South Africa: REIPPP Round 5, Mixed Messages and the COVID-19 Effect

Opinion

  • It looks like the programme will be further stalled by the coronavirus pandemic effect. 

South African President, Cyril Ramaphosa has extended the country’s three-week lockdown to five weeks, with further extensions most likely. Electricity usage in South Africa has dropped by between 7 500MW and 9 000MW since the lockdown came into effect, flipping the country from a crippling generation deficit to a generation surplus.

South Africa’s economic outlook did not look great before the COVID-19 outbreak and will look even bleaker post the COVID-19 effect. The average demand for energy is expected to drop post-COVID-19, prompting speculation of whether new generation capacity will be needed.

To add fuel to the fire, a week into lockdown, Eskom served force majeure notices to 22 operational wind farms, who have a combined installed capacity of 1980 MW. Read more

“Eskom has indicated in their letter to IPPs that they will make provision for the extension of the Power Purchase Agreement period to make up for the curtailment period, however, we are concerned about the immediate impact this will have on shareholders, particularly, Broad-Based Black Economic Empowerment partners and community trusts, who have loans to repay. The industry will be approaching Eskom with a view to finding a constructive resolution that does not prejudice the country nor the power producers,” comments Ntombifuthi Ntuli, CEO of the South African Wind Energy Association (SAWEA).

Eskom’s unbundling programme also seems to have stalled under the COVID-19 effect. The proposed splitting of Eskom into generation, transmission, and distribution was originally announced by President Ramaphosa in early 2019. The move has seen a big push back from labour unions citing major job losses. The new transmission company, when it does materialise, will be responsible for procuring electricity from IPP’s.

Independent power producers and potential investors are now worried about the certainty of Round 5 happening this year. They are also worried that the added off-taker risks arising from the COVID-19 effect may also make the cost of borrowing financially unviable for future renewable energy projects in the country.

Encouraging recent announcements to include the appointment of Tshifhiwa Bernard Magoro, as the new head of the Independent Power Producers Office (IPPO). Magoro brings 20 years of technical, managerial and leadership experience in the sector. He played a direct role in the REIPPP Round 4  development and enforcement of the first renewable grid code in South Africa. It is believed that Magoro will bring stability to the IPPO. Read more

Related news: NERSA Appoints ex PetroSA Boss as Head of Electricity Regulation

That South Africa needs additional generation capacity is in no doubt. Only two months before the COVID-19 outbreak in South Africa, the country’s energy and minerals minister, Mr Gwede Mantashe, issued a Request for Information tender intended to analyse options to procure between 2000 – 3000 MWs of power generation capacity that can be grid-connected in the shortest time at the least possible cost. Read more.

In late March 2020, Mantashe gazetted an amended version of Schedule 2 of the Electricity Regulation Act, 2006 (Act 4 of 2006). The schedule exempts – under certain circumstances – categories of generation facilities and resellers from the requirement to hold a generation licence for projects under one megawatt.

Eskom is also using the drop in demand to carry out important short-term maintenance of our generation infrastructure. They have increased planned maintenance to 9 032MW gearing up to possibly deliver more reliable generation capacity post lockdown. Read more

Does this mean that post lockdown, Eskom expects the demand for electricity to ratchet up to pre-COVID-19 levels? If so, Eskom will need additional generation capacity from independent power producers. The capacity allocated in the IRP for Round 5 is around 1600MW for wind and about 600MW for solar PV. Considering that delivering this capacity will have a time lag of around two and a half years, the lack of urgency is confusing.

Author: Bryan Groenendaal

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