Proposed IPP “renegotiations” will threaten green energy investments and job creation

February 19th, 2019, Published in Articles: Energize

The recent stance by Public Enterprises Minister Pravin Gordhan, as reported in the Business Day, to “renegotiate” contracts with companies which won the first two rounds of South Africa’s renewable energy procurement programme (REIPPPP) will not afford South Africa the opportunity to create value, especially on the job creation front.

Busi Nxumalo

Eskom’s current load-shedding crisis costs South Africa’s economy R5-billion daily.  The last thing needed in this current crisis is a “renegotiation” of electricity tariffs with renewable energy IPPs given the urgent need to stabilise supply of power to our economy.

Renewable energy is already cost-effective. In fact, prices globally continue to drop with the global average price for solar and wind technology now sitting at around US$0,06 and US$0,10/kWh respectively. Locally, when the first two rounds of the REIPPPP were initiated, prices of solar and wind were R3,84 and R1,67/kWh respectively and by Round 4, prices had fallen to R0,96/kWh for solar and R0,76/kWh for wind.

Technologies like solar PV have proven to have even more distinct benefits, with levelised costs of electricity (LCOE) production being about half the price of traditional energy sources and even outstripping other renewable energy sources like solar CSP.

A sustained price decline in electricity tariffs, particularly through the procurement of efficient renewable energy technology, is what South Africa needs to attract much needed foreign direct investment and to stimulate job creation.

Reports recently published by the Department of Energy’s IPP office show that the REIPPPP initiative has so far attracted over R201,8-billion worth of investments into South Africa. This is mainly because the programme is seen as more than just a tariff generation exercise by investors. Over R20,6-billion has been invested into socio-economic spend (SED).

Local content manufacturing and procurement amounts to R42-billion, whereas enterprise development spend sits at around R6,4-billion. Such are indicators of serious commitment from renewable energy IPPs and investors. Therefore, destabilising investor confidence through sudden unplanned tariff “renegotiations” may prove to be costly to South Africa’s economic growth prospects.

While government departments like the Department of Energy have put their weight behind renewables, there needs to be consistency and policy certainty from all arms of government to boost growth in our economy. A simple, blanket tariff renegotiation stands as a contradiction South Africa cannot afford.

The South African Photovoltaic Industry Association (SAPVIA) has offered alternatives to government before to avoid denting investor confidence, such as extending power purchase agreements which are currently up for “renegotiation” from 10 to 30 years. This will offer less volatility and uncertainty as tariffs will be lowered over time. In the long-run however, the only way to sustain lower electricity tariff prices is to consistently procure from low-cost solar and wind power through a well-managed procurement programme.

If government proceeds with the “renegotiations’’, there must be due consideration of risks and investments already made by existing IPPs which saw the potential South Africa had to transition towards a green viable economy that would put us on par with the rest of the world.

Contact  Kim Thomas, SAPVIA, Tel 021 200-5856, kim@sapvia.co.za

 

 

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