French solar power generation company, Solairedirect, last year invested in a photo-voltaic manufacturing plant in Cape Town, South Africa. How we made it in Africa spoke to Ryan Hammond, Solairedirect Southern Africa managing director, about the reasons why the plant was set up in South Africa and the future of renewable energy in the country.
Why did Solairedirect specifically decide on South Africa to set-up its solar panel manufacturing plant?
Solairedirect is a solar power generation business. In other words, the aim of the entire business is to generate electricity from solar sources, which is then sold back to the grid. The way we usually do that is by developing, building and then operating large solar parks. These will be a new phenomenon in South Africa, but in Europe, North America and parts of Asia, they are very well established. The typical plant generates around 10 to 15 megawatts (MW) of electricity although some of the large facilities in Spain have a capacity of up to 80 MW.
If you look at the capital cost of these projects, about 70% is made up just by the cost of the solar panels. So it is by far the largest cost element in the project. Therefore, if you manufacture your own panels, you have a better control over the cost than if you were buying them from another supplier. This is the first reason why Solairedirect decided to manufacture its own panels and is the reason why Solairedirect Technologies was set up by Ajay Lalla and his team.
The second reason is that it allows us to control the quality of the panel, which has a massive influence on how much electricity we generate. The quality determines the money we make from a panel.
Then thirdly, the timing of the arrival of the various key components that go into the construction of a solar farm is critical. At one stage there was a shortage of supply of solar panels, which meant that you had to sit halfway through construction and wait for your solar panels to be delivered. By manufacturing our own panels we therefore have control over the supply.
For these three reasons the company made the decision to produce its own solar panels. Once that decision was made, the next choice was where would be the most appropriate place to do this.
The company felt that South Africa is a good location to match Chinese-style pricing with European levels of quality. Cape Town is also not a bad place if you want to put something in a container and ship it to the four corners of the globe. It is actually quite central. So from that perspective it was a good place to locate our first plant.
At the back of the company’s mind was also the fact that the South African electricity market is reforming. So the company foresaw the opportunity that one day there might be a market for electricity generation from solar power in South Africa.
Does the company currently have any solar generation facilities in South Africa?
There are no grid-tied systems at the moment. Basically we are waiting for the roll-out of various pieces of legislation, mainly the Renewable Energy Feed-In Tariff (REFIT) programme.
In South Africa, Solairedirect actually has two separate businesses. We have Solairedirect Technologies, which is the manufacturing unit, and then there is Solairedirect Southern Africa, which is the power generation business covering the entire Southern African Development Community (SADC) region.
Are there plans to set-up solar farms in other sub-Saharan African countries?
From the power generation side of the business, we already have a subsidiary set-up in Namibia. We are also working on projects in Botswana and Mozambique. We also had some enquiries for a project in Kenya. None of these projects have been built yet. But hopefully by end 2011/early 2012 we will have our first project completed.
What do you think of the South African government’s proposed REFIT programme?
If you take the pressures on our government in terms of using the limited resources they have to appease the needs of so many people, I think it is quite admirable what they’ve proposed to do. The fact that they actually managed to find money to kick-start a renewable energy industry in South Africa, for me, is quite impressive. There are not many emerging market countries that have managed to do so to date.
Clearly the challenge is that we don’t have a limitless supply of funding, so that is going to put a cap on the various renewable technologies. From that perspective it remains to be seen what caps are actually going to be placed on each technology. If, for instance, they say that there is a 30 MW cap on solar power, not much will happen and you’ll only have a couple of projects here and there. However, if they were to make the cap more than 100 MW, I think you’ll then have the start of a genuine local industry.
What they have proposed so far seems feasible and a fairly pragmatic approach to the process. Of course the proof is in the pudding. I think they need to be careful to make sure that it remains worthwhile for private companies to invest. And at the same time they need to be prudent in the amount of money they spend on it. I don’t envy their task, it is a difficult one.
Having worked in the UK for many years, what would you say are the unique challenges associated with running a business in South Africa?
South Africa’s Black Economic Empowerment (BEE) requirements would be something fairly new for most people looking to invest in the country. However, I don’t believe it is a particularly complicated issue. It is more an issue of finding the right local partner. But that is often part of any natural business process anyway.
One of the other things that most people would not be used to is South Africa’s high interest rates. The cost of debt in South Africa has a far greater impact on your business model than it does in Europe.
In addition, the renewable industry is something that is new to South Africa. When it comes to recruitment you can’t just wander out and find people who have ten years experience in developing solar projects.