By Cecilia Russell
Innovative business practices and the growth of renewable energy sources could provide a light at the end of South Africa’s power crisis, says Andre Wepener, the head of Power and Infrastructure Finance for Investec.
Many are pessimistic about the country’s energy situation and see a future with rising costs and constant blackouts wrecking business and impacting homes. The role of an affordable, reliable and accessible power supply in the growth of the economy cannot be underestimated. South Africans were alerted to a crisis in the power supply with the return of depressingly familiar load-shedding in early December 2018, and public hearings are currently underway for a 15% increase in power tariffs.
The return of load-shedding, just as the country celebrated a 2 per cent growth in the economy moving the country out of a potential recession, led to some economists revising their forecasts for 2019.
It is clear that another model for the provision of electricity is needed.
Cleaner fuel by 2030?
At the moment there seems limited comfort in the draft Integrated Resource Plan (IRP) where the country’s programmes lag other economies in exploiting sun, wind, and gas as alternative energy resources.
France and the United Kingdom have set stringent deadlines of 2020 and 2025 respectively to end carbon-based energy reliance, but South Africa’s proposed IRP still factors in the country’s reliance on coal being close to half of its total energy mix by 2030.
Wepener, however, believes that the final IRP, expected by mid-2019, envisages a different scenario, with reduced reliance on carbon-based energy and the easing of limitations on embedded generation or “self-generators”.
“We are expecting a significant shift away from coal as envisaged in the draft report,” he says. “It will show a significant decrease in reliance on carbon-based energy. By 2030 we will see a 32 GW shift toward cleaner fuel, which includes 24 GW of energy from renewable sources,” he says.
“8.1 GWh gas-fired power generation is also envisaged in the draft IRP. Natural gas burns cleaner than coal and, in combination with renewables, i.e. solar and wind, can compensate for the base load generation that will be removed from the energy mix as Eskom’s existing coal-fired power stations reach the end of their useful lives.”
A tricky transition
The transition, however, is not a simple one. Coal provides the base load power to industry, and there are limitations in both wind and solar as alternative energies when it comes to battery storage and consistency (even in sunny South Africa the sun doesn’t always shine, and the wind does not always blow), he explains.
Nevertheless, battery storage innovation is continually improving, and it’s in an energy mix that the solution lies. “There is a significant difference between us and European countries like the UK and France. They transitioned away from coal decades ago and moved toward gas, which is in abundant supply in the region,” he says. South Africa is better compared with Australia, which has a significant reliance on carbon-based energy because both countries have rich coal resources.
Alternative energies provide solutions to both households and industry, Wepener says. At the lowest level, it could be a combination of solar panels on a roof and battery storage which supply a household or small business with its energy requirements.
Will renewables cost more?
Wepener cites a study done by Jörg Peters of the University of Passau which found contrary to expectations that electrification reduced expenditures on energy in a study conducted in Rwanda.
“The average amount that connected households spent on grid electricity was 1 500 FRW (about $2) per month after they had replaced traditional energy sources like kerosene and batteries. And they no longer needed to spend money on charging their mobile phones outside their homes. In total, they reduced expenditures on energy by around $2.50, which is an equivalent of about 4% of their total monthly expenditure,” the study found.
This is apart from yielding other benefits to households which had done away with torches, wick and hurricane lamps. The study found after-dark study time increased for children, it benefitted micro-enterprises like hairdressing shops, small kiosks, bars and restaurants and significantly gave the community access to information.
The study concluded that due to the relatively low levels of energy consumption in rural areas – a mere 2kWh per month per person – off-grid solutions like solar would make more sense.
A “virtuous cycle” of price reduction
There has been much debate about whether renewables will cost South Africans more. “There is a lot of political noise about this, but the cost of renewables is coming down,” Wepener says.
Futurist Ramez Naam, at the 2018 SingularityU Summit in South Africa, talks about how alternative energies are disrupting traditional coal-based energy sources. He said moving towards renewables makes sense both economically and morally, as there are significant health risks associated with carbon-based energy.
Naam says as more renewable energy is used the less it costs, bring innovation into the equation and the benefits are clear-cut. He calls this a “virtuous circle” with prices of alternative energies coming down and, in the end having the ability to produce electricity in some countries for as little as US 5-6 cents per KWh (about 67c in South African currency).
Wepener says the cost has dropped even more in recent rounds of the Renewable Energy Independent Power Producers’ Programme (REIPPP), tariffs were bid as low as 60-65c per KWh. Consumers in some regions in South Africa are currently paying as much as R2.20 per KWh.
Promising use cases
Already there are good news stories to be had concerning renewables in South Africa. The Karoo town of De Aar in the Northern Cape supplies Eskom with 85 458 MWh energy per year, enough to supply more than 19 000 average households. The town effectively supplies its own power and sends some to the grid.
This will soon no longer be an isolated good news story, says Wepener.
Business is looking to supply their own power too and sell excess back into the grid and is lobbying the government to remove regulatory controls that limit the amount of power generated for “own use”. This has become a priority of Business Unity South Africa.
In addition, the recent signing of a R1-billion joint commitment between Investec and UK Climate Investments to form “Revego”, a majority black-owned and managed fund manager, for managing investments in renewable energy, will boost the sector. Revego will list on the stock exchange later in 2019. “Independent Power Producers will be massive, private households that produce excess power can push this back into the grid.”
Greenfield projects are funded by the bank too, says Wepener, so there is a package of investment opportunities for businesses within the renewable energy space.
Looking toward the future Wepener says the next 20 years should bring an open and transparent power market. “We see a future where Eskom maintains the grid, and power producers and power consumers can trade power in accordance with their requirements, creating a win-win situation.
“Independent Power Producers will be substantial, private households that produce excess power can push this back into the grid. Online trading of power with the combination of IPPs, households and businesses will mean the cost of electricity will be lower. Consumers and businesses will both benefit. Let the free market drive the process, that’s what we hope to see.”