BUSISIWE MAVUSO: Government is cause of load-shedding and only it can solve the problem

Here’s a sobering thought: had the Renewable Energy Independent Power Producers Procurement Programme (REIPPPP) not been stalled by corrupt political interests from 2015 to 2019, the energy plants from bid window 5 would have been operational and SA would have had half the load-shedding last year.

If projects from both bid windows 5 and 6 were on stream by 2021 as originally scheduled, Eskom would have saved at least R2.5bn and reduced load-shedding by 96.5%, according to research by Meridian Economics.  

Now we’re getting more of the same, with further delays to bid windows 5 and 6. While this time the blame does not lie entirely with the government, it is up to the government to rectify the situation. Only it can take measures to get the flow of energy plants from the REIPPPP up and running.

To simplify a complex set of factors, winning bidders from window 5 averaged 43c/kWh, the lowest price of all the bid windows, but their bids were submitted in August 2021, after which global inflation soared. As a result, the majority of the independent power producers (IPPs) are unlikely to be able to reach financial close because their input costs are averaging 44% higher than their bid prices.

Window 5 has subsequently been delayed, with the energy department adopting a phased approach to reaching financial close, with completion scheduled by end-September. That’s 2,600MW that should be coming on stream in two years, but now won’t, which means extended load-shedding.

Compounding that problem is that many window 6 projects will depend on the infrastructure developed from window 5. Apart from the plants themselves, IPPs also develop grid networks their future plants will also use. We believe as many as a third of window 6 bidders will be unable to go ahead without the window 5 plants getting over the line. That will delay even further the day load-shedding finally ends.

Numerous IPPs have approached us saying that without a commercial solution up to 3,500MW of renewable energy, available from shovel-ready projects in bid windows 5 and 6, are in jeopardy. As is so often the case, the private sector has solutions for how to get window 5 back on track, but this depends entirely on the government to implement them. The state needs to move with uncharacteristic alacrity to resolve this issue.

The IPPs propose numerous mechanisms to unblock window 5. One is to allow the sale of excess energy the plants produce back to Eskom or other buyers. Up to now there has been a bizarre clause that does not allow that, so a wind farm contracted to supply Eskom with, say 60MW, but produces more on a windy day, has to let it go to waste. Allowing the sale of surplus energy is part of the wider energy action plan, so this should be simple to facilitate.

Technology and price

Another mechanism is to remove local content requirements entirely. Trade, industry & competition minister Ebrahim Patel did cut the local content requirement for window 5 from 100% to 35%, but the IPPs say there is not nearly enough production capacity in SA to meet even that requirement, particularly for components needed for solar energy. Furthermore, the manufacturers that do exist in SA are not competitive internationally in relation to technology and price, so only inferior, more expensive components can be sourced locally.

The IPPs also propose post-contract tariff adjustments, which are always controversial but there is a precedent, with the government having put concerted pressure on winning bidders from bid window 1, where prices came in higher than subsequent bid windows, to cut their tariffs. Some of them did. And the way the IPPs propose tariff increases, or “tariff sculpting”, for window 5 is effectively financially neutral in that over the 20 years of the power purchase agreement they will not affect the overall cost to Eskom, nor will they increase the revenue that flows to the IPPs.

For example, the IPPs maintain that tariffs could escalate at CPI (consumer price index) +12% for the first five years, which would help address their short-term capex requirements, and then de-escalate for the next 15 years at CPI -12%. In such a scenario the costs to Eskom over the life of the agreement would be similar to or even lower than the bid case.

A solution simply has to be found. Load-shedding is now a constant part of SA life, destroying our economy to the tune of R942m a day with stage 4 power cuts, according to calculations by Nova Economics. This is a national disaster and an emergency.

While the circumstances around the status of window 5 are unfortunate, reality needs to be energetically confronted. There are solutions even if none is ideal, but our economy needs a quick solution based on the least-regret option.

• Mavuso (@BusiMavuso2) is CEO of Business Leadership SA.