Renewables industry weighs options ahead of power deals

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Outstanding power purchase agreements will be signed at the end of October.
Outstanding power purchase agreements will be signed at the end of October.

The renewable energy sector is pondering its options following the announcement that outstanding power purchase agreements (PPAs) for renewable energy will be signed by the end of October.

Industry body, the South African Photovoltaic Industry Association (SAPVIA), says preferred bidders selected in Rounds 3.5 and 4 of the Renewable Energy Independent Power Producers Programme will need to consider the various legal, financial and credit risk implications on their projects resulting from the minister of energy's recommendations in her statement of 1 September, before they are able to sign outstanding PPAs with Eskom.

Energy minister Mmamoloko Kubayi announced earlier this month that she would sign the PPAs relating to 26 large-scale renewable energy projects on 28 October.

The signing would, however, be subject to the independent power producers (IPPs) and the Department of Energy coming to an accord on various issues around price and the management of community trusts, says SAPVIA.

The minister has recommended a price ceiling of 77c/kWh for all bids in Round 3.5 and Round 4 and the viability of this is under consideration by preferred bidder IPPs.

"The minister also raised concerns with regard to the funding of the community trusts in these projects, and we believe that greater clarity over those concerns would assist in moving towards a resolution," SAPVIA notes.

Another industry body, the South African Wind Energy Association (SAWEA), recently told ITWeb that while the minister's announcement provides much-needed policy certainty, it is concerned the energy minister has imposed a condition, stating tariffs for the unsigned projects in bid window 3.5 and 4 should be renegotiated to under 77c per KWh.

"This condition, which requires tariff negotiating, is illegal in the Renewable Energy Procurement Programme's rules," the organisation says. "SAWEA is looking to the minister for guidance as to how this condition will be imposed."

SAPVIA says it will continue to do what is best for the solar PV industry and support the decisions of the individual preferred bidder IPPs once they have evaluated their positions and made a decision as to whether they are willing to proceed under the new conditions.

"We believe the majority of the IPPs are willing to offer more value and engage openly and honestly with the Department of Energy and the independent power producers' office regarding the minister's statement, but ultimately the decision lies with each of them individually," says SAPVIA programme manager Niveshen Govender.

"There are a number of issues that each of the IPPs involved in these rounds need to consider before proceeding with financial close. These include the obvious financial considerations of a lower price, the overall legitimacy of the process, and the risk of legal challenge after closure," Govender notes.

He points out it would be a "disaster" if the agreements were challenged after signing the PPAs.

This decision will also affect the more than 70 bidders in the expedited round who are waiting for official clarification around the status of those bids.

"We request DOE leadership to communicate with those projects who have been sitting in limbo for the past two years. If there is a decision to be made, it needs to happen soon because the validity of those bids expire at the end of September," Govender says.

Eskom and IPPs have been at a standstill over the signing of new PPAs for some years now.

The power utility has frequently lamented the cost of connecting the IPPs. This has led to a stalemate between the utility and the renewable energy industry. Eskom says, in the first six months of last year, it spent R6.64 billion to purchase 3 048-gigawatt hours of renewable energy at an average cost of 218c per kilowatt hour.

Earlier this year, the power utility said investments in renewable energy projects resulted in a net loss of R9 billion to the South African economy in 2016.

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