Grid constraint likely to translate to a renewables price premium, Magoro warns

Creamer Media's SA Energy Outlook 2024 Webinar was facilitated by Paul O'Flaherty (bottom right). The panel members were (from top left) James Mackay, Bernard Magoro, Mamiki Matlawa, Vaughan Hattingh and Compton Saunders.

24th January 2024

By: Terence Creamer

Creamer Media Editor


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Independent Power Producer (IPP) Office head Bernard Magoro has signalled that the projects bid during the current seventh renewables procurement bid window could carry a price premium, as bidders adjust to the spatial realities that have arisen as a result of the country’s prevailing grid constraints.

Through the bid window, which was launched in December, government is seeking to procure 3 200 MW of onshore wind and 1 800 MW of solar photovoltaic (PV) capacity and a bid submission deadline of the end of April has been set.

It is the first bidding round to be hosted following the partial failure of Bid Window Six, when only solar PV projects with a combined capacity of 1 000 MW advanced to a preferred-bidder stage after Eskom indicated there to be no remaining grid-connection capacity for those wind projects that had been vying for a 3 200 MW allocation.

The utility subsequently published a new Generation Connection Capacity Assessment, indicating there to be 19.9 GW of capacity available nationally, but zero remaining capacity in the Eastern, Northern and Western Cape provinces, where the majority of shovel-ready wind and solar projects are located.

Speaking during a Creamer Media webinar, Magoro noted that, of the remaining grid capacity, some 6 GW was in provinces that had hitherto attracted a significant number of IPP bids, including the North West, the Free State and Limpopo.

The residual capacity was located in provinces that had not previously featured prominently in the renewables programme, namely Gauteng, Mpumalanga and KwaZulu-Natal.

“Obviously, the message to developers is that they need to start moving into those areas to develop their projects.

“We understand that there are projects that are already ‘near ready’ in some of those provinces, but we must also understand that this will come at a premium for the buyer.

“Based on our previous bid windows, we have seen up to a 30% difference in the tariffs between the Cape region and areas such as Mpumalanga,” he reported.

Nordex Energy South Africa MD Compton Saunders, who is also a South African Wind Energy Association board member, also pointed to a possible timing mismatch for wind projects located outside of the three Cape provinces, as these were typically at a less advanced stage of development.

While there was turbine technology available for low-wind areas, Saunders said the main constraint was the time it took to progress a project to a point where it was considered to be bid-ready.

“Unfortunately, many projects that are mature in the Cape provinces are stranded, and it will take a couple of years for the non-constrained grid areas to fully develop projects to maturity.”

The physical grid connection, together with the rules governing access to the grid, were also highlighted by Actom’s Mamiki Matlawa and MDA Attorney’s Vaughan Hattingh as areas for urgent prioritisation and intensified stakeholder engagement.

Matlawa expressed an eagerness for the grid roll-out to be both accelerated and used as a stimulus for the local manufacturing and construction industries.

Hattingh, meanwhile, indicated that the shift to a ‘first ready, first serve’ approach should help debottleneck the grid-access process. Nevertheless, he suggested that greater attention should also be given to improving the contracting process and ecosystem, which was currently adversarial and not conducive to the type of partnering required to ensure accelerated project delivery.

Energy Council CEO James Mackay said that grid issues, along with a range of other challenges, were receiving high-level attention within the National Energy Crisis Committee that had been set up by President Cyril Ramaphosa to end loadshedding.

“We've never seen a more engaging government and Eskom,” Mackay said, noting that Ramaphosa was personally meeting with business on the issue every six weeks.

To rebuild trust and confidence, however, he said loadshedding had to be tackled as the priority by stabilising and improving the energy availability factor (EAF) of the Eskom coal fleet, while mobilising new investment.

“Our modelling has landed on a scenario that says as long as the EAF doesn't decline, and we keep the investment programmes and reform programmes moving forward, while keeping up with the collaborative engagement, we will be able to, from a societal perspective, end loadshedding by the end of 2024.”

Webinar facilitator Paul O'Flaherty, of EY-Parthenon Africa, underlined the importance of re-establishing security of supply as soon as possible, saying: "We have to address security of supply and we have to work together to get it done."


Edited by Creamer Media Reporter



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