Government to tackle load shedding with R11bn new energy projects
FIFI PETERS: More energy could be … coming to the grid real soon to try and alleviate the pain on Eskom’s grid and to hopefully avert the implementation of these ongoing power cuts. This is after the Department of Energy announced earlier today that it had signed three new agreements with independent power producers under Bid Window 5 of the Renewable Energy Programme (Renewable Energy Independent Power Producer Procurement Programme or REIPPPP).
It is also pretty significant that all these deals that were announced today came from the wind-power sector. So we have Tshifhiwa Bernard Magoro, the head of the IPP Office at the Department of Energy with us, as well as Niveshen Govender, CEO of the South African Wind Energy Association. To both of you, good evening, and thanks so much for joining us this evening.
Tshifhiwa, let me start off with you. How much power are we talking here, cumulatively, in the deals that you signed today?
TSHIFHIWA BERNARD MAGORO: Good evening Fifi, and good evening to your listeners, and good evening to my friend. Today we signed three projects. Each of the projects is 140 megawatts. So in total we signed [for] 420 megawatts from these three projects.
FIFI PETERS: I think it is a pretty significant innovation that these projects, all of them, came from the wind-power sector. Is this really good news for your association?
NIVESHEN GOVENDER: Good evening, Fifi, and thanks for having me ….. These are the first new wind projects being signed. Four projects were signed in 2018. So in a time where the country is overwhelmed with load shedding the news has given us some hope that the much-needed new generation capacity can be expected in the near future.
FIFI PETERS: Niveshen, really excited, hoping that this is the start of more deals to come. What can you tell us about that?
TSHIFHIWA BERNARD MAGORO: This is indeed the start. You probably heard this morning that we signed three of the 25, so there are 22 more projects that we are expecting to sign in the coming month. And that will add a total of another 2 200 megawatts. So we are looking forward to that, and that definitely will make a difference.
FIFI PETERS: Here’s my question. I’m just looking at the timing of accelerating the speed on the signing of these deals and I’m wondering – and perhaps this is an unfair question and you’re within your rights to tell me so – why does it take a crisis? Why does it take Stage 6 [load shedding] ? Why does it take Stage 5 for the department to all of a sudden be in a position to speedily sign these deals? I mean, you’re talking about signing the rest of the 22 this month. Why wasn’t it done before? I mean, Bid Window 5 has been on the table for quite some time.
TSHIFHIWA BERNARD MAGORO: Yes, Fifi. I think I must explain that the process to procure does take time, so it’s not like we are responding to the current emergency. This is the normal process to try and build capacity for the future. We started this process about two years ago. Bid Window 5 RFT [Request for Tender], you will recall, went to the market in April, 2021, and then we appointed the preferred bidders in October last year.
It does take time to put together a deal of this magnitude, unfortunately. These three projects alone are R11 billion worth of investment.
So to mobilise that kind of investment and to prepare the projects, the groundwork that needs to be done, all the environmental authorisations, the water-use licences, connection agreements – all of that takes time.
This is definitely not going to address the current crisis that we have. It is planning for the future, leading to 2020 IRP [Integrated Resource Plan] that we’ll put together for the next 20 years.
FIFI PETERS: Niveshen, just your experience of the procurement process, and just the process to show up and to have one’s project approved by the department, based on the experience of your members – have those been standard protocol procedures that you face elsewhere in the world, or has there been a degree of cumbersomeness to the process whereby things could have been done at a faster pace if there wasn’t that level of cumbersomeness in the process?
NIVESHEN GOVENDER: Absolutely, Fifi. I think with the procurement process… South Africa has led the world, has led the industry globally in terms of this procurement process. So it is well renowned. It is one of the fastest procurement processes, I believe, across the globe.
I think what we could do better in South Africa is [with] the regulations, the red tape around permitting, around registrations, the licences and all of the agreements that are required as Bernard has explained. If we could streamline those processes, we could get this up and running a lot quicker.
But from an industry point we truly appreciate the work that has been done by the DMR’s IPP Office and Eskom to achieve this milestone today. It’s a true testament showing how government and industry can work together….
FIFI PETERS: I hope you’re not being extra kind there because you want to stay in the good books of the department.
NIVESHEN GOVENDER: Not at all.
FIFI PETERS: Tshifhiwa, just in the main, you have said that, [with] this really big milestone, the signing of these three projects, you guys are working probably night and day to ensure that the remaining 22 also get signed as soon as [possible]. Does that mean that Bid Window 5 is going well?
TSHIFHIWA BERNARD MAGORO: So far it is going well, but we do know that there are projects that have raised concerns around the global economic challenges that they have faced. But, as far as we are concerned, most of these projects are definitely coming to [be signed] next month and we are all ready for that and we are looking forward to it. But yes, there are challenges but we are hoping to sign as many as we can.
FIFI PETERS: Okay. So ‘most’ is not all?
TSHIFHIWA BERNARD MAGORO: Not all. But I must say that to date no one has indicated that they’re not signing. We are hearing in the media that there are challenges with some of the projects that may not be able to maintain the tariff that they bid. But, to be honest, we have not received any project saying they’re not able to sign.
FIFI PETERS: Earlier this week, actually on the Market Update, we had independent energy expert Chris Yelland telling us that he was worried that Bid Window 5 may not reach financial close, for the very reason that you’ve cited – that some projects have encountered cost issues as a result of the Ukraine war and the impact that that’s had on inflation, and how the initial bidding costs are materially different from the real costs being faced today. Was there any truth in his statements?
Read/listen: Eskom crisis continues
TSHIFHIWA BERNARD MAGORO: It’s difficult for me to say that. Yes, this is what we are reading in the media, but to be honest none of the preferred bidders have come to us to say this is the situation, and whether they’re willing or not to proceed with the progress, we have not heard that indication at this point in time. But yes, we do hear about this. And there is evidence that things have changed; the prices of the components have changed since we closed the programme last year.
FIFI PETERS: Niveshen, can you share the experience maybe of your members? Has the Ukraine war impacted costing, initial cost estimates and predictions? Have they changed materially from when Bid Window 5 was started – I believe in 2021 or something it came to a close – to now?
NIVESHEN GOVENDER: Absolutely, Fifi. I think a lot has been done, a lot more needs to be done. And this will ensure that projects follow suit in terms of signing this commercial agreement. I think the parties involved in the agreement are fully aware of the challenges and concerns surrounding the project, and have committed to working to achieve success. So I think we should leave them to continue with their efforts. I think at this point we went to applaud the preferred bidders that have signed, …. the global economic conditions, the geopolitical effects that we are talking about, and they have still managed to reach this stage. We just hope that others will follow.
FIFI PETERS: I’m trying to understand the real risk then for the others. Does it potentially mean that, should they follow through, they may follow through with a higher costing structure that will ultimately mean a higher cost of energy for the end consumer?
NIVESHEN GOVENDER: Unfortunately I won’t be able to answer. It’s a very commercial question that only the parties involved can [answer].
FIFI PETERS: So your members are not expressing the details, the minutiae of the level that price increases are affecting their products right now to you. Those are confidential conversations.
NIVESHEN GOVENDER: Absolutely.
FIFI PETERS: Tshifhiwa, just the final word. In the main, this power that we’re talking about, I know you said these are long-term solutions, we shouldn’t expect this power we’re talking about to solve the energy crisis today – but how long should we wait? How long should we wait for this power, these power deals that you’re signing, to come onto the grid and to eventually alleviate the pain that we are suffering right now as a result of load shedding?
TSHIFHIWA BERNARD MAGORO: The immediate solution – and I think this has been mentioned several times – they need a solution to the current load shedding and fixing Eskom. We are sitting with over 20 gigawatts of capacity that is not coming forth from Eskom because of breakdowns. So there’s a lot of effort from The Presidency addressing that together with Eskom. So that is for immediate relief.
But the capacity that we are procuring, what we signed up today – unfortunately this a large infrastructure project – they do take time to come to fruition. Construction for wind facilities like we signed for today takes about 24 months. So by end of 2024, that’s when we are expecting this power to be on line.
I must also mention that we have increased the previous Bid Window 6, which we released in the last few months. That’s also going to give us another 4 200 [megawatts].
We are expediting the procurement process so that we can get as much capacity as possible for the future. But it’s not going to address the immediate challenge that we have.
FIFI PETERS: All right. Whew. Thanks so much for the dose of reality, but we certainly do hope that the future we’re looking at is a lot brighter with more light, and more stable lighting as a result of the actions that have been taken today. Thanks to Tshifhiwa Bernard Magoro, the head of the IPP Office at the Department of Energy, as well as Niveshen Govender CEO of the SA Wind Energy Association.