Renewable Energy in South Africa: wind farms showing the greatest potential
The carbon emissions situation at present
South Africa has extensive coal reserves projected to last into the 21st century, and so it is not surprising that thermal power stations have become the dominant source of electricity generation in the country, hence South Africa having the cheapest electricity in the world. A major negative effect of this, however, is the country’s energy-related carbon emissions, constituting the largest share of green-house gas emissions. Global per capita energy emissions in 2000 were estimated at 6.91 tons while Africa’s per capita emission was 0.86 tons. South Africa has experienced an almost six-fold increase in fossil fuel carbon dioxide emissions, with up to 90% coming from coal. Carbon emissions are not at sustainable levels while coal remains the primary energy source.
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South African policy on renewable energy
There is no legal obligation on users to reduce greenhouse gas emissions. South Africa has however initiated various reduction strategies. As a relatively high energy-intensive economy, the interest in renewable energy has grown substantially. In the White Paper on the Renewable Energy Policy of the Republic of South Africa, 2003, published by the Department of Minerals and Energy, the government sets out a vision, policy, goals and objectives for promoting and implementing renewable energy in the country. In order to meet the long term goals of renewable energy, government set a 10 year renewable energy target of 10 000GWh renewable energy contribution by 2013, to be produced mainly by biomass, wind, solar and small scale hydro. This constitutes approximately 4% (1667 MW) of the estimated demand.
Diversified energy supply
The Department of Minerals and Energy is
to ensure that an integrated resource planning approach is adopted for major investment decisions by energy suppliers. The Integrated Energy Plan, 2003, attempts to balance demand with supply while considering safety, health and environmental issues. Although energy supply will remain reliant on coal in the foreseeable future the diversification of energy supply via increased use of natural gas and renewable sources is a priority.
Currently the major renewable energy source has been identified as wind. Wind currently produces about 1% of world electricity demand. This varies, however, and in countries such as Denmark this figure is 19%, while in Spain and Portugal it is 9%.
The price of wind
This creates a major challenge as Eskom, the dominant electricity generator, has a commercial capacity of approximately 40 000 MW and none of this capacity is classified as renewable. The major constraining factor to promote wind as a renewable energy source remains the energy sales price. The 2006 average energy sales price was R120/MWh while the sales price of new generating capacity is in the order of R320/MWh. Although the current price of electricity in South Africa is among the lowest in the world, the sales price from new plant is of the same order as the cost from new plant globally.
Eskom is the main off-taker of electricity and is in a position to facilitate the development of the renewable, and specifically the wind, energy market. Without mandatory purchase requirements imposed on Eskom or municipalities, and/or additional incentives for Eskom and/or independent renewable power generators, pricing clearly makes renewable energy uncompetitive compared to conventional fossil energy. It is therefore imperative, as a first step, that the nature of off-take agreements be addressed from a policy point of view.
Early signs of change
Eskom and a number of private entities have embarked on a process to address this issue. The Western Cape and Northern Cape provinces have been identified as the most likely areas where wind energy can be harvested. Eskom embarked on a regional site identification and selection process in April 2007 and from this the Lutzville wind project in the Western Cape originated. The commercial wind energy facility is proposed to comprise up to 100 wind turbines with an installed capacity of 200MW.
In addition, a private developer has identified a number of potential wind farm development sites in the Western Cape and Northern Cape provinces. These sites are currently in the first phase of wind monitoring further to a lengthy process of securing privately owned sites and negotiating with land owners to make their sites available for wind farm development.
The identified potential capacity of these sites is in the order of 1 000MW and would contribute substantially to government’s objective of 10 000GWh. The capacity factor in this area compares favourably with Australian and European sites. The major challenge to develop these sites remains connection to the national grid and reaching agreement with the major off-taker with regard to price and general support of the industry.
For more information contact Mr Tommie Potgieter, Investec: Project & Infrastructure Finance, on +27 11 286 7258 or email tommie.potgieter@investec.co.za
