WIND

South Africa: Power in spotlight as election looms

South Africa’s ruling African National Congress faces losing its majority in next month’s election as a result of public anger about corruption and the state of public services, including the power grid. We look at how the government is trying to overcome recent failures with the REIPPPP regime.

RICHARD HEAP

April 22, 2024

  • Anger about grid failures is fuelling opposition to South Africa’s ANC
  • The ANC is predicted to lose its majority at the election on 29th May
  • On 30th May, bids are due in round seven of troubled REIPPPP process
  • This is an abridged version of an article in Finance Quarterly Q1 2024, published in partnership with Green Giraffe Advisory

 

When South Africans go to the polls next month in the country’s general election, the ailing power grid will be high in their thoughts.

Electoral analysts are predicting that the governing African National Congress (ANC) will lose its majority on 29th May, which would be the first time since South Africa became a democracy in 1994. This is partly due to the poor state of public services, including the electricity system.

Energy users have faced rolling blackouts for the last decade and state utility Eskom has reported that these became far worse in 2023, with blackouts on 280 days — or four times as many as those in 2022.

In addition, the ANC is under pressure because of the high-profile corruption scandals that have followed Eskom. This reached a nadir in December 2022 when Eskom’s then chief executive André de Ruyter was poisoned by cyanide-laced coffee after taking on vested interests in the company that favoured coal and opposed renewables. He lived.

This backdrop of political resistance and corruption explains why the use of wind and solar have grown so slowly in South Africa over the last decade.

Wind capacity grew from 257MW at the end of 2013 to 3.1GW at the end of 2022, according to data from the International Renewable Energy Agency. Total installed renewables capacity rose from 1.5GW at the end of 2013 to 10.4GW at the end of 2022. That shows there has been progress, but it falls well short of the 70GW needed by 2030 for South Africa to meet United Nations targets.

The government needs to shake off its resistance to renewables and support investment in the sector. We see evidence it is trying to do so, but the main way it has backed renewables thus far is with its Renewable Energy Independent Power Producers Procurement Program (REIPPPP), which has suffered high-profile failures.

Indeed, on the day after the election, developers are due to submit bids for support for up to 5GW of wind and solar projects in REIPPPP round seven. But there is scepticism in the industry about whether the process will be a success this time after two high-profile failures.

Our Finance Quarterly Q1 2024 report includes insights from experts in the South African market from Green Giraffe Advisory, GCube Insurance, Harmattan Renewables, OWC, and the South Africa Wind Energy Association.

REIPPPP failures

In REIPPPP round five, which concluded in October 2021, the government backed projects totalling 2.6GW, including 1.6GW of wind and 975MW of solar. This looked positive, but the economics of those projects have been undermined because low winning bids in 2021 have suffered the reality of inflation in 2022 and 2023.

As a result, construction has started at fewer than 10 of the 25 winning projects.

The problem was different in REIPPPP round six, where a lack of grid capacity in the wind-rich Eastern and Western Cape regions meant no wind projects could win. The difficulty here was that grid capacity was available when the process started, but was taken up by private projects before the round concluded. Experts warn that shortage of grid capacity may be a problem in round seven too, because it is a difficult issue to fix.

However, the government is taking steps to support renewables investment with changes to the country’s Electricity Regulation Act; the release of an Integrated Resource Plan about the future of electricity generation and transmission; and the publication in late October of the Generation Connection Capacity Assessment 2025. This shows the government is trying to make progress and support the growth of renewables.

Some developers and investors are taking their own approaches to avoid the problems with REIPPPP. For example, many have turned instead to private power purchase agreements to take projects to financial close.

But this is far from the only problem they face. Many face difficulties because the cost of grid upgrades needed at projects can rise significantly during the development process, and can derail the economics of projects that are even far advanced. South Africa will also struggle to attract investment by global developers, investors and manufacturers when countries such as the US can offer much more in terms of size and policy support.

It is good to see the government trying to make progress on renewables, and the power system as a whole. But it appears to be too little too late for it to avoid pain at the polls.

Businesses and homeowners in South Africa have been suffering as a result of rolling blackouts. Many now hope that political change can lead to brighter days.

 

This is an edited version of the article ‘Cape of Green Hopes’ from the latest edition of Tamarindo’s digital magazine Finance Quarterly, which came out on Wednesday 17th April and was published in partnership with our headline sponsor Green Giraffe Advisory. Tamarindo members can download the full report here.

 

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