Sector Analysis: Renewable Energy Markets

Interview with Professor Kevin Bennett, Director of the Energy Research Centre, University of Cape Town

TradeInvestSA: In light of South Africa’s current energy crisis how do you foresee the transformation of the renewable energy market?
Prof. Kevin Bennett: These technologies are generally very expensive. Any attempts to extract energy from the environment on a large scale suffers from the problem that, unfortunately, renewable energy is generally quite dilute. People think the sun is strong, they think waves are big and they think wind is very powerful, but if you start comparing the energy content of those forms of energy with coal or nuclear or oil you will see that they are less intense. Because renewable energy is dilute, it means that to capture large amounts of it requires a large surface area, whether it is solar collectors or windmills. Because of that there is a major problem in terms of central power generation.

If you try and implement these renewable technologies in the Third World you are going to have the problem that these technologies are generally more expensive than the dirtier options like coal-fired power stations. In the Third World people want to improve their quality of life and they have not got much money to do it and they will not be happy with energy solutions that cost huge amounts of money and cause the price of electricity to rise. 

For power generation in the Third World I don’t see a great future for renewable energy in terms of providing the overall solution. There will always be niche markets where there will be the possibility to generate energy using wind or waves or solar. And very often in the Third World it is going to be supported by First World companies looking to expand their renewable energy markets. Renewable energy is something that I don’t think developing countries will be able to afford for a long time.

However, where it is particularly obvious that potential does exist is solar water heating, as a significant percentage of domestic household energy consumption is used for heating water. And in a country like South Africa with electricity in short supply, this sort of renewable energy technology makes complete economic sense.

Eskom is now subsidising the installation of solar water heaters and the government is talking about making it mandatory that houses above a certain size must install solar water heaters. This is done in many other countries so it is not unique. It is surprising in a way that it has not been done before here. So from that point of view there is definitely an opportunity not just in Third World but everywhere where the sun shines to use solar water heaters to supplement electricity supply. The other option people have looked at is solar cooking. In theory, yes, you can do that but in practice it is a very painful process.

TISA: From an investment perspective would you consider South Africa’s renewable energy market a potential growth sector?
KB: In terms of locally manufactured renewable energy technologies, the problem we face currently is that there isn’t the necessary manufacturing capability. The next problem that we face is that if we are going to import these products, there is a quality issue. We have imported poor quality renewable energy products in the past. Consequently, consumers become suspicious. In the case of solar water heaters, it is so important to evaluate the quality of these products before introducing them into the market. The difficulty is that we don’t have much institutional capacity to do this, especially in evaluating new suppliers. The shortfall is also then in the ability to issue licences. However, I am sure that we will figure out these capacity constraints in the long run.

But, there is clearly an opportunity for a country like China, which seems to have endless manufacturing capabilities to supply South Africa with relevant renewable energy products. There also clear opportunities to manufacture these products locally. Locally there is increasing demand as Eskom has now offered an installation subsidy. According to a local solar water heater manufacturer these products are flying off the shelves and it is currently difficult to meet the growing demand for these products. At the moment there is great opportunity within this niche market in South Africa.

TISA: Among developing nations can you comment on best-case practices in regard to the dissemination of renewable energy technologies?
KB: The renewable economy in Brazil is a case in point. They are world leaders in biofuel production – ethanol fuel. They have been making ethanol out of sugarcane for fuel use since the 1970s around the time when there was scare around oil production.

TISA: What can government do to stimulate the market-based dissemination of renewable energy technologies?
KB: They have already set targets and a subsidy scheme for solar energy technologies. I think we must be a little bit careful about why we want government to push renewable energy. We have coal that will last us for the next couple of hundred years and we have all these poor people that we are trying to uplift. Surely it is a priority to uplift peoples’ standard of living, where they start to feel content with their lifestyle, basic comfort, a decent house, energy, health services. If we can do that for a minimum cost and it happens not to be renewable energy, then we should.

When we get as rich as the Europeans then we can consider renewable energy technologies on a large scale, and yes there will always be the potential for niche market of commercially viable renewable technologies like solar water heaters.

TISA: What role will independent power producers (IPPs) play in the provision of electricity in South Africa?
KB: They are in a tough position because of the situation in this country. An IPP which comes into South Africa intending to compete on the open market wants to make profit. Poor people cannot afford to pay the price this IPP is going to charge. The regulator is well aware that there is no way we can allow prices to scream up without huge changes in the economy. And therefore I think a lot of IPPs are going to stay away from the South African energy market.

Other options include IPPs approaching large industrial companies and forging an agreement with them, whereby they are the sole provider of electricity to that company, therefore avoiding the problem of selling electricity to the national grid at the lowest possible price. So it is a tricky situation, because we live in a country where we have to keep the price of electricity down, we simply have to! On the other hand we are trying to attract investment in the energy sector.

TISA: What is the future of renewable energy technologies in South Africa?
KB: In the long term it is going to be great, we will adopt them as these technologies are developed in the First World. But I think that our priority here is social uptliftment, therefore we have to concentrate on the less expensive and dirtier options for a long time to come. Similar to other developing countries like China and India even though they have renewable energy projects. Maybe in the well into the future renewable energy will have a bigger impact in South Africa.