Demand analysis of emerging PV markets: South Africa
September 18, 2020 PV InfoLnk
South Africa, a country with an estimated population of 58,55 million, is floundering on the economic front due to an erratic supply of power, lack of confidence from institutional investors and corporate entities, and labor disputes. Its annual GDP growth dove from 1.415% in 2017 to 0.153% in 2019. As the COVID-19 pandemic is crippling the country’s economy, international ratings agency Moody’s has assigned South Africa a Baa3 rating, a rating only one grade above which corresponds to junk bond ratings and indicates a negative economic outlook.
The climate in South Africa ranges from desert and semi-desert to subtropical, with summer and winter alternating throughout the year: summer lasts from October to February and winter from June to August. The climate is arid in the west and humid in the eastern coastline. The rainy season occurs largely in summer. The annual rainfall in South Africa, which ranges from 1,000–1,200 in the east to as little as 60 mm in the west, is below the world’s average. Geographically, the central region of South Africa is characterized by plateaus, and the eastern and western regions adjoin cliffs, descending all the way into the inland. South Africa receives an annual solar radiation of 1,800 kWh/m2.
Renewable energy development
Under the Integrated Resource Plan (IRP) 2019, the South African government commits itself to achieving 27.6 GW of cumulative installed renewable capacity by 2030. In particular, wind power and PV capacity is expected to account for 11 GW and 8 GW, respectively.
Coal has been the largest source of power generation in South Africa. To serve electricity demand driven by economic growth while reducing the concomitant environmental impact, the government seeks to diversify energy mix through developing renewables. While the IRP sets forth a challenging renewable target, it appears that the government is unable to provide renewable energy FIT payments because local utility firms are not running properly and government organizations are less than efficient. This discourages developers from venturing into the local renewable industry.
At present, hydropower represents a preponderance—nearly 40%—of installed renewable capacity in South Africa. Surrounded by long, coastal lowlands and cliffs, the country has reasonable wind resources for developing wind farms. Moreover, the abundant solar irradiation makes it ideal for developing solar power. The government has deployed solar and wind capacity through auction scheme, with the former representing 29% of total installed capacity and the latter 23%, following after hydropower.
Solar policies and outcomes
South Africa aims to accumulate 8.2 GW of installed renewable capacity by 2030. To that end, the government has introduced the Renewable Energy Independent Power Procurement Programme, allowing Independent Power Producers (IPPs) to bid to design, develop and operate utility-scale renewable energy projects. To date, five bidding rounds (referred to as bid windows ‘BW’) for renewables and two S2 small-scale auction rounds. So far, 2.4 GW of PV capacity has been assigned, with projects from the first three rounds having been commissioned in 2017. Most projects from Round 4 auction were furnished with modules needed for construction in 2019. BW 5, the sixth bidding round, is under planning.
While there are local content requirements when it comes to building PV projects in South Africa, lack of a complete supply chain forces the solar sector to depend heavily on foreign developers and Chinese modules. These requirements are essentially met by hiring local workers and adopting auxiliary materials produced at home.
Although South Africa has high auction demand, national utility Eskom has been struggling with financial issues and electricity supply in recent years. The state-owned firm has recently expressed its hope for a renegotiation on power purchase agreements (PPAs). In addition, related policies are not clear. All these developments jeopardize the future of solar in South Africa and could be part of the reason why BW 5 is pending launch. Moreover, as South Africa is still at the mercy of coronavirus, BW 5 is not likely to kick off this year.
Projects awarded in BW4 auction are expected to commission by the end of this year; most modules needed have been drawn ahead of time last year and will begin installation this year. Having received the inventory for most projects awarded in the previous auctions, South Africa is not going to see much module demand this year. It remains to be seen whether there will be any further auction launched next year to lift demand.
South Africa-China trade: module import and export
China’s module exports to South Africa grew every year from 2017 to 2019, having hit as high as 1,182 MW in 2019—and most of the modules might have been used for projects awarded in BW 4. Module shipments may plunge this year, considering that BW 5 is pending launch, only a few tendered projects are under way, and the country is tackling the corona pandemic.
South Africa has set itself a 2030 target of 27.6 GW of cumulative installed renewable capacity, with PV to comprise 8.2 GW of the total. While South Africa has set an ambitious renewable target and uses an auction scheme to drive domestic PV demand, the local PV industry may find it difficult to move ahead as Eskom seeks to renegotiate PPAs for the agreements have not been sustainable for the utility, the local policy remains obscure as ever, and BW 5 has yet been issued. Besides, South Africa is one of the worst-hit countries by COVID-19. With the government being busy curbing the spread of the virus, development of renewables might stall and module exports to South Africa is expected to decline significantly this year compared with 2019.
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