Renewable energy in South Africa
Unique barriers, unique opportunities and therefore
unique solutions
• Community based renewable energy – utilising mine impacted land
• Demonstrating market readiness for carbon offset trading in South Africa
• Renewable Energy Certificates (RECs) for carbon trading • Energy market reform
Agenda
Community based renewable energy
Utilising mine impacted land
What if … we could use mine impacted land to
generate electricity and grow a sustainable local
economic base?
Project background and overview
• A number of long‐standing problems exist in South Africa: – The economic utilisation of mining impacted land;– Creating opportunities on land of ownerless mines; and – The supply of small scale renewable energy to the South African
grid. • Mining contributes 8.5% of SA’s GDP, employs more than half a million
people and uses around 15% of the country’s electricity.• There is a constructive synergy in bringing these elements together. • This includes the use of mining impacted land to create post‐mine life
jobs, the production of renewable energy, and the offtake of this energy by the mining companies.
• This project seeks to develop a feasibility study for a pilot project to implement renewable energy projects in communities based on mining impacted land.
The socio-economic value of renewable energy
Community based renewable energy projects could contribute effectively to alleviating the rising energy crisis within South Africa whilst simultaneously addressing a number of socio‐economic issues.
MAIN CHALLENGE AS PER NATIONAL DEVELOPMENT PLAN
DIAGNOSTIC REPORT
THE POTENTIAL OF COMMUNITY BASED RENEWABLE ENERGY PROJECTS
Too few people work. Community based renewable energy project could create a source of employment not only for the manufacturers, but also for installers and
distributors.
Infrastructure is poorly located, under‐maintained and insufficient
to foster higher growth.
Community based projects offer ease of implementation due to their infrastructure footprint. This ensures flexibility in terms of
implementation. Projects could utilise infrastructure from closed down mines.
Spatial patterns exclude the poor from the fruits of development.
Smaller scale projects making use of natural, locally available resources, are practical to implement in rural and peripheral areas. This enables service delivery to areas in need which are not part of
urban and established grids.
The economy is overly and unsustainably resource intensive.
An increase in the uptake of community based renewable energy projects will support the growth of the renewables sector and reduce
the reliance on fossil fuel resources.
The project concept
• The project concept is based on the following: – The use of mine impacted land for renewable energy.
– The context of and criteria for community based renewable energy projects.
– The use of community based renewable energy projects to alleviate grid pressure and socio‐economic pressures.
Anticipate Mitigate Restore Enhance
Post‐mine life challenges
Mine land optimisation and
potential
SA energy crisis
Impacted land through
agriculture
Communities through job
creation and energy provision
Three key project elements
Land
• Mine impact• Rehabilitation options • Agricultural
development• Water management• Crop selection
Community
• Development needs • Socio-economic context • Job creation –
sustainability of job creation
• Project ownership / community management
• Community energy needs• Local economic base
Energy generation
• Energy technology • Required RE resources • Off-take – mine /
community / local government and the implications
• Demand vs supply – from socio-economic perspective of local / peripheral communities
• Scalability of technology • Phasing of technology • By-products and value
Community Based RE project
Project phases
Concept
•Post-mine life sustainability
•Use renewable energy to:• Generate jobs • Achieve land rehabilitation
• Uplift community(ies)
Pre‐feasibility
•SA development context
•Key considerations •Stakeholder engagements
•GAP Analysis
Feasibility study
•Site analysis •Project value: Economic, social, environmental and energy
•Project scope •Project Phases•Renewable energy –technology specifications
•Biomass supply •Job creation •Finance and funding
What is post-mine life sustainability –role of renewable
energy.
Consider context and challenges –
GAP. Feasibility criteria.
Project criteria to ensure sustainability
• Projects will need facilitated momentum to grow sustainably.
• In this regard, specific criteria should be applied to the projects: – Relevance to the community. – Positive impacts in terms of environmental, social and economic context.
– Possibility to continuously improve and to be replicated.
Project criteria: Multifunctional site criteria
• Criteria to inform site selection and site analysis:– Accessibility – Connectivity – Safety and security – Community capacities – Environmental considerations
Questions
Demonstrating market readiness for carbon offset trading in South Africa
British High Commission funded project
Demonstration follows three years of research in cooperation with the JSE, Silocerts, ENSafrica and
Done Technologies
Development of SA carbon market
The working question on this project was:
How to design a carbon offset commodity that can be traded on the existing markets available in South Africa and be operational within the timeframes envisaged for the implementation of carbon tax.
Project development objectives
Criteria
Ensure system integrityMinimise time to set up systemMinimise cost to set up systemMinimise transaction costs
Proposed solution
Build on proven systemsMaximum use of existing infrastructureMaximum use of existing infrastructureEconomies of scale &variety of standards
Demon‐strated?
Yes
Yes
Yes
Yes
System integrity
Environmental Integrity
National Appropriateness
Financial Integrity
Ensure that a ton of CO2 traded is a ton of
CO2 mitigated
Ensure that the system is protected against fraud and
theft
Ensure that the eligibility criteria of the SA Government
is met
System integrity is non-negotiable for both the carbon tax and the carbon budget applications
System integrity
Environmental Integrity
National Appropriateness
Financial Integrity
Ensure that a ton of CO2 traded is a ton of
CO2 mitigated
Ensure that the system is protected against fraud and
theft
Ensure that the eligibility criteria of the SA Government
is met
Use of existing infrastructure ensures:– Maximum integrity– Maximum credibility– Lowest cost to implement– Fastest time to market – in time for carbon tax in 2016– Biggest economies of scale – lowest transaction cost– Optimal use of existing skills & experience in SA
System integrity
Environmental Integrity
National Appropriateness
Financial Integrity
ISO accredited auditors, DNA Listing entity, Silocerts, JSE
Utilisation of existing
infrastructure
Verification against eligibility criteria
CDM, VCS, GS, CCBA
Utilisation of existing standards
Mechanics of demonstration
• Market participants traded carbon:– Projects in SA (national appropriateness)– Traded in voluntary offset market (to create value)– Traded over‐the‐counter (OTC)
• Registry (Silocerts) mirrored trades in a test environment:– Opened accounts for participants– Listing entity listed credits in accounts– Transferred ownership– Cancelled credits
• Trading platform (JSE) mirrored trades in a test environment
Participants in demonstration
Potential market structure
Registry ‐Silocerts
Trading Platform ‐ JSEListing
EntityNational Appropriat
eness
Registry of origin
Company A(Seller)
Company B(Buyer)
Note: Trade does not
have to take place on JSE – could also be over the counter trade
Pilot trades on 29 January 2015 at JSE
Questions
Renewable Energy Certificates (RECs) for
carbon trading
Context
• The research on the possibility to use RECs under the proposed South African offset scheme was done in this project. This will support the domestic offset trading scheme under the proposes carbon tax.
• This is not a policy project but a research project sponsored by the British High Commission to South Africa.
• The research is aimed at complementing the current offsets done by extending it to include small scale renewable energy projects.
• A major co‐benefit of these projects pertain to the capacity of small scale renewable energy projects to meet the socio‐economic development objectives of South Africa.
• RECS in itself cannot be an offset, however RECS in conjunction with CDM additionality and a CDM standardised baselines can be an opportunity to this renewable energy market as a potential carbon offset.
Carbon tax offset opportunity
• The proposed carbon tax framework in South Africa might have an associated offset component
• The starting level of carbon tax at R120 per ton CO2 is favourable to incentivise offset providers to develop new emission reduction projects.
• Under the current carbon tax design 5‐10% of the carbon tax liability can be met through the purchasing of offset credits
• Initial schemes allowed are CDM, VCS, GS and CCBA.
• These schemes typically cater for the larger projects and the development cost is high, however the environmental integrity of these credits are guaranteed.
http://www.treasury.gov.za/
Nano Energy August 2010
Introduction to RECs
REC = Renewable Energy Certificate• In practice, RECs are
electronic records thatverify the origin of energy fromregistered renewable energy facilities.
Source: EC 2000
Existing SA REC structure
Governed by RECSA
RECs in SA
• DoE (then DME) established a working group to investigate the feasibility of a national TRECs system.
• NERSA in their Green Power Trading Rules in 2006 stipulated the establishment of a local certification issuing body.
• National TRECs feasibility study in May 2007 approved the principles of establishing a Non‐Profit Issuing Body.
• SA is aligned with the AIB (and soon IREC)• RECSA established from industry to operate voluntary
market until 1 TWh of trade justifies integration into AIB.
30
Timeline
Pilot Project (WSSD)2002
Voluntary market
association (TRECSA)
&Interim Issuing
Body 2005
Working group on feasibility
(DoE) May 2007
Business plan for SA Issuing
Body (DoE)
Dec 2009
RECSA Constitution
&zaRECs Pty
(Ltd)2011
REC’s Process – Best Printed on A3
Trading in RECs
32
RECSA
• SA Issuing Body that has established:– Domain Protocol for South Africa (affiliated with AIB)
– Device Registration Protocols (Subsidiary Documents)
– Generation declaration template– Transfer & Redemption Order– Certificate Registry
Project locations in SA
Registered:• Sugar – 6• PV – 8• Hydro – 1• Hybrid – 2• SWH ‐1• Wind – 2
RECs for SAIREC
• SCAN Display purchase for– SAIREC Electricity greening (20MWh)– from Wilsonia Wind Turbine in East London
• Deal brokered by the Green Desk of Border Kei Chamber of Commerce
Ensuring the Integrity of the System
Environmental Integrity
National Appropriateness
Economic Integrity
Existing Infrastructure
with new Linkages:REC Infrastructure
Existing Infrastructure
New Rules:Converting RECs using standardised baselines
Existing Infrastructure
Environmental and economic integrity of RECs
• Environmental attribute – renewable energy guaranteed
• Additionality not evaluated in RECs – automatic additionality from CDM
• Standardised baselines – can be used to establish the baseline and project emission scenarios for eligible projects.
• Projects generating offsets from non‐taxable activities
• RECs from projects usually outside the tax net Projects or on a Positive List
REC issued
Confirm compliance:
Project implemented in SA?REC redeemed
Project eligible to trade against the SA
carbon tax?
Project has automatic
additionality?
Standardised baselines for baseline emissions, project emission and leakage?
Carbon offsets issued
Possible process flow
Conclusion
• The necessary infrastructure exists to trade carbon offsets in South Africa
• Potential supply and demand indicate a viable market at around 20 million tons CO2 per year.
• RECs could – contribute to the carbon offset supply – create green jobs
• Conversion of RECs to Carbon credits– Enhance the RECs market to enhance the uptake of small‐scale RE projects and associated benefits
– Overcome the barriers to Carbon offset opportunities by small‐scale RE projects
Questions
Energy market reform
Context
Electricity market reform, as a tool to stimulate decarbonisation and growth, is a global phenomenon.
South Africa is the biggest generator of electricity in the Southern African Power Pool (SAPP). The current SA electricity crisis negatively impacts the business environment and constrains economic development in the region.
Many of the large energy users that operate in the SAPP region will benefit from the competitive electricity market and choice of electricity supply.
The Southern African region has excellent renewable resources that are underdeveloped primarily because of market and regulatory barriers to entry. Clear and open renewable energy policies are ideal investment opportunities, which open the door for investment throughout the region.
SA’s reliance on coal gives the SAPP grid one of the highest emission factors in the world. The historic support from government funding to create a lower cost coal‐based economy has created difficulty for the implementation of alternatives.
Aim
The aim of this project is to develop and showcase pathways to, and opportunities for, electricity market reform in the countries linked to the Southern African Power Pool (SAPP) in order to clean and strengthen the electricity grid and infrastructure, and thereby stabilising and improving the business environment in the region.
The project aims to assist in SAPP’s vision to facilitate the development of a competitive electricity market in the region and give the end‐user a choice of electricity supply.
Countries in the SAPP
ObjectivesIdentify pathways of electricity market reform – locally, nationally, internationally (in the context of SADC) or any combination of these ‐ this includes physical, contractual/legal and financial pathways;
Review of existing frameworks, policies and legislation governing electricity market development;
Explore case studies of the pathways that have been achieved and what the challenges and key points to success; and
Provide recommendations to guide interested parties on how to streamline their electricity selling/buying/trading aspirations.
The reform of the Southern African electricity market is necessary and will contribute to the following:
• security of supply;• ensuring price affordability;• mitigate GHG emissions; and• create investment opportunities.
Methodology
Literature review
•Policies•Plans•Legislation•Regulations•Regional frameworks•Market places/exchanges/power pools
Plausible pathways
•Public or private•REIPPPP•Own generation –mining houses, shopping centres, industries
•Embedded generation –selling spare capacity to the grid
•Bilateral agreements -wheeling
Case studies
•Bio2watt•SA-LED•Clearwater mall•Etc.
•Who carries the risks?•Mechanisms to manage risk?
•What are the barriers to participation?
What frameworks are in place
Likely pathways the market players
will explore
Who has been successful & what are the challenges
Expected outputs
A showcase of practical routes to electricity market reform, including a roadmap on how this can be achieved in the context of the SAPP, and the communication of this with the region.
The communication will be through a multi‐channel strategy. It will include electronic distribution of reports using direct contact, mailing lists and social networks. This will be followed by face‐to‐face meetings and workshops with regulators, current and potential Independent Power Producers (IPPs), potential large buyers of power and other interested parties.
These outputs will deliver the purpose of the project through:• Showcasing practical routes to achieving the market reform;• Communication, training and capacity building with the relevant parties.
Some relevant documents, policies and legislation
• SAPP market rules• Regional Regulatory guidelines RERA• Country specific national policies, legislation and regulations
In SA:• White Paper on Energy Policy• National Energy Regulator Act• Electricity Regulation Act• Public Finances Management Act• Municipal Finances Management Act• Integrated Resource Plan
Lessons so far
• National legislation provides for third party access to the grid in several SAPP countries;
• RERA (Regional Electricity Regulators Association) provides guidelines for cross boarder trading of electricity;
• Eskom has guidelines and wheeling processes in place;• Challenges seem to be at regulator registrations and licencing;• There are some good examples of own generation, embedded generation
and bilateral agreements;• Embedded generation within municipalities have challenges in terms of
long term PPA and the MMFA; and• Municipalities may only purchase electricity at competitive prices.
Pathways: Eskom wheeling
Source: Salvoldi, 2011, 23rd AMEU Technical Convention
Project background and overviewPathways
Source: Roets, RERA, 2011
Questions
www.promethium.co.za
0861 CARBON
www.facebook.com/PromethiumCarbon
@robbielouw
@harmkeimmink
Thank you