A leading economist has warned the wind energy industry that it will need to become even more competitive and lower the price of wind power in a stagnant and increasingly challenging South African energy sector.
“Our power sector is bankrupt. Whether we like it or not, this will impact the wind industry,” Meridian Economics MD Grové Steyn said on Thursday at a symposium organised by the South African Wind Energy Association (SAWEA) in Cape Town.
“Despite [power purchase agreements for] round four of the Renewable Energy Independent Power Producers Procurement Programme (REIPPPP) being signed, the honeymoon for wind and renewables is well and truly over.
“It’s clear that renewables cannot escape the stresses and strains playing out in the energy sector and the economy more broadly,” he added.
He said energy demand in the country was stagnant and had been for years.
“Our preliminary analysis shows that R100-billion of Eskom’s debt is at risk. There is a funding shortfall of R10-billion [a year].”
He pointed out that Eskom has delayed the publication of its annual report due to the discovery of tens of billions of rands of irregular expenditure.
“It’s unlikely that the sovereign can bail out Eskom as it has done for the past few years. An Eskom default could trigger government guarantees and a sovereign downgrade, which could plunge the economy into a recession.”
“If you want to sell more power into the sector, you will need to do it at the lowest possible price, given that the industry is bankrupt.”
He said the industry had benefitted tremendously from technology changes in the last 10 to 15 years.
“There are still many innovations in onshore wind technology, increasing turbine sizes and capacity factors that are reducing unit costs.”
Meanwhile, Development Bank of Southern Africa (DBSA) client coverage group executive Mohan Vivekanandan, suggested that investors may need to compromise and reconsider the returns they are prepared to get.
While Steyn painted a harsh picture of the challenges facing the industry, he said the renewable energy industry has the potential to create many jobs.
“As of June 2017, the REIPPPP has created 35 532 direct full-time equivalent (FTE) person years of employment. It is anticipated that 109 444 direct, FTE person-years of employment will result from REIPPPP bid rounds one to four in both construction and operation over their 20 year power purchase agreement time horizon.”
FTE job years anticipate one person working full-time for one year.
“The industry has grown very well despite the setbacks of the past three years. We now have a great opportunity to do things from scratch, do well and create a future that is better,” she stated.