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SA renewables at risk as foreign investors balk amid policy uncertainty

Rollout of key energy projects at an impasse; private sector and funders put on hold as major policy decisions are delayed.
Picture: Shutterstock

Over the last several years, there has been a great deal of optimism and goodwill surrounding South Africa’s renewable energy strategy. The country’s approach has been largely guided by the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), which was designed to encourage private investment and attract foreign capital. The national renewable energy target is for 18 800MW to be supplied by renewable energy by 2030. According to reports, the REIPPPP alone has already delivered 5 243 MW, through 79 different projects, which account for over a quarter of the target (in just four years).

Sadly, however, that progress has faltered – along with the optimism from both local and international funders.

According to Mike Peo, head of Infrastructure, Energy and Telecommunications for Nedbank Corporate and Investment Banking, the programme is now 18 months behind schedule – with Round 4 projects yet to come to market. This is after the Independent Power Producer Procurement (IPP) office has granted up to five extensions. Delays in the programme are costly on a number of levels – investor confidence, job creation, localisation and BEE participation, to name but a few. 

“We are sitting at an impasse, with Eskom and the Department of Energy not committing to a timeline for the completion of these projects,” explains Peo. “In the current [energy] oversupply scenario, Eskom maintains that it cannot afford to buy the power, but the private sector view is that there is a contractual obligation to complete the Round 4 projects.”

Nedbank provides project finance to IPPs under the REIPPPP, and has approximately 42% market share across the rounds. The lender has committed R35 billion in debt investments, and is the single largest lender to that particular sector.

Given the ongoing political volatility, coupled with policy uncertainty around the future rollout and framework for renewables, Peo warns that foreign capital may be withdrawn from the sector. 

“Increasingly, international development finance institutions, project developers and sponsors are aware of what is happening politically, and they will invest less [into SA renewables] and ultimately adjust their investment destinations,” he says. “They have infinite options and opportunities for investment, so when the risk-reward quotient becomes unattractive, they will leave.”

Despite this rather gloomy scenario, Peo insists that the lender remains optimistic about the sector – and will strive to maintain its current market share in the renewables space.

“Provided that we can achieve some policy certainty some time soon, we think that international investors will return,” he notes. “It’s critical that we get the policy framework [for renewables] sorted out.”

South Africa has committed to COP21 and the Paris Agreement, so from a broader political viewpoint, renewables will continue to be a major priority. The country’s new Integrated Resource Plan (IRP), which directs the expansion of the electricity supply (and the technology mix), is currently being developed – and will likely be presented to Parliament early next year.

As we enter the second half of a tumultuous year, local and foreign investors will certainly be keeping a close eye on South Africa’s ever-changing energy framework – with cautious optimism all round.

Brought to you by Nedbank.

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The minister of finance said over the weekend that he will go begging to the IMF to bail him out. With the REIPPPP he has the opportunity to receive immediate funding from international pension funds to create jobs and inject much needed cash into rural communities. It is clear that the ANC does not want to grow the economy, they only want to keep on looting through the SOE’s.

Christine Lagarde is not Dudu Miyeni or Bathabile Dlamini, the IMF will not lend until SOE’s are privatized, BEE scrapped, 50% of government employees fired and private property respected. This implies that an IMF bailout will mean the end of the ANC.

The ANC painted itself into a corner with their corruption and populist socialist policies.

Let’s be clear on one thing: The purpose of REIPPPP is not to encourage private investment and attract foreign capital but to supply South Africa with electricity. It is not about goodwill but energy security.

Forgive me if I’m sceptical but there is a lot of capital leaving South Africa at the moment simply because the returns in SA are not commensurate with the risks of investing here (ANC, courtesy of). If investors are champing at the bit to install renewable energy then the returns must be very high. If the returns are that high then the costs must be very low or the prices they expect to be paid are also high. This means more expensive power bills, folks. According to a recent MW article the price of these things is falling like a grand piano shoved off the Carlton Centre. Maybe it is time to wait…?

There are some crucial questions that the journos are not asking that they should be asking: what is the price (R/kWh) Eskom will pay for this electricity and the cost of getting it connected to the grid. What is the price of they will sell a kWh to a local authority such as Johannesburg and what will they sell it to the consumer for? How will this affect the consumer? Simple but critical questions.

Remember we buy energy not power. Using power is a trick proponents of renewable energy use to fool the sheeple.
The renewable target is about 18 000MW or 18GW. This is nameplate capacity i.e. ideal conditions not what it will produce continually. Typically this will produce, on average, about 20% of this i.e. 3.6GW the same as a large power station but not on demand.

The solution is to privatise the entire shebang and let the market sort the energy mix out. The ANC cannot do this. Their incompetence, ineptitude and corruption are immovable obstacles to progress.

Hi Richard
The reply to your comment, from the leading authority on the subject.

http://www.engineeringnews.co.za/article/electricity-mix-model-shows-south-africa-wont-need-to-trade-off-clean-for-low-cost-2017-02-23

Thanks Sensei. Hopefully the ranting will stop now.

Thank you, Sensei

That, however, is an argument to authority and does not really answer my questions as it is really conjecture. Not all of South Africa is suitable for wind power such as the coastal areas but few people live on the West coast requiring large transport distances. A lot of people overseas where there is a high renewable component to the mix rely on gas for heating water and cooking (the main household energy component). South Africa is very electricity reliant.

The world is full of ‘experts’ who advise politicians on energy policy and how renewables are going to save the situation. South Australia (the state) is a case in point that fell victim to this scam. Now they have the highest electricity costs in the world and import coal produced electricity from Victoria (neighbouring state). They now beat Denmark another windfarm paradise BUT their main energy source is uber cheap natural GAS and thousands of working class families are being pushed into poverty despite this.

http://www.abc.net.au/news/2017-06-28/sa-has-most-expensive-power-prices-in-the-world/8658434

Germany imports nuclear power from France for the same reason: renewables cannot cut it presently. My mate cannot afford to heat his factory above 18°C. Contrary what to a lot of MW readers believe I am not against renewables but unsubstantiated bs such as CAGW and unprovable claims wrt cheap reliable renewable energy (never been done before).

Renewables have been shown to be the cheapest, you need to supplement with base load which is more expensive. Seems to be fact at the moment.

Richard, do you have another example outside of South Australia? Because there are a lot of countries which are using a tremedous amount of renewable energy at the moment. Just go have a look at how much has been installed of each technolodgy over the past few years.

You also cannot divorce the fact that the REIPPP not only brings in cheap clean energy but also does attract a serious amount of foreign direct investment, that investment is also not speculative share trading which can be pulled with a phone call. It is long term 20 year investment, not that easy to find in the currency economy. Again, could not care less what the returns are as long as the price is competitive and it has to be because it went through a auction process.

End of comments.

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