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MPhil in Engineering for Sustainable Development

global challenges, engineering solutions

Studying at Cambridge

 

Katherine Grant

Sustainable Investment Choices for the South African Electricity Sector

Katherine Grant

Sustainable Investment Choices for the South African Electricity Sector

South Africa acceded to the Kyoto Protocol on 31 July 2002 (UNFCCC, 2008).  This signified South Africa’s willingness to align itself with global climate change policies. In 2003 a White Paper on Renewable Energy was developed. It indicated government’s targets of achieving 10 000GWh of renewable energy contribution to final energy consumption by 2013. However reaching this goal is complicated by the fact that South Africa is currently experiencing an electricity crisis with significant power outages. As a result, the priority of the state electricity utility Eskom, which generates 94% of the country’s electricity, is to invest in large-scale, base load generation. Eskom stated in its 2007 annual report that “Energy diversity is a key challenge given South Africa’s abundant coal resources”.

Investment in the energy sector has long-term implications thus it is important that South Africa does not embark on a technology development strategy that locks it into a dependence on fossil fuels. This thesis will investigate how sustainable investment choices for the South African electricity sector could be encouraged.

Primary research established the main barriers experienced by project developers in the renewable energy technology (RET) industry. Findings indicated that adequate revenues could not be guaranteed due to policy uncertainty and a lack of suitable power purchasing agreements (PPA). Financial institutions are unwilling to accept the risk of investing in RET when the returns cannot be confirmed. This suggested the need to develop some form of subsidy or fiscal incentive to encourage investors.

Discussion was directed towards the incentives that could be employed to support investment in concentrated solar power (CSP). CSP is a low carbon generating technology that has been commercially implemented in the USA and Spain. South Africa has the natural resources available to support large-scale despatchable CSP. Eskom is planning to build a 100MW CSP plant however it is struggling to secure the capital needed to finance the project.

Case studies of planned and commissioned CSP plants indicated that if an explicit target percentage of RET contribution to the power mix is defined, then utilities are obliged to support investment in the RET sector. This will encourage utilities to develop PPAs that ensure the financial feasibility of RET projects. In conclusion, South Africa appears to be aware of its role in the climate change challenge, yet it still needs to develop comprehensive policies that will support investment in RET. The electricity tariff structures should be improved to allow the full costs of electricity generation to be recovered. A detailed pricing structure needs to be developed for a power purchasing agreement that promotes investment in capital intensive RET technologies.

International collaboration could facilitate policy development through the sharing of experience and building of local expertise. This could assist South Africa in creating climate policies that compliment its development goals and allow it to effectively move towards achieving a low carbon economy.