Emerging Markets

On 25 October 2012 the South African government was due to make a “major announcement on the Independent Power Producers bidders (IPP) process”. This, like financial close, has been delayed.

Despite concerns relating to the impact delays will have on investor confidence, the Department of Energy has recently announced the addition of 3200 MW to the REIPPPP meaning CSP could well get a bigger piece of the pie in coming years. CSP Today investigates the challenges that have caused delays and the implications going forward.

By Annabel Eaton

Editors Note: On 29 October the South African Goverment confirmed that financial close will take place on 5 November 2012. 

Successful bidders and other industry players involved in the REIPPP are eagerly awaiting financial closure for the first window of the programme. Financial closure for window 1 has been delayed twice, and this has had a knock-on effect, resulting in postponements to other REIPPP deadline dates. This development not only affects concentrated solar power (CSP), but all renewable sectors under the REIPPP.

While the general feeling is that some delays are inevitable, it is critical that the first phase reaches closure as soon as possible to keep up the REIPPP’s momentum, maintain international credibility, sustain investor confidence in South Africa’s renewable projects and avoid unnecessary additional costs for Independent Power Producers (IPPs).

Delays explained

According to the original schedule, the 28 preferred bidders selected as IPPs for the first window were to reach financial closure by the middle of June. This date was subsequently moved to the end of September and again to the end of October.

It has been reported that the delays are “to enable government to finalise a support framework for Eskom, which will purchase the power produced by the solar developers”, and government states that its internal processes are well advanced.

According to a statement issued by the Department of Energy (DoE): “The government support framework has been concluded giving assurance to Eskom that government will support Eskom in relation to the financial implication resulting from signing of the Power Purchase Agreement.”

Ms Dipuo Peters, Minister of Energy, says: “We are aware of the challenges associated towards financial close for Window 1 projects. All the relevant departments are working very closely to finalise the required approvals for Window 1 projects. All of us would agree that the IPP Procurement Programme has attracted a lot of interest locally and internationally, and has propelled South Africa and its nascent renewable energy industry to the centre of this green revolution globally.”

Peters continues: “Through two successful bidding windows, we have allocated a total of 2460 MW to 48 preferred bidders. There remaining 1165 MW available from this determination is for the third window.”

Financial closure for window 2 has also been postponed from December 2012 to March 2013. A third bidding round submission date, originally scheduled for October, has now been postponed to May 2013.

The DoE has stated that it is too soon to know if the delays will result in a change in operations deadlines for the projects.

Cause for concern?

Is this delayed deployment cause for concern or is it to be expected in a country which is new to the implementation of renewable energy?

In a presentation delivered in South Africa last month, Christine Wörlen, international renewable energy expert, said that she expected the ‘wave’ of deployment in the country to be slow in the beginning, as few investors delve into a new technology in a new country right away. She commented: “The main challenge is getting started. We are all locked into centralized electricity systems.”

Gareth Blanckenberg, Energy & Power Systems Research Analyst for Frost & Sullivan, believes South Africa is coping well with this challenge. “The technology, as well as the knowledge, has developed far enough where system operators are able to fairly seamlessly integrate renewable energy generation into the national grid.”
An advantage of integrating renewable energy is that the cost of renewables, including CSP, will come down in the long-run making renewable energy an increasingly viable option for South Africa.
“The generating costs of the various renewable energy technologies will keep falling, while simultaneously, the electricity tariff in South Africa will continue to rise fairly sharply,” Blanckenberg explains. “These concurrent events should make renewable energy an increasingly viable option for South Africa in the near future.”

Additional 3200 MW capacity

A very recent development is the announcement made by the DoE this month that under the REIPPP, it would move to secure an additional 3200 MW renewable energy capacity, over and above the initial capacity of 3725 MW of the first three windows.
What does this increase in capacity mean for CSP? Will they obtain a bigger slice of the pie so to speak? Blanckenberg says: “The Director-General of the DoE, Nelisiwe Magubane, has previously hinted that there may be adjustments to the technology allocations in further rounds of renewable energy allocations, with a likely capacity increase for CSP.”
He adds that local content and job creation would probably be the critical determinants with regards to these changing technology allocations.
It appears that despite the delays, encouraging moves are being made in the South African renewable energy industry, and the REIPP may well prove to be an ongoing procurement mechanism.

To comment on this article write to the author, Annabel Eaton

Or contact the editor, Jennifer Muirhead