South African government, Eskom seek more renewable capacity

South Africa's government launched its latest renewable electricity capacity solicitation and under-fire monopoly utility Eskom its first as decarbonization of the country's power generation sector took another couple of steps forward in recent days.

Unveiled 6 April, bid window 6 of the government's Renewable Energy Independent Power Producers Procurement Programme (REIPPPP) seeks 2.6 GW of capacity, of which 1.6 GW will be onshore wind projects and 1 GW photovoltaic solar. Bids are due 11 August and the solicitation is the latest in a series of government initiatives to diversify the coal-dominated generation stack and shore up overall supplies.

The requests for proposals (RFP) coincide with winning bids in the government's 2021 2.6-GW renewable power solicitation approaching financial close.

Meantime, Eskom on 12 April sought to attract developers interested in leasing land across some of its many sites for constructing renewable power generation. The company, whose creaking fleet of mainly coal-fired plant accounts for 86% of domestic capacity, has borne the brunt of criticism as load shedding—as rolling blackouts are known locally—regularly hamstrings segments of South African life and the country's economy.

Eskom is offering access to existing generation sites in Mpumalanga province—east of the country's administrative capital of Pretoria and bordering Mozambique—that already have transmission connections. It hopes as much as 4 GW of capacity can be added over time. Each facility where land will be leased will be limited to 100 MW of capacity.

The company said it hoped the leases could "give impetus to collaborative efforts to resolve South Africa's electricity crisis," although bidders only have until 29 April to submit their proposals. The RFP is part of Eskom's Just Energy Transition program.

This week's debut solicitation from Eskom comes with load shedding in the spotlight again.

Eskom's latest load shedding began at 5 pm local time (1600 GMT) 12 April and will continue through 5 am local time 13 April after three generation units broke down. The company said it currently has 4.8 GW of capacity on planned maintenance and nearly 14.5 GW of capacity shut due to unplanned repairs. South Africa's installed power generation capacity is just over 58 GW.

The RFP would increase security of supply for a grid and economy beset by the regular blackouts. Eskom first began load shedding in 2007, when it said the blackouts would continue for five to seven years.

Renewables aid creaking grid

Run by the Department of Mineral Resources and Energy (DMRE), the 6 April and 2021 RFPs are part of government plans to ease the pain of chronic power supply instability in Africa's third biggest economy by GDP.

The 2021 RFP known as REIPPPP bid window 5 attracted 102 bids from potential project developers, DMRE data revealed. Of the 102 bids, 63 involved PV projects and 39 onshore wind proposals.

A total of 25 preferred bidders were announced 28 October 2021. Of the 25, 13 were wind and 12 solar PV. The DMRE set a financial close schedule of six months. The ministry was unable to respond to Net-Zero Business Daily by S&P Global Commodity Insights inquiries 13 April on how many projects had reached financial close. A source close to the situation said some projects would miss the end of April deadline for closing.

Mainstream Renewable Power declined to say if the Irish pure-play renewables developer would meet the deadline, but is "firmly" on track to reach financial close for the 1.27 GW of wind and solar projects it won government approval for in bid window 5, a spokesman said 13 April. The group, controlled by Norwegian industrial group Aker, already has 850 MW of capacity online in South Africa that it bid into previous REIPPPP rounds, he told Net-Zero Business Daily.

The level of interest in last year's RFP exceeded expectations, and bidding into this month's solicitation is again expected to be oversubscribed, which could lead to even lower prices than those achieved in bid window 5.

South African National Energy Association Chairperson Kiren Maharaj told Net-Zero Business Daily 12 April many developers have projects that are ready to be bid into the RFP, adding that work on capacity for commercial and industrial power users is soaring too.

Fanele Mondi, CEO of Energy Intensive Users Group of Southern Africa, said in a 12 April email that the latest RFP could build on the back of a successful bid window 5. "We hope bid window 6 will be as competitive and deliver further reduction in prices while closing our grid energy deficit," he said.

The lowest successful bid into the 2021 RFP was 34 South African cents/kWh (2.34 US cents/kWh), while the average cost was 49 South African cents/kWh, which is 25% of South African Wind Energy Association (SAWEA) CEO Niveshen Govender's current residential power bill rate, he said during an interview with local media.

Mondi said the decrease in prices in the 2021 RFP was part of a wider trend. "Granted, the procurement program started at high prices but over the succeeding bid windows these prices have seen a dramatic decline," he said.

"We would like to see these lower prices drive towards a lower rate of increase," in Eskom's prices too, Mondi said. Prices for commercial customers more than tripled over the past decade, according to company data (see graph below).

Source: Eskom

Mondi added that the short lead times for adding generation capacity were to be applauded.

A further encouraging sign in the development of the solicitations was the addition of energy storage and ancillary services as part the program, Mondi said.

Bid window 5 was key for both established parts of the renewables sector and the emergence of new facets, sources say. "The opening of bid window 5 a year ago heralded the rebirth of the wind energy industry, following a hiatus of almost seven years," a SAWEA spokeswoman told Net-Zero Business Daily in a 12 April email.

And there is room to build on that, SAWEA CEO Govender said in a statement following the launch of bid window 6. "South Africa can address fundamental challenges of energy access, energy security and climate change through the deployment of renewable energy. We can harness our abundant potential of increasingly cost-competitive renewable energy to service the growing demand for electricity and avoid a potential fossil-fuel lock-in, in addition to local and foreign investment," he said.

S&P Global Commodity Insights expects 560 MW of new South African utility-scale solar PV additions on average annually through 2050 and 700 MW of new wind installations, along with more than 400 MW a year of residential and small commercial systems.

South Africa's government in September 2021 approved plans for a more ambitious GHG emissions target for the coming decade than previously expected in a submission to the UN Framework Convention on Climate Change.

The South African renewable generation push will not be unique in Africa. S&P Global Commodity Insights expects renewables to account for at least 35% of the continent's generation stack by 2050. Such changes are necessary because climate change affects Africa, especially Sub-Saharan nations, disproportionately.

Miners secure supplies

The government and state-owned enterprises aren't the only entities looking to add renewable electricity generation.

In March, top tier miner Anglo American signed a memorandum of understanding with France's EDF Renewables to develop a "regional renewable energy ecosystem" in South Africa.

That ecosystem—involving as much as 5 GW of wind and solar generation, as well as storage capacity—is expected to meet Anglo American's operational electricity requirements in South Africa through renewable electricity by 2030.

Anglo American is aiming for carbon neutral operations by 2040, and it said the EDF deal is designed to abate the largest single source of its Scope 2 emissions—South Africa. Scope 2 emissions refers to the emissions released through purchases of heat and power for its operations.

Also, in February, EDF's French rival Total Eren signed an agreement with African energy company Chariot to develop a 40-MW PV project in South Africa for platinum group metals producer Tharisa.

Silvia Macri, Africa and Middle East team leader with S&P Global Commodity Insights' Global Power & Renewables team, recently noted on the EnergyCents podcast that many mining companies, especially in remote locations, have been shifting to renewable generation from diesel in the past few months. A particular focus has been on hybrid solar and storage systems, she said.

Solar and storage are much cheaper than diesel generators, especially for remote locations, even if they are more expensive relatively than a larger fossil fuel-fired facility, Macri's S&P Global Commodity Insights colleague and energy storage specialist George Hilton added.

And as Mondi told Net-Zero Business Daily, these projects and those built under the government solicitations will not only stabilize the grid, but will also provide Eskom with the spare capacity needed to carry out the major repairs its generation fleet has long required.

Posted 13 April 2022 by Keiron Greenhalgh, Senior Editor

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.