Rand Merchant Bank (RMB) CEO James Formby has called on the government to “supersize” the amount of power it buys from independent power producers (IPPs) in the upcoming bid window for SA’s renewable energy procurement programme.
The department of mineral resources & energy is expected to open the sixth bid window of SA’s successful Renewable Energy IPP Procurement Programme (REIPPPP) at the end of March. That will see the government procure about 2,600MW for the national grid from IPPs, hot on the heels of the 2,583MW of renewable energy it procured in October 2021 under the REIPPPP’s fifth bid window.
Under the Integrated Resources Plan (IRP) 2019, SA will target the addition of new generation capacity of about 31,500MW by 2030. The 2,600MW represents about 8% of that. Under the IRP 2019, generation from solar and wind will add the lion’s share of new generation capacity at about 20,400MW to be added between 2022 and 2030. This will increase the share of renewables in the energy mix to about 40%.
But the head of FirstRand’s corporate and investment banking unit says mineral resources & energy minister Gwede Mantashe should dramatically ramp up the amount of renewable energy the government will buy from independent producers, well past the planned 2,600MW. Bid window 5 was hugely oversubscribed, with 102 bidders offering 9,644MW of power, of which the government only procured 2,583MW from just 25 preferred bidders.
“Our requirement for power is huge and it’s quite clear that an ageing coal fleet is going to be unable to deliver to that need, so why shouldn’t we supersize it?” Formby told Business Day on Tuesday, adding IPPs can easily supply another 10,000MW into the national grid.
“We’ve got a unique opportunity as SA to pivot away from coal, so why not accelerate it? The capital is there; the interest is there. The world wants to help, this is the ideal time.”
While the REIPPPP’s fifth bid window marked yet another successful bidding process, the electricity is scheduled to come on stream only towards the end of 2023 or early 2024. In the meantime, SA continues to battle rolling blackouts due to Eskom’s inability to remedy a power generation shortage at its ageing fleet of coal-fired plants.
The successful bids under the fifth round also need to reach financial close, which Formby said may be difficult given global inflationary pressures. “One of our broader concerns is that equipment, commodity and logistics costs have increased since round five was bid, which now makes round-five deals difficult to close at economic levels given the tariffs awarded.”
Coal-fired plants
With Eskom battling under a debt load approaching R416bn, it has limited financial scope to invest in new infrastructure to replace its coal-fired plants even as SA comes under pressure to decarbonise. While the US, UK, Germany, France and the EU last year pledged $8.5bn in funding to help SA transition its power system, the various parties have not yet reached consensus on how to use the money.
With SA’s power generating crisis far from over, Formby echoed Nedbank CEO Mike Brown’s call on the government to deal with red tape, which is undermining President Cyril Ramaphosa’s 2021 decision to lift the threshold for embedded power generation without a licence to 100MW.
While the move was initially hailed as positive, Brown — and now Formby — said it is being hamstrung by bureaucracy.
Among the many administrative hurdles are environmental approvals, uncertainty over pricing of the power if it is fed into municipal grids and how much Eskom would charge to carry the power on its lines.
“Technically, they can go and do it, but practically there are still quite a lot of ... administrative hurdles,” Formby said.
“We have a huge pipeline of these deals, we just need to bring them to financial close and get the shovels in the ground as quickly as we possibly can.”
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