It was good to see three renewable energy initiatives attain monetary shut final week. Between them, 420MW can be added to the grid from wind generators. This is, in fact, only a small a part of what we have to handle the energy disaster, however it’s nonetheless a meaningful contribution.
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The disappointment was that these are the one three initiatives from Round 5 of the REIPPP programme to have reached monetary shut to this point. In October final yr, 25 successful bids have been introduced totalling 2 583MW. However, initiatives have been delayed as a result of native content material necessities couldn’t be met given the variety of initiatives that have been awarded. During the delays a worldwide conflict broke out, rates of interest went up and energy prices spiralled, which means many initiatives turned sub-energy financial.
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Given the urgency with which we have to handle the facility disaster, the plain query is what we are able to do to get extra of the Round 5 initiatives to shut. The monetary predicament they face could possibly be merely resolved by renegotiating the tariffs that have been bid within the public sale spherical. That is a simple choice, however the fee is to weaken the precept that the worth you bid is the worth you get. A change may set a precedent for auctions in future. We can not undo historical past, however clearly we might have prevented this predicament if initiatives had been allowed to shut swiftly. There could also be non-tariff steps that authorities may take to shift the economics of the bids, equivalent to the comfort of native content material necessities that has already been accomplished, and I might encourage that. But if bids aren’t going to succeed in shut, we have to transfer on and permit bidders to resubmit the initiatives in future rounds.
Round 5 has not been a constructive story for the programme. Indeed, the programme has been beset with points since spherical 4 was delayed again in 2015. The so-called “risk mitigation” spherical of IPP procurement has additionally disenchanted with solely three of these reaching monetary shut over a yr after bidders have been introduced. Those three make up 150MW of the two 000MW meant to have been procured within the bidding spherical. That implies that since 2015 we now have not had one clean procurement course of. The final two procurement efforts have managed to shut solely 570MW out of over 4 500MW that was meant.
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That clearly impacts bidders’ appetites to take part in future rounds. Bids are very costly to submit, requiring intensive preparation and agreements with companions. If bidders lose confidence that the public sale rounds can be clean, permitting them to succeed in monetary shut with minimal fuss, then we can have fewer bidders and better prices.
We additionally must recognise that there’s a international rush on new energy initiatives. Project builders are spoiled for alternative on the place they select to supply their companies. There is a finite quantity of engineering capability and manufacturing capability on the earth, and this should be allotted out to the numerous international locations which can be attempting to acquire new initiatives amid a worldwide energy disaster. The repute of the South African programme must be wonderful for builders to determine to direct their efforts our manner, and proper now it’s relatively broken.
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We want to repair that repute. We at the moment are going right into a collection of recent rounds. Bid window 6 is closing for submissions on 3 October, with the largest ever meant procurement goal of 4 200MW (and one other 1 000MW to observe in a second window later within the yr). The submission deadline has been delayed a number of instances for numerous causes, together with a doubling of the procurement capability goal. But we now must reveal a extremely efficient and environment friendly means of adjudication and announcement, resulting in monetary shut. We then want to maneuver swiftly on to Round 7 and past, every time demonstrating the reliability and professionalism of South Africa’s procurement processes. That is how we’ll get electrical energy onto the grid quickest and at lowest price.
Busi Mavuso is CEO BUsiness Leadership South Africa.