GREENTECHMEDIA / 05 JULY 2018 - 12.11 / JASON DEIGN
But will developers be interested after the recent problems with the market?
Lawmakers are aiming to get South Africa’s once-buoyant renewable energy market back on track with a new bid window for 1.8 gigawatts of capacity. The bid window, South Africa’s fifth, is due to kick off in November and could be worth 50 billion rand ($4 billion).
South Africa tries to get its renewable energy industry back on track.
Photo Credit: Shutterstock
Speaking at a Johannesburg conference in June, South African Energy Minister Jeff Radebe made it clear the investment was aimed at creating jobs and stimulating the local economy.
“The intention is to enhance local manufacturing to ensure investment and economic growth as well as the opportunity to encourage opportunities for black industrialists and the development of black independent power producers,” he said, according to a Bloomberg report.
But the tender may face challenges unless the administration can sort out the problems that dogged developers in previous rounds.
“This fifth bid window is intended to reboot the Round 4.75 expedited bid window, which did not progress when everything stalled in 2015-2016, and subsequently expired,” said Benjamin Attia, a research analyst in the Power & Renewables practice at Wood Mackenzie.
South Africa’s Renewable Energy Independent Power Producers Procurement Program (REIPPPP) ran into trouble when Eskom, the state utility and single offtaker for all independent power producer projects, faced bankruptcy following allegations of corruption linked to former President Jacob Zuma.
Shortly before Zuma stepped down, the South African government signed off on outstanding power-purchase agreements relating to rounds of the REIPPPP preceding the expedited round.
And following the change in administration, newly appointed Minister Radebe “is looking to bring local manufacturing and renewable energy jobs to South Africa’s totally stalled sector,” Attia said.
Attia said he expects strong developer interest for the bidding window in November, with costs well below Eskom’s marginal cost of supply as well as the renegotiated costs for the Round 3.5 and 4 projects.
Achieving the kind of rock-bottom pricing that has emerged in tenders elsewhere could be difficult in South Africa for a couple of reasons, though.
The first is that Radebe’s likely insistence on a high level of local content could be hard to meet cost-effectively because much of South Africa’s renewable energy supply chain has evaporated.
“With the last rounds, the local content threshold kept increasing with each round,” said Chris Ahlfeldt, energy specialist at Blue Horizon, a consulting firm in Cape Town. “There were several local manufacturing plants as of a couple of years ago. Now most of those have closed due to lack of demand.”
As a result, holding independent power producers to account for local content thresholds that were viable previously “may be difficult for Round 4,” Ahlfeldt said.
For Round 5, meanwhile, the government may have to commit to further bids in the future before manufacturers would feel confident in investing in facilities again.
Ahlfeldt admitted this could be a big challenge, particularly for PV plants, which require a relatively high level of precision-manufactured components.
The other problem is Eskom’s financial health.
“While the rand has mostly rebounded from its 2015-2016 slump, the biggest barrier to bid Window 5’s success will likely be embattled state utility Eskom, which has faced a host of cashflow issues due to declining sales and scandalous leadership turnover for years,” Attia said.
Ahlfeldt at Blue Horizon noted that Eskom is now going through a restructuring program, although it remains unclear what this will result in.
The market would benefit from an unbundling of the utility, Ahlfeldt said, so independent power producers do not find themselves in competition with generation assets owned by their offtaker. So far, Radebe has simply hinted that Eskom could face greater competition in future.
More will become clear later this year when the South African government is expected to release a new integrated resource plan for public consultation.
The document “will shed much-awaited light on the expected future generation mix, as well as hopefully draw this long period of uncertainty to a close,” said Attia at Wood Mackenzie.
Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER