Once the benchmark of success on the continent, the South African renewable energy sector is quickly stagnating as policy delays bring investment and build-out to grinding a halt. In recent years the South African energy sector has experienced contrasting fortunes. The successful implementation of the Renewable Energy Independent Power Producer Procurement (REIPPP) Programme has sat alongside the economically damaging effects of rolling blackouts brought on by the maintenance backlog of an ageing coal-fired power fleet. In November 2016, the government released the latest draft of the Integrated Resource Plan, which outlines the country’s electricity strategy to 2050. Under the plan, the country seeks to add 37GW of wind plants over 2021-50 and 18GW of PV, and reduce coal’s share of capacity from three-quarters to a fifth over the same period. The plan must now be approved by the Cabinet.
Eskom, the national utility, generates about 95% of South Africa’s power and is the sole purchaser of electricity in the country. The state-owned company has had financial troubles, exacerbated by the general state of the South African economy, and in April 2017, Standard & Poor’s cut its long-term country outlook to negative. Together with Fitch and Moody’s, S&P has put Eskom on a negative outlook.
Rolling blackouts, known locally as ‘load shedding’, were commonplace in 2015, but have been a less frequent event more recently, thanks in part to the slowdown in power demand growth. Eskom hit the headlines for less positive reasons in late 2016, after the CEO Brian Molefe resigned following a report by the former public prosecutor. The ‘state capture’ report alleged that Molefe and other members of Eskom’s board did not declare their close relationship with the Gupta family, who owns a mine that sells coal to the state-owned utility.
Independent power producers (IPPs) are beginning to carve out market share with renewable projects, principally due to the auction programme. However, the scheme ground to a halt in 2016, after Eskom refused to sign further power-purchase agreements until it received “guidance” from government. The Cabinet, Treasury, office of the President, and Department of Energy have since expressed their commitment to the programme, as developers deal with the growing delays to their projects. Nearly a year ago, the Round 4-4.5 projects were due to reach financial close and the government was expected to announce the winners for the 1.8GW ‘expedited bidding’ window. Projects in Round 4-4.5 continue to face delays as financial close is yet to be achieved.
Based on the draft IRP published in November 2016, gas is set to be South Africa’s baseload technology of choice. Combined-cycle gas turbines will see more than double the volume of new build that was forecast in the previous base case. That said, gas is suffering from the same political delays as renewables. Meanwhile, the draft IRP suggests that coal will see the biggest decline in share of capacity, but the country is still planning to add 15GW by 2041. The government announced the winners of the first Round of its coal power procurement programme in October 2016. The playing field is still muddy for nuclear: the new plan suggests that the first new nuclear plant will only come online in 2037 – some 12 years later than projected in the 2013 IRP. However, Eskom has said it will continue its plans to add 9.6GW.
The biofuels blending mandate was supposed to come into force in October 2015, but as of December 2016 the government had not released the pricing or final position paper. Still, a regulatory framework is expected to be submitted at some stage during 2017 – the same timeframe as the carbon tax is expected to come into force. This is perhaps one of the more controversial policies in the country due to the large financial implications for Eskom and the mining sector.
South Africa is a signatory to the UNFCCC Paris Agreement and in its Intended Nationally Determined Contribution (INDC) is based on an emission trajectory. It intends to target an emissions level in the range of 398 -614 MTCO2e including LULUCF and 417 – 633 MTCO2e excluding LULUCF over the 2025-30 period. This equates to a range of 20 -82% above 1990 emissions level. Despite this pledge, South Africa’s current policy framework puts it on an emissions trajectory that is estimated to be above this already significant range.
South Africa slipped down the order for the third year running. In 2014, it was ranked third, in 2015 it dropped to fourth, last year it was fifth and on Climatescope 2017 it was placed sixth with a score of 1.97. The country still tops the list of 19 African nations, above Kenya and Senegal. It experienced modest declines on all four parameters.
On Enabling Framework Parameter I, it sank six places to 38th. This reflects a relatively weak clean energy policy environment (there is no net metering or feed-in tariffs, for example) and an unreformed, state-dominated power sector. In contrast, it benefited from the addition of large volumes of new wind and solar power generating capacity in 2016.
The country retreated seven places on Clean Energy Investment and Climate Financing Parameter II to 13th as the volume of money flowing into the sector declined dramatically (to slightly less than $900m from more than $4bn the previous year). Conversely, the score was supported by the country’s relatively low average cost of debt and considerable local investment.
The country’s smallest decline came on Low-Carbon Business & Clean Energy Value Chains Parameter III. It slipped one place to fourth, behind China, Brazil and Mexico. The country has a comprehensive range of financial institutions and service providers and a wide variety of engineering and manufacturing enterprises in all sectors, bar geothermal.
South Africa also ranked fourth on Greenhouse Gas Management Activities Parameter IV, having taken the number one position the previous year. Its score reflected its relatively ambitious Nationally Determined Contribution, the presence of climate change regulations as well as a high level of corporate awareness.