Scaling-up renewable energy in Africa: South Africa

In this edition of the Scaling-up renewable energy in Africa series of publications we focus on the climate change investment policies and opportunities in South Africa in the energy sector. This briefing is a highlevel compilation of key policies and projects, based on publicly available sources, and is not intended to be comprehensive.

• South Africa has a population of approximately 49 million.
• South Africa is the most industrially developed country in Africa and 73 percent of its population has access to electricity¹. The financial sector is the largest industry, followed by manufacturing, tourism and other industry.
• Per capita emissions are relatively high (about 7,000 tonnes per year)², slightly below the average per capita emissions for the G8 countries, mainly due to South Africa’s strong dependence on coal-fired energy.
• The energy intensity of the South African economy (due to the significance of mining and minerals processing in the economy and coal-intensive energy system) has resulted in an emissions profile differing substantially from that of other developing countries at a similar stage of development, but emissions from land-use change (primarily deforestation) contribute a significantly smaller share to South Africa’s emissions profile than for many other developing countries.
• The majority of South Africa’s energy emissions arise from electricity generation (approximately half of SA’s energy emissions and just under 40 percent of total emissions).³ Transportation and energy used in industry contributed just under 10 percent each for total emissions and industrial process emissions constituted around 14 percent of total emissions. Emissions from agriculture and land-use change in South Africa constitute only around 5 percent of emissions, compared to an average of 44 percent in developing countries as a whole..⁴

South Africa has been active in establishing a legal and policy framework related to climate change:

• starting in 2004 with investigation of a National Climate Change Response Strategy followed by the SA National Climate Change Conference in 2005
• the development of the long term mitigation strategy scenarios (LTMS) as a key informant of policy evolution from 2006 onwards
• development of the SA draft National Climate Change Response Green Paper in 2010 and the Green Economy Summit in 2010
• culminating in the White Paper on the National Climate Change Response released in October 2011.

• Starting with a White Paper on Renewable Energy, 2003, the foundations were laid for wide spread implementation of renewable energy (a policy objective of contribution of 10 000 GWh to final energy demand by 2013 which has been ramped up substantially in subsequent policy initiatives).
• The Energy Efficiency Strategy of the Republic of South Africa, 2005 (reviewed in 2008), targets energy efficiency improvement of 12 percent by 2015 and provides for a number of enabling instruments.
• Key legislation is the Electricity Supply Act 2008, which requires the Minister to develop on an annual basis, an Integrated Resource Plan (IRP), mapping out South Africa’s long-term and medium plans for energy generation and the planned contribution of each type of energy source, ie, conventional and renewable, to the energy mix. This is determined in an integrated fashion against the background of all relevant policy issues. In terms of this legislation, the Minister may make regulations determining the minimum contribution to national energy supply from renewable energy sources and the nature of the renewable energy sources to be used.
• In keeping with the new legislative and policy direction, South Africa has moved quickly to implement a comprehensive renewable energy procurement programme with a view to procuring the first 3 725 MW tranche of renewable energy contribution to the national energy mix as contained in the IRP, from Independent Power Producers. 
• The SA government is also in the process of implementing its own 200 MW Sere Wind Farm and is investigating the implementation of a 5 GW solar park.

National Communication

SA has ratified both the UN Framework Convention on Climate Change (UNFCCC) and the Kyoto Protocol and continues to engage in all current multilateral negotiations:

• in its first national communication to the UNFCCC, SA bound itself to participate in all UNFCCC initiatives
• in its second national communication to the UNFCCC, SA committed to a strategy in terms of which its emissions would peak in the period 2020 to 2025, remain stable for about a decade, and decline thereafter in absolute terms. This has informed a National GHG Trajectory Range for SA, projected to 2050.

There are currently 316 CDM Projects submitted to the Designated National Authority (DNA) in South Africa. Of these, 228 are Project Idea Notes (PIN) and 88 are Project Design Documents (PDD). Of the 88 PDDs, 21 are registered as CDM Projects, (9 issued with CERs). Projects submitted to the DNA are in respect of, among other things, energy efficiency, fuel switch, bio-fuels, stream to energy processes, waste management and methane recovery, co-generation and transport. Of the 88 PDDs, 38 are in respect of renewable energy projects and of the 228 PINs, 96 are in respect of renewable energy projects.⁵

As South Africa is not a Least Developed Country, the CERs issued from the CDM projects registered after 31 December 2012 would initially not have been eligible for compliance under the EU’s Emissions Trading Scheme, having corresponding negative implications for the nascent South African carbon market. However, climate change negotiators at COP17 agreed to extend the program for a further five years. 

In an effort to fast track project registration, the DNA has amended the project approval process, reducing the public comment period from 30 to 15 days and is processing projects with pending EIAs or environmental authorisations.

Broad Objectives

The broad objectives of the White Paper are to:

• Effectively manage inevitable climate change impacts (using interventions that build social, economic and environmental resilience and emergency response capacity).
• Make a fair contribution to the global effort to stabilise GHG concentrations within a time frame that enables economic, social and environmental development to proceed in a sustainable manner.

Strategic Priorities

Strategic priorities identified for South Africa are:

• risk reduction / management.
• mitigation actions with significant outcomes.
• sectoral responses.
• policy and regulatory alignment.
• informed decision making and planning.
• integrated planning.
• technology research, development and innovation.
• facilitated behaviour change.
• behaviour change through choice.
• resource mobilisation.

Approach to mitigation

South Africa’s approach to climate change mitigation involves:

• Using a national GHG emissions trajectory range, against which the collective outcome of all mitigation actions will be measured.
• Defining desired emission reduction outcomes for each significant sector.
• Adopting a carbon-budget approach to provide for flexibility and least-cost mechanisms for companies in relevant sectors.
• Where target emission reduction outcomes have been established, requiring sectors to prepare and submit mitigation plans setting out how they intend to achieve the desired emission reduction outcomes.
• Deployment of a range of economic instruments to support desired emission reduction outcomes, including appropriate pricing of carbon and economic incentives, possible use of emissions off-set and emission reduction trading mechanisms where a carbon budget approach has been selected.

The South African Government is determined that the prices of environmental goods and services that generate excessive levels of GHG emissions should be adjusted to reflect the full cost of production and consumption. It seems clear that carbon taxes will be a very important tool used to internalise these negative externalities and create the correct incentives to stimulate behavioural changes in favour of cleaner, lower-carbon technologies, promoting the uptake of energy efficiency measures and research, development and technology innovation.

The Clean Technology Fund (CTF) is one of the two multi-donor Trust Funds within the Climate Investment Funds (CIFs). The CIFs have been designed to support low-carbon and climate-resilient development through scaled-up financing channelled through Multilateral Development Banks (MDBs). The CTF aims to support the rapid deployment of low-carbon technologies on a significant scale, with the objective of cost-effective reductions in the growth of greenhouse gas emissions. The CTF finances programmes in 12 countries, including South Africa, and one region. In order to access CTF funding, the MDBs concerned engage with stakeholders on how the fund may help finance scaled-up, low carbon activities in the given country. Investment Plans are designed under the leadership of the recipient country.

South Africa’s CTF Investment Plan is a broad “business plan” by the South Africa government, elements of which are to be co-financed by the International Bank for Reconstruction and Development (IBRD), the African Development Bank (AfDB), and/or the International Finance Corporation (IFC), alongside various bilateral donors and private sector entities. It supports the low-carbon growth objectives and priorities outlined in South Africa’s legal and policy framework related to climate change (see Climate Change Policy section above).

South Africa’s Investment Plan envisages a total investment of about US$1 billion leveraged through partners, counterpart funds and the private sector.

South Africa’s Investment Plan highlights the following priority goals:

• Generating 4 percent of the country’s electricity requirements (about 10,000 GWh) from renewable energy by 2013;
• Improving energy efficiency by 12 percent by 2015; and
• Modal and technology shifts in transport, including shifts from private to public modes for passengers, shifts from road to rail for freight, and the introduction of clean passenger vehicles such as electric vehicles.

In terms of its focus on energy, the Investment Plan focuses on:

• Public and private sector-led, grid-connected solar, thermal, and large wind power projects; and
• Private sector and municipality-led solar water heating and energy efficiency, including demand-side management.

The Renewable Energy IPP Procurement Programme is well under way with the announcement of first and second bidding window preferred bidders having been made. In all, 28 first window (18 solar PV, 2 solar CPS and 8 wind) and 19 second window (9 solar PV, 1 solar CPS, 7 wind and 2 small hydro) projects were selected as preferred bidders with a combined allocation totaling 1415MW and 1043MW respectively.

The third window bid submission date is 20 August 2012. Having regard to the substantial reduction in average prices tendered in second window projects when compared with first window projects and considering the number of projects bid in the second window which were not selected as preferred bidders and which are likely to resubmit in the third window, competition for the remaining MW allocations will be stiff.

Independent Systems and Market Operator Bill

The Independent Systems and Market Operator Bill (ISMO) has been approved by Cabinet and the consultation process has been completed. ISMO is yet to be introduced to Parliament.

The broad objectives of ISMO are

• to create an independent structure, the Independent System and Market Operator (System Operator) as a state-owned company responsible for system operations and the purchase of electricity from electricity generators;
• for the System Operator to serve as an electricity wholesaler, selling electricity to distributors and large customers at a whole sale tariff; and
• for the System Operator to be independent from activities related to electricity generation in order to avoid conflict and ensure equal treatment of all electricity generators.

It is believed that the establishment of the System Operator will go a long way to removing the public perception of a conflict of interest which may otherwise exist in a vertically integrated Eskom and will facilitate the regulation of all IPPs, including in the renewable energy industry. It is also hoped that its establishment will encourage further IPP project development.

Electricity Regulation Second Amendment Bill

The Electricity Regulation Second Amendment Bill was approved by Cabinet and provides a regulatory framework that promotes IPP participation.

Many of the amendments to the Electricity Regulation Act are to facilitate the implementation of ISMO as some of the functions which the System Operator is authorized to license under ISMO are currently not licensable activities under the Electricity Regulation Act. In terms of the amendments, the Regulator must, when approving tariffs contemplated in section 14 and 14A of the Electricity Regulation Act, consider the need to ensure security and diversity of supply and promote renewable energy.

1. Richard Worthington of WWF as quoted in Mail & Guardian Online 12/11/11
2. Richard Worthington ibid
3. See p25 of the White Paper
4. White Paper, p25
5. Department of Energy