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Tuesday, September 25, 2012

Being green in South Africa is not easy - IPP delays


It's not easy being green in South Africa – but the rewards are great
Eskom's 3.2MW Klipheuwel wind farm in the Western Cape
 Photograph: Warren Rohne
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The government stunned the renewables industry two weeks ago by announcing it would delay the submission deadline for Round 3 projects until May 2013 — having originally slated it for 1 October.

While public-sector delays are de rigueur in South Africa, developers were surprised and bewildered by the length of the hold-up.

Meanwhile, Round 1 projects — awarded at the UN climate talks in Durban last December — were supposed to have reached financial close and been handed power-purchase agreements (PPAs) by June. But they also remain in limbo, with the government as yet unable to finalise its own internal approvals.

Industry sources say Round 1 projects, totalling 1.4GW, are unlikely to receive PPAs until late October at the earliest. Round 2 projects — awarded in May — also face delays.

Developers and industry players express deep annoyance with the government’s performance to date — as well as fears that it may not have the political backbone to iron out some of the sector’s looming challenges.

Still, all admit they remain committed to South Africa because of its combination of a desperate need for power, vast renewable-energy resources and — recent delays notwithstanding — the relatively straightforward nature of its tendering system.

South Africa intends to allocate 3.7GW of wind and solar by 2016 via a series of tender rounds, on its way to 18GW of capacity by 2030. Many experts believe a renewables boom in the country could have huge consequences for the whole of sub-Saharan Africa.

But the government admits that the sheer volume of work, as well as its inexperience with renewables technologies, has caused it to fall behind schedule.

“Even if that’s true, I don’t see why they had to delay the [Round 3] bid submission date,” one developer tellsRecharge.

“I can understand extending the length of time between bid submission and financial close — that clearly is taking more time than expected. But getting people into the system shouldn’t be a problem —they’ve done just fine on Rounds 1 and 2.”

However, Matthew Ash, director for South Africa at the law firm Norton Rose, accepts the government’s line that it is simply overburdened, and that nothing more sinister is at play.

“Clearly a lot of people are going to be disappointed with the delays,” says Ash, who represents several developers. “But to be fair to government, there’s a big learning curve for everybody.

“I don’t think any government in the world has ever tried to close 27 major [Round 1] renewables projects like this at the same time.”

Ash argues that the only thing worse than delaying the bidding rounds would be making early mistakes that could sow the seeds of doom for South Africa’s renewables programme.

“At the end of the day, the government’s job is to procure the most generation capacity for the best price, while promoting economic development,” he says.

“It’s certainly not in their interest to cause unnecessary delays. We’ve got an energy crisis in this country — I can assure you they want to get on with this.”

Any developer that was intending to submit a bid on 1 October will already have spent the upfront money to get its application polished, and will not face many new costs, Ash contends.

But many developers disagree, saying that a seven-month freeze will inevitably lead to wasted resources — which, for some, were in short supply to begin with.

Opposition politicians, taking the opportunity to thrash President Jacob Zuma’s African National Congress-led government, note that smaller, local developers — exactly the sort the government hopes to encourage — will be hit hardest by the delays.

For developers that intended to bid next month, another unwelcome effect of the delay will be to make Round 3 more competitive than it otherwise might have been.

Due to the extreme thoroughness of the project-evaluation process — which includes onerous local-content requirements, and is done through the prism of South Africa’s Black Economic Empowerment system — many developers had planned to hold their projects back for later bidding rounds.

With an extra seven months to work with, however, many developers that would not have been ready by October will now be able to bid in Round 3.

Another concern hinges on what happens after Round 3. The government has indicated its intention to hold five initial bidding rounds. Recently, it suggested that after those rounds it will allocate another 1GW of capacity each year as part of a rolling tender until the overall target has been met.

“The big uncertainty now is what happens post-Round 3,” says Duncan Ayling, head of development at RES Southern Africa. “Such as the Round 4 tender — when would that be?”

Yet for all the delays, and the inevitable challenges, developers are nearly united in their belief that renewables still have a bright future in South Africa.

Asier Mata, global head of mergers and acquisitions at Spain’s Gestamp Solar, agrees that South Africa has come up short on the execution side, rather than the programme’s design. And execution is far more correctable in the long run, he says.

“Overall, people like [South Africa’s] system,” says Mata, whose company is building two steel facilities in South Africa to supply the wind and PV industries.

“It has its particularities, but on balance, the system is similar to many countries in Europe, so a lot of the experienced developers are comfortable with it.”

Ayling says that despite the setbacks, he is convinced there is a “clear commitment to renewables in South Africa”.

Many developers say that when they want further convincing, they need only look at South Africa’s yawning energy gap to stiffen their resolve. The country has faced crippling blackouts in recent years.

Winning Round 1 wind projects bid an average of R1.15 ($0.139) per kWh. The average price fell to about R0.90/kWh in the second round, and will fall even further in Round 3, sources say.

By comparison, the 4.8GW Medupi coal-fired power plant being built in Limpopo province will reportedly deliver electricity for R0.97/kWh.

For a variety of reasons — not least vested political interests — coal will remain the dominant source of power in South Africa for the foreseeable future, experts say. Coal-fired plants currently produce 84% of the country’s generation capacity.

A creaky grid and ‘messy’ politics still problematic

Experts have seized on the delays in South Africa’s renewables tenders to highlight other looming energy-related challenges.

One commonly cited obstacle is the country’s creaky grid, which was largely designed to flow electricity generated at coal-fired power plants in the north to population centres along the southern coast.

The “majority” of Round 1 projects have had their grid-connection times revised backwards by state-owned utility Eskom, claims one industry source.

Others point to an emerging anti-wind lobby in the country, which could ultimately force developers to confront many of the political and legal thickets faced in Europe.

But by far the biggest source of concern is the government itself, and its perceived lack of efficiency.

“There’s a lot of messy inter-departmental politics involved in approving some of these projects,” says one developer.

“My long-term nervousness stems from whether the government will be able to keep the various departments in line.”

Karl-Erik Stromsta, London

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1 comment:

Pierre Louis Lemercier said...

I believe this was to be expected. The imposition of nuclear in the IRP2, the volte face regarding the dismantling of Eskom, the replacement of the very open, transparent and flexible REFIT system by a complicate and very expensive REBID system....have been all along indications that the Govt does not want to change from the old apartheid paradigm of large and centralise sector to mainly supply the large consumers centrally placed through large base load plans... It is therefore not ready to simplify, decentralise and open the sector to the smaller one as it would make senses for the rapid creation of job and local development.


Same old system that the Govt seems to keep for their own interests and illusion to "be able" to work for the continent !!!. If it could come back to the reality and firstly try to resolve local before external problems. regard S. pl

pl