December 18, 2016

South Africa Needs Regulatory Certainty to Build Large Wind Sector by 2050

Investors are looking beyond hiccups such as the stalling of the scheme to buy clean energy by the South African government from independent power producers to create a very large wind sector by 2050, but they want clear regulations.

The delays in signing off power purchase agreements by the power utility Eskom with renewable energy independent power producers (REIPP) has triggered panic signals to investors, but all hope is not lost to boost local manufacturing content and create jobs.

Wind energy investors and stakeholders shared their concerns at South Africa’s premier wind energy conference held Nov. 3-4 at the Cape Town International Convention Center.

The collective opinion is it’s important to create jobs to make a difference in the South African wind industry, said Anne Henschel, managing director of Acciona Windpower and head of a working group on employment with the South African Wind Energy Association (SAWEA).

“The local industry investment is one of our key issues, and it’s very controversial, but we are confident that the differences will be solved with different approaches,” she said.

“Without investment in the industry there will be no future and we will only be executing projects on a short term,” Henschel said, adding that operating businesses had not invested enough to meet the target of 100 percent renewable energy.

She recommended the need to improve the policies in place or continue to enforce the current ones.

“There is no need to be in such a depressive mood, in every crisis we have a lot of opportunities,” she said.

Henschel was concerned that the private sector has invested R193 billion in the sector, but the challenge now was to continue localization and create jobs to meet the target set by the government to create 300,000 jobs in renewable energy by 2020.

She appealed to the Department of Trade and Internationalization to have a long-term perspective and policies that support private business, adding the private sector was open to flexible solutions and also to search for local solutions.

“We are not getting penalized for not achieving local content targets; we should get incentives in schemes for creating jobs, and use modules to achieve industrialization through localization here in South Africa,” Henschel said.

Nils de Baar, group senior vice-president, Vestas Central Europe, said while they considered localization important, the complex value chain of manufacturers requires long qualification process, and they had to ensure quality and timely availability of materials they use for their products.

Baar said they encourage local industries to improve their standards and be part of a supply chain.

“Existing supply chain can establish branches in South Africa and create jobs,” he said.

Janek Winand, vice-president, South Eastern Africa – Siemens Wind Power, said they had stringent requirements on quality and safety.

For instance, on wind towers Siemens worked with local suppliers and helped them to produce the right quality of product they want to buy. The company has done the same with solar panels.

“We have to ensure that this quality is met because we have to make sure the PVA last at least 20 years, which is the base mark for durability,” Winand said, adding, “our clients base their business case on this durability to ensure we fulfill our warranties on technology.”

Upgrading of small manufacturers in South Africa has become a way to go for Siemens Wind Power as some small manufacturers do not have the financial capacity to make this investment when they have unserved pipeline, so we make this investment, Winand said.

South African parastatal Industrial Development Cooperation (IDC), admits localization is currently a challenge in the country.

“[REIPPs] being rolled out right now are highly problematic to the localization initiative,” Retif Bruwer, senior project development manager with IDC, said.

The marked demand was created by government; that in itself creates a problem if there are no clear policies in which to operate the investment, he explained.

“In the current environment, we need certainty on how REIPP will be rolled out in the future, because some companies have made investments and are sitting in a period where there is nothing on the table,” Bruwer said.

Steve Sawyer, secretary general, Global Wind Energy Council (GWC), agreed. The government requirement for local content in renewable energy production had brought uncertainty in the industry as the sole buyer of the energy.

Sawyer talked of two fundamental conflicts in South African scenario.

Producing carbon free electrons at the lowest possible price and creating local jobs and industries, or to maximize efficiency of the business, board members have to establish global supply chains to take advantage of global market chains. But the size of the equipment involved means that it will be cheaper and more competitive to get it closer to where it will be installed, he said.

Sawyer noted that the political intervention was to be seen creating local jobs.

“A clear market is needed,” he emphasized. “Local manufacturing can make the product globally incompetent.”

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