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
Updated 4 hours ago Kusile’s recently appointed contractor said on Wednesday that it was confident it would meet the tough deadlines set by Eskom and that labour issues will be averted going forward. The Mpumalanga-based power station has experienced massive delays and its completion...
Updated 4 hours ago None of the municipalities in the Free State, North West and Limpopo attained clean audit opinions for 2013/14, and a majority also achieved qualified, adverse or disclaimed audit opinions, according to a report released by the Auditor General Kimi Makwetu on...
Updated 4 hours ago With State-owned power producer Eskom “failing” South Africa, smaller private energy producers were stepping up to the plate and collectively delivering more power at a faster pace than Eskom or any other single entity could, EE Publishers MD Chris Yelland said on...
Recent Research Reports
Steel 2015: A review of South Africa's steel sector (PDF Report)
Creamer Media’s Steel 2015 report provides an overview of the key developments in the global steel industry and particularly of South Africa’s steel sector over the past year, including details of production and consumption, as well as the country's primary carbon...
Projects in Progress 2015 - First Edition (PDF Report)
In fact, this edition of Creamer Media’s Projects in Progress 2015 supplement tracks developments taking place under the Renewable Energy Independent Power Producer Procurement Programme, which has had four bidding rounds. It appears to remain a shining light on the...
Electricity 2015: A review of South Africa's electricity sector (PDF Report)
Creamer Media’s Electricity 2015 report provides an overview of State-owned power utility Eskom and independent power producers, as well as electricity planning, transmission, distribution and the theft thereof, besides other issues.
Construction 2015: A review of South Africa’s construction sector (PDF Report)
Creamer Media’s Construction 2015 Report examines South Africa’s construction industry over the past 12 months. The report provides insight into the business environment; the key participants in the sector; local construction demand; geographic diversification;...
Liquid Fuels 2014 - A review of South Africa's Liquid Fuels sector (PDF Report)
Creamer Media’s Liquid Fuels 2014 Report examines these issues, focusing on the business environment, oil and gas exploration, the country’s feedstock supplies, the development of South Africa’s biofuels industry, fuel pricing, competition in the sector, the...
Water 2014: A review of South Africa's water sector (PDF Report)
Creamer Media’s Water 2014 report considers the aforementioned issues, not only in the South African context, but also in the African and global context, and examines the issues of water and sanitation, water quality and the demand for water, among others.
This Week's Magazine
While strongly welcoming the promulgation of the new Part 101 of South Africa’s civil aviation regulations, governing the commercial operation of civil remotely piloted aircraft (RPAs) in South Africa, the Commercial Unmanned Aircraft Association of Southern Africa...
LSM Distributors has contracted engineering consultancy WSP | Parsons Brinckerhoff Africa to undertake the R100-million restoration of the 54-year-old Kyalami racetrack, situated in Midrand. The restoration will assist in re-establishing it as a venue for...
South African Defence Minister Nosiviwe Mapisa-Nqakula has expressed the hope that the defence budget will be significantly increased over the next five years. She did so while addressing the media in her recent budget vote media briefing. The 2015/2016 defence...
The African Development Bank (AfDB) has been an implementing agency for the Global Environment Facility (GEF) since 2008. The relatively young portfolio has 28 projects over 30 countries on the continent according to the 2014 AfDB and GEF annual report released...
Investment in South African youth through apprenticeships and learnerships will not only create direct benefits for businesses but will also contribute significantly to job creation and socioeconomic transformation in the country.