SA’s IPP project sets the stan­dard

CityPress - - Voices - Brenda Martin voices@city­press.co.za

It is im­por­tant to reg­u­larly pause, re­flect and ap­pre­ci­ate a job well con­ceived and well ex­e­cuted. Back in 2010, gov­ern­ment made the bold de­ci­sion to cre­ate a leg­isla­tive and prac­ti­cal en­vi­ron­ment in which the de­part­ment of en­ergy could pro­cure power gen­er­ated by pri­vate en­trants to the mar­ket. This de­ci­sion was in­formed by the need to di­ver­sify and strengthen South Africa’s en­ergy mix, and to ig­nite and main­tain eco­nomic growth.

The pro­gramme would pro­cure – com­pet­i­tively and trans­par­ently – pri­vate power from the coal, gas and re­new­able en­ergy sec­tors. At that time, South Africa’s power mix was dom­i­nated by coal, which was sourced by Eskom for its own power plants.

With the first in­de­pen­dent power pro­cured in 2012, the pro­gramme has seen 1 000 megawatts of coal and 14 725 megawatts of re­new­able en­ergy power pro­cured, with the first gas pro­cure­ment set to be­gin this year. The re­new­able en­ergy pro­gramme has at­tracted R194 bil­lion in new in­vest­ment, of which 27.5% rep­re­sents the for­eign di­rect in­vest­ment share, with the bal­ance se­cured from South African fi­nan­cial in­sti­tu­tions. This rep­re­sents the largest source of in­vest­ment growth in the econ­omy in re­cent times. It has cre­ated the much-needed fi­nan­cial space for Na­tional Trea­sury to in­vest in the so­cioe­co­nomic wel­fare of the coun­try through its budget al­lo­ca­tions for education, health­care and so­cial grants.

The pro­gramme has cre­ated 26 790 jobs, of which 47% are oc­cu­pied by youth and women. A to­tal of R92.1 bil­lion has been com­mit­ted over the 20-year con­tract pe­riod to so­cioe­co­nomic de­vel­op­ment al­most ex­clu­sively in ru­ral com­mu­ni­ties. A to­tal of R65.5 bil­lion has to date been spent on pro­cure­ment from broad-based em­pow­er­ment com­pa­nies.

Per­haps of even greater value from a tax­payer’s per­spec­tive, the re­new­able en­ergy pro­gramme has de­liv­ered its power on budget and on time 98% of the time. This is re­mark­able on a con­ti­nent where in­vestors in in­fra­struc­ture typ­i­cally lower their nor­mal ex­pec­ta­tions of de­liv­ery and per­for­mance.

Not sur­pris­ingly, the ap­petite among in­vestors and devel­op­ers for the chance to bid in suc­ces­sive rounds opened by gov­ern­ment grew rapidly and re­mains high, with the re­sult that costs of re­new­able elec­tric­ity de­liv­ered to the grid have be­come com­pet­i­tive. The CSIR has es­ti­mated that re­new­able power now costs 40% less than that of new coal and nu­clear power.

At the same time, the in­dus­try has been praised for its strict adherence to bid­ding pol­icy and le­gal guide­lines, and for work­ing with the pre­cau­tion­ary prin­ci­ple as a pri­or­ity in its op­er­a­tions. By the same to­ken, gov­ern­ment’s se­lec­tion of pre­ferred bid­ders has not once been chal­lenged, in­di­cat­ing that the in­dus­try has much con­fi­dence in gov­ern­ment’s ap­pli­ca­tion of its own rules. Key to all of this has been the lead­er­ship and cus­to­di­an­ship of the de­part­ment of en­ergy and Na­tional Trea­sury. Their com­bined ef­forts are man­i­fest in the ef­fec­tively run In­de­pen­dent Power Producer (IPP) Of­fice. Its track record of ser­vice ex­cel­lence en­sured that, by late 2015, the re­new­able en­ergy pro­gramme had de­vel­oped a solid rep­u­ta­tion for sta­bil­ity, pre­dictabil­ity and suc­cess. Since then, the pro­gramme has been stalled, pend­ing con­clu­sion of 37 duly pro­cured power pur­chase agree­ments with the monopoly util­ity, which is still the sole buyer of in­de­pen­dent power. While Eskom has ex­pressed many con­cerns re­lat­ing to af­ford­abil­ity, these have been re­peat­edly ad­dressed by the Na­tional En­ergy Reg­u­la­tor of SA, Na­tional Trea­sury and the de­part­ment of en­ergy.

The clear di­rec­tion of the pres­i­dent in his state of the na­tion ad­dress in Fe­bru­ary, fol­lowed by fur­ther con­fir­ma­tion of high-level con­tin­ued sup­port for re­new­able en­ergy in­dus­try growth from the former fi­nance min­is­ter in his budget later that month, was fi­nally fol­lowed by an in­struc­tion from the then min­is­ter of en­ergy that Eskom get ready to sign out­stand­ing Power Pur­chase Agree­ments – to achieve fi­nan­cial clo­sure – by Tues­day.

The af­fected pre­ferred bid­ders im­me­di­ately be­gan the work of en­sur­ing that they were ready for this dead­line. Al­most two years had passed since the win­ning bids were an­nounced, so it was nec­es­sary to up­date all rel­e­vant doc­u­men­ta­tion, plans and com­mit­ments to re­flect cur­rent fi­nan­cial po­si­tions. Given that IPPs pay for their con­nec­tions to the grid, these quo­ta­tions also needed to be up­dated.

To­gether with the IPP of­fice, re­new­able en­ergy IPPs will gather in Cen­tu­rion to sign two of the three agree­ments re­quired to achieve fi­nan­cial clo­sure – the sig­na­ture of Power Pur­chase Agree­ments. Once all three agree­ments are signed, most IPPs will need just two years of con­struc­tion and com­mis­sion­ing be­fore they start sup­ply­ing power to the grid. Eskom pay­ments un­der the agree­ments are trig­gered only once elec­tric­ity is ac­tu­ally supplied to the grid.

If one wants an ex­am­ple of im­pec­ca­ble gov­er­nance work­ing with com­pet­i­tive en­ter­prise to pro­duce a public good that will de­liver well into the future – and there are few such ex­am­ples world­wide – one need look no fur­ther than South Africa’s IPP pro­gramme.

Martin is the CEO of the SA Wind En­ergy As­so­ci­a­tion and the chair of the SA Re­new­able

En­ergy Coun­cil

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