Greg Austin, the managing director of the South African office of Juwi Renewable Energies spoke to Energize during the recent Power and Electricity World Africa (PEWA) exhibition and conference regarding the state of the renewable energy sector in South Africa.
How has the delay in the signing of new power purchase agreements (PPAs) by Eskom affected the renewable energy industry in South Africa?
The period from July 2016 until today has been very difficult for this industry. An estimated R50-billion of investment in the South African economy hangs on Eskom’s willingness to buy electricity from independent power producers (IPPs). It is a travesty that the utility has not signed the outstanding PPAs as this decision runs contrary to the government’s stated goal of job-creation. A number of local companies have closed and foreign investors are wary of doing business in South Africa.
What are the reasons for Eskom’s refusal to sign these PPAs?
The power utility says there are two reasons: firstly, it has surplus electricity generation capacity so that it has no need to purchase electricity from IPPs; and secondly that electricity from IPPs is more expensive than the electricity it can generate itself. The pricing Eskom uses for its second argument is based on the first bidding round and is applied to a virtually insignificant amount of electricity in Eskom’s total generation fleet. Later rounds have prices which equal or even fall below Eskom’s costs of generation. This is especially true of some of its older coal-fired power stations where coal is being transported from the mine to the power station by truck which virtually doubles the cost of the coal.
Is the utility not compelled by government to sign these agreements?
The South African president said, in his State of the Nation Address, that Eskom will sign these agreements, but to date, the power utility has still not done so.
What are the implications of this refusal to sign the PPAs?
The implications are dire. Companies which were established in South Africa for the sole purpose of providing local content to the renewable energy sector will close down. Many already have. The result of the closure of these companies is two-fold: firstly, the country loses much-needed jobs; and secondly, companies which won bids in previous rounds of the Renewable Energy Independent Power Producers Procurement Programme (REIPPPP) are at risk of being unable to fulfill their commitments regarding the local content quota in the building of a solar or wind farm. By failing to fulfill this commitment, these companies virtually disqualify themselves from the project they had won during the bidding process.
How are companies like yours coping with this situation?
Fortunately, Juwi Renewable Energies has completed some REIPPPP projects and have PPAs in place with Eskom. These include five utility-scale projects which together generate 125 MW. Also, the company is not solely reliant on government projects. We have been successful in the industrial and commercial sector which is unaffected by Eskom’s decision not to sign the PPAs.
What projects has your company completed?
We built the solar photovoltaic (PV) system at the Council for Scientific and Industrial Research’s (CSIR’s) facilities in Pretoria. That installation was the first in South Africa to incorporate a system which enables the PV panels to track the movement of the sun across the sky, resulting in a far higher output than would be possible with the same size of installation if it were stationary. That project helped Juwi establish itself in South Africa.
The company recently completed a large rooftop PV installation at a shopping mall to the west of Johannesburg and will be completing another rooftop PV installation at a mall in Pretoria. Other companies are building similar projects for large shopping malls, hospitals, universities, and corporate business parks.
Why are these companies investing in PV if Eskom has surplus electricity generation capacity?
Many companies invest in PV for security of supply rather than reduced energy cost. Power interruptions are still common, not because of Eskom’s inability to provide the power needed, but because of ageing, poorly maintained distribution infrastructure and attacks by cable and electricity thieves. Companies which invest in solar are aware of the true cost of unserved electricity. There are many more potential projects at industrial and commercial sites, but none of these are at utility scale.
What is the way forward for the renewable energy industry in South Africa?
Regarding utility-scale projects, it has been suggested that IPPs should ask the National Energy Regulator of South Africa (NERSA) to increase electricity tariffs so that Eskom can make some profit from the small amount of electricity it buys from IPPs. Sadly, a lack of trust is developing between IPPs and Eskom, and until the PPAs are signed there is no guarantee that Eskom will buy electricity from IPPs even if tariffs were increased. The power utility’s interim chief executive has given some indication, however, that Eskom will sign some, if not all, of the outstanding PPAs.
What other projects are on the horizon?
The company is looking at large installations at mines in sub-Saharan Africa. Much of Africa has insufficient electricity generation capacity which limits its economic activity severely. Large wind and solar installations can add much-needed electricity quickly and help these countries to develop. The only caveat is that existing transmission and distribution infrastructure will need to be upgraded to carry the extra power within these countries. For example, the company has installed a 13,6 MW hybrid project (5,8 MW PV and 7,8 MW heavy fuel oil) at a mine in Mali, and is bidding on a 40 MW hybrid project (15 MW PV and 25 MW heavy fuel oil) in the same country.
What other technologies is your company involved in?
Juwi won a wind project in round 4 of the REIPPPP and has other projects in the pipeline. Future renewable energy projects will most probably include energy storage as part of the installation, with batteries being the most likely medium.
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