More nuanced approach needed in pursuing renewables, say experts

Ted Blom, partner at Mining and Energy Advisory warns that renewable energy costs significantly more than energy generated from coal-fired power stations.

“[In South Africa] coal power from the old fleet costs less than 40c/kWh, while the average cost of the renewable bid windows, already approved as at 1 January 2018, is more than R1.88/kWh,” Blom says.

Blom is highly critical of the South African government’s recent signing of 27 renewable energy independent power producer (IPP) projects. Read more: Will renewables impact on future electricity prices? 

He warns that the new IPP projects will lead to significant losses to Eskom, as the national power utility will be forced to buy and distribute this additional renewable power.

“A quick calculation reveals lost sales to Eskom will be at least R20bn per year for the next 20 years as renewables have been guaranteed that Eskom must purchase all their power,” Blom says.

One way to address the cost matter would be to revisit power purchase agreements that governments and utilities enter into. Dan Klinck, CEO of East African Power, calls for a “new set of requirements” for power purchase agreements. “The power purchase agreements are currently very rigid,” he says.

“Flexibility would work well for bigger projects. The current structure does not work, neither is it feasible for smaller projects.” Read more: Energy expert Ted Blom on explosive energy week in SA

African Utility Week
An energy mix for Africa
In its report, Lights Power Action, published in 2017, the Africa Progress Panel says although renewable energy – specifically solar – has become the preferred choice for clean power generation across the continent, it is still prudent that countries have an energy policy mix in order to meet their short-term energy needs, while switching to renewables in a more “phased and realistic” manner.

Daniel Njoroge Butti, energy economist at Karatina University in Kenya, echoes this sentiment. “Energy sources, like renewable energy has relatively low initial costs and periodical costs involved in operation which eventually become very high. Therefore we need a decent conversation of how energy sources can complement each other. The conversation on energy has to be approached holistically.”

Butti says the “balance” between base-load energy and renewable power needs to be understood. “There are various studies underway in an attempt to understand this. This is a technical challenge that can be solved through understanding and analysis.”

He adds that although renewables are seen as cost effective in terms of a solution to Africa’s energy needs, the “right energy mix” is one that meets demand requirements at all times.

“This means that peaking, mid-merit and base load stations needs to be optimised for lowest cost and availability.”

The demand conundrum
Another concern that Blom raises is that South Africa, once the current energy capacity expansion is completed, will have in excess of 55GW energy generating capacity against energy demand of less than 30GW. “This is predicted to fall further and faster if (the South African government’s) Energy Efficiency strategy is successful,” Blom says.

Riccardo Ridolfi, Founder and CEO of Equatorial Power, is of the view that other African countries too could face a period of an imbalance between energy supply and demand.

“[The] current supply-deficit will be toppled over and governments and utilities will face a demand-deficit,” he says. “Therefore sustainable demand growth for productive use of energy in rural areas ought to be an area of innovative focus in the next few years.”

He stresses that there is indeed a huge prospective demand of electricity in Africa with an increasing focus on industrial development.

“However, the principal challenge that most sub-Saharan African governments are facing is finding a balance between adding new generation capacity and building the economic tissue to absorb it, while keeping the price of energy as low as possible.”

Africa’s commitment to clean energy
The continent is eager to shift from fossil fuels for energy generation to renewables, as is evident from an agreement reached in December 2015 whereby African countries launched the Africa Renewable Energy Initiative (AREI), to give all Africans access to energy that is mostly based on renewable sources by 2030.

However, the transition to clean energy will not be as quickly as previously thought, the Africa Progress Panel report notes, as the current levels of growth in generating energy from renewable sources are not enough to displace fossil fuels and there are significant costs involved to switch to renewables.

- Hear more from these experts at the upcoming African Utility Week taking place in Cape Town from 15-17 May 2018.

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