Renewable energy could light up PPPs

Prices for new solar photovoltaic plants are now cheaper than projected costs of new coal powered plants in South Africa. (Photo: Blue Horizon)

Prices for new solar photovoltaic plants are now cheaper than projected costs of new coal powered plants in South Africa. (Photo: Blue Horizon)

South Africa has procured 6GW of renewable energy since it began the Renewable Energy Independent Power Procurement Programme (REIPPPP) in 2011. Most of the capacity comes from wind and solar, and more projects are expected in the near future, though the department of energy (DoE) has not yet released updated information on the next round of RFPs (requests for proposals).

The programme could have a significant impact on renewable and eco-friendly power into the future, especially as — despite promises that the grid will remain stable — the energy sector is still struggling with a supply shortage and regular power outages.

According to Chris Ahlfeldt, energy specialist with Blue Horizon Energy Consulting Services, thus far the economic benefit of the programme has outweighed the costs, with competitively priced and clean electricity generated for the country.

“Prices for new solar PV (photovoltaic) and wind are now cheaper than projected costs of the new coal power plants in the country. The renewable energy projects selected to date are investing an impressive R193-billion in South Africa,” says Ahlfeldt. “Additionally, job creation, socioeconomic programmes, enterprise development funds, local content spending and partial local community ownership aim to provide added benefits, particularly for communities in need.

“Projects already selected have committed to funding over R19.1-billion for socioeconomic development programmes alone.”

Ahlfeldt attributes the success of public-private partnerships (PPP) to their ability to meet sound economics, appropriately allocated risk, reliable political support and effective execution.

“Despite some delays and communication challenges, the political support for this PPP has also been a contributing factor to its success,” says Ahlfeldt. “The DoE, for example, made efforts to conduct the evaluation process in a transparent way, using a well-balanced team of internal and external industry capacity.

Bottleneck

“The Round 5 RFP release for utility-scale renewable energy projects is, however, delayed; it was supposed to be released by the DoE during the second quarter of this year. Furthermore, Eskom has made statements that they do not intend to procure any more power from IPPs after Round 4, which is a self-serving stance, given their own [energy] generation business.

“The DoE is also the bottleneck for the National Energy Regulator’ national embedded generation rules on small-scale renewables, which have already been drafted and were supposed to be published over a year ago.

“Risk for this PPP between government and the private sector has been well-structured by allocating risk to the party best positioned to manage this risk. For example, IPPs (independent power producers) are responsible for building power plants and providing reliable electricity promised to the government, while the government via Eskom is responsible for purchasing this electricity and ensuring customer demand.

“The last measure of success for this PPP will be determined by the IPPs’ performance over their 20-year lifetime in meeting both energy and economic development commitments. Managing socioeconomic programmes for local communities is new territory for many IPPs, and presents unfamiliar challenges. To overcome these, IPPs will need to learn from past experience in other sectors as well as from each other, to ensure measurable and meaningful impact,” says Ahlfeldt.

Landfill gas

“The REIPPPP’s performance to date highlights the potential for PPPs to deliver much-needed infrastructure for sub-Saharan Africa, when conducted in a transparent, competitive, and fair way.  PPP project progress in Ghana, Kenya, and Senegal further support this trend. Whether the South African government can recreate the success of this programme in other sectors remains to be seen, but it had plans to use a similar procurement approach for cogeneration [the generation of electricity and useful heat jointly], coal and potentially gas infrastructure.”

Gauteng’s contribution to renewable energy has come from transferring landfill gas to energy plants, with five plants to be developed in Gauteng by UK-based ENER-G Systems, at an investment of around R230-million.

Landfill gas is extracted, then combusted and flared as carbon dioxide, to generate electricity. Landfill gas-to-energy projects minimise environmental damage by reducing methane emissions.

While ENER-G is the majority shareholder in the project, the landfill sites are owned by the City of Johannesburg, which has been a key partner throughout the project’s seven-year development process. It will share in the revenue generated from a 20-year power sale agreement with Eskom, which will sell the power on to the nation’s distribution network.

The five facilities are expected to produce a total of 13MW of energy and achieve equivalent carbon dioxide emissions savings of approximately 542 495 metric tonnes per year — equivalent to the environmental benefit of removing 180 832 cars from the roads.

Construction and development of the sites is planned to take three years, with the first and largest 5MW facility to begin formal operation at Robinson Deep in the fourth quarter of 2016, and the 3MW Goudkoppies facility also planned to open late in 2016. Landfill gas is already being extracted from the Robinson Deep landfill and the Marie Louise project.

Plants at Marie Louise and Ennerdale will open in 2017, and the 1MW Linbro Park facility is scheduled for completion mid-2018. It is projected that 19MW of electricity will be generated at the five sites, enough to supply around 12 500 households.

ENER-G says this is the first and only landfill gas generation project in South Africa to be successful in the DoE’s REIPPP. These gas generation facilities will create much-needed jobs, while benefiting local municipalities through revenue sharing and aiding local communities through the ENER-G Community Educational Trust. Local communities will have a 2.5% economic interest in the facilities.

Promotion versus regulation

All is not always rosy when it comes to successful public private partnerships (PPPs). They are hard work to implement and participants can be inconsistent when it comes to commitment.

Complaints from the private sector include a lack of policy direction from senior government officials and legal vagueness. There is also a lack of clarity on what PPPs are, why PPPs they should happen at all and what role the different players should have. The private sector would like to see more PPPs, with speedier decision-making and implementation in other sectors desperate for development.

PPPs evolve and change direction and some have long timeframes. Smaller private sector business is in particular becoming disillusioned about participating in PPPs, due to the highly restrictive procurement environment and the impression that the public sector wants to transfer too much risk over.

Much more effort is required to promote and market PPPs and to support the agencies implementing them. There also needs to be more ability and capacity building within the teams in implementing agencies.

Gifa: Tackling hurdles together

That government alone does not have the necessary resources to address the infrastructure needs of the Gauteng province was the rationale behind establishing the Gauteng Infrastructure Financing Agency (Gifa) as a vehicle to leverage private sector finance and expertise, to address backlogs and accelerate the delivery of infrastructure.

“While the rating’s affirmation by Moody’s is a demonstration of what government and the private sector can achieve when tackling economic hurdles together, it is little cause for complacency,” says Barbara Creecy, Gauteng MEC for finance. “Equitable growth, prudent fiscal management and a stable environment to build investor confidence require sustained and active collaboration by all government, civil society and private sector players.”

Creecy has been outspoken about the importance of infrastructure to economic growth, job creation, access to markets and services. She says: “Gifa has worked tirelessly over the past two years to unblock the obstacles that prevented the private sector from investing in the delivery of public infrastructure and manufacturing.

“The national treasury has granted permission for us to issue Requests for Qualifications for the Tshwane Innovation Hub: Enterprise Building 2 and 3, Kopanong Precinct Project, the Rooftop Solar Panel Project and the Tri-generation Plant Project, and we will do so during this year.

“The implementation of these projects will start during this financial year and will bring more than R10-billion in additional infrastructure investment into the city region in the next few years. This demonstrates our commitment to explore all possible avenues that will assist us to deliver infrastructure to support the development of the province and create jobs for our people.”

PPPs are also hoped for the Tshwane Alternative Waste Treatment Technology Project; Ekurhuleni Alternative Waste Treatment Technology Project; Alternative Waste Treatment Technology Project Integrating COJ, West Rand, and Sedibeng Districts; Lindley Wastewater Treatment Plant; Vaal Logistics Hub; West Rand Logistics Hub; and the Suikerbosrand Nature Reserve.

“South African law defines a public private partnership as a contract between a public sector institution and a private party, in which the private party assumes a substantial financial, technical and operational risk in the design, financing, building and operation of a project.” — Liesel Lombaard, chief director of the public-private partnership unit of the Gauteng treasury