Policy a hurdle for renewables

By Time of article published Sep 26, 2013

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Londiwe Buthelezi

The price of renewable energy to be produced by independent power producers (IPPs) in phase three of the Department of Energy’s procurement programme was expected to almost be in line with the selling price of coal-generated electricity, it was revealed at the Windaba wind energy conference in Cape Town yesterday.

Information about the chosen bidders and projects for the third window of the department’s renewable energy IPP procurement programme has not yet been made public.

The chief executive of the SA Wind Energy Association, Johan van den Berg, said there had been talk that prices of producing a kilowatt-hour of renewable energy in the third window projects could be slightly above the current electricity selling price.

The department is expected to announce the chosen bidders on October 29.

But as renewable energy producers pulled out all the stops to reduce costs, the wind energy industry has warned that the local content requirements and lack of clarity in the country’s energy policy would not allow it to decrease costs fast enough.

“The industry is caught between two conflicting mandates. One is producing large quantities as cheap as possible… The other is to localise production which, in the short-term, makes wind energy the most expensive. To have a cheap wind market we need goals that are clear, rules that are clear, and minimal interference from the government,” said Steve Sawyer, the secretary general of the Global Wind Energy Council.

Sawyer said wind and solar energy prices had turned out to be much lower than government expectations but there seemed to be no will to expand the renewable energy sector’s contribution to the country’s energy mix.

Van den Berg said the industry was confident that the wind energy target of 9 000 megawatts by 2030 could be expanded. This was despite the fact that in the past 10 years, wind power capacity had stalled at 10MW in South Africa and had not had any grid connection.

By the end of last year, construction of more than 600MW of wind power capacity was under way and the figure is now estimated to be near 1 200MW. But without long-term commitments of sizeable annual allocations for wind power in the energy mix, producers said it was unlikely global companies would risk investing in local manufacturing.

“As a medium-sized company, we are conservative not to invest too much in any market when there are no commitments over five to 10 years,” said Anne Henschel, the managing director of Nordex Energy South Africa.

Nordex has two wind farms in execution and the construction of another will begin next year. The biggest will have 56 turbines.

Richard Gordon, the chief executive of AIIM Renewables, whose projects include Umoya Energy and Africa Clean Energy Development that were both chosen under the IPP procurement programme, said long-term commitments from the government were more important to the company than the implementation of the Independent System and Market Operatoe Bill, which is aimed at helping incorporate IPPs into the grid.

He said at the moment, uncertainty and the complexity of the IPP procurement programme presented a major hurdle for the industry to overcome.

“It is a very complex construction environment. There are over 40 agreements that are signed per project and numerous permits and authorisations that constantly need adjustments,” he said.

Sawyer said he had been told that South Africa’s renewable energy IPP procurement programme “is the most complex bidding process ever seen in the world in this industry”.

Tom Pedersen, the director of Siemens wind power division for Africa and the Middle East, said South Africa had one of the strictest grid codes to incorporate clean energies onto its grid. And the transaction costs for IPPs to comply with the requirement of producing each megawatt of power was probably the highest in the world.

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