Global energy player Engie operates in more than 30 countries where its investments are focused on facilitating in-country transitions to low-carbon energy. The company has emerged as an active and important player in the SA energy sector.
It has been awarded several bids in the government’s procurement rounds such as the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) and already owns and operates about 320MW of renewable energy projects in SA. It has another 500MW under development.
Mohamed Hoosen, Engie’s MD for renewables in Africa, Middle East and Asia spoke to Business Day’s Denene Erasmus about the company’s experience of the renewable energy landscape in SA and its plans for future investment in the country.
Engie is already an important player in the SA energy space, what are your growth aspirations in the country?
Engie has been in SA for more than 15 years. We have established ourselves as a leading independent power producer (IPP) in the country.
Since the launch of the REIPPPP we have participated and have successfully constructed and continue to own and operate wind, solar and concentrated solar power plants.
We plan to continue investing in renewable energy projects in SA. We recently acquired BTE Renewables, which doubled our renewable footprint in the country. We are looking forward to delivering our existing pipeline of projects and the pipeline we acquired through BTE.
BTE has about 340MW of onshore wind and solar that they own and operate and a pipeline of 2GW of projects that we are confident can be delivered.
In the short term, there are two projects of about 500MW in total that we are progressing to the final investment decisions phase. One is a hybrid wind, solar and battery storage project, and the other consists of three 75MW solar PV (photovoltaic) projects. We expect to enter the construction phase for both projects in 2024. There projects are being developed as part of government-backed IPP programmes such as the REIPPPP.
The corporate IPP space has very recently ballooned since government unlocked growth in the sector by lifting some of restrictions that were previously in place, such as removing the cap on private generation. We are looking at a few corporate power purchase opportunities and we expect to make some progress in 2024 with projects that are not for Eskom, but for private sector off-takers.
What has been Engie’s experience of the REIPPPP programme in SA? As a successful bidder, what about the process works well and where can it be improved?
One of the challenges we face as developers and investors in the country is the constraints on the grid. Eskom and the government have recognised this as a challenge and, hopefully, in the next few months we will see more attention being paid to unlocking grid capacity.
Having said that the bid windows have been successful. What the government has done really well with the REIPPPP programme was to make sure they have consulted widely and made sure when the programme was launched the documents used for the bidding process are bankable documents.
Notwithstanding the smart rollout of the programme, I think if the time frames between the bid windows can be hastened so that momentum in the rollout of IPPs starts to establish an industrial process in the country. This will improve the efficiency with which these projects can be rolled out from the IPP office’s and the developments perspective.
We have seen a significant improvement in the tariffs that are being bid now, compared to the tariffs from the earlier bidding rounds. The obvious criticism then is, why did we do those early bidding rounds when the prices today are so much more competitive?
The reality is that the prices today would not be efficient if we had not started years ago to set up the framework, the contractual arrangements and the ability to honour those contractual arrangements. It is the expertise and experience we have learnt that has enabled us to deliver these projects successfully at much lower prices for consumers.
Bid window 7 and 8 of the REIPPPP is scheduled to be launched this year and next year, opening bids for 4,000MW to 6,000MW of renewables in each round. Are you preparing to bid in this round?
I think we will. We want to continue to invest in SA; it is an important market for us. That is what our project pipelines are for, to have opportunities that are already being developed so that we can bid them under these bid windows.
But we do need to be cautious about the capacity for these bidding rounds because it will be dictated by the unlocking of the grid. There are opportunities to procure projects in parts of the country where the grid is less constrained, but the reason the grid is less constrained in these areas is because the renewable resources in those parts of the country are poorer than in the Cape provinces. As a developer you always want to go where the resources are the best, at the end of the day projects developed in these areas will ultimately result in the lowest electricity tariffs for consumers.
Eskom has recently moved to introduce new grid queuing rules to prevent IPP projects that struggle to reach financial close from “hogging” grid access. Do you think these rules are necessary and do you agree with Eskom’s proposed method (first-ready, first-served) of implementation?
What they are suggesting can work, but to be honest I think it is a bit early to say how successful the rules will be. It will depend on how Eskom will, in practice, manage grid allocation so that we don’t repeat the mistakes of the past.
One of the interventions Eskom is considering to open up grid space in areas where there is limited capacity is mandatory curtailment. If they go this route, will this affect your investment decisions in SA?
Ideally, we want to make investments with a high degree of certainty of how that capacity you invested will be utilised. You want that to be in a predictable and known way, whereas curtailment brings a degree of uncertainty. We would prefer not to be in a position where we are investing in projects for which curtailment could be an issue when the degree of curtailment is unknown.
But there are markets in the world where curtailment is a factor. If we know there will be curtailment and if there is some degree of predictability in how this will be determined and executed — if we know that then we can incorporate that in our development model.
It is not a red flag; it will not stop investment. But the challenge is to make the unpredictable of curtailment as low as possible.
Do you think the country is working fast enough to expand transmission and distribution infrastructure? And do you support suggestions around allowing private investment, and limited private ownership, in transmission?
The ability of the state to do this is severely affected, because the financial ability of Eskom to carry more debt on its balance sheet to fund these large infrastructure projects is very limited. I don’t think in the current environment Eskom will be able to fund the expansion of this infrastructure at the scale that is needed.
That means it will require a partnership. Financing will have to come from outside the government, and so will the skills and capacity needed to execute this huge infrastructure project in a timely way.
The ability of the government to accelerate rollout will be enhanced if they come to market and find partners willing to collaborate in a public-private-partnership structure. The other option is to outsource it completely and to finance these projects on a regulated asset base, where the government will set allowable returns for this type of investment.
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