Amid outgages, South Africa moves slowly on renewables
Cape Town, 26.05.2008 - written by: Platts, Renewable Energy Report
South Africa, which has been wracked for months by power blackouts and continuing shortfalls in electricity generation, has been reluctant to exploit its plentiful renewable resources, a Platts analysis has found. Discussions with industry analysts and reviews of documents from the country’s chief power producer Eskom and the South African government show that renewable energy has received short shrift despite its potential for tackling the nation’s and the region’s power problems.
“Obviously, South Africa has an ideal location for solar, and also wind and biogas,” as well as marine energy if the technology proves feasible, industry analyst Cornelius van der Waal of consulting firm Frost & Sullivan told Platts. “It ranks with the best of them. Unfortunately, renewables have not played a significant role in South Africa to date.”
Government-run power utility Eskom, which controls 95% of the country’s power production and virtually all its transmission resources, has showed only limited interest in renewable energy. Its monopoly on power transmission, combined with the absence of government financial incentives for renewable power generation and electricity subsidies for poor households, has effectively shut out renewables production from the market.
“It’s difficult for small producers to supply to the grid. Independent power production is highly underdeveloped,” said van der Waal. “Eskom has tried to keep them out of the market. There’s very little competition in baseload. And the price of electricity is so low that payback for [renewables] equipment is quite long.”
In some ways South Africa is a victim of its own success. The nation’s economy has run full speed in recent years, which has placed heavy demands on electric infrastructure, and subsidized power – some of the cheapest in the world – has put energy efficiency and energy savings on the back burner. With power demand far outpacing supplies, Eskom this year has been forced to institute load shedding – planned service interruptions to certain areas – which the utility called “a last resort when all other options at its disposal have been exhausted, such as running its power stations at maximum capacity and interrupting power supply to industrial customers with special contracts.” Eskom said it would suspend load shedding from May 4 but cautioned that it could be resumed for brief periods if the national grid comes under unexpected pressure.
The result, a May 14 article on the Mail & Guardian Web site said, has been sputtering electric devices, widespread power outages and lost development opportunities. “An economic boom coupled with decades of underinvestment in South Africa’s power sector has seen Eskom, which ranks among the top 10 power companies in the world in terms of sales and capacity, battling to shore up electricity supplies,” according to the article. “The power crisis has scared investors and crimped the country’s economic outlook as platinum and gold mines continue to operate below full capacity and millions of homes and businesses are regulatory plunged into darkness.”
The problem extends beyond South Africa’s borders. Neighboring countries such as Zambia depend on South Africa’s electricity exports and have felt the impact of Eskom’s load shedding. In an upcoming white paper, Frost & Sullivan predicts South Africa’s energy crisis will continue at least through 2012 and warns that there is no quick fix for solving the problem. But the country does have the opportunity to launch major projects, including renewable energy initiatives, that will significantly reduce the capacity shortfall, the consulting firm said.
In the short run, electricity rationing must be instituted to cut demand, Frost & Sullivan said, but over the longer term Eskom must diversify its energy mix. The utility currently relies on coal for 75% of its power, making it vulnerable to jumps in commodity prices, and coal will comprise more than half the utility’s new capacity.
“This means that encouraging private investment, particularly in renewable energy, will become ever more important,” the consulting firm said. “The current prices of electricity make such investments unfavorable, though, as producers cannot sell their power for what it costs to produce it.”
Frost and Sullivan energy industry analyst Jeannot Boussougouth said that to encourage investments in renewable energy South Africa should follow the example of the Canadian province of Ontario, which subsidizes renewable energy production. Independent power producers could sell electricity to Eskom at a price that reflects their costs he said, which could then sell the power to users at a lower price. “The difference would be compensated by the state, as is currently the case in Ontario,” Boussougouth said.
The region’s potential for renewable energy development is considerable. Renewables could meet up to half of Southern Africa’s energy needs by 2050 at a lower cost than the current business-as-usual mix based largely on coal, but this would require revamping the region’s current energy policies, along with instituting regional planning and coordination, a February 2008 analysis by the Renewable Energy and Energy Efficiency Partnership found.
“Given the current requirement for massive investment in new energy infrastructure in the region, it is opportune to choose investment trajectories, which will deliver cleaner lower-carbon energy and more predictable energy costs,” REEEP said. “At the same time, renewable energy technologies are expected to provide increased levels of access to energy than are currently possible with more centralized energy systems.”
A REEEP-sponsored workshop in Pretoria, South Africa on February 7 cited lack of regional planning regulations and long-term contracts as major obstacles to renewables adoption in the region. Workshop participants called for strengthening regional planning, regulation and power-trading organizations, such as the Southern African Power Pool and the energy office of Southern Africa Development Community, which encompasses the government of South Africa and 13 other countries in the region.
A 2007 Frost & Sullivan analysis also offered an upbeat assessment of South Africa’s renewable resources. “South Africa has excellent conditions for renewable energy technologies, and the renewable energy equipment market in South Africa is increasing,” van der Waal said in an April 2007 briefing, while noting that lack of competition in the power market and the absence of a feed-in tariff for renewables as key barriers.
“Renewable energy technologies are not widely used in South Africa despite excellent conditions,” he said. “Most implementations are purely for off-grid applications, and awareness about the cost, payback period and potential renewable energy technology is very low.” Eskom has demonstrated only lukewarm interest in renewable energy. It intends to add 1,600 MW of renewable energy capacity over the next 20 years, but renewables will continue to account for only a tiny amount of the power provider’s energy portfolio, according to the company’s 2007 annual report, issued last year (RER 136/15).
“Renewable energy production will increase to 2% of the generating mix, or 1,600 MW, through biomass, solar, hydro and wind facilities. This includes potential imports of hydro energy,” according to Eskom’s 2007 annual report. By contrast, the utility – which generates 95% of the electricity produced in South Africa – intends to increase nuclear energy’s contribution to the national grid to 13,000-20,000 MW over the next two decades.
As part of its renewable energy expansion, Eskom is planning to build a 100-MW wind farm in the near future, “pending the approvals and licensing processes,” the annual report said. South Africa currently has a single operating wind farm, the 5-MW Darling plant. Eskom also reported that it is looking into the feasibility of a 100-MW concentrating solar plant in the North Cape, which the utility noted enabled storage of renewable energy for use during evening peak demand.
Solar water heaters have gained widespread acceptance in South Africa, but these are seen as energy-saving devices – substituting solar heat for electric heat – rather than renewable energy generation sources. Despite scant utility and government support, renewable energy could pick up steam in South Africa. Frost &Sullivan’s van der Waal said he has been “inundated” with inquiries about the country’s renewables potential.
Small-scale solar projects, landfill gas initiatives and wind energy have drawn the most attention, he said. In a controversial move, the government intends to raise electricity prices as much as 63%, and van der Waal said this “obviously would make renewables much more attractive and maybe even competitive.”