Industry experts say that South Africa is currently the world’s most attractive renewable energy market. According to the Bloomberg New Energy Finance research group, the numbers say it all-2012 saw a total investment of US$5.5bn in renewable energy in the country. This is a major increase from the few tens of millions of dollars in 2011. This rapid escalation in growth means that South Africa had the biggest annual clean energy investment growth rate in the world last year, overtaking China, Japan, South Korea and a host of other economies. The country has committed to cutting its carbon emissions rate by 42% before 2025 and it has a great need for more electricity. This alone, has attracted many investors to the country’s shores. Reliability is also a major factor as the country suffers from regular outages. Insufficient, as well as ageing infrastructure, are mostly to blame.
Engerati interviewed a few industry experts at the recent African Utility Week 2013 to get their view on the challenges that South Africa (and Africa) is faced with.
The emerging market
The development of renewable energy seems to be exactly what the country needs but according to Davin Chown-Director Corporate Affairs, Commercial & Business Development at Mainstream Renewable Power South Africa & Director at Genesis Eco-Energy, investors come and go despite the continent’s rich renewable energy resources. He explains that investors need to understand Africa as an emerging market but not everyone has an appetite for or knows how to handle it. Chown says that investors must have an appetite for risk when it comes to this market which is still very much in the developmental stage. Misconceptions also lead to a lot of disappointment as investors leave the continent once expectations are not met. Investors are looking for a quick and easy, low risk investment but the African markets simply don’t offer that as they are in the infancy stage. To deploy resources that are scarce, especially during the global financial meltdown, investors may not be attracted to something that is not definite. Once investors understand the market, they will see it is worth sticking around. The major foreign investments made in renewable energy projects in Africa are proof of that.
Africa needs in the region of US$93bn to close the energy gap by 2030. The real issue [for the continent] is the cost of infrastructure development, and accessibility to capital. This is according to Norman Ndaba, Ernst & Young Power & Utilities leader in Africa.
Chown explains that although there is a shortage of necessary skills, international expertise should be drawn upon. It is essential that the South African power industry learns from the mistakes already made overseas. This is an advantage in itself. Chown points out that the country doesn’t have the luxury of fixing mistakes as this costs times and money. Therefore, it is important that things are done right the first time.
Quality products and expertise
Wessel Bakker, Business Line Director Electricity Transmission & Distribution - DNV Kema, says that it is inevitable that renewable energy-and grid integration-will develop fast in Africa. He explains that the continent has great potential despite its unique challenges. Quality product and expertise will help the continent to develop its renewable energy industry. Bakker explains that it is essential that African utilities hire experts to properly analyze the power system in order to ascertain exactly what is required. In the end, this will help African utilities to avoid wasting money on unnecessary man hours and technology.
Quality product performance is another issue when it comes to the successful integration of clean power. Bas Verhoeven, Business Line Director – DNV Kema, explains that utilities must adhere to global quality standards when it comes to purchasing products. This may mean high initial costs but cheaper, below standard technology has the potential to cost the utility a great deal more. Social and financial costs can be very high, especially during outages. According to Verhoeven, a good quality product should last three to four decades.
Despite the risks and challenges involved, there are also major opportunities within the sector, particularly in growing African economies. The emerging market is definitely booming and it is up to the continent’s governments and industry players to convince international investors to invest in Africa’s renewable energy. The general consensus amongst industry experts at AUW2013 is that Africa offers a great deal of untapped potential.
Renewable energy technology has the potential to alleviate many of the problems that face Africans every day. As with most developing markets, there will always be challenges. However, Africa’s saving grace is its plentiful renewable resources which investors are scrambling to get their hands on.