Prospects for renewable energy in South Africa : Mobilizing the private sector

The challenge of transforming entire economies is enormous, especially if a country is as fossil-fuel-based and emission-intensive as South Africa. However, as it is already facing climate change impacts in an increasingly carbon-constrained world, South Africa must drastically reduce its greenhouse gas emission intensity soon. The South African electricity sector is a vital part of the economy and at the same time contributes most to the emission problem. Transforming this sector is therefore urgently needed, but will be difficult. First steps have been taken to enhance energy efficiency and promote renewable energy, but they have failed to have any large-scale effects. The two major barriers to investments in renewable energy technologies are based in the South African energy innovation system and its inherent power structures and in the economics of renewable energy technologies. The innovation system is dominated by the state-owned Eskom (electricity) and Sasol (fuel) enterprises. Both companies have their core competencies in fossil fuel technologies. Capacity in renewable energy is lacking at every stage of the technology cycle, from research and development to installation and maintenance. The obstacles inherent in the economics of renewable energy technologies are cost and risk, two of the main factors in investment planning. As most technologies are in early stages of development, they have not yet realized their full cost degression potential and continue to entail a higher risk than established technologies. To overcome these barriers, the South African government has introduced several renewable energy support measures, such as a renewable energy feed-in tariff (REFIT). While a promising scheme in theory, the South African REFIT has a crucial flaw: Eskom is the monopsonistic buyer of electricity produced from renewable energy and is responsible for distributing it to consumers. However, Eskom is not obliged to buy that electricity. This runs counter to the investment security the REFIT scheme was intended to give renewable energy producers. As a result, effective achievement on the ground continues to fall well short of the goals set in policy papers. While external financing, covering the additional costs for capacity-building and such policy measures as the REFIT, may be one part of the solution, the political will to reform the existing power structures in the electricity sector and to invest in the creation of a renewable energy market must form the other part