South Africa: Grid parity within sight, but Refit needs to be implemented soon

According to Hammond, a key change in South Africa in the last few years is the willingness of the government to create a legal mechanism to buy renewable electricity at a premium. He said it has been challenging waiting for the government to implement the tariff, but that once it is applied, it will open up the way for new installations to take advantage of what has been described as a location with one of the highest levels of solar radiation in the world, and twice those of Europe. Added to the fact that the cost of PV is falling rapidly and the National Energy Regulator for South Africa (Nersa) has recently approved a 25 percent price increase for the next three years on electricity, it is not so surprising to hear that grid parity is within reach.

“The challenge is obviously the implementation of the Refit program,” explained Hammond. “Clearly, we have seen a number of internationally renowned, renewable energy businesses come into the country and then leave, because of frustration by how long it is taking for the program to be put into practice. Any business that is waiting for a government to implement a program like that has got to fund itself in the interim and of course that poses a cash flow problem for any business. We are fortunate that we have a very strong and successful parent company, which is bank rolling us at the moment, but quite honestly, the scope for expansion of our manufacturing facility and ultimately the jobs that would come with that are largely reliant on how successful the power generation side of our business is.”

He continued: “We expect that within the next two, three, maybe four years, we are going to reach a point where PV generated electricity in this country will be on par with what it is costing to generate electricity from new coal fire power stations. We don’t believe the point of grid parity – which is obviously the holy grail of renewable technology – is far away. We are certainly not going to sit around waiting for that point to happen. We’d like to be on the ground and producing by the time that point arrives.”

Nersa has proposed a Refit of 3 Rand 94 (around 35 euro cents) per kilowatt-hour. This, says Hammond, is “reasonably attractive”. However, he continued: “We believe perhaps it is a little bit too high, but at any rate, it is a great start, so that will obviously enable us to get the necessary project finance, etc. to fund these projects. Assuming that all happens fairly soon, as I say, by the end of next year, we could have completed construction of our first few plants. So that is really what is facilitating the industry.”

Based on the projections the Refit will be implemented within the next few months, Hammond says Solairedirect is developing a range of ground-mounted projects totaling around 100 megawatts (MW): he hopes construction will begin early next year. He added: “We could be injecting power into the grid by the end of 2011, but obviously it is contingent on when they [the government] implement the program.”

Unique challenges

While the Refit will be a positive move for SA, the government still faces many challenges, according to Hammond. He told pv magazine: “The government has a limited amount of resources – we are a developing market and we are trying to recover from years and years of financial neglect of a large portion of the population. We have an unemployment rate of over 30 percent, we have a neighboring country that is for all intents and purposes completely dysfunctional (…) and that places huge pressure on the SA government. “The question, therefore, is how do you find the money for renewable energy and how do you ensure you get the best bang for your buck from the government’s perspective?”

He continued: “Again, as a business, it is a challenge, because we know that it won’t be an infinite market – there will be a cap on the amount of renewable energy that the government is able to purchase on an annual basis, so therefore, our projects will be competing with other people’s projects for a power purchase agreement with government.” He explained that this throws up a number of unique challenges in terms of how projects are structured and how one can ensure that the benefit from those projects is funneled back into the local communities. He stated: “How do you help the government ensure that for every 3 Rand 94 they spend on PV power that as much of that 3 Rand 94 actually remains in SA? (…) The industry has a distinct political angle to it, because of the need to ensure that what in essence is a government subsidy, actually benefits South Africans, rather than other parties.”

The future

When the Refit is implemented, what future does PV have in SA in terms of installations? “In terms of getting solar power into mainstream power generation in SA, I think we have to do it in whatever manner, which is most cost effective. At the moment, that is solar parks.” He added that BIPV and roof-mounted installations “will come into their own” within the next three to five years. “The other thing that may tip it is if they introduced a tariff for that type of PV. At the moment, the renewable tariff only applies to projects of larger than one megawatt, so it’s difficult to fund a project under one MW on the basis of selling kilowatt hours.”

What about the awareness of solar in SA? Does the general public understand the role it can play? “There is a growing recognition and a growing understanding of the contribution that renewable energy in general is able to play in our future (…) South Africans are fairly pragmatic people in general though– they generally look at something and make a decision on whether it actually works or it doesn’t so quite honestly, handing stuff out for free and that type of thing is great for a little bit of PR – it’s not really what will swing the mind of SA’s. The biggest thing will be to build the first solar park. If you build a big solar park and people see what it’s capable of and actually see real numbers rather than theoretical numbers, that is when I think you’ll start to see a big change in mind sets,” he concluded.

Solairedirect Southern Africa is a subsidiary of Solairedirect, reportedly the largest privately owned solar power producer in France. The company is based in Cape Town, South Africa, and shares premises with its sister company, Solairedirect Technologies, a manufacturer of PV modules. It has experience in designing, building, owning and operating PV power plants in various countries across the world.