Private producers likely to be SA’s generating engine
Norwegian energy company Scatec entered the SA market in 2010, and with 730MW of solar power generation in operation it is now one of the leading players in SA’s growing renewables industry.
It has won several bids under government-backed independent power producer (IPP) procurement programmes.
In December 2023 it officially started producing and supplying electricity to the national grid from the three Kenhardt plants in the Northern Cape, one of the world’s largest hybrid solar and battery energy storage projects.
Scatec was also one of the winning bidders in SA’s first grid-scale energy storage programme, winning a bid to develop a 103MW project in the Northern Cape at a cost of R3bn.
In an interview with Business Day, the company’s senior vice-president for asset ownership in Sub-Saharan Africa, Seithati Bolipombo, said they now stand ready to participate in new bidding rounds for state-backed power programmes and to grow their participation in the private offtake market.
Scatec is already an important player in the SA energy space. What are your growth aspirations in the country?
We were able to learn a lot from our early successes in the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) and this also allowed us to build a strong foundation in SA.
We have already invested R26bn in renewable energy projects over the course of rounds 1, 2 and 4 of REIPPPP and the project under development for our winning bid from round 5 will trigger further investment.
The company is now well placed for expansion and to participate in government procurement rounds, but we are also putting a big focus on the private market and supplying corporate and industrial SA with clean energy.
Government tenders have been our bread and butter, and we have a good understanding of the REIPPPP process, so we are very interested in participating in bid window 7 that was launched at the end of the year.
After being one of the winning bidders in the inaugural battery energy storage procurement round we will also look at bidding under the second battery round that was also launched in December.
Do you think the SA energy market is moving in a direction where it will make more sense for a company such as Scatec to prefer projects developed for private offtake rather than government-backed projects?
We are starting to focus more on private offtake projects, but this does not mean we are pivoting from public procurement rounds to private sector projects.
The REIPPPP helped us to establish a presence in the country while also supporting wider development in the country’s renewable energy sector.
But the private sector is changing so rapidly, and given the trajectory on energy trading in the future and [there being] ...effectively a moratorium on Eskom developing new generation capacity (this is one of the conditions of the threeyear Eskom debt relief programme approved by National Treasury last year), … the private sector will probably be the generating engine for power supply in SA.
Whether that is through procurement or the private sector — both are needed to grow the market.
What has been Scatec’s experience of the REIPPPP in SA? As a successful bidder, what about the process works well, and where can it be improved?
The REIPPPP has been lauded as a world-class programme. Along the way we have already seen some changes made to the format for the request for proposals, but the time is probably right to do a bigger overall redesign of some of these documents.
Much criticism has been levelled at the programme, mostly due to capacity issues at the IPP office, which has highlighted the need for further capacity expansion to process applications faster.
However, ultimately the department of mineral resources & energy also needs to approve decisions, which means that stronger co-ordination is required between the different government institutions to accelerate decision-making and unlock the maximum benefits of the procurement programme for the country.
Eskom moved recently to introduce new grid queuing rules to prevent IPP projects that struggle to reach financial close from “hogging” grid access. Early in January, four projects under the government-backed risk mitigation energy procurement round lost the grid connection capacity that was reserved for these projects when Eskom
announced that it would not grant any further extension for budget quotation for these projects that expired on December 31. Was this a wake-up call for the industry?
This was a necessary step by Eskom, and it gives a lot of credibility to the government procurement programmes.
In large infrastructure projects it is common to see delays, but it is necessary to see decisive action being taken that will free up grid capacity when projects face long delays to reach commercial close, because ultimately, when projects are delayed, it delays getting electrons on the grid and that is costing the economy.
This type of decisive action won’t have a negative effect on the investment climate — if anything, this type of action will probably attract more investors. One of the interventions Eskom is considering to open grid space in areas where there is limited capacity is mandatory curtailment. If they go this route, will this
affect your investment decisions in SA?
Curtailment happens in other parts of the world as well and to the extent that it opens grid capacity it is a good thing. We just need clarity about the mechanism that will be used because then we can price for it
— we cannot have a situation where it is a grey area. Competent players will adjust to the rules and operate accordingly, I don’t think it will affect the investment climate for renewables in SA.
Scatec’s project under the risk mitigation procurement rounds, the Kenhardt project, which includes 540MW solar and 225MW/1,140MWh battery storage, officially started producing and supplying electricity to the national grid in December. What does this mean for SA?
The project will deliver 150MW of dispatchable power to the grid from 5am to 9.30pm year round. The projects will serve as on-demand dispatchable renewable energy to the grid — a first of its kind in SA, and the largest of its size group in Africa, Europe, and the Middle East.
This project proves that dispatchable renewables are the way of the future.
Unlike hybrid renewable and battery projects, in any IPP that includes a fuel component, such as gas, the government bears the price risk associated with the commodity and as that commodity is mostly denominated in a foreign currency, the government also bears the foreign exchange risk.
In this case, the government will not have any foreign exchange risk, resulting in dispatchable energy that is more cost effective for the government and for the country.