Pieter Kriel powers Thebe into the renewable energy market

In just two years, Pieter Kriel (PK), the chief executive of Thebe Power and Infrastructure, has skilfully steered Thebe Investment Corporation into South Africa’s newest industry, the renewable energy sector.

Thebe Times editor, Andile Ntingi (AN), speaks to Pieter about the future of the renewable energy and whether South Africa as an emerging economy can afford this alternative form of energy.

AN: Tell us about Thebe’s involvement in the renewable energy market. How did it come about?

PK: When Thebe Chairman Vusi Khanyile learnt that I was leaving Sanlam, he told me that Thebe had identified infrastructure as the next sector it was interested in establishing a serious foothold. This was in line with Government’s infrastructure development drive to meet the demands of a growing economy and population. He also indicated to me that Thebe had already started looking at renewable energy in partnership with Mainstream Renewable Power, a global player in renewable technologies, based in Ireland. He then invited me to start the Thebe Infrastructure division. In my Sanlam Private Equity days I had already started to look at renewable energy as a potential area for investment.
So I grabbed the opportunity with both hands as it dovetails with values as a keen environmentalist

AN: South Africa has vast reserves of coal which it uses to fire its power stations and cars. Our energy mix also includes gas, crude oil, and nuclear power, so why do we need renewable energy in this country?

PK: Government’s Integrated Resource Plan (IRP 2010) projected that South Africa requires more than 56 000 MW of new electricity capacity by 2030 in order to meet the projected demand and provide adequate reserves. A large component of new capacity needs to be in the form of renewable energy in line with South Africa’s international commitment to reduce its carbon emissions by 34% by 2020 and 42% by 2025. SA has one of the most carbon-intensive economies in the world, and at the same time our country has one of the best solar resources globally and significant wind energy potential in certain areas. We must always remember that our atmosphere can only absorb a limited amount of pollution while sustaining a viable climate for life on earth. The United Nations Environment Programme has developed a working definition of a green economy as one that “results in improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities. In its simplest expression, a green economy can be thought of as one which is low carbon,resource efficient and socially inclusive.”

AN: Eskom has held two rounds of competitive bidding to procure solar and wind generated electricity from independent power producers. What lessons has the industry learnt from the bidding process?

PK: The bidding is very tough and bid tariffs have come down substantially, especially in the case of solar PV, where the first round bidding at the end of 2011 saw an average tariff of about R2,75/kWh. The second round, which took place less than six months after the first round, produced an average tariff of R1,65/kWh, a fall of more than 40%. This is set to fall by a further 15% in the third round later this year. At the same time the local content requirements are increasing to extremely tight levels: for wind, with a 25% local content requirement in the first two rounds of bidding, but the third round will see this go up to 45%. For solar PV, the first two bidding rounds of the programme started out at 35% but this is due to be raised to 60% in the third bidding round.

AN: South Africa has been described by energy experts as the world’s most attractive green energy market? Do you share similar sentiments about the future prospects of the local market?

PK: Industry experts base this on the fact that South Africa attracted a total investment of US$5.5bn in renewable energy in 2012, which is a major increase from the few tens of millions of dollars in 2011. However, as stated above, the tariffs have come down substantially since, and at the same time the local content requirements are increasing to extremely tight levels. If this continues much further it will definitely temper the future prospects of our market.

AN: The renewable energy industry is expected to supply about 18 000 megawatts (17% of SA’s energy mix) of power to the national electricity grid by 2030? Is this output target realistic?

PK: With the first two successful bid windows behind us, we have experienced a rather coordinated and inclusive planning process and from that it is clear that our government is really considering renewables very seriously. Our experience thus far with the third bid window which closed on 19 August has shown much of the same commitment from all participants and there is therefore no reason at this stage to doubt the achievability of the targets.

AN: It takes about 10 years to build a new coal power station. How long does it take to build a solar or wind power plant?

PK: It takes 12 to 18 months to build a solar or wind power plant.

AN: When are the independent power producers expected to start supplying renewable energy to the national grid?

PK: Our projects will produce renewable energy by April/May next year. There are other projects which may come on stream earlier.

AN: There has been talk that renewable energy is expensive. Is this a fair assessment and can we afford it?

PK: There has been a lot of debate and calculations on this. Energy regulator, Nersa, has calculated the cost of coal power from Medupi at 97c/kWh (excluding the cost of pollution), whereas Window 2 wind power was procured at 89c/kWh. The weighted average cost for wind and solar PV for Window 2 will be approximately 112c/kWh. As indicated before, the trend for renewable energy tariffs is downwards. What one should also take into consideration is that renewable energy projects include an investment in social upliftment, job creation and community development, plus a unique 1% tax on capital expenditure.
In terms of the REIPPP rules, 3-5% of ownership must lodge with local communities, 1 – 1.5% of turnover must be spent on socio economic development (usually rural areas) and 0.6% of turnover must be spent on enterprise development. Commitments like these are not currently expected from other energy generators.

AN: As a new industry, the renewable energy sector has been likened to the cellphone industry – which emerged in the early 1990s – in terms of its potential as the next big thing. Where do you see this industry in the next 10 to 20 years?

PK: I think from what has been mentioned earlier, this industry is certainly growing at an extremely fast pace and will be a significant part of our economy in the next 10 to 20 years.

AN: There has been talk of the renewable energy sector creating thousands of green jobs. Where are these green jobs going to come from?

PK: The Green Jobs report by development financiers the Industrial Development Corporation (IDC), Development Bank of Southern Africa (DBSA) and economic think tank Trade & Industrial Policy Strategies (TIPS) estimates that renewable energy has the potential to create 130 000 new direct jobs by 2025. These jobs will be generated in the construction and installation, manufacturing of plant and equipment, and operations and maintenance. According to the report, these estimates took into account that grid development will form an integral part of new generating capacity development, a whole new power sub-industry will have to be developed, and that a significant number of jobs will be created by the demand for development, consultancy and engineering services, as well as in financial services and research and development activities.