The slowdown in the economy has probably affected the smaller construction companies more severely than the larger construction companies. This is mainly due to the larger companies been able to source business across the rest of Africa and the rest of the world, as they are geared towards projects outside SA.
Going forward renewable energy will certainly bring in more construction development into SA as our geographical location, topography and size all play a vital role in providing us with multiple renewable energy resources. In 2011 during the bidding windows an estimated R168 billion in private investment with a capacity of 3 800MW was committed. During 2015 the procured target was at 6,3GW and by the end of 2030 it is projected to reach 17,8GW. If this is going to be achieved is a discussion for another day, however this is a clear indication that there is still a lot of growth in this industry and coupled with that job creation is estimated to reach 300 000 new jobs by the end of 2020.
Until recently SA was a small producer of renewable energy. However this has changed and in a short space of time we are now one of the major players amongst 35 nations for the ability and potential to attract renewable energy projects.
There are various types of renewable energy available such as Hydro, Wind, Solar, Biomass and Concentrated solar. Specialised insurance products are required to cater for these projects and tailor-made solutions for each project are normally negotiated. Renewable energy is such a specialist area and as such highly specialised and skilled construction companies and fortunately for us there are many construction companies in SA who are capable to meet these specialist requirements to complete these projects. The majority of renewable energy products/solutions are designed and manufactured elsewhere in the world, imported and installed or erected on site.
To date there have not yet been any extraordinary claims in this sector and with more of these projects in the pipeline the ability of local construction companies and capacity of local insurers may play a major role on how the projects are rolled-out going forward.
Currently the South African market does not carry much risk in this regard as it is a very specialised field and as such the majority of the projects are insured outside the country, with local insurers only maintaining a small portion of the risk. This scenario can also be driven by the lenders/financiers being concerned with the credit ratings of the Country and also some local Insurers.
Despite the potential for new renewable energy projects, in the short term there could be a slowdown of projects, as Eskom have requested a breather until 2018 as they currently have limited funds available to connect the completed projects to the national grid or to purchase energy from them.
Francois Engels, leading specialist on construction and engineering insurance at Hollard Broker Markets