Anxiety aplenty, but South African RE can still thrive

The Windaba wind conference failed to clarify the big issues facing South Africa's clean energy sector but confidence is still strong enough, says MAKE's Joffrey Dupuy

When the wind industry gathered at the Windaba conference in Cape Town to discuss the future of the South African power market, they were left anxious and frustrated.

The sector had been hoping for some clarity on the country’s key Renewable Energy Independent Power Producers Procurement Program (REIPPPP), which has been left in limbo by the inexplicable refusal of the state-owned grid operator and electricity supplier, Eskom, to sign power-purchase agreements (PPAs) with renewables developers.

Eskom has claimed that the prices for wind and solar are too high, yet the statistics it is using to support its argument are from the first REIPPPP round in 2011, and prices have fallen about 60% since then.

Energy minister Tina Joemat-Pettersson had been due to speak at Windaba, but cancelled her visit, while the low-ranking Eskom representatives present said that they did not understand the management’s decision not to sign PPAs.

A recent report exposed the close relationship between President Jacob Zuma and the Gupta family, which owns a number of companies in different industries ranging from energy to media publications. The report has led the industry to believe that potential corruption has played its part in the country’s energy policy.

The Eskom issue has stalled the Round 4 financial close decision, which was supposed to take place in late October, and no new date has been set. Rounds 1, 2 and 3 took 11, 12 and 13 months, respectively, to reach financial close. For the ongoing Round 4, 18 months have already passed, and there is no conclusion in sight.

Yet despite the anxiety and frustration, I do not believe any industry participants are thinking about abandoning the South African renewables market. The confidence in the REIPPPP remains strong and the majority of the wind sector believes the issues will eventually be resolved.

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Most of the players present at Windaba already have projects operational, under construction or in the pipeline and it is pretty clear that renewables is the way to go in terms of cost, speed of execution and the fight against climate change. This is why Eskom’s decision is perceived as nonsense and a sure sign of corruption.

Another positive sign is the news that South Africa is currently evaluating a new version of its Integrated Resources Plan — which sets out the government’s strategy for the country’s electricity sector and has not been updated since 2010 — with a view to publication in the near future.

The revised plan, if taking into account the drop in renewable electricity prices since the beginning of the REIPPPP, is expected to provide more capacity for wind and solar.

We also know that the preferred bidders for Round 4.5 are due to be announced in March 2017. In light of expected PPA rates for wind and solar in Round 4 — 0.62 rand ($0.046) per kWh — it is clear that the cheapest option for future power generation is renewables.

Yet the government has an apparent desire to developer a nuclear power programme that is likely to be far more expensive. Eskom has publicly declared that it would pay for nuclear construction without any external investment, yet given the current financial health of Eskom, it is difficult to imagine how this would be possible.

The development, construction and ongoing maintenance problems associated with nuclear plants in Europe and China are clear indicators that developing such a programme will not be easy in South Africa. Furthermore, the construction timeline for nuclear plants is typically ten-plus years, whereas onshore wind and solar can typically be built in less than four years. The country’s ailing power sector needs generation capacity now, not in ten years’ time.

So while there is currently a great deal of perversity in the South African energy sector, its problems are expected to be resolved and the industry believes the country will continue — if not accelerate — its march to a renewables future.

Joffrey Dupuy is market analyst for the Middle East and Africa at MAKE Consulting

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