Love it or hate it, SA’s renewable sector takes a R28bn step

 

CAPE TOWN - Amid growing concerns that South Africa’s economy will be further hamstrung by another round of Eskom load-shedding, government and the private sector are quietly taking the next step in the country’s renewable energy journey.

The second bid window for the procurement of 1 043.9 MW of renewable energy capacity from independent power producers reached financial close on Thursday.  It clears the way for the construction of seven new wind farms and nine solar energy projects worth a collective R28bn and will be a step toward alleviating the country’s energy shortage.

The National Energy Regulator of South Africa (Nersa) estimates that the 2008 load-shedding cost the country around R50bn.

In parallel, last week the Department of Energy issued bid documents for the third-bid-window request for proposals (RFPs), which is expected to close in August.

Perfect timing

Second round financial closure couldn’t come soon enough. In the last fortnight, SA’s peak energy demand was around 31 228MW, perilously close to Eskom’s capacity of 31 708MW. Reserve margins – the amount of excess capacity in an electric system – should, by international norms, be in the region of 15%. SA, by contrast, had a reserve margin of less than 1% this week.

The renewable energy programme takes the country a little closer to achieving the objectives laid out in the department of Energy’s Integrated Resource Plan (IRP) of 2010. It aims to transform SA’s energy mix from the current dependence on coal fired electricity to a situation where just 14% of the country’s energy will come from coal by 2030. Renewable energy carriers including hydro will account for 6.1%, wind for 19.7%, photovoltaic solar power for 19.7% and concentrated solar power for 2.4%. More controversially it also plans for 22.6% from nuclear energy. The balance is from open-cycle and closed-cycle gas turbines.

While the debate on a review of the IRP – or rather the lack of a review - hots up, the energy shortage is being aggravated by a variety of factors including delays on the Medupi and Kusile sites and increased energy consumption in winter.

It may be small in the scheme of things, but over the next 36 months, more than 2 500MW of green energy will be added to the grid, says Peter Venn, MD of Windlab Developments. “The advantage of most renewable energy projects is that they are much faster to construct than fossil-fired facilities,” he says. They are also financed with private capital.

Until now, most renewable projects have relied on a combination of project finance from the banks and private capital (75:25), however Business Day reported on Thursday that local investors have an appetite for bonds that are raised to finance renewable energy projects.

French-based Soitec SA is the developer and main sponsor of the Touwsrivier Solar Plant, a project that was awarded preferred bidder status in round one of the REIPP Procurement Programme.

Soitec’s R1bn bond is the first publicly listed bond project in South Africa to finance a renewable energy project, and is also only the third transaction of this kind worldwide, Business Day says.

“Soitec’s bond is fantastic for the market,” says Venn. “It means citizens can invest in the renewable energy sector; it provides another source of capital for projects and it should also bring down the cost of capital.”

Renewable energy costs have come down significantly between Round 1 and Round 2, and are expected to fall further in the third round as projects become simpler to conclude and technology is tested. The wind energy projects in the second round of the REIPPP programme will sell their electricity to Eskom at an average price of 89c p/kwh. This compares very favourably with the first phase of the new Medupi coal-fired power station, which according to Nersa will start generating power at around 97c/kWh.

The second round financial close has also been subject to several delays. However Venn acknowledges the size and complexity of the programme is usually the reason for these. “Whilst some delays have naturally occurred, the successful closing of the second round projects should pave the way for a more rapid role out of government RFPs, project awards and construction.  We believe that the industry can deliver 1 000MW of wind energy capacity a year to the grid, every year for the next decade.” 

 Note: Original story was published in Moneyweb South Africa