IPPs open way for new energy mix in SA

Government’s recently endorsed Integrated Resource Plan (IRP), which opens the way for Independent Power Producers (IPPs) to play an integral role in SA’s energy challenges, is likely to lead to a radically different energy mix for the country in the future. And it opens up major opportunities for the country’s IPPs.

In September 2010, the Department of Energy published the request for information, which sought information from developers of co-generation and REFIT projects up to 2016. About 384 responses for 20,000 megawatts (MW) of the Renewable Energy Feed-in Tariff (REFIT) and 4,000 MW of co-generation were received. In capacity terms, this amounted to 70% wind, 15% photovoltaic and 10% concentrated solar power.

Although final details of the IRP are yet to be published, it is expected that up to 42% of new generating capacity, or more than 17,000MW, will come from renewable resources in the next 20 years.

Government has also approved the Independent System and Market Operator (ISMO) bill, which will assist at facilitating the participation by the IPPs. The new regulations establish rules and guidelines for an IPP bid programme and the procurement of an IPP for new generation capacity.

The procurement process includes a Request for Qualification (RFQ); a Request for Proposals (RFP) and negotiations with the preferred bidder. The successful bidder will then be awarded a Power Purchase Agreement (PPA) subject to approval by the regulator.

Doug Kuni, General Manager of the Independent Power Producers of SA (IPPA), told a panel discussion at last week’s Africa Energy Conference in Sandton, that he did not believe that it would be a fast process.

He said he believed the process was likely start as a ring-fenced unit within Eskom, and then migrate to an independent entity. He said planning was not such a difficult process, the difficult process was the implementation. “You need all the moving parts – we still have a weak regulatory environment and we need to address these issues.”

Nunda Naidoo, Director, Lesedi Biogas Project, added that SA was conditioned to act in a crisis mode only and in the past the renewable energy sector was seen as a “feel good” sector that had to be heavily subsidised. He said government policy needed direction, foresight and planning.

Unlike Europe, he pointed out, the IPPs in SA were competing with cheap coal power and they were operating in an overly regulatory environment.

However, there is optimism that the environment will change out of the country’s need to generate excess capacity.

Naidoo added that the environment is creating exciting opportunities for IPPs in the future,

Kuni noted that the country was short of power and looking to grow the economy and jobs, so there is need for additional baseload. He believed the security of supply and tariff uncertainty woul prompt large corporations to look at power projects more closely – creating major opportunities for IPPs.

“The need is going to drive the regulatory environment – that’s the silver lining,” he said. “The problem of the lights going out is not going to go away. It’s still there and the environment will change quite rapidly.”

He said ISMO would bring more certainty to the market and there would be more investment in IPPs.

One of the sectors hardest hit in the past by power blackouts were the mining and resources companies and they had taken up the gauntlet, and were increasingly involved in generating own capacity.

Thomas Garner, Manager: Energy Growth at Exxaro (EXX) told the conference that Exxaro was planning to form a new company with a vision to become a leading IPP company by 2025. He said the group was looking at diverse portfolio of co-generation – wind, gas and solar.

Sydney Zeederberg, Energy Manager at Sasol (SOL), said the group has a number of projects, but added that it was still good to have a reliable back up in Eskom.

Gerard van der berg, Group Energy engineer at AngloPlatinum (AMS) added that Anglo was looking at a 300MW coal plant, which was targeted internally for Angloplat.

However, the companies stressed the need for clarity around the Renewable Energy Feed-In Tariffs (REFIT) and Co-generation Feed In Tariffs (COFIT), but noted it is public process and they would participate in the process.

The companies noted that they had not yet come to stage where projects have been pulled due to lack of energy availability, but ascertaining the availability of supply before going ahead with major new projects would be a problem going forward.

If they were to cut back on projects this would impact heavily on job creation, tax revenue for government and profitability for companies.

Garner said that around five years of planning went into power projects, and the delay in making decisions on major projects would start to impact on GDP in the future.

He concluded that one of the biggest challenges was growing the energy intensity of Africa – and South Africa must use its energy intensive economy to grow the African economy.

“There are major opportunities out there in renewable energy and SA and Africa must cash in on this,” he concluded.

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