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Can renewable energy drive economic development?

In South Africa, large-scale renewables facilities are going up in places that haven’t previously enjoyed that many economic opportunities.

“If developing countries are to lift their people out of poverty they need reliable and affordable sources of energy,” says Justin Wimbush, Arup’s renewable energy leader in South Africa.

“Fossil fuels are increasingly being challenged by cost-effective renewables in a world that requires greater self-sufficiency.”

Despite the fact that South Africa has extremely good wind and solar resources, as recently as 2010 the public power utility Eskom generated more than 90% of the country’s electricity from coal. South Africa’s experiences of shifting towards renewable energy could point the way for others in a continent where centralised, state-owned power utilities have been the norm, but have tended to limit rather than enable much needed economic and societal growth.

That shift to renewables is being driven by economic necessity, explains Wimbush.

“Where coal once provided abundant cheap electricity for South Africa’s industrial economy, today that ageing centralised generation can no longer meet demand. The result is load-shedding, where power supply is interrupted to some areas.”

Wimbush points to analysis conducted by Arup that shows South African companies can expect to be subjected to load shedding for the next three to five years. Against this backdrop, interest and investment in renewable energy has grown – spawning diverse opportunities and business models.

“As they look to cope with load-shedding, businesses are considering ways to become less reliant on the grid,” explains Arup energy consultant Vivienne Roberts.

“We’re seeing a lot of interest in photovoltaics (PV) as a result. The marginal cost of electricity generated from renewable energy is becoming increasingly competitive, particularlywhen compared to the cost of electricity to be generated by the new coal power stations under construction.”

Frank Spencer, Chair of the Embedded Generation Committee of the South African Photovoltaic Industry Association, points to a range of different models that are emerging for embedded solar PV.

“In the commercial, industrial and agricultural sectors, there is quite a lot of appetite to self-own projects, particularly with a lot of the big property companies,” he explains.

“Emerging ideas for this include a hybrid model where a separate private energy company owns, say, 50% of the asset and the company itself owns 50%. Then there are companies looking to become independent power producers by building PV plants on third parties’ roofs and selling them electricity.”

Spencer explains that all of this is happening on a grid-parity basis.

“We don’t have any feed-in tariffs,” he says. “We don’t have any real subsidies for solar PV. There are some exceptions to that, but the reality is, this has been driven by financial reasons, related to grid-parity energy prices, and also by energy security.”

To have renewables demonstrate market credibility on their own merit, in an economy that offers limited subsidies, provides a clear sign that the sector points to a more sustainable future.

Embedded generation isn’t the only opportunity in renewable energy.

“There are opportunities in the supply chain from procurement to manufacturing,” says Wimbush. “We’re seeing factories set up to manufacture wind turbine components as well as thermal and solar panel components.

The growth of renewable energy also offers countries the opportunity to bring prosperity to their poorer regions.

“In South Africa, large-scale renewables facilities are going up in places that haven’t previously enjoyed many economic opportunities,” says Roberts. “For example, there are a lot of solar projects taking place in the hot, dry Northern Cape. This introduces economic and employment opportunities to communities that have had very high unemployment for quite a long time.”

While there is now a well-established programme for the procurement of utility scale renewable energy facilities, there remain plenty of challenges for South Africa to overcome for the successful uptake of embedded generation.

“The key problem at the moment is that for projects to work, you have to generate on-site and behind the meter,” explains Spencer. “You can’t transmit or export your solar PV electricity to the grid so you have to use everything you produce.”

The South African National Energy Regulator’s new framework is looking to address this situation, whilst ensuring municipalities that distribute power don’t lose revenue because of embedded generation.

“The idea of consumers producing power is a new thing in South Africa,” says Spencer. “As we address these issues, other economies that work on a similar model will be able to learn from the experiences here. But for the moment we are still in our infancy and still learning ourselves.”

Advising on the future of South African renewables including due diligence work, Arup’s team in South Africa is currently working on 1,800MW of renewable energy projects – equivalent to the Western Cape’s Koeberg nuclear power station. Some of the projects the team is helping to realise include:

  • Nobelsfontein wind farm – a 73.8MW, 41-tubrine wind farm being constructed near the border between the Western and Northern Cape
  • The 75MW Kalkbult solar PV facility in the Northern Cape, which consists of over 300,000 PV modules and is, expected to produce 135GWh of electricity annually
  • The Linde and Drenberg solar projects under construction in the Northern and Eastern Cape
  • Eskom’s programme for 150MW of PV facilities at its power stations
  • The 4.2MW Stortemelk hydro project at the Botterkloof Dam near Clarens in the Free State.
  • Droogfontein 50MW fixed-tilt PV plant just north of Kimberly in the Northern Cape.
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