A global increase in demand for renewable energy solutions is complicating global supply chains and capacity at the same time that South Africa is planning an aggressive ramp-up in its renewable energy plant build rates, says Business Leadership South Africa (BLSA) CEO Busi Mavuso.

She also states that she finds “little solace” in South Africa sharing an energy crisis with many other countries, having experienced Stage 4 load-shedding over the weekend.

“California [in the US] had warnings of blackouts last week as extreme temperatures led everyone to switch on their air conditioners and put the grid under unprecedented pressure.

“The European Union [EU] and the UK are facing record gas and electricity prices, leading to a cost-of-living crisis. The EU is desperately trying to reduce its reliance on Russian gas for energy,” explains Mavuso.

These global crises are affecting South Africa as components for renewable energy solutions experience a rise in demand, with many countries accelerating their energy transition plans, aiming to bring more renewable energy onto the grid faster.

“Apart from those facing immediate crises, many other countries have aggressive build programmes for renewable generation, led by China, which plans to add at least 100 GW of renewable energy yearly, over the next five years,” she says. This is about three times South Africa’s entire nameplate energy capacity every year.

The rise in demand for renewable energy components also comes at a time when South Africa has been “tripped up by global conditions”, including Round 5 of the Renewable Energy Independent Power Producer Procurement Programme, which was impacted by delays between the finalisation of preferred bidders and financial close, says Mavuso.

However, up to the point of financial close, she says projects are vulnerable to moving market prices. “When Round 5’s preferred bidders were announced, they came in at a record low average of 47c/kWh – less than 20% of the average cost of Eskom’s existing production.”

But, Mavuso says, the price hikes since then have “tripped” these projects up, leading to a situation in which it is now unlikely that all, or even most, of the projects will be able to close.

Moving forward, she says, the first lesson to be learned from the situation is that delays must be avoided at all costs. “The longer the time between preferred bidder and close, the higher the chance that market prices will move.”

In the case of Round 5, Mavuso says delays were caused by the Department of Trade, Industry and Competition’s requirement that projects meet targeted volumes of local content.

The whole local production capacity is well known, and Round 5 projects exceeded it, she adds.

“Every moment of delay in stabilising our electricity supply comes at a cost to our industrial sector, which has been shrinking due to high energy prices and uncertain supply; so these delays were an own goal for overall industrial development.

“Swift progression from preferred bidder status to financial close needs to be the absolute priority. Efforts to drive localisation must come second,” states Mavuso.

Although localisation is still important, she says the South African industry cannot “magically produce capacity into existence”.

Mavuso says such capacity has to be created over time. “For that to happen, we need a clear pipeline of new generating capacity. We also must ensure that local production matches the prices and quality available internationally.”

The primary concern, however, must be to mitigate delays of new energy production coming onto grid.

“We are now progressing into a massive new 5.2 GW Round 6 of the programme that will be hitting global production capacity at the same time as global demand has spiked.

“Prices are very likely to exceed what was bid in Round 5. But we must learn the lessons and ensure we can swiftly get from preferred bidder status to financial close. We need to minimise risk of markets turning against us and we need to ensure electricity is added to the grid as quickly as possible,” she says.

Mavuso points out that BLSA is committed to various initiatives to support government to solve the energy crisis.

“We are helping to fund several efforts to support capacity in government with the appropriate skills. We have worked hard to help Eskom implement its own plans to increase renewable production.

“This is a national effort we all must be part of. We need to do it, however, with an eye on the global market place from which we must source capital goods and ensure we do not allow policy missteps to trip up our urgent efforts to resolve the electricity crisis,” she says.