Friday Focus: Is South Africa a solar hotspot or long-shot?

  •   Scatec module installation
    South Africa's PV pipeline is growing, but construction is only just getting underway. Image: Scatec.

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Julia Chan
Julia Chan
Julia joined Solar Media in July 2012 after spending a year backpacking around the world. She has an honours degree in Ancient History and has five years of editorial experience gained from business intelligence firms Textiles Intelligence and Datamonitor. Outside of the solar world, she has a keen interest in travel and languages.

South Africa’s solar market has had a relatively successful year in 2012. Currently, South Africa’s installed PV market is made up of a few small-scale projects. In terms of large-scale projects, the market has only really just begun.

With more large-scale projects announced than completed this year, South Africa has clearly solidified its position as a top solar hotspot-in-waiting. In order to further strengthen its position as a true emerging market, these projects need to come to fruition. Is there a light at the end of the tunnel for the projects or are they simply just ‘announced’ projects?

REIPPP programme

The surge in PV interest has been largely fuelled by the launch of the South African government’s Renewable Energy Independent Power Producer Procurement (REIPPP) Programme in August 2011.

Under the programme, the government is aiming to procure and install a total of 1.45GW of PV capacity by the end of 2014 over five bidding rounds. So far, only round one has been completed, while round two is only at preferred bidder status.

Under the first bidding round, the government received a total of 53 bids, whittling these down to a final 28 totalling 613MW of PV capacity (see Table 1). The second round of bidding was more popular, receiving 79 bids. With a maximum allocation of 450MW in PV capacity, just 417.1MW was allocated to nine preferred bidders.

Table 1: Round 1 Winning Bidders
Project Name Capacity Project Developers
Swartland Solar Park 5MW SlimSun
RustMol Solar Farm 6.76MW Momentous Energy
Mulilo Renewable Energy Solar PV De Aar 9.65MW Mulilo Renewable Energy
Konkoonsies Solar 9.65MW BioTherm Energy
Aries Solar 9.65MW BioTherm Energy
Greefspan PV Power Plant 10MW AE–AMD Renewable Energy
Herbert PV Power Plant 19.90MW AE–AMD Renewable Energy
Mulilo Renewable Energy Solar PV Prieska 19.93MW Mulilo Renewable Energy
Soutpan Solar Park 28MW Core Energy, Erika Energy
Witkop Solar Park 30MW Core Energy, Erika Energy
Touwsrivier Project 36MW Soitec Energy
De Aar Solar 48.25MW Mainstream Renewable Power
Droogfontein 48.25MW Mainstream Renewable Power
Letsatsi PV Project 64MW Cobra, Gransolar and Kensani Group 
Lesedi PV Project 64MW Cobra, Gransolar and Kensani Group 
Kalkbult 72.5MW Scatec Solar
Kathu Solar Energy Facility 75MW WBHO Building Energy
Solar Capital De Aar  75MW Solar Capital
Total 631.53MW  

 

Table 2: Round 2 Winning Bidders
Project Name Capacity Project Developers
Solar Capital De Ar 3 75MW Solar Capital
Sishen Solar Facility 74MW Acciona Energy
Aurora Solar Project 9MW Solairedirect
Vredendal Solar Project 8.8MW Solairedirect
Linde 36.8MW Scatec Solar
Dreunberg 69.6MW Scatec Solar
Jasper Power Company 75MW SolarReserve
Boshoff Solar Park 60MW SunEdison
Upington Solar PV 8.9MW Enel Green Power
Total 417.1MW

This leaves just 401.7MW of PV capacity for rounds three, four and five. The deadline for the third round of bidding is August 2013.

REIPPP projects on track?

In recent months, press releases have been flying around suggesting that many of these projects are making headway.

WBHO Building Energy recently signed an inverter supply agreement with Elettronica Santerno and a module supply agreement with JinkoSolar for its Kathu Solar Facility. Kentz was awarded a US$45 million EPC contract from Scatec Solar for the Kalkbult Solar Photovoltaic Project.

Core Energy and Erika Energy awarded a contract to ABB to supply its turnkey solutions for the Witkop and Soutpan solar parks while Hanwha SolarOne is due to deliver its modules for installation at the Letsatsi and Lesedi projects.

In terms of financing, SunEdison has managed to secure US$314 million in long-term debt and equity financing for the Letsatsi and Lesedi projects whilst BioTherm has closed the financing for its Aries Solar Energy Facility and Konkoonsies Solar Energy Facility.

Meanwhile, Mainstream Renewable Power has started building its 50MW De Aar solar PV farm and 50MW Droogfontein solar PV farm in November 2012.

But with the lion’s share of the construction work set to begin in 2013 it is therefore not surprising that the majority of these projects are scheduled to come online in 2014.

Is the 2014 deadline realistic?

The South African government has made several previous attempts at growing its solar market through similar procurement programmes but none of these have had much success.

In 2006, South African utility Eskom launched its Pilot National Cogeneration Programme (PNCP), which aimed to procure around 900MW. Expressions of interest amounted to approximately 5GW but very few proposals were submitted as a result of investor concerns over the bankability of power purchase agreements and a view that better-priced programmes may be offered in the future.

In 2007 Eskom launched another procurement programme, the Medium Term Power Procurement Porgramme (MTPPP). The programme signed up 400MW yet just 215MW became operational. The programme was put on hold pending resolution of Eskom’s funding model.

But the success rate for the REIPPP programme appears to be more optimistic.

Speaking to PV-Tech, Linda Thompson, Head of Solar Development in South Africa for Mainstream Renewable Power, said that compared with previous attempts, the REIPPP programme is “very thorough – very, very thorough”.

“I think it’s one of the most comprehensive processes around the world,” she says. “The government is very committed, very committed to seeing it succeed”.

Asked whether the 2014 deadline was realistic, Thompson says: “The proof will be in the actual construction. These kinds of scale of projects have never been done in almost anywhere in the world and certainly never in South Africa so there will be a learning curve in terms of how we manage to deliver on it.

“But I think most people have an 18-month construction timeframe, which, I think, gives people more than enough time to go through the learning curve.

“Roughly, the first 400MW is being constructed at the moment. So that will be operational in 18 months. So in 18 months we’ll be a third of the way there, roughly. We’ve also seen a similar allocation in round two, which will close early next year, and they will then start construction for theirs. And although there has been a push out of round three to August, the reality is that there could be as much as 14-20,000MW of PV that could be released for bidding by August next year, legitimately ready to be bid. So I don’t think there’s any doubt there are enough projects to do this. But the question is: is there enough grid capacity and is there enough funding?”

With the financial close of round one completed and the financial close deadline for round two just around in the corner in March 2013, and with many of the projects expected to break ground in early 2013, things are looking bright.

However, an announcement earlier this week revealed that the round three submission deadline had been postponed until mid-August 2013 from the original deadline of May 2013.

According to Davin Chown, Chairman of the South Africa Photovoltaic Industry Association (SAPVIA), such delays could hinder the progress of the projects. “Those kinds of delays make the market very nervous so what we are looking for is consistency and reliability in the industry.”

Other potential challenges include pricing. Chown comments: “On the construction front, in future bidding rounds, the signals we are getting from the government is that project developers want to see pricing come down a little more. We have to be careful that we don’t end up in a situation where we’re not able to meet the objective of the procurement programme because we’ve driven the pricing too far down.”

However, Chown believes that if the construction phases of the projects run smoothly, “you’ve got the making of an ambitious programme”, and that the 2014 deadline could be met. “If you look at the [REIPPP] programme, it’s run very well, a world class programme in our view and an extremely stringent business process with no room for error.”

Chown added that the government has placed a lot of effort and time into creating such a stringent programme that they “can’t afford for it to fall over”.

Solar life beyond the REIPPP

There is no doubt that the REIPPP programme has been good for the South African solar market. As Chown puts it: “The REIPPP has given the market a big kick.” Some may even go as far to say that it’s the only driver in the market.

So what will happen to the industry once the REIPPP ends? Industry experts appear to be confident that the market will remain attractive for solar investors.

Rooftop PV has been identified as a growing market in South Africa and, according to Chown, is set to become the third largest PV market. The largest market will be projects built under the REIPPP programme followed by relatively large-scale PV projects constructed outside of the programme. Household PV systems and small commercial projects are expected to make up the fourth largest market whilst small-scale off-grid projects will be the fifth largest market, Chown believes.

And with electricity prices due to rise in the coming years, solar is expected to become an increasingly economically viable option. Thompson says: “In terms of the residential sector, obviously the cost of power is due to go up – 16% increase proposed every year for the next five years.

“But those are big jumps and so what we’re seeing is that from the residential market and even in the full-scale commercial market who own their own installations, they will become increasingly more economically viable and so that’s going to become a major driver in the market. I wouldn’t say it’s a major driver right now but it would certainly be in the next two to five years I would think. At the moment, it’s really the REIPPP programme that’s driving the industry right now.”

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