WRI’s six-part blog series, Mobilizing Clean Energy Finance, highlights individual developing countries’ experiences in scaling up investments in clean energy and explores the role climate finance plays in addressing investment barriers. The cases draw on WRI’s recent report, Mobilizing Climate Investment.
When it comes to renewable energy, South Africa has considerable, unrealized potential. Some estimate that wind power generation potential in South Africa could reach 80.54 TWh, which could be realized with an installed capacity of 30.6 GW. Abundant coal supplies, government-subsidized electricity, a monopolistic state-run utility, and the lack of a clear renewable energy policy have delayed wind and solar development, and made it difficult for them to compete against fossil fuels. Yet in recent years, important policy reforms have slowly and steadily created a more favorable investment environment for renewable energy technology.
Although still in its early stages, South Africa’s experiences with wind energy provide an important case study for policy makers pursuing renewable energy deployment in other countries.
Two lessons stand out:
South Africa’s more participatory approach to the policy-making process was instrumental in integrating renewable energy into South Africa’s energy planning. Civil society groups and other stakeholders involved in the process were essential to increasing the ambition of the country’s renewable energy targets.
By aligning its renewable energy policy with its broader climate and development policies, South Africa articulated a clear national role for renewable energy and helped secure the confidence of donors and private sector investors.
Policy and institutional reform
Efforts to exploit South Africa’s abundant wind resources began in the 1990s. However, it was only after an electricity crisis in 2007-08 that the country took more concrete steps to promote renewable energy. In 2009, a number of policy and institutional reforms were undertaken. A new national climate change policy set a greenhouse gas reduction target at 34 percent below business as usual (BAU) levels by 2020 and 42 percent below BAU by 2025. A new Department of Energy was created to minimize potential conflicts of interest between the mining and energy sectors that were inherent in the former Department of Minerals and Energy. Additionally, the Department of Energy was charged with developing an “integrated resource plan,” to identify investments needed to meet electricity demand at the minimum cost.
After a slow start, public participation significantly improved South Africa’s renewable energy plans. The original 2009 integrated resource plan depended mainly on new coal plants to close the gap in electricity capacity, making it inconsistent with the country’s larger greenhouse gas emissions targets. After civil society groups and private sector stakeholders expressed their concerns, the government held a public consultation process in which representatives from relevant government agencies, civil society organizations, private sector, and academic institutions provided input, with many demanding more investment in renewable energy.
As a result of a participatory process, the final version of the integrated resource plan was better aligned to South Africa’s climate change policy and set a renewable energy generation target at 19 GW, or nine percent of total electricity generated by 2030. Though this is an improvement, many have rightly pointed out that 9 percent of total electricity generated will still not be enough to meet South Africa’s emissions targets, and civil society groups are pushing for more ambitious targets going forward.
Aligning policy objectives
Later in 2011, the government launched the South African Renewables Initiatives (SARi) to deepen the integration of its renewable energy agenda into development considerations, including economic growth, social welfare, climate change, environment, and job creation. SARi consists of strategies to achieve the renewable energy generation goals in a way that is coherent with national economic, social, and environmental policies. For example, with the implementation of SARi, the government expects that investments in renewable energy could add around 40,00-54,000 of direct and indirect jobs per year by 2020-2025, positively impacting economic growth and the job market in South Africa. SARi also aims to coordinate national and international donor support for renewable energy generation goals. Indeed, Denmark, Germany, Norway, the United Kingdom, and the European Investment Bank have committed to engage with SARi to harmonize efforts.
Securing investor confidence
The clear role of renewables in the integrated resource plan and a tendering process that was effectively managed by DoE, with support from the National Treasury, have created optimism in the private and financial sectors, despite the initial policy uncertainty. The private sector actively participated in the three bids for renewable energy, which have so far tendered 3,725 MW of renewable energy projects including 1,850 MW of wind energy to private developers. Furthermore, the Standard Bank Group, the largest commercial bank in Africa, has agreed to underwrite projects to the tune of 27 billion Rand (US$ 3.5 billion), also demonstrating a signal of confidence from the financial sector in the development of renewable energy in South Africa.
What can we learn from South Africa?
Though development has been slow over the years, the recent policy realignments, increased investment, and public pressure have increased South Africa’s wind capacity from roughly 10MW by the end of 2009 to a total of 1,300 MW of generation capacity under construction and operational by the end of 2013. While they have made good progress, South Africa still has a lot of work to do to decrease its reliance on fossil fuels, in particular on coal, which meets more than 70 percent of total energy needs.
Moving forward, the government needs to clearly signal its commitment to promoting renewable energy and ensure that energy, climate, and development planning continue to be well-aligned. Furthermore, it should continue to draw on the wealth of knowledge and experience within civil society and the private sector by ensuring that planning is carried out in a transparent and participatory manner.
Find out how other developing nations are boosting investments in clean energy through our ongoing blog series, Mobilizing Clean Energy Finance.