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|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)
Other News This Week News
Recent Research Reports
Road and Rail 2014: A review of South Africa's road and rail infrastructure (PDF report)
Creamer Media’s Road and Rail 2014 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 network, the funding and maintenance of these respective networks, and the push to move...
Real Economy Year Book 2014 (PDF Report)
This edition drills down into the performance and outlook for a variety of sectors, including automotive, construction, electricity, transport, steel, water, coal, gold, iron-ore and platinum.
Real Economy Insight: Automotive 2014 (PDF Report)
This four-page brief covers key developments in the automotive industry over the past 12 months, including an overview of South Africa’s automotive market, trade figures, production and the policies influencing the sector.
Real Economy Insight: Construction 2014 (PDF Report)
This five-page brief covers key developments in the construction industry over the past 12 months. It provides an overview of the sector and includes details of employment in the sector, infrastructure and municipal spending, as well as insight into companies’...
Real Economy Insight: Electricity 2014 (PDF Report)
This five-page brief covers key developments in the electricity industry over the past 12 months, including details of State-owned power utility Eskom’s generation activities, funding and tariffs, independent power producers and prospects for the sector.
Real Economy Insight: Road and Rail 2014 (PDF Report)
This six-page brief covers key developments in the road and rail industries over the past 12 months, including details of South Africa’s road and rail network and prospects for both sectors.
This Week's Magazine
The Built Environment unit at the Council for Scientific and Industrial Research (CSIR) has developed a cost-competitive ultrathin concrete pavement surface that, for the upgrading of unpaved roads to paved roads, is more durable than many other pavement alternatives...
The Southern African Large Telescope (SALT), based at Sutherland in the Karoo region in the Northern Cape province, is promising to become an important instrument for research into dark matter. "SALT is shaping up to be very important for answering questions about...
The South African tool, die and mouldmaking (TDM) industry is being revitalised to locally produce the tools, dies, moulds and fixtures required by the manufacturing sector. Local TDM capability is key to enable the manufacturing industry to remain competitive, says...
Misfortune often finds its roots in the smallest of things. Such as a centimetre or two. Or is that in inch? Perhaps a foot? Swedish or Dutch? The French had reason to blush in May as it became apparent that national rail operator SNCF had ordered 2 000 trains that...
The repositioning of the Fibre Processing & Manufacturing Sector Education and Training Authority (FP&M Seta) and its business processes will ensure improved performance in reaching strategic targets and in providing customer service.