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Jubilation amid lingering concerns as IPP agreements signed

Publish date: 10 April 2018
Issue Number: 551
Diary: Legalbrief Environmental
Category: Energy

Reaction to last week's signing of agreements between government and IPP producers has been overwhelmingly positive, writes Legalbrief, with a few detractors from the trade union and pro-nuclear camps. Energy Minister Jeff Radebe has signed agreements with 27 independent power producers after more than two years of delays, says a Fin24 report. The deals promise to revive the nation’s renewable energy programme that was once the world’s fastest growing one, but has since floundered. The projects being signed will release R56bn of investments over the next two to three years, Radebe said. The agreements were scheduled to be signed last month, but a last-minute court challenge by the National Union of Metalworkers of SA and Transform RSA caused another delay. The groups, which argue the renewable projects threaten jobs, were unsuccessful in an attempt to block the agreements. Before that, state-owned utility Eskom stalled for more than two years on the government-brokered deals to buy renewable power from private generation projects, with executives saying it was expensive and not always available. The National Union of Mineworkers (NUM) described the agreement as an insult to the working class and the poor, and threatened to withdraw its support for the ANC, notes a report in The Mercury. ‘We are highly angered that the ANC-led Government has signed the outstanding 27 IPPs contracts. The clean energy project is hijacked by the capitalists for their narrow capitalist interests,’ said Paris Mashego, NUM energy sector co-ordinator. ‘The government is privatising Eskom through the back door to satisfy their Davos handlers and white monopoly capital.’ Mashego claimed more than 40 000 jobs would be lost in mining, energy and the entire value chain, ‘rendering Witbank and the surrounding areas into ghost towns’.

Full report in The Mercury (subscription needed)

Full Fin24 report

The government is considering more agreements with IPPs amounting to R64bn, Radebe is quoted as saying in a Business Day report. However, the extension of the projects, which have faced strong opposition from labour unions, was dependent on affordability, prices, economics and the value of money, he said. Since the programme was launched, 53 independent power producer projects had started operations, 27 were signed last week and 22 others were in the pipeline. It was expected that the total electricity generation capacity of all the 102 independent power producers would be 17 000MW. ‘Having signed these bid windows 3.5 and 4, we still have other projects in the pipeline to be signed. Furthermore, we are still giving consideration to the expedited bid window of 1 800MW, the equivalent of about R64bn awaiting processes depending on affordability, the prices, economics and value for money. This can also contribute another 80 000 jobs within the foreseeable future,’ Radebe said. Energy expert Roger Lilley reportedly told the newspaper that while it was hard to ascertain whether Eskom would be able to afford the programme extension, changes at the power utility would determine its fate. The mooted reduction of Eskom’s staff headcount and the national energy regulator’s decision regarding tariff hikes as requested by the power utility would affect the entity’s financial position, he said.

Full Business Day report

See Analysis

The signing marks ‘a monumental moment for the SA renewable energy industry', according to Dr Chris Haw, chair of SOLA Future Energy. He added: ‘Renewables are cheaper and more sustainable forms of energy. Their adoption will reduce the cost of electricity for households and businesses in the long run.’ A report on the IoL site notes SOLA Future Energy's subsidiary company, Aurora Power Solutions, developed 170 megawatts worth of solar PV projects that are currently in preferred bidder status and have been awaiting execution. The report notes low cost, low carbon advantages of renewables have now been recognised by the government as critical to the country's future. Haw said that the signing also shows the government's potential interest to move ahead with ‘small scale’ IPP projects, a programme similar to the Renewable Energy Independent Power Producer Procurement programme, but for smaller projects that contain a higher degree of local ownership.

More on this in POLICY WATCH section (below)

Full report on the IoL site

The SA Wind Energy Association (Sawea) said the country’s manufacturing and construction industries stand to benefit immediately from the conclusion of these PPAs as equipment orders can now be placed and construction contracts concluded. A Cape Times report notes that the recovery of the domestic manufacturing industry is necessitated by the effects of the delay, which saw several manufacturing facilities having to retrench staff due to a lack of component orders, Sawea said. Sawea CE Brenda Martin said the achievement of this final step in the procurement process represents an important milestone for good energy governance. ‘We welcome the Department of Energy’s determination to unlock rural development and much-needed jobs, particularly in the construction and manufacturing sectors, to provide assurance to the employees of the Industry and to regain investor confidence,’ she said. SA Photovoltaic Industry Association (Sapvia) chair Davin Chown said: ‘It has been a long, drawn-out process to prove to SA, investors and the entire energy community that renewables have their place and role to play in a rationally decided energy mix.’ The signing of these PPAs will boost and revitalise long-term investor confidence, local and international investment, and more specifically job creation and retention in this market, Sapvia said.

Full Cape Times report (subscription needed)

See Analysis

The conclusion of the agreements brought to an end Pele Green Energy’s (PGE’s) anxiety about the fate of the renewable energy procurement programme. A report in The Mercury notes that the 100% black-owned PGE’s 100MW concentrated solar power project in the Northern Cape was one of the preferred bidders announced by the Department of Energy in December 2014. ‘It was a long, anxious wait,’ said PGE managing director Gqi Raoleka. ‘We are relieved. These delays were significant.’ Raoleka said the company – which owns and operates more than 800MW of renewable energy power plants across the solar and wind resources – chose to absorb costs while it awaited the finalisation of the PPAs. He said, while the IPP saga would not be completely forgotten, the company was committed to the South African renewable energy market. ‘We will always develop projects in this market,’ said Raoleka.

Full report in The Mercury (subscription needed)

The signing will unleash a wave of opportunities for listed infrastructure investment holding company Gaia Infrastructure Capital, CE Prudence Lebina said last week. Lebina told Business Report that the company’s strategy was to invest in operational or near-term infrastructure assets offering an investment return of Consumer Price Index plus 6%. ‘We are looking for opportunities whereby developers or other investors are looking to exit,’ she said. ‘We only invest in low-risk investments where the assets are de-risked. Our definition of near-operational means six months to operational.’ Gaia, which listed on the JSE in 2015, has minority interests in two IPP projects – a 25.2% stake in Dorper Wind Farm in Molteno, Eastern Cape, and 20% in Noblesfontein Wind Farm, which is situated between the towns of Three Sisters and Victoria West in the Northern Cape. The projects were part of Round One Renewable Energy Independent Power Producer Procurement Programme (REIPPP). Gaia paid R501m and R188m for Dorper and Noblesfontein, respectively.

Full report in The Mercury (subscription needed)

Green energy activists say that the long-awaited signing of power purchase agreements is a sign that the new government administration is taking steps to erase the power of state capture. A Cape Times report quotes Greenpeace Africa’s political adviser on climate and energy, Happy Khambule, who said one could not write off nuclear until a new Integrated Resource Plan (the country’s electricity plan) was released without nuclear allocations in it. ‘The vested interests behind nuclear are too significant to write off at this stage,’ he said. ‘Greenpeace has long stated that there is an anti-renewable energy campaign being run in SA, led by the former leadership at Eskom, to protect vested interests in coal and nuclear, and this campaign has resulted in a slowdown of the renewable energy revolution in the country, and the refusal to sign these agreements has been symptomatic of the resistance to renewable energy.’ SA had long made commitments to reduce greenhouse emissions but lacked the political will to do so, Makoma Lekalakala of Earthlife Africa-Johannesburg said. ‘Moving from business as usual to a much more low-carbon electricity generation will improve access to electricity to the majority, poor people, who suffer energy poverty and will combat climate change.’

Full Cape Times report (subscription needed)

The signing of the 27 outstanding renewable energy projects will provide diversity to the energy mix in line with the national development plan (NDP), said Parliament’s oversight committee. A Fin24 report notes that Parliament’s Energy Committee chair Fikile Majola said in a statement the signing offers government’s commitment and ensures the certainty of the renewable energy programme. ‘The signing of the agreements with independent power producers is part of the country’s energy mix, which includes renewable energy, as stated in the energy policy by government,’ said Majola. Referring to the NDP, which proposes diversity and alternative energy resources and energy supply options, Majola explained that the signing of the IPPs will provide the required diversity in line with the NDP. Parliament’s Environment Affairs Committee also welcomed the signing of the contracts, as it indicates the country’s commitment to reducing its greenhouse gas emissions footprint and transitioning to a low-carbon economy, the committee said. These objectives are also aligned to the NDP. ‘This signing is also important in terms of the Paris Agreement, which we had both signed and ratified as a country,’ said committee chair Philemon Mapulane.

Full Fin24 report

However, nuclear power advocates last week rubbished claims made to support renewable energy and pointed to the costs of renewable energy and its intermittent nature. A Cape Times report quotes energy analyst Andrew Kenny who said: ‘Renewable energy is a disaster. It is an absolute waste of money.’ He questioned claims that the country was not in a position to proceed with a nuclear programme because of lack of funds and overcapacity. Kenny said the current electricity overcapacity would diminish if the economy recovered. ‘Yes, there is overcapacity, but it will not last long. When the economy grows we are going to need additional electricity.’ Nuclear energy was ‘by far’ the most reliable power. Economic risk consultant Rob Jeffrey said: ‘On an economic and cost basis,’ the IPP agreements should not have been signed. He said, given SA’s surplus supply of electricity and current low economic growth rate, the country did not need additional power from the IPPs. ‘Economically and financially it is a costly and damaging decision,’ he said.

Full Cape Times report (subscription needed)

The Department of Energy will have to report back to Cabinet regarding requests for proposals for the new nuclear build programme before a final decision on nuclear energy is made, says Radebe. A News24 report notes that he was responding in a written reply to a question by DA MP Gavin Davis related to the nuclear programme. Davis enquired about the details of the programme. ‘There is no binding commercial and financial information secured yet to assist with the nuclear expansion programme,’ said Radebe. ‘When Cabinet approved in December 2015 that the Request for Proposal be issued, the main intention was to test the market, a process which would allow the determination of the pace and scale that the country can afford.’ Cabinet decided on 2 November 2016 that the Ministers of Finance, Energy and Public Enterprises were tasked to ensure that the scaling and phasing of the programme was “in the interests of the country”,’ Radebe explained. In March, Parliament’s Portfolio Committee on Energy heard from the department's DG Thabane Zulu that nuclear energy is part of SA's new Integrated Resources Plan. ‘It is not about whether nuclear is part of the energy mix, but rather how to implement it,’ he told the committee. The department is working on a roadmap for nuclear power in SA, Zulu previously said.

Full Fin24 report