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The power of renewables: Job creation and an end to load shedding

It’s a positive step forward, not just for renewable companies, but for taxpayers. We finally have a practical plan with a high probability of delivering a real solution: Scatec’s Jan Fourie on President Ramaphosa’s energy-sector plans.

FIFI PETERS: All things energy right now, because there has been quite a lot of positive feedback [on] President Cyril Ramaphosa’s Family Meeting yesterday, where he outlined plans to try and end load shedding and improve the energy sector so that the economy is on a path whereby it can grow and create jobs, as it’s supposed to.

Read: At last: CR throws the kitchen sink at load shedding

Some of the changes that the president announced – I’m sure you’ve heard them all throughout the day – include fixing Eskom, fast-tracking the procurement of new generation capacity, increasing the level of private investments presently in South Africa’s energy sector, and enabling you and me and other households that can afford and want to, to invest in rooftop solar power with ease.

But let’s get more feedback on what the president said. We are joined by Jan Fourie, the general manager for Sub-Sahara Africa at Scatec. Jan, thanks so much for your time.

JAN FOURIE: Good evening, Fifi.

FIFI PETERS: You announced, late last week, before the president’s announcement yesterday, that you’re on this path to build a solar power plant [with] some battery storage in it [three Kenhardt projects in the Northern Cape with 540MW total capacity]. Your project had reached financial close, meaning that you’ve got the money that you need to go ahead.

Read: Scatec to break ground on huge renewables project in SA

So, fast-forward [to] this week, following the announcement that you already made, which sounded pretty positive, what do you think about the energy plans that the president announced yesterday – and do you think it’ll make your job a lot easier to get your project off the ground?

JAN FOURIE: Thanks, Fifi. The announcement made by the president last night I think is something that everyone in the industry has been waiting for, for a long time. Finally we have a pragmatic and holistic energy plan that addresses the necessary elements, and not just one or two things. I think there’s now a plan on the table that seems to take on board all the input that’s been given by industry experts and the renewable sector as a whole.

I really believe it’s a positive step forward, not just for kind of renewable companies like ourselves, but for the taxpayers in the country at large, because I believe we finally have a practical plan that has a high probability of actually delivering a real solution.

FIFI PETERS: The president spoke quite a bit about government hearing the cries of the private sector around red tape – the fact that it was quite a headache for you guys to get over the regulatory burden and the bureaucracy and this and that, which just made your jobs a lot more difficult when they didn’t need to be.

I’m interested in your experience around red tape in your current solar project. How has that been for you?

JAN FOURIE: Scatec has been in the country for about 10 years, and we’ve been active in all the rounds, one, two – we missed out on three, four – five and the RMIPP [Risk Mitigation Independent Power Producer Procurement Programme].

There’s definitely been, I would say, on one level an improvement on that side, because on the environmental side there was the so-called Renewable Energy Development Zones, where there’s fast-tracked development for renewable energy projects. So that was the first, I would say, positive development on the permitting side.

And now with the recent close of our RMIPP projects last week Tuesday, we are also working quite closely with the presidential infrastructure committee assisting us in obtaining permits within the required space of time. So there’s still a lot of work to be done to be able to do it, but [it’s] just making sure that government departments are coordinated.

So at least from our side, there’s a legitimate effort by government to assist in doing this.

But, as with large infrastructure projects, when we are talking about a billion-dollar project there’s a lot of work, there is a lot of permitting and regulatory work to be done – so you can’t expect it to happen overnight. But what I can say is there does seem to be a really legitimate effort by government to assist the private sector in doing this.

FIFI PETERS: Right. Talk to us about your plant. This is a 540MW solar plant that we’re talking about. What’s the end game here? Do you see yourself being a potential supplier to Eskom?

JAN FOURIE: Well, we are already a supplier of power to Eskom. We are already doing about 500MW of renewables, selling to Eskom.

What makes this project of ours novel – and I believe it’s really a coming-of-age story for renewables – is that now we can deliver power on tap.

In the past there’s always been the argument that renewables are unreliable, you only have power when the sun shines or the wind blows, but with the integration in a so-called hybrid power plant, the combination of batteries with solar power, when the grid operator asks us to deliver power any time between 5:00 in the morning and 21:30 at night, we can do that, because of the battery component that can then carry us through.

So I think all of those old intermittency arguments from the fossil-fuel lobby have really gone away and we’re proving that now.

FIFI PETERS: And the cost? Is it really cheaper? I’ll tell you why I’m asking this question. I spoke to one of the players – [the IPP office] – but one of the government players who approve projects in the renewable space, and they said that a lot of the projects right now are on ice, because the cost of the inputs of these solar power plants has increased, and [that] of the batteries has increased, just because of the exposure to the Russia-Ukraine war. Ultimately you guys have to recoup that cost from somewhere, and there were even requests from some players to try and recoup those costs through higher tariffs, which in fact the IPP office was rejecting. I’d like to understand the cost today [when] you and I are having this conversation. Is it still cheaper?

JAN FOURIE: So maybe let’s start with the first question around the plant. The project/plant itself is, call it, basically worth a billion dollars. But what one needs to factor into the equation is the fact that we are basically paying [for] fuel and for the plant up front. So over the 20-year life of the facility there are no additional fuel costs or anything to be paid.

What some people are maybe not that familiar with is, for example, if you’ve got a gas-fired power plant and you need to buy LEG [liquid ethylene gas]. LEG is an international commodity; it’s sold on the global market and in bottles. So if you’ve got a power plant that uses LEG and you need to buy it in the market, then you are subject to fluctuations, not only in terms of the commodity price but also the volatility of the rand.

Those are all pass-throughs to government that ultimately affect the cost of electricity to the off-taker, which is not the case with the renewable solution [such as that which] we closed last week. The only thing is that the price is subject to inflation, CPI [consumer price index] escalation over time. So the risk allocation between a renewables-only plant versus a fossil fuel plant is vastly different. I think it’s an important distinction that off-takers need to take into consideration when they are making decisions about energy procurement.

And then on the second point I think in the renewable sector we’ve been quite fortunate that the cost of inputs over a number of years has come down, if you look at the cost of solar PV [photovoltaic] modules and how the prices have come down over the last decade. Similarly with trackers and with inverters it’s come down significantly. But what we’ve see now of late in the last, call it 12 to 24 months, the prices have not gone down. There’s been kind of volatility in the market. There’s been an uptick in logistics costs and in some of the input costs associated with it.

But the benefit for government in this instance is that all of the cost increases [are] for the account of the IPP [independent power producer], for better or for worse.

So that’s a commercial decision that independent power producers need to make to say, well, we are taking a view of what the input costs are, and the government only starts paying once electricity is delivered, and then you’re paying for that [on a] per kilowatt hour basis.

I think there’ve also been players out there that have taken quite aggressive views of where technology prices would be in future, and unfortunately this time around some of that has gone against the market.

FIFI PETERS: I think that we must make space to talk about that a little bit more at a later stage. But in the main it seems like a thumbs-up from you [for] what the president had to say regarding the energy plans.

Jan, we’ll leave it there for now, sir. Thanks so much for your time. Jan Fourie is general manager for Sub-Sahara Africa at Scatec.

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