This year, the South African government has the chance to set in place the kind of policy environment that will incubate local manufacturers and encourage foreign investment in the renewable energy sector here. But if the current draft policy is approved, it will create market uncertainty and drive investors away, writes Leonie Joubert.
The government’s draft blue-print for how South Africa will power its electricity grid over the next few decades is being mulled over by experts and activists right now: the 2016 Integrated Resource Plan (IRP), will decide how much of that power will come from coal, nuclear, gas, or renewables between now and 2030. The infrastructure it builds as a result of this plan will live with us for decades beyond that, and determine the cost and carbon intensity of that grid.
The draft IRP is currently out for public comment. While it does allow for investment in solar and wind infrastructure until 2030, critics say that it sets up a ‘boom and bust’ demand which will undermine the country’s long-term industrialisation potential. In its current shape, the draft policy also threatens the viability of many smaller emerging businesses along the wind and solar value chains.
This version of the IRP allows for some growth in demand for wind and photovoltaic (PV) plants between now and 2021. But for the years 2021 and 2022, the plan does not include new investment in new wind power, and very little PV. From 2023, it allows for a small amount of new wind capacity again, after which demand picks up again slightly for both.
The likely effect of this two-year gap in demand is a boom-and-bust environment that creates investment uncertainty, argues Brenda Martin, chair of the SA Renewable Energy Council, SAREC.
‘Factories will have been set up between now and 2021 to meet a growing demand, and staff will have been trained. But from 2021, orders for parts will slow dramatically or stop. This will result in job losses and factory closure,’ she says.
Manufacturers already feeling the pinch
The implications of a boom-and-bust demand are already being felt in these sectors, due to current delays by the national utility, Eskom, in finalising deals with private wind and solar energy firms as part of the government’s Renewable Energy Independent Power Producer Procurement programme (REIPPP).
Demand for wind and solar parts and skills picked up dramatically in 2011 when the Department of Energy (DoE) began a process of commissioning 92 concentrated solar power, PV, biomass, landfill, wind, and small hydro plants to be built and operated by private energy firms under the REIPPP programme.
Half of these have been built and are already operational. But construction of the next 26 plants has been on hold for over 20 months, as Eskom has delayed signing the contracts which will set the price for how much it state will pay for the power which these privately-owned plants will generate over the next two decades. There is an investment value of approximately R50 billion associated with these plants.
These delays are already threatening two local wind turbine manufacturers, according to the Centre for Scientific and Industrial Research’s (CSIR) principal energy researcher Ntombifuthi Ntuli. This, she says, demonstrates what similar boom-and-bust demand could mean for the long-term sustainability of such enterprises.
“The manufacturing sector is the first to feel the heat when these sorts of delays happen,’ she says. ‘When construction is put on hold like this, manufacturers are forced to lay off staff and eventually close factories. They have made a huge investment in training people. If they have to close a factory in response to the market shutting down for two years, they don’t know if they will be able to restart once construction picks up again.”
The SA Photovoltaic Industry Association (SAPVIA) is also concerned about the impact of Eskom’s contract delays on the PV value chain. Even though most PV panels are still imported, local businesses providing steel frames or installation services are negatively impacted.
A similar dip in demand will occur between 2021 and 2023, if the current IRP draft is not amended to guarantee a more stable and continuous demand over the next two decades.
“This two-year lull in wind energy demand between 2021 and 2022, and the slow demand thereafter, creates a challenge for manufacturers as the facilities that have been established cannot stand idling,’ says Martin, ‘and the lack of investor confidence could result in manufacturers moving their operations to countries with more stable policy environments.”
The long-term implications of investor flight is that the next wave of South Africa’s industrialisation will be stalled, according to SAPVIA acting CEO Mike Levington. Investment in renewable energy can stimulate significant industrial growth and provide alternative and new employment and business opportunities that can replace the coal value chain.
The DoE has about six months in which to respond to the comments currently coming in from the public on this draft IRP, and then finalise the plan. The renewable energy sector here is using this opportunity to call on the minister to rework the plan to increase the percentage of wind and solar energy in the energy mix, and create a predictable, stable energy policy environment to stimulate local investment in manufacturing and associated industries.
Leonie Joubert is a science writer and journalist based in Cape Town, South Africa. Her work focuses on climate change, energy policy, urban food security, and giving communications support to various academic and civil society organisations.