Renewable Energy Investment in South Africa
Renewable Energy investment in South Africa is increasing as countries in the Southern African region turn increasingly to renewable energy to enhance energy security. There are many investors coming into the African market, but there is a need for more bankable projects, while the IEA suggests market access and investment risks keep finance costs elevated.
The attractiveness of the renewable market is strongly dependent on the regulatory framework and market design but there is no longer any need to provide high levels of incentives for solar PV and onshore wind. Decreasing renewable energy prices is resulting in a natural tendency towards increasing renewable energy share of a country’s portfolio. This is likely to be supported by international environmental low carbon policy developments leading to phasing out of fossil fuel subsidies and increasing carbon pricing mechanisms.
SADC structures such as the South African Power Pool (SAPP) the Regional Energy Regulators’ Association (RERA) and the SADC Centre for Renewable energy and energy efficiency (SACREE) are geared towards increasing regulatory certainty, while a number of international initiatives are focused on providing an enabling environment.
The South African Renewable Energy programme (REI4P) has been financed by the private sector and has been internationally acclaimed. This model is now under consideration in other Southern African countries.
The South African market has policy stability, a strong regulatory environment and has attracted over R53bn in investments. South Africa presents a success story with 93 projects either operational, or in the pipeline. Decreasing renewable technology costs, together with decreasing transaction costs have led to reduced electricity prices over successive bid rounds. Returns have dropped from double to single digits. However, investment in the South African market is likely to provide low but stable returns over the long term, as all of the South African renewable projects have a PPA which guarantees returns over the next 20 years.
There is therefore an opportunity to invest in existing South African projects, either in equity as existing owners move on, or refinancing the debt to unlock community development as outlined above.
In the rest of Southern Africa, emerging renewable markets are likely to provide higher returns but regulatory, and policy barriers still need to be addressed in some countries.
