SA’s renewable energy sector is likely to be dominated by private offtake agreements and municipalities amid uncertainty over the official, government-backed programme, according to a report on the industry.
The report, unveiled on Thursday by GreenCape, a nonprofit organisation dedicated to promoting the growth of SA’s green economy, found that private offtake agreements grew rapidly in 2023 and are expected to be a large driver of future renewable energy projects.
The report says the market for large-scale renewable energy projects in SA is expected to present an investment potential of more than R400bn by 2030, involving the deployment of about 22GW of generation capacity — about half of Eskom’s installed capacity at present.
But it added that opportunities were shifting towards private sector projects (for private offtake) and municipalities given the uncertainty and slow implementation of the government-backed Renewable Energy Independent Power Producer Procurement (REIPPP) programme.
The increase in private renewable energy developments is evident from the number of projects registered with the national energy regulator from 2021 to 2023.
The capacity of projects registered more than doubled from about 1,800MW in 2022 to just over 4,000MW in 2023.
GreenCape’s partners include the National Treasury, the Western Cape government, the City of Cape Town, development agencies from countries such as Germany, France and the UK, and the UN Industrial Development Organisation.
“We expect a lot of growth from the private sector for large-scale industrial offtakers such as mines,” Ulrich Terblanche, a senior analyst on renewable energy at GreenCape, said at a presentation on the report.
“In the long term we see potential investment of about R200bn for private offtake projects and another R200bn for public programmes by 2030.”
According to the report, projected private procurement market sizes indicate growth of 6GW for solar PV and 4GW for wind power by 2030, with corresponding investment values of R116bn and R98bn.
The private offtake market has so far been dominated by large-scale users, though GreenCape expects the introduction of electricity traders and virtual wheeling will enable large generation projects to access multiple small private offtakers or low-energy users, allowing diversification away from single offtake agreements with large energy users.
“Eskom has adopted a policy to facilitate a virtual [power] wheeling pilot. Once the proof of concept is confirmed, it is expected that virtual wheeling will be made available to the market by the end of 2024,” the report states.
The public procurement market still largely consists of projects participating in the REIPPP, which ensures offtake through Eskom. However, an increase in competition from the private offtake market, where developers could often secure better prices, had created uncertainty about the possibility of participation beyond the seventh round, which was now accepting bids, Terblanche said.
Two new bid windows were mentioned during mineral resources & energy minister Gwede Mantashe’s budget vote speech earlier this year. They are bid window 7, launched in 2023 to procure 5,000MW of generating capacity (1,800MW of solar and 3,200MW of onshore wind power), and bid window 8, which aims to procure 5,000MW.
“Despite being mentioned, bid window 8 has not yet been formally announced, and we question whether it will continue,” Terblanche said.
Other issues of concern, he said, included whether the IPP office would have the capacity to manage multiple bidding windows for battery energy storage, gas procurement and renewable power, and whether Eskom could continue to afford to buy power from projects developed under future REIPPP rounds.
The report highlighted challenges experienced with closing bid window 5 and the inability to procure wind projects in bid window 6 due to a lack of grid access, and the inconsistent implementation of the bidding process and rules, which resulted in a loss of confidence in the REIPPP. Additionally, it said the local content and ownership requirements placed on developers and their ability to meet these requirements were proving to be challenging.
GreenCape expects public procurement of large-scale renewable energy up to 2030 to be limited to what is procured in bid window 7, as well as the new government-backed battery energy storage procurement rounds and municipal solar PV projects. The public procurement market was estimated at 2.6GW of solar PV, 3.2GW of wind power and 3.7GW of battery energy storage systems by 2030 at a total investment value of R212bn, the report said.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.