Renewable Energy

2

• Climate Change

90% of primary energy supply from fossil energy resources

coal 75% of fossil energy supply.

SA one of the highest CO2/capita emitters in the world

Emission constraints could have a significant impact on SA Trade and Economy

• Electricity generation capacity

Capacity run out by 2005 – 2007, unless demand side or new power plant(s) is built.

• Fuelwood

Unsustainable harvest of fuelwood, 9% SA’s energy mix from fuelwood, mostly harvested in unsustainable manner – Environmental and Energy security risk for rural poor

Why do we need renewable energy

3

Vision: Renewable Energy

An energy economy in which modern renewable energy increases its share of energy consumed and provides affordable access to energy throughout South Africa. Thus contributing to sustainable development and environmental conservation.

4

Goals: Renewable Energy

1) Social sustainabilityBEE and job creationImprove the health of the nationEnergisation of rural areasPoverty alleviation

2) Environmental sustainabilityReduce GHG emissionsReduce environmental pollution

3) Economic sustainabilityImprove energy securityBuild new electricity generating capacity

5

Policies and legislationsPolicies and legislations

• White Paper on Energy policy December 1998 Increasing access to affordable energy sources Improving energy governance Stimulating economic development Managing energy related environmental and health impacts Securing supply through diversity

• Purpose: Encourage the development of renewable and environmentally sound electricity generation technologies

• To encourage more players to enter the generation industry in order to develop a competitive power market

• Stimulate the development of new and renewable sources of energy

6

Policies and legislations cont…

• White paper on Renewable Energy November 2003. Aim: To create a conditions for the development and

commercial implementation of renewable technologies• Target: 10 000 GWh (0.8 Mtoe) renewable energy contribution

to final energy consumption by 2013, to be produced mainly from biomass, wind, solar & small-scale hydro.

• The renewable energy is to be utilised for power generation and non-electric technologies such as solar water heating and biofuels. This is approximately 4% (1667 MW) of the estimated installed electricity demand (41 539 MW) by 2013.This is equivalent to replacing two (2x 660 MW) units of Eskom's combined coal fired power stations

OR1100 million litres of diesel (14% of 1 year) replaced with biodiesel

7

Review of the target

• The review of the renewable energy target will be done every five years

• Aim is to check the progress in achieving target and to address areas where additional input(s) may be required.

• Targets are both challenging and achievable.

8

Macro-economic Analysis: Results

Macro-economic Analysis: Technical feasible renewable energy contribution (excl biofuels, solar thermal power generation and wave energy)

100%86,843About 43 % of 2003 electricity consumption

TOTAL

74%64,102Wind

6%4,914Solar water heating: residential

2.0%2,026Solar Water Heating: commercial

10.3%9, 245 Hydro

0.7%598Landfill Gas

6.95,848Sugar bagasse

0.1%110Biomass pulp and paper

PercentagePotential GWh ContributionRE Technology

9

Policies and legislations cont…

Macro-economic Analysis: 10 000 GWh least cost renewable energy contribution (excl biofuels, solar thermal power generation, wave

energy etc.)

Biomass Pulp & Paper

1%

Sugar Bagasse59%

Landfil l Gas6%

Wind1%

Solar Water Heating:

Residential9%

Solar Water Heating:

Commercial14%

Hydro10%

10

Monitoring and evaluation of target

In the period November 2003 to January 2005, 70 GWh of new additional renewable energy contributions reported (mainly solar water heating)

A further 22 GWh renewable energy was introduced in the period January 2005 to December 2005 for an accumulative renewable contribution of 92 GWh by December 2005.

Further, in the period January 2006 to June 2006, 25 GWh was reported to be produced from renewable energy mainly solar off-grid and biofuel, however the data collection process will carry on for July to December 2006 in order to get the final value for the calendar year 2006

11

Renewable Energy Finance and Subsidy Office (REFSO)

The scheme started with a once-off capital grants (total R14.2 million) for over a period of three years (2005/6 – 2007/8) that are made available for renewable energy projects

The scheme is administered by the DME Renewable Energy Finance and Subsidy Office (REFSO) which came into operation in October 2005

To date there are 25 projects that are registered, 9 on electricity, with a capacity of 29 MW, and 16 on biodiesel with a capacity of 474 260 Kilolitres per annum.

The total subsidy required to fund the current registered projects is estimated at R137 million (R7.5 million for electricity and R129.5 million for biodiesel

A subsidy contract for an electricity generation project to the value of R975,000-00 has been approved by the Director-General. The subsidy will only be disbursed when the project development reaches certain milestones, with the first payment due before end of March 2007 and the last one in December 2007.

12

Biofuel Industry Strategy

The draft biofuels industry strategy was approved by cabinet in December 2006.

The strategy is currently out for public comments.

The Department has just finished a country-wide public consultation process which took place in a form of workshops in all nine Provinces.

The strategy will be tabled in Cabinet before end of May 2007.

13

Long term sustainable financing scheme for grid based renewable energy projects

Clean Development Mechanism (CDM) and Tradable Renewable Energy Certification System (TRECS) are generally acceptable to service the debts.

However the above mentioned two financial mechanisms are not adequate for risk mitigation for the investors, banks and financiers

long term sustainable financing scheme for grid based renewable energy projects which lowers the loan repayment risk and honour long term power purchase agreements and attract new and sustainable renewable energy investment.

A feasibility study on the development and management of a top-up feed-in tariff scheme is to be undertaken through a consultative process

14

Tradable Renewable Energy Certification System (TRECS)

This is yet another revenue stream that is developed to assist small scale renewable energy power producers to cover the construction and maintenance costs and other debts.

A major advantage of TREC is that it can be traded worldwide and separately from the electricity grid infrastructure (no use of grid system charges or grid access problems).

Consultant was appointed in March 2006 to undertake a feasibility study in order to provide Government (DME) with precise and specific detail recommendations on the establishment of voluntary and sustainable TREC system for South Africa and to develop and present a detailed, practical and sustainable voluntary TREC implementation plan.

Further consultation with stakeholders will be undertaken to find out how could the stakeholders be engaged in the TREC system implementation, how would they contribute to the establishment of voluntary TREC in South Africa. Implementation of TREC system will then follow after further consultation with stakeholders.

15

South Africa Wind Energy Programme (SAWEP)

South African Wind Energy Programme (SAWEP).

Model PPA, PWA, financial model, “green” marketing, financial analysis 45 MW.

The GEF in November 2004 approved in principle SAWEP Full Size project grant of U$7 million aimed at the development of a wind industry in South Africa.

The Darling Wind farm investment was accepted as South Africa’s co-funding (commissioning of Darling Wind farm is a prerequisite for GEF SAWEP grant).

Awaiting project doc, DME Executing authority with UNDP assistance, Project Steering committee, Advisory committee, project director to be appointed, inception workshop to be held

16

Financial mechanismsFinancial mechanisms

REFSO (capacity based subsidy)REFSO (capacity based subsidy)

Top up feed in tariff (production based subsidy)Top up feed in tariff (production based subsidy)

REMT (technical assistance)REMT (technical assistance)

TRECs (“green” premium)TRECs (“green” premium)

CDMCDM

CEF (equity) CEF (equity)

DBSA, IDC, Commercial banks (debt)DBSA, IDC, Commercial banks (debt)

17

Barriers to the renewable energy implementation

1) Financial assistance

2) Regulatory and legal framework

3) Lack of consumer awareness on the benefit and opportunities of renewable energy

4) Lack of community involvement

5) Assess community needs

6) Lack of visible Renewable Energy Project

7) Lack of sustainable RE energy development( perpetual research)

`

Disbursement of REFSO's funds

Requirements and conditions for REFSO’s funding such as EIA, water permits, biofuels licenses

Time taken to obtain all necessary requirements and money involved for other grid projects.

Off-take agreements (eg PPA) take up a lot of time in the subsidy application process

Collaboration and co-ordination with other Departments and municipalities regarding grid based projects.

Challenges

`

OpportunitiesJob creation

Economic Development

Business Opportunities, for new entrants (SMMEs, BEEs etc)

Energy security( diversity of energy supply)

Environmental benefits

Hybrid mini-grid

20

ConclusionConclusion

Need to develop lead RE projects that are visible

Need to explore a combination of innovative (e.g. TRECS) and regulated long term financing schemes.

Ongoing consultations with National Treasury and NERSA.

DME Renewable section is supporting the development of the Electricity Regulation Act (Section 46 of 2006) regarding New generation capacity. Inputs on Energy Bill.

Ongoing Non-grid R&D (e.g. hybrid mini-grid systems for activation of rural economies) through SANERI, HOMERGIS etc.

21

THANK YOU