While South Africa boasts just 8.4 MW of installed wind power capacity, a lot has been happening behind the scenes in recent months, from a new energy law to debate over how best to structure a market framework and what incentive mechanisms to employ. A number of big companies in the wind sector are sniffing around, setting up partnerships and jostling for position in what they believe is a very promising market. Progress is still painfully slow, however, and it remains to be seen whether all this activity will lead to the long-awaited take-off for wind power.
Time is of the essence if South Africa is to meet the targets set out by the government in a 2003 white paper on renewable energy. The aim is to generate 10 TWh a year of clean energy by 2013, equivalent to 1667 MW and representing around 4% of final consumption. Much of this is expected to come from biomass, alongside wind, solar and small-scale hydro.
South Africa produces less than 1% of its electricity from renewable sources. More than 90% comes from cheap, locally available coal, a situation that state utility Eskom is under pressure to change, given the need to reduce greenhouse gas emissions. At the same time, new capacity is desperately needed, with chronic power shortages causing huge problems, particularly in the mining sector. Eskom hoped to fill the gap by building a second nuclear reactor, but abandoned the idea in December due to financial problems. It now plans to spend ZAR 343 billion (EUR 27 billion) over the next five years, reinforcing the grid and building new capacity, including two coal-fired plant. Funding will come from a mix of government loans and loan guarantees, plus loans from the African Development Bank and, in principle, the World Bank, though this still leaves a shortfall to be raised in the capital markets.
Lots of wind
The wind resource in South Africa is excellent. Estimates put the onshore potential at anywhere between 3 GW and 10 GW, capable of producing 26 TWh, compared with South Africa's annual 215 TWh consumption. The best sites are concentrated around the coast, particularly the west side of Western Cape province. According to Eskom, up to 5 GW of installed capacity could be built in the coastal regions, taking into account grid access, land availability and other constraints.
So far these are all estimates, however. To get a clearer picture of the available resource, the Danish government recently agreed to help produce a wind atlas covering the coastal regions. Risø, the National Laboratory for Sustainable Energy at the Technical University of Denmark, will work with the South African National Energy Research Institute, the Centre for Scientific and Industrial Research and the meteorological services on the four-year project. Preliminary results are due early next year.
Denmark also helped fund South Africa's sole grid-connected wind power plant, a 5.2 MW facility consisting of four German-made Fuhrländer 1.3 MW turbines at Darling, near Cape Town, which came online last year (Windpower Monthly, May 2008). Owned and operated by a small local company, the Oelsner Group, Darling Wind Farm is also one of South Africa's first independent power producers. Oelsner plans to add another 7.8 MW in due course. The country has a further 3.2 MW of operating capacity in a demonstration facility run by Eskom at nearby Klipheuwel since 2002, made up of two Vestas machines, a 660 kW unit and a 1.75 MW turbine, and a Jeumont 750 kW turbine from France no longer in production.
Utility wind farm
Eskom is now aiming higher. Its next project is likely to be a 100 MW facility under development at Koeknaap, also in Western Cape province. Part-funded by a 20-year, EUR 100 million loan from the French development agency, it will be built in two phases of around 50 MW each, for completion in 2010, with the possibility of expanding it to 200 MW. Although bids for the engineering, procurement and construction contract closed last May, Eskom has not yet announced the result. Rumours put Vestas and Suzlon among the front runners for turbine supply.
At a recent wind energy seminar hosted by the Danish embassy, both companies said they have many projects on the go in South Africa, while Denmark's Dong Energy revealed it would like to build three to four projects over the next 18 months, with an eye to acquiring the carbon credits associated with the green generation. Another global player entering the market is Mainstream Renewable Power, an Irish company launched by the successful team behind Airtricity. Mainstream recently set up a joint venture with local developer Genesis Eco-Energy.
Given Eskom's financial difficulties, it is perhaps no surprise that South Africa is open to private-sector wind power development. The government has given "very positive signals to facilitate independent power producers," says Genesis Eco-Energy. The approach seems to be paying dividends. In November, the Department of Minerals and Energy (DME) received more than 100 expressions of interest totalling over 5 GW from local and international companies willing to generate electricity from renewable sources. Around 45% were for wind projects. The department is now evaluating the proposals "in order to prepare an appropriate tender and facilitate access to the grid." The criteria for selection include installed capacity of at least 5 MW, the identification of a potential power purchaser, a high probability that the plant will start operating within 30 months and a 25% "black empowerment ownership."
South Africa passed a National Energy Act in November, which, among other things, calls for the government to "ensure that diverse energy resources are available, in sustainable quantities and at affordable prices" and "to provide for energy planning, increased generation and consumption of renewable energies." It also allowed for the establishment of the South African National Energy Development Institute, charged with developing clean energy, overseeing research and co-ordinating grid development.
What everyone is waiting for, however, is a clear regulatory framework for renewables. After years of research and consultation, it now looks as though the government will catalyse the market by introducing a fixed power purchase price, similar to that in Germany. The original rate proposed by the National Energy Regulator of South Africa (NERSA) required Eskom to buy wind power for 15 years at ZAR 0.6548/kWh (EUR 0.051/kWh), a rate that decreased to ZAR 0.5784/kWh (EUR 0.045/kWh) in 2013 for new projects coming online that year, indexed for inflation. Each year the rate for new plant would reduce by 2.45% a year and the rates are to be reviewed every three years. NERSA says the renewables rates would result in customers paying an average premium of ZAR 0.0085/kWh (EUR 0.0007/kWh) over and above the avoided cost of conventional power.
Reaction has been mixed, however, with many observers saying the rate needs to lie around ZAR 1.1/kWh to ZAR 1.25/kWh (EUR 0.086-0.098/kWh), depending on how hard the wind blows at any particular site, and extended over a longer period to attract significant investment. The annual decrease also came in for much criticism. NERSA had hoped to make a final decision last month, but may well need longer to assimilate all the comments.
Overall, 2009 looks like being a busy year in South Africa. Late last month, the DME held a renewable energy summit of key stakeholders to review the 2003 white paper, evaluate progress towards the 2013 target and identify what measures need to be put in place to meet the target. Participants were also asked to determine whether any change in policy is required and agree an action plan beyond 2013.
By the end of September, the DME is also due to issue an energy and climate change strategy. This will define how it plans to increase energy supply while at the same time reducing greenhouse gas emissions.