South Africa: Eskom troubles equal developer opportunities

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Richard Heap
November 10, 2014
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South Africa: Eskom troubles equal developer opportunities

South African utility Eskom is going through a period almost as dark as the coal it relies on.

The news that it last month commissioned the first 16MW of its first wind farm, the 100MW Sere scheme, is one bright spot. But let’s not fool ourselves into thinking this coal-addicted state-run utility is going to be developing wind farms across South Africa. It won’t.

Private developers will be the driving force in this fledgling wind market for years to come.

The situation at Eskom is dire. It is struggling to keep the lights on, and has warned key industrial users to cut energy use by 10% or more. The notion that industrial orders should try to reduce energy use in their operations is fair, but it has to be done in a planned and measured way. If not, the uncertainty of Eskom’s incessant make-do-and-mend approach will only harm the economy.

This is not just a modern problem. Eskom is being hampered by the lack of investment in South Africa’s energy infrastructure over the last 20 years; and its over-exposure to coal. The Sere project is one indication that it is starting to embrace other sources, but it would take a significant investment to develop a truly balanced system.

And Eskom does not have enough spare capital or time to invest in a large-scale wind farm development programme.

The utility said it has a funding gap of 225bn South African Rand(£12bn) over the next five years. This is partly due to the huge cost of upgrading South Africa’s energy network, including the new coal-fired power stations, Medupi and Kusile, which have total capacity of 9.6GW. They were due to finish this year but have been delayed.

The government has started a $2bn part-privatisation of some of its assets to help fill the gap. Businesses and householders will be forced to make up some of the rest in higher bills, but it won’t be a quick process. Eskom may even be privatised itself.

This gives a big opportunity for private firms. The 138MW Jeffreys Bay wind farm that was commissioned in June by Mainstream Renewable Power and Globeleq shows that South Africa is open to foreign investors. It is the country's first wind farm of any scale.

The government is supporting developers — both homegrown and overseas — through the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP). Western firms will see the appeal in an English-speaking nation that can be a starting point to grow in other African nations that desperately need energy.

And yet, this growth can only take hold if the government loosens local content rules. The third round of REIPPPP stipulates that at least 65% of parts must be made by local manufacturers but overseas investors will rightly doubt the abilities of local firms with little or no track record. Meanwhile, international manufacturers will question the wisdom of setting up in a country where they will be hampered by energy restrictions and blackouts.

It will therefore take a loosening of local content rules to kick start investment in South African wind. Until that happens the country will continue in its current curious paradox. That is, that Eskom is presiding over an energy crisis, but that turbine manufacturers are also nervous about setting up in a country where industrial users are suffering because of a problem of Eskom's making.

And, as for Eskom, it needs to recognise the growing potential of wind in helping secure South Africa's energy future. If it doesn't take advantage then private developers surely will.

South African utility Eskom is going through a period almost as dark as the coal it relies on.

The news that it last month commissioned the first 16MW of its first wind farm, the 100MW Sere scheme, is one bright spot. But let’s not fool ourselves into thinking this coal-addicted state-run utility is going to be developing wind farms across South Africa. It won’t.

Private developers will be the driving force in this fledgling wind market for years to come.

The situation at Eskom is dire. It is struggling to keep the lights on, and has warned key industrial users to cut energy use by 10% or more. The notion that industrial orders should try to reduce energy use in their operations is fair, but it has to be done in a planned and measured way. If not, the uncertainty of Eskom’s incessant make-do-and-mend approach will only harm the economy.

This is not just a modern problem. Eskom is being hampered by the lack of investment in South Africa’s energy infrastructure over the last 20 years; and its over-exposure to coal. The Sere project is one indication that it is starting to embrace other sources, but it would take a significant investment to develop a truly balanced system.

And Eskom does not have enough spare capital or time to invest in a large-scale wind farm development programme.

The utility said it has a funding gap of 225bn South African Rand(£12bn) over the next five years. This is partly due to the huge cost of upgrading South Africa’s energy network, including the new coal-fired power stations, Medupi and Kusile, which have total capacity of 9.6GW. They were due to finish this year but have been delayed.

The government has started a $2bn part-privatisation of some of its assets to help fill the gap. Businesses and householders will be forced to make up some of the rest in higher bills, but it won’t be a quick process. Eskom may even be privatised itself.

This gives a big opportunity for private firms. The 138MW Jeffreys Bay wind farm that was commissioned in June by Mainstream Renewable Power and Globeleq shows that South Africa is open to foreign investors. It is the country's first wind farm of any scale.

The government is supporting developers — both homegrown and overseas — through the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP). Western firms will see the appeal in an English-speaking nation that can be a starting point to grow in other African nations that desperately need energy.

And yet, this growth can only take hold if the government loosens local content rules. The third round of REIPPPP stipulates that at least 65% of parts must be made by local manufacturers but overseas investors will rightly doubt the abilities of local firms with little or no track record. Meanwhile, international manufacturers will question the wisdom of setting up in a country where they will be hampered by energy restrictions and blackouts.

It will therefore take a loosening of local content rules to kick start investment in South African wind. Until that happens the country will continue in its current curious paradox. That is, that Eskom is presiding over an energy crisis, but that turbine manufacturers are also nervous about setting up in a country where industrial users are suffering because of a problem of Eskom's making.

And, as for Eskom, it needs to recognise the growing potential of wind in helping secure South Africa's energy future. If it doesn't take advantage then private developers surely will.

South African utility Eskom is going through a period almost as dark as the coal it relies on.

The news that it last month commissioned the first 16MW of its first wind farm, the 100MW Sere scheme, is one bright spot. But let’s not fool ourselves into thinking this coal-addicted state-run utility is going to be developing wind farms across South Africa. It won’t.

Private developers will be the driving force in this fledgling wind market for years to come.

The situation at Eskom is dire. It is struggling to keep the lights on, and has warned key industrial users to cut energy use by 10% or more. The notion that industrial orders should try to reduce energy use in their operations is fair, but it has to be done in a planned and measured way. If not, the uncertainty of Eskom’s incessant make-do-and-mend approach will only harm the economy.

This is not just a modern problem. Eskom is being hampered by the lack of investment in South Africa’s energy infrastructure over the last 20 years; and its over-exposure to coal. The Sere project is one indication that it is starting to embrace other sources, but it would take a significant investment to develop a truly balanced system.

And Eskom does not have enough spare capital or time to invest in a large-scale wind farm development programme.

The utility said it has a funding gap of 225bn South African Rand(£12bn) over the next five years. This is partly due to the huge cost of upgrading South Africa’s energy network, including the new coal-fired power stations, Medupi and Kusile, which have total capacity of 9.6GW. They were due to finish this year but have been delayed.

The government has started a $2bn part-privatisation of some of its assets to help fill the gap. Businesses and householders will be forced to make up some of the rest in higher bills, but it won’t be a quick process. Eskom may even be privatised itself.

This gives a big opportunity for private firms. The 138MW Jeffreys Bay wind farm that was commissioned in June by Mainstream Renewable Power and Globeleq shows that South Africa is open to foreign investors. It is the country's first wind farm of any scale.

The government is supporting developers — both homegrown and overseas — through the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP). Western firms will see the appeal in an English-speaking nation that can be a starting point to grow in other African nations that desperately need energy.

And yet, this growth can only take hold if the government loosens local content rules. The third round of REIPPPP stipulates that at least 65% of parts must be made by local manufacturers but overseas investors will rightly doubt the abilities of local firms with little or no track record. Meanwhile, international manufacturers will question the wisdom of setting up in a country where they will be hampered by energy restrictions and blackouts.

It will therefore take a loosening of local content rules to kick start investment in South African wind. Until that happens the country will continue in its current curious paradox. That is, that Eskom is presiding over an energy crisis, but that turbine manufacturers are also nervous about setting up in a country where industrial users are suffering because of a problem of Eskom's making.

And, as for Eskom, it needs to recognise the growing potential of wind in helping secure South Africa's energy future. If it doesn't take advantage then private developers surely will.

South African utility Eskom is going through a period almost as dark as the coal it relies on.

The news that it last month commissioned the first 16MW of its first wind farm, the 100MW Sere scheme, is one bright spot. But let’s not fool ourselves into thinking this coal-addicted state-run utility is going to be developing wind farms across South Africa. It won’t.

Private developers will be the driving force in this fledgling wind market for years to come.

The situation at Eskom is dire. It is struggling to keep the lights on, and has warned key industrial users to cut energy use by 10% or more. The notion that industrial orders should try to reduce energy use in their operations is fair, but it has to be done in a planned and measured way. If not, the uncertainty of Eskom’s incessant make-do-and-mend approach will only harm the economy.

This is not just a modern problem. Eskom is being hampered by the lack of investment in South Africa’s energy infrastructure over the last 20 years; and its over-exposure to coal. The Sere project is one indication that it is starting to embrace other sources, but it would take a significant investment to develop a truly balanced system.

And Eskom does not have enough spare capital or time to invest in a large-scale wind farm development programme.

The utility said it has a funding gap of 225bn South African Rand(£12bn) over the next five years. This is partly due to the huge cost of upgrading South Africa’s energy network, including the new coal-fired power stations, Medupi and Kusile, which have total capacity of 9.6GW. They were due to finish this year but have been delayed.

The government has started a $2bn part-privatisation of some of its assets to help fill the gap. Businesses and householders will be forced to make up some of the rest in higher bills, but it won’t be a quick process. Eskom may even be privatised itself.

This gives a big opportunity for private firms. The 138MW Jeffreys Bay wind farm that was commissioned in June by Mainstream Renewable Power and Globeleq shows that South Africa is open to foreign investors. It is the country's first wind farm of any scale.

The government is supporting developers — both homegrown and overseas — through the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP). Western firms will see the appeal in an English-speaking nation that can be a starting point to grow in other African nations that desperately need energy.

And yet, this growth can only take hold if the government loosens local content rules. The third round of REIPPPP stipulates that at least 65% of parts must be made by local manufacturers but overseas investors will rightly doubt the abilities of local firms with little or no track record. Meanwhile, international manufacturers will question the wisdom of setting up in a country where they will be hampered by energy restrictions and blackouts.

It will therefore take a loosening of local content rules to kick start investment in South African wind. Until that happens the country will continue in its current curious paradox. That is, that Eskom is presiding over an energy crisis, but that turbine manufacturers are also nervous about setting up in a country where industrial users are suffering because of a problem of Eskom's making.

And, as for Eskom, it needs to recognise the growing potential of wind in helping secure South Africa's energy future. If it doesn't take advantage then private developers surely will.

South African utility Eskom is going through a period almost as dark as the coal it relies on.

The news that it last month commissioned the first 16MW of its first wind farm, the 100MW Sere scheme, is one bright spot. But let’s not fool ourselves into thinking this coal-addicted state-run utility is going to be developing wind farms across South Africa. It won’t.

Private developers will be the driving force in this fledgling wind market for years to come.

The situation at Eskom is dire. It is struggling to keep the lights on, and has warned key industrial users to cut energy use by 10% or more. The notion that industrial orders should try to reduce energy use in their operations is fair, but it has to be done in a planned and measured way. If not, the uncertainty of Eskom’s incessant make-do-and-mend approach will only harm the economy.

This is not just a modern problem. Eskom is being hampered by the lack of investment in South Africa’s energy infrastructure over the last 20 years; and its over-exposure to coal. The Sere project is one indication that it is starting to embrace other sources, but it would take a significant investment to develop a truly balanced system.

And Eskom does not have enough spare capital or time to invest in a large-scale wind farm development programme.

The utility said it has a funding gap of 225bn South African Rand(£12bn) over the next five years. This is partly due to the huge cost of upgrading South Africa’s energy network, including the new coal-fired power stations, Medupi and Kusile, which have total capacity of 9.6GW. They were due to finish this year but have been delayed.

The government has started a $2bn part-privatisation of some of its assets to help fill the gap. Businesses and householders will be forced to make up some of the rest in higher bills, but it won’t be a quick process. Eskom may even be privatised itself.

This gives a big opportunity for private firms. The 138MW Jeffreys Bay wind farm that was commissioned in June by Mainstream Renewable Power and Globeleq shows that South Africa is open to foreign investors. It is the country's first wind farm of any scale.

The government is supporting developers — both homegrown and overseas — through the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP). Western firms will see the appeal in an English-speaking nation that can be a starting point to grow in other African nations that desperately need energy.

And yet, this growth can only take hold if the government loosens local content rules. The third round of REIPPPP stipulates that at least 65% of parts must be made by local manufacturers but overseas investors will rightly doubt the abilities of local firms with little or no track record. Meanwhile, international manufacturers will question the wisdom of setting up in a country where they will be hampered by energy restrictions and blackouts.

It will therefore take a loosening of local content rules to kick start investment in South African wind. Until that happens the country will continue in its current curious paradox. That is, that Eskom is presiding over an energy crisis, but that turbine manufacturers are also nervous about setting up in a country where industrial users are suffering because of a problem of Eskom's making.

And, as for Eskom, it needs to recognise the growing potential of wind in helping secure South Africa's energy future. If it doesn't take advantage then private developers surely will.

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Not a member yet?

Become a member of the 6,500-strong A Word About Wind community today, and gain access to our premium content, exclusive lead generation and investment opportunities.