Wind energy industry warned of tough road ahead

12th July 2018 By: Kim Cloete - Creamer Media Correspondent

Wind energy industry warned of tough road ahead

A leading economist has warned the wind energy industry that it will need to become even more competitive and lower the price of wind power in a stagnant and increasingly challenging South African energy sector.  

“Our power sector is bankrupt. Whether we like it or not, this will impact the wind industry,” Meridian Economics MD Grové Steyn said on Thursday at a symposium organised by the South African Wind Energy Association (SAWEA) in Cape Town.

“Despite [power purchase agreements for] round four of the Renewable Energy Independent Power Producers Procurement Programme (REIPPPP) being signed, the honeymoon for wind and renewables is well and truly over.

“It’s clear that renewables cannot escape the stresses and strains playing out in the energy sector and the economy more broadly,” he added.

He said energy demand in the country was stagnant and had been for years.  

Steyn focused on the key drivers in the broader power sector over the next few years and said Eskom’s serious financial problems were putting huge strain on the sector.

“The wind industry relies completely on Eskom to bring its product to market. This exposes the entire wind industry to Eskom risk.”

He said Eskom’s financial crisis was worse than most people realised.

“Our preliminary analysis shows that R100-billion of Eskom’s debt is at risk. There is a funding shortfall of R10-billion [a year].”  

He pointed out that Eskom has delayed the publication of its annual report due to the discovery of tens of billions of rands of irregular expenditure.

“It’s unlikely that the sovereign can bail out Eskom as it has done for the past few years. An Eskom default could trigger government guarantees and a sovereign downgrade, which could plunge the economy into a recession.”

While the renewable energy sector has often talked about how it has slashed the price of wind and solar power, prices need to drop further, Steyn suggested.

“If you want to sell more power into the sector, you will need to do it at the lowest possible price, given that the industry is bankrupt.”

He said reducing the price of wind power would go a long way in improving the prospects of the industry. Ongoing technology improvements were in its favour.

He said the industry had benefitted tremendously from technology changes in the last 10 to 15 years.

“There are still many innovations in onshore wind technology, increasing turbine sizes and capacity factors that are reducing unit costs.”

Steyn noted that while wind energy was very important in diversifying the national energy portfolio, solar photovoltaic (PV) “probably has more potential to reduce costs than wind”.

“Solar PV and storage may pose significant challenges to wind in future.”

Meanwhile, Development Bank of Southern Africa (DBSA) client coverage group executive Mohan Vivekanandan, suggested that investors may need to compromise and reconsider the returns they are prepared to get.

While Steyn painted a harsh picture of the challenges facing the industry, he said the renewable energy industry has the potential to create many jobs.

“As of June 2017, the REIPPPP has created 35 532 direct full-time equivalent (FTE) person years of employment. It is anticipated that 109 444 direct, FTE person-years of employment will result from REIPPPP bid rounds one to four in both construction and operation over their 20 year power purchase agreement time horizon.”

FTE job years anticipate one person working full-time for one year.

SAWEA CEO Brenda Martin, meanwhile, welcomed the opportunity to discuss the outlook for the sector at the upcoming Windaba, which will be held in Cape Town in November.

“The industry has grown very well despite the setbacks of the past three years. We now have a great opportunity to do things from scratch, do well and create a future that is better,” she stated.