Broader Frameworks

SARi is part of a broader set of policy developments and frameworks, necessary for South Africa’s renewables sector to take off. Coordination and integration of domestic policies,  international partnerships and sources of funding is crucial. Developing a financial mechanism that bridges industrial, economic and energy security goals will support this coordination .

Partnering for Green Growth, the SARi launch document provides an outline of these domestic and international frameworks.

Domestic measures

Beginning in 2003 with the White Paper on Renewable Energy (pdf) which set an initial target for 10,000 GWh of electricity from renewable resources by 2013, the Government has taken a number of key steps to overcome key obstacles and integrate renewables into its coal dominated electricity supply:

  • Integrated energy planning and an ambitious plan for renewables. In 2009, under the Electricity Regulation Act, it was determined that energy planning should be developed though a consultative Integrated Resource Planning (IRP) process, coordinated with national economic, environmental and social considerations. While the first IRP maintained the initial 10,000 GWh short term target for renewables, in March 2011 Cabinet approved an updated IRP (IRP 2010) which established an ambitious medium term target for renewables to contribute 42% of all new and additional generation capacity developed up to 2030.
  • Supporting renewable energy as part of a policy for industrial growth. South Africa’s policy on renewables aims to unlock the potential for job creation in the industry, thereby aligning it to the nation’s number one priority. This is reflected in the  New Growth Path the Industrial Policy Action Plan and in the recent Green Economy Accord which brings together Government Ministries and the private sector to create 300 000 new jobs in green industries by 2020. The Accord agreed an initial minimum target of 35% localisation for wind and solar industries, as a first part of an aspirational target of 75% local content.
  • Developing a framework for independent power producers. The Electricity Regulations on New Generation Capacity  aim to regulate procurement processes and set out criteria for the selection of preferred independent power producers (IPPs). The criteria include: the compliance with the IRP; the acceptance of a standardized power purchase agreement; a preference for a plant location that contributes to grid stabilisation and mitigates against transmission losses; and a preference for a plant technology and location that contributes to local economic development.
  • Developing a strategy for affordability. Initially the plan for procuring renewables was to be a relatively generous fixed price feed-in tariff (REFIT). However this could not be sustained for the ambitious volumes of renewables included in the IRP. Therefore the procurement process was revised to a bidding process designed to deliver competitive pricing and local economic development benefits. Prices have also been capped per each technology at levels below those promulgated in the 2009 Refit approved by the national regulator, NERSA.
  • Grid infrastructure development. To accommodate renewables at scale it is likely that the grid network will need to be strengthened in regions such as the Northern and Western Cape. In consultation with Eskom, a DoE/Treasury team mapped investor plans against existing Eskom infrastructure and grid planning late in 2010. The analysis indicates that there is sufficient connection capacity for REFIT IPPs until 2016. In the longer term there are plans for an intensive network rehabilitation programme, together with a regulatory plan to provide for maintenance and rehabilitation of the electricity transmission and distribution sectors.
  • Ensuring viable procurement agreements and terms. In 2010, The Department of Energy, National Treasury and the Development Bank of Southern Africa (DBSA) developed the renewable energy Power Purchase Agreement and other procurement documents. The collaboration aimed to ensure a consistent legal and policy framework and bankable deals. The first 3,725 MW of generation capacity to be commissioned through the IPP Programme which opened in 2011 will be the demonstration of the viability of these arrangements. In the first round of bids, announced in December 2011, 1,415 MW were allocated to preferred bidders.
  • Increasing the historically low electricity tariff . In 2009 a multi-year price determination (MYPD) was agreed by the National Energy Regulator of South Africa (NERSA) to bring the South African electricity tariff up sharply to cover the full financial cost of coal-fired generation. The current method used by NERSA is based on on a rate-of-return methodology to cover  replacement cost of the assets, with the tariff  required to move towards the long run marginal cost within five years of its adoption. However the Department of Energy is now considering an approach that to delay further tariff increases, without delaying the roll out of new energy capacity.
  • Ensuring a fair market. Eskom has traditionally had the status of the “single buyer in the South African market” this creates the perception that Eskom is conflicted as energy buyer and producer. In mid-March 2011 a cabinet decision was made to proceed with the promulgation of a bill instating  Independent System and Market Operator (ISMO) including a separate buyers office.
  • Providing policy-enabled financing. A number of sources of low cost loans for renewables are already in place channeled through national development banks, and private banks such as ABSA and Nedbank . Starting in 2012, the state-owned Industrial Development Corporation will provide up to R25 billion (over US $3 billion) for investments in green economy activities over the next five years. The National Treasury has also set up a Renewables Fund. The Department of Energy has a Renewable Energy Finance and Subsidy Office (REFSO), whose mandate includes the management of renewable energy subsidies and advise to developers and other stakeholders on renewable energy finance and subsidies.

Partnerships

South Africa already benefits from many joint activities with international public partners in the energy fieldBringing together many of these existing partners, as well as new partners into an integrated and ambitious approach, is crucial to coordinating, scaling up and applying support effectively to enable the development of a critical mass of renewables.

    • Multilateral and bilateral loans for renewables, provided by the World Bank’s Clean Technology Fund (CTF), France’s AFD, Germany’s KfW, and the European Investment Bank.
    • Capacity building support for green economy projects and clean energy related departments. The ten largest grant funders are Germany, the Global Environment Facility (GEF), the Gates/Buffet Foundations, Switzerland, the UK’s Department for International Development (DfID), the French Development Bank (AFD), Denmark, Norway, the Development Bank of Southern Africa, Finland, and the United Nations Environment Programme (UNEP).
    • Catalytic programmes which  seek to overcome barriers to renewables development, without investing in projects themselves. For example, The Renewable Energy Market Transformation project is a joint initiative of the Department of Energy and the World Bank.  The South African Wind Energy Project, run by the Department of Energy with funding from the GEF has been operational since 2003, working to overcome barriers to wind energy deployment.

Further Analysis