South African Biogas & Waste-to-Energy Investment Strategy

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As proud stakeholder in South Africa’s gas to power industry, SustainPower were fortunate to be invited by GreenCape to an overview of the country’s biogas and waste-to-energy market. In conjunction with UNIDO, the national biogas market overview looked at what has been accomplished, and what can be done to scale the burgeoning industry in the country, and indeed, in Sub-Saharan Africa.

Whilst the summit was held in Johannesburg as a centrally convenient location, an overview showed that almost half of the existing biogas projects that have been built and commissioned in the country are found in the Western Cape province. A breakdown of 28 projects saw that the majority were found in livestock, abattoirs, and food & general waste; whilst on-site water treatment, organic waste treatment and on-site waste processing were all highlighted as tremendous market opportunities.

The market potential has been spoken of for many years, and it is true to say that the region could potentially provide over ten thousand megawatts of power to the South African grid, but implementation has been slow moving. The question is: How can we turn this potential into a reality?

The challenges of cheaper electricity alternatives, whether they be coal or other renewables which yield lower costs, are still a stumbling block in the gas to power sector. But in truth, the greater factors are legislative and financial. Capital costs of biogas systems are often beyond the average client, whilst the existing legislative process requires a streamlining that would be akin to the recent removal of red tape in the solar PV industry. Some of the worst load shedding in living memory has seen the swift and immediate action of national government. The overwhelming burden of drawn-out decision-making, excessive bureaucratic boxes to tick and a general lack of urgency are seemingly a thing of the past. Such a move in gas could revolutionize the market overnight.     

As for the investment strategy, the various parties to the discussion outlined three necessary stages. The first stage is to complete a market analysis and review both the municipal market and the industrial, commercial, & agricultural. This also involves engagement with investors to determine the financing landscape and availability of funding to get projects off the ground.

The second stage involves recommendations and interventions required for us to develop the pipeline of projects and see them come to fruition. Over the next five years, focus on the sources of financing and financial instruments are crucial, whilst the fifteen-year landscape requires an impetus on policy and regulatory recommendations. One sanction would be for tax breaks to be afforded to gas to power projects. Much like the Section 12B tax incentive (found in the Income Tax Act, No. 58 of 1962) turned ‘average’ solar PV business cases into outstanding business cases with haste, the same benefit could open the proverbial floodgates to biogas investment.  

Essentially, it was agreed that the climate finance component of power projects may be the key to unlocking hundreds of biogas projects in Southern Africa. Potentially, there is up to R6 billion of green finance available, but scaling has been an issue. Two primary areas of energy provision have been underlined: less than 500 kW and up to 5 MW per project. For banks and financiers who are used to utility-scale solar and wind projects, gas’ smaller ticket items are not necessarily met with enthusiasm. A realistic compromise may be found in the bundling of several smaller, successful, and sustainable gas to power sites.  

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