South Africa has work to do to avoid another halt to its wind market

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Ilaria Valtimora
October 22, 2018
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South Africa has work to do to avoid another halt to its wind market

Last week, public hearings into South Africa’s proposed energy plan by 2030 kicked off last week and some grey areas of this long-awaited programme have emerged.

Energy minister Jeff Radebe published the new draft of the country’s energy plan, calledIntegrated Resources Plan, in August. This axes previous plans for nuclear expansion and aims to increase the share of renewables in South Africa’s energy mix by 2030.

The draft aims to support the addition of 8.1GW of new wind capacity by 2030, which would account for 15% of the country’s power mix. This would be a great step for a country where coal accounts for 90% of its energy mix and renewables for only 5%. The IRP also envisages to add 8.1GW of gas, 5.7GW of solar, 2.5GW of hydropower and 1GW of coal.

The plan has been welcomed by the renewable energy industry, and by the wind sector in particular, as it has rekindled hope for wind and solar developers that their troubled days are only a matter of the past. But, for this be true, the IRP may need some further work.

Jamie MacDonald, director of finance and projects at law firm DLA Piper in South Africa, has said that the current form of the IRP 2018 suggests that no new wind generation capacity would be commissioned in the three years from 2022 to 2024.

Radebe launched in June a new bid round for 1.8GW of renewables technologies, to be held next year. The current draft of the programme suggests that developers would commission the projects awarded in 2019, but provides no clarity on what would happen next. A “stop-start” approach like this is not what the industry needs to grow, particularly after having experienced three years of frozen market due to issues with state utility Eskom.

In addition, in the first week of public hearings, organisations including the Centre for Environmental Rights have criticised the programme for including 1GW of new coal-fired power stations. This is despite the fact that Radebe has said that including new coal plants in the IRP will cost South Africa an additional R23bn (€1.4bn), which could potentially be invested instead in supporting renewables.

That additional support from the government could be needed as wind developers in the country face increased competition and price pressure in the coming years.

MacDonald told A Word About Wind that between bid rounds 1 in 2011 and 4 in 2015, of South Africa’s Renewable Energy Independent Power Producer Procurement Programme, bid tariffs for wind projects dropped by close to 60%. If this trend is to continue, developers may need to contemplate more innovative financing and project structures in order to be able to competitively price their bids. In this sense, a “stop-start” approach wouldn’t help the country’s wind supply chain to consistently deliver cost reduction.

Finally, the draft of the IRP 2018 does not clarify the role of Eskom.

MacDonald is of the view that the government will need to clarify, at some point, its intention for the state utility, particularly as to whether the majority of its function would ultimately be confined to being a buyer of independently-produced power and grid operator. MacDonald has said any decision on this would likely come after the resolution of some of Eskom's current constraints.

We aren’t being negative for the sake of it. We do believe that the IRP 2018 lays the basis for a strong development of the wind sector in the country and it is encouraging to see that the market is finally awakening after a three-year halt. For example, last Friday Vestas secured an order in the country for two wind farms totalling 294MW from Italian utility Enel.

However, continuity for the procurement of renewables in the next decade and clarity about Eskom is very much needed. The feasibility of meeting the new targets is currently left to the ability – and willingness – of Eskom to meet its obligations: we think that the last three years are a convincing enough evidence that this isn’t a winning approach.

Last week, public hearings into South Africa’s proposed energy plan by 2030 kicked off last week and some grey areas of this long-awaited programme have emerged.

Energy minister Jeff Radebe published the new draft of the country’s energy plan, calledIntegrated Resources Plan, in August. This axes previous plans for nuclear expansion and aims to increase the share of renewables in South Africa’s energy mix by 2030.

The draft aims to support the addition of 8.1GW of new wind capacity by 2030, which would account for 15% of the country’s power mix. This would be a great step for a country where coal accounts for 90% of its energy mix and renewables for only 5%. The IRP also envisages to add 8.1GW of gas, 5.7GW of solar, 2.5GW of hydropower and 1GW of coal.

The plan has been welcomed by the renewable energy industry, and by the wind sector in particular, as it has rekindled hope for wind and solar developers that their troubled days are only a matter of the past. But, for this be true, the IRP may need some further work.

Jamie MacDonald, director of finance and projects at law firm DLA Piper in South Africa, has said that the current form of the IRP 2018 suggests that no new wind generation capacity would be commissioned in the three years from 2022 to 2024.

Radebe launched in June a new bid round for 1.8GW of renewables technologies, to be held next year. The current draft of the programme suggests that developers would commission the projects awarded in 2019, but provides no clarity on what would happen next. A “stop-start” approach like this is not what the industry needs to grow, particularly after having experienced three years of frozen market due to issues with state utility Eskom.

In addition, in the first week of public hearings, organisations including the Centre for Environmental Rights have criticised the programme for including 1GW of new coal-fired power stations. This is despite the fact that Radebe has said that including new coal plants in the IRP will cost South Africa an additional R23bn (€1.4bn), which could potentially be invested instead in supporting renewables.

That additional support from the government could be needed as wind developers in the country face increased competition and price pressure in the coming years.

MacDonald told A Word About Wind that between bid rounds 1 in 2011 and 4 in 2015, of South Africa’s Renewable Energy Independent Power Producer Procurement Programme, bid tariffs for wind projects dropped by close to 60%. If this trend is to continue, developers may need to contemplate more innovative financing and project structures in order to be able to competitively price their bids. In this sense, a “stop-start” approach wouldn’t help the country’s wind supply chain to consistently deliver cost reduction.

Finally, the draft of the IRP 2018 does not clarify the role of Eskom.

MacDonald is of the view that the government will need to clarify, at some point, its intention for the state utility, particularly as to whether the majority of its function would ultimately be confined to being a buyer of independently-produced power and grid operator. MacDonald has said any decision on this would likely come after the resolution of some of Eskom's current constraints.

We aren’t being negative for the sake of it. We do believe that the IRP 2018 lays the basis for a strong development of the wind sector in the country and it is encouraging to see that the market is finally awakening after a three-year halt. For example, last Friday Vestas secured an order in the country for two wind farms totalling 294MW from Italian utility Enel.

However, continuity for the procurement of renewables in the next decade and clarity about Eskom is very much needed. The feasibility of meeting the new targets is currently left to the ability – and willingness – of Eskom to meet its obligations: we think that the last three years are a convincing enough evidence that this isn’t a winning approach.

Last week, public hearings into South Africa’s proposed energy plan by 2030 kicked off last week and some grey areas of this long-awaited programme have emerged.

Energy minister Jeff Radebe published the new draft of the country’s energy plan, calledIntegrated Resources Plan, in August. This axes previous plans for nuclear expansion and aims to increase the share of renewables in South Africa’s energy mix by 2030.

The draft aims to support the addition of 8.1GW of new wind capacity by 2030, which would account for 15% of the country’s power mix. This would be a great step for a country where coal accounts for 90% of its energy mix and renewables for only 5%. The IRP also envisages to add 8.1GW of gas, 5.7GW of solar, 2.5GW of hydropower and 1GW of coal.

The plan has been welcomed by the renewable energy industry, and by the wind sector in particular, as it has rekindled hope for wind and solar developers that their troubled days are only a matter of the past. But, for this be true, the IRP may need some further work.

Jamie MacDonald, director of finance and projects at law firm DLA Piper in South Africa, has said that the current form of the IRP 2018 suggests that no new wind generation capacity would be commissioned in the three years from 2022 to 2024.

Radebe launched in June a new bid round for 1.8GW of renewables technologies, to be held next year. The current draft of the programme suggests that developers would commission the projects awarded in 2019, but provides no clarity on what would happen next. A “stop-start” approach like this is not what the industry needs to grow, particularly after having experienced three years of frozen market due to issues with state utility Eskom.

In addition, in the first week of public hearings, organisations including the Centre for Environmental Rights have criticised the programme for including 1GW of new coal-fired power stations. This is despite the fact that Radebe has said that including new coal plants in the IRP will cost South Africa an additional R23bn (€1.4bn), which could potentially be invested instead in supporting renewables.

That additional support from the government could be needed as wind developers in the country face increased competition and price pressure in the coming years.

MacDonald told A Word About Wind that between bid rounds 1 in 2011 and 4 in 2015, of South Africa’s Renewable Energy Independent Power Producer Procurement Programme, bid tariffs for wind projects dropped by close to 60%. If this trend is to continue, developers may need to contemplate more innovative financing and project structures in order to be able to competitively price their bids. In this sense, a “stop-start” approach wouldn’t help the country’s wind supply chain to consistently deliver cost reduction.

Finally, the draft of the IRP 2018 does not clarify the role of Eskom.

MacDonald is of the view that the government will need to clarify, at some point, its intention for the state utility, particularly as to whether the majority of its function would ultimately be confined to being a buyer of independently-produced power and grid operator. MacDonald has said any decision on this would likely come after the resolution of some of Eskom's current constraints.

We aren’t being negative for the sake of it. We do believe that the IRP 2018 lays the basis for a strong development of the wind sector in the country and it is encouraging to see that the market is finally awakening after a three-year halt. For example, last Friday Vestas secured an order in the country for two wind farms totalling 294MW from Italian utility Enel.

However, continuity for the procurement of renewables in the next decade and clarity about Eskom is very much needed. The feasibility of meeting the new targets is currently left to the ability – and willingness – of Eskom to meet its obligations: we think that the last three years are a convincing enough evidence that this isn’t a winning approach.

Last week, public hearings into South Africa’s proposed energy plan by 2030 kicked off last week and some grey areas of this long-awaited programme have emerged.

Energy minister Jeff Radebe published the new draft of the country’s energy plan, calledIntegrated Resources Plan, in August. This axes previous plans for nuclear expansion and aims to increase the share of renewables in South Africa’s energy mix by 2030.

The draft aims to support the addition of 8.1GW of new wind capacity by 2030, which would account for 15% of the country’s power mix. This would be a great step for a country where coal accounts for 90% of its energy mix and renewables for only 5%. The IRP also envisages to add 8.1GW of gas, 5.7GW of solar, 2.5GW of hydropower and 1GW of coal.

The plan has been welcomed by the renewable energy industry, and by the wind sector in particular, as it has rekindled hope for wind and solar developers that their troubled days are only a matter of the past. But, for this be true, the IRP may need some further work.

Jamie MacDonald, director of finance and projects at law firm DLA Piper in South Africa, has said that the current form of the IRP 2018 suggests that no new wind generation capacity would be commissioned in the three years from 2022 to 2024.

Radebe launched in June a new bid round for 1.8GW of renewables technologies, to be held next year. The current draft of the programme suggests that developers would commission the projects awarded in 2019, but provides no clarity on what would happen next. A “stop-start” approach like this is not what the industry needs to grow, particularly after having experienced three years of frozen market due to issues with state utility Eskom.

In addition, in the first week of public hearings, organisations including the Centre for Environmental Rights have criticised the programme for including 1GW of new coal-fired power stations. This is despite the fact that Radebe has said that including new coal plants in the IRP will cost South Africa an additional R23bn (€1.4bn), which could potentially be invested instead in supporting renewables.

That additional support from the government could be needed as wind developers in the country face increased competition and price pressure in the coming years.

MacDonald told A Word About Wind that between bid rounds 1 in 2011 and 4 in 2015, of South Africa’s Renewable Energy Independent Power Producer Procurement Programme, bid tariffs for wind projects dropped by close to 60%. If this trend is to continue, developers may need to contemplate more innovative financing and project structures in order to be able to competitively price their bids. In this sense, a “stop-start” approach wouldn’t help the country’s wind supply chain to consistently deliver cost reduction.

Finally, the draft of the IRP 2018 does not clarify the role of Eskom.

MacDonald is of the view that the government will need to clarify, at some point, its intention for the state utility, particularly as to whether the majority of its function would ultimately be confined to being a buyer of independently-produced power and grid operator. MacDonald has said any decision on this would likely come after the resolution of some of Eskom's current constraints.

We aren’t being negative for the sake of it. We do believe that the IRP 2018 lays the basis for a strong development of the wind sector in the country and it is encouraging to see that the market is finally awakening after a three-year halt. For example, last Friday Vestas secured an order in the country for two wind farms totalling 294MW from Italian utility Enel.

However, continuity for the procurement of renewables in the next decade and clarity about Eskom is very much needed. The feasibility of meeting the new targets is currently left to the ability – and willingness – of Eskom to meet its obligations: we think that the last three years are a convincing enough evidence that this isn’t a winning approach.

Last week, public hearings into South Africa’s proposed energy plan by 2030 kicked off last week and some grey areas of this long-awaited programme have emerged.

Energy minister Jeff Radebe published the new draft of the country’s energy plan, calledIntegrated Resources Plan, in August. This axes previous plans for nuclear expansion and aims to increase the share of renewables in South Africa’s energy mix by 2030.

The draft aims to support the addition of 8.1GW of new wind capacity by 2030, which would account for 15% of the country’s power mix. This would be a great step for a country where coal accounts for 90% of its energy mix and renewables for only 5%. The IRP also envisages to add 8.1GW of gas, 5.7GW of solar, 2.5GW of hydropower and 1GW of coal.

The plan has been welcomed by the renewable energy industry, and by the wind sector in particular, as it has rekindled hope for wind and solar developers that their troubled days are only a matter of the past. But, for this be true, the IRP may need some further work.

Jamie MacDonald, director of finance and projects at law firm DLA Piper in South Africa, has said that the current form of the IRP 2018 suggests that no new wind generation capacity would be commissioned in the three years from 2022 to 2024.

Radebe launched in June a new bid round for 1.8GW of renewables technologies, to be held next year. The current draft of the programme suggests that developers would commission the projects awarded in 2019, but provides no clarity on what would happen next. A “stop-start” approach like this is not what the industry needs to grow, particularly after having experienced three years of frozen market due to issues with state utility Eskom.

In addition, in the first week of public hearings, organisations including the Centre for Environmental Rights have criticised the programme for including 1GW of new coal-fired power stations. This is despite the fact that Radebe has said that including new coal plants in the IRP will cost South Africa an additional R23bn (€1.4bn), which could potentially be invested instead in supporting renewables.

That additional support from the government could be needed as wind developers in the country face increased competition and price pressure in the coming years.

MacDonald told A Word About Wind that between bid rounds 1 in 2011 and 4 in 2015, of South Africa’s Renewable Energy Independent Power Producer Procurement Programme, bid tariffs for wind projects dropped by close to 60%. If this trend is to continue, developers may need to contemplate more innovative financing and project structures in order to be able to competitively price their bids. In this sense, a “stop-start” approach wouldn’t help the country’s wind supply chain to consistently deliver cost reduction.

Finally, the draft of the IRP 2018 does not clarify the role of Eskom.

MacDonald is of the view that the government will need to clarify, at some point, its intention for the state utility, particularly as to whether the majority of its function would ultimately be confined to being a buyer of independently-produced power and grid operator. MacDonald has said any decision on this would likely come after the resolution of some of Eskom's current constraints.

We aren’t being negative for the sake of it. We do believe that the IRP 2018 lays the basis for a strong development of the wind sector in the country and it is encouraging to see that the market is finally awakening after a three-year halt. For example, last Friday Vestas secured an order in the country for two wind farms totalling 294MW from Italian utility Enel.

However, continuity for the procurement of renewables in the next decade and clarity about Eskom is very much needed. The feasibility of meeting the new targets is currently left to the ability – and willingness – of Eskom to meet its obligations: we think that the last three years are a convincing enough evidence that this isn’t a winning approach.

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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.