COVID-19 leaves SA’s renewable sector in limbo

Although the challenges ahead for renewable energy players in SA remain largely the same, the coronavirus (COVID-19) pandemic will put to the test the local industry’s skills, resilience and depth of pockets.

This is according to Kearney, a global consulting partnership in more than 40 countries, which points out there are three key factors which will determine the profitability of SA’s renewables sector, as the country continues its fight with the impact of COVID-19.

The local renewable energy sector, which has been blossoming of late, is facing a new stumbling block in the form of the COVID-19 lockdown.

This after power utility Eskom, which supplies about 95% of SA’s power needs, said it now has surplus capacity after the implementation of the lockdown, resulting in the parastatal taking some of its generation units offline.

It then issued force majeure notices to the wind independent power producers. These notices serve to alert the wind IPPs of the possibility that Eskom may from time to time curtail their supply to the grid during the national lockdown.

South Africa’s wind energy industry is seeking legal counsel over Eskom’s decision to curtail operational wind farms.

An industry body that represents 320 member organisations in the solar PV industry recently wrote an open letter to Cyril Ramaphosa, in which it calls on the president to remove limitations to private power generation as a way of supporting efforts to kick-start the economy post-COVID-19.

The letter by the chairperson of the South African Photovoltaic Industry Association, Wido Schnabel, reads in part: “Our economic recovery depends on the sustainable, affordable and reliable supply of energy.

“If we are to – as you say – ‘forge a new economy’ then we cannot allow a return to the dark days of load-shedding. Since the rolling blackouts of 2008, Eskom’s inability to provide a stable supply of power has throttled economic growth and battered the country’s credit rating to junk status, citing energy as the number one contributing factor.

“The limitations imposed by schedule two of the Electricity Regulation Act (ERA) are weighing heavily on our industry at a time when the country is in the midst of a crisis. Nevertheless, we are confident that by working together with the government, we will be able to power the economy back to life. This is precisely why we are calling for an urgent meeting with your administration to plot a way forward.”

Schedule two of ERA provides for exemption from the obligation of specified parties to apply for and hold a licence from the National Energy Regulator of SA.

Kearney says based on its international research, it is clear that profitability will be determined by excellence in project portfolio execution.

It urges the industry to build portfolios around privileged assets with solid renewable resources and straightforward access to the power grid and prioritise efforts on the projects that have the greatest chances to progress economically.

The industry must also promote agile execution, with modular plant designs and layouts, as well as strong permitting capabilities in key markets and power purchase agreement expertise to speed up agreements with offtaker and project financing, Kearney says.

It adds the sector must develop toolkits to flexibly cope with renewable intermittency and its impact on revenues, both on the demand side (access to market, ability to profile production curves and price segmentation) and on the supply side (smart storage solutions and asset pooling).

Prashaen Reddy, a partner at Kearney and on the board of South Africa National Energy Association, says despite the global pandemic toppling the status quo, the outlook for renewable energy is still bright.

“One thing we cannot forget is that energy is here to stay. Natural gas has been a major enabler of change to a cleaner energy mix, especially in the power sector. Gas has steadily displaced coal for baseload generation and has been integral to enabling the dramatic growth of intermittent renewable electricity sources, such as solar and wind.”

Reddy says with carbon emissions half that of coal, natural gas has received relatively little credit for lowering emissions.

“When the COVID-19 pandemic starts slowing down, governments, public administrations and healthcare associations around the world will need to draw the right conclusions to protect us from any future outbreaks. Equally so, the renewables sector will play an important role in focusing on driving the country towards a green and sustainable economy.

“Although the magnitude of the impact of COVID-19 on projects, developers, utilities and equipment manufacturers is still unclear, the medium-term fundamentals are optimistic, as the Kearney research shows.”