Renewable Energy Council Urges Government to Enable Green Economy
5 November 2013 | Johannesburg:
The South African Renewable Energy Council (“SAREC”) has urged Government to reconsider the procurement rules for renewable energy in order to create more jobs, stimulate local manufacturing and foster a South African supply chain. The Council represents industry associations for all the major renewable energies presently being developed in the country.
The country has set out a vision of building 42% of new electricity projects from renewable energy by 2030. The third procurement round closed recently and the winners were announced today. The process is price competitive and prices for winning tenders have dropped dramatically in the past two years, making the least expensive electricity for both wind and solar power in Round 3 significantly cheaper than new coal power from Eskom’s Medupi plant.
Mike Levington, board member of SAREC, feels that prices have been driven too low too quickly at the expense of South African jobs and supply chain: “We are now seeing green power coming in, in some cases, at more than 30% below new coal”, he points out. “This on projects where significant portions of revenue will be committed to community development and enterprise development around the projects. This is not something done by other technologies. Moreover, if the pollution costs or “externalities” of coal power as calculated by the University of Pretoria are taken into account, green power averaged across technologies is now costing us less than half of new coal power. But this has occurred in such intensely competitive conditions that some investors are projected to have returns equal to or lower than South African Government Bonds. This means the industry that is developing is increasingly dominated by large international utilities who generally source technology and services from their home countries. While the procurement rules are explicitly aimed at avoiding this, it is in fact inadvertently causing this unintended consequence to occur. The South African suppliers in solar photovoltaic have won practically no contracts in the third bidding round. South African developers have generally sold out to foreign utilities and the booming project finance business being built by South African banks is grinding to a halt as transactions are increasingly being put on large foreign balance sheets.”
Ntombikanina Malinga, also a Board Member of SAREC, places the present developments within a broader historical context: “We are signatories to the Green Economy Accord”, she points out. “We have undertaken to assist Government with creating a local industry and supply chain. In this manner jobs can be created and the country re-industrialised as we address the dual challenges of climate change and ensuring sufficient electricity to grow our economy. We are extremely serious about these commitments but we feel that the present procurement regime is causing a price based race to the bottom rather than a jobs based race to the top.”
Mark Tanton, Board Member of SAREC, concurs: “Ultimately, South Africa and other countries will need to build an economy based 100% on renewable energy”, he says. “Given the recent costs trends it would make sense to insert a floor price for renewable energy equal to the price of new coal, and then distinguish between projects at the floor price on the basis of their respective abilities to serve our country’s broader development objectives. Moreover, our renewable ambitions should now be aggressively increased as it has become less expensive to produce clean power than dirty. We need to build all the renewable energy we can.”
The SAREC Board has signalled clearly to Government that it is willing and able to assist in any effort to fine-tune the procurement rules. “It is a collaborative effort”, concluded Johan van den Berg, the Chair. “If we all contribute our perspectives we can build on this amazing start that Renewable Energy has made in the country to broaden benefits, deliver development goals for South African firms and individuals and ensure sustainability for our energy sector.”