While there are a number of solar energy projects supplying State-owned power utility Eskom and the economy with energy, including a number still under implementation and development, the industry is still in an embryonic state, explains professional services firm KPMG.
“We are certainly far from being a mature market,” KPMG global infrastructure and projects group associate director Malcolm Pautz tells Engineering News, highlighting that, at present, most of the industry’s focus has been on the generation of electricity.
However, industry has hardly tapped into the upstream and downstream segments of the market, he notes. As there are a number of local facilities assembling and supplying the panels, creating employment and, to some degree, encouraging manufacturing, there is significant scope to look at the localisation of the total supply chain, he highlights.
This is in evidence globally, in the development of manufacturing facilities, such as the upstream integration from raw materials to solar photovoltaic (PV) panels, and locally, specifically in the wind towers factories opening in Coega, in the Eastern Cape, and in Cape Town, in the Western Cape, says Pautz.
Downstream integration of value-added ancillary products, such as electric bicycles, security and lights, in combination with solar energy production, are also untapped markets, he suggests.
Meanwhile, Pautz notes the success of the industry, citing improved black economic empowerment (BEE), local participation and invaluable direct and indirect job creation as key examples, with about 2 120 local construction jobs, 7 515 local operation jobs in solar PV, 3 080 local construction jobs, and 1 730 local operation jobs in concentrated solar power (CSP).
He further highlights the international exposure to and adoption of South Africa’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) by other countries. “KPMG’s Singapore office is currently assisting Dubai Electricity and Water Authority in rolling out their own independent power producer programme, based on a similar programme adopted from South Africa,” he says.
Nevertheless, the industry still faces significant challenges, with volatile price fluctuations, owing to an oversupply of manufacturers, Pautz says, “as evidenced by the ‘dumping’ of solar panels at the end of 2013 and the beginning of 2014”.
Still, Pautz believes the pricing will stabilise as supply and demand meet.
“Competition is rife, but a well-planned, developed and managed project will succeed and there is significant potential for further developments and opportunities, not only in South Africa, but on the continent,” he says.
To support the industry, an additional possible approach for government would be to provide incentives, such as tax breaks and allowances for further upstream and downstream integration in the solar space, Pautz suggests.
These incentives must be sufficient to attract international manufacturing to “open-up-shop” to start the manufacturing of sand to silica, silica to ingots, ingots to wafers, wafers to cells, cells to panels.
“This will lend itself to externalities, such as increased glass manufacturing for the panels and increased aluminum backing, which leads to enhanced beneficiation, job creation and economic growth resulting in an increased tax base revenue,” Pautz explains.
However, industry needs to ensure there are appropriate solar-sector advocates championing the drive for solar energy, through continuous marketing of the case for renewable energy, as well as keeping abreast of the latest technological enhancements, he says.
“Rapidly changing technology is providing increased yields and diversity, with various technologies such as thin film, monocrystalline and polycrystalline – at a cheaper cost. Moreover, if storage capacity technology improves, this could serve as a means of base-load supply in the future,” Pautz says.
KPMG has advised numerous clients in the private sector on developing and managing their bids for the Department of Energy’s REIPPPP. In addition, the company recently provided financial structuring advisory services and capital raising (both BEE equity), debt and bid preparation for a solar project for the latest round of the REIPPPP.
“The programme approach, as adopted by the REIPPPP, has illustrated the success that can be created by providing certainty and a vibrant and sustainable industry,” Pautz says, noting that the country is benefiting from the competition that has been created.
Tariffs dropped from R1.143/kW to R0.656/kW; R2.758/kW to R0.881/kW and R2.686 to R1.460/kW for wind, solar PV and CSP respectively. This is an accumulative reduction of 42.6%, 68.1% and 45.6% for wind, solar PV and CSP.
The task now is to continue with the programme and to promote the downstream and upstream segments to significantly unleash the potential the industry has to offer, Pautz says, concluding that export into an untapped, expanding African market would no doubt yield beneficial results.