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Eskom’s lack of local inclusion of IPPs a serious concern to SA’s energy crisis

Following the announcement that Eskom will be leasing land to four IPPs at its Majuba and Tutuka power stations, experts say that obtaining funding for such projects is not necessarily the challenge. Photo: Reuters

Following the announcement that Eskom will be leasing land to four IPPs at its Majuba and Tutuka power stations, experts say that obtaining funding for such projects is not necessarily the challenge. Photo: Reuters

Published Nov 10, 2022


Lesego Makgatho

[email protected]

FOLLOWING the announcement that power utility Eskom will be leasing land to four independent power producers (IPPs) at its Majuba and Tutuka power stations, experts say that obtaining funding for such projects is not necessarily the challenge, but rather, low-cost funding would be hard to obtain.

The successful bidders are: HDF Energy South Africa, Red Rocket SA, Sola Group and Mainstream Renewable Power Developments South Africa.

HDF Energy South Africa is a French company originally named Hydrogen De France. Established in 2012, the company, founded by Damien Havard has its locations across the African continent and the middle east.

Red Rocket Group has been headquartered in Cape Town since 2012 and over the years the company has become one of the most innovative IPPs in Africa. The company says its growth strategy is based on pursuing a balanced portfolio of renewable assets both in terms of geography, market maturity as well as currency exposure (ZAR, USD, EUR).

From a technology perspective, the company says it will remain active in wind, solar, hydro and biomass. Today the group has over 75 employees located in South Africa and Uganda.

Sola group consists of two unique and complementary businesses. SOLA Assets started in 2008 as Aurora Power Solutions, a utility-scale solar project developer. Its sister company, SOLA Build, started in 2013 as SOLA Future Energy, an EPC concentrating on private-sector PV opportunities.

Together, SOLA Build has built more than 30MW of embedded-generation solar PV projects, mostly for the private sector, and SOLA Assets has developed over 305MW solar PV projects in Africa, making it one of the largest solar companies in South Africa.

Mainstream Renewable Power Developments South Africa was established in 2009 when Genesis Eco-Energy, a local SA developer who has been developing projects and promoting renewable energy in SA since 2002 formed a joint venture with Mainstream Renewable Power based in Dublin.

While the power producers will contribute an estimated 2000MW to the grid, energy expert Adil Nchabeleng said the 2000MW of renewable energy would not solve anything in respect to the country’s energy crisis.

“There are two streams that South Africa needs to focus on which are firm capacity where we have electricity available for 365 days a year and moving into supplying energy on a supplementary basis not on a base-load solution. That is what our solutions should be focused on.

“There is a lot of effort in putting in renewables which at some stage it’s going to cause a problem to the grid as it won’t be properly managed and will collapse it. Too much renewables with regard to less capacity or firm available base load causes a grid imbalance because it’s not stable but frequently up and down,” he said.

Nchabeleng said he saw the signing agreement between the power utility and the four IPPs as an additional supplementary project. “It is something that should be welcomed and encouraged, but it is not a definite solution to the current problem.”

While the signing may have been welcomed, Nchabeleng said it was concerning that there isn’t a majority of local power producers on the list.

“We’ve got the capabilities locally, the problem is that there isn’t enough pull from the government to enforce that such projects be localised in terms of having local IPPs. One of the companies, Hydrogen De France (HDF Energy) is French-owned with no localisation and BEE (Black Economic Empowerment) component of it.

“This is concerning because we are trying to make sure that whatever partner that comes into South Africa, has a project player from here. These partners are not working with local partners to ensure that there is a level of empowerment happening - not just BEE transactions but real ownership and direct control within the project itself.

“Eskom missed the mark here, it was a bit too ambitious to give it to international companies that are going to enjoy a power purchase agreement yet not directly benefiting South Africans,” he said.

Professor David Walwyn of the Faculty of Engineering and Technology Management at the University of Pretoria, said the country’s energy problem would be solved if we focused on President Cyril Ramaphosa’s action plan that he announced at his State of the Nation Address at the beginning of the year.

“From what I remember mentioned at the State of The Nation Address by the President at the beginning of the year is that the leasing of land has been a proposal for a while. Energy projects are best situated in places where there is high intensity of wind or solar, and that’s why most of the solar projects are in the Northern Cape and most of the wind projects are along the coast,” Walwyn said.

He further said the idea of putting a renewable energy plant or facility on one of the Eskom sites, was in itself a suboptimal solution because these sites were not optimal for solar or wind, as very often they would have significant cloud cover.

He said there was a lot of infrastructure on these sites and that’s the attraction of leasing. It’s never impossible to find money for such projects but rather, it’s impossible to find money at zero interest, and Eskom chose sites where there is a high predictability in terms of the wind and solar. “The price that you pay for money is the interest rate. The transmission infrastructure is already in place and that would save money for the independent power producer.”

Referring to the President Cyril Ramaphosa’s five-point action plan, Walwyn found no fault with the president’s proposed plan of how to deal with the country’s energy crisis.

“The five points mentioned (by the president) were: improving the performance of Eskom’s existing fleet of power stations; accelerate amounts of new generation capacity; increase investment in generation capacity; which he says is currently happening; enable businesses and households to invest in roof-top solar; and finally, fundamentally transforming the electricity sector by which the president meant market liberalisation. This would mean introducing and allowing municipalities to engage in energy wheeling,” he said.

He said this leasing does not mean Eskom is heading into the direction of privatising the utility. “This is not privatisation. It’s been the government’s policy to pull in independent power producers since the implementation of the Renewable Energy Independent Power Producers Procurement Programme (REIPPPP) which has been in existence since 2014.”

Echoing his sentiments was Professor in Nuclear Engineering at the University of the North-West, Professor Dawid Serfontein, saying there was a process that was followed for the companies to bid.

“Whether the companies are white-owned or not, what has and will remain a policy in government is to have the required BBBEE (Broad-based Black Economic Empowerment) rating as a company. So while the four bidders may be white-owned, it is probable that Eskom chose them because they have the standard BBBEE across their spectrum,” he said.

Serfontein said Eskom would’ve chosen the best options whether they were white-owned or black-owned. “In the past, obtaining funding for such projects was not hard. But now it is because everything has gone up and it affects everything else.

“In order to solve our energy crisis, we need to tackle the low-hanging fruit that are easier to take on, such as getting an affordable inverter for your home that you know will be sufficient for you with an uninterruptible power supply (UPS). The low-hanging fruit solutions are what will be impactful to ordinary South Africans.”

Eskom said it would issue new tenders for other parcels of its land every quarter going forward, with a view to enable and accelerate investment in new renewable generation capacity.

The power utility said though there would be no National Treasury guarantee issued for the IPPs, and there would be no risk to or burden on taxpayers or on Eskom.

“By making Eskom land available close to the power stations, where there is sufficient grid capacity, we have taken an innovative step to find the quickest way possible and within our scope of influence to boost the country’s generation capacity,” said Eskom chief executive, André de Ruyter.

According to the utility, it is anticipated that the generators will be connected to the grid within 24 to 36 months from financial closure, subject to environmental, land zoning and other regulatory approvals.

“Eskom’s land leasing programme is a first of its kind and can be used as a case study in the electricity supply industry (ESI) in terms of partnering with private electricity generators to accelerate the connection of additional capacity to the national grid to improve the reliability of supply. The fact that these land leases will attract an estimated investment of some R40 billion to areas traditionally associated with coal-fired electricity generation makes this a compelling proof point for the just energy transition to a lower carbon economy,” De Ruyter said.

Eskom plans to make more land available around its power stations and other sites where there is sufficient grid capacity to connect renewable energy producers. Eventually, up to 30 000ha can be made available for similar projects.

The next phase of land will focus on properties around the Kendal and Kusile power stations in Mpumalanga, as well as the retired Ingagane Power Station in Newcastle, KwaZulu-Natal. These parcels will be offered to the market in the coming months.

Sunday Independent