International investment in the South African renewable energy market


Courtesy of FCBI Energy

A renewable energy market of extraordinary growth

In just four years, South Africa has gone from being a coal-dependent economy to a prime destination for renewable energy investment. Largely propelled by the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) which commenced in August 2011, the scheme has procured 79 projects with a capacity of 5,243 MW under the four bid windows, which is more than one-quarter of the national renewable energy target of 17,800 MW by 2030.

Influx of foreign investment

The approved projects represent an investment value of ZAR 192.6 billion ($14.08bn), of which 28%, or ZAR 53.2bn ($3.5bn) was foreign investment, according to Energy Minister Tina Joemat-Pettersson.

Northern Cape, the largest and most sparsely populated province in South Africa, attracted the lion’s share – nearly ZAR 127 billion, or 66% of total investments to date, according to South Africa’s IPPP Office. Moreover, the province is host to 100% of the CSP and 65% of the solar PV capacity procured through the four bid windows of the REIPPPP.

Western Cape, on the other hand, is where the majority of international renewable energy companies are establishing their offices, particularly in the capital city Cape Town. The province has also started to attract investment into the manufacturing subsector, thanks to the new Atlantis GreenTech Special Economic Zone, which offers incentives for businesses who want to locate or expand their operations within the industrial area. These include exemptions from land-use application fees and assistance in obtaining faster environmental authorisation.

Spain’s Gestamp Renewable Industries (GRI) have already opened a factory in Atlantis at a cost of €20 million ($22m) to manufacture up to 150 steel towers annually, while JinkoSolar, ReneSolar, SMA Solar Technology, Solairedirect, SunPower, Suntech and Vikram Solar are among the solar companies that have established manufacturing facilities in the province.

According to the Department of Trade and Industry, GRI benefitted from government's 12I Tax Allowance Incentive (12I TAI). In terms of the 12I TAI the company got R80-million and allocated towards investment allowance of R300-million and almost R6-million towards skills development and training of employees.

“We saw international developers mainly come from the United States, Europe and China, and they achieved big economies of scale here because the renewable energy program is huge, further expected to expand by 6.3 GW in future competitive rounds,” Celine Paton, a South Africa based independent energy consultant and analyst, told New Energy Update. “These companies knew they would have more chances of being selected as preferred bidders if they had local offices, employed more local people in their teams, and hired local subcontractors.”

“We’ve also seen many European solar and wind developers who were looking for growth since the European market is not easy at the moment, especially with the current regulatory frameworks,” Paton added.

“Norwegian Independent Power Producer (IPP) Scatec Solar is a good example; they decided to move their headquarters to South Africa and now the company works locally and is looking at other African markets”. Indeed, Scatec Solar commissioned an 8.5-MW solar plant in Rwanda in 2014 as well as several other plants across West Africa. In South Africa’s market, which the company entered in 2010, it has delivered three solar plants with a total capacity of 190 MW and is working on 258 MW to be realized in 2017. Similarly, Italian IPP Building Energy, which opened an office in Cape Town in 2012, is developing projects in Zambia, Uganda, and Ghana.

Of the ZAR 192.6 billion ($14.08bn) committed to renewable energy projects in South Africa over the last four years, about ZAR 70 billion ($4.6bn) is estimated to have been invested in wind power capacity, according to Johan van den Berg, CEO of the South African Wind Energy Association and Chair of the South African Renewable Energy Council.

“In 2011, we had 10 wind turbines installed in South Africa with a capacity of about 10 MW. Today there are more than 400 turbines spinning across the country, generating around 953 MW. And there’s almost double that in the pipeline, in construction phase and post-financial close.”

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