Foreign investment is flipping the switch on the energy crisis

With companies around the globe highlighting South Africa as a key market for their renewable energy investment, Antonie van der Hoek, Partner at BDO, and Nato Oosthuizen, Partner and Renewable Energy Expert at BDO, discuss the benefits of Foreign Direct Investment (FDI) and the importance of buy-in from all stakeholders to ensure sustainable growth and development of the renewable sector.

As a significant number of South Africa’s unreliable coal-fired plants are retired and government opens up the power sector, the opportunity for international investors looking to expand into the country’s renewable-energy industry is ripe. This is positive news both in terms of the potential to alleviate loadshedding woes and in giving the economy a much needed boost.

In terms of renewable energy FDI, South Africa attracts the most projects on the African continent. Between 2004 and 2022 the country received 119 renewable energy projects, representing a value of $20bn. A continued focus on strengthening our energy resilience will not only relieve the pressure created by loadshedding, but also contribute to more investment and economic growth, while driving a clean energy transition.

Increased FDI facilitates job creation, skill development and introduces technologies from all over the world. FDI also helps create a competitive environment by breaking domestic monopolies and is critical to boosting economic growth and financial sustainability. However, for us to benefit from true sustainability, not only when it comes to the generation of power but also economic development, a long-term view is crucial.

The renewable energy investment space makes sense for a broad spectrum of foreign investors. South Africa’s abundant sunshine, strong winds and wave energy makes it rich in renewable energy sources. The country has consistently been rated as an evergreen global investment destination for renewable energy that offers a solid cash flow return. Attracting investment is not the challenge.

Our country’s problem has never been a shortage of natural resources. Rather, growth has been stunted by the inability of stakeholders to make the most of them. There simply has not been effective collaboration or a cohesive approach that creates an environment for renewable energy projects to thrive.

Much of the responsibility to create these optimal environments falls to government, but sustainable progress is unfortunately being hamstringed by bureaucracy. A national energy crisis committee which was set up about six months ago aimed to push through a plan to end power cuts and significantly cut red tape, but any real benefit is still to be seen.

Policies must establish transparency and predictability to effectively mobilise and channel the surge in investment. Government must be crystal clear in the laws that they make and potentially relook at their incentive structures to attract and retain foreign investors. The struggle right now is there doesn’t seem to be a clear voice that isn’t being lost in politically driven noise.

Eskom has listed its biggest priorities for the next two years as solving the systemic issues that have been plaguing the entity over many years, and doing so in a holistic manner. But is this simply more lip service? Investors may be hesitant to take the risks associated with waiting to find out.

Should it not rather be focusing on shifting its inflexible policy regime so that global investment in South African providers can continue, and even potentially move into other avenues such as hydrogen power for example. Hydrogen offers an unparalleled solution for clean energy and the country is in an extraordinary position to revolutionise our economy by supplying green hydrogen to the world.

A robust policy and transparent legislative framework are crucial to instil confidence and clear the path for long term investors. The private sector, together with foreign stakeholders, has the capital, combined with the will, and skill to develop substantial renewable energy resources. We have the way and the means to shift the power crisis, it’s time the red tape that is hindering any real progress is removed.