South Africa's IPP Office: falling short on balanced energy procurement
On Monday morning the Minister of Electricity and Energy, Kgosientso Ramokgopa, delivered his usually intense weekly energy action plan update. The key focus was on the planned additional renewable energy bid windows to be introduced. So far there are already nine renewable energy (RE) bid windows that have been procured and the plan is to build more renewable energy into the grid. Whether these bid windows have successfully delivered energy to the grid is another discussion.
Under the leadership of Tshifhiwa Bernard Magoro the Independent Power Producer’s Bid Office has been focusing on procuring dispatchable renewable energy solutions. Dispatchable energy is the correct strategy to adopt and a way to go in onboarding renewables onto the South African grid.
However, there is no need to build more renewable energy power projects that will end up sitting like white elephants powering nothing into the grid. Eskom is currently paying for renewable energy that does not generate any income into Eskom revenue coffers. The program has turned into a state subsidy scheme that serves no purpose except to raise costs and artificially balloon the price of electricity.
I say this in the light of a massive chunk of renewable energy projects that are currently stranded without grid access and a functioning transmission network. These projects cannot serve any commercial need because they have been built away from industry and out in the desert in the Northern Cape.
Ramokgopa’s energy action plan
What I truly find frustrating with Kgosientso's media energy action plan briefings is that he always delivers unscripted media briefs. There is no press statement articulating all the facts and claims made therein. Someone in his technical and media team needs to correct this error.
For instance in his latest update, Ramokgopa spoke about the levels of the energy availability factor, then mixed it up with re energy projects etc, and somehow got lost in his usual tutorial style explanations of the issues that needed to be communicated. These energy fundamentals and facts should be captured and presented into their contextual format.
Independent Power Producers Procurement Programme (IPPPP):
The Department of Mineral Resources and Energy’s IPPPP was established at the end of 2010 as one of the South African government’s urgent interventions to enhance South Africa’s electrical power generation capacity. The primary mandate of the IPP Office is to secure electricity from renewable and non-renewable energy sources from the private sector.
The IPP Office is designated not only to procure additional energy from independent power producers, but has also been structured to contribute towards achieving broader national development objectives of job creation, social upliftment and broadening of economic ownership.
The IPP Office's goals also include meeting the national commitment to transition to a low carbon economy; ensuring energy supply security; developing and growing smaller South African owned development companies.
However, most of its projects to date approved by the the IPP Office have only favoured renewables, largely ignoring other energy resources such as coal and gas, which means it is failing to fulfil its official mandate.
The priorities for the IPP Office are renewable energy procurement; non renewable energy procurement and advisory services.
1. Renewable Energy Procurement (REIPPP Programme): Onshore wind, solar PV, CSP (concentrated solar power system), small hydro, biomass, biomass, landfill gas and cogeneration (from agricultural waste/ by products)
2. Non Renewable Energy Procurement: Coal; cogeneration and gas
3. Advisory Services: Gas Policy Framework; Energy Solutions for the Future; Grid Development and Grid Code Enhancement; Regulatory and Legislative Aspects impacting on the IPPPP; Regional co-operation
In South Africa, IPPs are privately-owned entities that own facilities that generate electricity, which is then sold to utilities and end users.
The bigger picture
The government has a number of programs that involve IPPs, including the Renewable Energy Independent Power Producers Procurement Programme (REIPPPP), which is a public-private partnership that aims to develop sustainable energy facilities.
The Integrated Resource Plan (IRP) determines the energy resources required to meet the future energy needs in the next five to 10 years. The IRP draws a precise and consistent plan to be followed by the department responsible for energy and electricity. The IRP plan would also incorporate a plan to transition to a low carbon economy and ensure energy security at the same time. The IRP includes a target of 26030 MW of installed capacity from wind and PV resources by 2030. So far to date, over 13500 MW of renewable energy has been procured.
The IRP is guided by the Electricity Regulation Act (ERA Act), of 2006 and now the newly promulgated ERA amendment Act of 2024. Which in turn allows individuals and businesses to generate up to 100 MW of electricity without a license from the National Electricity Regulator South Africa.
If the IPPs were properly structured, according to market demands, the IPPs would have been important because they help address energy needs, mitigate against energy crisis, promote sustainable practices and foster economic growth and development.
Energy access
Eskom programs to roll out electricity to corners of South Africa has been a great initiative bringing electricity to remote rural villages in South Africa. But what the government misses to see as an opportunity is that IPPs can bring electricity and reduce the cost of electricity in rural and remote communities through mini-grid and off-grid projects.
But to achieve this the state needs to invest in supporting these projects to be constructed and operated successfully. This can improve living standards and economic activities.
Innovation and HELE:
By now, South Africa should have allowed legislation to open up the power generation sector, by funding projects in the High Efficiency and Low Emissions technology (HELE) through research and innovation. By simply encouraging creation Intellectual property (IP) giving much needed support so that IPPs can introduce new technologies and best practices that can lead to increased efficiency, reduced costs, and advancements in energy storage. We don't see any level of innovation hitting the IPP space. The only active objects have been on bid windows procurement only.
By now Eskom should be working with private sector and state research agencies to come up with technologies that would help with the coal industry in reducing emissions and lowering the carbon emissions from energy generation. South Africa is a heavily coal dependent economy.
IPP monitoring and evaluation
The IPP projects should be structured in a way that could directly benefit the economy. Has the current IPPs regime added any tangible value into the economy? Not to my eyes. There is currently no monitoring and evaluation matrix system that can account and quantify the level both economic development and economic transformation that has been achieved ever since the introduction of IPPs programme. Like Ramokgopa’s energy update, we need a more quantifiable accounting of outcomes of investment spent.
IPPs attract private investments, which can alleviate the financial burden placed on governments. So for example, if Eskom is the end buyer for the power by the IPPs, both multinational and local investors pump money into IPP projects. Multinationals are paid back their investment with a fat risk premium due to investing in Africa. This comes at a heft cost, inflating electricity prices. Foreign direct investment comes at a steep cost.
In South Africa, the government has brought in IPPs from the private sector to provide some of the new electricity needed to address the country's energy generation shortage, but leaving the government and Eskom with a long-term balance sheet burden. Eskom is paying a fortune at its own detriment in order to subsidise and finance IPPs through its revenues.
South Africa has achieved and surpassed its goals for renewable energy. It needs to stick to a realistic energy plan that is tailored specifically to South Africa that is both affordable and far sighted. To bow to global pressures on a just transition that will leave the nation poorer would be a mistake.
Crown Prince Adil Nchabeleng is president of Transform RSA and an independent energy expert.
* The views in this column are independent of “Business Report” and Independent Media.
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