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Urgent need to address grid constraints in high-yield renewables areas - Magoro

IPP Office CEO Bernard Magoro

IPP Office CEO Bernard Magoro

3rd November 2021

By: Terence Creamer

Creamer Media Editor

     

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Grid constraints in South Africa’s high-yield renewable-energy areas need to be addressed urgently, Independent Power Producer (IPP) Office CEO Bernard Magoro has again warned.

Reflecting on the lessons learned from the most recent renewables procurement round during a Power Futures Lab webinar, Magoro said that government had been unable to procure several extremely competitively priced projects during bid window five (BW5) because of an absence of grid capacity.

Following the bidding round, through which 25 projects with a combined capacity of 2 583 MW were identified as preferred bidders, Eskom confirmed that there was no longer grid capacity in the sun-drenched Northern Cape and that the network in the Western Cape was at saturation point.

Magoro said the State-owned utility would need to urgently confirm what capacity remained ahead of BW6, currently scheduled for launch in January.

Likewise, the impact on grid capacity of the recent reform allowing distributed plants below 100 MW in size to sell electricity to third parties and wheel electricity through Eskom and municipal networks would have to be assessed.

Eskom strategic grid planning manager Ronald Marais said that Eskom was assessing various interventions for unlocking more capacity in the Northern Cape, noting that at the start of the renewables programme in 2011 only 1 000 MW of capacity had been available in the province which had been expanded to 3 000 MW by BW5.

He confirmed that Eskom was studying the use of battery energy storage as a short-term solution for easing the grid constraints and for boosting load in the Northern Cape and that the initial results were promising.

“But the constraints will only be alleviated for a period of time and grid strengthening still remains critical to ensure that the grid remains stable and to ensure that we can connect the renewables in time.

“So, we see the batteries as a mitigating factor to buy time,” Marais explained, adding that the acquisition of land for transmission servitudes remained a serious problem that also had to be solved.

Magoro said that, although there had been no formal resolution on how the renewables procurement programme could be aligned with Eskom’s unfolding just energy transition strategy, one option could involve directing IPPs to build in Mpumalanga, where the grid constraints were absent.

“That’s only my view at this point, as we have not had an engagement on the issue and there hasn't been formal agreement with Eskom on how we can collaborate on the just energy transition.”

ALTERNATIVE GOVERNMENT SUPPORT?

Besides the grid constraint, Magoro reported that the IPP Office was also canvassing alternative government support mechanisms to sovereign guarantees.

However, there was a concern that the removal of the guarantee could result in an increase in future tariffs, which have fallen with each successive bid window.

In fact, at a combined weighted average of 47c/kWh, the wind and solar PV tariffs bid during BW5 were the lowest yet secured domestically.

Expressed in April 2021 terms, the BW5 tariffs were 54% cheaper than the 103c/kWh secured during BW4 and a step change from the 312c/kWh, 205c/kWh and 165c/kWh achieved during bid windows one, two and three.

Marogo said discussions on possible alternatives to the guarantees were already under way; a statement confirmed by Standard Bank power and client coverage head Rentia van Tonder, who disclosed that two meetings had already been held with lenders on the issue.

“We are certainly open to any engagement on the sovereign underpin, which to a certain extent has definitely supported the current competitive behaviour among IPPs and the level of tariff that we’ve seen.

“From our perspective, all of this needs to be seen in a future context of an unlocked power market that is moving in the direction of a merchant market and how soon those reforms may materialise, because you can’t just look at one solution in isolation.

Globeleq South Africa Management Services MD Dhesen Moodley said the tariffs achieved in BW5 were reflective of both the quality of the programme and the sovereign guarantee behind it.

Globeleq, in a consortium with Mainstream Renewable Power and Africa Rainbow Energy & Power, secured six wind and six solar PV projects with a total of 1 274 MW of generation capacity, making the consortium by far the biggest BW5 winner.

“I understand the pressure on government to say that, in order to continue with this, we need to release some pressure on the government balance sheet.

“But it has to be done progressively, and to the extent that it is done, it may result in tariffs going up from where we are now as the risk profile increases,” Moodley said.

Edited by Creamer Media Reporter

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