Winds of changefavouringSA'srenewable energy sector · 2018. 5. 24. · renewable energy industry,...
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The copyright act of 1978 (as amended) prohibits the reproduction of this copy IN ANY FORMAT, (See Clause 4 Terms and Conditions) without prior permission of the original publisher. Publication THE MERCURY - BUSINESS REPORT Page 16 Date Thurs 24 May 2018 AVE (ZAR) 43758.63 WindsofchangefavouringSA'srenewa KEEPING CURRENT LeloMdhladhla HANGE is the only constant." This quote by Heraclitus, the pre-Socratic Greek philosopher, is iconic not just for it's simpli- city, but also for its stark truth. It is based on the proven premise that the only certainty is continuous change, and adaptation to the change in our en- vironment is the only means to remain relevant. This is particularly apparent in the renewable energy industry, against the backdrop of an increasingly Vuca (volatile, uncertain, complex and ambiguous) world. Renewable energy has now emerged at the forefront of the global energy land- scape. In 2017 China spent $126 billion (R1.65 trillion), or 45 percent of the global total, investing in renewables, followed by the US at $40bn. The total global spend on renewables exceeded $250bn for the first time in 2017. Recent years have seen accelerating market presence for renewable energy, driven by technological progress, declining costs, and evolving societal and consumer preferences. As renewable energy adds scale, the favourable underlying forces look set to remain strong; and with more certainty in the regulatory environment we will see accelerated changes going forward. Below are five main trends that will have an enormous impact in the renewable energy in industry for South Africa. Precedent 1. Decentralisation: In 2017 the Depart- ment of Energy (DoE) gazetted legislation allowing independent power producers to construct and operate projects without a generation licence condition subject to the following provisions: a) The generation capacity of the project must be equal to or less than 1MW. b) All administrative requirements have been fulfilled as stipulated by the National Electricity Regulator of South Africa (Nersa). Furthermore, Nersa has released a draft consultant paper on small-scale embed- ded generation (the process of generating electricity at a specific location and then connecting it to the grid). These changes in the regulatory environment show that there is a growing trend to move to distributed and embedded generation, and policymakers are taking steps to create an enabling environment for diversified energy generation. We will see a shift from a traditionally vertically integrated electricity industry to a matrix-structured one whereby there will be greater proliferation of smaller power generators as opposed to a few large generators. Therein lies the opportunity for a decen- tralised electricity market. Sik 4 Caledon Wind Energy is a commercial wind farm near Caledon in the Theewaterskloof Municipality in the Western Cape.Recent years have seen accelerating market presencefor renewable energy, driven by technological progress, declining costs,and evolving societal and consumerpreferences. PHOTO: AYANDA NDAMANE Hebren James TO MEET the needs of growing popula- tions and allow economic development, countries in Africa need to radically increase energy supply. Even though about one billion people in sub-Saharan Africa alone are expected to have access to electricity in 2040, the World Bank Group anticipates a shortfall of an estimated 530 million people living in the region who still won't have access to electricity by then, because of popula- tion growth. We are seeing a rise in wind and solar capacity in Africa, but uptake has been slow in comparison with other geograph- ies, especially considering the oppor- tunities available across Africa. With an assortment of challenges facing the African energy market, how can well-de- signed renewables bids lead to increased uptake across the continent? There is no doubt that the private sector can make invaluable contributions by carrying out the all-important work of developing and building renewables projects swiftly, efficiently and according to industry best practice, showing the value of these projects for the countries' economies and communities. When you look at a project's expected outcome in terms of value it's apparent that there are three fundamental factors. The first is the quality of the project, which is primarily established during the planning phase, and the second priority factor is how the contracts are assembled. Having an international wind turbine manufacturer responsible for the whole project will decrease local involvement and drive up costs. From other markets, we see that local active developers who can split up their projects into several packages are most successful. The third factor is the quality of the Well-designedrenewablesbidscanleadto greateruptake implementation of the project, which relates to the execution phase, and this can directly affect a project's outcome. One factor which is having a major impact on the business environment for developing and building renewables pro- jects is the global move from systems largely based on feed in tariffs (FIT's) to competitive power auctions. Model African countries have been quick to adopt the auction model, despite the slow movement of the market in recent years, with the support of key international financing institutions such as the IFC. There is no doubting the positive influence the auction model has had in creating enthusiasm in policy circles around the potential of renewables as governments realise that wind and solar are cheaper and faster to deploy than fossil fuel power projects. However, the rapid decline in prices fostered by the auctions system creates new challenges. It is not peculiar to see companies sub- mitting incorrect bids and as a result are then unable to execute a project and need to renegotiate the terms of the bid sub- mitted. Projects need to be well-designed, bidding companies need to have a firm grasp on supply chain and logistics, as well as future projections to secure bids that are both competitive and ensure that projects are realisable once won. There is a strong investment case for renewables across the African contin- ent, and projects that are more desir- able, attract investment from an early stage. Improving a project's viability and deliverability will ultimately boost such a project's desirability. HebrenJamesisthe SouthAfricaCountr y director at K2 Management. 2. Technology improvements: Continu- ous technological innovation is also a key driver in the renewable power gen- eration market. Innovations that unlock efficiencies in manufacturing, reduce in- stalled costs or improve performance for power-generation, equipment will take on increasing significance. This is especially true with solar photo- voltaic power generation where costs have reduced by more than 70 percent in recent years, making it easy for home owners and businesses to install solar systems on their roofs. Blockchain is a decentralised, distrib- uted and public digital ledger that is used to record transactions across many com- puters so that the record cannot be altered retroactively without the alteration of all subsequent blocks and the collusion of the network. This technology, while in its relative infancy in South Africa, is already being used to enable energy trading in other bleenergysector developing markets. For example, in Argentina, a platform called Greenum has been developed. Greenum is the world's first blockchain powered sustainable, scalable and secure energy and data trading platform. Greenum enables contributors (people and companies) to invest in green energy projects across all renewable technologies, globally. There are two pilot projects cur- rently under way in Cyprus, and Israel. 3. Competitive procurement: As com- petitive procurement drives costs lower, a wide range of project developers are positioning themselves for growth. The Renewable Energy Independent Power Producer Programme (Reippp) has been a shining example of a private-public partnership that was executed with trans- parency and efficiency. The competitive procurement process is recognised globally as one of the best pro- grammes of its kind and for good reason. With R192bn invested thus far and R56bn to come as a result of the recently signed 27 power projects, there is still enormous potential for renewable power generation going forward. However, in the context of reduced demand for South Africa, we await further direction from policymakers as to the rate at which power will be procured in years to come. 4. A large base of experienced, inter- nationally active project developers: The global increased focus on renewables has created a large base of developers who regularly bid in procurement programmes across varying geographies. The opportunity is for South African developers to take advantage of pro- grammes like the Reippp to upskill and create the internal competencies within their own companies that will enable them to bid in other markets and win bids to construct projects. This was emphasised at the recent African Utilities Week in the programme section dedicated to discus- sions on the Reippp. 5. Resource Planning: In recent years, this has probably been the most debated element of energy policy in the South Africa. Investment decisions made in re- cent years are based on the 2010 version of Integrated Resource Plan (IRP), which assumes far higher demand and mater- ially different technology costs than is currently the case. The DoE has confirmed that the IRP will be presented to the cabinet on August 15 and, on approval, will be published in the Government Gazette. The IRP is a key legislative tool. To drive inclusive economic growth, it will be imperative for private, public and civil associations to leverage the energy sector to create sustainable employment, and SMME opportunities for all. Furthermore, the energy sector has been identified as a key contributor to the $100bn investment goal set by President Cyril Ramaphosa. The opportunity for us as professionals and academics in this industry is to capitalise on these trends to create a more vibrant energy market. LeloMdhladhla isthe chief marketingofficerfor POWERX.
Transcript of Winds of changefavouringSA'srenewable energy sector · 2018. 5. 24. · renewable energy industry,...
The copyright act of 1978 (as amended) prohibits the reproduction of this copy IN ANY FORMAT, (See Clause 4 Terms and Conditions) without prior permission of the original publisher.
Publication
THE MERCURY - BUSINESS REPORT
Page
16
Date
Thurs 24 May 2018
AVE (ZAR)
43758.63
WindsofchangefavouringSA'srenewaKEEPINGCURRENT
LeloMdhladhla
HANGE is the only constant."This quote by Heraclitus, thepre-Socratic Greek philosopher,is iconic not just for it's simpli-city, but also for its stark truth.
It is based on the proven premise thatthe only certainty is continuous change,and adaptation to the change in our en-vironment is the only means to remainrelevant.
This is particularly apparent in therenewable energy industry, against thebackdrop of an increasingly Vuca (volatile,uncertain, complex and ambiguous) world.
Renewable energy has now emergedat the forefront of the global energy land-scape.
In 2017 China spent $126 billion(R1.65 trillion), or 45 percent of the globaltotal, investing in renewables, followed bythe US at $40bn.
The total global spend on renewablesexceeded $250bn for the first time in 2017.
Recent years have seen acceleratingmarket presence for renewable energy,driven by technological progress, decliningcosts, and evolving societal and consumerpreferences.
As renewable energy adds scale, thefavourable underlying forces look set toremain strong; and with more certaintyin the regulatory environment we will seeaccelerated changes going forward.
Below are five main trends that willhave an enormous impact in the renewableenergy in industry for South Africa.
Precedent1. Decentralisation: In 2017 the Depart-ment of Energy (DoE) gazetted legislationallowing independent power producers toconstruct and operate projects without ageneration licence condition subject to thefollowing provisions:
a) The generation capacity of the projectmust be equal to or less than 1MW.
b) All administrative requirementshave been fulfilled as stipulated by theNational Electricity Regulator of SouthAfrica (Nersa).
Furthermore, Nersa has released a draftconsultant paper on small-scale embed-ded generation (the process of generatingelectricity at a specific location and thenconnecting it to the grid).
These changes in the regulatoryenvironment show that there is a growingtrend to move to distributed and embeddedgeneration, and policymakers are takingsteps to create an enabling environmentfor diversified energy generation.
We will see a shift from a traditionallyvertically integrated electricity industryto a matrix-structured one whereby therewill be greater proliferation of smallerpower generators as opposed to a few largegenerators.
Therein lies the opportunity for a decen-tralised electricity market.
Sik4
CaledonWind Energy is a commercial wind farm near Caledon in the Theewaterskloof Municipality in the Western Cape. Recent years have seen accelerating market presence forrenewable energy, driven by technological progress, declining costs,and evolving societal and consumer preferences. PHOTO: AYANDA NDAMANE
Hebren James
TO MEET the needs of growing popula-tions and allow economic development,countries in Africa need to radicallyincrease energy supply.
Even though about one billion peoplein sub-Saharan Africa alone are expectedto have access to electricity in 2040, theWorld Bank Group anticipates a shortfallof an estimated 530million people livingin the region who still won't have accessto electricity by then, because of popula-tion growth.
We are seeing a rise in wind and solarcapacity in Africa, but uptake has beenslow in comparison with other geograph-ies, especially considering the oppor-tunities available across Africa. Withan assortment of challenges facing theAfrican energy market, how can well-de-signed renewables bids lead to increaseduptake across the continent?
There is no doubt that the privatesector can make invaluable contributionsby carrying out the all-important workof developing and building renewablesprojects swiftly, efficiently and accordingto industry best practice, showing thevalue of these projects for the countries'economies and communities.
When you look at a project's expectedoutcome in terms of value it's apparentthat there are three fundamental factors.The first is the quality of the project,which is primarily established during theplanning phase, and the second priorityfactor is how the contracts are assembled.
Having an international wind turbinemanufacturer responsible for the wholeproject will decrease local involvementand drive up costs. From other markets,we see that local active developers whocan split up their projects into severalpackages are most successful.
The third factor is the quality of the
Well-designedrenewablesbidscanleadto greateruptakeimplementation of the project, whichrelates to the execution phase, and thiscan directly affect a project's outcome.
One factor which is having a majorimpact on the business environment fordeveloping and building renewables pro-jects is the global move from systemslargely based on feed in tariffs (FIT's) tocompetitive power auctions.
ModelAfrican countries have been quick toadopt the auction model, despite the slowmovement of the market in recent years,with the support of key internationalfinancing institutions such as the IFC.
There is no doubting the positiveinfluence the auction model has had increating enthusiasm in policy circlesaround the potential of renewables asgovernments realise that wind and solarare cheaper and faster to deploy than
fossil fuel power projects. However, therapid decline in prices fostered by theauctions system creates new challenges.
It is not peculiar to see companies sub-mitting incorrect bids and as a result arethen unable to execute a project and needto renegotiate the terms of the bid sub-mitted. Projects need to be well-designed,bidding companies need to have a firmgrasp on supply chain and logistics, aswell as future projections to secure bidsthat are both competitive and ensure thatprojects are realisable once won.
There is a strong investment case forrenewables across the African contin-ent, and projects that are more desir-able, attract investment from an earlystage. Improving a project's viability anddeliverability will ultimately boost sucha project's desirability.
HebrenJamesisthe SouthAfricaCountr ydirector at K2 Management.
2. Technology improvements: Continu-ous technological innovation is also akey driver in the renewable power gen-eration market. Innovations that unlockefficiencies in manufacturing, reduce in-stalled costs or improve performance for
power-generation, equipment will take onincreasing significance.
This is especially true with solar photo-voltaic power generation where costs havereduced by more than 70percent in recentyears, making it easy for home owners
and businesses to install solar systems ontheir roofs.
Blockchain is a decentralised, distrib-uted and public digital ledger that is usedto record transactions across many com-puters so that the record cannot be altered
retroactively without the alteration of allsubsequent blocks and the collusion of thenetwork.
This technology, while in its relativeinfancy in South Africa, is already beingused to enable energy trading in other
bleenergysectordeveloping markets.
For example, in Argentina, a platformcalled Greenum has been developed.Greenum is the world's first blockchainpowered sustainable, scalable and secureenergy and data trading platform.
Greenum enables contributors (peopleand companies) to invest in green energyprojects across all renewable technologies,globally. There are two pilot projects cur-rently under way in Cyprus, and Israel.
3. Competitive procurement: As com-petitive procurement drives costs lower,a wide range of project developers arepositioning themselves for growth.
The Renewable Energy IndependentPower Producer Programme (Reippp) hasbeen a shining example of a private-publicpartnership that was executed with trans-parency and efficiency.
The competitive procurement process isrecognised globally as one of the best pro-grammes of its kind and for good reason.
With R192bn invested thus far and R56bnto come as a result of the recently signed27 power projects, there is still enormouspotential for renewable power generationgoing forward.
However, in the context of reduceddemand for South Africa, we await furtherdirection from policymakers as to the rateat which power will be procured in yearsto come.
4. A large base of experienced, inter-nationally active project developers:The global increased focus on renewableshas created a large base of developers whoregularly bid in procurement programmesacross varying geographies.
The opportunity is for South Africandevelopers to take advantage of pro-grammes like the Reippp to upskill andcreate the internal competencies withintheir own companies that will enable themto bid in other markets and win bids toconstruct projects. This was emphasisedat the recent African Utilities Week in theprogramme section dedicated to discus-sions on the Reippp.
5. Resource Planning: In recent years,this has probably been the most debatedelement of energy policy in the SouthAfrica. Investment decisions made in re-cent years are based on the 2010 versionof Integrated Resource Plan (IRP), whichassumes far higher demand and mater-ially different technology costs than iscurrently the case.
The DoE has confirmed that the IRPwill be presented to the cabinet on August15 and, on approval, will be published inthe Government Gazette. The IRP is a keylegislative tool.
To drive inclusive economic growth, itwill be imperative for private, public andcivil associations to leverage the energysector to create sustainable employment,and SMME opportunities for all.
Furthermore, the energy sector hasbeen identified as a key contributor to the$100bn investment goal set by PresidentCyril Ramaphosa. The opportunity forus as professionals and academics in thisindustry is to capitalise on these trends tocreate a more vibrant energy market.
LeloMdhladhla isthe chiefmarketingofficerforPOWERX.
