Rush for renewable energy

20 April 2012
Published in Blog

Billions of rands of investment are flowing into South Africa as a result of the government's plans to move towards renewable energy. The rush is a boon to South Africa's nascent renewables market and major companies from across the globe are partnering in the first round of the independent power producer procurement programme for renewable energy.

But the test, according to experts, will be in how the market develops once projects begin delivering power in an environment in which complicated ownership structures are becoming a key feature of the companies emerging as the forerunners.

In December, the 28 preferred bidders in the state's independent power producer procurement programme were announced and the second round of bidding closed in March. The first 1 451 megawatts allocated out of a total 3 725MW were divided across wind, solar photovoltaic and concentrated solar power. By June 19 the first-round bidders will be expected to complete financial closure on their projects and begin construction (see "The Players").

Gareth Blanckenberg, energy and power systems research analyst at consultancy Frost & Sullivan, said although the ownership of the bidding companies was complicated because of the structure of the various consortiums, many large international renewables players linked to these projects were becoming active in South Africa.

The ownership structures were complicated for two reasons, he said. Firstly, the local-content requirements had resulted in many larger international companies partnering with local companies and communities. Secondly, the cost of investing in renewables was expensive and required a lot of equity.

Considering that renewable energy is a fledgling industry, the scale of investment, at this stage estimated to be at least R50-billion, is highly significant, according to Greg Nott, director at Werksmans Attorneys. "We are seeing immediate growth in a very short period of time," he said, and the entire scope of the country's economy would be affected by this development, from grassroots and community levels upwards.

The procurement process had attracted the interest of international groups, finance houses, manufacturers and development finance institutions. Renewables development had "many moving parts" across a range of sectors in the economy and as such invited careful scrutiny, Nott said. A test of our emerging renewables sector would be to see how these new companies operated, given the complex nature of their structures.

"The fundamentals of good business practice, such as creating good cash flows and maintaining good governance and operating performance will have to remain a focus."

Nott said there was a great deal of interest in establishing manufacturing capacity in South Africa, particularly from China in terms of solar photovoltaic power. This was in addition to interest from companies in Scandinavian countries and the European Union, which had a longer history in renewable energy and manufacturing.



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