CEO Blog

by Johan van den Berg, CEO of SAWEA

Johan van den Berg is the CEO of the South African Wind Energy Association, the Chair of the South African Renewable Energy Council and the African Private Sector Focal Point for the Africa-EU Energy Partnership. A barrister, he has spent eighteen years in dispute resolution; environmental mediation; climate change avoidance/emissions trading and renewable energy in Southern Africa. He is a member of the Ministerial Advisory Committee on Energy.

Wind Power Success

An Island In Stormy Seas

South Africa’s first wind farms have started to export green electricity into the grid during the final commisioning phase before reaching full commercial operation. It is now abundantly clear that the REIPPPP procurement process has been a resounding success. The wind farms are being built on time and on budget and they carry no risk to the ratepayer of cost over runs or delays – these risks are shouldered by the Independent Power Producer. There are twenty year Power Purchase Agreements in place and the costs continue to decrease further below the cost of new conventional energy. Moreover, the extra capacity comes as a huge relief to a severely stressed electricity supply system. And there is the further benefit of significant rural upliftment, job creation, and socio-economic development to be delivered from the programme as operating revenues begin to flow.

On all fronts and, wind power is doing supremely well.

By contrast the broader Electricity Supply Industry is not doing particularly well, with repeated emergencies being declared by Eskom as it struggles to complete the Medupi and Kusile mega-projects. The contrast raises the question: How much sense and sensibility do we need in the greater electricity system?

In the past week, some significant red flags have again been raised about the health of the broader industry. In the budget speech, the Minister of Finance lamented the delays in completing Eskom’s Medupi (coal) power plant, and the inhibiting effect it has had on economic growth in the country. And indeed, the cost over-run when everything is included might come to ZAR 100 billion, approaching a 200% overrun. To this should be added the concomitant damage to the economy. This was starkly demonstrated, also last week, when Eskom declared an emergency and had to call on large users to cut demand (and of course production) in order to keep the lights on.

Perhaps the most concerning statement in the budget speech was a near aside by Minister Gordhan when referring to the Medupi delay, saying there “isn’t much we can do about it.” It reflects the sense of paralysis we all feel when we watch the process from the sidelines, unable to influence it but beholden to its outcome.

In the week (25 February 2014), Professor Anton Eberhard, in an OpEd in Business Day, discussed the impact of another paralysis – this time on the ISMO (Independent System and Market Operator) Bill - mooted by the Minister of Energy as far back as 2009 and highlighted as a priority in President Zuma’s 2010 State of the National speech - to level the playing field between Eskom and Independent Power Producers.  The Bill has been repeatedly pulled from the parliamentary agenda for unclear reasons and will now lapse. In a careful and detailed analysis (Conflict of interest at Eskom stymies SAs power supply), Eberhard shows how the absence of the Bill has contributed to the supply shortage experienced today - and how the failure to act will continue to hamper the industry and the country in future.

Then, a few days later came newspaper reports of the Minister of Public Enterprises discussing how Eskom might close its ZAR 190 billion funding gap. He says explicitly that a new application to NERSA for an Eskom tariff increase is a distinct possibility. As anyone who sat through the last round of NERSA hearings would attest, there is intense pain associated with these increases. Many sectors from mining to agriculture faced very gloomy futures should the requested increases of 16% have been granted. But now we might have to revisit this.

The shortfall has not gone away – indeed, our peaking plants are now costing us the equivalent of ZAR 4,6 billion per year in the electricity produced as they run far more often than intended.  At say ZAR 4,60/kWh the huge cost would equate to 1,000 GWh per annum. At REIPPPP Round 3 prices, this would be enough to pay for 6,200 GWh’s of wind-produced electricity, which at a capacity factor of 33.3% (average these days for successful bids) would mean that the money spent on open cycle gas turbines in the six months ending September 2013 would have been enough to pay for the output of about another 800 wind turbines – more than 2 GW.

On the surface, the challenges faced in our electricity supply industry are unrelated to the REIPPPP process. Wind Power is booming and can continue to boom despite the problems experienced. An island of prosperity and success in a very troubled sea.

But, as the 17th century poet John Donne was want to say, no man is an island, and wind power is sure to be affected by the surrounding chaos at some point. The country’s power sector governance system is inherently unstable. It would be in in the long term interest of wind power to help stabilize the system at large and bring it to a sustainable and rational footing. Not just the electricity system but the health of the country would benefit. 

Once the decision is made that wind power needs to be involved in resolving the broader South African energy challenges, the question arises how best to do it. A discussion for another day.

 

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