotiations start towards an international convention on Climate Change 1992 UNFCCC signed South Africa is a signatory and acquires international obligations including the limitation of fossil fuel use and promotion on renewable energy 1995 It becomes clear that new generation capacity is needed to keep track with SA’s increased energy demand – response was slow The pattern of electricity shortfalls is set 1995 IPCC’s second report indicates the climate news is worse than expected General recognition that a binding international convention (the KP) needed to follow UNFCCC 1997 KP signed (enters force in 2003) International community undertakes to take real steps towards addressing climate change 1985 - 2005 Eskom makes good profits and Government as its shareholder pays it out in dividends without keeping a reserve for the new build programme The pattern of Eskom’s increasingly burdened balance sheet is set 1998 Darling National Demonstration Wind Farm starts development and by 2001 gets “demonstration” support from the erstwhile Minister of Energy First tentative steps towards IPP wind energy – however no system in place to make it competitive with fossil fuel energy which in Eskom’s case is much cheaper Dec 1998 White Paper on Energy launched A break from the Eskom monopoly is envisioned with a mixed basket of energy sources and a mixed basket of energy suppliers (including Independent Power Producers)

RENEWABLE ENERGY – ROCKET LAUNCH AFTER A LONG COUNTDOWN (2)

Date Event Significance 1960 - 1990 South Africa builds a fleet (35,000 MW) of large, coal fired (fossil fuel based) electricity generation plants. These are now all amortised (paid) and only maintenance needs to be paid, making electricity cheap. They are however highly polluting and nearing end of life 1988 Concern about climate change gets momentum Fossil fuels are recognised to endanger human well-being in the long run 1990 IPCC brings out a sobering scientific report Negotiations start towards an international convention on Climate Change 1992 UNFCCC signed South Africa is a signatory and acquires international obligations including the limitation of fossil fuel use and promotion on renewable energy 1995 It becomes clear that new generation capacity is needed to keep track with SA’s increased energy demand – response was slow The pattern of electricity shortfalls is set 1995 IPCC’s second report indicates the climate news is worse than expected General recognition that a binding international convention (the KP) needed to follow UNFCCC 1997 KP signed (enters force in 2003) International community undertakes to take real steps towards addressing climate change 1985 - 2005 Eskom makes good profits and Government as its shareholder pays it out in dividends without keeping a reserve for the new build programme The pattern of Eskom’s increasingly burdened balance sheet is set 1998 Darling National Demonstration Wind Farm starts development and by 2001 gets “demonstration” support from the erstwhile Minister of Energy First tentative steps towards IPP wind energy – however no system in place to make it competitive with fossil fuel energy which in Eskom’s case is much cheaper Dec 1998 White Paper on Energy launched A break from the Eskom monopoly is envisioned with a mixed basket of energy sources and a mixed basket of energy suppliers (including Independent Power Producers)

RENEWABLE ENERGY – ROCKET LAUNCH AFTER A LONG COUNTDOWN (3)

Date Event Significance 2003 South Africa hosts the World Wind Energy Conference and the White Paper on Renewable Energy is launched Principles in Energy White Paper affirmed and target of 10,000 GWh’s of RE production by 2013 is set (this will now be very difficult to achieve) 2003-2007 Virtually no progress is made with the RE target as per the RE White Paper RE stalls in the county 2007 - 2011 Various competitive bid processes launched to procure electricity from private sector fail totally or partially – the PNCP, MTPPP, the Peaker programme and the base load IPP programme The energy investment community becomes very sceptical about South Africa. 2007 NERSA consultants publish inception report for a REFIT scheme Potential REFIT raises hope in the RE sector 2008 Darling National Demonstration Wind Farm is commissioned after 11 years of battling against the odds and two High Court approaches but fails to remove the barriers to RE energy The message is sent that doing business in the sector in SA is very difficult 2009 NERSA approves REFIT for certain RE technologies including Solar PV, Solar Thermal and Wind. Investment starts flowing very quickly, international companies invest in SA and employ local people. EIA’s start. Wikipedia mentions the SA REFIT as attractive The RE Industry spends ZAR 500 million + in the belief that the country will have a REFIT scheme Feb 2010 NERSA approves the budget (“MYPD2”) that includes renewable energy Developers get comfort that REFIT procurement is imminent

RENEWABLE ENERGY – ROCKET LAUNCH AFTER A LONG COUNTDOWN (4)

Date Event Significance April 2010 NERSA publishes the draft selection criteria “scorecard” for REFIT and holds public hearings to discuss same Not all projects commissioned will get the REFIT. There will be tender process and only some will succeed. Developers gear their projects to fit with the draft selection criteria May 2011 IRP 2010 is approved as SA’s energy master plan 2010 – 2030 that will include a vast contribution from renewables costing ZAR 350 billion plus – wind about 9,000 MW The large RE component (9,000 MW wind) implies ensuring very large private sector investment and very rapid skills development August 2011 REFIT is replaced by “REBID” A different procurement method than anticipated but with a much larger ambition Nov 2011 First bid round closes – over ZAR 100 million is posted in bid

• bonds. About 52 applications

Lift-off in sight Nov 2011 Preferred bidders announced for Round 1 – for wind 8 totalling 634 MW presumably in price ranges of 10 – 11 euro cents/kWh Critical mass finally seems possible – bid process ran smoothly which created investor confidence 21 May 2012 Preferred bidders announced for Round 2 – for wind perhaps another 600 MW System is becoming known and understood, procurement is starting to look like a rolling programme 5 Nov 2012 Financial close Round 1 and soil turning “SA GW’s into action!”

RENEWABLE ENERGY – ROCKET LAUNCH AFTER A LONG COUNTDOWN (5)

Date Event Significance May 2013 All round 2 projects reach financial close and go into construction Procurement system seems to be robust 29 Oct 2013 Round 3 preferred bidders announced – 787 MW Price drops well below cost of new coal power – REIPPPP is “rolling” Jan 2014 First REIPPPP wind farms start exporting electricity into grid – COD imminent First REIPPPP project complete and feeding electricity into the grid,

• thers to follow soon

Today 294 turbines spinning, costing less than nothing, about another 900 definitely coming. Major new infrastructure sector at negligible cost

THE IRP 2010 cont

ELECTRICITY IN SOUTH AFRICA

• In near-critical short supply, will remain so until about 2018/2019
• Regular but limited load-shedding very possible and economic growth would be

quicker with more energy

• Barring Medupi unit 6 now online (adding about 1.5% to the grid (thermal), unlikely

any (non RE) new power can come before 2018 (Medupi 2nd unit 2018, Kusile 1st unit 2018? Nuclear 2028 – 2030; LNG 2019?)

• Eskom balance sheet makes new project starts unlikely
• “Peaking plants“ have been costing SA as much as ZAR 1 billion per month
• New electricity in this time must come from renewables (wind, solar, bagasse,

biomass, some other) or conversion of waste energy (heat/gas)

• The inevitable shift to as much renewables as possible has been forced upon us

ESKOM – SIZE OF GOVERNMENT BAIL–OUT (Source – Standard Bank)

WIND REGIME AS PLOTTED SO FAR

PROCUREMENT FRAMEWORK

• Competitive bid system within technologies for allocated MW‘s
• 70% price
• 30% other - socio economic development - local ownership, local content, job

creation, community development etcetera – strong local content requirements

• Process requires extensive documentation and implies significant cost (perhaps

USD 500k + to get to bid stage)

• Game for big and sophisticated players (Enel, GDF, EDF, Globableq, Mainstream,

RES, Juwi, others)

• Contact backed by sovereign

INDUSTRY GROWTH (2) – IRP 2010

ACTUAL RESULTS: PV and wind in SA are cost competitive today

First four bid windows’ results of Department of Energy’s RE IPP Procurement Programme (REIPPPP)

ACTUAL WIND TARIFFS in bid window 3 were already at the level that was assumed for 2030 in original IRP2010, BW 4 is significantly below

CSIR research on value of RE (1)

CSIR research on value of RE (2)

CSIR research on value of RE (3)

CSIR research on value of RE (4)

SCALE OF INVESTMENT (wind)

• The present IRP would see wind power grow to a ZAR 200 billion industry by 2030

(presently about ZAR 70 billion – all in 4 years).

• This would then be a very significant infrastructure sector in SA, with supply chain,

jobs, manufacturing, equity investors, project finance, legal and other services, institutional investors etc.

• The development of storage, distributed generation and the roll-out of the

Sustainable Energy for All initiative to electrify 600 million people in Africa could all lead to an industry far bigger than expected.

• Investment into socio-economic development and enterprise development by wind

farms (rural communities) already stands at ZAR 7 billion over the next twenty years and will grow about four fold under the IRP 2010

MARKET LIBERALISATION (updated vision)

“Regarding the desired structure of the electricity sector in South Africa, we note that a collective and updated vision is required that gives effect to the NDP and clearly defines the roles and responsibilities of market players and institutions. We therefore resolve:

• To use all reasonable means to encourage government to embark on a policy making process

to define a clear vision for ESI reform;

• To participate in this process in a constructive and solution-focused manner;
• To support the implementation of the resulting ESI reform strategy; and
• To make available such time, resources, knowledge and personnel as may be required to

achieve this goal.” A lack of a vision and distress/crisis management benefits RE. A progressive vision with high penetration of RE would benefit all

STORAGE AND DISTRIBUTED GENERATION

• Globally, there is very significant interest in energy storage through batteries,

electric vehicles, pumped storage, compressed air, etc.

• Many international studies and pilot programmes - rapid technological innovation

expected.

• Stored wind power (batteries) is already far cheaper than energy from open cycle

gas plants and removes the grid complexities raised by the variability of renewables.

• South Africa’s energy crunch might see this coming forward in SA
• Creates a far higher ceiling for wind power (on-grid, utility scale) and a very large

market in Africa for distributed generation.

SUB-SAHARAN AFRICA – ON GRID

• East African Wind corridor has been identified by the Global Wind Energy Council

as the number 1 global hotspot (Northern Mozambique, Tanzania, Kenya; Ethiopia, Somalia, Djibouti.

• “SE4All” talking about an East African Clean Energy Corridor.
• The regional grid needs strengthening/”smartening”/storage to absorb the

available wind power.

• Unlocking some of the approx. 35,000 MW of hydro potential at Grand Inga (DRC)

would achieve exactly this.

SUB-SAHARAN AFRICA – DISTRIBUTED GENERATION

• 600 million people without electricity
• Hybrid, distributed systems also using wind power are the fastest way to do this
• The size of the continent dictates that it may also be the cheapest way to do it

SUB-SAHARAN AFRICA – Distributed Generation (2)

SUSTAINABLE DEVELOPMENT

• In South Africa, the bid rules require that 3-5% of ownership must lodge with

local communities. This has been as high as 40% in some projects.

• Further, approx. 2 % of turnover must be spent on socio economic and enterprise

development around the project (usually rural areas) . Industry wide - ZAR 5 billion or about 360 million over the next 20 years – impact will be profound on education, health, skills development, enterprise development.

• These amounts become very significant over the project lifetime and are likely to

make a strong contribution towards community upliftment, job creation and social development

SUSTAINABLE DEVELOPMENT INTO AFRICA

• If the South African model can be rolled out into Africa, „people-planet-

prosperity“ can finally become a reality rather than a dream

• We‘ll be busy!

THANK YOU

Johan van den Berg

CEO SAWEA johan@sawea.org.za 082 925 5680