Partnering to power ambitions in Africa

South Africa’s renewables success a model for Africa

By Bhavtik Vallabhjee

Next week investors, developers, utilities and government stakeholders will meet at the Africa Energy Forum in Dubai to discuss opportunities to increase power generation in Africa. As projects are planned and deals discussed, participants should consider the example of South Africa’s renewable energy programme, which is proving a huge success and quickly becoming a model for other African countries moving to increase their contribution of clean energy – particularly solar and wind power – to their national energy mix.

A number of African countries are planning, or have already introduced, their own renewable energy programmes. They have been watching with great interest as South Africa has introduced five rounds of bidding for renewables projects, with a steady reduction in the tariffs developers are bidding, as they seek to secure preferred bidder status from the Department of Energy.

They have also seen how the injection of c.R170 billion in capital investment has spurred the development of a new renewables industry in South Africa, the first new major industry since the Motor Industry Development Plan was launched some 25 years ago.

South Africa now has a plan to procure 14,725MWs of power from renewable sources in the immediate term, with 5,243MWs already procured from 79 projects. Approximately 37 projects are already connected to the grid and are producing clean energy. That’s a phenomenal achievement, and according to IRP 2010 there is more to come as the government energy plan projects 18,400MW of renewable energy over that 20 year period. South Africa now ranks in the top 10 countries globally in terms of renewable energy, and it is certainly the biggest market in Africa.

It’s also an increasingly sophisticated market. The market has moved from small-scale developers wanting to put up solar or wind developments on their land, to one where it is now large, utility-scale developers playing in this space in S.A. and bidding for projects.

South African banks have handled most of the funding for the renewables projects, which are funded in Rands, with a Rand tariff and a Rand Power Purchase Agreement. International developers usually finance their projects onshore, as local banks can source Rands cheaper than international banks.

While markets in the United States, Europe and Asia have had renewable energy projects for longer than we have, our market has evolved rapidly over the past three years. Structuring of the transactions has improved and become extremely aggressive, and in most respects we are on a par in terms of structuring prowess and the ability to execute transactions.

Renewable projects require sophisticated financing solutions and Barclays has helped facilitate such arrangements for a range of projects across the globe. This experience, combined with our knowledge of the local market needs, has proved invaluable in developing innovative solutions that have helped facilitate South Africa’s hugely successful renewable energy programme.

I look forward to sharing our experience with global stakeholders at the event next week, and hope South Africa’s success can be a model for renewable energy development in the rest of Africa.

Bhavtik Vallabhjee is a Director in the Power, Utilities & Infrastructure unit at Barclays Africa.

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