South Africa's renewables impetus grinds to a halt

It’s been a challenging year for the South African renewables sector, with the industry facing several game-changing obstacles.

The government’s ground-breaking Renewable Energy Independent Power Producer’s Procurement Programme (REIPPPP) — which has been responsible for the procurement of more than 6GW of clean energy in five years — has ground to a halt.

The Department of Energy has failed to progress the programme or announce the preferred bidders from the latest expedited bidding window (Round 4B) for more than a year, and has missed several announced deadlines to do so with no explanation.

Eskom, the country’s state-owned monopoly energy supplier, which has always been a reluctant participant in the programme, has dug in its heels and publicly announced that it won’t sign any more power purchase agreements (PPAs) with independent power producers (IPPs) without a government review of the process.

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The utility says the PPAs are too expensive, yet their costs have already been factored into the additional pricing being passed onto consumers. Plus, Eskom has quoted Round 1 prices in its reasoning, knowing full well that prices have since fallen by more than 60% since then.

Eskom’s intransigence has raised more than a few eyebrows and caused huge uncertainty in the sector.

Various solutions to the impasse have been mooted. A proposed Independent System and Market Operator (ISMO) was passed by the country’s parliament last year to bypass Eskom and reduce its monopoly. But the bill was subsequently left unsigned by President Jacob Zuma in an unprecedented and unexplained move that prevented it from becoming law.

Another potential solution put forward is to separate Eskom into two, with grid transmission in one independently managed company and the energy sales and supply in another. But this is yet to be acted on.

In October, the South African Wind Energy Association (SAWEA) launched a legal challenge against Eskom, claiming that the company’s refusal to sign PPAs is illegal. It has also called upon national regulator Nersa to fine the utility the maximum penalty of 10% of its annualised average daily turnover.

An industry on overdrive

Investment in South Africa renewables grew 20,500% in one year between 2011 and 2012, the first year of the REIPPPP. In five years, the country went from having eight operational wind turbines to more than 550, surpassing 1GW of generation in 2015. More than 3GW of wind energy has been procured under the REIPPPP, with the promise of up to 30GW being developed by 2030.

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The price of wind and solar energy in the most recent tender (Round 4) dropped to 0.62 rand ($0.046) per kWh — 40% cheaper than new-build IPP coal plants at 1.03 rand/kWh.

Moody’s reported that in 2015, South Africa had the world’s fastest growing renewables economy, year on year. To date, 92 projects have been selected as part of the REIPPPP, attracting 193bn rand in private sector investment — with 28% coming from overseas — totalling 6.327GW.

In last week’s [26 October] medium-term budget policy statement, finance minister Pravin Gordhan claimed that the REIPPPP would go ahead and expand. But many in the industry are dubious, as there have been a long line of similar statements that did not translate into action.

There is, however, hope that the updated government energy policy document, the Integrated Resource Plan, which is allegedly nearing finalisation, will outline increased allocation to renewables, ensuring that the process is kick-started once more.

But exactly how the government will solve the issue with Eskom is not yet apparent.

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