Ray of sun: The government is focusing on developing solar alternatives

The case for developing solar energy in South Africa is a strong one. The vast majority of the nation’s interior terrain has an average insolation in excess of 5000 Wh per sq metre per day, while the annual 24-hour solar radiation average for the nation stands at 220 W per sq metre, compared to 150 W per sq metre in some parts of the US and 100 W per sq metre for Europe. With some parts of the country, such as certain areas of the Northern Cape, enjoying average insolation rates of over 6000 Wh per sq metre per day and large expanses of low-population-density/low-usage land available for the necessary infrastructure, it is little wonder that solar power is seen as a central component of the future energy mix. A focus on energy alternatives could provide a boost for the industry overall. Laurent Langellier, CEO of South African operations for Air Liquide, a gas provider for industrial and health clients, told OBG, “Renewables are not the ultimate solution to the country’s energy gap, as solar and wind will only form a small component of total generation. What is exciting though is that renewables will challenge the status quo and inject new life and know-how into the power sector.”

Off-Grid Activity

To date, South Africa’s solar energy projects have been established off the national grid, and yet their scale has been large enough to have a modest impact. In 2008 the state-owned electricity utility Eskom began to roll out its solar water heater programme, which formed part of a government drive to replace 10,000 GWh of electricity with power from renewable sources by 2013. The scheme rests on a rebate system by which homeowners, groups of houses, and commercial and industrial facilities are encouraged to replace electric water heaters with solar systems. Take-up of the scheme, however, has been slow, with total power demand reduction as a result of its implementation for the financial year 2012 standing at 22 MW, while for 2011 the power saving attributable to the programme stood at just 5 MW. In 2013 the National Energy Regulator of South Africa (NERSA), which provided R1.07bn ($130.19m) to fund the rebate programme, acknowledged its limited success. “Relative to other energy efficiency programmes, solar water heating was achieving little demand savings at evening peak, at a high cost,”

Charles Hlebela, NERSA’s spokesman, told the local press. “However, the programme helped to create jobs in the solar water-heating industry.”

Government Interest

The modest progress of the solar heater project at its inception has not resulted in Eskom diverting from its target of installing 1m solar water heaters by 2015. However, the government’s ambition for solar energy encompasses more than off-grid power efficiency efforts. As far back as 1998 government planning has included the possibility of solar power projects contributing directly to the national grid, and efforts to bring this about were initiated by Eskom’s South African Renewable Bulk Energy Generation (SABRE) programme. The SABRE project was tasked with investigating the use of large-scale wind and solar power as means to boost national nominal power capacity and increase the diversity of its sources, and by 2002 Eskom had installed a 25-KW solar dish and Stirling engine project at the Development Bank of Southern Africa premises in Midrand.

A further developmental phase of SABRE saw the completion of a full feasibility study of a 100-MW solar power station, which assessed the potential of utilising locally manufactured components and the feasibility of various technologies, such as molten salt-type central receivers. Nevertheless, while Eskom’s direction of travel has pleased the proponents of solar technology, its infrastructural investment has been tentative: in late 2011 it commissioned ABB, the power and automation technology group, to construct two solar photovoltaic (PV) plants at its Lethabo and Kendal coal-fired power stations. The plants will make use of fixed-tilt and single-axis-tracking PV technologies for an output of between 575 KW and 620 KW, although the electricity generated will be used only for providing power during daylight hours to plant facilities such as security and terrace lighting.

Co-Opting The Private Sector

Government strategy, however, extends beyond Eskom’s recent foray into solar technology and offers more opportunities for private sector involvement. The Integrated Resource Plan 2010, by which South Africa’s progression towards a more diverse power base is being orchestrated, places a significant emphasis on boosting a range of energy sources, including natural gas and nuclear, as well as renewable energy options. The development of the latter group is being spearheaded by the government through the Renewable Energy Independent Power Producers (IPP) programme, the bidding rounds of which are already well under way. Over the coming years, the IPP programme will expand in tandem with a number of bidding windows which will see allowances of MW production awarded to projects that span the full range of renewable energy sources. However, alongside wind, solar has already proved itself a dominant technology within the strategy: in the first bidding window, completed in 2011, solar PV and concentrated solar power (CSP) projects accounted for 781.5 MW, or 55.2%, of the 1415.5 MW capacity on offer.

The results of the second bidding window, completed in 2012, revealed a similar pattern. The Department of Energy received 79 bids, a cumulative 3255 MW, for the 1275 MW on offer, 19 of which it chose as preferred bids based inter alia on their commitment to economic development and engagement with local communities. Of these, nine utilised PV technology with a proposed input of 417.1 MW, while a CSP project added a further 50 MW. The remainder of the preferred bids were made up of seven wind and one small hydro proposal, for a total of 1043 MW.

Funding

The availability of funding for solar projects has proved to be a significant challenge for South Africa’s nascent solar industry, and one which the government has attempted to mitigate though direct intervention. For off-grid solar projects, South African firms have recourse to the R500m ($60.9m) Green Energy Efficiency Fund launched by the parastatal Industrial Development Corporation (IDC) and the German Development Bank. According to the fund’s lending criteria, small to medium-sized businesses can apply for loans with favourable terms of up to R51m ($6.21m) for projects that use energy-efficient equipment and technologies. The IDC also provides funding for small businesses wishing to make use of Eskom’s solar water heater rebate offer.

However, of more strategic importance for a government faced with a growing energy deficit at the national level is the question of large-scale funding for solar projects that will feed into the national grid. The establishment of the South African Renewables Initiative by the governments of South Africa, Denmark, Germany, Norway and the UK in December 2011, is an attempt to further mobilise domestic and international funding and sector expertise for just such large-scale undertakings.

Speaking at the December 2011 launch of the project, which will bring together international and domestic government departments and developmental finance institutions, President Jacob Zuma drew attention to the financial challenge. He said, “The biggest barriers to developing renewable energy in Africa to date are not technological, but financial. In that regard, South Africa has been hard at work in the development and design of financial instruments aligned to our national plans for green growth.”

Despite the best efforts of the government, however, the solution for the challenge of funding lies in the ability of solar technology firms to demonstrate the economic viability of their projects to sources of private capital. And in this respect, it seems, their arguments are becoming more persuasive.

In April 2013 Standard Bank Group and the Industrial and Commercial Bank of China (ICBC) struck a R20bn ($2.43bn) deal to fund renewable energy projects in South Africa, becoming one of the more salient examples of growing private sector interest in the sector. In creating the financial instrument the banks targeting the projects awarded preferred bidder status under the Renewable Energy IPP programme, offering them the crucial debt financing which has hitherto proved difficult to secure. Significantly, the deal represents a useful channel between China and South Africa’s solar energy industry. “ICBC is also certainly interested in raising awareness of the South African investment opportunity among Chinese suppliers as potential sources of contracting capability. In addition, the objective of this partnership is to facilitate the entry of investors into South Africa, and ICBC is excited about the opportunity to co-lend into renewable energy with Standard Bank, ICBC’s South African strategic partner, through to 2025,” Jiang Jianqing, the chairman of ICBC, told the local press at the signing ceremony. As new technologies bring increased solar efficiencies and lower costs, the economic argument for its continued development will become easier.