Highlights from Solar Indaba. 3rd- 4th September in Cape Town, South Africa

The third annual Solar Indaba conference took place on the 3rdand 4th September in Cape Town, South Africa. This conference attracted representatives from the national government (DEA, DTI, NERSA, National Treasury) and provincial government, non-governmental organizations, lenders/ funders, Eskom, project developers, manufacturers, researchers, and other stakeholders. This diverse group of people sparked discussions on different aspects of the large and small scale solar PV and CSP projects in South Africa.
The conference began with discussions about the Renewable Energy Independent Power Producer Procurement Program (REIPPPP): specific issues in the REIPPPP such as local content requirements, the economic development requirements and the experiences of different stakeholders that were discussed. Other issues discussed were the barriers preventing the uptake of small scale solar PV projects in the commercial and residential sectors in South Africa.
Chris Haw (the Chairman of SAPVIA) gave a key presentation on the status PV in South Africa. He highlighted that the PV industry in South Africa is highly driven by REIPPPP. Many of the stakeholders expressed their satisfaction with the improvement of REIPPPP process from the first to the third window. Karén Breytenbach, the senior project advisor at the National Treasury, said “the REBID process has enabled them to understand the affordability and costs in the SA market. The intention of the Department of Energy (DoE) has been achieved as this process has resulted in much lower tariff in the third window”. However, she added that with the increased competition, the sustainability of prices and economic development become very crucial in the scoring process. Prices have to be low but also the projects must be sustainable, both financially and for the communities. It was noted that large scale PV projects have seen a significant increase with an estimated amount of 1048MW currently under construction from the round 1 and 2 program and an estimated amount of 3.5 GW to 4GW expected in the future of the solar corridor and round 3. When some of the manufacturers and developers were asked what attracted them to set up their plants in South Africa. Christain Cronje, CFO of Juwi, and Vignesh Nandakumar of SunEdison responded that though they had in interest in investing in the solar PV industry before the REIPPPP was lunched, the REIPPPP acted as the real catalyst. Christian expressed his satisfaction with the REIPPPP stating that as investor they were sure that once the projects were approved, construction was going to proceed. In order to improve the REIPPPP the stakeholders urged the government to have a defined commitment, avoid delays and enforce compliance by all parties involved in the program.
The delegates at this conference had different views about the local content requirements in the REIPPPP. Some of the manufacturers saw it as incentive while others viewed it as a cost. Local manufacturers were happy about modifications made on the local content requirements in the third round of bidding and demanded close monitoring process to ensure that it is implemented. Trevor de Vries of AEG Power Solutions said the local content driver was one of the main factors that attracted them to invest in South Africa. Christopher Steinbach of Yingli Green Energy Africa said that though the developers and international financial houses may dislike the local content requirements for various reasons, this requirement will remain important if the objective is to ensure the sustainability of the industry and support job creation. He said that local content requirements should not be limited to manufacturing; it should gradually be upscaled to include other components. He recommended that in the long run the industry should be allowed to stand on its own. Chris Haw in his presentation stressed the importance of solar PV projects in economic development and job creation. He said that the round and round 2 of the REIPPPP has created an estimated number of 15,358 jobs for the installation of 1049MW of PV. Most interesting, he presented some evidence showing that 10-16 construction jobs are created per MW of solar PV installed while only 1.67-2.08 jobs per MW of coal. Because of the local content requirements solar PV has added and will continue to add lots of benefits to the South African economy
Most developers shared their experiences particularly the challenges that they face after being appointed as preferred bidders. One of the major challenges is the huge gap and challenges experienced between being selected as a preferred bidder and getting to financial close. Most developers mentioned that getting to financial close is an incredibly painful process. This is because the contracts and loopholes between the Engineering and procurement contractors (EPC), and lenders involve detailed information not always communicated up front. Some developers asked if the market standard for EPC and lending contracts in South Africa are same with the international standards. In order to reduce this gap between preferred bidder and financial close it was recommended that first time bidders and preferred bidders should identify all the parties involve and engage with them earlier. Potential bidders were advised to start the documentation process early enough in order to meet up with the strict deadlines. Certain areas such as the economic development requirements needed more clarification and the bidders requested some feedback after the process in order to know exactly where the underperformed or outperformed. Piero Granelli of AE AMD renewable energy was concerned about the connection risk, new grid codes, and the frustration of wanting to connect earlier but face delays from Eskom.

When some developers pointed that they had been refused funding from international funders because of the local content and economic development requirements stated in these documents. Ajay Lalu of Black Lite responded by saying that the local community is a very important stakeholder in this program. He further mentioned cases where panels are being stolen by members of the local community in the Northern Cape who are concerned about the benefits of such projects to them. “In order to make these projects sustainable and avoid the repeat of incidences such as the Marikana we have to consider the local community as our partners” Ajay explained. Jonathan Frick of Mainstream Renewable Power shared the experience that they were facing at the construction stage. He said in terms of the community benefits, not much was happening in the construction stage but hope to see a lot of benefits flowing into the local community when they connect to the grid in 2014. He added they have identified specific projects in the communities that they intend addressing and will not want any impose models on them when they start generating revenue. Piero Granelli of AE AMD renewable energy also shared the same experience saying that they have been trying to manage the expectations of the people in the local community and they expect to see the benefits of their project in the local community only when they start generating revenue.
Some concerns were raised about the financing the of upcoming small scale projects under the REIPPPP. Are small scale solar PV projects going to happen under the REIPPPP? If yes what will happen to this projects? Who will fund them? Are the lenders interested in financing these projects? Are the projects going to be assessed as project or corporate finance? Some of the financial houses did not see these projects as an attractive investment. They will prefer to finance some of the rooftop solar PV systems rather than financing the small scale projects under REIPPPP. They also pointed out that these projects could not be considered under project finance because of the high risk involved. However the Industrial development Corporation (IDC) expressed their interest in funding these projects. The main issues raised by many stakeholders about developing these projects was that the requirements will be very similar to that of the large project making them very expensive and risky when compared to future revenue streams.
Some participants raised concerns about small scale solar PV projects and that the Integrated Resource Plan does not provide a framework for the procurement of embedded generation. Frank Spencer of Emergent Energy asked Ronald Chauke of NERSA what NERSA is doing to address the problem of small scale solar PV projects that are being proposed in municipalities. Frank pointed out that “municipalities generate a large proportion of their revenue from the resale of electricity and are thus resisting the roll out these projects for fear of losing their revenue especially for those who are paying the high cost of electricity. Ronald responded that NERSA is currently running a project called “providing a framework for the resale of electricity within a municipal supply area’’. He said “they are finalizing a list of different stakeholders to consult and discuss the issue on reseller tariffs”. He said “for municipalities to deal with other generation initiatives such feeding back into the grid, there is the need for policy and this policy has to come from the DoE. He added that “NERSA can only publish appropriate rules if there are directed by the policy from the DoE”. He added that “DoE and NERSA are working together to address the issue of net metering. However he recommended municipalities to use their bylaws and the regulatory powers within their operational space to provide clarity on the implication of small scale solar PV projects on their revenues and the ways in which they can insulate themselves from the revenue losses. He concluded the debate on a small scale by urging those involved in the developing the integrated Energy Plan to have a component of small scale projects so that the risk can be assessed and different ways of protecting the vulnerable players be considered.
On the other hand local municipalities and Eskom expressed their interest to promote the uptake of small scale solar PV projects by the commercial residential and industrial sectors. Dr.Susanna Godehart of eThekwini Municipality admitted that there are several legislative, regulatory and financial barriers preventing the uptake of small solar PV projects. She said NERSA has complex licensing requirements for small embedded generation and also admitted that the lack of incentives such as net metering and the high cost of bidirectional time of use meters discourage most of the small installers. Jonathan Skeen of Emergent Energy explained that though the uptake of solar PV in the past has often been affected by people’s perception, this is fast changing as the installers are increasing being approached by clients expressing their interest in this technology. He also said the financial houses have developed an interest in financing roof top systems. Chris Haw admitted that even without incentives people are going ahead and putting up their panels on their roofs. Jonathan strongly recommended that net metering and other policy incentives such feed in tariffs and energy saving subsidies be introduced to foster the growth of commercial and residential solar PV sectors. Chris added that the lack of incentives will continue to limit investment in small scale solar PVs and call for a political will, the voice of the people to create an enabling environment that can encourage the uptake of small scale PV installations.
The conference ended with a great aspiration to see more power going into the grid from solar in the coming years mainly as a result of the procurement process. It was emphasized that more still needs to be done to increase residential and commercial solar PV installations. The implementation of a net metering policy was pointed as the most important instrument needed to stimulate the growth of both residential and commercial solar PV sector.
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