SA green energy hit by doubt
The state’s inertia has cost the country jobs and investment, and the decision to drop what it will pay is a blow to energy producers
South Africa’s renewable energy programme is a victim of its own success. After two years of stalling and silence, the government wants to renegotiate the terms of winning bids. The national energy regulator (Nersa) has been slow to help the clean energy sector. And now organised labour is demanding that no more renewable energy should come on line (See “Cosatu adds to renewable energy woes”).
As a result, the future of the green energy industry is trapped in limbo and investment is being withdrawn or directed elsewhere.
Last year SMA Solar closed shop in South Africa and other solar equipment manufacturers are rumoured to soon follow.
In May, the DCD Group sold its majority share in the R500million DCD Wind Towers, in the Coega industrial zone outside Port Elizabeth.
Additionally, investments worth billions of rands didn’t materialise because the Renewable Energy Independent Power Producers Procurement Programme (REI4P) stalled. For example, Windlab Africa, a global renewables company, developed two facilities in South Africa but, as is the case for other renewable energy developers, it has been prevented from doing more.
Overall a total of R60-billion in investment annually has been put on hold. In 2016, more than 80% of foreign direct investment came from the renewables sector, according to Windlab. Because of the impasse, Windlab said it has been forced to invest elsewhere in Africa and now has projects in the pipeline in Tanzania, Mozambique, Zambia, Ethiopia and Kenya.
LM Wind Power, a wind blade manufacturer, was scouting for sites in South Africa. Instead, the company opened one of its new blade plants in Turkey in July this year.
It is not clear what the industry faces following the recent announcement by the new energy minister, Mmamoloko Kubayi, that independent power projects, the preferred bidders for rounds 3.5 and 4 of the REI4P, could resume. This follows talks between the departments of
energy and public enterprises and Eskom, which had refused to sign new power purchase agreements.
But the department of energy announced the independent power producers (IPPs) will have to drop their prices to below 77c per kilowatt-hour (kWh). Eskom has said this is the price at which it can absorb the cost of the renewables. So any projects for more than that will have to be renegotiated, and those whose costs are much higher could be dead in the water.
Chris Ahlfeldt of Blue Horizon From that point of view, if government is committing to do something we say ‘that’s a good first step’. Whether what they have done is the right thing is another matter completely … The options [seemed to be] to do nothing, or do something completely unsuited.”
Chown said the industry wants to understand how the government arrived at the 77c/kWh as the maximum price. There was concern that the government had until now only been informed by Eskom’s view, “which we believe is flawed and incorrect”.
The department of energy said the impasse had been broken with the help of a technical team when the departments and Eskom met, and it expected Eskom to honour this.
“Eskom, as part of the technical team, was part of the discussions and agreements and we do not foresee any challenge in implementing what was agreed by all consulted in the meeting,” said Nomvula Khalo, of the department of energy.
Chown said: “This baby step at least gets everyone around the table and we have to start to talk about it.”
But Mark Pickering, the chairperson of the South African Wind Energy Association (Sawea), said the proposed renegotiation of these contracts was clearly so illegal it was hard to take it seriously. “On the face of it, the minister’s position is untenable, and illegal, which means it’s not actually real.”
Eskom has divided the IPP community, he said, explaining that some wanted to continue discussions, and others wanted to rush off to the courts and challenge the minister.
Asked why IPPs had not made any moves in two years, Pickering said: “In a word, it’s hope … they thought something would have happened.”
But the IPPs are frustrated because they have been wanting to discuss the announcement with the minister since it was made two weeks ago, but she has not been available.
The department said that the IPP office has been mandated to negotiate with the IPPs based on the maximum price of 77c/kWh, and said the minister would talk to the IPPs.
But Pickering said: “Quite a lot of developers have a mixture of projects. There are about 47 projects [on the line] but, when you get down to it, there are only 15 controlling interests behind all of those.”
So the developers could seek to finalise some of the projects and consider going to court over the rest.
But the industry insider did not think the renewables developers would go to court. “For a lot of big companies, it’s probably not worth it to sue. They would have burnt a few million but, in the broader scheme of things, they would probably just move on and go elsewhere.”
In a statement this week, Sapvia said the IPPs would consider the legal, financial and credit-risk implications for their projects and, once they had evaluated their positions and made a decision on whether they are willing to proceed under the new conditions, the association would support them.
Ahlfeldt said: “These recent price renegotiations, hiring and firing of multiple energy ministers and multiyear delays damage government credibility and ultimately increase risks for future investment.”
Eskom did not respond to questions.