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Private sector help welcomed to alleviate SA’s power crisis

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Private sector help welcomed to alleviate SA’s power crisis

4th April 2019

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Government is looking at ways to accelerate new power projects while the private sector is examining new technologies and financing options to ease SA through its current power shortfall, it emerged at the DLO Africa Power Roundtable

The most important development highlighted in discussions at the recent DLO Africa Power Roundtable hosted by Webber Wentzel in Sandton was that SA’s private sector has an important role to play in new energy generation and alleviating the constraints caused by the current power shortfall.

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This was the third Africa Power Roundtable that Webber Wentzel has hosted and it was well-attended, at a time when Eskom load shedding, restructuring of the power utility, electricity planning and advances in power generation technologies are at the forefront of public discussions.

Speakers at the conference examined policy developments and Eskom as well as innovative power solutions involving hybrid systems combining solar PV with batteries.

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The Minister confirmed the importance of private sector involvement

Energy Minister Jeff Radebe, who opened the event, confirmed that Eskom on its own cannot supply the R1 trillion of investment in power generation, transmission and distribution needed by 2030 under the Integrated Resource Plan (IRP). Private sector participation will be essential, he said, and he would use his best efforts to remove obstacles that delay or hinder private sector solutions in the interests of the economy.

His comments were echoed by a speaker from Eskom, who said Eskom was open to assistance from the private sector and invited suggestions and proposals to help alleviate its constraints.

Embedded generation is expected to have a greater role in new generation capacity in future

In the past few years, heavy electricity users examined embedded generation projects to offset rising Eskom tariffs. These solutions are now urgently needed, both to offset costs and ensure stable electricity supply.

It is widely expected that distributed generation (small-scale power generation for own use, described in the draft IRP as embedded generation) will be part of the strategy to help meet the shortfall between capacity and demand in the short term. The annual allocation for distributed generation in the IRP from the years 2019 to 2030 is likely to be increased to 500MW a year.

However, players in the distributed generation space are still concerned about the 1-10MW installed capacity restriction in the draft IRP. Several mines and industrial entities are ready with power projects that are between 30-60MW. If the installed capacity restriction is not adjusted in the final IRP, projects with an installed capacity above 10MW will be required to apply for a deviation from the IRP from the Minister of Energy.

When Minister Radebe was asked whether he would consider making ministerial determinations under Section 10 (2)(g) of the Electricity Regulation Act to allow licensing of distributed generation projects that are not provided for in the IRP, the Minister reiterated that his department is willing to engage with the private sector directly. He invited motivated submissions in this regard.

Funders are also more willing to look at distributed power solutions. The Development Bank of SA intends to launch a US$200m distributed power generation fund shortly after the IRP is finalised, for projects outside the Independent Power Producer Procurement (IPP) office's renewable power programme.

Plans for further bid windows under the Renewable Energy IPP Procurement Programme were confirmed

The IPP office said that shortly after the IRP is finalised it will release a request for proposals for an expedited bid round for renewable energy. It was confirmed by the IPP office that "expedited" would mean that the qualification criteria will be less stringent than in previous bid windows, with the aim of achieving a quicker evaluation process.

Lessons learnt from previous bid windows would underlie the changes made to the bid documents as well as the confidence in the private sector to develop and close feasible projects. A change in some of the bid requirements is expected, particularly those relating to increasing the active participation of previously disadvantaged groups in renewable power projects, from the early development of the project until operations, in addition to equity requirements.

Despite the delays to bid window 4 of the REIPPPP, private sector sponsors in the room expressed confidence in the IPP office. It was clear that the private sector is ready and waiting to participate in the next bid window.

Some concerns were raised about a disturbing narrative on social and broadcast media claiming the first and second bid windows of renewable power were excessively expensive. These criticisms ignore the context of the broader considerations that underpinned the renewable energy programme at the time.

A spokesman for the South African Renewable Energy Council (SAREC) said the organisation would be working with the IPP office to contradict inaccurate information about the renewable power programme in future.

Smaller developers were delighted to hear that the IPP office intends to shortly close the bid round for small projects, which has been on hold for several years.

Eskom will continue to explore battery storage technology

Eskom, which is in the process of finalising a pilot project using battery storage technology, will undertake a procurement process facilitated by World Bank funding to install battery solutions at 50-90 transmission sites around SA. The focus will be on regions far removed from generating assets. A feasibility study is under way.

The numerous use cases of battery storage and the associated cost of this technology compared with baseload technologies were debated.  It was recognised that battery storage has a role to play in our energy mix. Battery storage developers believe the greatest hurdle to using this technology is misinformation and lack of awareness of the use cases that largely justify the additional cost.

Gas is still on the table for power developers

The private sector is of the view that there is major potential for gas as an energy source in South Africa. To maximise this potential, there should be more comprehensive and holistic energy planning, the IRP should allocate greater capacity for gas and the time periods for the relevant regulatory approvals should be expedited.

Written by Alexandra Felekis, Partner, Webber Wentzel

 

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