Sustainable Energy Creates Opportunities for Business
Category Industrial Property News
With growing frustration amongst business and industry, South Africa will finally embrace efforts for private power generation, President Cyril Ramaphosa announced in January. In an already throttled economic environment further hampered by power cuts and dented investor confidence; it is welcome news, opening up new growth opportunities for the country.
South Africa first introduced the Renewable Energy Independent Power Producers Procurement Programme (REI4P) in 2011 to promote local manufacturing of materials used in the renewable energy sector, but the full roll-out and implementation of the programme has been hampered due to political pressure by unions and other stakeholders of the non-renewables sector, which is a large-scale employer in the country. In 2016, despite the success of the (REI4P), Eskom refused to sign the full number of contracts which were awarded as part of the programme, effectively putting the brakes on renewable energy potential and its many benefits for South Africans.
Fast-forward to January 2021: "For the first time we are now saying let us have self-generation," President Ramaphosa told an economic conference in Johannesburg. "We have opened up a new era ... that says we are now embracing the fact there are those companies and households that want to generate their own energy." "We cannot stop technology, we cannot stop the future from arriving," he added.
Bolstered by other significant developments in the local energy space, such as the country's ongoing decarbonisation efforts, the growth of energy as a service (EaaS), and the decline in renewable energy prices, there is a decidedly more optimistic tone with regards to the South African energy sector and the economic opportunities they hold, in the coming years.
A fundamental shift
Globally, there is an urgent and ongoing focus to shift from fossil fuels to sustainable energy production methods that will not only benefit the Earth, but the global economy.
For South Africa, a move towards renewables has a fundamental socio-economic impact and offers opportunity for creating economic growth and a more equal society.
South Africa's National Development Plan (NDP) 2030 offers a long-term plan for the country. It defines a desired destination where inequality and unemployment are reduced and poverty is eliminated so that all South Africans can attain a decent standard of living. Electricity is one of the core elements of a decent standard of living.
South Africa is a signatory to the Paris Agreement, the international treaty on climate change and limiting global warming, and has ratified the agreement. Government's Integrated Resource Plan, updated in 2019, maps out the country's energy mix for the next decade - focused on renewables such as solar and wind, with a drastic shift away from coal. It envisions the nation's total electricity-production capacity rising to 77,834 megawatts by 2030 - with the bulk of the increase coming from renewable sources - from about 52,104 megawatts, of which 90% currently comes from Eskom's non-renewable generation.
According to Ted Blom, Power & Mining Expert and Partner at Mining & Energy Advisors, "Energy is the key ingredient for economic development". With 30 years experience working around the African continent for over 30 years, Blom believes that the African people now see energy as "the gatekeeper to a very prosperous future" and foresees a rise in competition in the medium term, which will inevitably lead to affordable energy prices.
The REI4P suggests that the cost associated with renewable energy will equal the cost of non-renewable energy by 2030. According to research by Bloomberg NEF, "wind and solar energy are now the least expensive forms of power in two-thirds of the world". The same research states that "wind and solar will undercut coal and gas 'almost everywhere' by 2030".
To incentivize the further rollout of renewable energy generation by the private sector, the South African Revenue Service has, of 1 January 2016, amended the Income Tax Act No. 58 of 1962 to include accelerated depreciation for renewable energy assets commissioned by a tax paying entity. This tax incentive is not limited to new renewable generation systems.
A new day
Technology will be at the forefront of the movement towards sustainable energy, offering increasingly significant opportunities for entrepreneurs as well as large and small corporations to invest and develop. "As we move away from this dark cloud of coal and into the glow of renewable energy, we have already seen a significant reduction of carbon emissions and tremendous potential for the application of battery storage", says Maximilian Niederehe, Business and Solutions Development Manager at Siemens Energy.
The decrease in prices for renewable energy, Government incentives and advances in storage capacity will lower barriers to entry for business and industrial players who could realize significant economic returns in the long-run from private generation capacity for own use, as well from putting power back into the national grid.
Some of the predicted new energy producing mechanisms globally are:
- Wave energy in Europe, which launched its first commercial WaveRoller with the help of public and private investment from the continent;
- Solar Power in Australia - hugely lucrative, especially for countries in the Southern hemisphere that enjoy an abundance of sunshine throughout the year;
- Wind energy in India - an initiative that has not yet fully been launched due to the lack of state support, although a huge need due the country's sheer expansive residential and commercial markets.
Of all South African renewable energy sources, solar holds the most potential. Because of the country's geographic location, it receives large amounts of solar energy. Wind energy is also a major potential source of renewable energy, due to the high wind velocity along the coast.
So, how can established South African corporations and SMMEs venture into the renewables sector?
By embracing energy as a commodity. Due to the climatic impact and high long-term cost of non-renewable sources of energy, sustainability will no longer be a choice but rather a must, according to Corporate Sustainability Scholar, CB Bhattachary. He writes: "Business values and social or environmental values can go hand in hand. Simply put, companies can no longer afford to be where they had their glory days and maximised business value while depleting socio-environmental value. To have the license to operate, creating positive social and environmental value is a must".
A strategic approach is needed when investing in the renewables market, which encompasses a myriad of approaches to business, product, technology solutions and affordability. Leveraging the opportunity presented by sustainable energy could provide the stepping stone required for long-term growth and exponential expansion into other lucrative facets of the renewables market.
The decentralized investment opportunity provides South Africa with the resources to overcome its current energy crisis. Our government seems to finally be embracing the deregulation of private sector power generation and the ramping up of licenced independent power producers (IPPs) as crucial to South Africa's energy security as evidenced by Eskom's plan to procure 5,000MW of additional generation capacity.
Countries across the globe all view renewable energy as the way forward and the only feasible solution to managing the pervasive consequences of global warming and unrelenting climate change. Allowing large South African power users to generate power for their own use is a step in the right direction with the possible outcome of opening the market to multiple power generators, wholesalers and retailers. This will bring competitiveness to the industry, driving down costs and improving transparency, making renewable energy a most lucrative investment opportunity for companies of all sizes.
Author: API Property Group