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R11.5 billion from renewable energy projects benefiting local communities

By Holle Linnea Wlokas on 7 May 2014

The decentralised and localised nature of renewable energy power generation offers the potential to couple energy security and carbon emissions reduction goals with socio-economic developmental aspirations. Renewable energy projects under the Renewable Energy Independent Power Producer Procurement (REIPPP) programme are obliged to make a real contribution to local economic development in the immediate area of the wind, solar and other renewable energy power plants and the procurement rules stipulate that projects spend a percentage of their revenue on socio-economic and enterprise development, as well as allocate ownership shares to local communities.

Projects from rounds one and two of the competitive bidding process had to allocate between 1 and 1.5% of their projected revenue towards socio-economic development (SED), and a maximum of 0.6% towards Enterprise Development (ED). Developers also had to allocate shares to local communities, with between 2.5 and 5% of the ownership required to lie with a legal entity representing local communities within a 50km radius of the project sites. Project applications submitted for round three were permitted to allocate even more percentages to these elements, if they wished to.

The aim is that funds allocated towards SED be invested into socio-economic development measures around the renewable energy sites and projects are asked to assess the needs in the proximity and develop appropriate response measures. Enterprise development funds are to be invested in support of small and medium enterprises and dividends from the ownership shares are required to be invested for the benefit of local residents.

Under the REIPPP, South Africa currently has 64 approved wind, solar, small hydro and bioenergy projects at various stages of development, with many of the round one projects starting to come online. These plants have contracts to generate electricity for 20 years and the cumulative commitments made towards SED and ED amounts to a substantial R11.5 billion over this period. The distribution of this amount varies across provinces depending on the number of approved IPP projects within each province. The Northern and Eastern Cape stand to benefit the most under the first three rounds of the REIPPP. The former with 32 Independent Power Producers (IPPs) is going to receive over R7 billion, whilst the Eastern Cape with 13 IPPs is going to benefit from roughly R2.5 billion. Just under R1 billion is going to be invested in the Western Cape and less than half a billion in each of the Free State and Limpopo provinces.

Under the REIPPP, the developers have been tasked with deciding on how these funds are governed and spent with clear stipulation that the funds need to be invested into socio-economic and enterprise development measures that benefit previously disadvantaged communities around the projects.

Funding from these projects provides a great opportunity for long-term, localised measures in support of the national development goals such as those identified in the National Development Plan. Every effort should be made to ensure that such measures are strategically aligned with local, district, provincial and national government policy. Sustainable measures should foster the transformation towards a low-carbon economy on a local level with the result that low-carbon community development would guide investments to greener decisions and employment of appropriate technologies such as solar water heaters instead of electric geysers.

Holle Linnea Wlokas is a PhD Candidate at the Energy Research Centre, UCT

SED and ED commitments per Province of approved BWR 1-3 IPP’s

Source: Authors analysis of procurement data accessed through the IPP-unit in collaboration with National Treasury and the Department of Energy

Province

ED allocation
p90 scenario accumulated 20 years

SED allocation
p90 scenario accumulated 20 years

SED and ED

Eastern Cape

R 481 030 913,32

R 1 999 500 021,47

R 2 480 530 934,79

Free State

R 151 046 154,90

R 312 541 031,23

R 463 587 186,13

Limpopo

R 110 652 022,48

R 284 123 050,28

R 394 775 072,76

Northern Cape

R 1 636 016 841,93

R 5 468 988 710,64

R 7 105 005 552,57

Western Cape

R 216 263 290,05

R 624 280 745,62

R 840 544 035,67

other

R -

R 131 171 966,49

R 131 171 966,49

Total

R 2 595 009 222,68

R 8 820 605 525,73

R 11 415 614 748,41

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