Jun 01, 2012
Energy group praises SA’s renewables programme, but notes challengesBack
Cape Town|Construction|Africa|Projects|Renewable Energy|Renewable-Energy|Road|Roads|Africa|South Africa|United States|MW Facility|Energy|Equipment|Power Producers|Renewable Energy|Service|Wind Energy|Wind Energy Projects|Eastern Cape|Jeffreys Bay|Northern Cape|Jonathan Hoffman|Power|Eastern Cape
© Reuse this
Speaking to South African National Energy Association members in Cape Town ahead of the June financial close deadline for the REIPPP’s first-round bidders, Hoffman asserted: “The readiness of everyone is improving and we have a very high level of confidence in government.”
Globeleq is involved in the development of four first-round REIPPP projects, including the two largest wind energy projects (the 138 MW facility in Jeffreys Bay and 139 MW Cookhouse wind farms, in the Eastern Cape), as well as the 50 MW De Aar and 50 MW Droogfontein solar PV farms in the Northern Cape. The company is involved internationally as a power owner and operator and works exclusively in emerging markets.
The first key challenge, accord- ing, to Hoffman, is the tariff. “It’s a common thread that runs through all the challenges. Essentially, the way we look at risk is, typically, how it translates into our return; in another way, if we say we are going to keep our return the same, how does it translate into a move in the tariff?”
From an international perspective, the tariffs paid for renewable energy in South Africa are high, says Hoffman, but the rate of return for the IPP can be lower than in other countries, where there are mechanisms which support the tariff rather than inflate it, such as tax incentives and, as found in the US, capital expenditure reductions in the form of grants which tend to act as catalysts for renewable-energy projects.
In South Africa, however, rather than mechanisms to support the tariff, costs such as the National Treasury fee (a 1% fee due at financial close) and socioeconomic and enterprise development obligations, besides others, result in an increase in the tariff. While, in Hoffman’s view, these are not necessarily negative initiatives, they do, however, impact on revenue return and need to be factored in as a risk by the IPP.
Other risks which IPPs also face that affect the rate of return are the exposure to the exchange rate through the volatility of the South African rand (especially for international investors), the volatility in equipment costs and potential grid unavailability.
With four South African banks providing the bulk of the debt funding for the first-round REIPPP projects, Hoffman believes there is also “a bottleneck on the road to debt” as there are not enough lenders to successfully service the market and a lack of capacity within those lenders resulting in the slow review of financial documents.
“We’re doing our best to work together with the South African lenders to come to terms so that, hopefully, we can close by June 30, because, if we don’t close by June 30, we lose our power purchase agreement – so there’s a lot at stake,” said Hoffman.
He added that some practical challenges ahead are likely to be related to the electrical grid, with the cost and complexities of interconnection being unknown factors at this stage. Further, logistical issues, such as land- owners not fully appreciating the construction impact and the effect of transporting large equipment on the roads, resulting in traffic congestion, will have to be faced.
Even with many unique challenges facing an IPP in South Africa, Hoffman said that, in Globeleq’s experience, “this has been a Sunday at the beach”, compared with other projects in Africa the company has been involved in.
“Across four projects, we are going to be investing $140-million of equity . . . so we are going to be deep in South Africa [and] so we are very confident about our long-term presence here. “We want to build not just four projects; we want to build many more projects and build a business around them,” concluded Hoffman.
Edited by: Martin Zhuwakinyu© Reuse this Comment Guidelines (150 word limit)
Creamer Media Senior Deputy Editor
Other News This Week News
Recent Research Reports
Liquid Fuels 2015: A review of South Africa's liquid fuels sector (PDF Report)
Creamer Media’s Liquid Fuels 2015 Report examines these issues in the context of South Africa’s business environment; oil and gas exploration; fuel pricing; the development of the country’s biofuels industry; the logistics of transporting liquid fuels; and...
Road and Rail 2015: A review of South Africa's road and rail sectors (PDF Report)
Creamer Media’s Road and Rail 2015 report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail infrastructure and network, the funding and maintenance of these respective networks, and...
Defence 2015: A review of South Africa's defence sector (PDF Report)
Creamer Media’s Coal 2015 report examines South Africa’s coal industry with regards to the business environment, the key participants in the sector, local demand, export sales and coal logistics, projects being undertaken by the large and smaller participants in the...
Real Economy Year Book 2015 (PDF Report)
There are very few beacons of hope on South Africa’s economic horizon. Economic growth is weak, unemployment is rising, electricity supply is insufficient to meet demand and/or spur growth, with poor prospects for many of the commodities mined and exported. However,...
Real Economy Insight: Automotive 2015 (PDF Report)
Creamer Media’s Real Economy Year Book comprises separate reports under the banner Real Economy Insight and investigates key developments in the automotive, construction, electricity, road and rail, steel, water, gold, iron-ore and platinum sectors.
Real Economy Insight: Water 2015 (PDF Report)
Creamer Media’s Real Economy Year Book has been divided into individual reports under the banner Real Economy Insight and investigates key developments in the automotive, construction, electricity, road and rail, steel, water, coal, gold, iron-ore and platinum sectors.
This Week's Magazine
Energy analyst and EE Publishers MD Chris Yelland warned recently against excessive optimism regarding timescales for the proposed construction of new nuclear power plants (NPPs) in South Africa. He was speaking at a Nuclear Roundtable in Johannesburg. “I think we...
Malawi’s Lilongwe Water Board (LWB) is inviting eligible bidders to prequalify for the board’s efficiency improvement works, which will be implemented as part of the E24-million Lilongwe Water Resources Efficiency Programme. LWB CEO Alfonso Chikuni explains that...
CROATIA, AN EU MEMBER BUT NOT A TDCA MEMBER On July 1, 2013, Croatia officially became the twenty-eighth member of the European Union (EU). Despite Croatia’s accession into the EU, it is yet to become party to the Trade, Development and Cooperation Agreement (TDCA)...
The Council for Scientific and Industrial Research (CSIR) has announced that its new Inundu airborne electronics testing, evaluation and training pod had made its first test flight on September 10. The successful flight was undertaken from Lanseria International...
The Development Bank of Southern Africa (DBSA) – which disbursed a record R13-billion during 2015, from R12.7-billion in the prior year – remained optimistic that it could ramp-up loan disbursements to R25-billion a year by 2018 as it sought to give greater emphasis...