Quick Summary
We may have been in lockdown but RiA has kept busy all along. Engaging with industry leaders and capture valuable insights to help all of understanding what Africa will emerge in the post-COVID era. In this podcast, we’ve met with Prashaen Reddy, Principal at Kearney and Director on the board of the South Africa National Energy Association (SANEA).
We covered important aspect, especially:
• The importance of Renewables for Africa and the World
• The Renewables situation in South Africa
• The impact of oil & gas prices drop for the sector
• The lessons to learn from international examples regarding the green recovery.
Do enjoy the interview. Click HERE.
INTERVIEW
RiA: Hello, everybody. We are having somebody very interesting from the continent. We are talking to Mr. Prashaen Reddy. Hello, Prashaen. How are you?
PR: Hi, Tony, I’m doing very well. Thank you very much for inviting me to your podcast
RiA: I have to say it’s an honor. But just to set the context, just to say that obviously we live in a particular time for the continent, but also for the world. So, anybody is asking questions about what’s going to happen to the industry, what’s going to happen to renewables? What’s going to happen to people first and healthcare?
We are not healthcare specialists, although energy feeds quite well into healthcare. But what we know is the current crisis is having tremendous impacts. We were you and I talking about the emergence of a new world, right? So that’s what we’re going to be talking about today. So is that okay with you Prashaen?
PR: Yes. Perfect.
RiA (Q1): Okay, just to give justice to the fantastic career you’ve been able to accomplish so far. Would you mind please introducing yourself and the companies you’re working for?
PR (A1): Yes. Thanks, Tony. I think just by way of introduction, so yes, Prashaen Reddy. I’m a principal at Kearney, which is a global management consulting firm and we do work in many industries, but energy is one of our bigger industries. I lead a lot of our work on the African continent as well as in the Middle East, but have done some work as well in the US and in Asia as well in the energy space. I’ve been in this industry for 16/17 years.
And I also work with the South African National Energy Association which is where I’m a director on the board and there we really focus across energy topics from nuclear to coal to gas to oil and to renewables. And as it’s been a significantly growing portion of where we are going with energy. Yeah, and I enjoy—I think there’s great opportunity in Africa and I enjoy working with clients, with communities in how we can unlock and enable energy, as the lifeblood, what I believe will be growth for Africa.
RiA (Q2): We’re definitely talking to the right man here. So before we dive more into the questions of COVID, let’s step back a bit. According to you, why is renewable important for Africa and the world, especially Africa, and South Africa?
PR (A2): Yes. So I think in other forms of energy feedstock like oil and gas, coal is really dependent on, one where the feedstock exists. So the energy is generated by either having oil or importing it, or gas or coal etc. Large scale, big infrastructure programs will unlock and really create energy for those particular commodities. But if you look at renewables, it’s a very different story. So renewables, if we can switch off the sun, we know that would be nice, but we can’t, right. So, we have a resource that is abundantly available to us in many regions of the world and including in Africa that can be utilized in various areas in remote parts in wherever you like to closer to communities, powering communities, you can imagine the benefits of being able to modularize energy. Let’s call it that, and where you can distribute it to where it’s needed. And so therefore, the dependency on how you build infrastructure, how you invest in infrastructure, and how you get energy to where it needs to go is very different compared to gas and oil and other energy resources. And, of course, then there’s the environmental agenda, which everybody fully understands. Renewables is around protecting our environment and reducing our emissions and making the world a greener place to work.
So, in my view, it’s certainly going to provide and unlock opportunities for countries that are not resource rich, in terms of oil, gas coal, and countries that are. The cost of developing renewables projects has really fallen and it’s very competitive nowadays to introduce renewables into the energy mix. There isn’t a reason why we shouldn’t be doing more of it, other than the challenges on storage. There’s a lot of research and development going into enabling renewables to be a base load type energy, where you can actually have it when you need it, and not just when the sun is shining, or the wind is blowing. You need to obviously think about it as well but I do believe it has the ability to enable our energy distribution much more going forward.
RiA (Q3): You sit on the board of the South African National Energy Association. Can I ask you, prior to COVID, what was the situation for renewables in South Africa?
PR (A3): In South Africa, we launched a renewables independent power program. about 5/6 years ago, maybe a little bit longer. That’s been very successful. We’ve procured a lot of renewable energy in the country, a lot of new players have been introduced, and really a market starts to be created. But the biggest challenge we have is how do we balance that with typically a very closed electricity system managed by an incumbent company generating most of our electricity from coal. And that’s been the challenge because it’s about how you integrate renewables into a system that’s been so mature and so monopolistic for a long time because it’s a state-owned entity.
We certainly have the ambitions and the sector has been growing. It’s about 6% of our mix and we’re going to grow to about 26% by 2030. The ambition in the sector is there and certainly the investments and the projects have been there and we’ve now got a good supply of renewables in the country. So pre COVID I would say the outlook was there for renewable companies. The government had clear plans and we’ve executed on those plans and it opened up even a new renewable IPP program window for this year. At the beginning of the year, the government made a very important commitment to the energy sector and to the public of South Africa.
And they said that industry and municipalities can now procure independent power beyond the likes of the state-owned company Eskom. And it opened up the sector much more to allow in industries and municipalities to start to really utilize renewable energy as an option going forward. Pre COVID was very optimistic. But now with demand falling, with COVID, the momentum is probably going to slow down.
RiA (Q4): You mentioned some of the potential issues here. Can I ask you please, to expand more on how the current crisis has affected the sector in South Africa in particular, and in Africa in general?
PR (A4): Yeah, so I always say Africa has more than 50 countries, so it’s very different. I never want to brush it with one broad brush stroke, but I’ll give an overall perspective. For South Africa, it’s quite clear that the overall energy sector has taken a huge knock in terms of demand, right. And if you’re familiar with the energy crisis we’re having in the country related to demand and supply, you will know that we’ve had rolling blackouts because demand is exceeding supply at this moment due to an aging fleet that Eskom is running.
We’re now in a situation where we have no rolling blackouts because there’s no demand. We’ve stopped industries, we’ve stopped mining, we’ve stopped manufacturing and therefore demand has fallen. So revenues are falling and that creates a problem for the energy sector. The impact on the renewable sector is in twofold. One, those with power purchase agreements with the big utility for transmission are struggling to supply to the grid because there’s just no demand to absorb that electricity. So that’s allowing the slowdown of power generation. And Eskom has come out and has declared “a force majeure” with some of the renewables players, because they just do not have the demand in this crisis that was completely unexpected.
And then the other issue is that it is probably the worst time for commissioning and renewables projects because you can’t bring on projects that are just not going to be able to supply electricity if there’s no demand.
So, I think part of it is really looking at projects and portfolios and where do you focus now because suddenly these products are going to be delayed within the next 18 months. The sector has been severely impacted because of the significant drop in demand. And, of course, because of how the electricity system is set up, the big incumbents are not able to take on all of this electricity that we can generate from renewable sources onto the grid.
Africa is not immune to that. I think you’ll start to find some of the issues in terms of projects and demand as many countries are going through some lockdowns and shutting down industries to protect their people. Of course, electricity remains an essential service. But it can’t scale up to its regular performance without having the demand there.
RiA (Q5): And with dropping oil prices, does this accelerate or slow down the take up on renewables, what’s your take on it?
PR (A5): Yeah, so the falling oil prices; what’s the implication for renewables? I think: one, you’ll find a natural slowdown in investments in oil and gas because revenues are not going to substantiate any big projects. And I do believe that the outlook for renewables hasn’t changed. So, the overall strategy, the vision of renewables, the regulation, the policy do not change because of COVID or because the oil prices have declined, right? So if anything is going to accelerate because if you can’t invest in oil and gas and you’re investing in energy, where are you going to invest, right?
And you won’t invest in coal because, again, coal comes with heavy implications from a carbon perspective. So, renewables become an attractive option. Nuclear is also not an option, right? It’s also one of those energy types that is going to struggle to attract investment. So renewables is the place to invest and if you think about it, it looks a lot brighter with most of the world still putting policies in place. they will transition most of their energy needs to renewables. It’s just a no brainer, right? That’s where, if I was an investor, I would look and it’s not a short term investment.
So yes, we’re going through a crisis now. The next few quarters are going to be challenging, demand wise, but things will resume. In 18 months’ time, we’ll be looking at a very different picture, so will an investor, they’ll be cautious. but if they’re going to select an energy source to invest in, there’s no better source than renewables.
RiA (Q6): that’s great news, in fact, you‘re definitely pleading for a green recovery.
I saw many articles appeared, where you talked about the international example, and how South Africa and Africa, as a continent, can learn from that. Would you mind sharing your perspective? So how can we learn from these international examples and how can we, at the same time, push for that green recovery?
PR (A6): Yeah, what we’ve been seeing across the world is, firstly, the sector has been impacted by the lockdown, supply chains. Sourcing capital goods to build projects and run projects has been a challenge. Demand and oil and gas prices, as I said, have declined. This is in the environment that renewables find itself in. And what many companies have been looking at is probably three things. One is related to their portfolios and saying, “okay, where are the best economic values to invest in? We need to slow down some of these projects or speed up other ones.”
Make an analysis during this COVID crisis and reprioritize that portfolio to ensure that you pick the right project. It’s not about stopping completely, because the picture hasn’t changed for renewables. Yes, COVID arrived or Saudi and Russia decided to have a long oil price but this hasn’t changed the picture of where we’re going as a world. So, it still makes sense to continue these projects. But it’s about being prudent. The second point is projects of this nature generally tend to be very waterfall oriented. What do I mean by that? I mean that we want to build everything and switch it on and commission it all on and then say we’re done, all right.
And what we’re seeing, is people starting to think in a more agile and modular way. You’ve got a big project, you almost want to scale down to scale up. Because in these times, the demand is just not going to be there for you to introduce a large number of renewable projects. So start to think carefully about how you can bring on projects to allow you to be more flexible because that’s going to help. As demand does pick up because it will pick up, and by the way, just remember, this is different to other crises that we’ve had in the financial sector because this is an artificially suppressed demand. We, as a world, have deliberately decided to stop production.
This is related to health issue and we wanted to protect people. So you’re going to find a different resumption to other crisis, and how we get back to some sensible levels of demand. It will still be a recovery process, but the demand will come. It’s about being prepared in a more agile and modular way.
The last point is about being more resilient because the intermittency of demand is going to affect businesses, right. And it’s either you have really great shareholders and investors, who can see the value of these assets and ensure that financially you can navigate it, look for government support, look to work more aggressively with the off takers of power.
And we don’t want to kill all of these great renewables companies that have bright futures, but just because we’ve gone through a slowing demand. So I think that requires a number of parties to work together to achieve that. But, I think everybody would have those interests at heart as well.
So that’s the trend we’ve seen in the sector, around how renewables companies are looking at navigating COVID and the instability over the next 6 to 12 months of as we get back to some normality.
RiA: Okay, I think you can summarise it in three words, you say we need to be agile, flexible and resilient. So in other words, you want SME to behave like big companies and big companies to behave like SMEs. It was a pleasure talking to you today, looking at how the sector and the continent can cope with the current crisis.
I can see you’re an optimist and we like it, and we like the fantastic work you’re doing. All that is left for me to say is, thank you very much for giving us a bit of your very busy time. So thank you for today.
PR: Thank you for having me. Thank you for all the good work you’re doing for Renewables in Africa and it’s been a pleasure and I can say now is the best time to look forward. So that’s why I’m optimistic.
RiA: Thank you very much. Appreciate that.
Do enjoy the interview. Click HERE.
Author:
Prashaen Reddy is a principal and forms part of the executive team in Africa at strategy and management consulting firm Kearney. He also serves as a director on the board of the South African National Energy Association. Prashaen spent a large part of his consulting career working with clients in the US, Asia, Middle East and Africa to integrate strategy, operations and technology. Most recently he has been advising the energy industry on the 4th industrial revolution and the implication of digital technologies across the value chain. Prashaen has a BSc Computer Science degree and an MBA (Cum Laude) from the UCT.
.){kind=link}