Despite concern over increasingly onerous local content stipulations, the local lending market is well positioned to fund the solar projects being procured by the South African government under its Renewable Energy Independent Power Producer Programme (REIPPP), Standard Bank power finance head Alastair Campbell argues.

The ability of local banks to continue to lend into this market, he says, will be driven by their ability to distribute what debt they have lent to projects selected during the first two bid windows of the REIPPP.

Speaking at the second yearly Solar South Africa Conference, in Johannesburg, Campbell added that the requirement for a rand-based tariff had more or less dictated that domestic banks be the primary source of funding.

The REIPPP, which was initiated in August 2010, effectively initiated the procurement of the first renewables capacity as outlined in government’s Integrated Resource Plan (IRP), which envisaged that renewables would comprise 42%, or 17.8 GW, of all new power generation added by 2030. This allocation has been further broken down into 8.4 GW from solar photovoltaic (PV), 1 GW from concentrated solar power and 8.4 GW from wind.

During the second bid window, the local content target for projects had been increased from the initial 45% level and it was expected to rise to 65% during the third bidding round, which is currently scheduled to close in late August.

Compliant bids were being evaluated on price (70%) and economic development (30%), with the scorecard for economic development emphasising job creation (25%), local content (25%), ownership (15%), management control (5%), preferential procurement (10%), enterprise development (5%) and socioeconomic development (15%).

Solar PV ownership targets typically comprised 20% to 40% shareholding by black people in the project company, 2.5% to 5% shareholding by local community groups in the project company, 8% to 20% shareholding by black people in the contractor responsible for construction and 8% to 40% shareholding by black people in the operations contractor.

Campbell expected that wind would achieve grid parity with State utility Eskom’s blended wholesale tariff by 2014/15, while solar PV might achieve grid parity by 2018/19.

Should the National Treasury introduce a carbon tax, the competitiveness of renewable energy would rise further.

“In the medium- to long-term, solar PV is set to become highly competitive in the South African energy space,” he noted.