Africa’s broader energy production value chain holds enormous potential to deliver better solutions for the end user and for a reduced carbon footprint. While this development is still largely in a nascent phase, a number of innovations will drive activity in the coming year and well into the future, creating jobs and opportunities for businesses to expand.
“While a country like South Africa has some of the best renewable resources in the world and recent renewable programmes have increased supply and reduced prices, benefits need to be maximised across the broader supply chain,” says Head of Natural Resources for Commercial Banking at Standard Bank, Berrie de Jager.
The Renewable Energy Independent Power Producer Procurement programme (REIPPP) – which competitively auctions renewable energy projects – has already been hailed as a great success after bid prices for solar and wind projects fell significantly during the different rounds of the programme.
On the back of this programme we’ve also seen the establishment of a sophisticated ecosystem of players who develop, build and manage these solutions. But while rounds 1-4 of the process led to relatively consistent project – demand, this has waned of late with Eskom’s hesitance to sign some of the outstanding Power Purchase Agreements (PPA’s).
President Zuma put the process back on track during his 2017 State of the Nation address when he confirmed that Eskom will sign the outstanding PPAs, in line with the procurement rounds.
De Jager says South Africa and Africa have incredible renewable energy potential and while investment is taking place, it is not happening fast enough, especially in the embedded generation sector.
One of the contributors to the muted growth is a lack of a clear regulatory framework. De Jager is however encouraged by the publication of NERSA’s consultative paper on Small – scale embedded generation which has the potential to serve as growth catalyst in this important segment, once concluded. Another key driver of activity is the recent ratification by the South – African Government of the Paris agreement on climate change.
This is an agreement within the United Nations Framework Convention on Climate Change (UNFCCC) dealing with greenhouse gases emissions mitigation, adaptation and finance starting in the year 2020. De Jager says that not only does this agreement send a positive signal in ensuring that the effects of climate change are addressed but it also sets the scene for accelerated growth in the energy efficiency and clean energy generation sectors. An acute awareness about how to change the energy mix over time and produce more clean energy is needed.
A country like Germany, for example, has made quite a significant commitment to change their energy mix. Germany already gets over 25% of its electricity from renewables, and is aiming for 80% renewable energy by 2050
“In SA too, we are seeing more players asking how they can become less dependent on Eskom, with more co-generation expected in the future as those with surplus capacity sell into the grid. Expect to see more creative approaches to this in the years ahead – though we have a long way to go to get to the level of a country like Germany,” says De Jager.
Outside of funding energy generation projects, major opportunities for financing and manufacturing are beginning to emerge.
“Component distributors and companies specialising in renewable solutions are, for example, starting to gain traction – among others they would source solar panels, inverters, mounting systems etc. We expect to see others setting up a manufacturing footprint over time rather than sourcing from Europe and China, for example,” says De Jager.
According to CSIR Energy Centre Analysis, the REIPPP Programme has been very well run, but the demand is too “spiky” in order to trigger significant investments into local production.
Yet companies are beginning to fill the gaps. BMW’s production plant near Rosslyn for example buys electricity from a privately owned biogas plant near Bronkhorstspruit. The power is generated from biological materials and is then wheeled via the Eskom grid.
“We are seeing entrepreneurs being employed to build biogas plants that produce power through the fermentation of organic matter like agricultural waste, manure, municipal waste and other organic materials., They then use the power for self-consumption or sometimes sell it to a nearby company that needs power to produce goods. They can then also look to partner with Eskom or local Municipalities by supplying excess energy to the grid.
“Expect to see more scale in this regard in the future as traders position themselves more in the market and as the regulatory framework evolves. They could, for example, even look to partner with an independent power producer to supply power to a nearby town,” says De Jager.
Other sectors to benefit due to expansion of the energy value chain include specialised transport companies that can quickly get specialised goods like large wind turbines form the port to a customer inland.
“Standard Bank, as a responsible corporate citizen, intends to play an even bigger role in helping facilitate growth and development across the renewable energy value chain. In the process we can assist companies across Africa to reduce their carbon footprints and clear bottlenecks in their energy supply,” says De Jager.
The longer-term game for Africa will be about developing a hybrid mix of energy solutions that can create efficiencies and scale.
The coming carbon tax in South Africa from 2017 should also create opportunities for players to co-ordinate these activities.
“Just the monitoring and registration of projects creates economic activity that could lead to jobs, while the carbon trade market will also pick up in time. Expect to see more commercial entities emerging that will assist companies to capitalise on section 12B and section 12L tax benefits and which will also look to invest in resources and build capacity,” says De Jager.
Value interlinks will come to fruition across the continent – areas with solar PV, wind and even hydro power– supplying other regions.
“Expect to see a lot of research and new solutions. This will in turn create opportunities for engineers, sellers of electrical components, large turbines, generators and other energy solutions to enable these developments,” says De Jager. Companies like abattoirs will, for example, become more knowledgeable about how to convert waste into energy, which will reduce their energy costs significantly and which will ultimately improve their financial positions. Engineering procurement contractors are also likely to broaden their focus beyond traditional areas of focus like mining to energy as they seek out new markets.
Greenpeace says there could be about 7.6 million jobs in Africa by 2020 in the renewable energy sector and about 10 million by 2030.
“Skills transfer will improve across this industry as all these developments begin to take shape – it will permeate the economy and trigger demand and as a responsible bank with our roots in Africa, we will assist in driving this growth” says De Jager.