The programme emerged from the integrated development plan that maps out South Africa's energy future to 2030. Eskom's need to procure renewable energy arises from South Africa's international commitment to reduce greenhouse gas emissions by 34% by 2020.
The procurement programme involves competitive bidding over a feed-in tariff. If a power producer is selected, it can sell renewable electricity to the grid under 20-year power purchase agreements signed with Eskom but guaranteed by the government.
In general terms, electricity generated from wind, solar, hydro and other renewable sources is sold at a premium, above that of electricity generated from coal-fired power plants. As we have seen, this premium is rapidly decreasing in relation to the two main renewable technologies, onshore wind turbines and photovoltaic (PV) solar plants, and looks set to disappear. Both onshore wind and the solar PV have the holy grail of grid parity well within their sights.
Still, to the extent that a renewable power producer does not have any demand risk — Eskom is obliged to purchase everything it produces — there is a subsidy. And the existence of a subsidy of any type pushes governments to look at building a local industry that provides other benefits. The procurement programme places considerable emphasis on local content to ensure that the economy benefits from the construction of renewable energy facilities. All project developers must comply with the local content requirements.