Renewables Investment in South Africa

Posted by: Mark Scott on April 1, 2009

In the world of renewable energy, Africa remains an ‘also-ran’ behind Europe, North America, and Asia. But on Mar. 31, South Africa — the Continent’s largest energy producer — took a small step to change that when the government announced a so-called ‘feed-in’ tariff that guarantees a stable rate-of-return for renewables projects. Similar state price fixing has spurred billions of dollars of investment in Europe’s green energy industry, and South Africa is hoping its plan will tap into growing investor interest in renewables.

And there are early signs the bet is paying off. Ahead of the official announcement about feed-in tariffs, South Africa’s Department of Minerals and Energy said it had received more than 100 renewables proposals that could add up to 5,000 MW (roughly equivalent to 6 coal power plants) to the country’s energy mix. Of the projects, the greatest interest related to wind energy (45% of proposals), biomass (34%), and hydroelectric power (8%). Policymakers also have doubled the feed-in tariff’s fixed price announced on Mar. 31 after earlier plans were criticized for not providing sufficient economic incentive to invest in South African green energy projects.

Yet if Africa’s largest economy wants to hit its goal of producing roughly 5% of its energy from green sources by 2013, it still faces an uphill battle. Currently, South Africa produces over 90% of its electricity from coal (the country has the sixth largest reserves in the world), and is slated to build even more carbon-intensive power plants over the next decade. That plan is even more paramount after rolling blackouts due to insufficient domestic energy capacity led to widespread criticism of South Africa’s lack of investment in conventional energy.

For sure, these basic electricity issues need to be solved before South Africa can even contemplate matching Europe’s or North America’s ambitions for renewables. Yet by outlining its own green energy feed-in tariff, the country has at least got the ball rolling to create a domestic renewable energy industry. Now, South Africa must hope someone has the capital — and will — to invest.

 

About

BusinessWeek correspondents John Carey and Mark Scott, cover the green scene, keeping on top of the business aspects of energy, the environment and climate change, as well as the technologies, policies, markets and people that are shaping how the earth's resources will be used in the century ahead.

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