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Challenges Facing the Wind Energy Industry in South Africa Lessons Learned from International Experience in Promoting Wind Energy

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Challenges Facing the Wind Energy Industry in South Africa Lessons Learned from International Experience in Promoting Wind Energy The copyright of this thesis vests in the author. No quotation from it or information derived from it is to be published without full acknowledgementTown of the source. The thesis is to be used for private study or non- commercial research purposes only. Cape Published by the University ofof Cape Town (UCT) in terms of the non-exclusive license granted to UCT by the author. University Challenges facing the wind energy industry in South Africa Lessons learned from international experience in promoting wind energy Town Mary Kate Waller Dissertation presented for the degree of MasCapeters in Energy and Development Studies Energyof Research Centre University of Cape Town September 2010 Supervisor: Andrew Marquard University Challenges facing the wind energy industry in South Africa Acknowledgements I would like to thank my supervisor, Andrew Marquard, Mark Pickering and Jason Schäffler for their guidance and support of my research. Town Cape of University I know the meaning of plagiarism and declare that all the work in this paper, save for which is properly acknowledged is my own. Signed: Mary Kate Waller 2 Challenges facing the wind energy industry in South Africa Abstract Growing concerns regarding climate change, energy security, long-term carbon price exposure, fuel- price risk and fossil fuel depletion have continued to drive growth in wind energy globally over the past decade. In spite of South Africa’s renewable energy target and feed-in tariff for renewable energy, the current deployment of wind energy in South Africa is extremely low. Consequently, as the country embarks upon promoting the development of renewable energy, it is important to consider the challenges facing the wind energy industry in South Africa. This paper identifies the challenges facing the wind energy industry in South Africa and analyses how South Africa could address these challenges and create an enabling environment to support the development of a large-scale wind energy industry in the country by considering the lessons learned from international experience in promoting wind energy. The outcome and benefits of a potential large-scale wind energy programme in South Africa are quantified through an energy modelling tool known as SNAPP. The challenges to wind energy development in South Africa are identified and analysed through primary research in the form of interviews and through a literature review. The lessons learned from international experience in promoting wind energy are identified through an international literature review. The analysis found that the current low deployment of windTown energy highlights a lack of implementation and policymaking at the government level and is largely attributable to a number of policy, regulatory, legal and institutional challenges which are currently facing the wind energy industry in South Africa. The main findings from an examination of experience in other countries in promoting wind energy reveal that the implementation of a set of policy measures in South Africa over the short, medium and long term could serve to Capeaddress the challenges facing the wind energy industry and create an enabling environment offor the development of a large-scale wind energy industry in South Africa. University 3 Challenges facing the wind energy industry in South Africa Town Cape of “ExperienceUniversity shows that good wind resources are not on their own sufficient to ensure strong wind energy development and reductions of the cost of wind energy. Only countries that have set up an adequate enabling environment and long-term stable comprehensive public policies, with strong political commitment, have succeeded in developing wind power.” — UNDP (2008) 4 Challenges facing the wind energy industry in South Africa Table of contents ACKNOWLEDGEMENTS .................................................................................................................. 2 ABSTRACT .......................................................................................................................................... 3 TABLE OF CONTENTS ..................................................................................................................... 5 LIST OF TABLES ................................................................................................................................ 9 LIST OF FIGURES .............................................................................................................................. 9 LIST OF ABBREVIATIONS ............................................................................................................ 10 1. INTRODUCTION ...................................................................................................................... 12 2. THE CASE FOR A LARGE-SCALE WIND ENERGY INDUSTRYTown IN SOUTH AFRICA 13 2.1. South African power sector ............................................................................................................... 13 2.2. Technically feasible wind energy industry in South Africa ................................................................. 14 2.2.1. Wind Resource Potential ................................................................................................................ 15 2.2.2. Grid Integration of wind energy .....................................................................................................Cape 18 2.3. Modelling, outcome and benefits of a Wind ofScenario ....................................................................... 20 2.3.1. Scenarios modelled ......................................................................................................................... 20 2.3.2. Electricity capacity and generation ................................................................................................. 21 2.3.3. Levelised generation cost of electricity and Investment Requirement .......................................... 23 2.3.4. GHG emissions ................................................................................................................................ 25 2.3.5. Employment potential .................................................................................................................... 26 2.3.6. Benefits of a large-scale wind energy programme in South Africa................................................. 27 3. WIND ENERGYUniversity DEVELOPMENT IN SOUTH AFRICA .................................................... 29 3.1. Current status of wind energy development in South Africa ............................................................. 29 3.1.1. Wind energy projects in South Africa ............................................................................................. 29 3.1.2. Proposed wind energy projects in South Africa .............................................................................. 30 3.2. Policy and regulatory framework for wind energy in South Africa .................................................... 33 3.2.1. Wind energy in the national energy policy ..................................................................................... 33 3.2.2. Other support measures for wind energy ...................................................................................... 33 3.2.3. Renewable Energy Feed-in Tariff Programme ................................................................................ 35 4. CHALLENGES FACING THE WIND ENERGY INDUSTRY IN SOUTH AFRICA.......... 41 4.1. Hybrid REFIT-tender scheme ............................................................................................................. 41 4.1.1. Delay in finalisation of Selection Criteria in the REFIT Programme ................................................ 41 5 Challenges facing the wind energy industry in South Africa 4.1.2. Uncertainty regarding timing of the REFIT procurement process .................................................. 42 4.2. Lack of price security in the REFIT Programme .................................................................................. 43 4.3. Market cap for wind energy .............................................................................................................. 43 4.3.1. Absence of a finalised Integrated Resource Plan 2010 ................................................................... 44 4.4. Absence of medium and long term renewable energy targets .......................................................... 44 4.5. Renewable Energy Purchasing Agency in the REFIT Programme ........................................................ 45 4.5.1. Eskom’s Single Buyer Office ............................................................................................................ 45 4.5.2. Independent System Market Operator .......................................................................................... 45 4.6. Absence of a “bankable” Standardised Power Purchase Agreement ................................................. 46 4.6.1. Draft PPA ......................................................................................................................................... 47 4.6.2. Delay in publication of the Standardised PPA ................................................................................ 47 4.7. Legal and regulatory issues ............................................................................................................... 47 4.7.1. Grid-related Issues .........................................................................................................................
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