Current developments in South Africa’s energy sector, particularly in renewable energy, are galvanizing potential investors and sending powerful signals to other African nations seeking to attract energy investment.
There is no doubting the success of the country’s first bold steps towards encouraging private sector participation in energy investment. International investment worth more than R50-billion has already been pledged for the Renewable Energy Independent Power Producers Bidding Programme.
Investors, advisors, sponsors and environmental specialists, among others, have flocked to take part in the Bidding Programme. This is a clear reflection of the department of dnergy’s capable handling of an extremely intricate bidding process.
In August 2011, the department invited private investors to submit proposals for financing, constructing, operating and maintaining renewable energy generation facilities. The three bidding windows, which closed in November 2011, March 2012, and August 2013 respectively, focused on solar and wind energy projects. In the remaining windows, other technologies will also be explored, such as biomass, biogas, landfill gas, cogeneration and small hydro.
Flawless execution inspires investor confidence
So far, the programme has been immaculately executed, with industry watchers noting the department’s comprehensive bid specifications, inclusive consultation process and disciplined approach to deadlines, not to mention the integrity of the process of selecting preferred bidders.
This administrative efficiency has gone hand in hand with high-level political support throughout. The government has shown commitment to creating an inviting environment for investors through policy stability, clear and consistent regulation, and the creation of viable opportunities for achieving sound investment returns. The role of Independent System and Market Operator (ISMO) is to procure power from the Independent Power Producers so as to level the playing field and eliminate conflict of interest between the buyer and seller of electricity. This protects all players from potential market abuse and achieve efficiencies not normally associated with monopoly utilities.
Government should always be the champion in setting the scene for private sector participation and in this case certainly, it has fulfilled that role well. By creating an enabling environment, the authorities have ensured that investors will come to South Africa, and in impressive numbers. No fewer than 53 bidders responded to the first bidding window and 28 preferred bidders were selected. The second window attracted 79 bids.
The ripple effect of South Africa’s success
The deft handling to date of the Renewable Energy IPP Bidding Programme has definitively showcased Africa's ability to mobilise and orchestrate an extremely complex bidding process. The significance of this exercise goes well beyond the borders of South Africa: if it can be done so competently in South Africa with a cutting edge field such as renewable energy, there is no reason why this success story cannot be mirrored elsewhere in Africa – and sooner rather than later.
The need to roll out affordable, accessible energy in Africa is understandably a pressing priority on a continent where energy poverty is so widespread. According to the World Energy Council, up to 70% of the population of Sub-Saharan Africa still lacks access to electricity. This affects all facets of people’s lives, from health and education to housing and the ability to earn a living.
Small wonder, then, that energy poverty is so high on the African agenda, continent-wide.
According to the World Energy Council, which used the recent Energy Indaba as a platform to release the results of its survey among African energy leaders, energy poverty is seen as a more critical issue in Africa than in any other region.
The survey also found that Africa is the region showing the most concern about the use of water – an extremely scarce resource on the continent – in electricity production. The concern is that the use of water-cooled energy generation could deplete water supplies to the point where there will simply not be enough water for people and power plants.
Strong interest was noted in renewable energy and energy efficiency among African leaders. However, leaders acknowledged various constraints that could hold back the development of renewable energy projects, including the dearth of appropriate skills, governance issues, corruption and, of course, the ever-present challenge of funding.
Among other things, energy leaders voiced concern that the poor global economic outlook had deflated investor confidence in energy projects, which are capital-intensive, especially in renewable energy.
