With all the right ingredients for CSP, South Africa's market is beginning to look promising.

By Emma Clarke

At first glance, the day for concentrated solar power appears to have dawned in South Africa. South Africa has excellent solar resources; a generous feed-in tariff has been established; a solar park is under consideration; and plans for two large CSP plants are currently on the drawing board. But a number of regulatory and financial barriers threaten to constrain South Africa’s aspiration to become the next global player in CSP.

Eskom, South Africa’s state-owned power utility, has been developing plans for a 100MW CSP plant, using a central receiver design with solar power tower since 2001. The technology’s appeal is its high temperature and high storage capability, says Barry MacColl, manager for technology strategy and planning at Eskom. The plant would have 14 hours of storage capabilities and a 68 percent load factor, he says.

It is an ambitious plan, considering the largest generation capacity for this technology constructed worldwide to date is only 22MW and achieves only seven hours of storage capabilities, as highlighted in recently published research paper.

But as MacColl notes, not only does the less-commercially proven technology present an opportunity for South Africa to become a marker leader in solar, it also lends itself to supply capabilities in the country. The central receiver will initially come from foreign providers, with technology guarantees built in to protect Eskom if the technology doesn’t perform. But everything else, including the plant’s 8,000 or so heliostats in the field, could be sourced locally. “It wouldn’t be a big step for local suppliers to get involved in a solar project,” he says.

Coal-mining company, Exxaro, which entered the power generation business this year, plans to take a more beaten path, opting to use parabolic trough technology for its 200-250MW plant at Lephalale in Limpopo that is currently undergoing a pre-feasibility study. “We’ve completed a study to determine the technology that is bankable. And that is parabolic trough because it is proven on the utility scale,” says Thomas Garner, a manager at Exxaro.

Local supply chain needed

In the short-term Exxaro will source technology from overseas suppliers, but within 15 years he hopes South Africa will have developed a local supply base. “Local supply will be essential to ensure costs are based in South African Rand to protect against currency fluctuations,” explains Garner.

Exxaro is also assessing eSolar’s modular technology, which addresses issues surrounding cost and speed of deployment of utility scale projects. But again, Exxaro is holding back until the technology has the performance guarantees that make it bankable.

For its part, eSolar sees “very good opportunity” in South Africa and has partnered with Johannesburg-based Clean Energy Solutions (CES) to open eSolarSA to expand sales operations across Sub-Saharan Africa. Initially eSolarSA will focus on grid-connected applications. Later, it plans to look toward more community-sized power plants in off-grid applications in Africa, according to Paul LaFontaine, vice president of international development at eSolar.

The South African government also signed an agreement with the US-based Clinton Climate Initiative (CCI) in October to assess the potential for a 5000-MW solar park.  This would allow operators to share infrastructure and development processes and is expected to include over 4000MW of solar generation capacity for independent power producers.

In terms of timescales, Exxaro thinks construction could potentially begin in 2012 and Eskom says its plant - that will take four years to build - is ready to go as soon as finance is secured.

Equity and regulatory hurdles ahead

But gaining finance for CSP projects – with or without proven technology – is an on-going challenge.

Eskom has applied to the National Energy Regulator of South Africa (Nersa) to raise the price of electricity to consumers by 45 percent a year for the next three years. But even with these rises, Eskom will have to approach investors to secure equity financing of a reported R7.5-billion (€700 mn; £627mn; US$1bn) to get the CSP project underway.

But Eskom could be in for a long wait given the current economic market, says Jenny Chase, senior analyst for solar energy at New Energy Finance. CSP must also compete for cash with two coal-fired power stations that Eskom is building with a total investment of over R300 billion (€26.7bn; US$40bn; £24bn).  

There are also significant regulatory issues that need to be ironed out. For starters, Exxaro’s Garner wants to see more ambitious and longer-term targets for renewables than the current 10,000 GWh of renewable energy by 2013.

Independent power producers are also concerned that there is a conflict of interest between Eskom’s role as energy producer and energy buyer, given that Eskom also houses the Singe Buyers Office for renewable electricity. As Garner points out: “The question is, whose power they will buy first - their own; or ours?”

There are also a number of issues to be resolved with regard to the Renewable Energy Feed-In Tariff (REFIT), before IPPs can start developing CSP plants in South Africa. Nersa, the regulator, approved the REFIT in March 2009, providing Power Purchase Agreements (PPA) for R2.10 per kWh to concentrating solar power (CSP) developments. These tariffs were revised in October to give CSP trough without storage a tariff of R3.14/kWh, and CSP tower with storage capacity of six hours a day a tariff of R2.31/kWh.

But eight months after the introduction of the REFIT, South Africa has yet to sign one project with an independent producer for renewables. The problem, says Chase, is that there has been no clarity on how costs can be passed onto consumers, or how Eskom will pay for it.

It is also unclear as to whether Eskom would be required to buy all energy generated from renewables, or whether there is a cap - which would mean IPPs would have to compete to sell the renewable energy they generated.

“Until there is some regulatory clarity, Eskom is not going to file a single deal on these terms,” says Chase. Nersa has stated that PPAs will be announced at the end of November.

Despite these short-term hurdles, MacColl sees opportunity in the long-term for a South African solar industry. And not just in terms of a local market for CSP, he says, but as exporters of less-developed technology such as central receiver designs. “We want to become global players in the solar market, whether that’s on small-scale demand side or large-scale CSP,” says MacColl. 

To compete at a global scale, and beat US providers that are already one step ahead, South Africa has a lot of catching up to do, says Chase. “It would be great to see some tower and heliostat plants built and to find out how well they work, and it is an interesting indication that South Africa is discussing these sorts of numbers in its REFIT. But there are still some serious questions unanswered.”

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