This document discusses green industrial policy in emerging countries, using renewable energy support in India and South Africa as examples. It argues that governments must shape markets through policies that create incentives for green investments while avoiding capture by special interests. Both India and South Africa successfully supported renewable energy through auction-based tariff systems that led to falling prices, increased investment, and growth in clean energy capacity. The lessons are that emerging countries need long-term credible strategies with learning from global best practices, competitive support mechanisms, and cooperation between the public and private sectors.

1. Green industrial policy inGreen industrial policy inGreen industrial policy inGreen industrial policy in
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© 2014 German Development Institute/ Deutsches Institut für Entwicklungspolitik (DIE)
emerging countriesemerging countriesemerging countriesemerging countries
The case of renewable energy support
02/12/2014
Dr. Anna Pegels

2. Agenda
Green industrial policy: why and how
How the emerging countries manage
– India
– South Africa
© 2014 German Development Institute/ Deutsches Institut für Entwicklungspolitik (DIE)
Lessons learned
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3. Green industrial policy:
why and how
© 2014 German Development Institute/ Deutsches Institut für Entwicklungspolitik (DIE)
why and how
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4. Green industrial policy: how
Need for government intervention
Fast and radical transformation of our economy
Economy reacts to profit
Governments need to shape profit opportunities (‚rents‘):
create and withdraw
© 2014 German Development Institute/ Deutsches Institut für Entwicklungspolitik (DIE)
create and withdraw
Risk of capture!
Policy efficiency is key
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5. Renewable energy support:
how the emerging countries manage
© 2014 German Development Institute/ Deutsches Institut für Entwicklungspolitik (DIE)
how the emerging countries manage
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6. Solar irradiation
© 2014 German Development Institute/ Deutsches Institut für Entwicklungspolitik (DIE) 6
Source: SolarGIS

7. Preferential tariffs, effective and efficient
Success factors:
Tariff auctioning (as opposed to
pre-determining, as in Germany, Spain)
Continuous built-in policy revisions
Support: auctioning and systematic learning
© 2014 German Development Institute/ Deutsches Institut für Entwicklungspolitik (DIE) 7
Continuous built-in policy revisions
Effects:
Triggered large investments, capacity growth from 0.1 to > 1 GW
in first 18 months
PV tariff offers decreased from 0.27 to 0.14 €/kWh in first year
Retail grid parity now to be achieved in 2017 (original plan: 2022)

8. Electricity sector South Africa
Eskom
95%
IPPs 5%
© 2014 German Development Institute/ Deutsches Institut für Entwicklungspolitik (DIE) 8
Sources: DoE 2010, 2012

9. Solar irradiation
© 2014 German Development Institute/ Deutsches Institut für Entwicklungspolitik (DIE) 9
Source: SolarGIS

10. Support: planning (IRP 2010)
~18 GW renewables until 2030,
wind and solar PV: 8.4 GW each, CSP 1 GW.
© 2014 German Development Institute/ Deutsches Institut für Entwicklungspolitik (DIE) 10

11. Support: from FIT to ABT
Renewable energy feed-in tariff (2009):
– Emulated ‘German model’
– Fixed feed-in rates for several RE technologies
Treasury intervened, 2 years stalemate and confusion
Conversion to auction-based tariffs 2011
© 2014 German Development Institute/ Deutsches Institut für Entwicklungspolitik (DIE) 11
Conversion to auction-based tariffs 2011
Market has taken off since then
– Increasing interest in bidding rounds
– Falling tariffs, high investments (nationally and FDI)

12. Cost development renewable energy
100
120
140
Cost of solar PV modules (USD/Watt) Wind bids South Africa, round 1-3(SAc/kWh)
New coal LCoE
© 2014 German Development Institute/ Deutsches Institut für Entwicklungspolitik (DIE) 12
0
20
40
60
80
1 2 3

13. Wrap up
Emerging countries will be central players in environmental
protection (or degradation) in the coming decades
Green industrial policy as part of the solution
Lessons learned from India, South Africa,…
– Create a credible long-term strategy with short and mid-term
© 2014 German Development Institute/ Deutsches Institut für Entwicklungspolitik (DIE)
– Create a credible long-term strategy with short and mid-term
targets
– Ensure ‚embedded autonomy‘: co-design of policies and co-
funding with private sector without capture
– Introduce competitive elements in support (IF technology is
mature enough and project developers accept additional risk)
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14. Wrap up
– Introduce systematic learning cycles: from suitable other
countries (no blueprints) and over time. Maintain
investment certainty!
– Consider required technocratic management capacities
for planned measures
© 2014 German Development Institute/ Deutsches Institut für Entwicklungspolitik (DIE)
– Build reform coalitions, e.g. by keeping benefits local.
Don‘t underestimate risk of capture – but BAU is the
greatest risk!
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15. Thank you!
© 2014 German Development Institute/ Deutsches Institut für Entwicklungspolitik (DIE)
Thank you!
anna.pegels@die-gdi.de
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