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Investments made at inflection points are often the most rewarding. They’re slippery, though, because it’s easier to believe an established trend will continue.
The decay of South Africa’s power infrastructure is one such trajectory. But unlike the previous decade, this one holds feasible solutions to our energy crisis and the private sector is invited to participate.
Businesses face a choice: position for the continuation of the energy status quo; or make the necessary investments to capitalise on several nascent developments jostling to reverse the trend.
A new threshold for unlicensed generation
The increase of the embedded power generation threshold – from 1MW to 100MW without a license – is arguably the most significant action taken by the SA government to rekindle the private sector’s entrepreneurial flame.
Predictable power through self-generation will allow businesses to deliver on their promises, grow their brands, and invest in excess capacity knowing they’ll be able to use it. Then there’s the extensive value chain that stands to benefit from the funding, design, construction, operation and maintenance of those self-generation plants.
“The presidential announcement to raise the self-generation threshold is consistent with the commitment to decommission 30-35GW of Eskom baseload power over the next 20 to 25 years. That capacity will need to be replaced by 100GW of renewable energy,” says Martin Meyer, head of power and infrastructure at Investec.
The capacity from the decommissioning of Eskom's coal-fired plants] will need to be replaced by 100GW of renewable energy.
The era of renewable energy
It would take roughly 320 million solar panels or 37,000 wind turbines to add 100GW of renewable energy capacity to our grid. And hundreds of billions will need to be spent on upgrading our infrastructure to harness that clean power. That’s a big hill to climb. But the wheels are turning.
Rich countries convened at COP26 agreed to provide R131 billion of grant and concessional financing to South Africa over the next three to five years to expedite our wind, solar and green hydrogen capabilities. That’s excellent, enabling news for independent power producers (IPPs) and the SA businesses turning to them for uninterrupted, affordable electricity.
“The Renewable Energy Independent Power Producer Procurement Programme (REIPPP) is outperforming almost all targets. It's the gold standard for public-private partnerships and its success is something that should be celebrated by South Africans. Globally, it's regarded very highly,” said Ziyaad Sarang, head of fund initiatives at Investec during a Focus Talk.
The intermittent nature of wind and solar energy means that SA’s transition away from coal will see more use of cleaner fossil fuels, such as natural gas. With the Mozambican gas fields depleting fast, opportunities exist for the prospecting and development of new sources. Other green energy solutions, including BioMass and energy-from-waste, should also begin to take shape in 2022.
REIPPP is the gold standard for public-private partnerships and its success is something that should be celebrated by South Africans.
Local manufacturing potential
The physical components needed for solar or wind power go beyond panels and blades. And with the SA government making the right policy noises, local manufacturers have an opportunity to equip themselves for the groundswell of investment pushing into renewable energy infrastructure.
“Our government can revive the economy through infrastructure development. We have an amazing ten-year track record of doing it within REIPPP. It's the beginning of the kind of future that we can all hope for,” said Fumani Mthembi, co-founder of Pele Energy and MD of Knowledge Pele during an Investec Focus Talk.
Our government can revive the economy through infrastructure development. We have an amazing ten-year track record of doing it within REIPPP.
Storage and wheeling
SA’s renewable energy potential is contingent on the ability of IPPs and businesses to store and distribute the electricity they generate.
Battery costs are falling but, for the time being, remain prohibitively high in most commercial settings. Power to those who can deliver cost-effective storage solutions. Investments in alternatives like large-scale pumped hydro systems hold out promise.
Eskom and other stakeholders are also in the process of defining the frameworks to allow producers to ‘wheel’ (or sell on) excess electricity they generate directly to other buyers through the grid.
“Eskom’s separation into transmission, distribution and generation companies, as well as the clarification of wheeling regulations, is congruent with a long-established international trend. This process should create a merchant market in South Africa within the next five to 10 years. It would involve the private sector in generation and maintenance, as well as the modernisation of infrastructure using new digital and energy storage technologies,” says Dieter Matzner, a power and infrastructure specialist at Investec Bank.
This process should create a merchant market in South Africa within the next five to 10 years.
Road to net zero
Reaching the point of adding no more CO2 to the atmosphere than we take out goes well beyond greening our energy mix. Consumers are becoming more conscious about food, housing, mobility, leisure and communication. Businesses offering them more responsible choices stand to benefit.
“In the future, when you buy a car, the embedded emissions will be disclosed and charged for. When you fill up, the fuel you purchase will carry a carbon premium that reflects the source of its production. When you fly, you will be charged for the carbon offsets the airline has to purchase on your behalf, or for the cost of the biofuels used,” explains Campbell Parry, analyst at Investec Wealth & Investment.
Green hydrogen and ammonia
Hydrogen is an energy carrier which can be used to decarbonise large industrial energy users such as the steel and cement industries where it’s difficult to reduce carbon dioxide emissions. In addition, it will also be fundamental to decarbonise the aviation, maritime and heavy road transport systems. If it can be produced on mass using renewable energy sources – known as green hydrogen and ammonia – it will be instrumental in combating climate change across multiple applications; SA has the wind and sun to take up that mantle.
“The scaling up of electrolyser manufacturing capacity in Europe and Asia over the next 10 years implies that large-scale hydrogen production will become cheaper and more accessible than ever before. Green hydrogen and ammonia will start to replace all fossil fuels, for which a substantial export market exists. Finally, the development of hydrogen fuel cells will create local demand for platinum where the metal is used as a catalyst,” says Matzner.
Hydrogen has the potential to be a game changer for PGMs
Nkateko Mathonsi, head of research for Investec for Corporates and Institutions on why Platinum Group Metals will benefit from the development of fuel cell electric vehicle technology.