The renewable energy targets outlined in South Africa’s Integrated Resource Plan (IRP) 2010 would add an average incremental cost of around $660-million to South Africa's yearly electricity bill up to the year 2044 unless financial instruments were found to offset those costs, President Jacob Zuma has warned.

Under the current IRP, South Africa plans to add more than 17 000 MW of renewables capacity by 2030, the equivalent of more than 40% of all new capacity added by that date.

But speaking at a business summit on the sidelines of the climate negotiations in Durban, Zuma stressed that the biggest barriers to developing renewables in Africa, ahead of conventional energy sources, were financial rather than technological.

An initiative, dubbed the South African Renewable Initiative, or SARi, was, therefore, being launched with global donors and foreign governments to extend innovative funding solutions to lower the renewables deployment costs. The initial partners would include the UK, Germany, Denmark, Switzerland, Norway and the European Investment Bank.

“The SARi model will enable us to deal with the high cost through low-cost loans and other financial instruments combined with time-limited pay-for-performance grants,” Zuma said.

It was currently estimated that, even with favourable loans and the savings expected to arise from the competitive procurement process being used by the government, an incremental cost gap of $3.5-billion could arise up until 2044.

A number of potential funding sources were, thus, being explored to close this gap, with emphasis being given to international pay-for-performance grants.

SARi proponents calculate that by securing funding at a rate of $10/t for carbon dioxide-equivalent reductions, a present value contribution of $1.9-billion towards the incremental cost of the current IRP could be gained, leveraging a residual domestic contribution of $1.6-billion.

Should the combination of low-cost loans and pay-for-performance grants prove successful, it might also enable renewables to play a larger role in future IRP iterations, which could offer green energy and manufacturing jobs benefits while offsetting the potential risks to growth.

A newly published ‘Green Jobs’ report, co-authored by the Development Bank of Southern Africa and the Industrial Development Corporation, estimated that some 130 023 direct jobs could be created by South Africa’s renewable energy sector by 2025 if the renewables allocation outlined in the IRP were expanded from 17 800 MW to 26 520 MW.

SARi will be specifically tailored to the challenge of funding for renewable grid-based energy. But, it will not cover the broad range of clean-energy technologies, such as off-grid renewables, low-carbon cogeneration processes and energy-efficiency initiatives, microgrids and industrial self-generation, gaseous and liquid fuels, clean-coal technologies, or fuel cells.

All funding arrangement would be agreed by the National Treasury to ensure alignment with South African policy and legislation. The National Treasury recently issued a tender for a transaction adviser to help it establish a facility, currently termed a ‘Renewable Energy Fund’, that will channel international donor and commercial funding to support South Africa’s ambitious roll-out of renewables technologies.