Inspirational – SA is on the forefront of renewable energy internationally, the possibilities are endless

Click here to view this clip

South Africa is the place to be right now if you are in the renewable energy sector. Renewable energy, is one of the government projects that is being applauded universally. Wind Lab Africa’s, Peter Venn, and Kevin James, the Lead Strategist at GCX Africa joined Alec in CNBC Africa’s Cape Town studio, to discuss the groundbreaking advances in South Africa’s renewable energy space.

The price is right, the resources are plentiful, and Kevin James summed it up perfectly, ‘We’ve gone from zero to hero in terms of the top ten utility renewable energy suppliers in the world… Here’s a massive opportunity to create clean, free energy and create many, many jobs… Let’s look at this as an opportunity to increase GDP growth.’ If you’re looking for a good news story about South Africa that will inspire you – this is it. – LF

ALEC HOGG: Welcome back. Well, there’s no finer place than being in the Cape Town studio when you’re talking about something like renewable energy.  In the studio with us is Peter Venn, who’s with Wind Lab Africa as well as Kevin James, who’s the Lead Strategist at GCX Africa. Peter, just help me out here. Everyone I talk to, from the construction industry to people, who are watching government, say ‘if you want to find a government project that has worked, renewable energy is it’.

PETER VENN: That’s 100 percent correct. It’s been a massive success. I think we’ve seen over R100bn committed to the program over the last three years. The tender requirements from the government are extremely strict, but fair and these projects have been adjudicated appropriately. We’ve seen 64 projects get away to date, so you distributed that risk across private enterprise and as I say, R100bn with about half of it coming from foreign income.

ALEC HOGG: And your business…

PETER VENN: Our business: we’re focused on wind energy and we’ve been very successful with two projects. One of them will be delivering electricity to the grid this year, and one next year – so 230-odd megawatts.

ALEC HOGG: Are these the huge wind….

PETER VENN: Yes, 100-metre towers going ahead, but the price point of view…currently, wind is around the 70 to 80 cents per kwh point, where the estimates for Medupi and Kusile are somewhere around R1.00/R1.50, depending who you’re talking to and because of the delays and the debt requirements due to the delays. So, about half price.

ALEC HOGG: Kevin, as far as you’re concerned, your analysis…this is more of a consulting business.

KEVIN JAMES: A little bit of both. We’re involved with certain utility supplies, such as Wind Lab on the carbon trading side, which is becoming another big topic in South Africa. In addition, we assist large complex organisations with their own energy challenges, and that’s the other side of renewable energy that isn’t really as prominent as the utility side. That’s the distributor/generation side where there are rooftop solar panels on top of carports and decentralised wind turbines. That’s another topic entirely, and that’s being treated very differently from the utility side of things. On the utility side, I agree with Peter and yourself. It’s been a huge success. I think it could have been an even bigger success if they opened it up to more players, they did things slightly differently, and they pulled back a little bit on the fossil fuel coal-powered strategy.

On the distributor/generation, I do believe they could have greater incentives to companies to be able to generate their own electricity on site. I think they could also make those incentives, which do exist under the DTI; a little bit more…create a little more awareness around that.

ALEC HOGG: There’s always room for improvement. If you contrast it with some of the other projects that haven’t even gotten off the ground… We have an infrastructure project, generally, in the country that we’re hoping one day is going to kick into gear. It does appear as though things have gotten going here. There was a plan. It’s happened. There is going to be electricity coming into the grid. What’s different? What happened here that we could learn as a nation?

KEVIN JAMES: I think certainly, the fact that we’re dealing with independent power producers, and I think that really is the big outcome of this process – the efficiency and the ability to produce and implement successful projects at a very cost effective price. Eskom really needs to learn from that because the struggles and the challenges they’re having with Medupi, Kusile, and the proposed Coal 3 is certainly as a result of them not having the proper management skills potentially, or certain other factors coming into the procurement space that wouldn’t ordinarily creep into the independent power producer space. I think that’s definitely one aspect that is a major differentiator and part of the success of the renewable energy program.

ALEC HOGG: Peter, it also appears as though the local content side is working out pretty well.

PETER VENN: Absolutely. On the wind side, we have a threshold of 40 percent of your project and these projects are normally in the region of R2bn to R4bn. Forty percent threshold of local content and a target of 60 percent local content, and you have to meet the target to be part of the tender. You put up massive bid bonds. In our case, normally a bid bond is R14m.

ALEC HOGG: What is that?

PETER VENN: You put up R14m.

ALEC HOGG: Before you can bid.

PETER VENN: Before you can bid.

ALEC HOGG: So it’s only serious players.

PETER VENN: It’s only serious players, but that allows government to know that if you’re successful – and then your bid bond doubles to R28m – which means you’re actually going to get this project away. As I said, it’s a R2bn to R3bn project that one needs to get away at the end of the day. Government has done this appropriately. They used a reverse auction method where the cheapest price gets away and thus, price for wind has come down 42 percent over three years. In the first round to the third round, there was a reduction of 42 percent because of the reverse auction.

ALEC HOGG: What’s likely to happen in the future with prices on renewables?

PETER VENN: They’re going to come down I think, particularly on the solar PV side there’s going to be better and better technology, so we’ll see the prices coming down. In America now, we more or less have parity between wind and solar and we’re going to attract m
ore and more foreign players into the market that will be on the construction/manufacturing side, as well as on the debt side. I think we’re in for another ten to 20 percent price reduction over the next two to three years.

ALEC HOGG: Public/private partnership.

KEVIN JAMES: Well, that certainly does make sense, but if you look at local government – and there are challenges around that –, I think one of the major factors affecting deals happening between the public and the private sector is the Municipal Finance Act. This is a massive issue in terms of being able to go into longer-term contracts. When I say longer, I mean longer than three, years, which is really the threshold under the MFC. We need a longer-term outlook and we need municipalities who require energy to make money, because they sell the energy on to their customers. We need to start engaging with local government and doing those kinds of deals. Actually, entering into public/private partnership.

ALEC HOGG:  It’s almost like we’ve taken the first steps well, but there are obstacles that need to be addressed.

KEVIN JAMES:  There definitely are, we spoke about local content, it is part of the criteria, part of the criteria for accessing funding which is available in the country. Local manufacturing is another thing. We don’t have critical mass in the local market which means prices are…

ALEC HOGG: You’re a gloomy guy, you’re kind of finding problems here and I get the feeling from Peter that he’s looking for the solution.

KEVIN JAMES: No, I think I’m realistic. I think there are a lot of players in the utility renewable energy space that haven’t been successful. They have tried numerous rounds with compliant bids, that’s a huge loss. I’ve certain players come in and be massively disappointed. So, you know Peter and his company Wind Lab have been tremendously successful, and kudos to them.

ALEC HOGG:  But why have they been successful? What have they done differently?

PETER VENN:  I think one thing is that we brought our global experience to the local market, we understand that and also understanding the wind better than anybody else. The normal story I say, is that government mustn’t tell us where the wind is. It’s like telling De Beers where the diamonds are. They must create a framework – a policy framework -, which I believe they’ve done through the RFP that allows us to find the best resources because it’s a combination of wind, finance, grid, and a number of other factors that allow you to create a great wind project and bring the lowest tariff to the company.

ALEC HOGG: Where is the best wind?

PETER VENN: There’s great wind all over the country and I really do mean that. South Africa has some of the best wind resources in the world.

ALEC HOGG: Where are we going to see these windmills come up?

PETER VENN: They’re northern, eastern, and western Cape…there are great projects throughout and the beauty of that is that’s not where our current coal base load is located. We’re distributor/generation far away from the base load, which is good for the electricity grid to give us security of supply.

ALEC HOGG: I would guess Kevin, that solar (we talk about sunny South Africa) would also be an opportunity.

KEVIN JAMES: When it comes to solar or wind, we have massive resources. Forgive me for sounding a little bit gloomy, but it’s just that the potential is so massive in South Africa…

ALEC HOGG: So it frustrates you that we can’t get there quicker.

KEVIN JAMES: Exactly. You see companies with far less resources in Europe for example, making massive gains with renewable energy because of political will and because of appropriate policies coming in. For me, renewable energy, despite its massive success in South Africa – and don’t get me wrong. It has been a massive success. We’ve gone from zero to hero in terms of the top ten utility renewable energy suppliers in the world, but the potential is so massive that to be dead frank, our coal-fired energy strategy, which is very entrenched, is going to take us to a situation where we’re even more carbon-intensive than we are. We’re in the top 15 carbon emitters in the world – probably the highest per unit of GDP in the world – and focus is on us to do something about it. Here’s a massive opportunity to do that.

Here’s a massive opportunity to create clean, free energy and create many, many jobs. Let’s take a look at that. This initial process is creating – in the build – about 20,000 or 35,000 jobs; twenty thousand where it’s actually ongoing jobs. When we talk about the green economy, rather than pay lip service, let’s look at this as an opportunity to turn this economy around. Let’s look at an opportunity to increase GDP growth, take a look at it, and look at it seriously rather than an offset and lip service to a strategy that is more entrenched, if you know what I’m saying.

ALEC HOGG: Very briefly: when is it going to make sense for me to put a solar-powered facility in my home?

PETER VENN: If we talk about distributor generation, which is what we’re referring to, when individuals can own they can put solar panels on their roofs like in Germany. We need a feeding tariff. At the moment, we see hints of something called nett metering. Nett metering is happening I think, in the Nelson Mandela Bay. It’s the first municipality there where companies, individuals, or farms who are producing more than they require in terms of energy can feed into the grid and they can use the grid as a storage capacity to access at times when there is no sunlight or there is no wind, for example. That’s a great first step and that is essential before companies start investing seriously. If we had a feeding tariff like in Germany and other parts – that’s when it makes huge financial sense. That’s actually when the private sector can become big participants in the actual provision of large-scale energy.

ALEC HOGG: We look forward to that. Kevin James and Peter Venn – our guests here in the Cape Town studio. It makes me feel a lot happier. Sometimes we get used to failing…to missteps, but this is one where the missteps have been few and the opportunities are enormous. We are very blessed in South Africa with our natural resources, and not just under the ground. That was Kevin James. He’s the Lead Strategist at GCX Africa and also in the studio was Peter Venn from Wind Lab Africa.