Description of the Industry 

The Cacadu District Municipality has identified Renewable Energy as a priority investment sector as it is energy that occurs naturally and therefore is not limited like that of coal, oil and gas. Renewable energy is sustainable as well as being the environmentally friendly alternative to coal as it produces minimal amounts of pollution and harmful gases.

 

Within South Africa, Eskom dominates the electricity sector, where it not only produces almost all of South African electricity (95%), but also owns and operates the national transmission system. Private companies only produce roughly 2% of South African electricity. Coal is the primary energy source used in electricity production (86%), followed by nuclear energy (5%) and various other sources, including renewable energies such as hydro power.

 

Coal is the most cost effective method of generating electricity as it is easily accessible, but is of poor quality. South Africa contains the sixth largest recoverable coal reserves, constituting approximately 50 billion tons. Therefore, the shift to using renewable energy will not be as a result of a lack of coal. However, coal powered energy causes pollution and is thus environmentally harmful. South Africa has prioritized the use of renewable energy to meet the growing demand for energy.

 

Renewable energy can be generated within the CDM by means of the following sources:

 

§         Biomass

§         Wind

§         Solar

o           Photovoltaic

o           Thermal 

§         Hydro

 

In the case of Wind Technology, wind energy uses the naturally occurring energy of the wind to generate electricity. Large modern wind turbines operate together in wind farms, located onshore or off-shore, to produce electricity.

 

Hydro power on the other hand makes use of the movement of water under gravitational force to drive turbines to generate electricity.

 

Biomass energy can be used to provide heat, make liquid fuels, gas and to generate electricity. The landfill gas power generation technology is based on power generation from methane gas which is used to drive gas turbines or reciprocating engines.

 

Solar energy can be used to generate electricity directly or as a source of thermal energy. The latter can be used in large-scale applications or in domestic or industrial applications to heat water, and for the heating and cooling of buildings.

 

In the case of large scale solar thermal plants the thermal energy is used to produce steam for a steam turbine electricity generation cycle. In these plants or “solar farms” the solar energy is concentrated to heat a fluid that absorbs the energy and the heat is then used to produce steam, with which electricity is generated in conventional turbines. In this concentrated solar power (CSP) the solar energy is concentrated by either parabolic reflectors (linear receivers) or by making use of a heliostat field where the solar energy is concentrated onto a single receiver on a tower.

 

In order to convert solar energy directly into electricity, photovoltaic (PV) modules are used. These PV modules normally use silicon solar cells to convert the solar radiation directly into electricity. Other thin-film solar cell technologies are available, but do not have the reliability track record that the silicon technology has.  The PV modules can be configured to build large solar farms that can be connected to the national grid. The standard configuration of these, so-called, flat plate PV modules are on a fixed tilt array facing north. The flat plate modules can also be mounted on trackers, thereby increasing the energy yield because they follow the sun throughout the day. Another configuration of PV is concentrator PV (CPV) where the solar energy is concentrated onto high efficiency solar cells by relatively inexpensive optical elements, either reflectors or lenses.

 

When considering the fact that in South Africa coal-fired power stations generate the cheapest electricity at ZAR 0.3314 per kWh, it becomes clear why renewable energy has not yet been exploited on a large scale. The indirect costs, however of coal fired power stations to the environment are a great concern in South Africa. In addition, the challenge of meeting increasing demand with the ageing coal fired power stations, makes renewable energy an attractive alternative.

 

Solar and wind energy are the two renewable resources that represent the greatest potential within the Cacadu District.

 

Global and National Market Trends 

In 2009, more than 73 countries had renewable energy policy targets, with no fewer than 64 having specific support schemes in place. The most common and probably most effective policy instruments used in support of renewable energy technologies are feed-in tariffs. This instrument was first applied successfully in Germany; and has now spread to more than 40 countries. The general plan behind a feed-in tariff is to guarantee the producers fixed tariffs for power from renewable energy sources over a certain period of time (normally 10 to 20 years). This generates a base for long-term investment planning, since revenues are known and guaranteed in advance.

 

The tariffs are usually set based on the renewable energy technology supported, and usually exceed the normal electricity price paid by consumers which ideally enables the investor to cover his costs and earn a reasonable return on his investment. The additional costs due to the higher tariffs are passed on to all power consumers in the form of a premium per kilowatt hour. In some schemes, tariffs are adjusted over time to prevent consumers from paying unnecessarily high prices and to allow for technology learning curves.

 

However, these adjustments must be predictable if investment certainty is to be maintained. Renewable energy technologies are also supported by quota models in some countries, in this model it is not the tariff that is fixed but the quantity of power that must be generated from renewable energy sources or the share of renewables in total capacity. The market then determines the price. However, quota systems appear to be less effective than feed-in tariffs. They do not allow for price differentiation for different technologies, as there is only one price for power produced from renewable sources.

 

Other support schemes include tax incentives or subsidies for particular technologies, such as solar photovoltaics. In addition to raising the revenues from renewable energies, the cost of competing fossil fuel technologies needs to be increased if renewables are to become more competitive. This can be done through carbon taxes, cap-and-trade systems or other ways of internalizing the external costs caused by fossil fuel technologies.

 

The most abundant source of wind is found along the coastal areas of the Cacadu District; however a Danish-South African joint venture is set to produce a new wind atlas of the country, which will assist in determining the wind resource available for wind energy generation within South Africa. This wind atlas will then provide stakeholders with knowledge allowing them to make informed decisions in the preferred locations of wind technology.

In terms of solar energy, the levels of solar irradiance and insolation are important determinants of where to place solar energy generation plants. Irradiance being the level of incident power measured in watts per square metre.

The table below indicates the levels of insolation in Port Elizabeth (coastal region) versus Grootfontien (inland region, located in Aberdeen Plain). Insolation (Wh/m2) is the measure of incident energy, power measured in Watts multiplied by time in hours per metre squared. 

 

 

Insolation values give an indication of available energy. The values quoted are for global horizontal: which is all irradiance or insolation on a horizontal surface; diffuse: which considers various scattering mechanisms, and Tilted (35 degrees) is the plane-of-array for a tilted surface at 35 degrees. Based on this data, it is evident that more energy is available in the inland Karoo regions of the Cacadu District. More energy is also available on a tilted surface than a horizontal surface. The tilt will depend on the latitude and the optimization of energy production.  

The Department of Science and Technology (DST) is a critical roleplayer in the Renewable Energy Sector. The DST determines the direction of the industry and has commissioned the Council for Scientific and Industrial Research (CSIR) and local universities to develop the SA Solar Roadmap.

 

The CSIR and SA universities are actively engaged in research and development of solar technologies for deployment in SA.

Wind speed is a crucial element in projecting turbine performance, and a site's wind speed is measured through wind resource assessment prior to a wind system's construction. Generally, an annual average wind speed greater than four meters per second (m/s) or 14 km/h is required for small wind electric turbines (less wind is required for water-pumping operations). Utility-scale wind power plants require minimum average wind speeds of 6 m/s or 21 km/h.

 

Solar energy requires adequate sunlight and hydro requires access to sufficient water. These are all available land and climatic characteristics that are found in the Cacadu District.

Most manufacturers of utility-scale wind turbines offer machines in the 700-kW to 2.5-MW range. Ten 700-kW units would make a 7-MW wind plant. In the future machines of larger size will be available, although they will probably be installed offshore, where larger transportation and construction equipment can be used. Units up to 5 MW in capacity are now under development.

The most economical application of wind turbines is in groups of large machines (660 kW and up), called "wind power plants" or "wind farms."  Wind farms vary in size from a few megawatts to hundreds of megawatts in capacity. Wind power plants can easily be made larger or smaller as needed. Turbines can be added as electricity demand grows. Today, a 50-MW wind farm can be completed in 18 months to two years. Most of that time is needed for measuring the wind and obtaining construction permits—the construction of the actual wind farm can be built in less than six months.

In order to set up a concentrating solar power plant, adequate land capacity with sufficient heat from the sun is required. The solar field will require parabolic mirrors which will focus the solar energy onto a heat transfer fluid. Storage tanks (both hot and cold salt tanks), steam turbines, electrical generators, condensers and cooling towers are all the facilities that are required to produce the electricity.

Human Resources 

This industry is a skills-based industry at all levels, and, if it is to grow, skills capacity needs to be developed in collaboration with the key stakeholders in the private sector, educational institutions and relevant government departments. A need was identified to develop technical training and skills for workers. This would enable the industry to meet efficiency and transformation goals.

The table below outlines the Renewable Energy Feed-In Tariff (REFIT), the most recent policy instrument introduced in South Africa in support of renewable energy technologies.

NERSA has not approved a feed in tariff for concentrated photovoltaic (CPV) at this stage due to the high cost involved. They have also allowed fossil fuels to be allowed for CSP technology up to a maximum of 15% of the total energy input. The tariffs are guaranteed for 20 years without digression.

Each technology will be eligible for a different tariff, since the costs differ in each case. The differentiated tariff system is to allow licensees to recover the full cost of the licensed activities plus a reasonable return. The REFIT design will be reviewed annually for the first five years and every three years thereafter to avoid a lock-in of inadequate tariffs. Adjusted tariffs will apply only to new projects. Investors can thus plan their investments on a long-term basis.

 

Key Constraints 

§         Significantly high capital costs are involved in this sector. One reason for this is a lack of the skilled personnel needed for the testing and installation of required equipment and technology. Another reason may lie in the lack of funding, which is related to the high annual losses incurred by Eskom.

§         Both electricity and fuel are produced from South Africa’s abundant coal supply. The two main energy providers, Eskom and Sasol, are responsible for the majority of energy research and development investments. They are almost monopolistic employers of university graduates in the relevant fields. These patterns have led to a severe bias in innovative capacity towards fossil fuel innovation.

§         The market for renewable energy technologies is relatively young, this lack of maturity leads to higher instability and thus to greater risk. As there is consequently a lack of experience with renewable energy projects, it is difficult for project developers to obtain funding on the private capital market.

§         In addition to the higher risk they entail, the competitive cost of renewable energy technologies is a very significant barrier in South Africa. The average price of electricity was ZAR 0.198 per kWh in 2007/2008, but since the increases in 2008 and 2009 it has been ZAR 0.3314 per kWh. This price is approximately equivalent to EUR 0.03/kWh, compared to average European prices for households in 2008 being around EUR 0.12/kWh. The cost of producing electricity from wind is about EUR 0.05/kWh, depending on the resource quality of the site. This makes wind energy almost competitive with conventional energy in Europe, where conditions are favourable and fossil fuels are comparatively expensive. However, this is not the case in South Africa. Here, the consumer price of about EUR 0.03/kWh is not sufficient to make wind energy commercially attractive, especially as South Africa does not have wind speeds comparable with sites in northern Europe.

§         The impact of wind farms visually and the effect on bird populations are also contentious issues.

Opportunities: 

§         Wind is considered a "non-consumptive" use of natural resources, and the wind generation of electricity produces no greenhouse gases, apart from during the building and maintenance phases of the wind farm operation.

§         A wind energy facility also qualifies as a clean development mechanism project under the Kyoto Protocol on global warming; meaning it also has a commercial value as a tradable commodity.

§         The eventuality of grid parity has potential for investment, where the cost of conventional coal energy equalises with the cost of renewable energy.

§         Solar and wind are the most cost effective methods of renewable energy and the Cacadu District is home to both energy sources.

 

References: 

The Energy Regulator of South Africa (NERSA), RENEWABLE ENERGY FEED – IN TARIFF GUIDELINES, 2009

Personal Interview with Centre for Energy Research, 2010

§         All information contained within this profile was accurate at time of publishing.

§         The information contained within this report is intended only as an industry profile and does not assume to take the place of information contained within a business plan, pre-feasibility study or feasibility study.

§         The Cacadu District and service providers are not liable for any damages caused by the use of the information contained within this report.

§         The purpose of this profile is to both promote the area for investment and inform investors of relevant issues. It is advised that investors, who wish to pursue an investment within Cacadu DM, should use this profile as a basis to conduct further research.

Capital Investments 

The table below summarises the current market conditions, reference technology cost and performance assumptions and the tariffs that should be offered under the REFIT framework. The assumptions made to arrive at the levelised cost of electricity productions are as follows:

 

§         Land cost and TX/DX integration cost are added to the EPC cost

§         The allowance for funds under construction (AFUC) is a multiplier to the adjusted capital costs for land and TX/DX integration cost

§         The load factor of the wind technology is based on wind speed at 60m height equal or greater than 7m/s

§         LFG is based on landfill gas methane used to drive a gas turbine or reciprocating engine

§         The concentrated solar plant (CSP) is based on parabolic trough plant with molten-salt storage for 6 hours a day

§         The AFUC is calculated on the basis of the assumed discount rate, plant lead time and the schedule of expenditures

§         The significantly different cost structures and performance of the technologies precluded the use of single tariff for all technologies.

Source: The Energy Regulator of South Africa (NERSA), RENEWABLE ENERGY FEED – IN TARIFF GUIDELINES, 2009