One of the first questions posed to Mineral Resources and Energy Minister Gwede Mantashe after Cabinet finally approved the 2019 edition of the Integrated Resource Plan (IRP 2019) in October related to the ongoing capacity addition gaps for solar photovoltaic (PV). While the IRP 2019 envisages total solar PV additions of 8 288 MW over the period to 2030, representing a material scale-up from the current installed base of 1 474 MW, the plan does not envisage any utility-scale installations in 2024, 2026 and 2027.
The response was somewhat garbled, with the Minister and his team explaining away the gaps as a modelling outcome, whereby the allocations are determined on the basis of various demand and technology-cost assumptions – one being the imposition of yearly build limits on solar PV and onshore wind, notwithstanding their rising cost advantages. Attention was also drawn to the last column in the IRP 2019 table headed ‘Other’, which includes the subheading ‘Distributed Generation, CoGen, Biomass, Landfill’. The column outlines yearly allocations of 500 MW from 2023 onwards, preceded by an open-ended allocation for the period 2019 to 2022, to be determined by “the extent of the short-term capacity and energy gap”.
Given that solar PV already dominates the distributed-generation space, which has evolved in spite of serious policy and regulatory constraints, the expectation is that the technology will capture a large portion of the allocation set aside for ‘other’ technologies. This, together with recent lags in procurement for new renewable-energy plants more generally, could help cover over the allocation gaps left for utility-scale solar PV.
An accelerated deployment of solar PV beyond what is obvious through a cursory study of the IRP 2019 will also be supported by two international megatrends: plummeting costs and surging installations.
In its ‘Global Market Outlook for Solar Power 2019–2023’ report, SolarPower Europe notes that yearly installations breached the 100 GW threshold for the first time in 2018, while cumulative operational capacity rose to above 500 GW. In 2019, about 114 GW of solar PV was installed and the outlook for future installations is even more bullish.
Even the International Energy Agency’s (IEA’s) 2019 renewable energy market forecast, which employs estimates that are considered conservative, points to “spectacu- lar growth” for solar PV over the coming five years. The report states that the world’s total renewables-based power capacity will grow by 50% between 2019 and 2024. At that pace, some 1 200 GW will be added over the period, which is equivalent to the current total power capacity of the US. Solar PV, the IEA predicts, will account for 60% of that rise, with distributed PV, particularly in the form of commercial and industrial installations, accounting for almost half of overall solar PV growth. That said, the number of solar rooftop systems on homes is also set to more than double to some 100-million by 2024.
This acceleration in installations is partly attributed to the nature of the technology, which can be introduced economically even at a relatively small scale, as well as improvements in panel efficiency. The primary driver, however, is the ongoing decline in the cost of solar PV plants, which are at levels today that are significantly lower than those for new nuclear and coal plants.
In 2018, several solar PV power purchase agreements (PPAs) were concluded at prices in the 2 US c/kWh range and the downward trend continued into 2019. In October, reports emerged of a consortium led by Saudi Arabia’s ACWA Power having submitted a record low bid price of $0.0169/kWh for a 900 MW solar park in Dubai, in the United Arab Emirates.
The steep fall in costs has moved solar PV beyond the tipping point – where such installations rely on subsidies – with cost competitiveness having emerged as the main driver of new installations since 2014 onwards.
“As costs continue to fall, we have a growing incentive to ramp up the deployment of solar PV,” IEA executive director Dr Fatih Birol states. The IEA forecasts that these costs will decline by a further 15% to 35% by 2024, making the technology even more attractive and spurring adoption worldwide. Solar PV uptake is likely to be further stimulated by the decline in energy storage costs, particularly batteries, which are seen as a complementary technology for variable renewable- energy technologies.
The implications for ‘sunny South Africa’ are profound. For one, the country’s potent solar resource means that its solar PV plants will produce electricity at costs below those being achieved in countries with inferior resources. In other words, as the world progressively transitions to a power system in which variable renewables, such as wind and solar, play a more prominent role, South Africa will have an intrinsic competitive advantage.
The industrial development potential of being in a position to produce relatively cheaper electricity is significant. If properly harnessed, it is possible that South Africa will regain its attractiveness as a destination of choice for electricity-intensive industries, both old, such as smelters, and new, such as data centres or the production of green hydrogen through electrolysis and power fuels.
Trade and Industrial Policy Strategies senior economist for sustainable growth Gaylor Montmasson-Clair tells Engineering News that South African policymakers should not lose sight of the fact that the “first objective” of renewables is to provide low-cost and clean electricity. “In the process of providing cheap and clean electricity, wind and solar will create jobs and industries. But it’s really in that order, not the other way around.”
South Africa’s globally renowned Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) is already geared towards capturing those price benefits, partly because it is a competitive bidding process, but primarily because 70% of the evaluation criteria is weighted towards projects with the lowest tariffs.
Ensuring that the cost competitiveness of solar PV is passed on to South African consumers could have implications for the nature of the manufacturing opportunities pursued. For instance, to keep tariffs low, it may make sense to continue to import panels from low-cost manufacturers in countries such as China, while training South Africa’s localisation sights on other components, such as mounting systems, inverters and cables. Montmasson-Clair believes there to be an especially strong case for increasing the manufacturing base for smart meters for both meeting domestic demand and exporting into regional and global markets.
Securing the full employment and industrialisation spin-offs, however, requires demand security and a smooth procurement profile, as manufacturers are unable to navigate booms and busts. “We saw this in the early stages of the REIPPPP, when a lot of manufacturing was set up really quickly, which was sadly not sustained when the procurement programme stalled. Stop-start procurement is simply not conducive to manufacturing.”
One of the highest-profile casualties was DCD Wind Towers, in the Eastern Cape, which was liquidated in 2017. The entire manufacturing plant was eventually auctioned off last month.
Mind the Gap
South African Photovoltaic Industry Association (SAPVIA) chairperson Wido Schnabel says the three-year allocation gap in the IRP 2019 is not immediately conducive to large-scale industrialisation. He is optimistic, however, that these gaps may yet be closed, welcoming Mantashe’s description of the IRP as a “living document”.
For this reason, SAPVIA has officially welcomed the IRP 2019, despite the 8 288 MW allocation for large-scale solar PV additions to 2030 falling short of initial expectations and well below the 17 700 MW allocated to onshore wind. Schnabel also believes that solar PV could capture a further 6 000 MW through the deployment of distributed genera- tion over the same period. “We will continue to engage the Minister to find mechanisms to smooth out the gaps presented, as continuity will be critical to securing the industrialisation government is also seeking.”
Schnabel is concerned, however, about the absence of a clear roadmap for the procurement of electricity capacity, generally, and utility-scale solar, in particular. Likewise, there is still uncertainty on the path that will be taken to unlock the distributed-generation opportunity.
South Africa has not procured any new renewables capacity since 2014, largely as a result of Eskom’s refusal to sign PPAs for the 27 projects procured under the fourth REIPPPP bid window. The impasse was finally broken in early 2018, but Bid Window 5 is now only expected to proceed during the first quarter of 2020.
Further muddying the waters is a recent government intervention aimed at renegotiating the terms of PPAs for renewable- energy plants procured during the first three bid windows. Although renewables tariffs have fallen in each successive reverse auction, they started relatively high, owing partly to the immature state of the industry at the time and partly to the fact that renewables technology costs had not yet begun their precipitous decline. During the first bid window, the tariff for solar PV projects was R4.02/kWh. The tariff declined to R2.40/kWh in the second, R1.28/kWh in the third and to R1.00/kWh during the fourth bid window.
Engineering News understands that some independent power producers may be willing to shave their tariffs in return for longer PPA periods, while others are arguing that the quickest and easiest way to lower average renewables costs would be to restart the procurement programme, as any future tariffs would be far lower than those bid in 2014. In fact, during the ironi- cally named ‘expedited round’ of November 2015, which was initially delayed and then cancelled, the average tariff bid for solar PV projects was 62c/kWh. Costs have fallen steadily since that date. Therefore, many commentators believe that the average solar PV tariff will fall well below 60c/kWh when the next bidding round eventually proceeds.
Unblocking the Smalls
Likewise, the regulatory hurdles that have been blocking distributed-generation projects for several years have not been fully cleared, despite the allocation in the IRP 2019 and a waived requirement for a Ministerial deviation on projects between 1 MW and 10 MW in size.
SAPVIA believes that up to 2 000 MW of small-scale capacity can be added to the energy mix over the next 12 months should the blockages be cleared. Currently, the bureaucracy associated with the licensing and registration of distributed-gene- ration facilities is hampering investment. While installations below 1 MW in size require only municipal or Eskom sign-off, facilities above 1 MW in size still need to navigate an onerous National Energy Regulator of South Africa registration process, which can take up to a year to complete. SAPVIA describes the 1 MW cap as arbitrary and has proposed an immediate raising of the threshold to 10 MW.
Both Schnabel and Montmasson-Clair believe that, by unlocking the distributed- generation market, many jobs will be created in the installation and maintenance of rooftop systems across factories, farms, mines, shopping malls, commercial properties and homes. They are also convinced that the risks to municipal revenues can be managed and mitigated, including by allowing municipalities to actively procure such projects and by migrating the municipal business model to one that sells energy services rather than only kilowatt hours.
There is also significant potential to align the deployment of solar PV with the efforts designed to ensure a ‘just transition’ from a coal-dominant electricity system to one that is increasingly led by renewable energy. Although South Africa’s most powerful solar resources are in the Northern Cape, most regions in the country have resources that are superior to those in countries with far higher levels of solar penetration, such as Germany. Therefore, it is feasible to locate projects in provinces where coal mines and power stations are scheduled to be decommissioned.
Work has already been completed to enable the designation of new Renewable Energy Development Zones, or REDZs, in eMalahleni, in Mpumalanga, where the coal industry will be negatively affected by the decommissioning of several Eskom power stations over the coming two decades, as well as in the gold mining town of Klerksdorp, where production has been waning for decades.
Montmasson-Clair says adding a spatial dimension to the deployment of solar PV could make sense, not only to provide new opportunities for workers in declining industries but also because it is in close proximity to existing grid infrastructure. He cautions, though, that, while renewable energy can definitely contribute to the just transition, there should not be an overreliance on solar PV and wind to provide all the solutions. “Is renewable-energy going to solve all of the problems in Mpumalanga? The answer is ‘No’. Is it part of the solution? Definitely,” Montmasson-Clair avers, adding that a far larger just-transition framework will be required.
Schnabel concurs, but adds that SAPVIA members are more than willing to contribute to ensuring that they play a constructive role in areas where workers and communities are vulnerable to the shift from coal to renewables.
“I believe that all of us in the renewables sector have an obligation to participate in the just transition. I also think that solar can play a tremendous role, because the technology can be used in both small installations and large utility- scale projects. That means we can extend the benefits of the energy transition to many more South Africans than is the case with other technologies,” Schnabel concludes.