Sipha Ndawonde, Frost and Sullivan
July 01, 2010 | 2 Comments
The announcement earlier this year of the renewable energy feed-in-tariff for South Africa was a progressive step by energy policy makers. The value of these tariffs even surpassed the expectations of most stakeholders involved in the renewable energy industry.
But how does South Africa’s renewable energy market match up against other countries on the African continent, specifically in the case of the wind power market? Unfortunately, the answer is "not very well."
Over 97% of the total installed wind power on the continent is installed in Egypt, Tunisia and Morocco. In 2008, 104 MW of wind power was added on the continent. Egypt, Tunisia and Morocco made up 99% of that total. To understand why the North African countries are leading the rest of the continent in wind power projects, one must appreciate the specific factors driving wind market developments in this region.
Some Drivers for Wind Power Projects in North Africa
Proximity to the European Market -- The proximity of North African countries to Europe and the growing electrical grid interconnections between these regions is one of the reasons for the strong interest in the North African wind energy market. European countries have committed themselves to meeting CO2 emissions targets and are investing resources into clean energy projects. For example, Tunisia and Italy plan to integrate the electrical grid connections between the two countries. Once the underwater connection between the countries is completed, Tunisian clean energy companies will be able to export 200 MW of energy to Italy.
High Wind Potential -- The wind speeds and wind reliability in North African countries rank amongst the highest in the world. These wind resources are exceptional, therefore this part of the continent was always a strong candidate to develop into a formidable wind power market.
Ambitious Renewable Energy Targets
These targets form part of the key incentives that project developers use to assess the level of government commitment to renewable energy projects in these countries. (See lead image for chart showing key market drivers for wind development in Africa.)
The Growth of the Egyptian Wind Market in Particular
Quick Government Thinking and Action -- With 365 MW of installed wind power, Egypt has the highest wind capacity on the continent. Measurement of the wind energy potential began in earnest in the country in 2000 and 2001. In 2001, the Renewable Energy Authority (NREA), accumulated data on the sites with the highest annual wind speeds in the country. Following this, the ministry of electricity and energy acquired more than 800 m² of land to be used to develop wind energy projects.
Strategic Alliances with International Development Agencies -- Perhaps the most important intervention of the Egyptian government was to align the country with international development agencies to assist in the construction of wind farm projects. German financier, Kreditanstalt fur Wiederaufbla (KfW), Danish International Development Agency, DANIDA, the Spanish government and the Japan Bank for International Cooperation, JBIC, form the impressive list of development agencies that have been instrumental in providing loans to the Egyptian government to develop wind power projects. Investments by these agencies will provide an injection of capital in different phases of the multi-stage Zafarana wind project in Egypt.
Wind Power Market: Installed Wind Power Capacity (Africa), 2008
Source: Frost & Sullivan
Why Has South Africa Lagged Behind?
Prior to 2006, energy intensive industries were not under pressure to reduce electricity consumption and introduce energy efficiency measures. The reliability of power supply to these industries was good and the cost of electricity lower than the global average. Thus, these industries had no reason to pressure the utility to explore alternative forms of power generation. Self-power generation projects were largely a long-term plan, and not a serious consideration.
The same holds true for domestic users of electricity in South Africa. Prior to the events in 2007/2008, South African households enjoyed a reliable supply of power and had not experienced the sweeping power outages that led to load shedding in 2007/2008.
There was therefore no public or industry pressure on the utility to explore alternative sources of power generation.
Today however, public pressure on the utility has increased from both the industrial and domestic sectors. Energy efficiency, renewable energy and DSM (demand-side management) are the hot topics of the day, which has led to the focus on renewable energy for power generation.
What Is The Role of Wind Power Projects in South Africa?
Wind energy is unlikely to form an integral part of the future baseload energy capacity in South Africa. Nuclear and coal energy will be the key components of the energy mix in the country. This is not to say that wind power projects do not have an important role in the country though.
The lower upfront capital costs for wind power projects and shorter time-to-completion lead times allow wind power projects to add additional capacity to the national grid far quicker than a new coal or nuclear energy plant can. Wind power projects have the potential to total more than 300 MW of installed capacity in the next three years. The contribution that wind power projects will make is however largely dependant on key issues such as grid capacity, private sector investment, EIA application processes and the regulatory environment in South Africa.
Wind Power Market: Key Market Drivers (South Africa), 2008
Source: Frost & Sullivan
Summary: What can South Africa Learn from North Africa?
1. Identify organizations that can assist in thoroughly assessing and addressing wind energy potential in the country. Without accurate data on the wind speed and wind variability at a specific site, equipment manufacturers, project developers and investors will not be interested in investing time and resources into a project.
One organization that has been key in the development of the North African wind energy market, is the German technical co-operation agency (GTZ). The GTZ has been instrumental in North Africa and is partnering with South Africa to support the development of its wind market.
2. Identify development finance institutions to assist in funding projects in the country.
Loans with favourable interest payments provided by Spanish, Danish, and French organisations have assisted in developing the North African wind market into the powerhouse it is on the African continent. South Africa should look to investigate similar routes of sourcing finance.
While South Africa might not catch up with its Northern counterparts, it certainly has all the resources necessary to develop a significant wind energy industry. The wind potential is abundant, regulatory incentives are favourable and project developers, equipment suppliers and financiers have already expressed intent to get involved in the sector. What is required now is more dialogue between the regulators of the renewable energy industry on issues such as grid stability, grid connection costs and the time frame in which these issues will be resolved.
Sipha Ndawonde is a Energy Research Analyst at Frost and Sullivan.
This article was originally published by Sham Media Corp., publisher of African Power, Mining and Oil Review and was reprinted with permission.
While South Africa might not catch up with its Northern counterparts, it certainly has all the resources necessary to develop a significant wind energy industry. The wind potential is abundant, regulatory incentives are favourable and project developers, equipment suppliers and financiers have already expressed intent to get involved in the sector.