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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.