Economies aim to expand over time, which always implies the need for increased energy availability in support of this growth. Governments can use their procurement of energy generation to further enhance the benefit to their economies via certain policy tools. One such tool is Local Content Requirements (LCR) where procurement of a good dictates that a certain value has to be sourced locally. The argument for this tool is that spend is localised and manufacturing, as well as job creation, can be stimulated due to industry establishing in the host economy. However, this practice is distortionary in effect and it does not create a fair playing field for global trade. Furthermore, if the local content definition is weak, or open to manipulation, the goals of such a policy may not be achieved at all. This study looked into the local content requirements of South Africa’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) and measured the impact of this policy on the renewable energy sector in general. It was found that, in order to implement a policy such as local content, the host economy had to have certain pre-existing conditions in order to avoid any negative welfare effects. Due to SA not holding all supportive pre-conditions for supporting local content policy, the impact and effect of LCRs has not been optimal and it has not been found to be a sustainable mechanism to continue using into the future indefinitely. The pricing of renewable energy was also found to be higher due to local content and such pricing is passed on to the energy consumer. Therefore, the net welfare impact created for South Africa is diminished in exchange for the creation of jobs and manufacturing, but due to the unsustainability and potential manipulation of the system the country is not maximising the welfare potential from the REIPPPP as it should. It was found that SA renewable energy resources do exist and the logistics infrastructure is strong, providing good potential for investment into renewable energy projects. The demand created by the REIPPPP provided a good market, but there was uncertainty in the long term planning and stability. So, from a market perspective this could be further enhanced. Government had created a sufficient platform for investment, but areas of development such as clusters, R&D and skills training would create a better support environment for LCR policy and strict monitoring of this would also be required to prevent any manipulation. The use of LCRs increases project costs and risk, which is passed onto the energy consumers, but this could be reduced if local goods were more readily available at the right price and at the right quality and quantity. Focus on clusters would once again assist in this regard as independent power producers (IPPs) and engineering procurement and construction (EPC) entities would be able to source components and goods locally in a more cost-effective manner. As the LCRs currently stand in the REIPPPP, it would seem that South Africa is making renewable energy more expensive and although it is argued that this is done for the benefit of creating a new industry and jobs, these are not sustainable and so the current LCR policy will only create short term benefits.
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:nmmu/vital:21043 |
| Date | January 2016 |
| Creators | Ettmayr, Christopher |
| Publisher | Nelson Mandela Metropolitan University, Faculty of Business and Economic Sciences |
| Source Sets | South African National ETD Portal |
| Language | English |
| Detected Language | English |
| Type | Thesis, Doctoral, DCom |
| Format | xxiv, 358 leaves, pdf |
| Rights | Nelson Mandela Metropolitan University |
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