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Mar 19, 2009

New wind-energy partnership sets sights on 500-MW in SA by 2014

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A newly formed South African-European renewable-energy joint venture announced plans on Thursday for the development of 500 MW of wind-energy capacity in South Africa by 2014, and revealed that its first 30-MW venture would be “construction ready” by early 2010.

The joint venture comprises Irish wind-energy developer Mainstream Renewable Power, which will hold 85% of the new venture, and Genesis Eco-Energy, of South Africa.

Mainstream, which has a growing international project pipeline spanning four continents, would lend its experience, capital and fundraising muscle to the alliance, while Genesis would inject its local knowledge and an emerging portfolio of prospects in the Western, Eastern and Northern Cape provinces.

Mainstream’s chief development officer Torben Andersen said that the South African projects would be financed through a combination of equity and debt.

He added that he remained confident that there was sufficient appetite from domestic and foreign banks to enable an 80:20 debt-to-equity split, despite the credit crisis.

But the South African projects would hinge materially on the outcome of the National Energy Regulator of South Africa’s (Nersa’s) deliberations regarding a so-called renewable energy feed-in tariff, or Refit – a decision on which was due by the end of the month.

The joint venture had made a submission to Nersa indicating that wind-energy projects would require the Refit to be set at around R1/kWh, as opposed to the 65c/kWh proposed in Nersa’s consultation paper.

“We believe that the level proposed by the regulator was based on outdated capital-cost figures for the industry and we are hopeful that the final tariff will be adjusted to reflect current realities,” Genesis Eco-Energy’s Davin Chown said at a media briefing in Johannesburg.

Nersa, which was initially expected to make its Refit determination on March 9, was currently expected to make its adjudication on March 30.

The tariff structure was being pursued in support of government’s target of having 10 000 GWh of renewable energy projects in place by 2013.

Andersen asserted that, while wind would require a higher tariff than a coal-fired station, its inclusion into South Africa’s energy mix would also lower the overall risk associated with primary-energy price volatility. It would also reduce the need for peaking capacity, which was about three times more expensive than its R1/kWh proposal.

However, he cautioned that if the Refit was set at too high a level it would also encourage suboptimal wind projects on sites where the wind resource blew at a rate of lower than 7 m/s.

Mainstream was pursuing similar roll-outs in other regions of strong demand and policy support. It had already raised R1,27-billion in equity and mezzanine finance, including R260-million from Barclays Capital, which had taken a 14,6% position in the company. It had also recently concluded a R9,9-billion joint venture to build a 400-MW portfolio in Chile; a R6,6-billion joint venture deal in Alberta, Canada to build over 400 MW of wind energy by 2013; and had been awarded the exclusive right to develop a R13-billion offshore wind farm in Scottish territorial waters, with a potential capacity of 360 MW.

JEFFREY’S BAY LIKELY TO HOST FIRST R600M PROJECT

Chown indicated that its most advanced project was its R600-million, 30-MW prospect on a dairy farm near Jeffrey’s Bay, in the Eastern Cape, which was due to receive its environmental approval soon.

He said that the project was scheduled to move into the construction phase early in 2010, with commissioning planned for late 2011.

An analysis of the site and its wind map indicated that it would be able to deliver into the grid at a consistent average of 10 MW as measured over a period of a year.

Genesis was also pursuing a 50-MW project in the Southern Cape, a 65-MW facility in Lambert’s Bay and was optimistic of reaching an agreement with local communities and landowners in the St Helena Bay area.

In many instances, the wind facilities would coexist with farming activities, with farmers benefiting from long-term lease agreements.

The joint venture planned to employ proven turbine technology, with nameplate capacities of between 2 MW and 2,5-MW, which it would secure from established vendors such as General Electric, Siemens and Vestas.

It was also not overly concerned about the single-buyer model that had been proposed by government, whereby Eskom would establish power purchase agreements with all independent power producers, including renewable suppliers.

Further, Andersen was unfazed by the prospect of Eskom upscaling its involvement in wind through the development of a 100-MW wind farm, saying it would provide the utility with a deeper insight into wind as an energy technology.

“There are a lot of benefits that could arise from having the main operator of the grid understanding the operation of a wind farm,” Andersen averred, adding that he was in favour of the creation of both the market for wind energy, and for that market to be competitive.

Edited by: Terence Creamer
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