The news seems to herald a promising 2015, so what exactly should the industry expect this year? What are the main challenges that CSP will have to overcome to thrive in the country? 

By Ángela Castillo

Market drivers and barriers

The combination of an excellent solar resource (over 2,800 kWh/m2/annum, one of the best in the world); vast land availability; the country’s strong manufacturing capacity and an increasing commitment to CSP deployment from the government and financing institutions, make for an encouraging picture.

Factors such as the increasing energy demand, high electricity prices, and limited proven reserves of oil should hasten the implementation of CSP at a wider scale. According to the DoE, as much as 40,000 MW of new generation capacity is needed by 2025 to cover the demand. As a result, the country has set a target of installing 1,200 MW of CSP by 2030, which could be increased to 3,300 MW should the Integrated Resource Plan (IRP) Update be approved.

The IRP is a roadmap for the implementation of energy projects over the next twenty years. Within its framework, a target of 3,725 MW from renewable energy was set.

Apart from that, the availability of CSP incentives, which include a competitive bidding system and a time-of-day tariff, coupled with the ease of financing, should pave the way for the establishment of a robust CSP industry in the country.

Nevertheless, according to the CSP Today Markets Report 2015 – South Africa, aspects such as the outcome of the proposed IRP Update, the decreasing freshwater resources, grid limitations, and new discoveries of shale gas could hinder progress. With regards to the revised IRP Update, on 14 April 2014, the DoE announced that the document was still under review, setting the second semester of 2014 as a deadline for its approval. The market is still awaiting for further announcements on this front.

What to expect in 2015?

With 100 MW about to enter into commercial operation in 2015 and an additional 1,000 MW in the development and planning phases, South Africa is reaping the rewards of years of policy planning, government support and confidence among financing institutions and private investors.

Indeed, the 100 MW KaXu Solar One project was connected to the grid on 2 March 2015, whereas Bokpoort and Khi Solar One are expected to come online later this year.

Table 1: Projects to be connected to the grid in 2015

Source: CSP Today Global Tracker 2015

Bokpoort has 9 hours of thermal energy storage (TES) and is located near the Groblershoop town, whereas Khi Solar One is a tower plant with 2 hours of TES and is located in Upington.

Recent developments

In December 2014, the fate of four projects -totalling 400 MW- was revealed by the DoE. The Xina Solar One and Ilanga I projects achieved financial close under Window 3. Xina Solar One is currently in construction, whilst Ilanga I is expected to begin construction in the next couple of months.

Redstone CSP Project and Kathu CSP achieved preferred bidder status under Window 3.5. It is expected that the financial close for both projects will take place this year, although a specific date has yet to be confirmed by the DoE.

Table 2: Projects awarded in Windows 3 and 3.5

Source: CSP Today Global Tracker 2015

Interestingly, the market saw the entry of new market players and record low-tariffs with the announcement of Window 3.5’s outcome. A consortium led by US-based SolarReserve and Saudi Arabian ACWA Power won the bid to develop the 100 MW Redstone tower project with a tariff of USD $12.4c/kWh for the first year and USD $15c/kWh over the following years. This is nearly half the tariff offered in the first two windows: ZAR 2,69 kWh (USD $22c/kWh, calculated at current rates) and ZAR 2,51 kWh (USD $21c/kWh) respectively.

As for newcomers, the French GDF Suez will make its debut in the South African CSP market with the Kathu CSP project.

Demand for CSP with storage

South Africa’s daily electricity demand has two peaks, one in the morning and another more pronounced one during the evening (between the hours of 16:30 and 21.30, which has been defined as peak time), in both summer and winter (CSP Today Markets Report 2015 – South Africa). This characteristic makes CSP with storage the most suitable alternative among all renewable energy sources for generating electricity to supply the evening peak demand.

To incentivize developers to supply this demand, in 2013, the DoE established a two-tier tariff for CSP projects with and without storage. Therefore, developers have a base tariff of ZAR 1,65/kWh (USD $14c/kWh), with a higher tariff (270% of the base tariff) applied for supplying energy during peak time and no payment for supplying energy between 22:30 and 5:00 hrs. (CSP Today Markets Report 2015 – South Africa).

Long-term vision

Looking further ahead, the market expects to see an additional 200 MW connected to the grid by 2017, as a result of the beginning of commercial operations of the Xina Solar One and Ilanga I projects. With regards to the allocation of CSP in future bidding rounds, decisions will largely depend on the approval of the IRP Update.

Should it be passed, it is sensible to assume that in order to achieve its proposed 3,300 MW CSP target, a considerable allotment of the technology will be made in Window 5. The DoE originally scheduled this bidding round to take place between May and June 2015 (CSP Today Markets Report 2015 – South Africa), but it has since been delayed.

However, considering the oversubscription experienced in the past bidding rounds, it is expected that future bidding rounds will generate a similar response from local and international players. In fact, the DoE indicated that it received 93 bid responses on its third submission date, which resulted in the appointment of 17 preferred bidders, 2 of them for CSP projects.

Despite the delays in the DoE’s announcement schedule and other challenges, the South African market continues to generate great interest among international developers and financing institutions.