simon zadek

A week in South Africa, and a step further in a brilliant initiative, the South African Renewables Initiative (SARI) exploring how to boost renewables and in the process drive industrial development opportunities deep into the industry’s value chains, and help to vaccinate South Africa’s energy and carbon intensive against the expected growth of ‘carbon sensitivity’ in its key international markets by establishing a green purchase obligation for these sectors.

The keystone to the deal concerns the capacity of South Africa to finance the rapid scaling of renewables generation through a German-style feed in tariff that pays a premium on green energy produced and fed into the grid. What a great way to get private citizens and commercial investors to cough up money for the equipment…only problem is the cost. Even Germany is beginning to groan at the cost to the public purse. According to one estimate, “In 2008, the tariff’s estimated cost was 3.2 billion euros, or $5 billion. This amounts to less than two-tenths of 1 percent of the German economy, hardly a significant price tag to encourage a technology that delivers 15 percent of the nation’s electricity. Furthermore, the cost is spread across the entire ratepayer base. In 2007, the added cost per household was 3 to 4 euros per month, about the price of a latte”.

For South Africa, the cost to the tax payer (or spread across all consumers) is manageable at low levels of renewables, including the current target of 4% of the total mix by 2013. But to catalyze industrial development and jobs, and to deliver enough ‘green’ to exporters, will take 10-15%, and rather fast, say by 2020. At this scale, it is just not practical to finance this domestically…hence the problem.

One possible solution, and the topic of the work that i am involved in with Associates Maya Forstater and Saliem Fakir on behalf of the South African Government, is to cut a deal with key governments making international climate financing commitments to subsidise the feed in tariff rather than pay for projects. Whilst the feasibility study is a work in progress, initial estimates suggest that the implied cost by carbon ton abated might be as little as US$10, closer to the cost per ton of avoiding deforestation than the much higher costs normally estimated for promoting most renewables at this stage in the game.

Work-in-progress, certainly, but progressing quickly, so watch this space as it develops…