There was an overwhelmingly positive reaction from developers, investors, financiers and suppliers on Monday, November 5, to the eventual signing of the agreements needed to facilitate the entry of the first large-scale renewable-energy projects into South Africa, some of which should begin producing during 2014.
By midday, the South African government, Eskom and the independent power producers (IPPs) began physically signing the power purchase, implementation and direct agreements for projects, collectively representing an investment value of around R47-billion and wind and solar capacity of around 1 415 MW.
Department of Energy (DoE) director-general Nelisiwe Magubane was designated by Energy Minister Dipuo Peters to sign the implementation agreements on behalf of government, while Eskom executive Kannan Lakmeeharan initialled the power purchase and direct agreements with the 28 IPPs – a process scheduled to continue for about six or seven hours.
The agreements, struck at exchange rates of R8.77 to the US dollar, R11.25 to the euro and R14.06 to the British pound, open the way for the developers to reach financial closure over the coming few weeks – this, in turn, would facilitate the necessary financial drawdowns required for construction to start.
For government and Eskom the delay in the conclusion of the agreements (from the initial scheduled date of June) meant that the projects were signed at spot exchange rates that were less favourable, given that the rand had weakened, particularly since the tragic events that unfolded near the Marikana platinum mine on August 16.
Some developers have already started with limited site preparation. But many others plan to now finalise their procurement and construction arrangements, which should result in large-scale construction beginning only after the builders’ holiday in January 2013.
The projects signed with the DoE and Eskom on Monday form the vanguard of a larger renewables procurement process, known as the Renewable Energy Independent Power Producer Programme (REIPPP), which was initiated in August 2011.
Under the arrangement, government initially planned to procure 3 725 MW of renewable capacity by 2016. But work was currently under way to convert the REIPPP into a rolling programme, with Peters confirming in late October that an additional 3 200 MW would be allocated to the scheme and its schedule extended to 2020.
Addressing developers and officials at a secure facility in Centurion, Gauteng, set up to facilitate the signing of the documentation, Peters acknowledged that “reaching this milestone has been highly challenging and the road ahead is still long”.
But she said the signing underscored South Africa’s commitment to renewables and to a more sustainable and geographically diversified future energy mix.
Lakmeeharan emphasised this point, arguing that South Africa’s future electricity industry would not only be lower carbon, but also comprise a generation platform that was far more distributed than was the case currently, whereby most of the country’s electricity is generated in the Mpumalanga province.
The two concentrated solar projects (CSP) were both located in the Northern Cape, while the 18 solar photovoltaic (PV) and eight onshore wind projects spanned the Northern Cape, Eastern Cape and Western Cape, Free State, Limpopo and the North West provinces.
The wind projects represented 633.99 MW of the 1 415.52 MW allocated during the first bid window, while solar PV projects collectively comprise 631.53 MW and CSP 150 MW.
The first bid-window projects would be delivered at R1.14/kWh for wind, R2.76/kWh for solar PV and R2.69/kWh for CSP – all these tariff prices fell during the second bid window. Eskom’s wholesale tariff currently stands at around 66c/kWh and could rise to a nominal R1.28/kWh should it be granted five increases of 16% a year between 2013 and 2018.
The South African Wind Energy Association (Sawea) described the signing as a significant milestone. Sawea chairperson Jasandra Nyker also welcomed the fact that an additional 1 470 MW had been set aside for onshore wind as part of the additional 3 200 MW to be acquired by 2020.
The South African Photovoltaic Industry Association (Sapvia) also welcomed the signing of the first agreements and commended government for providing the bidders with further clarity on the future of the procurement process. Sapvia spokesperson Chris Haw said the developments sent a positive message to foreign investors and companies looking to manufacture equipment locally.
Developers were also pleased, with Basil Read Energy’s Ian Curry telling Engineering News Online that the signing had laid to rest much of the anxiety that arose when the REIPPP was initially delayed. “This reinforces that South Africa is serious about renewables and that it is a future growth industry,” Curry said. Basil Read Energy is part of the consortium developing the R500-million, 27 MW MetroWind Van Stadens wind farm, in the Eastern Cape.
Red Cap's Mark Tanton told Engineering News Online that reaching the point of financial close was an "incredibly rewarding and exciting moment - the beginning of something momentus." Red Cap is pursuing the development of the R2-billion, 80 MW Kouga wind project, located 70 km to the south-west of Port Elizabeth, at Oyster Bay.
Building Energy CEO Fabrizio Zago, whose company is developing the 81 MW Kathu solar PV project, in the Northern Cape, praised the REIPPP framework as being “modern and efficient”. “The dedication of government and its team of advisers have implemented possibly the best IPP programme in the world," Zago said.
This view was supported by Gestamp Wind CEO Dionisio Fernandez Auray, as well as the group’s international market director Carlos Rodriguez Tortosa, who told Engineering News Online that, while the REIPPP involved intensive upfront preparation and investment, securing all the agreements at once also helped reduce uncertainty and, therefore, overall risk to the investor.
Gestamp Wind is developing the 72.75 MW Nobelsfontein project, located near Victoria West, in the Karoo, with its partners Shanduka, South African Renewable Green Energy and community groups.
Pele Green Energy executive director Fumani Mthembu said reaching financial close on the 36 MW Touwsrivier solar PV project was a crucial step in the development of the company as an IPP. But he added that the “hard work for ourselves and our partners begins now and our commitment is to ensure that we put power onto the national electricity grid as per schedule and make a meaningful impact on Touwsrivier, the community in which our power plant will be located”.
The supplier community was also enthused, with Consolidated Infrastructure Group (CIG) CEO Raoul Gamsu saying that the company was “thrilled” that the sector was finally taking off. “It provides a required sustainable pipeline of electricity supply for South Africa and excellent growth prospects for CIG”.
Localisation remained a key thrust and government intended raising the local-content thresholds in future bidding rounds.
Peters said government was committed to building local manufacturing capacity around the renewables roll-out, having estimated that there would be R18-billion worth of local content expenditure arising from the first projects. “The commitment relating to local content needs to be improved from one bid window to the next,” she stressed.