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Mantashe has left South African Independent Power Producers out in the cold, and we’re giving up

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By Chris Haw
30 May 2021 28

Dr Chris Haw is an electrical engineer with a PhD in engineering from the University of Oxford. He is a co-founder of Aurora Power Solutions and a shareholder and director of two of South Africa’s first independent power-producing solar facilities, and co-founded the South African PV Industry Association, SAPVIA, and was its first chairperson. He is former Chairperson and current Executive Director of SOLA Group. He writes in his personal capacity.

After five years of research, development and being ‘shovel ready’, locally-owned renewable energy companies have been effectively frozen out by Gwede Mantashe’s latest procurement announcement. Local Independent Power Producers have been left with stranded projects and five years of costs in keeping them ‘construction ready’ at the government’s request.

Minister of Mineral Resources and Energy Gwede Mantashe recently announced a raft of measures aimed at resurrecting the ailing state procurement of renewable energy. However, in a glaring omission, he failed to mention any intention to progress with a set of fully developed and awarded renewable energy projects representing 100MW of locally developed capacity, still awaiting Eskom’s signature.

Now instead of progressing with the projects that have been kept “shovel ready” for five years, he appears to prioritise the awarding of “emergency” projects to foreign-led entities such as those hailing from Turkey and Saudi Arabia.

The Small Projects Programme (SPP) was established in 2013 through the Department of Energy (DoE), in parallel to the conventional Renewable Energy Independent Power Producers Procurement Programme (REIPPPP). It was facilitated by the Independent Power Producers (IPP) office to award projects up to 5MW in size with the stated objective “to allow South African citizens who are, or who own or control, SMEs and or emerging, smaller power developers an opportunity to participate in the Renewable Energy generation sector”.

The high development and capital costs for large infrastructure projects make it difficult for local entities without experience to raise the funding and attract the financial, legal and technical support required for projects of scale. As a consequence, the larger REIPPPP programme, aimed at projects between 75MW and 140MW, has been dominated by international utility companies. The result is that, despite billions of rands of IPP projects being procured, we have almost no local IPP companies able to compete with large foreign utilities representing, for example, the Eskom equivalents of Norway, Italy, France and Saudi Arabia.

Those within Treasury, DoE and the IPP office who understood the importance of establishing local skills and experience, promoted the Small Projects Programme, which was officially launched in the form of a Request for Proposals in August 2013. Prospective bidders were asked to submit projects of up to 5MW in size.  In contrast to the larger REIPPPP, this process mandated higher levels of local ownership, with a specific requirement that 60% of the proposed project ownership had to eventually be held by a South African parent company.

The bid requirements were otherwise substantially similar to the large IPP programme, making submissions time-consuming and costly. All land, grid, environmental and permitting rights needed to be secured and advanced to qualify for evaluation. The costs, amounting to several hundred thousand rands per project, were incurred by local developers seeking to respond to the government’s request for proposals.

In 2015, after two rounds of bidding, the IPP office awarded preferred bidder status to 20 projects ranging across wind, solar and biomass technologies, and representing around 100MW in capacity. The projects were instructed to develop further and prepare for financial close and signature of Power Purchase Agreements (PPAs) with Eskom. 

Since then, after five years of incurring costs to keep the projects on standby for government go-ahead, no PPAs have been signed and no projects have proceeded into construction.

Rather than give a clear message that the state is not proceeding with these projects, the preferred bidder status was renewed by the IPP office no less than six times during the five-year period, leaving companies guessing as to the government’s intent.

In 2020, at the government’s request, and in good faith to South African consumers, the bidders adjusted their tariffs downwards to account for improvements in capital costs over the years of delay. Eight months after the adjusted tariffs were submitted, there is still no progress. Many of the locally owned companies that were investing in developing smaller projects for this process have now put down tools and given up on their projects, due to the lack of government progress and commitment.

Instead of acquiring the necessary track record to participate in larger IPP projects both in South Africa and abroad, local IPPs have been left with stranded projects and five years of costs in keeping them “construction-ready” at the government’s request. Furthermore, along with other larger projects from Round 4 of the REIPPPP, the small projects had to pay legal costs to defend themselves in 2019 (alongside Eskom and the larger projects) against a court challenge from the Coal Transporters’ Forum.

After the court case was successfully won, the government proceeded with the Round 4 projects (mostly led and owned by foreign companies), allowing them to recover the legal expenses, but the 20 smaller local projects were left with further bills to pay and no progress towards recovering these costs. All this against the backdrop of continuous load shedding and, more recently, the procurement of “emergency power” from gas-fired powerships. 

Now as the country prepares to reverse auction more than R200-billion worth of renewable projects in upcoming rounds of REIPPPP, most of the skills and experience reside with large, foreign IPPs. Out-of-pocket local developers and IPPs are left scratching their heads as to whose interests their government has at heart.

My firm, the 100% locally owned SOLA Group, represents three of the awarded projects and we have the first-hand experience of the mixed messaging and poor communication surrounding them. We implore the minister to provide clear and direct communication about the future of these projects. And in the interests of South Africa, to proceed with the conclusion of the contracts that will bring much-needed clean, reliable and affordable electricity to our national grid in the fastest possible time. DM

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All Comments 28

  • What a tragedy. But the lesson surely is this: this ‘government’ is not actually capable of doing the right thing unless the right thing happens to coincide with making a buck or three for the party, and preferably a buck for me, my daughter (in Gwede’s case), or any other random family member.

  • Get this onto ENCA and other responsible media and get the President to answer this publicly.
    Ideological and other ANC agendas are behind this sorry state of affairs it seems.

    • Agreed – and lobby opposition parliamentarians to raise this urgently. also mobilize public opinion – a few demonstrations

  • We have a constitutional right to self-generation for self-consumption, and to buy&sell #GreenElectrons over OUR grid. However until we have a #Smartgrid & #TransactiveEnergy we are probably not ready for energy trading ( but point-2-point wheeling will work just fine )
    – Time for @energywebx ?

  • What a shambles. Here is an ideal opportunity to develop local skills, to build local capacity, to enlarge the local economy, to give highly talented people great opportunities within South Africa. But no. The ANC government has other ideas. Why? Who knows? Corruption, incompetence, money-laundering, cronyism all come to mind. Ultimately the loser is all South Africans.

  • This government operates on court judgements or bribes. ‘Imploring’ Mantashe won’t get you anywhere unfortunately.

  • Almost all renewable energy projects fail to benefit local communities; what we need (and what my company has been working on for four years) are proposals which involve local peri-urban communities in renewable power generation and distribution. This is where R&D should now be heading. We need to bring together your compelling “local business” case with strategies to involve and benefit local communities. Prof Raymond Auerbach, Peacevale Renewable Power (Pty) Ltd.

    • This sounds like a viable solution to the country’s energy crisis and it is easy to see its application in smaller and medium size communities. Cities would be more of a challenge. Political will is crucial and will remain a stumbling block for the foreseeable future.

  • Following the energy debates over the last number of years, it is easy to feel deep despair at disconnect between trends globally in response to accelerated climate change and what is being done locally. Mark Swilling’s article describes this clearly. A question – how can we the ‘ordinary’ citizen help? (in addition to action at ballot box, being active in climate justice social movements…..)?

  • If these waiting Projects got going 5 years ago we would be having positive success in communities and another 100MW in the system. We would be having practical experience and enough lessons learnt to continue along this path with further phases planned. We have not passed “GO” yet and for what reason. It was only 100MW.

    • 1) Nothing for it for Mantashe & the ANC; 2) Mantashe is still in a “dig it from the ground and burn it” mindset in support of his union base. Renewables are not part of his vocabulary, unfortunately; 3) He does not care about the losses incurred by small companies in maintaining Government requested readiness nor loss of a court case, it does not affect his pocket (personal or ANC). Mantashe is an anachronism and I agree with many other comments here that he must go, but we all know that is very unlikely.

  • Clarity from Mantashe???? The Dinosaur in the Engine Room is totally incapable of managing hie Portfolio in a fair, honest and unbiased manner.

  • On an even small scale, let households decide to go off grid and generate their own power and watch the effort put into local government to tax these proactive actions. REIPPPP? pffft! The ANC only wishes to deal with internationals as they have the capability to pay kickbacks of worthwhile value that disappear in the wash. By the time corruption is publicised the money is long spent and our cANCer ridden legal system is dealt another body blow at timeously getting people convicted. The victorious ANC of Tambo and Mandela is a far cry from the gutter party of today – such a pity as the leadership had the whole nation pulling in one direction 20 odd years ago. Our power drunk government, instead of taking the lead in Africa and having a respected opinion on the global stage, has gloriously stumbled to achieve ‘another corrupt ridden nation’ status, much to the glee of ‘I told you so’ detractors. Shame!

  • This is just another case of the anc saying ‘we rule’, with no regard for what it may cost in terms of money neither reputational damage to the country as a whole.

  • Cuban doctors and engineers, Turkish power ships and a thoroughly corrupt ANC government. And the ANC want to get unemployment down to sustainable levels? Not while this government is ruining this beautiful and capable country – one corrupt BEE deal at a time. Wake up Mr. Ramaphosa! Your party is slowly but surely sinking our prospects of economic recovery into the ground. Where is the money going to come from in the future to continue funding your ever growing social welfare requirements? It is time your government brought ALL the people of this country together to build up the country, instead of needlessly importing talent at huge cost to our balance of payments and employment prospects for South Africa.

  • I totally understand your pain Chris Haw.
    My operation and employment of locals trained to become specialists in the field was destroyed initially by Zuma courting Russia for a Nuclear plant and finally by unions trying to protect their members that are employed in the coal industry.

  • There is of course an elephant in the room here – the high cost of renewable energy, particularly in small scale operations. Eskom runs pretty much on low grade coal that is relatively inexpensive. If you can put aside Eskom’s plundering under the stewardship of Molefe for one moment, the core electricity generation is still the very best on this continent. Eskom’s woes stem from lack of infrastructure maintenance and the high cost of (Molefe) legacy debt, plus an unbelievable over employment number. If you want to have this extra 100MW, it will be at a higher cost of electricity to all. I know it smacks of crisis management, for that is what it is, but we have a situation right now that requires an immediate fix that doesn’t put price pressure on electricity procurement. Renewables are price pressure contributors.

    • I’d be interested to see current stats of the cost of coal-generated vs renewables in SA – have you got a source? I know Eskom bought “expensive” renewable contracts in the early rounds, but understood that the price per kWh has fallen substantially for IPPs, whereas Kusile & Medupi have not. And that’s before one prices in the many layers of secondary & future (hidden) costs associated with coal.

    • “In 2020, IEA declared that solar PV power is the cheapest electricity in history.”
      Pls tell us how and on what facts you base your statement that renewables are more expensive than fossil fuels.

  • Sue. Lay an official complaint with the Public Protector. Keep listening to the radio and wait for the Uncle Gweezy to go on air and ask him tough questions, live, especially involving words like Hitachi, Karpower and air pollution.

    • To Rowan & Dhasagan; I am sure it would be great for Chris and the other affected suppliers to be able to sue Mantashe, but there are two major problems there (1) the costs of them doing so; (2) he uses our taxpayers money to fight it, (3) have you seen the length of time it takes to get anything into Court; (4) there will undoubtably be the use of “Stalingrad tactics”, with which Government members seem to be imbued.

  • The energy handbrake on our economy remains in place. Saddened to read this account. Needs some out of the box problem-solving?