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Renewable energy: ‘Reipppping’ the whirlwind of green power projects in South Africa

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By Tim Cohen
14 Nov 2021 5

Tim Cohen is editor of Business Maverick. He is a business and political journalist and commentator of more years than he likes to admit. His freelance work has included contributions to the Wall Street Journal and the Financial Times, but he spent most of his life working for Business Day. After a mid-life crisis that didn't include the traditional fast car, Cohen now lives in the middle of nowhere in the Karoo.

If you want to know everything that is right and wrong about SA’s procurement process, there is no better place to start than Reipppp 5.

Reipppp (Renewable Energy Independent Power Producer Procurement Programme) 5 is the fifth bidding window for green power projects, and the preferred bidders were announced at the end of last month. It’s been on hold for five years because … well, you know.

Broadly, the Reipppp programme has been a roaring success; the only question mark is the modesty of the effort and the length of time it has taken. So far, 93 projects have been approved, totalling 7.3GW.

For nuke fans out there, that’s about seven times the generating power of Koeberg, and the cost to the taxpayer of building these projects has been zero, as opposed to the trillion rand nuke proponents want to spend. Well, not entirely zero, as we will see.

Reipppp 5 will deliver about 2.5GW, increasing SA’s renewable energy by 25%. So far, so good. As my colleague Sasha Planting has pointed out, the price to Eskom of renewable energy in this round is R473/MWh and that compares to just over the average of Eskom’s cost of coal purchases, which is currently R421MWh. This excludes capital, operations and maintenance costs, so the inescapable conclusion is that renewable energy is now much cheaper than coal.

But then it turns out that the winner of 12 out of 25 projects was Patrice Motsepe’s African Rainbow Energy and Power (Arep). Of course, we didn’t know that until much later after the government announcement because the Department of Mineral Resources and Energy (DMRE) took care not to actually announce who individually won what. I still don’t know individually who the winners of the other 13 projects are; if the information is available, it’s not obvious from the DMRE’s website or the department’s renewables website.

The only reason we know Arep won all those projects is because the company, proud of its achievement, told us. This, particularly for the Radical Economic Transformation faction of the ANC, is a problem. What we have here is what is delicately called “an optics issue”, because, as we all know, President Cyril Ramaphosa is married to Motsepe’s sister. It just looks a bit odd for Arep to get so many of the projects.

However, not that they are saying it aloud, Arep has a whole bunch of potential counterarguments. First, one thing we do know is that one of the 12 projects Arep will be building happens to be the cheapest of the lot. In other words, it will produce electricity at the lowest cost to Eskom.

Second, Arep’s management is unquestionably sparkling. The Group is led by CEO Brian Dames, former CE of Eskom; while the board includes as non-execs well-known political and business figures like Max Sisulu, André Wilkens and Tom Boardman.

Third, Arep itself constitutes less than a quarter of the Ikamva consortium. The other members of the consortium are Mainstream Renewable Power (25%), and Mainstream’s British-headquartered independent power producer Globeleq (23.25%), which have both already developed a number of wind and solar projects in the country.

Then there is something called H1, a black-owned investment company, the members of whom have yet to be disclosed. But because this is South Africa, the “community” must also be involved, so they get a cut too. Guess how much the “community” gets? 2.5%. You have to smile.

So one crucial question we do know the answer to is how many other bidders there were, and the answer to that is 102. Together they have the capacity to build 9.6GW. We don’t know what they bid, so it’s impossible to tell whether Arep won because it bid lower or because of other more nefarious reasons. What we do know is that this was not a straight-up “lowest bid wins” type of selection.

Another thing we don’t know is the profitability of the project, because that of course comes out of the pockets of Eskom’s users, which would be us. Circumstances differ, of course, but the most recent bidding price in Saudi Arabia drew bids of 0.0104 US cents/kWh. This was a record low, but that is still half the 47c/kWh in South Africa, so I think we can work on the basis that the bidders are going to make a packet.

In addition, in announcing the projects, DMRE Minister Gwede Mantashe said it takes 36 months before they can produce power, so don’t look to them solving load shedding in the near term. This to me sounds extremely slow; the mining companies are doing photovoltaic projects around the same size in three or four months.

So would we be better off without Reipppp 5? Absolutely not. Could we do better? Absolutely. DM168

This story first appeared in our weekly Daily Maverick 168 newspaper which is available for R25 at Pick n Pay, Exclusive Books and airport bookstores. For your nearest stockist, please click here.

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  • The entire list of unsuccessful bidders with tariffs and scores have been published and distributed by the Dept of Energy. Transparent.
    H1 is a respected player in the industry and well-known to developers, investors, banks and DFI’s in the industry. A Google search will reveal management and interviews with the H1 principals on, inter alia, Moneyweb, SABC and SAFM. Also transparent.
    Arep is also well-known and its participation in various projects is also no mystery.

    The comparison in time to operation is also misleading. The actual construction timelines are similar between private projects and REIPPP projects (adjusted for scale) from when the first spade is in the ground. The timelines of getting to the point of putting the first spade in are obviously different.
    The points of risk to the taxpayer, cheaper than coal and whether more should be procured are however well made.
    A major restriction in the ability to procure more generation capacity is currently restrictions in the Eskom Transmission Network. Also publicly available.

    IMHO the author could have done a bit more factual research.

  • These projects will take a while to get going as they have to figure out how to route the politicians’s cut to make it less traceable – a task that is getting more difficult due to some bank’s finally waking up to the fact that they are complicit in this criminal activity. I think we will have to revert to the day’s of paying against inspected completions and real paper invoices. Add some REAL auditors into the mix and we MAY have a chance.

  • The future will need Nuclear – and I’m not advocating that it come from 1960’s technology light water reactors that are expensive, costly to operate and take decades to construct. The new nuclear reactors will be small, modular, inherently safe and built in a factory.
    Their waste (note not pollution) will be shorter lived and allow heat to be used for industry (such as recycling metals, producing hydrogen, chemicals and for the desalination of water).

  • There’s a balanced debate on renewals and nuclear. I’m suggesting that BOTH have a role. don’t cut out Nuclear. This is an interesting debate. Inform yourselves.