VZCZCXRO5837
RR RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMA RUEHMR RUEHPA RUEHRN RUEHTRO
DE RUEHSA #1761/01 2440900
ZNR UUUUU ZZH
R 010900Z SEP 09
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 9475
INFO RUCPDC/DEPT OF COMMERCE WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEHC/DEPT OF LABOR WASHDC
RUEHBJ/AMEMBASSY BEIJING 1019
RUEHBY/AMEMBASSY CANBERRA 0874
RUEHLO/AMEMBASSY LONDON 1781
RUEHMO/AMEMBASSY MOSCOW 1023
RUEHNE/AMEMBASSY NEW DELHI 0620
RUEHOT/AMEMBASSY OTTAWA 0833
RUEHFR/AMEMBASSY PARIS 1621
RUEHSG/AMEMBASSY SANTIAGO 0289
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHZO/AFRICAN UNION COLLECTIVE

UNCLAS SECTION 01 OF 03 PRETORIA 001761 
 
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 hydro project (1500 MW), owing to current 
QMW), and a pumped-storage hydro project (1500 MW), owing to current 
economic conditions. 
 
---------------------------------------- 
New Financial Instruments for Renewables 
---------------------------------------- 
 
¶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 
 
PRETORIA 00001761  002 OF 003 
 
 
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 - 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 - 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 include a preference 
for plant locations that contribute to grid stabilization and 
minimize transmission losses. 
 
--------------------------------------------- - 
Comment:  Significant Institutional and Market 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 
Qincreases 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 
 
PRETORIA 00001761  003 OF 003 
 
 
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