Alastair Campbell of Vantage GreenX.
There is no shortage of interest from investors in participating in the REIPP procurement programme. This stems from the oversubscribed, transparent and well-run process that the IPP office has carried out in this country. All of the good that has come from this process is however at risk of being undone by the resistance shown by Eskom to signing any new power purchase agreements (PPAs), according to Alastair Campbell, managing director, Vantage GreenX.
“What many keep forgetting is that the signature of PPAs is not a choice that Eskom has. The decision on where to procure new electricity generation from is made by the Department of Energy (DOE),” stresses Campbell. “Policy is formulated by the DOE [department of energy] and Eskom is simply the designated entity responsible for executing that policy. The signature of the PPAs is something that, in theory at least, should involve a simple instruction from the DOE to Eskom to sign.”
Campbell says the current impasse that has arisen is primarily because Eskom is able to hold the DOE’s procurement process to ransom because the system and market operator and the Single Buyer Office (SBO) are housed within Eskom.
“Remove the system operator and the SBO from Eskom and make them truly independent and the situation will change overnight.
“Such a restructuring of the electricity sector in South Africa would involve breaking up Eskom into its constituent parts, namely generation, transmission and distribution. This is the way that the majority of the unbundled utilities are run around the world.
“The restructured sector would then force both Eskom and the IPPs to compete to sell power to an independent system and market operator, which would include the SBO. The DOE will continue to implement policy and the SBO will sign the PPAs, thereby removing Eskom’s ability to deliberately frustrate the process by refusing to sign PPAs with the IPPs.
Community trusts
“An independent power producer would have an opportunity to sell power into a properly regulated and transparent energy sector. As it currently stands IPPs are only allowed to sell directly to Eskom and in some instances there are PPAs with some of the municipalities.
There are a number of local and international developers that have signed PPAs with Eskom under the REIPP, says Campbell. These developers have formed consortia with BEE entities and local community trusts, which are owned by the communities in the immediate vicinity of the plants being developed.
Additionally, the establishment of the REIPP procurement process has resulted in the creation of significant local manufacturing capacity, which includes things like solar panels, inverters, mountings and wind towers.
The international trend towards grid defection (the process of moving away from relying on a large electricity utility for the supply of power) is also starting to happen in South Africa. Many commercial and industrial customers are starting to build their own “inside the fence” sources of generation using technologies like solar, wind, biogas, biomass, combined heat and power.
“In the long run it is likely that this global phenomenon will become common in this country as we have one of the world’s best solar resources and battery technology is developing so fast that it won’t be long before it will be possible to install a solar system on your roof and to store power from this system in a cost effective battery system and in doing so, become completely independent of the local electricity utility.
“The real question is not whether renewable energy can drive down the cost of electricity over time, but whether it can prevent the cost of electricity from going up as steeply as it will if we go with a combination of coal and nuclear.
“The Dentons report is quite clear that the biggest increase in costs at Eskom has come from the price it is paying for coal. If the international price of coal continues to rise as it has done recently and if Eskom continues to procure its coal through short-term coal supply agreements then our electricity price will continue to rise at levels above inflation as the fuel cost makes up approximately 30% of the tariff in a coal-fired power plant.
“Renewable energy on the other hand has no fuel cost and the cost of building a renewable energy plant is now significantly cheaper than both coal and nuclear. Not only is renewable energy the cheapest new generation alternative, but it is also one of the cleanest,” concludes Campbell.
Eskom – derailing PPAs
Over the past several months, Eskom has repeatedly avoided signing power purchase agreements (PPAs) with renewable energy independent power producers (IPPs) and has failed to provide valid reasons for doing so.
“This refusal to comply with the ministerial determination on renewable energy undermines the prioritisation of green energy as outlined in the National Development Plan. It also has a negative impact on achieving government’s green industrialisation objectives and threatens to derail the renewable industry’s efforts in bringing much-needed foreign investment into the country,” says Mike Levington, acting chief executive of the South African Renewable Energy Association.
“At this point there are 26 preferred bidders in Round 4 across a range of technologies, none of which have reached financial close due to Eskom’s refusal to sign further PPAs. These projects represent a combined value of R50-billion in investment into the country that has been put on hold.”
Levington says that the total number of jobs expected during the construction period of these projects is 1 444 and the total number of jobs for South African citizens during the operations period is expected to be 1 909 per year.
“It is clear from theses figures that these projects represent a significant investment in the South African economy and are vital stimulus for job creation, local content, and local economic development. They also enable us to transition away from a coal and carbon intensive power sector to a clean and sustainable future,” he stresses.
“Contrary to statements made by Brian Molefe, the delay in signing the PPAs has not been as a consequence of compliance issues. All of the necessary government consents have been in place for the Round 4 projects since December 2015 and all subsequent delays have been purely a product of Eskom’s inaction in signing the documents.
“As a result, the delay in issuing final budget quotes is severely prejudicing the IPPs, some of whom have been waiting more than two years for their projects to be signed off. Many of the IPPs are anxious about the potential impact of further delays, particularly regarding the required involvement of investors, financiers, equipment providers and contractors.
“The delay is also hindering the delivery of employment opportunities, local manufacturing opportunities, social development programmes and the benefits of community ownership, all of which are common features of all REIPPPP projects.”
Levington stresses that the Renewable Energy Independent Power Producing Programme is without doubt the country’s premier public private infrastructure programme and that since its inception in 2011, the renewable industry has attracted more than $14-billion in direct foreign investment, created more than 20 000 jobs in construction, and 35 000 operational jobs.
“It has also brought about a dramatic drop in renewable energy tariffs, so much so that new-build renewable energy is now significantly cheaper than new-build coal or nuclear power.
Explaining support of renewables from national government and the minister of energy, Levington says that despite government assurances, industry executives and foreign funders believe that the renewable energy industry still faces significant uncertainty.
Says Levington: “For this reason we urge minister of energy, Tina Joematt-Pettersson, and minister of public enterprises, Lynne Brown, to take action and ensure that policy and procedure are adhered to.
“South Africa has some of the finest energy policy in the world, but without the political will to execute it, the future of the renewable industry remains uncertain,” he concludes.