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Hungry Solar Developers Look to Booming South Africa

Dexter Gauntlett — May 8, 2014

South Africa leads the renewable energy market in Africa.  The country has established a target of nearly 3.7 GW of renewables installed by 2030; in November 2013, it completed its third round of bids under the Renewable Energy Independent Power Producer Program, bringing the country to 86 MW of solar operating and nearly 1.5 GW in development.  The program provides power purchase agreements (PPAs) over 20 years with the country’s primary utility, Eskom, for projects up to 75 MW.  In the third round of bidding alone, the country procured 787 MW for wind projects, 450 MW for solar PV, and 200 MW of concentrating solar power (CSP).  There were also bids for 16.5 MW of biomass and 18 MW of landfill gas power.  Not bad for one of the top coal-producing countries in the world.

As is common practice with bidding processes for any large infrastructure projects, the government included a local content requirement (LCR).  In the third round of bidding, the LCR was increased to 45% and, in a unique twist, the local company had to have a black South African shareholder majority.  Together, these requirements were expected to reduce the attractiveness to foreign companies and increase bid prices – both of which proved untrue.  The average price for solar PV projects dropped from around $3.50/W in the first round to less than $2.50/W in the second and third rounds.  This is competitive with solar being installed anywhere in the world today.

Open and Fair, Mostly

This is largely because the companies bidding include leading international project developers, such as Spain’s Abengoa, Italy’s Enel, China’s Longyuan Power, Norway’s Scatec, and SunPower Corporation (where France’s Total is now the majority shareholder).  China’s Trina Solar and U.S.-based First Solar are also active in South Africa.  While the market has either slowed down or become saturated in their home countries, international players are looking to emerging markets to grow sales.  This is a strong indicator of the hunger level of international power producers and the mature state of the solar PV industry in South Africa.

Bidders reported that they were generally pleased with the transparency of the process, typically a gripe when operating in emerging markets, including much of Africa.  There were construction delays for the first two rounds of projects and delays in announcing the third round of preferred bidders due to the overwhelming number of applicants – but these are to be expected as the country gets its first gigawatt under its belt.

The question is whether this apparent success can be replicated in other African countries.  Large-scale solar PV projects are operational in Reunion (15.6 MW), Mauritania (15 MW), and Cape Verde (5 MW), with a number of projects on the continent in development – notably Rwanda, with 8.5 MW.  Kenya, Tanzania, Nigeria, and Ghana are other countries with strong prospects and abundant activity in both on-grid and off-grid solutions.

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