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A renewables stimulus

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A renewables stimulus

29th May 2020

By: Terence Creamer
Creamer Media Editor

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There are several stimulus levers that South Africa will consider pulling to extricate itself from what is far more likely to be a serious depression than a fleeting recession. One of these stands out more prominently than most of the others: an accelerated renewable-energy build programme.

The reasons are obvious and manifold.

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First, the country requires additional electrical energy, despite the recent Covid-19-induced falloff in demand and Eskom’s seemingly successful opportunistic maintenance drive during the lockdown, which have both helped to reduce the immediate load-shedding threat.

Demand will eventually recover, and Eskom will eventually begin to decommission its oldest, most unreliable, dirtiest and most expensive power stations. Even in the absence of significant demand growth, more energy and capacity will, thus, be required to sustain a reserve margin that is sufficiently large to keep the lights on and lay the basis for any possible future expansion.

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Second, renewables are the cheapest new build option for South Africa, even after their supplementation with complementary technologies able to address their variability. In the short term, the system risk posed by such variability is low, with the threat growing only once penetration levels reach well above 20% .

Third, the job-intensity of installing wind and solar means that large numbers of construction and installation jobs will be created immediately, even if local-content levels are not what government wants them to be. Studies also indicate that localising renewables supply chains is likely once vendors have visibility of sustained domestic demand.

Fourth, an accelerated renewables deployment would be fully aligned with government’s climate commitments and a desire to reduce the prevailing health impacts of electricity production.

Most importantly, though, is the fact that renewables can be financed without any major dependence on the fiscus. True, tariff payments are being guaranteed by government, but unless the regulator disallows full cost recovery by Eskom, there is little risk of this guarantee being called upon. What’s more, access to green finance is growing and will expand further in the post- pandemic recovery phase, while access to fossil-fuel finance is waning and nuclear financing is complicated.

The only real requirement for unlocking private clean-energy capital for stimulus efforts is political will, a supportive policy framework, a regulatory environment that is rational and easy to navigate and a procurement system that is fair, transparent and corruption-free. At this point, South Africa arguably scores well only on the procurement front and is failing dismally on all other fronts, with political will appearing particularly weak.

As if that were not bad enough, the authorities seem intent on undermining investment certainty even further by pushing ahead with an ill-conceived plan to renegotiate power contracts signed with the very same private investors and banks that would be expected to build and finance the next round of renewables assets.

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