By Len van Wyk, Managing Director, Amatola Green Power (Pty) Ltd

There are great opportunities in the energy sector and in renewable energy in particular. In terms of project development, there are opportunities in biofuels, land-fill sites, hydropower, windpower, wave technology, etc. There are also opportunities in certificate trading in the form of the Clean Development Mechanism (CDM) and Tradable Renewable Energy Certificates (TRECS).

The South African Department of Mineral and Energy, in co-operation with Eskom and the municipalities, have overseen the trading in the sale of physical green power (electricity from renewable sources) under the terms of a pilot scheme which has been operational for the last two years. It is expected that lessons learnt from the pilot, which terminates shortly, will be incorporated into a fully commercialized and regulated green power trading industry. Finally, energy efficiency initiatives which embrace clean or green solutions such as, solar water heating, solar panels, process waste recycling to enable electricity generation, etc.

Clearly as indicated above, opportunities abound for those entrepreneurs willing to embrace the sector.

WHY SHOULD PRIVATE EQUITY EVEN BE ALLOWED TO PARTICIPATE IN RE?
There are “schools of thought” that say the following:

  • The primary energy sector in RSA is a state owned monopoly which does not encourage private equity participation;
  • Private equity driven by the profit motive will simply increase the cost of RE development;
  • It is therefore better that government establish Eskom as the “single buyer” and socialize any premiums associated with renewable energy.

Some say government policy and regulation does not facilitate private investment. Others say this is proof that private investment lacks the willingness to take risks, or lacks the vision to see the opportunities. There are more thoughts out there, and lots of hand wringing and yes — very, very little action!

SHOULD GOVERNEMENT REPLICATE WHAT HAS BEEN DONE IN THE EUROPEAN UNION?
In principle, it is important that as a country we learn and embrace as much as we can from advanced economies to avoid duplication and time delays. There are numerous policy and legal mechanisms which we could easily duplicate, support & implement and which enable us to fast–track developments in South Africa.

It is however vital that we remember and embrace the fact we are in South Africa and we have our own commercial and social imperatives (which do not exist in the EU) such as 30% unemployment. We also have some of the largest coal reserves in the world – which government is going to give that up! In any event, it is a moot point that some European Union policies in respect of renewable energies are simply geared to protect their local industries. In contrast to the EU, we have 300+ days of sunshine per annum and scarce water resources.

PRIVATE EQUITY PARTICIPATION WILL SIMPLY DRIVE UP THE COSTS OF RE!
Certain stakeholders maintain that private equity participation will simply drive up the costs of renewable energy. I question why should that be the case on the following basis:

  • Surely, a few heads are better than one? Namely national government via Eskom versus every entrepreneur out there willing to invest their talents and resources if allowed to do so?
  • Who innovates and invents more than those who put their own scarce resources on the line? Surely not a state owned entity which can always be bailed out by the tax payer if things go wrong?

The profit motive should not be seen as a threat — it will ensure invention, innovation and efficiency which will ultimately bring costs down and make the entire industry viable in the shortest possible timeframes.

WHAT ARE THE POLICY CONSTRAINTS PREVENTING /LIMITING PARTICIPATION?
Recent announcements confirm that Eskom will in future be the single buyer of electricity – what does this mean for renewable energy? Access to the national electricity grid — can the voluntary trading being piloted exist in future. Why not extend access to all electricity generators (the German model)?

Where is government going with the following and when will there be legal certainty?:

  • National RE targets – is it real?
  • Access to national grid and legal framework allowing green power traders to operate
  • Finalization of the development of a TRECS system
  • Green taxes mandating GHG emitters to commit to targeted reductions;
  • Other reward and punishment schemes with specific reference to South Africa.

CONCLUSIONS
National Government needs to show a real commitment to its national targets on renewable energy. Fast tracking of policy and legal frameworks will be a demonstration of their commitment. We should not wait for all the answers — renewable energy initiatives, like the rest of life, can develop and be adapted on a piecemeal basis! We should embrace workable concepts and initiatives from the EU and elsewhere and we should focus on our strengths in terms of our resources as a nation — let our self-interest guide our focus! Adopting such an approach will in no way interfere with the other important challenges facing us as a country.