South Africa has a growing economy that has previously produced up to 95% of its electricity from coal. South Africa also produces 40% of Africa’s electricity through coal making its state-run utility the tenth largest in the world. Seeking to manage the budget, the government of South Africa has been reducing subsidies to coal production and coal-based electricity. This has raised the price of electricity in the country. At COP 17 the South African Renewable initiative (SARi) was launched to increase the electricity produced in South Africa from renewable resources. Since it is viewed as politically unacceptable for electricity prices to rise any more, part of SARi is to build funding mechanisms for renewable investment without imposing “unacceptable burden[s] on the economy.”
South Africa, even among African countries, has significant solar and wind reserves. Despite this, in 2011 all renewable power stations in the country consisted of 3 wind farms with a combined output of less than 10 MW. South Africa has a goal of 19 GW of renewable energy capacity by 2030. The first 3.6 GW of renewable energy have been financed by the South African fiscus (public purse) but these public funds will not be enough for the entire 19 GW.
In order to reach its 2030 goals South Africa will require an estimated $35.6 billion. South Africa is seeking to meet this through $11.3 billion in low-cost financing provided by the international community’s development finance institutions (DFIs). It is expected that this initial investment will provide confidence in the commercial sector for providing the remaining $24.3 billion.
In seeking international financing, the South African government and SARi developed a list of best practices. Investors were at first unwilling to fund South African projects due to real and perceived risks for utility scale projects in the country. SARi was able to overcome this through:
- Government commissioned research by industry and technology experts.
- Providing regulatory-supported open grid access from privately owned power plants.
- Engaging multiple agencies in the management process. SARi was originally managed only by the Department of Energy but saw increased success in funding IRPs as the Department of Energy partnered with the Department of Trade and Industry.
- Building oversight and accountability of private companies through legally binding memorandums of understanding (MOUs).
- Providing follow-up analysis on productive policies such as feed-in-tariffs or tenders that affected the final cost of SARi and the profitability of capital investments.