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Bad Policies Hinder Africa’s Renewable Energy Growth

Continuing technology advances, falling prices and new financing models means renewable energy projects have become increasingly practical in sub-Saharan Africa.

But while the sharply falling price of renewable technologies means projects are less dependent on subsidies, policy and regulatory uncertainty in some key African markets is driving a slowdown in renewable energy investment, according to a number of recent reports.

“The policies in a large portion of African countries are either non-existent or very vague,” Derek Campbell, Bloomberg New Energy Finance analyst for sub-Saharan Africa told AFKInsider.

”The trends are, if you look at the regional level, as ambiguous in Africa as they are anywhere else,” Alexander Ochs, director of the Climate and Energy Program at Worldwatch Institute told AFKInsider.

The International Energy Agency’s IEA ‘Africa Energy Outlook’ report released Oct. 13 estimates “the sub-Saharan economy quadruples in size by 2040, the population nearly doubles (to over 1.75 billion) and energy demand grows by around 80 percent. Power generation capacity also quadruples: renewables grow strongly to account for nearly 45 percent of total sub-Saharan capacity, varying in scale from large hydropower dams to smaller mini- and off-grid solutions.”

But the report warns that this growth “must be accompanied by broad governance reforms that include transparent management of energy resources and revenues if they are to put sub-Saharan Africa on a more rapid path to a modern, integrated energy system for all.”

“Governance indicators are generally weak in sub-Saharan Africa, compared with other parts of the world (although stronger in some southern parts of the region, notably Botswana, Namibia and South Africa), implying substantial risks arising from policy and regulatory uncertainty, inadequate protection of contracts and property rights, poor-quality administration and the actions of governments that are only weakly accountable to their citizens,” states the report.

More renewable-energy projects will be commissioned this year in sub-Saharan Africa than were added from 2000 through 2013, according to an August 21 report from London-based research firm Bloomberg New Energy Finance.

According to Bloomberg, renewable energy investments – not counting utility-scale hydropower – in the region is estimated to hit $5.9 billion this year and $7.7 billion in 2016. That’s compared to an average annual investment of $1 billion from 2006 through 2011.

“In Sub-Saharan Africa there are some good examples of strong policies and long-term power purchase agreements and these are the countries attracting the majority of clean energy investment,” Bloomberg’s Derek Campbell told AFKInsider.

While sub-Saharan Africa is one of the best new markets for onshore wind, small-scale and utility-scale solar, and geothermal power, the Bloomberg report noted that the investments are predominantly expected in South Africa, Kenya and Ethiopia.

“The three largest markets for utility-scale renewable power over the 2014-16 period are forecast to be South Africa with 3.9 gigawatts likely to be installed, the largest part of which will be wind, followed by solar PV with a smaller amount of solar thermal; Kenya with 1.4 gigawatts, mainly geothermal and wind; and Ethiopia with nearly 570MW, largely wind with some geothermal,” states the report

The annual market rankings of the world’s 100 most attractive power markets from London-based analysis firm Precergy, shows only four sub-Saharan countries in the top 50, with even South Africa only ranking 42nd. According to the report, though sub-Saharan Africa is an increasingly attractive investment option, there are many reasons for the overall low scores, “not least the greater levels of political risk and increased difficulty in doing business.”

South Africa and Kenya also ranked high in Ernst & Young‘s Renewable Energy Country Attractiveness Index released in September.“The opening of Round 4 of South Africa’s renewable energy procurement program sees a further 1.10 gigawatts of capacity up for grabs, with preferred bidders expected to be announced in late October, notes the report. “The removal of import duties on solar PV equipment in Kenya, though sparking outrage from domestic manufacturers, is likely to improve deployment prospects by pushing down project costs and offering developers greater flexibility.”

”There are countries that have become very, very serious about sustainable energy solutions, including renewables,” Worldwatch Institute’s Ochs told AFKInsider, citing Kenya, Tanzania, South Africa and Ethiopia. ”And then you have countries where the situation is a lot more difficult like Nigeria and many other countries throughout the continent where there are no commitments in place yet, or where earlier commitments have been somewhat weakened.”

Nigeria is left out of these rankings because even though Nigeria has seen ambitious plans for large renewable power projects mooted over the years, they “have yet to put in place the stable policy regime to reassure investors,” according to Ernst & Young.

“While Nigeria has introduced an attractive feed-in tariff (FiT) and ambitious renewable energy targets in their Nigeria Renewable Energy Master Plan we feel there are still some outlying issues that need to be addressed,” Bloomberg’s Campbell told AFKInsider.

Bloomberg’s concern is the FiTs multi-year tariff order (MYTO) where it’s reviewed every five years and so will impact existing power purchasing agreements.

“The MYTO only runs till 2023 and for developers who for a utility scale project will generally seek project finance with a tenor of 15-20 years the risks are just too high and lending institutions would more than likely not borrow to developers.” Campbell told AFKInsider.

Growth Trends

Solar could be the world’s largest source of electricity by 2050, outpacing fossil fuels, wind, hydro and nuclear power, according to two International Energy Agency technology roadmaps released in September estimates that solar photovoltaic systems would account for 16 percent, while solar thermal electricity could provide an additional 11 percent.

The renewable energy industry accounted for 22 percent of total global power generation in 2013, according to the June REN21 2014 Global Status Report, with renewables accounting for 56 percent of all net additions to global capacity. According to an Oct. 2 Bloomberg New Energy Finance report, “$175 billion was spent globally on renewable energy projects during the first three quarters [of this year], up 16 percent from the same period last year.”

But while the African solar PV market has now reached 11 gigawatts, “Growth constraints for PV across Africa include weak energy infrastructure, corruption, and political and social instability,” according to a September market report from NPD Solarbuzz which tracks 29 African countries.

Policy Uncertainty

The central message of these reports is the need for clear policies which can lower risks and inspire confidence for investors. According to the International Energy Agency, where there is policy incoherence or confusion – dubbed “stop-and-go policy cycles,” investors pay more, consumers have higher energy costs, and many projects simply fail to materialize.

“Many countries have announced plans for creating feed-in tariffs or renewable energy targets, but at the moment this is not enough,” Bloomberg’s Derek Campbell told AFKInsider. “Tax-based mechanisms are the most prevalent, but these are for import duties and VAT (Value Added Tax) exemptions which any sector can apply for,” said Campbell.

But policy mechanisms did evolve a bit in 2013, according to REN21’s 2014 report, including an increasing differentiation by technology and an increase in competitive bidding. The report also notes that a growing number of countries are developing targeted strategies to transition to renewable energy. Djibouti and Ghana are targeting 100 percent electricity from renewables by 2020. For Madagascar the target is 75 percent by 2020; Gabon is 70 percent by 2020; Uganda is 61 percent by 2017; and Cape Verde targets 50 percent by 2020, according to REN21.

“We’ve looked more into the countries on the western side of the continent with a new report that we’re coming out with soon where ECOWAS (Economic Community of West African States) is now aiming at providing guidance based on a regional policy for haw national policy and implementation plans would look like,” Worldwatch Institute’s Ochs told AFKInsider.

The Oct. 13 Africa Energy Outlook report notes that three actions “could boost the sub-Saharan economy by a further 30 percent in 2040, including an additional $450 billion in power sector investment, deeper cross-border cooperation on large-scale generation and transmission projects, and more transparent policies and governance of energy projects.

“Tackling these (governance) weaknesses will require actions across a broad front; particularly important elements from an energy perspective are investment in the skills and knowledge required for a modernizing energy economy and the transparency and consultation on energy policies that is essential to winning public consent,” notes the Africa Energy Outlook report.

”More and more countries are becoming very serious in terms of policy commitment and we’re seeing results now coming in,” Ochs told AFKInsider. “I think overall, most countries have a commitment in place, but the difference is how far a long they are in terms of redesigning the concrete policies and plans.”

“What we really need to see is policy certainty and renewable energy specific policies and not general policies,” Bloomberg’s Campbell told AFKInsider.

Eskom grid study highlights major future shifts in power-flow patterns

The transmission unit of South African electricity utility Eskom has completed a strategic grid study for the period to 2040. The study signals major shifts in future generation and demand patterns that will have implications for the domestic network and future investment decisions.

Strategic grid planning senior manager Ronald Marais says the ‘2040 Transmission Network Study’ has drawn on various scenarios to determine the grid’s development requirements, as well as to identify critical power corridors and network constraints.

The 2010 Integrated Resource Plan (IRP) provides the base case, but the draft IRP Update, together with scenarios that envisage higher levels of renewable energy (a ‘green’ scenario) and regional imports, have also been interrogated.

All show marginal implications for the transmission network for the coming 10 to 15 years. However, from 2030 onwards, major changes are expected in the provincial distribution of generation, with Mpumalanga – the current dominant source of generation – playing a relatively smaller future role.

“There is going to be a significant change in pattern,” Marais reports, adding that the ‘greater Cape area’ will become a major exporter of electricity.

Generation from the sun-drenched Northern Cape, for instance, is set to expand under all scenarios, and could be a major contributor by 2040, depending on the generation mix pursued. Likewise the wind-rich regions of the Western Cape and Eastern Cape are poised to become more significant sources of electricity supply.

Marais indicates that these shifts have implications for the direction of electricity flows, which are currently primarily from east to west, owing to the dominance of coal-fired generation in the north-eastern provinces and the dearth of generation in most other territories.

Under the ‘green’ scenario, the Northern Cape could have has much as 7 100 MW of surplus capacity by 2040, with the IRP base case suggesting a net generation surplus of nearly 2 000 MW. Similarly, the Western Cape and Eastern Cape could move from being net importers of electricity to net exporters through a combination of additional wind and new nuclear capacity.

Mpumalanga, meanwhile, which currently has a net surplus of over 22 000 MW, could see its contribution to the rest of the country decline to around 9 700 MW by 2040 as mature coal-fired stations are retired and South Africa moves to diversify its power mix.

Under all scenarios, the coal-rich Limpopo province’s power generation contribution is anticipated to grow materially, while Gauteng, KwaZulu-Natal and Free State are forecast to remain net importers.

The analysis identifies five major national corridors for future strategic development, including the western and eastern coastal corridors, a solar corridor, a central corridor and a northern import corridor, through which capacity from Mozambique, and potentially the Democratic Republic of Congo, would enter.

The direction of electricity transport will be much more varied when compared with the current patterns, with south-to-north and west-to-east flows anticipated. In addition, Eskom is planning to match generation centres to load centres using the shortest routes possible, so as to reduce the environmental footprint of the network, the investment costs and technical losses associated with moving electricity over long distances.

Marais reports that the national power corridors have been further refined and consolidated into five transmission power corridors, which are being used by the Department of Environmental Affairs for a strategic environmental assessment (SEA).

The SEA forms part of the Presidential Infrastructure Coordinating Commission’s strategic infrastructure project 10, or SIP 10, and the aim is to fast-track all the environmental approvals required for transmission infrastructure within the corridors.

Marais says corridors of 100 km in width have been identified and that the SEA will seek to identify environmentally acceptable routes over which long-term environmental impact assessment (EIA) approvals can be secured.

This is seen as important as EIA determinations, along with servitude acquisitions, are currently major impediments to the rapid deployment of grid infrastructure. On average it is taking Eskom between six and eight years to secure the servitudes and EIA records of decision and a further three years, thereafter, to construct the lines.

Marais says that, while the shifts in power flows fall outside of Eskom’s current grid-planning horizon, as outlined in the Transmission Development Plan (TDP) for 2015 to 2024, the modelling is assisting with project prioritisation.

More immediately, however, the TDP is being heavily influenced by the utility’s financial constraints, which has led to the deferment of certain projects.

The overall budget, which was estimated at R163-billion, remained more or less as it was in previous versions of the TDP, with R146-billion required for capacity expansions and the balance split between refurbishments, spares, servitude acquisitions and environmental and corporate costs.

However, the latest version also rescheduled much of the actual investment into the fourth multiyear price determination period, or MYPD4. This is partly attributed to the fact that Eskom has received lower-than-requested tariff increases from National Energy Regulator of South Africa for the MYPD3 period from 2013 to 2018, but it also takes account of delays associated with securing land, servitudes and environmental approvals.

The rephrased plan envisages the building of 13 396 km of new transmission lines and the introduction of 81 385 MVA of additional transformation capacity by 2024.

WINDaba 2014

As Eskom continues to declare regular ‘emergencies’ and black outs persist, renewable energy including wind, has the potential to rescue the situation over the next five years – we just need to mix small and large scale technologies, says the South African Wind Energy Association (SAWEA).

Attend WINDaba from 03 to 05 November 2014 in Cape Town and have access to a broad range of topics with the view to a robust and sustainable wind energy sector. All calculations indicate that our current electricity supply cannot provide the power we need to grow the economy to its full potential.  Projections show that the country will not have the energy required to fully realise its economic ambitions until 2020 or later, without intervention from a cost effective source.

The country’s renewable energy procurement programme (REIPPPP) has procured thousands of megawatts (MW) in the last three years at increasingly competitive rates with more in the pipeline. Many turbines are already providing power to the grid. Local content levels have been near 50% with the result that there are huge spin-offs in the supply chain to a wide variety of large and small South African companies and also individuals, boosting the flagging economy. The obstacle to filling the energy gap with renewable energy is timing.

Frank Spencer, Chair of SAWEA’s Technical Working Group and speaker at WINDaba explains: “The disparity between the success of the REIPPPP and the energy shortage of the country relates to the time energy is generated versus the time at which it is most in need.”

“Wind plants often deliver energy during peak periods but are obviously dependent on the wind blowing. Solar photovoltaic plants deliver their maximum output around the middle of the day. Solar Thermal power can be stored, but the construction time for such plants is longer than for the aforementioned technologies and there is some work to do in bringing down costs.”

The solution is to maximise the energy output from renewable sources to impact the grid at peak times.  Alongside commercial-scale renewable power plants there is huge potential for small scale technologies to relieve pressure on the grid. “We have one of the best climates in the world for solar energy and the potential to install millions of solar water heaters at very affordable rates in a short period of time. Letting sun heat our water instead of diesel will drop the electricity demand curve over the entire course of the day so that we won’t need to use diesel peaking plants as often,” says Spencer.

Rooftop Solar PV can store power in batteries to feed back into the grid during peak hours at significantly less than the cost of power generated from peaking plants. “Solar water heaters and solar rooftop can address the bulk of the peaking problem and utility scale wind and solar (both PV and solar Thermal) will deliver the extra capacity required. This is how we can resolve our energy shortage while boosting local manufacturing and job creation and enabling the economic growth envisioned in the National Development Plan,” concludes Van den Berg.

WINDaba is Africa’s largest Wind Energy platform hosted by the South African Wind Energy Association (SAWEA)  in proud partnership with the Global Wind Energy Council (GWEC).

To book your delegate participation at WINDaba please visit www.windaba.co.za or contact 021 448 5226

SA’s Carbon Tax obsession – fiddling while industry is burning

I was more than a little irritated after this interview. Not because of the guests – although having a lawyer on one side and a banker on the other has its challenges. But rather, that the studio guests missed the real point. Which is why South Africa, as a developing country with under half a percentage point of global GDP, insists on trying to position itself as the world leader in reducing carbon emissions. Ah, said the hairless lawyer after the programme, but if we don’t our manufactured products won’t be able to be sold anywhere. What manufactured products is a more appropriate question.

The national de-industrialisation is gathering momentum through a combination of labour unrest, the world’s least flexible labour laws and the drained confidence that comes with communists forcing through their utopian but unworkable Developmental State. The idea of a Carbon Tax is a bit like Nero fiddling while Rome burned. South Africans need incentives to invest. Urgently and desperately. Lots of carrots, and a breaking of some of Government’s sticks., Instead industry is now threatened with another dis-incentive on top of the long list we already have. We need another tax like a hole in the head. Especially one that will be paid for in part through another electricity price increase. For once I wish we’d take a lead from the Australians and can this damn thing, at least for now. And focus our collective effort on fixing rather than fiddling. – AH 

ALEC HOGG:  The Department of Environmental Affairs and the Treasury are busy finalising an approach to carbon tax for South Africa. The idea is to reduce greenhouse emissions, as we heard earlier from Chris Yelland, some people think it is just a way of raising more revenue. Here to give us their perspectives are Andrew Gilder who’s from the South African Wind Energy Association and Marco Lotz from Nedbank Group Sustainability. He’s a Specialist on Enterprise Governance and Compliance at Nedbank. Marco – Carbon taxes: the Australians have said they’re a lot of bung. Chris Yelland has said ‘it is just a way to raise money. It won’t actually drop carbon omissions……

MARCO LOTZ: Well, for me, there are two separate issues, so one is we should definitely price in externalities, environmental externalities. We cannot continue using resources, whether it is coal or water or the way in which we are currently doing. As you also said, in between the different sessions, the young people of today will not stand for it. Completely separate to that, we’ve got to the discussion of a carbon tax and the question is, “Is that the correct mechanism to address the externalities, the use of water, and the use of coal that we should be pricing and that’s a very difficult question.

ALEC HOGG: Andrew, you are on the other side of the fence. You are representing the Wind Energy Association, I’m sure you would like to see benefits coming to you, via a carbon tax.

ANDREW GILDER: Well, there will be benefits to the economy. I take the point that the idea is that all Treasury is doing is trying to raise more revenue. That is one way of looking at it but the fact of the matter is that it is a component of National Climate Change Policy. It is not the only mechanism that is being proposed, it is part of what is called a mix of measures, with the unfortunate acronym of MOM, but in any event, it is part of a mix of measures that the country is proposing to the international community around the reduction of the carbon profile of our industry. If we don’t do that, we become increasingly uncompetitive in the industrial space. For example, we have a very ‘carbon emissions’ heavy baseline, in the generation of things, anything from steel to consumer goods.

ALEC HOGG: 80 percent of the carbon emissions from industry, come from Eskom and Sasol.

ANDREW GILDER: True.

ALEC HOGG: So Eskom and Sasol, how are they going to be affected if there’s a carbon tax?

ANDREW GILDER: Well, at this point, Eskom has said to us what they are going to effectively be doing is passing that carbon tax responsibility through to its consumers.

ALEC HOGG: We’ve got a 12.7 percent electricity price increase that has just been approved.

ANDREW GILDER: Correct.

ALEC HOGG: What is that going to do to the electricity prices in the future?

ANDREW GILDER: It will, potentially increase electricity prices, and so the question is then, how clever are you, as industry? Are you able to capitalise upon the ‘so-called’ allowances that have been built into the carbon tax, and work your industry, in a much more efficient emissions manner, into the future? It must be very clearly understood that Treasury has not simply said and, by the way, we are talking only about a policy document, at the moment, although we kind of have a timeline about it now. Treasury has not said, “We are simply going to slap a tax on you, relative to this amount of your emissions.” In fact, it is not to do with your emissions anyway. It’s about the intensity of your fuel input. They’ve said, “We are going to do that but, at the same time, we have a number of allowances built into the system that would allow you to operate in a much more efficient manner.”

ALEC HOGG: I get that but, surely Marco; South African taxpayers are now ‘gatvol’. We’ve had many new taxes that have been brought into the system. We’ve had very good examples of the tax Dollar/Rand being wasted. Isn’t that the danger here? Yet another tax coming in on carbon emissions, as Andrew has said, we are going to pay for it because it will go through Eskom (higher prices). Isn’t there just one more straw that is going to break this South African taxpayer’s/camel’s back?

MARCO LOTZ: I think, with that in mind we definitely need to be very sensitive, to some of the industries that cannot change or cannot change that quickly. Andrew, from the Wind Energy Association and some of those big projects, sits with their bank, that’s a fascinating place and a good market position to be in but imagine going to a warehouse or to a hardware shop and trying to find a normal, incandescent bulb today. It is very difficult, so positioning is crucial, so that companies also move their product offerings – their service offerings – as quickly as possible. If it is not for the carbon tax then it will be due to international pressures.

ALEC HOGG: I’ll tell you what I’m getting at here. Andrew, you’ve explained earlier that we want to tell the rest of the world how to handle greenhouse submissions, and South Africa has got this wonderful ability to try and be the first in the world at certain things. If we are point-three-percent or point-seven-percent of global GDP, depending on how you want to slice and dice the purchasing power parity. That’s a tiny, little fraction of the world. Who are we to be starting to impose on our citizens the responsibility for being world leaders, in a field like this?

ANDREW GILDER: It is to misunderstand that we are not world leaders. There are a number of organisations, and there are a number of initiatives across the world that are seeking to price carbon into emissions and tense baseline. For example, earlier this year under the auspicious of the World Bank was launched, the 2014, World Pricing Report, if you would like. We are one of some 39 initiatives, internationally that are looking at mechanisms that will bring carbon pricing into economies, so a much less subtle way of doing it would be simply a ‘command and control’ approach. May I point out, just for your interest, at a session run by Treasury last Thursday? There’s a very strong push from civil society that says, “We should immediately be bringing in a carbon price that is equal to the social cost of carbon in the economy.”

ALEC HOGG: Which civil society?

ANDREW GILDER: Well, there’s a large group of…

ALEC HOGG: Taxpayers? No, no you tell me. If you go to a taxpayer and you say ‘we are pushing up vat by one-percent because of carbon tax’.

ANDREW GILDER: Yes, sure.

ALEC HOGG: Do you think your taxpayers are going to say ‘yes, fine. We’d rather pay more VAT’?

ANDREW GILDER: But you have to take into account, Marco has already, is kind of the technical aspect. We have to take into account that we do not and have not taken into account environmental externality cost, in our production baseline to date. Do you know that it costs the State approximately R5bn that is never taken into account, in the generation of electricity, in respect of increased incidents of lung disease on the East Rand, related directly to the Eskom Power Station.

ALEC HOGG: That needs to be proven but, from your perspective, should we have a carbon tax, I think that is what we’re getting at? People like me are saying, “Hang on, one more tax, ‘eish’.”

MARCO LOTZ: Okay, for me, there’s two points. The one is we should internalise environmental externalities. What that implies is we can’t continue as we are doing now. Completely separate to that is, is the carbon tax the right implement at the right time and where will the money go to? That is what we need answer.

ALEC HOGG: I agree. Do you agree with that one, too?

ANDREW GILDER: I agree. It needs to be appropriately designed and Treasury has agreed that it needs to relook at the design.

 

Eskom warns on IPP connections as it defers some transmission capex

State-owned power utility Eskom has made significant changes to its transmission infrastructure expansion plan for the coming ten years, owing to financial constraints that made its previous plan “no longer realistic”.

Group executive for transmission Mongezi Ntsokolo reported on Friday that the latest Transmission Development Plan (TDP), covering the period from 2015 to 2024, had been revised to align with available funding.

The outcome, which would be detailed in a document to be published on Eskom’s website by the end of November, was a reprioritisation and rephrasing of a number of network strengthening and expansion projects.

Eskom also confirmed that the lack of capital posed a risk to the integration of future renewables and baseload independent power producers (IPPs), especially where such projects required “deep” grid strengthening.

However, discussions were under way with the Department of Energy (DoE), National Treasury and the National Energy Regulator of South Africa (Nersa) about alternative funding models, including self-provisioning of both dedicated and shared infrastructure by IPPs on a case-by-case basis.

Ntsokolo also confirmed that the revision would result in a delay to the migration of the network to full redundancy as stipulated by the South African Grid Code.

The compliance schedule had been shifted out from 2016 to 2022, a move that was described as regrettable, but unavoidable.

R163BN ROLL-OUT PLAN

The overall budget, which was estimated at R163-billion, remained more or less as it was in previous versions of the TDP, with R146-billion required for capacity expansions and the balance split between refurbishments, spares, servitude acquisitions and environmental and corporate costs.

However, the latest version also delayed or deferred much of the actual investment into the fourth multiyear price determination period, or MYPD4.

This was partly attributed to the fact that Eskom had received lower-than-requested tariff increases from Nersa for the MYPD3 period from 2013 to 2018 – it had sought 16%, but was granted 8%.

However, the new TDP also took account of delays associated with securing land, servitudes and environmental approvals for transmission-line and substation projects.

The rephrased plan still envisaged the building of 13 396 km of new transmission lines and the introduction of 81 385 MVA of additional transformation capacity by 2024. But over 8 100 km of new lines and 51 895 MVA of transformer capacity would now only be rolled out after 2020.

Ntsokolo said that plan was focused on ensuring that the network met minimum reliability criteria, while being robust enough to ensure the connection of new generation capacity being developed by both Eskom and IPPs.

He also said the utility was looking for opportunities to “smooth” the awarding of contracts, as it was sensitive to the fact that a “stop-start” approach was disruptive to suppliers and contractors.

Meanwhile, GM grid planning Mbulelo Kibido confirmed that it was becoming increasingly difficult and expensive to integrate IPPs, with the easy-to-connect projects having been selected during the first two bid windows under the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP).

Eskom had connected a total of 32 bid window one and two projects with a combined capacity of over 1 600 MW. However, it was concerned about finding a viable financial model to deal with the connection costs of projects arising from bid window three onwards.

The financial close for the third bid window had been delayed largely as a result of connection issues, but the DoE was still hoping that the preferred bidders would be in a position to close before the end of November.

The connection concerns were not confined to the REIPPPP programme with the DoE planning to issue tenders soon for baseload coal, gas and cogeneration IPP programmes. But there was particular concern about connection capacity in the Northern Cape, where many of the current and future REIPPPP projects were located.

Senior manager: infrastructure investment Leslie Naidoo indicated that a budget of higher than R163-billion would probably be required to deal with the integration of new IPPs.

However, he stressed that the figure was based on the best available information as to where future projects could arise and that the figure would be revised as greater certainty emerged.

Call made for commission of inquiry into South Africa’s power crisis

A respected energy-policy academic has called on President Jacob Zuma to appoint a commission of inquiry into South Africa’s worst electricity crisis in 40 years and to offer policy proposals for reforming Eskom and the sector.

Writing in the Business Day, Anton Eberhard, who is professor of management of infrastructure reform and regulation at the University of Cape Town’s Graduate School of Business and a member of the National Planning Commission (NPC), said there was historical precedent for such an inquiry in the form of the 1983 De Villiers Commission.

He argued that the resulting recommendations led to “profound changes in Eskom’s organisational culture and efficiency”.

“A new commission of inquiry will help us understand what has gone wrong. It can build on the restructuring proposals in the 1998 energy policy white paper, which were never implemented, and will provide the basis for opening the sector to investors and operators that can help restore electricity supply security and economic growth.”

Eberhard stressed to Engineering News Online that he had written the article in his own capacity and not as an NPC commissioner.

However, he added that the NPC has discussed the power crisis at its last session and would be embarking on “a number of new initiatives of working with relevant stakeholders, including energy industry and business associations, to move key issues forward”.

Broadly, he said the terms of reference for the inquiry should be:

  • To understand the reasons why Eskom has failed to supply enough electricity to power our economy.
  • To draw lessons from these failures.
  • To document the outcomes of private sector investment in power.
  • To consider and make recommendations on the allocation and execution of planning, procurement and contracting functions for new generation and transmission capacity.
  • To consider and make recommendations for power sector reform and restructuring that would facilitate and accelerate investment, construction and commissioning of new generation capacity.

Given the urgency of the matter, Eberhard felt that the commission should be able to complete its work within four months.

“This is also one way to resurrect the restructuring proposals in the Energy Policy White Paper of 1998, which died a quiet death when Eskom was told to build Medupi and Kusile,” he added.

Renewables delay a ‘concern’ as connection risks rise

Some concern has been expressed about recent delays to South Africa’s hitherto successful Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), under which 26 projects have already been connected to the grid following three bid windows during which more than 60 mostly solar and wind projects were selected to proceed.

The anxiety arises primarily from the fact that financial close has been delayed for the third-bid-window projects, owing primarily to “grid connection issues”.

The preferred bidders were identified in October last year and financial close was initially scheduled for July 30, 2014, ahead of the August 18 closing date for submissions under the fourth bid window.

However, the Department of Energy subsequently announced that it was finalising a staggered financial-close protocol, which should be concluded in November.

It appears that the grid implications of the third-window projects had not been fully comprehended, which led to Eskom raising concerns about the cost of connection. It is also understood that, from the fourth bid window onwards, Eskom will provide input prior to the selection of preferred bidders in an effort to mitigate the problem.

In a recent presentation to Parliament, Eskom indicated that the “low-hanging fruit” had been exhausted and that a strengthening of the network was now required to facilitate the introduction of additional independent power producer (IPP) connections.

The utility also warned that the system impact had not been fully factored into plans, flagging in particular the “need for back-up and minimum generation” as renewables began playing a larger role in the mix.

As of September, over 863 MW of renewables capacity had entered into commercial operation. But Eskom also used its presentation to highlight the variable nature of the supply, which it claimed had resulted in it incurring back-up expenses.

It said a Renewable Energy Technical Evaluation Committee, comprising representatives from Eskom, the National Energy Regulator of South Africa and the Association of Municipal Electricity Utilities, had been established to certify future IPPs for grid code compliance.

Without question, therefore, grid connection has emerged as a key immediate risk for REIPPPP bidders, with some discussions now taking place on the future framework for self provisioning, with Eskom currently responsible for the so-called ‘deep connections’ and the IPPs for ‘shallow connections’.

Nevertheless, the appetite for the South African programme remains, with prices, which have fallen materially since the first bid window, having reportedly fallen again during the fourth window.

South African Wind Energy Association CEO Johan van den Berg says the delays were “not totally unexpected” in light of the rapid growth of the industry, which has stimulated private investment of over R120-billion.

“Given that renewable energy is growing faster than perhaps anywhere else in the world, it was always likely we would meet with challenges somewhere,” Van den Berg tells Engineering News Online.

However, he stresses that the wind industry wants predictability to build investor confidence and that the delay, together with concerns about the financial position of Eskom, which could cause delays to work on substations, is concerning.

South African Photovoltaic Industry Association chairperson Davin Chown says its members are confident they will reach financial close, but he admits that they have been “dismayed” at the delays.

“The delays mean more costs incurred by bidders and this is unfortunate as it always has a negative impact on projects. We are confident that the solar projects will close, and will be built and operational on time and on budget as has been the case in other rounds.”

The delays are also “not acceptable” in light of the constrained power network and the fact that only renewables and cogeneration IPPs are realistically in a position to fill the generation supply gap ahead of the introduction of large-scale baseload capacity.

Similarly, Southern Africa Solar Thermal and Electricity Association CEO Ntombikanina Malinga cautions that delays are having financial, social and economic impacts. “We can live with a delay of three months, [but] if we go beyond that, it starts to become a big issue.”

“The bid-window-three bidders are working with Eskom and the IPP office to ensure that any bottlenecks are dealt with and resolved before close,” Malinga adds.

However, Chown believes that the process and methodology behind the cost estimate letters (CELs) relating to grid connection need to be “totally revisited”.

“The variances between CELs and budget quotes also need to be dealt with in order to avoid any negative impacts on projects with respect to the connection timelines.

Eskom needs to be a lot clearer when it issues CELs whether these are in congested areas so as to deal with this and not end up in a situation where projects may end up being preferred bidders yet unable to connect without significant additional connection costs.”

Chown is also concerned that the fourth bid window may confront similar problems as the evaluation criteria remain weighted towards price, which could mean that the lowest-tariff project wins even when the project faces significant connection constraints.

“This is not a desirable situation for the REIPPPP or the bidders, or in fact the economy,” he says, arguing that projects facing severe connection concerns should not be awarded preferred-bidder status.

“The procurement process should ensure that Eskom is mandated and incentivised to ensure connections are available and made in time. Eskom must allow bidders to go the self-build or own-build routes as a matter of course, not as a matter of exception to the current rule.”

Headwind hits renewable energy

Green power is coming on stream, but it is not without quite a few teething problems.

Driving north on the N10 past what once was elephant territory of the Eastern Cape, vervet monkeys forage alongside the road, monitor lizards sun themselves. Curiously, the further away you get from the windy city of Port Elizabeth – moving closer to the small town of Cookhouse – the more rapidly the steel blades on the wind pumps along the road spin.

It certainly is a good day to visit a wind farm, especially Africa’s largest wind farm, with an installed capacity of 138.6 megawatts. Up high on a hilly area of the farmlands known as Patryshoogte, where Merino sheep are bred for their award-winning wool, 66 gentle giants hum as the icy wind courses through the terrain.

These wind turbines, at 80m high, are almost as tall as a rugby field and each propeller is 44m long. The foundations alone required 60 to 70 cement trucks and 26 tonnes of steel each as they stretch two metres deep and up to 22m wide.

Independent power producers
Inside each turbine a computer reads information from a wind vane, which discerns the wind direction, and an anemometer, which measures the wind speed, and adjusts the blades accordingly to run perpendicular to the wind.

Each turbine can produce a maximum of 2.1 megawatts and should the wind be strong enough to turn the enormous propellers faster than 15 revolutions per minute – which would be a rare occurrence – the system automatically shuts itself down.

Cookhouse Wind Farm is one of the first independent power producers (IPPs) selected to produce power for the national grid as part of the department of energy’s Renewable Energy Independent Power Producer Procurement (REIPPP) programme, designed to contribute to a target of 3?725MW, which the minister has determined is required to ensure the continued and uninterrupted supply of electricity.

Eskom currently has an installed capacity of 41?900MW, Medupi will have one of 4?788MW, and the nuclear build is expected to bring double that at 9?600MW.

The competitive bidding programme was launched in August 2011; Cookhouse was selected as a preferred bidder in the first round. The procurement programme opened the fourth bidding window in mid-2014.

The robust winds have caused Cookhouse to feed a full 110 gigawatt hours to date into the national electricity grid through the nearby Eskom substation (strangely named Poseidon, though it is located some 130km from the ocean).

The project is, however, yet to receive the full tariff as determined in the first bidding window – the power it supplies is still to reach full grid code compliance.

“Reaching [that] code compliance has been a challenge for most of the first round renewable projects,” says Cookhouse chief executive Jannie Retief. “We had to make a number of significant changes.”

Until the project complies with the rules, it cannot reach full commercial operation and cannot receive the full tariff for the energy it produces.

As determined in the first bidding window, the tariff ceiling for wind bids in the REIPPP is R1.14 a kilowatt-hour, although it has come down dramatically in the two subsequent windows and was at 74 cents a kilowatt-hour in the third window.

According to a May 2014 report by the Public-Private Infrastructure Advisory Facility, “prices have dropped over the three bidding phases, with average solar photovoltaic tariffs decreasing by 68% and wind dropping by 42%, in nominal terms”.

Eskom says changes to the code had been approved by the National Energy Regulator of South Africa, and proposed through a process that the industry forms part of. Various challenges that IPPs have encountered relate to technology, and various developers have run into some challenges along the way.

Nonetheless bid round one and two have been successful: 26 and seven projects have been connected to the grid respectively, with a combined capacity of 1?670MW and 22 projects being in full operation and four being in early operation.

But in round three, pricing has become immensely competitive, while the cost of connecting to the grid has unexpectedly arisen as a prominent concern.

On a “perfect solar day” at the SlimSun Swartland Solar Park near Malmesbury in the Western Cape, the sun shines unhindered by clouds or haze, but the ambient temperature remains relatively cool. The solar photovoltaic (solar-PV) plant was one of the first, if not the first, independent power projects to be selected under the first round of the REIPPP, according to entrepreneur and developer Anthony Corin. It is also one of the smallest, according to Corin, whose farm is home to the 5MW array.

Renewables programme
The solar project began life as a “naive” plan to help Eskom address the reliability of the local distribution network, Corin says.

The preparation on this pet project, which was done before a request for proposals under the REIPPP had even gone out, ultimately gave SlimSun a headstart in developing what would eventually become the array of solar panels that sit carefully fenced off on Corin’s farm.

But Corin believes that a project of SlimSun’s size and make-up is unlikely to be seen again as the second and third bidding rounds of the renewables programme have grown increasingly competitive and steadily consolidated around fewer and larger multinational companies.

“In the first round there were a multitude of developers and potential investors. They were chiefly local, small and many had joined forces to develop projects, reflecting, in part, what the department of energy had set out to achieve with the programme,” Corin says.

“Although this added complexity to the landscape, there was more scope for commercial banks and private equity investors. By the second round however – after the credibility of the programme had been well established – larger conglomerates got involved and the industry has consolidated quickly.”

As the tariffs being bid have rapidly reduced – to the extent that a difference of one cent can mean a project is taken “out of the game” entirely – the development risks have increased, says Corin, notably when it comes to the capital smaller developers need to raise to develop a renewables project with no guarantee that it will be selected to supply to the grid.

Larger corporates are now able to cut the costs through funding directly off their balance sheets and although some industry players applaud the resulting competitive pricing, others have concerns.

“We have a programme geared to get the best price of the system, not necessarily the best value,” says Davin Chown, chairperson of the South African Photovoltaic Industry Association. “People see these as the same thing, but they are not.”

Dhesen Moodley – an investment professional on the Ideas (Infrastructural, Developmental and Environmental Assets) Managed Fund at Old Mutual Investment Group, which provides equity funding for such projects – says tariff had dropped to become more competitive and so returns have also become “less robust”.

Financing
“In round three we saw some nontraditional financing structures, and more competitive financing, driving lower tariffs,” says Moodley.

“What has changed is that the financing of the projects has become more aggressive – if things go wrong there is less cash available, compared to round one and round two, to restructure the project – so the margin for error is much smaller.”

Moodley says Ideas had participated in round four on a limited basis and would consider participating in future rounds on a limited basis, unless the risk-adjusted return improves.

However, the department of energy’s deputy director general, Ompi Aphane, says the competitive nature of the programme is good for the country and electricity consumers. “It is not necessarily true that big companies are getting a competitive advantage, but projects with innovative funding structures are benefiting from the programme,” he says.

“Bigger companies with strong balance sheets can raise capital at competitive rates compared with smaller companies. However, the procurement rules require every project to have at least 40% South African participation.”

This, Aphane says, presents some opportunity for the small companies to partner with big foreign companies for the development of the project and thereby capitalise on their strength for purposes of raising capital at comparative rates.

De Aar Solar Power Farm
The De Aar Solar Power Farm is part of the renewable energy programme.
(Madelene Cronjé)

He says the department is also implementing another programme targeting small projects with a maximum installed capacity of not more than 5MW, which provides an opportunity for small South African companies to participate. The department is working with developmental institutions to set up a fund for these.

“But there is also no point having [the] best price when you can’t connect,” says Chown.

Closure of projects
Grid access for projects under the REIPPP has hit the headlines recently as media reports have suggested Eskom’s inability to connect independent power producers to the grid has affected the (financial) closure of projects in the third round.

SlimSun has not been left unscathed by grid connectivity issues. Despite construction being complete, the plant is still unable to supply electricity to the grid. However, Corin believes this is no one’s fault, including Eskom’s, but that it is rather a “cumulative issue”.

Under the first round, the current distribution and transmission network could absorb projects with relative ease. But this spare capacity has filled up relatively quickly.

The importance of resource quality has also meant that solar projects have been concentrated in places such as the Northern Cape: here the solar irradiance levels are best, but it is not necessarily what suits the current load profile of the country, given that it is far from large metropolitan and industrially intensive areas.

This has created challenges for the utility, Corin says: it is now required to provide grid access in areas that would not have initially required additional transmission and distribution infrastructure; which, due to their distance from large centres, increase the difficulty of managing electricity losses through transmission.

As a result Eskom has become far more conservative in its estimation of the costs and timelines for providing grid access to IPPs, Corin says, noting that the utility has also warned renewable energy developers not to bid projects that rely on upstream works or future capital investment that cannot at this stage be guaranteed by Eskom.

  Intense programme
As a result grid access, which in the early days of REIPPP was not a crucial factor in the success of a project, has become a key criteria. In SlimSun’s case it is waiting on the connection of a 66-kilovolt line to connect one local substation to another before it can begin to provide power to the grid and it is set to wait for between three to six months before it gets grid access, according to Corin.

“Generally from our point of view we think South Africa has a great success story, it’s one of the best programmes in the world. It’s an intense programme, competitive and well structured,” Chown says. But he notes that now grid infrastructure constraints – for them to meet financial closure – have become a problem for round three projects in particular.

The cost of connection has come as a surprise as Eskom’s initial cost-estimate letters have varied from subsequent budget quotes provided to preferred bidders by the utility. This could cause delays.

“There can be quite a big gap so it has a capacity to catch people off guard, it can throw off the financial model,” Chown says.

“It’s not a problem for all preferred bidders in round three, but in some instances it’s almost twice the amount of the cost estimate. We certainly think Eskom needs to involve the private sector and allow parties to do self-build or own build.”

Moodley says: “Grid-connection costs are not a factor preventing us from investing in further bidding windows … We expected at some point all the easy grid projects would be off the table – although we thought it would be closer to round five that we would see deep grid connection costs.

Project risk
“The fact it has happened so quickly was a surprise.”

Eskom says connection costs, in general, have increased for bid round three projects as existing grid access capacity for IPPs is being taken up quickly, and viable projects were connected earlier in the process.

“As more successful bidders are being announced, subsequent projects become dependent on earlier projects, and also on other grid strengthening and refurbishment projects.

“This causes more project risk, and simple connections may become more expensive,” Eskom says, adding that it is in the process of engaging the energy department and the regulator to ensure that the process remains efficient, and that grid access capacity remains fair and transparent.

The utility says it and the IPPs agree on the most appropriate connection process, which may include the self-build option.

“In that process, which is now available for both the distribution network and transmission grid connections, Eskom and the bidder agree on the project scope and the respective accountabilities. Depending on the various project scope details, this ensures that an optimal solution is achieved at all times.”

Aphane says Eskom’s detailed studies on the preferred bidders in round four may increase or decrease the connection costs, with changes on the connection time lines.

“The department will continue to engage Eskom on this matter for better understanding of the challenges associated with grid connection.”

The utility says for all bid round three projects, and specifically for those where all the budget quote conditions have been met, “Eskom will make those connections available, and these are fully funded”.

Eskom says the raising of capital (through a support package issued by the treasury two weeks ago) will also be used for grid expansion and will assist all network customers, including the load customers.

Wind Power Can Improve The Resiliency Of Electric Grids

A study has found that wind can be more effective than thermal generation in controlling frequency on the grid.

The challenges of integrating a high proportion of intermittent wind power to the grid are well known, but now a recent study has found that when the system is equipped with the appropriate modern plant controls, wind applications can substantially enhance grid resiliency due to their quick response ability.

The study from GE Energy and the US National Renewable Energy Laboratory (NREL) modeled the country's Eastern Interconnection – an AC power grid reaching from Central Canada eastward to the Atlantic coast (excluding Québec), south to Florida and west to the foot of the Rockies (excluding most of Texas), and one of the largest electrical systems in the world.

25% wind penetration

For modelling purposes, 68GW of wind production was added across the Interconnection, except the Southeast Electric Reliability Corporation (SERC) and the Florida Reliability Coordinating Council (FRCC) regions. This represents an instantaneous penetration of about 40% where the wind was added, and of 25% for the Interconnection as a whole.

Among the results, the study found the overall frequency response of the Eastern Interconnection to a large system event is above the current frequency response obligation. None of the conditions examined, including cases with up to 40% wind generation, resulted in underfrequency load shedding or other stability problems. However, the study did not verify performance of individual regions or balancing authorities.

Other key findings:

●The fraction of generation providing governor control must be maintained above a minimum level, of the order of 30% – consistent with other findings

● Governor withdrawal on thermal plants causes a degradation in frequency response – roughly 44% degradation for the case with about 30% of the generation participating in governor control

● Governor response from wind plants can provide a significant primary frequency response, with a systemic benefit up to several times greater, per megawatt, than that in the synchronous fleet

● Inertial controls on wind plants can improve the frequency nadir

● Damping of inter-area oscillations in the Interconnection tended to improve with wind penetration. However, further analysis is necessary to determine whether this is due to the increasing wind penetration, the associated decommitment of thermal generation, or modeling inaccuracies.

Lessons for renewable integration in Europe

Although the study focused on one region, GE believes the findings are more widely applicable.

“While GE's study considered the impact of wind power on the Eastern Interconnection of the US, the lessons we've learned can be applied in Europe and around the globe,” said Nicholas Miller, lead author of the study and senior technical director for GE's Energy Consulting business. “The conclusions demonstrate that wind power can be more effective in maintaining frequency than thermal generation when wind farms are equipped with grid friendly controls. These findings should show that the future of wind energy is bright and it will continue to play a larger role in the power we consume.”