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Tuesday, 08 October 2013 14:13

Leading the continent in renewable energy market growth

By Joanita Roos, research analyst for energy and power systems at Frost & Sullivan

Introduction

South Africa is seen as a preferred entry point for international companies and investors into the rest of Africa, based on the global competitiveness index compiled by the World Economic Forum. With the renewable energy (RE) industry in South Africa developing so rapidly, it could also serve as a springboard into other countries in Africa in this nascent industry. Africa and in particular South Africa, has a high level of RE potential available, writes JoanitaRoos, research analyst for energy and power at a growth consulting firm, Frost & Sullivan.

South African policy certainty and associated growth

The Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) was introduced in South Africa to reach the target of 3,725MW electricity generated from renewable sources as stipulated in the Integrated Resource Plan (IRP) 2010-2030. The IRP, South Africa’s 20-year master energy plan, is a living document, scheduled to be revised in 2013 (though likely to be delayed).

The IRP is not solely aimed at least-cost generation, but incorporates factors such as sustainable and efficient economic growth, local job creation, addressing the demand for resources in South Africa, as well as the need to meet nationally appropriate emission targets in line with global commitments. Furthermore, a draft report of the Integrated Energy Plan (IEP) has come out for consultation, which is seen as the most important energy policy document in South Africa, apart from the IRP. The IEP looks at the full energy market in South Africa and the next IRP will be developed off the base of this plan.

The RE industry in South Africa is experiencing significant growth, due to the REIPPPP, creating an environment of relative policy certainty, when compared to other African countries. It is expected that the local content value for both Window 1 and 2 of the REIPPPP will be up to R23,205 million. Furthermore, according to the Department of Energy, up to 21 214 operational and construction jobs will be created in the first two windows. Developers are continuing to import the majority of their components from lower-cost suppliers in Europe and Asia, but this may change in the following bidding windows if the local content requirement is increased. For example, the majority of the solar modules utilised in Window 1 of the REIPPPP was supplied by a South Korean manufacturer, Hanwha Solar, followed by a Chinese manufacturer, Jinko Solar.

Reaching of grid parity in South Africa

From 2018, it is likely that the RE market will shift from the utility-scale sector to the commercial segment, as technology costs decline and grid parity for wind and solar PV is expected to be reached in 2015 and 2018 respectively. The rapidly decreasing price path of solar PV technology has exceeded even optimistic scenarios between 2008 and 2012. PV is projected to become among the most cost-effective generating technologies in South Africa by 2020.

Comments on relative markets outside South Africa and growth limitations associated with policy

However, the current market for RE outside of South Africa is still relatively small. Frost & Sullivan expects that the growth in market size for RE in Africa will only be a fraction of that of South Africa, based on research indicating that the focus in the rest of Africa is primarily on increasing base-load power from hydro and gas sources. This does not mean that RE in the rest of Africa should be discounted, since providing RE solutions might be commercially viable on a case-by-case basis, such as supplying hybrid energy solutions to mines, schools and hospitals.

Solar resources are abundant in the majority of Africa and there are large areas available for the development of large-scale projects. A key benefit of solar power supply options is its capability to operate economically at a small scale. This is suitable for Africa, where there is no established grid in most parts. For instance, the electrification rates in Kenya, Tanzania and Nigeria are 18%, 15% and 50% respectively. Furthermore, solar PV thin-film technology is particularly applicable to the African climate as it can withstand the daily heat and radiation of the continent significantly better than any other solar PV technology.

Unfortunately the development of RE sources in Africa to date has been limited. For example, Ghana’s 2011 Renewable Energy Act (Act 832) stipulates the commitment to ensure that solar PV will supply at least 20MW of the total electricity demand by 2015. With the predicted growth demand in Ghana reaching 5 000MW by 2015, this translates into a mere 0,4% contribution of solar PV in the overall energy mix. Kenya’s feed-in tariff (FIT) was first implemented in 2008 and only included small hydro, wind and biomass. The second draft of the FIT in Kenya, published in 2010, added biogas, geothermal and solar PV technologies, but according to developers, the solar tariffs were too low to attract financing. The Tanzanian government is in the process of developing technology-specific FIT. Unfortunately there have been several failed small-scale solar PV projects due to sub-standard PV equipment in Tanzania. In Uganda, only approximately 2% of the solar potential is utilised and there are no large-scale RE projects in the pipeline. Currently Namibia has no legal framework in place to support RE.