The gas and renewable energy outlook for Southern Africa

The gas and renewable energy outlook for Southern Africa image

Despite a wealth of natural resources and falling solar prices as technology improves, the reality remains that very few deals reach financial close in Southern Africa’s power generation space outside South Africa. So what practical steps must now be taken to move from discussion to action?

Gas and renewables have been touted as highly adaptable options for many countries, with the potential for hybrid solutions. South Africa’s draft Integrated Resource Plan (IRP) sets out a vision for the country’s energy future, but questions remain around regional integration, supporting infrastructure and policy certainty. EnergyWeek South Africa (11-12 December, Cape Town) presented a snapshot of Southern Africa’s story this week.

Madagascar: With 92% population below the poverty line and just 15% with electricity access, Madagascar still faces significant challenges. Solar holds great potential - the country enjoying over 2,800 hours of sunlight per year, explored most recently though the IFC/World Bank’s Scaling Solar Initiative- and investing in gas could also be a good option given the existing gas resources.

Zimbabwe: Only a fraction of Zimbabwe’s energy resources have been exploited, although the country has similarly strong potential for electricity generation from renewable energy - especially solar PV. Renewable energy could be transformative for economic growth and job creation once that potential is unlocked. The focus for government lies in producing power from within to reduce costs of importing energy, with a hope to become self-sufficient in the next 5 years.

Mozambique: Mozambique sits atop tremendous gas resources, but negotiating cross-border power agreements will be key to accelerating progress. The scale of the resource combined with the size of the market in South Africa presents interesting options for both countries.

South Africa: Launched by the IPP Office, South Africa’s REIPPP Programme was a transformational success story for the renewables industry, totalling an investment of R250 billion into the sector. Following 4 unsuccessful IPP launches, the programme oversaw much needed movement of projects and gave renewed assurance to private sector. Launched in 2011, the South African Renewable Energy Council (SAREC) was set up to promote the renewables sector in South Africa, installing over 6,000MW into the South African Grid through REIPPPP.

The last round of REIPPPP bids earlier this year inspired fresh investor confidence after a period of stalling. But now momentum must be maintained to realise a truly dynamic and competitive renewables sector.

Critical challenges

For South Africa, gas provides an opportunity for security of supply and diversification. So what are the obstacles? Well, adequate infrastructure must be developed to encourage the emergence of a robust gas economy. Transmission lines must be strengthened. A lack of grid commitment from government is also a concern. Instead of thinking about gas projects in siloes, stakeholders must think broadly about the regional impact that can be achieved from cross-border projects, working proactively with countries such as Mozambique for mutual gain. As the coal industry continues to decline at the same time as gas and renewables play a more dominant role, distribution of renewables and their associated technologies will be important to facilitate new employment opportunities.

The way forward

So what are the next steps to achieve a robust gas and renewable energy industry in South Africa? Most importantly, a solid policy is needed around gas to understand its future role in the economy, and this is what many investors are waiting for. At EnergyWeek South Africa (11-12 December) Thabane Zulu, Director General of South Africa’s Department of Energy, was very clear that “we can use gas as a game changer for South Africa.” 

The IRP was an important first step- now the full roadmap must be outlined and communicated effectively to guarantee investment in the immediate future. Strengthening bilateral relations will be crucial in understanding the collective benefits to be gained through cross-border projects. Hope remains, and for good reason. But stakeholders must now navigate the important next steps in the journey to inspire confidence and flood investment into the market.