Eastern Cape government delegation explores renewables
A delegation from the Eastern Cape Provincial Government, recently visited a wind turbine manufacturing facility in Germany to explore potential investment, especially focused on component manufacturing and assembling within this area of the country. The province is expected to house thousands of megawatts of renewable energy projects in the foreseeable future, which will attract sizable economic and socio benefits to this part of the country that boasts some of the world’s best wind and solar resources.Continue reading View more
11th Annual Windaba Conference to explore innovative funding models to encourage uptake of renewables
The post-covid economic recovery will be hard fought and should be used to spur lasting shifts in our energy mix. Now is the time to commit and deliver a green recovery that helps build a more equitable, inclusive and resilient economy that delivers for local communities.Continue reading View more
Global Renewable Energy Market to Reach $1,977.6 Bn in Value by 2030
Global shift from fossil fuels to renewables, rise in legislative and financial initiatives, and increase in electricity usage fuel the growth of the global renewable energy market.Continue reading View more
Why businesses are turning to renewables such as solar to make a positive impact on the world
Reduce, reuse, and recycle may seem like a small act, but it can have a massive impact on protecting the environment and helping the planet. Businesses are doing what they can to make a difference by looking at renewable energy solutions and recycling initiatives.Continue reading View more
Join a live discussion with Ukraine’s leading private energy company
Webinar broadcast date: 13 September10h00 New York | 14h00 GMT | 15h00 London | 16h00 Amsterdam | 16h00 Johannesburg | 19h30 New Delhi | 22h00 SingaporeContinue reading View more
Flexible pricing in renewable energy projects: how to strike a balance
Volatile input costs pose a threat to the viability of developers of renewable energy projects, which may require offtakers to be more flexible in contract negotiations.
By Megan Jarvis & Tyron Theessen, Partners at Webber Wentzel
Soaring costs of commodities and energy have resulted in an unprecedented level of cost uncertainty in the inputs needed for developing renewable energy projects. Cost uncertainty is compounded by the logistical woes being faced by developers in South Africa and elsewhere. Even where component parts are available, they may not be at a cost that is recoverable in terms of the contracts in place with buyers or that is sustainable for suppliers.
According to the International Energy Agency (IEA), in its “Renewable Energy Market Update 2022” released in May 2022, prices of raw materials and freight costs for renewable energy projects have been rising since the beginning of 2021. By March 2022, it said: “the price of PV-grade polysilicon more than quadrupled, steel increased by 50%, copper rose by 70%, aluminium doubled, and freight costs rose almost five-fold. The reversal of the long-term trend of decreasing costs is reflected in the higher prices of wind turbines and PV modules as manufacturers pass through increased equipment costs. Compared with 2020, we estimate that the overall investment costs of new utility-scale PV and onshore wind plants are from 15% to 25% higher in 2022.”
Other input costs, predominantly energy, have risen substantially because of the Russia/Ukraine war. For South African developers of renewable plants which rely on imported components, these cost increases will be magnified by the depreciation of the rand against the dollar, from ZAR15.95/USD in January to ZAR16.70/USD by mid-August – especially where the power purchase arrangements are dominated in local currency.
These cost increases have further compounded difficulties, initially arising from pending litigation, in closing projects bid under the Risk Mitigation Independent Power Procurement Programme (which was gazetted on 7 July 2020). Similar issues may be faced if other programmes are delayed and could apply equally where private offtaker deals suffer from their own delays.
In this uncertain environment, where fixed pricing on long-lead items cannot always be secured, developers may be unable to sell power at the prices they bid and still make a profit. The same phenomenon affects other private sector power projects under way, such as those being developed to supply renewable energy to offtakers in the mining and other industries, where the developer has undertaken to supply power at a certain agreed price. The client in turn has budgeted for that cost and may also have limited room for cost escalations.
Building cost escalations into contracts
Many contracts may have prudently allowed for an annual escalation in tariffs of CPI plus a certain percentage or in line with a formula for certain items. However, although CPI may be a measure of the shifting costs of the CPI basket of goods, the composition of capital costs in renewable energy projects is not reflected by this basket. CPI is also not an immediate measure of international commodity fluctuations, so CPI-linked cost escalations will deliver little comfort if project development timeframes are more limited than the realised effect on the basket.
Even though buyers of power may be sympathetic to these cost pressures (since they are being felt broadly across many industries), a buyer cannot be expected to give a developer a blank cheque. On the other hand, a developer would be hard pressed to continue with an uneconomic project and it is not in the client’s interest if the developer of the project goes into business rescue and work is suspended indefinitely – which has happened on more than one renewable project. Similarly, suppliers and original equipment manufacturers, whose costing is more directly affected by these fluctuating input costs, cannot necessarily absorb this risk and certainly cannot do so indefinitely without being pushed into uneconomic arrangements.
To take some of the guesswork out of making provision for these uncertain costs, pre-emptive clauses can be built into contracts that are currently being negotiated. These include clauses allowing cost price adjustments that are based on industry-specific formulae. Invariably, a level of risk will have to be assumed by the buyer in agreeing to flexible pricing, but this may be mitigated by allowing for re-pricing of components at specified thresholds, termination for convenience provisions and other commercial arrangements where this risk is shared and managed.
When a contract is already in place, the developer and client would need to consider the terms and may need to discuss and, possibly, renegotiate terms to ensure a viable project. This may not be possible and such discussions may not go well but, in the absence of a commercial compromise, there is a real risk of the developer repudiating the uneconomic arrangement or being run into insolvency. The same considerations will apply between the developer and its contractors and further down the procurement chain.
Affected parties may also find some relief in taking out forward cover, but this may only be available on certain items, such as steel.
The key is to conclude a commercial arrangement that is fair to all parties. It needs to balance the interests of all project participants and adequately manage the risk. In this environment, some flexibility must be considered, as fixed positions will invariably lead to at least one party being compromised and likely litigation.View more
A perfect storm is forcing green independence from the coal-dominant grid
By Lance Dickerson, MD, Revov
For all our best intentions and well-meaning words, it is often easier to continue with the status quo. However, a perfect storm in South Africa has catapulted us into a new energy future. While it’s painful now, we will be grateful in a decade or two from now.
South Africa has relied on an ever-weakening coal-based national power supply with Koeberg being the sole nuclear reactor. As far back as 1998 – some would argue earlier – the writing has been on the wall. In the years leading up to the 2010 World Cup, the new-builds such as Medupi were already too little, too late. This is even before the cost overruns, delays and expensive design flaws. This as other countries were investing billions into renewable energy builds.
We’ve had some great announcements locally. There is the 100MW private embedded exemption and if one drives along various routes such as the N2 in the Eastern Cape you will see growing wind farms, but where is the mass rollout of renewable power generation? Most South Africans can answer this question.
Over the same period, the world has become conscious of the environment and there’s been a push towards reducing carbon emissions. The Congress of the Parties (COP) 27 will proceed later this year in Africa, after the last edition of COP was criticised for underrepresenting the so-called Global South. All eyes will be on countries such as ours.
While one may well be cynical about the level of carbon emission concern globally, the truth is that many countries have already made bold commitments. Norway, France, UK, US: they’ve all made bold plans to reduce and outlaw internal combustion engines by various dates – all of which fall, by the grace of God, comfortably within our lifetime. We will see it.
China is light years ahead of a country like South Africa. Shenzhen, the home of electric vehicle (EV) maker BYD, has 16 000 electric buses and 22 000 electric taxis. Carmakers around the world are investing billions of dollars into research and development, from 100% EV makers to traditional brands plotting their plans to shift their businesses to the certain electric future.
None of this is new. We’ve known this in South Africa for years. We’ve known the world is moving to renewable energy and e-mobility. Ask the average South African for their thoughts on the mass rollout of electric charging stations and their answer will likely be: “Great, but where will the electricity come from?”
Everyone knows Eskom barely has its head above water. We feel it with incessant bouts of load shedding. This is part one of the perfect storm. Out of necessity the government will have no choice but to speed up the transition to renewable power generation, complete with private players that can deliver. Businesses and households have little choice but to find ways to protect themselves from this unreliability.
The second part of the perfect storm is the cost of fuel. The end of May will likely see a record fuel price increase, made worse by the temporary fuel levy grace period coming to an end. Running a generator during prolonged periods of load shedding is very quickly becoming something only those with very deep pockets can contemplate. One shudders to think that Eskom runs diesel generators to keep our lights on. The costs are eye-watering.
The third part of the perfect storm is the repo rate increase cycle, putting pressure on already squeezed retailers and consumers. Costs eventually have to be passed on. Imagine running a small or medium business that’s dependent on electricity to generate revenue while the power is removed in bouts of stage 2, 3, 4 (and possibly more) load shedding. Imagine the squeeze when read against increasing rent, increasing input costs and ever-more weary customers. How long is this sustainable?
The fourth part of the perfect storm is the willingness of private financial institutions and lenders to proudly advertise credit and funding lines for renewable installations. Businesses and private households will likely take up this offer precisely because it gives them the opportunity to develop freedom from dependence on a broken grid.
Within five years we will see huge investments in installations of all sizes: homes, small businesses and larger manufacturing and mining operations that require high-voltage solutions. Lithium iron phosphate batteries mean that the ability to store energy has come on in leaps and bounds.
That’s the perfect storm – where South Africans are forced to make the transition. However, the good news is that by using 2nd LiFe batteries, where the cells are repurposed from EV batteries, consumers and businesses can make the transition with the peace of mind that they are contributing to an important step in the circular economy: they are using batteries that don’t add further strain to the environment such as their first life counterparts.
That’s where we want to be: in a world where conscious decisions are made to look after the planet. If it takes us being forced, through a perfect storm of Eskom failures and economic headwinds, to get there so be it. Better late than never.View more
The Wind at his Back: SAWEA CEO, Niveshen Govender
The South African Wind Energy Association (SAWEA) recently appointed Niveshen Govender as CEO. Govender undertakes a leading role in driving the country’s transition to a greener economy and brings along a vision founded on procurement, localisation and policy. Green Economy Journal met up with him.
Congratulations, Niveshen, on your recent appointment of CEO at SAWEA. Besides this major accomplishment, what are the defining highlights of your career?
My career has been purposefully dynamic so I could experience the different views of promoting and achieving a green economy. I started off my career in consulting, where I managed to gain broad experience across a range of areas.
Thereafter, I moved to implementation, focusing on how to successfully execute large-scale projects which impact across the green economy landscape. I approached national government to better understand the policy development objectives and focused on renewable energy policy creation.
My experience and exposure across the green energy sector, has enabled me to take roles in the solar PV and now wind power industry associations, as I am able to translate policy into building an inclusive sector.
What are your personal aspirations while at the helm of the wind industry?
I believe that our industry needs to harness, accelerate and maximise localisation to move toward industrialising renewable energy in South Africa. Transformation goes hand-in-hand with this vision, so it is foremost and top of my mind.
I am personally passionate about information sharing and skills development, so that we harness our collective talents and knowledge, which spreads naturally and helps to accelerate transformation.
What are the greatest challenges for the industry in relation to the REIPPP programme?
While we continue to face an energy crisis, it is essential that our country remains geared to bring on more new generation capacity as quickly as possible, which points to renewable energy as the fastest and most cost-effective option.
To achieve this, we need to consider the current procurement rules, as there is currently a misalignment between the bid window procurement requirements and the sector capabilities. This will require additional dialogue with the relevant stakeholders, so that we can reduce the gap and make the necessary adjustments.
Our industry is currently challenged by the transmission infrastructure restraints, particularly the grid capacity challenges in the Northern Cape as well as the Eastern Cape Province, which house the country’s best wind resources.
The government has amended and gazetted the Electricity Regulation Act and the Electricity Pricing Policy for public comment. The sector has highlighted that the updated forecasting requirements also impact the power pricing tariffs. Please talk to us about the identifiable gaps and inadequacies in the penalties for deviation and how to overcome them.
The challenge is not so much in the forecasting requirement but more based on the methodology used to calculate the forecast. I believe that there is a misalignment on understanding this. Together we can develop solutions – this needs workshopping.
Should this not be considered now, the penalties will have an enormous impact on the operating IPPs.
Please expand on the challenges that the industry is currently experiencing to execute unlicensed 100MW renewable energy projects as well as other independent power projects.
While the 100MW licence exemption notice has sent positive signals, there are many finer details which require attention, namely:
- The NERSA registration process still poses challenges
- The distributor connection agreements need streamlining
- There is no national wheeling framework in place
- Wheeling tariffs need to be developed
Regarding private power purchase agreements, unclear policy for the 100MW reform needs to be clarified. The municipal energy procurement process also needs to be streamlined. Please advise on these two issues and expand on the benefits of your solution.
I believe that we are already seeing the policy reform we have been calling for, including:
- The changes and direction of those changes speak volumes
- As a sector, we are happy with the step change that is happening
- We will continue to seek clarity in the details to ensure an open transparent market
The next step is for us to work on the impact, namely how we create benefit to meet the country’s social imperatives. These include access to affordable electricity for all, addressing unemployment, inequality and poverty. These aspects need to be incorporated into the business-as-usual plan.
What impact do grid capacity limitations cause? Will improved grid access make any difference to the transition?
Grid Capacity Limitations stalls the roll out of renewable energy projects in key areas:
- It is only with the new capacity that we will be able to transition.
- Improved access allows for us to deliver the much-needed new generation capacity.
For more information on the wind association: www.sawea.org.zaView more
Norfund and CDC Group join forces to back renewable power development in South Africa
● The development finance institutions (DFIs) are investing ZAR 600 million in H1 Capital.
● Investment to add c. 2.4 Gigawatt (GW) of gross renewable capacity in South Africa, expanding access to power and contributing to the avoidance of 6,2 million tons of carbon dioxide annually.
● The commitment will enhance the economic participation of wider communities, and marks CDC’s first direct investment in a Broad-based Black Economic Empowerment (BBEE) company in South Africa.
● The deal will be the first investment under Norway’s new Climate Investment Fund, managed by Norfund.
Cape Town – 3 March 2022 – Norfund, the Norwegian investment fund for developing countries, and CDC Group, the UK’s development finance institution (DFI), are today announcing a commitment to invest ZAR 600 million in H1 Capital (Norfund 360 million and CDC 240 million) – a South-African black-owned and managed renewables investment and development company.
The transaction represents a joint vision by the DFIs to mobilise climate finance to Africa and back clean infrastructure projects across the continent. The investment from Norfund and CDC, which will soon be renamed British International Investment (BII), will help to improve access to clean and affordable energy in South Africa. The increase in clean energy supply will provide consistent power to cities, villages, townships, businesses and farms, thereby increasing productivity and encouraging economic growth.
South Africa has tremendous economic potential. The government has set an ambitious target to generate 20GW of new renewable capacity over the next decade to address power shortages and decarbonise the power generation fleet, where 86 per cent of the country’s energy mix is thermal.
This investment will support the country’s clean energy goals, as it will enable H1 Capital to fund a pipeline of over 2.4 GW of new wind and solar projects, generating approximately 6,400 GWh per year. This will contribute to avoiding annual emissions of 6,2 million tons of CO2, and help to accelerate South Africa’s transition to clean energy.
H1 Capital is a development partner of choice, owing to the company’s expertise on several renewable power projects and its deep commitment to energy sustainability. As a Broad-based Black Economic Empowerment (BBEE) company, H1 Capital’s inclusive approach provides clean energy solutions that enhances the participation of the wider communities in the economy, helping to transform the lives and livelihoods of marginalised groups in South Africa.
The investment in H1 Capital demonstrates commitment by the UK and Norway to act on pledges made at COP26 – scaling climate finance to Africa and deepening collaboration on solutions that will meet the continent’s needs and address the climate emergency. At the summit, Norway announced the creation of a new climate investment fund to be managed by Norfund, and this capital to H1 Capital will be the first investment under the new fund.
This commitment from the DFIs helps contribute to the UN’s Sustainable Goals (SDG 7) on affordable and clean energy, (SDG 8) on good jobs and economic growth and climate action (SDG 13). The transaction also qualifies for the 2X challenge, which seeks to support businesses that provide women in emerging economies with access to leadership opportunities, quality employment, and products and services that enhance their economic participation and inclusion. Moreover, the investment aligns with South Africa’s ambitions and steps toward securing a just transition to a low-carbon economy.
Tellef Thorleifsson, CEO of Norfund, commented: “At Norfund we are honoured that the Norwegian government has entrusted us with the responsibility of managing the new climate investment fund. We are delighted to be able to put the money to work quickly and effectively through what will be the first investment under the new mandate, with our existing partners in H1 and CDC, in projects in line with the energy plans of the South African government”
Anne Beathe Tvinnereim, Norwegian Minister of International Development, commented: “I believe that the new Norwegian climate investment fund managed by Norfund will be our most efficient tool to help accelerate the global clean energy transition, making it possible to base necessary development on renewable energy and limit the climate crises devastating impacts on the world’s poor. I am confident that this first investment under the new climate mandate will be the first of many mutually beneficial partnerships that contribute to a just transition in South Africa and in the other markets that Norfund aims to prioritize.”
Nick O’Donohoe, Chief Executive of CDC Group, commented: “We are delighted to once again partner with Norfund on this investment in H1 Capital, which will help increase clean energy access for people, communities, and businesses across South Africa. This investment marks another key step toward fulfilling our pledge to devote greater capital to fund clean infrastructure and to support markets like South Africa on their path toward a just transition. This investment signals our strengthened relationship with South Africa and clearly signals Britain’s commitment to help accelerate economic productivity and inclusive growth for Africa’s green recovery.”
UK Minister for Africa, Vicky Ford, said: “South Africa’s target to generate 20GW of new renewable capacity over the next ten years is indicative of the country’s bold steps toward securing a net-zero future for itself. $16million of UK investment in H1 Capital demonstrates our continued commitment to remaining a strong partner for Africa, to help address the urgent climate challenge, and promote clean and equitable growth that will ensure African economies can build back better.”
“Investments like this reaffirm and follow on from the commitment we have made to South Africa’s low-carbon transition through the $8.5 billion multi-donor Just Energy Transition Partnership.”
Reyburn Hendricks, Chief Executive Officer of H1 Capital, commented: “H1 is excited to be able to partner with Norfund and CDC to achieve our purpose of improving the quality of lives. South Africa needs access to long-term, patient capital to develop the large-scale energy projects required for reliable, clean power supply and economic development. H1 hopes that the partnership fostered with Norfund and CDC can be replicated with other players and projects in Sub-Saharan Africa”.View more