VZCZCXRO5842
RR RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMA RUEHMR RUEHPA RUEHRN RUEHTRO
DE RUEHSA #1762/01 2440900
ZNR UUUUU ZZH
R 010900Z SEP 09
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 9478
INFO RUCPDC/DEPT OF COMMERCE WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEHC/DEPT OF LABOR WASHDC
RUEHBJ/AMEMBASSY BEIJING 1022
RUEHBY/AMEMBASSY CANBERRA 0877
RUEHLO/AMEMBASSY LONDON 1784
RUEHMO/AMEMBASSY MOSCOW 1026
RUEHNE/AMEMBASSY NEW DELHI 0623
RUEHOT/AMEMBASSY OTTAWA 0836
RUEHFR/AMEMBASSY PARIS 1624
RUEHSG/AMEMBASSY SANTIAGO 0292
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHZO/AFRICAN UNION COLLECTIVE

UNCLAS SECTION 01 OF 03 PRETORIA 001762 
 
SIPDIS 
SENSITIVE 
 
STATE PLEASE PASS USAID 
STATE PLEASE PASS USGS 
DEPT FOR AF/S, OES/EGC, EEB/ESC AND CBA 
DOE FOR SPERL AND PERSON 
DOC FOR ITA/DIEMOND 
 
E.O.   12958: N/A 
TAGS: ENRG EPET EMIN EINV ETRD SENV SF
SUBJECT: SOUTH AFRICA TAKING STEPS TO BOOST 
RENEWABLE ENERGY; MAJOR OBSTACLES REMAIN 
 
REF: Pretoria 810 
 
This cable is not for Internet distribution. 
 
¶1.  (SBU) Summary.  Participants at a recent 
conference on climate change and development in 
Pretoria reviewed the status of renewable energy in 
South Africa, including regulatory and market 
barriers to development of the renewables sector. 
Industry insiders were skeptical that the 
government's target of 4 percent renewable energy 
generation by 2013 could be reached, citing little 
progress since the government's energy policy was 
announced in 2003.  The government reaffirmed its 
commitment to renewable energy, outlining a new set 
of financial instruments to promote its development. 
These include a Renewable Energy Feed-In Tariff 
(REFIT) program that will enable the state power 
utility Eskom to purchase renewable energy from 
independent power producers (IPPs).  However, 
serious institutional and market barriers remain to 
South Africa's transition to more renewable energy. 
End Summary. 
 
--------------------------------------------- ---- 
Conference on Climate Change and Renewable Energy 
--------------------------------------------- ---- 
 
¶2.  (SBU) Environment, Science and Technology 
Officer and Energy Specialist attended a conference 
on "Climate Change and Development:  driving an 
alternative energy future for Southern Africa?" 
hosted by the Institute for Global Dialogue (IGD) in 
Pretoria August 17-18, 2009.  The aim of the 
conference was to review the status of renewable 
energy in Southern Africa and to address regulatory 
and market barriers to the integration of renewables 
in the region.  (NOTE: although the conference title 
refers to "Southern Africa", the primary focus of 
the conference was South Africa's renewable energy 
policies.  END NOTE.)  This cable updates reftel on 
the state of renewable energy in South Africa. 
 
--------------------------------------------- ------ 
Ambitious Goals but Industry Insiders are Skeptical 
--------------------------------------------- ------ 
 
¶3.  (SBU) The South African government (SAG) has set 
a target of 4 percent, or about 10,000 gigawatt 
hours (GWh) of electricity to be produced from 
renewable sources by 2013.  Stated policy drivers 
behind the push for renewables include the need to 
diversify the energy mix, improve energy security, 
reduce greenhouse gas (GHG) emissions, create jobs, 
and promote rural development.  Many conference 
delegates expressed skepticism that the targets 
could be met.  "A deep cynicism exists about the 
government's commitment to renewable energy," 
explained World Wide Fund for Nature's Living Planet 
Division head, Saliem Fakir.  In fact, to date less 
than 1 percent of the 10,000 GWh goal is provided by 
renewables and 2013 is approaching fast.  In a 
further setback, state-controlled power utility 
Eskom recently announced it was delaying development 
of a concentrating solar power plant (100 MW), a 
wind energy project (100 MW), and a pumped-storage 
Qwind energy project (100 MW), and a pumped-storage 
hydro project (1500 MW), owing to current economic 
conditions. 
 
---------------------------------------- 
New Financial Instruments for Renewables 
---------------------------------------- 
 
PRETORIA 00001762  002 OF 003 
 
 
 
¶4.  (SBU) The South African Department of Energy's 
(SADOE) Clean Energy Division Director, David 
Mahuma, responded that the government recognized the 
barriers faced by renewable energy project 
developers, and accepted that the uptake of 
renewable technologies would not "come cheaply." 
However, he underlined the SAG commitment to 
renewable energy and outlined a package of new 
financial instruments to promote its development. 
These initiatives include creation of the Renewable 
Energy Finance and Subsidy Office (REFSO), the 
Renewable Energy Market Transformation project 
(REMT), and the recently published Renewable Energy 
Feed-In Tariff (REFIT) guidelines.  In its 2009/2010 
budget, REFSO has a 10 million Rand (approx. 1.25 
million dollars) financing capability for renewable 
energy projects, and has already funded hydro power, 
biogas, and landfill gas projects.  REMT has 
approximately $6 million in donor funds to assist 
developers in bringing projects to bankability 
through assistance with feasibility studies and 
environmental impact assessments. 
 
--------------------------------------- 
Renewable Energy Feed-In Tariff (REFIT) 
--------------------------------------- 
 
¶5.  (SBU) In March 2009, the National Energy 
Regulator of South Africa (NERSA) approved the REFIT 
guidelines to enable Eskom to purchase renewable 
energy from Independent Power Producers (IPP).  Four 
renewable technologies are included in Phase 1 
wind, small hydro, landfill gas, and concentrating 
solar Q with others to be considered in later 
phases.  IPPs must produce a minimum of 1 MW of 
power to be eligible.  REFIT tariffs are set to 
provide a fair return to investors and to cover the 
costs of electricity generation, but are 
approximately 3 Q 7 times higher than Eskom's 
conventional tariffs for coal-based electricity. 
For the program to be successful, Eskom will need to 
ensure that it has adequate funds to purchase the 
more expensive renewable electricity, thus 
electricity price hikes will be required.  Eskom 
estimates that the cost of purchasing the power to 
meet the 4 percent renewable target by 2013 will be 
3 billion Rand per year (approximately 375 million 
dollars). 
 
¶6.  (SBU) Yousuf Haffejee, Eskom's Market 
Development Manager, said the challenges of 
connecting IPPs to the grid should not be 
underestimated.  Those challenges include grid 
connection costs, grid stability, installation and 
downtime impacts and a host of other technical, 
legal and administrative issues.  One element that 
is often overlooked is the question of "land 
servitude", i.e., property rights and easements 
associated with development of new IPP projects and 
transmission corridors.  Haffejee observed that 
renewable energy is often produced in rural areas 
where demand for electricity is not high, and 
therefore connection to the grid and transmission to 
urban centers will be vital to match supply with 
demand.  The selection criteria for IPPs will 
Qdemand.  The selection criteria for IPPs will 
include a preference for plant locations that 
contribute to grid stabilization and minimize 
transmission losses. 
 
--------------------------------------------- - 
Comment:  Significant Institutional and Market 
 
PRETORIA 00001762  003 OF 003 
 
 
Obstacles 
--------------------------------------------- - 
 
¶7.  (SBU) South Africa has enormous potential for 
renewable energy, with a favorable latitude, 
abundant uninterrupted sunshine, and significant 
wind potential on both the east and west coasts. 
However, serious structural, institutional, and 
market barriers will hinder a quick uptake of 
renewable technologies.  First, South Africa is a 
coal-based economy, and the abundance of cheap coal 
feeds an "energy/industrial complex" that is highly 
sensitive to increases in the price of electricity. 
South Africa is facing a critical power shortage, 
with reserve margins of only 5-8 percent, and must 
quickly develop new generation capacity to meet the 
demands of economic growth and avoid repeating the 
rolling blackouts of January, 2008.  Eskom's capital 
expansion program will require 385 billion Rand 
(approximately 48 billion dollars) over the next 
five years, and will include two large coal-fired 
plants. 
 
 
¶8. (SBU) Second, Eskom controls more than 95% of 
the electricity market.  In this monopolistic market 
structure, under the REFIT program, Eskom is 
designated as the single buyer of renewable energy 
from IPPs.  Negotiating Power Production Agreements 
(PPAs) with the producers can be a time-consuming 
and bureaucratic process.  South Africa's grid code 
and structure was designed for a small number of 
large power plants, making the transition to 
decentralized power generation difficult.  The REFIT 
program will accommodate IPPs, but they must 
generate a minimum of 1 MW of power.  Under the 
REFIT program there are currently no plans for 
introducing residential or other smaller scale 
renewable energy feed-in capabilities in the near 
future.  Most industry observers believe that the 
full integration of renewable energy into South 
Africa's economy is a long-term project. 
 
GIPS