Breaking News Carbon and Finance News — 21 November 2016

The Fieldstone Africa Renewable Index (FARI), an independent investment bank focused on energy in Africa, has released its third and final index for 2016, which has dropped South Africa out of the leading energy position.

Taking the top position just four months ago, South Africa’s rank has since been lost due to the country’s national utility’s refusal to enter into power purchase agreements with winning bidders in the country’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP).

SA looses rank in FARI

In the June 2016 index, South Africa was the leading country, followed by Morocco, Uganda and Egypt. In the current index, South Africa is placed in a separate category, leaving Morocco occupying first position, followed by Uganda and Egypt.

Fieldstone Africa said in a statement: “Although Eskom says it has not “put the brakes” on renewable energy, by writing a letter to the Department of Energy asking for clarity regarding the next contracting phase of independent power producers, the effect has been akin to a full stop, with investors weighing if they should continue. Subsequently, Eskom applied selective figures and suspect technology issues to claim that any future renewable energy will be prohibitively expensive.”

Jason Harlan, Chief Executive Officer of Fieldstone Africa, said: “It is significant that South Africa has fallen out of our current ranking.

“Load shedding ended in no small part due to renewable energy providing a secure and reliable energy source. This new generation also enabled Eskom to catch-up on its maintenance backlog allowing for more time to address future power needs.”

Harlan added that the independent renewable energy power producers made significant contributions to the economies of rural areas across South Africa with REIPPPP as the single greatest source of foreign direct investment since the end of apartheid. By October 2015, the programme had created approximately 20,000 jobs and led to the investment of approximately R196.4 billion ($13 billion) in South Africa.

“It would be a shame to simply abandon this demonstrated progress for a distant and unvetted pet project,” Harlan said.

New category created

The investment bank said that South Africa has been placed into the ‘Sleeping Giant’ category – a new category created to express its current market predicament. The country’s renewable potential is effectively suspended until further notice.

According to the FARI report: There is an unstated desire to keep the Eskom balance sheet unencumbered in order to be prepared for one particular nuclear initiative, the success of which appears to be close to the heart of certain elements of government. Treasury, a transparency advocate (and even credible nuclear alternatives) are less enthusiastic about this particular (pre-) selection.

“The current round of bids related to renewables is now uncertain, leaving international bidders a little less enthusiastic about expending more development resources in South Africa in all energy matters.

“With bid bonds, for the current round of REIPPPP bids involuntarily extended to March, it is unclear whether a true assessment of what can and should be done to bring certainty back to the system will be carried out, or if a more narrow agenda to thwart independent development and choose winners will be the new way forward. In the meantime, current and would-be market participants are left to assess their options and ongoing costs.”

The Fieldstone Index has four categories:

  • The Big Five – these are markets in which investment in renewable energy is compelling (Morocco, Uganda, Egypt, no other country was deemed to qualify as part of The Big Five in the October 2016 index);
  • Honourable Mention – markets where evidence points to significant progress towards investable opportunities (Algeria, Cameroon, Ghana, Nigeria, Senegal, Zambia);
  • Little Gems – smaller markets that may not host large scale opportunities (Rwanda and Djibouti); and
  • Sleeping Giant – a new category created due to market developments (South Africa).

According to the bank, countries such as Ethiopia, Kenya, Ivory Coast and Mali were included in the FARI Honourable Mention list, but not retained on the current list. These countries, like South Africa, show potential but there are additional legal or regulatory hurdles evident.

Source: ESI

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