In recent years the South African energy sector has experienced contrasting fortunes. The successful implementation of the Renewable Energy Independent Power Producer Programme (REIPPP) has sat alongside the economically damaging effects of rolling blackouts brought on by the maintenance backlog of an ageing coal-fired power fleet. In 2010, South Africa released its Integrated Resource Plan, which outlines the country’s energy build-out strategy to 2030. Under the plan, the country seeks to increase its power capacity from 43GW to 89.5GW, with wind, PV and solar thermal making up as much as 20% of the mix, compared with 5.5% at end-2015.
Eskom, the national utility, generates about 95% of South Africa’s power and is the sole purchaser of electricity in the country. The state-owned company has had financial troubles, exacerbated by the general state of the South African economy – to the point that if South Africa’s credit rating were to be lowered Eskom might have to look outside the capital markets to meet funding requirements. Rolling blackouts, or load shedding, were commonplace in 2015, but in early 2016 Eskom announced that no blackouts would be scheduled for the foreseeable future. Indeed, Eskom would claim this positive rhetoric is possible due to shake-ups in management and improved transparency at the utility, yet critics would argue that reduced power demand brought on by a sluggish economy is the reason that South Africa will have sufficient energy to meet the needs of the 88% of the population that is connected to the electricity grid.
Independent power producers (IPPs) are beginning to carve out market share with renewable projects, a trend that looks set to continue as the Department of Energy adapts the reverse auction process used in REIPPP to conventional power projects such as coal and gas while still awarding new renewable projects.
The 800MW initial stage of the new Eskom-owned Medupi coal power station was officially opened in August 2015. In December 2015, the Cabinet approved the start of the 9.6GW nuclear-energy procurement programme.
In mid-2015, the 4th round of the REIPPP programme culminated in the announcement of 26 projects as preferred bidders, putting 2.2GW of mostly wind and PV solar projects on track for prospective commissioning between 2017 and 2019. The 5th round is set to be opened for proposals by the end of Q2 of the 2016 financial year.
In October 2015, the winners of the first round of the small projects auction were announced. The 10 winning projects amount to 49MW, with a combined value of ZAR 1.5bn. The small projects REIPPP is planned to add 200MW of generation capacity over four rounds. In May 2016, the DOE requested expressions of interest for 1,500MW of solar thermal or PV solar to be developed in the Northern Cape with a focus on developing local manufacturing over the course of what the department has named “The Solar Parks Project”.
In a dramatic turn of events, in August 2016, Eskom cast the future of the South African renewable sector into doubt by refusing to sign new PPAs unless the grid operator is given more control of the prices that are agreed to through the auction process. Eskom is the sole off-taker for IPPs and refusing to formalise agreements places financial strain on the IPPs, investors and equipment suppliers while Eskom is still able to purchase electricity from the power purchasing division of the utility.
The coal and gas IPP auctions have proceeded with only minor delays. A call for manifestation of interest for 600MW of gas capacity has opened May 2016 . It was published along with the announcement that the gas programme would be increased to a total of 3,126MW. In October 2016, the first two successful bidders for the coal IPP programme were announced, adding a combined 863.3MW to the list of power projects in development.
Eskom is also expanding conventional power capacity with the 800MW initial stage of the new Medupi coal power station being officially opened in August 2015. The Ingula Pumped Storage Scheme launched the first of four 333MW units in in July 2016 and construction continues on the delayed 4,800MW Kusile Coal Power Station.
In December 2015, the Cabinet approved the start of the highly controversial 9.6GW nuclear-energy procurement programme. The nuclear energy plan would ultimately provide 13% of South Africa’s 2030 generating capacity. The plan has been widely criticised for using large, out-dated technology, offering overly favourable terms to the Russian-owned project developers and displaying early sign of impropriety from the government officials who negotiated the deal. Request for proposals were deferred by the Department of Energy in September 2016 to provide more time to consult the many aggrieved public and private stakeholders.
The biofuels blending mandate was supposed to come into force in October 2015, but as of May 2016 the government had not released the pricing or final position paper. Still, a regulatory framework is expected to be submitted at some stage during 2016. The carbon tax which is expected to come into force in 2016/17 is perhaps one of the more controversial policies in the country due to the large financial implications for Eskom and the mining sector.
South Africa scored 2.21 in Climatescope 2016, ranking it 5th on the list of countries overall, one place lower than in 2015. Its highest finish was on Greenhouse Gas Management Activities Parameter IV.
On Enabling Framework Parameter I, South Africa’s score suffered a fairly significant fall and the country dropped twenty-six places to rank 32nd. This was due to, among other things, slower growth in the rate of clean energy installation and generation.
In contrast, its score on Clean Energy Investment and Climate Financing Parameter II increased more than threefold and it climbed eighteen places to 6th thanks to more than $4bn of new investment in the sector in 2015.
South Africa’s score on Low-Carbon Business & Clean Energy Value Chains Parameter III edged up slightly. It was ranked 3rd globally, a reflection of the number and variety of companies (including financial institutions) serving its clean energy sector.
On Greenhouse Gas Management Activities Parameter IV, South Africa’s score rose sharply and it took the number one spot globally. It was very strong on all three categories – carbon offsets, carbon policy and carbon policy.
- Overall Rank
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