South Africa: SA's Energy Success Story Could Spark A Chain Reaction Across Africa

Last Updated: 5 April 2012
Article by Greg Nott

Current developments in South Africa's energy sector, particularly in renewable energy, are galvanizing potential investors and sending powerful signals to other African nations seeking to attract energy investment.

There is no doubting the success of the country's first bold steps towards encouraging private sector participation in energy investment. As South Africa's Energy Minister announced at the recent Energy Indaba 2012 in Johannesburg, international investment worth about R50 billion has already been pledged for the Renewable Energy Independent Power Producers Bidding Programme.

What's more, three more bidding windows are still on the horizon. Considering the eagerness with which investors participated in windows 1 and 2 of this programme, there is every reason for optimism about the next three phases, due to proceed later in 2012.

Investors, advisors, sponsors and environmental specialists, among others, have flocked to take part in the Bidding Programme. This is a clear reflection of the Department of Energy's capable handling of an extremely intricate bidding process.

In August 2011, the Department invited private investors to submit proposals for financing, constructing, operating and maintaining renewable energy generation facilities. The first two bidding windows, which closed on 4 November 2011 and 5 March 2012 respectively, focused on solar and wind energy projects. In the remaining three windows, other technologies will also be explored, such as biomass, biogas, landfi ll gas, cogeneration and small hydro.

Flawless execution inspires investor confidence

So far, the programme has been immaculately executed, with industry watchers noting the Department's comprehensive bid specifications, inclusive consultation process and disciplined approach to deadlines, not to mention the integrity of the process of selecting preferred bidders.

This administrative efficiency has gone hand in hand with high-level political support throughout, viz the Minister's speech at the Energy Indaba. This speech showed a keen understanding of the importance of creating an inviting environment for investors through policy stability, clear and consistent regulation, and the creation of viable opportunities for achieving sound investment returns.

The Minister said government was in the process of facilitating the establishment of the Independent System and Market Operator AFRICA LEGAL BRIEF SERIES | MARCH 2012 SAs energy success story could spark a chain reaction across Africa By Greg Nott, Director (ISMO) through legislation. She said ISMO's role would be to procure power from the Independent Power Producers so as to level the playing field and eliminate conflict of interest between the buyer and seller of electricity. This would protect all players from potential market abuse and achieve efficiencies not normally associated with monopoly utilities.

Government should always be the champion in setting the scene for private sector participation and in this case certainly, it has fulfilled that role well. By creating an enabling environment, the authorities have ensured that investors will come – and in impressive numbers too. No fewer than 53 bidders responded to the first bidding window and 28 preferred bidders were selected. The second window attracted 79 bids, with on announcement on the selection of preferred bidders still pending at the time of writing.

The ripple effect of South Africa's success

The deft handling to date of the Renewable Energy IPP Bidding Programme has definitively showcased African ability to mobilise and orchestrate an extremely complex bidding process. The significance of this exercise goes well beyond the borders of South Africa: if it can be done so competently in South Africa with a cutting edge field such as renewable energy, there is no reason why this success story cannot be mirrored elsewhere in Africa - and sooner rather than later.

The need to roll out affordable, accessible energy in Africa is understandably a pressing priority on a continent where energy poverty is so widespread. According to the World Energy Council, up to 70% of the population of Sub-Saharan Africa still lacks access to electricity. This affects all facets of people's lives, from health and education to housing and the ability to earn a living.

Small wonder, then, that energy poverty is so high on the African agenda, continent-wide.

According to the World Energy Council, which used the recent Energy Indaba as a platform to release the results of its survey among African energy leaders, energy poverty is seen as a more critical issue in Africa than in any other region.

The survey also found that Africa is the region showing the most concern about the use of water - an extremely scarce resource on the continent - in electricity production. The concern is that the use of water-cooled energy generation could deplete water supplies to the point where there will simply not be enough water for people and power plants.

Strong interest was noted in renewable energy and energy efficiency among African leaders. However, leaders acknowledged various constraints that could hold back the development of renewable energy projects, including the dearth of appropriate skills, governance issues, corruption and, of course, the ever-present challenge of funding.

Among other things, energy leaders voiced concern that the poor global economic outlook had deflated investor confidence in energy projects, which are capital-intensive, especially in renewable energy.

Time for innovative approaches to funding

The magnitude of the funding needed for African energy projects is massive. In Nigeria, it is estimated that between $85 billion and $90 billion will be required in the next few years to bring the country to the power provision level of South Africa. In turn, South Africa is planning an investment in the order of R300 billion for its energy sector, which is on the verge of unprecedented change given the limitations of the national energy utility.

Traditional sources of funding from the banks will clearly not be sufficient to raise the vast amounts required and African countries will have to devise innovative ways to raise financing. Not only will the types of financing have to be diversified, but so will the funding players and the way they participate. The emphasis will have to be on African-oriented funding solutions that fit African scenarios – bearing in mind that Africa is a continent of 54 countries, not a single amorphous mass where one size fits all.

Again, South Africa serves as an example of how things can be done differently. While all the major banks are involved in the Renewable Energy IPP Bidding Programme, other agencies such as the Development Bank of Southern Africa (DBSA) and Industrial Development Corporation (IDC) have also stepped in. Both the DBSA and IDC have come to the table with substantial funding to support black economic empowerment entities and partners, as well as a number of international investors.

Certainly, private investment will be an increasingly important part of the African energy mix, not just as a source of capital but also skills and technology transfer. As South Africa's Minister of Energy pointed out at the Energy Indaba, the continent is well endowed with renewable energy sources such as solar and wind. The challenge now is to develop these resources to their full potential.

To do so, African governments must continue paying close attention to creating conducive investment conditions in their countries. Investors emphasise political and regulatory stability as a major consideration when making investment decisions. They want to know that no matter what political or economic change might occur, their investments will be protected through a genuine commitment to the rule of law and the existence of clear legal frameworks that have the backing of the courts.

It is not change in itself that deters investors but arbitrary change. Experience shows that investors are comfortable with change as long as it occurs through a legitimate, predictable process.

Increasingly, African countries are responding to these expectations by implementing regulatory reforms to attract foreign direct investment. For example, 12 of the 15 member states of the Southern African Development Community (SADC) have a specific laws governing private investment or have established a one-stop investment promotion agency.

Countries such as South Africa, Lesotho and Botswana have no specific FDI legislation, but have liberal investment regimes. FDI legislation is under review in Namibia, Seychelles and Zimbabwe, while Botswana's Industrial Development Act, which deals with licensing, is also under review.


As a continent with enormous natural resources of solar energy, wind and hydro-electric power, Africa's energy sector is ripe with opportunity. Allied to the excitement around renewable energy is the discovery of gas fields in several parts of Southern Africa, including Mozambique, the Namibian coast and Tanzania. Indeed, indications are that gas could be the next big gold rush.

Through its Renewable Energy IPP Bidding Programme, South Africa is pointing the way for countries throughout Africa to capitalise on their natural energy resources and attract private sector investment. While there is no single magic formula in a continent as diverse as Africa, South Africa has shown that following a few simple ground rules can give investors the reassurance they seek and open up pathways towards achieving energy security for citizens.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions