Pricing and predictions of renewable energy in South Africa

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Show notes

In this episode we gain insights from Daniel Zinman, a senior transactor in the renewable energy space at RMB.  We discuss the South African renewable energy landscape and explore Eskom’s current challenges. We also look at the pricing of alternative energy, the impact of politics, and predictions for the future of the energy landscape. Tune in and subscribe for more.

Episode summary

RMB has been instrumental in the funding of and advising on numerous renewable energy projects across South Africa worth close to ZAR20-bn in funding over the past couple of years.

Renewable energy currently makes up around 5% of the total grid and the Integrated Resource Plan from government shows a strong intention to increase this number. By 2030 6.5% of the total grid will come from Solar PV and 18% from wind. While the renewable price point is coming down, for example, the price for Solar PV in 2011 vs the price in 2018, is down by about 75%, there is still price competition from existing coal plants that have already covered their capex.

RMB’s deals are structured by lending to an SPV (Special Purpose Vehicle) that houses the IPP (independent power producer) project.

It’s a myth that renewable deals are poorly priced by Eskom. We are moving to a decentralised grid, where generation occurs closer to usage and excess can be sold into the grid, though this is not yet possible in SA. Political willingness is needed to move to a more decentralised, renewable grid. The government no longer has the capacity to fund energy generation on their balance sheet. It has effectively outsourced the risks to the private sector via IPPs.

Over time coal will be scaled down and renewables will scale up. There is good reason to be optimistic about the IRP (Integrated Resource Plan). There is however a large social risk in moving away from coal as this might result in localised unemployment. It will take a long time to get the transition done.