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Economic Development in the Renewable Energy Space

By July 26, 2016September 26th, 2019No Comments

Sustainable energy supply is a matter of urgency for South Africa, with industry experts and power producer Eskom warning of imminent energy deficit. Procuring alternative sources of energy from the private sector has therefore become central to ensuring future sustainability.

The Renewable Energy Independent Power Producer Programme (REIPPP) is designed to introduce renewables into the country’s energy system through a bidding process. Energy consortia in the forms of international developers and funders will vie for the right to proceed with executing the 20-year government-supported power purchase agreement. Given projections that renewable energy will comprise 42% of all new power generation added by 2030, this presents an extremely lucrative opportunity for black owned and BEE compliant companies.

The REIPPP scorecard for economic development to be met by all bidders is heavily weighted towards job creation (25%) and local content (25%); these two amounting to more than 50% of the available 7 elements. Given South Africa’s staggering unemployment rate, which sits at around 25%, the government has structured the procurement boundaries to speak to the issues of job creation and local content.

Israel Noko, CEO of NPI Governance Consulting, explains that, “These targets are significantly tougher to achieve than the DTI BEE compliance requirements. The local content element is a critical means of funnelling economic benefits through to the communities in which the renewable energy facilities are located.”
Requirements of local content were fashioned in a way which should deliver tangible benefits for local communities. In fact, according to Noko, organizations like the Industrial Development Corporation have earmarked local content to be as high as 60%.

The other 5 elements of the scorecard include ownership, which comes in at 15%, followed by preferential procurement and socio-economic development both at 15%, as well as Management control and Enterprise Development at 5% each. This hierarchy of criteria, different from the DTI Scorecard, speaks to the drive to derive increased human development value from these infrastructure projects.

While the locations for these projects will be determined by the availability of natural resources (wind, solar and water) it is essential that local content, via economic development wherever the projects are located is optimised.

“The REIPPP requirements are structured to compel project developers to relocate their manufacturing capacities to South Africa so that the additional targets of growing local employment opportunities and up-scaling skills are materialised.” Noko elaborates.

The strong emphasis on employing unskilled labour and building their capacity is different from other forms of BEE as this enables the ability to trade skill and generate income.

Development of a manufacturing base worthy of South Africa’s status as an emerging economy is key. Value-added processing is key to transforming South Africa’s economy from that of a producer of raw materials, to one which converts these to high value products. Introducing renewable energy to support new industries, as well as using investments of consortia to drive local industry will address issues such as rapid urbanization, as the need to move to urban centres for economic opportunities will subside.

Noko states that, “Introducing robust and innovative black industrialists into the value chain has opened up fantastic opportunities in this new industry. In the past, the participation of black industrialists was not to the degree that Government wanted. These targets will force changes on the economic landscape”.
Renewable energy is no different from other major drivers of South Africa’s economy and as such, high standards for economic empowerment should be held for this emerging industry.

“It is anticipated that many lessons can be gleaned from the successful bidders who obtained licences in the first window of the REIPPP process. Doing the bare minimum will no longer suffice, therefore investors, project managers and contractors will need to be increasingly competitive to meet economic development targets.” concludes Noko.