South Africa prime for renewable energy investment conditions

South Africa has been ranked tenth among G20 countries for renewable energy investment opportunities. According to the Allianz Climate and Energy Monitor 2017, it scored highly for its depth of capital markets, even though a high inflation forecast brought down the overall score. The country has steadily increased its renewables capacity in recent years and has a relatively high presence of leading renewable energy business. The report examines the needs and investment climate for all G20 countries regarding renewable energy. Germany, UK and France maintain the top three positions in the 2017 edition. They combine a largely supportive policy environment for renewable energy with a mature market and adequate general investment environment. However, Simone Ruiz-Vergote, managing director at Allianz Climate Solutions, comments: “Emerging economies are increasingly taking on a leadership role and are credibly enhancing their renewable energy financing frameworks. “China, India and South Africa are keenly interested in improving their attractiveness for investors in renewable energy, and they clearly managed to do so in 2016. Their prospects are good if policy support and market capacities are maintained.” With roaring renewable energy markets and a consistent policy push, China installed more solar photovoltaic than the rest of the G20 combined in 2016. India, South Africa, Brazil and Indonesia emerge as high-need hotspots owing to increasing demand for energy, sheer size and vulnerability of the existing power system to a changing climate. South Africa has a national strategy to tackle climate change. However, the country needs to increase its ambition level and put together a plan to decarbonise the electricity sector. The current auctioning system available in the country is insufficient to create a level playing field for renewables compared to the fossil fuel electricity infrastructure, notes Allianz. Renewables are now attracting the bulk of new power investments of the G20 growing by approximately 25% annually during the past five years. Continuously falling technology costs have supported this strong increase. In some countries renewables passed a tipping point, reaching cost competitiveness with conventional energy sources. “Even with falling prices, a supportive policy environment for future growth of renewables is needed to provide reliable legislation for investors,” comments Jan Burck from Germanwatch, co-author of the report. “With the first hurdle taken in cost competitiveness, governments now need to adjust their power systems and market design to cope with an increasing share of weather-dependent renewables,” adds Professor Dr Niklas Höhne, founding partner of the NewClimate Institute and co-author of the Monitor. Allianz believes insurance companies can make a considerable contribution, as well capitalised investors with a long-term investment horizon and necessary risk management expertise. Infrastructure investments are well suited for insurers’ long-term commitments to their life insurance clients, it adds. “Reliable and stable regulation enables access to larger pools of capital at lower cost. Hence, an integrated approach can help reduce the costs associated with the shift to a low carbon economy,” confirms Axel Zehren, chief financial officer at Allianz Investment Management.

South Africa prime for renewable energy investment conditions

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