South Africa would do well embracing renewable energy independent power producers

A worker performs maintenance work on solar panels at a photovoltaic power station in Songxi county in Chinas Fujian province. From a virtual non-contender in the field of renewable energy production just over 10 years ago, the country has now become a world leader in renewables. AP African News Agency (ANA)

Hydro, wind and solar power were introduced in developed countries more than 100 years ago and grew in scale from the 1970s as concerns about environmental impact and cost of fossil fuel became prevalent. Although South Africa started giving serious consideration to large scale renewable energy supply two decades ago and started implementation over just over five years ago, there are some who vigorously oppose renewable energy independent power producers (IPPs) because they wrongly believe that IPPs are at the heart of Eskom’s quagmire.

These detractors conveniently forget the public protector’s findings, what emerged from parliament’s inquiry and some of the startling revelations at the Zondo Commission about malfeasance at Eskom. The real reasons mega projects such as Kusile, Medupi and Ingula are substantially over budget and beyond their original completion dates are becoming clearer for all to see. This has led to ballooning debt that currently stands at about R420 billion. All of this takes place whilst Eskom’s revenue growth is flat as more and more consumers, industrial users and businesses in general become more energy efficient and find alternative ways of generating electricity.

They also want the public to believe that IPPs were introduced without their knowledge. We cannot claim there were no consultations. As correctly pointed out by Minister of Energy, Jeff Radebe, recently, consultations date back to 1998 when the White Paper on Energy Policy was published.

In 2003 Government adopted the White Paper on Renewable Energy which proposed the introduction of renewables into South Africa’s energy mix. Various consultations also took place which included labour unions through NEDLAC when the draft Integrated Resource Plan 2010-2013 (IRP 2010) was published for public comment. This included consultations on the Renewable Energy Independent Power Producer Procurement Programme (REIPPPPP).

Renewable energy also featured strongly in the Green Economy Accord that was signed by social partners in November 2011 after widespread consultations with organised labour, business, government and various community constituencies at NEDLAC. Renewable energy forms an important part of our National Development Plan which was drafted after extensive public discussions.    

Given the vocal opposition to IPPs in the past three years, we need to remind ourselves why we went this route in the first place. Firstly, the transition to renewable energy was brought about due to climate change and impact on health of communities as a result of fossil fuel emissions. It is strange that those who oppose renewable energy ignore research, such as that of the Life After Coal, which found that annually, there are 2200 premature deaths and 2239 fatalities caused by stroke, lung and heart diseases in communities near Eskom coal power stations in Mpumalanga. Many others have developed serious respiratory illnesses such as asthma and bronchitis. This is estimated to cost the economy R33 billion a year.

Secondly, when blackouts started in 2007, it became evident that Eskom’s new build power generation had not kept up with demands from the economy. Fast forward to today, Eskom is in no position to invest in new generation capacity due to its poor balance sheet and huge debt. Therefore, while Eskom management is grappling with the unenviable dual task of reducing rolling blackouts and saving the utility, South Africa would do well by embracing renewable energy IPPs, which take on full development, design, construction and plant performance risk.

Furthermore, all capital costs and responsibilities to raise and repay debt remain with the IPPs, thereby, freeing up valuable cash resources for Eskom. There is no doubt that IPPs can play a critical role in easing Eskom’s power supply constraints. Having said that, we cannot ignore one of the criticisms against IPPs – which is that they come at a huge cost. Bid window one and two of the Renewable Energy IPP Procurement Programme (REIPPPP) was more expensive than the cost to the consumer from aging coal fired power plants. This always tends to happen when a new industry or product is introduced.

Fact is that since then, costs have come down considerably in line with global trends. The average tariff from successful bidders during bid window one of the REIPPPP (in November 2011) for on-shore wind was R1.51 per kilowatt hour (kWh). This dropped to R1,19 per KWh for bid window two in March 2013, R0,87 per kWh for bid window three in August 2013, R0,75 per kWh in bid window 4 in August 2014 and R0,62 in bid window 4,5 (expedited) in November 2015. Such dramatic reductions in costs should be embraced and encouraged. Eskom and IPPs should therefore co-exist and flourish for the benefit of the country.  

Nonetheless, it is good that President Cyril Ramaphosa highlights the need for government to “lead a process with labour, Eskom and other stakeholders to work out the details of a just transition, and proper, credible and sustainable plans that will address the needs of all those who may be affected”. I emphasise just transition because like the introduction of any new technology, there will be people who are affected by the changes.

For instance, most of our coal power stations are in Mpumalanga. However, renewable energy projects are in Northern Cape (Solar), Western Cape (Wind) and Eastern Cape (Wind). It will require government and the stakeholders to come with plans to ensure future economic viability of the towns that are dependent on coal mining for power supply.

In conclusion, the introduction of new players in the energy market enables government to achieve broad based black economic empowerment and ensuring there is adequate local content in the IPP projects.

This means the final Integrated Resource Plan, that Minister Radebe is expected to release soon, should be viewed as an important cog in the economic growth wheel and must articulate a consistent energy framework policy that guarantees a much-needed reliable electricity supply for the country. In these turbulent times, policy clarity is a must. Renewables are developing globally at phenomenal rate. South Africa has an opportunity to choose suitable renewable energy technology thereby leapfrog developed nations and stem power blackouts.

Siyabonga Mbanjwa is the Regional Managing Director of SENER Southern Africa, a global engineering and technology group operating in the Renewable, Power, Oil, and Gas sector.