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

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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

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