South Africa

Details

  • Industry: Business Desk, Africa
  • Date: 2011/07/27

KPMG Africa Conversation Series

Africa Conversations image
Check these pages regularly for upcoming KPMG Africa Conversations, which help businesses better understand and address the implications of economic change in Africa.

Unlocking renewable energy in Africa through regulatory support 

The United Nations Conference of the Parties 17 (COP17) on Climate Change taking place in Durban this November marks a critical point in international climate change negotiations.

As a precursor to this global event, KPMG convened the Africa Conversation series to discuss climate change and its impact on business from an African perspective. The panel discussion titled ‘Climate-Proofing Africa’ was broadcast live across the continent by CNBC Africa.

 

How high is climate change on the African agenda? Rohitesh Dhawan, Resource Economist at KPMG, explained that Africa’s climate challenge is three-fold.

 

First, there is a need to increase the capacity of our communities and economies to adapt to the expected impacts of climate change. Second, while Africa’s current share of global greenhouse gas emissions is relatively small, as economic development continues, this will increase, which needs to be mitigated. And thirdly, sustainable investments and infrastructure needs to be put in place for when climate changes come to the fore.

 

However, investing in initiatives to combat climate change is expensive. “An estimated $27 billion dollars annually is needed to achieve reliable and secure electricity supplies in Africa by 2030,” says Dhawan. Securing funding for development is an ongoing problem in Africa.

 

“However, the buy-in is there,” says Bernard Osawa, Director: Renewable Energy at the Energy Regulatory Commission (ERC) in Kenya. “We’ve had some success cases. The government has put structures in place to facilitate investment, and we have investors who are really interested and are putting in their money.”

 

The East African country, which relied mainly on hydro-generated power, has become a model for encouraging international investment in national renewable energy initiatives. These include the largest wind farm in Africa, the Lake Turkana Wind Power project, which will soon provide 300 MW of clean power to Kenya’s national electricity grid.

 

The Industrial Development Corporation has also committed R100 billion to be invested in economy-stimulating initiatives in the next five years, not just in South Africa, but across the continent. “Just over R22 billion of this has been earmarked for investment in the green economy,” says Rentia van Tonder, Head of the Green Industry Strategic Business Unit at the IDC.

 

With a stake in the Lake Turkana Wind Power project and an eye on the potential for bio-mass and hydro energies in other African territories, the IDC has a “higher appetite to take those early risks, with a long-term vision of developing the renewable energy industry and unlocking value in the economy”.

 

It appears that potentially game-changing developments in Africa’s climate change efforts are not always being supported by robust regulatory frameworks.

 

“We found that in the energy sector, the Kenyan government has been extremely responsive,” says Carlo Van Wageningen, chairman of Lake Turkana Wind Power Consortium. “But, we could have perhaps shortened the time it took to make this deal happen.”

 

Delays in securing government guarantees and the lack of tools already in place to facilitate large investment, have left financiers with a low risk threshold. As African governments put the correct regulations and incentives in place, it appears that more investors will be willing enter the renewable energy market.

 

One of the regulatory issues having an impact on green projects in South Africa is government’s Renewable Energy Feed-In Tariff that encourages competitive bidding, ensuring the lowest cost of procurement of renewable energy, while investors still enjoy the price certainty of a feed-in tariff.

 

“In a broader sense, the introduction of a carbon tax is the main instrument that South Africa intends to use to promote a greener economy. What that signals to the private sector is that it’s going to be more and more expensive to be inefficient in the use of carbon emissions. Going greener and going more sustainable will become more profitable,” says KPMG’s Dhawan.

 

For the time being, the reality is that fossil fuels, predominantly oil and coal, are what’s fuelling the growth of African economies.

 

“However, don’t underestimate the impact of demand-side energy management,” agrees van Tonder.

 
Share