Corporate power deals expected to add impetus to South Africa’s future wind-energy demand

Corporate power deals expected to add impetus to South Africa’s future wind-energy demand

2019-09-18T10:24:20+00:00September 18th, 2019|Wind Energy|

The South African Wind Energy Association (SAWEA) is anticipating that bilateral power purchase agreements (PPAs) with corporates and municipalities could add further impetus to domestic demand for wind energy and that a shift to such deals is likely to gain momentum once Eskom’s transmission and system operator functions are unbundled from the utility.

SAWEA chairperson Mercia Grimbeek stresses, however, that the South African wind market will continue to be driven in the near term by government’s competitive auction programme, known as the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP).

Through the REIPPPP, more than 6 400 MW of renewable-energy capacity have been procured following four bidding rounds, with wind comprising 62% of that procured capacity.

To date, 36 wind projects with aggregate capacity of 3 366 MW have been procured.

Despite a three-year hiatus in the procurement of new capacity, the Global Wind Energy Council (GWEC) anticipates that 670 MW of additional wind will be added to the South African electricity mix in 2020, followed by 474 MW in 2021. This after the conclusion of outstanding PPAs in 2018.

The next REIPPPP bid window is expected to be launched once the updated Integrated Resource Plan (IRP) is approved by Cabinet; a development that is expected during the course of September.

The draft IRP, which has been the subject of protracted consultations between government, business and labour since the start of 2019, envisages the building of an additional 11 300 MW of wind capacity between 2019 and 2030.

The plan also caters for the introduction of distributed-generation capacity at a yearly rate of 500 MW.

Speaking during a webcast hosted by the GWEC, Grimbeek said the longer-term prospects were also positive for wind generators to enter into bilateral PPAs with energy-intensive companies, mines and municipalities looking to either lower their carbon emissions or diversify their sources of electricity.

Such bilateral PPAs have already emerged as a strong driver of wind demand in North and South America, with GWEC reporting growth in corporate PPAs in several markets, including the US, Mexico and Brazil.

“South Africa can easily compete with Chile and Australia in terms of its renewables endowment, in order to provide similar low-cost electricity to its mining sector,” Grimbeek avers.

The regulatory framework in South Africa already allows for wheeling of power, but the commercial terms hitherto offered by Eskom for use of the grid for wheeling have proved commercially unattractive.

SAWEA anticipates the cost outlook will improve once the transmission and system operator functions are separated from the State-owned utility, in line with an unbundling plan announced by President Cyril Ramaphosa as one of the preconditions for further fiscal support for Eskom.

Public Enterprises Minister Pravin Gordhan is expected to release a policy paper outlining government’s approach to the unbundling of Eskom in the coming weeks.

Besides the unbundling of Eskom, Grimbeek says SAWEA is also looking forward to the policy certainty that will be created by the release of the IRP and expressed optimism that the next REIPPPP bid window would not include terms that would make future wind investments unpalatable.

She also indicates that a consistent roll-out of renewable energy through the REIPPPP is crucial if South Africa is to capture the full employment, transformation and industralisation opportunities associated with the sector.

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