With the recent news that South African government has delayed bidding for the 3rd round of renewable energy projects until May 2013, an 8 month delay on what was initially promised, what effect will this have on the development of this sector in South Africa? This setback in terms of reaching financial close and power purchase agreements is not a scenario that investors and developers envisaged, many will be dismayed by the procrastination shown by those at government level to ensure deadlines are honoured and development is kept on track. South Africa has steadily worked towards this point since it passed a White Paper on Renewable Energy development in 2005 showing a genuine ambition to embrace new renewable energy sources. These current setbacks, however, are an indication that potential systemic administrative and bureaucratic frailties were not seriously considered when timeframes were issued.
There has been a candid admission on behalf of the South African government and Department of Energy that they were perhaps not equipped for the volume of administrative, regulatory and financial requirements to ensure that rounds 1 and 2 were concluded on time. This has left many developers and manufacturers disillusioned as delays continue month on month, leaving round 3 bidding trailing behind. One of the main problems that the government faces is finance. The electrical infrastructure is in place in South Africa, best exemplified by a grid infrastructure that already generates almost 50% of the electricty for the entire African continent. Finance is another issue and the government has already had to look towards finance alternatives such as short-term loans and pay-for-performance grants from international investors. The will and readiness to invest will very much depend on confidence in the sector, the knock-on effect of these setbacks has already had an impact on confidence and this is something the DOE must address.
As with many new sectors, the outcome of the initial swathe of projects will have an either positive or detrimental effect on the entire venture. The cumulative net worth of the 28 projects passed in rounds 1 and 2 amounts to around ZAR50Billion. With financial close still not finalised, there is a distinct possibility that investors will be dissuaded from further involvement in the development of renewable energy in South Africa. The very developers of these projects could also shift their focus to other markets and opportunities. The domino effect could prove catastrophic as developers lose patience, turbine manufacturers hesitate and investors lose faith in the viability of the entire process. Suppliers have in many cases agreed to 300-day pricing agreements negotiated at the outset, these timeframes were surpassed months ago.
As a result of this delay, companies already granted projects are having to put their recruitment on hold to find the best people in the market place. This could also have reverberations within the industry in terms of attracting people cross-sector and attracting skilled people to work in South Africa. The government’s inability to stick to deadlines will not only have a corrosive effect on international investment, but also on stimulating local business. The proper incentives need to be in place for local investment. Many acknowledge the need for an increased manufacturing capacity, this is also being undermined by recent events, no indigenous turbine manufacturers remain in South Africa.
In conclusion, the infrastructure is in place and local skills can contribute massively to the drive for cleaner energy sources, however confidence in the sector is key. The government is ambitious and well intentioned, but certainly shouldn’t hold back on external consultation to help it reach the objectives that were set out. South Africa has been a shining light for the African continent in many ways, no better demonstrated than in it’s post-Apartheid transition, but we find ourselves at a juncture where the right action must be taken to ensure success for the long-term renewable energy future of Africa’s most developed nation.
Source: Taylor Hopkinson By Gordon Addie, Senior Consultant South Africa
Image: Renewable Energy