By Jack Ward, MD of power provisioning specialist, Powermode

Renewable energy will undoubtedly play a key role in South Africa’s eventual transition to a sustainable energy economy, with all its citizens having access to a reliable source of electricity.

However, while the world has steadily increased its embrace of renewable/ sustainable energy sources over the last decade, South Africa has lagged behind, hampered by a number of barriers, including high up-front implementation costs of solar, wind and other technologies.

The landscape is changing. Today’s renewable power generation technologies are increasingly cost-competitive and they are now seen, from an economic standpoint, as viable options for off-grid electrification in certain circumstances.

Today, renewable power generation technologies account for around half of all new power generation capacity additions worldwide. In 2011 these additions included 28,000 megawatts of solar photovoltaic (PV) power along with wind, hydro, biomass, concentrated solar and geothermal power.

This rapid deployment of these technologies has had a significant impact on costs. For instance, for every doubling of the installed capacity of solar PV systems, module costs decrease by as much as 22%.

In the last two years alone PV module costs fell by around 60% to below one (US) dollar per watt. The price of crystalline silicon (c-Si) renewable modules is marginally higher at just over one dollar per watt.

This evidence is a sure sign that the renewable revolution is underway, gathering momentum and in the process of sustaining a virtuous circle of rapidly declining costs. As more installations spring up, so the price decreases further.

Renewables are becoming increasingly competitive with grid-supplied, utility power prices.In Germany the costs of installed rooftop systems fell by 65% between 2006 and 2012, making solar PV competitive with current residential electricity tariffs in this country. In South Africa, with its high (and climbing) electricity costs, solar PV installations are rapidly gaining grid parity.

In fact, the levelised cost of electricity (LCOE) of solar PV (the ratio of lifetime costs to lifetime electricity generation, both discounted back to a common year using a rate that reflects the average cost of capital) is declining to a point where it will soon be seen as the most economic solution for off-grid electrification and grid extension in most areas.

There are four major components that largely determine the levelised cost of electricity for renewable power generation technologies – resource quality, equipment cost and performance, the balance of project costs and the cost of capital.

Each can vary significantly between individual projects and countries. And each component can typically make a difference of a factor of two, in some cases even more.

In remote locations in South Africa solar PV is already the best option and its increasing application will help the country meet many of its economic and social development goals. For example, solar PV can be significantly cheaper than (currently common) diesel-fired power generation in areas characterised by poor or even non-existent infrastructure and where lengthy transport routes can increase the cost of diesel by 10% to 100%.

It is also important to note that rooftop solar PV and small wind generating installations can provide new capacity without the need for additional transmission and distribution investments and therefore should not be directly compared with large utility-scale renewable solutions.

If these trends continue, grid parity with residential electricity tariffs will soon be the norm, rather than the exception across South Africa. Solar PV also has the advantage that, once the domestic installation market is developed, solar PV installations can be ramped up rapidly to meet policy goals or electricity sector needs. No other power generation technology shares this flexibility.