Now the other two thirds are learning to live in the dark. Widespread rolling blackouts have blighted the country over the past year, caused by the simple fact that available capacity cannot meet demand.
The electricity crisis will not come as a surprise to anyone with knowledge about South Africa’s energy supply. Old coal-fired power stations run by state monopoly Eskom are deteriorating by the day and often fail completely, while energy fleet availability — the amount of installed capacity that is able to supply electricity to the grid — has fallen below 75%. Eskom has been left with no choice but to shut down factories and other high users at peak times, negatively impacting the economy.
Two huge coal plants that were supposed to alleviate the problem — Medupi (4.76GW) and Kusile (4.8GW) — were due to be completed by Eskom in 2013 and 2014 respectively, but have been plagued by problems, and are now not expected to be come on line until 2020 and 2021. Their build costs are now more than double original estimates — from 69.1bn rand ($5.2bn) to 154.2bn for Medupi, and from 80.6bn rand to 172.2bn for Kusile, with further increases forecast.
It is little wonder that South Africa has turned to renewables to increasingly meet power demand. Projects can be built far more quickly than baseload power stations, while the country has the third-highest solar irradiation levels in the world and abundant winds along its coasts and inland.
The Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), set up in 2011, has been an enormous success, attracting 192.6bn rand of investment, including 53.2bn from overseas. (Last year, renewables projects accounted for 85.8% of all foreign direct investment in South Africa.)
At the time of going to press, 1.96GW of renewables projects had been completed under the programme — 27 PV (995MW), 13 wind (953MW) and two small hydro (14.3MW) — and 109,000 new permanent and contract jobs have been created. Many more projects — including biomass, landfill and concentrating solar power — are under way, with the government committed to installing 13.225GW by 2025. That figure could yet rise — goals for the scheme have been extended three times in the past four years — and about 30GW of wind and solar projects are thought to be bid-ready.
Even September’s six-week delay to an “interim” bid stage failed to dampen enthusiasm for the sector.
“The REIPPPP is proving an extraordinary success, channelling tens of billions of rand of private investment into renewable energy, and promising abundant electricity at very competitive rates,” says Johan van den Berg, chief executive of the South African Wind Energy Association. “We know the private sector is willing and able to assist because the environment for doing business has proven extremely attractive. The REIPPPP is consistently oversubscribed and both domestic and international developers continue to come to the market while the flow of investment from local and international players is only getting stronger.”
But the REIPPPP is becoming a victim of its own success. As increasing numbers of projects jostle to reach commercial operation, grid-connection problems are coming to the fore. Eskom, which is also the grid operator, simply cannot connect the projects as quickly as they are being constructed.
Not only is this causing delays, it is also proving expensive. Under the REIPPPP, the most important factor in selecting winning projects is their levelised cost of energy (LCoE).
The costs of grid upgrades and potential delays — and therefore lost power — are not even taken into account.
“Grid connection is becoming an issue,” says independent energy analyst Chris Yelland, “particularly in the Northern Cape, where there is a ‘solar corridor’. Solar plants are all located at the point of the highest irradiation to allow for the best price, yet too many of them are clustered together and the grid cannot cope. The bottom line is that these projects do not always end up the cheapest once grid upgrade costs are considered.”
Yelland also believes that the procurement programme needs to take into the account the speed of the connection, rather than just the lowest LCoE. “South Africa needs energy now — so a more rational basis for adjudication is needed, including factoring in how soon each project will realistically be providing power to the grid.”
It is a problem that will only grow, as early projects tend to be built close to existing transmission lines, while later projects have to be built further away, with more expensive grid connections needed.
Independent power producers (IPPs) have started to take matters into their own hands and building their own grid connections, fearing that Eskom could cause severe and expensive delays.
“Developers are increasingly choosing the self-build option for speed and ease of progress,” says Van den Berg. “This is usually where good sites are close to the grid, but some work needs to be done to facilitate power evacuation. We need to work on the framework regulating all of this. Eskom’s cost recovery for expenses incurred [from underestimating grid-connection costs] needs to be resolved, and developers that create grid capacity through an ‘own-build’ that later projects can utilise likewise need to have a fair and equitable cost-recovery mechanism.”
Eskom has itself run into problems with grid-connecting independent renewables projects. When the system was set up, the state utility had to provide a quote for grid connection to the project developer, with the IPP later paying Eskom for the completed work. But unfortunately, Eskom frequently underestimated the costs of this work, leaving it to foot an increasingly large bill for the connections. As IPPs are essentially competitors to the utility in the power-production space, Eskom has been far from happy about the arrangements.
A leaked letter from new Eskom chief executive Brian Molefe highlighted the fragility of the current set-up. It reportedly stated that Eskom is facing liquidation and is so short on funds that it wants to halt signing “budget quotes” for IPP grid connections until 2018 — a potential disaster for the renewables industry. Without a budget quote, projects would not be able to reach financial close and would therefore not be built.
However, industry and analysts have been quick to dismiss the idea, saying it is not the first time the utility has made “empty threats”. Yelland says this latest revelation is just another of “Eskom’s elaborate games” and points out that although the utility may have cash flow problems, Molefe recently confirmed that Eskom has no problem borrowing money and is in fact rolling over large amounts of its debt.
“The costs of connecting REIPPPPs has already been accounted for in the multi-year price rises agreed with [national energy] regulator Nersa. Therefore, Eskom already has the money for these grid connections,” Yelland says. “Eskom has been told by Nersa to stop their bullyboy tactics and I have no doubt the REIPPPP will continue unaffected. But this highlights a wider issue: it is not in the national interest to have a competitor to IPPs in control of the national grid. We urgently need an independent systems and market operator. Eskom is conflicted, feels threatened by IPPs and is trying to use its position as custodian of the grid for leverage to get what it wants from the regulator.”
Other industry representatives are equally dismissive of Eskom’s threats, maintaining that as South Africa slides deeper into economic decline, the REIPPPP represents not just a practical solution to getting power to the grid fast, it offers a beacon of hope and positivity — especially with huge sums of money going to community development projects. Large international developers continue to enter the market in their droves, bringing heavyweight investors with them, pushing power prices down and stimulating the environment in which IPPs are doing business.
The South African government has held up the REIPPPP as a shining example of African success on a global scale — and is pushing to see similar schemes rolled out across the continent. The country simply cannot afford to lose momentum on such a precious symbol of hope.
