South Africa's green power push falters as projects fail
18/07/2023 12:45
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Just half of capacity from 2021 bidding round to come
online
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Six projects of Ikamva Consortium fail to raise finances
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Six others never signed agreements
By Promit Mukherjee
JOHANNESBURG, July 18 (Reuters) - Nearly half of the
projects awarded under the re-launch of South Africa's renewable
power purchase programme have failed, two government sources
told Reuters, undermining plans to use wind and solar to ease
the nation's power crisis.
Regular breakdowns at state power utility Eskom's ageing
coal-fired plants mean the continent's most developed economy
faces daily planned power cuts. President Cyril Ramaphosa has
said the country needs to fill a 4,000 to 6,000-megawatt (MW)
electricity production deficit.
Following a six-year hiatus, South Africa held a bidding
round in 2021 for wind and solar projects that attracted
aggressive proposals from more than 100 firms and consortia.
"We had celebrated when the tariffs in the fifth renewable
round were announced," said one top government official directly
involved in the renewables programme. "It would have been the
cheapest renewable programme ever if all projects reached
financial close."
But he said the government now expects only half of the
2,583 MW in capacity anticipated following the auction to come
online.
Of the six entities that won the bidding round, one - the
Ikamva Consortium - secured 12 of the 25 projects on offer.
It is those projects, which Ikamva was awarded on the basis
of record-low tariff bids, that have fallen through, the source
and a second senior government official told Reuters.
"The problem with bid window five was that we put all our
eggs in one basket," the second official said. "You can't do
(projects) at such low tariffs. It's stupid."
Both sources asked not to be named as they were not
authorised to comment publicly on the matter.
South Africa's energy department, which oversees the
renewable rounds, did not respond to an email seeking comment.
The Ikamva Consortium includes Oslo-listed Aker Horizon's
AKH.OL Mainstream, South African billionaire Patrice Motsepe's
Africa Rainbow Energy & Power, local firm H1 Holdings and
Globeleq, which the development finance institutions of Britain
and Norway owns.
Ikamva's six wind power projects never signed legal
agreements following successful bids, the two sources said,
while six solar projects failed to achieve financial close
before a June 30 deadline.
Responding to Reuters questions, Ikamva said higher interest
rates, the increased cost of energy and other commodities, as
well as the slower production of equipment post-pandemic had
impacted its calculations.
These issues "have inflated the construction costs beyond
what the Ikamva Consortium ... is able to absorb in the Round 5
bid tariff," it wrote in response to emailed questions.
Other companies have found similar obstacles complicated
fundraising, and to date just nine of the total 25 projects have
reached financial close.
Four more projects - three belonging to France's Engie
ENGIE.PA and one from South Africa's Mulilo - have a financial
closure deadline of Sept. 30.
Engie and Mulilo did not respond to email requests for
comment, although the second government official said he
expected them to raise the funds needed to start construction.
Ikamva told Reuters that its projects were
"construction-ready" and it was in talks with the government to
find "an agreed way forward".
As private investors move to back projects aimed at boosting
power production, scarcity of transmission capacity has emerged
as a major constraint on South Africa's efforts to end the
energy crisis.
The consortium did not directly address a question about
what it expected would happen to the grid transmission capacity
allotted for its projects.
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South Africa's solar and wind tariffs over the years https://tmsnrt.rs/43ozB2E
Govt's fifth renewable power bidding round Govt's fifth
renewable power bidding round https://tmsnrt.rs/3PGGxBF
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(Reporting by Promit Mukherjee
Editing by Olivia Kumwenda-Mtambo, Joe Bavier and Barbara Lewis)
((promit.mukherjee@thomsonreuters.com; +27 10 346 1093))