THE FUTURE of ENERGY the Difficult Path to a Growing Economy Built on Clean Power

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Special Supplement 30 October 2018

THE FUTURE OF ENERGY The difficult path to a growing economy built on clean power

Sunset at BioTherm’s Aries Solar PV plant near Kenhardt in the Northern Cape. Photo BioTherm

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➲4 30 OCTOBER 2018 Special Supplement to Business Day CONTENTS

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NEWS AND VIEWS ABOUT THIS PUBLICATION 6 Introduction 24 BioTherm Energy This publication was produced by independent SA’s renewable energy was A South research house Intellidex, working in developed efficiently and African conjunction with Business Day. Our effort has been supported by a sponsor professionally in processes success story, BioTherm and various advertisers. However, the that were emulated around the editorial was developed independently by the world. Then it was nearly killed has three Intellidex team, working with Business Day off — but has survived. It is a operational which held final editorial control. The opinions plants from expressed are therefore theirs and not any of remarkable story. the sponsors’. the first bid window and Please let us know any comments by emailing 8 Forging a new energy path [email protected]. four to come on stream. It is also Things are back on track with expanding across Africa. the fourth wave of independent THE TEAM power producers being signed on 26 Enel Green Power and the draft integrated resource Editor: Colin Anthony With operations across the globe, Consultant: Stuart Theobald plan being published. But serious Enel secured five new projects challenges remain. Editorial contributors: Costa John, Mayo Twala in the recently signed fourth bid Graphic design, layout: Eleonora Del Grosso window. 10 What to do with Eskom? Proof reader: Heidi Dietzsche, Mayo Twala Advertising sales: Nigel Twidale, Cris Stock Changes are needed at the 28 Scatec Solar Administration: Tina Shika dysfunctional state utility — and Headquartered in Norway, Scatec Photographer: Christy Strever quickly. won three projects in the first two rounds of bidding and three in the 12 Xina Solar One fourth round. ACKNOWLEDGEMENTS With a five- This project would not have been possible hour thermal 29 Supply chain woes without the assistance of many people. energy storage Suppliers suffered severe financial The team would like to thank in particular: Karén Breytenbach, Desireë Otto, Maduna system distress as the delayed signing of Ngobeni, Beverley Roos, Marilize Scheepers using molten round four projects dragged on. and Elmarie Oosthuizen of the IPP Office; salts, the A priority now is to rebuild the Roger Quesada, Luxolo Twazi, Bongani Morika supply chain. and Andiswa Mosetlhi of Enel Green Power; concentrated Deliege Kapongo and Deon Pye of Mulilo solar power technology overcomes Prieska; Maxwell Sibanyoni of Adams Solar; the problem of intermittent 30 Africa’s green power drive Rudolph van Rooyen of Abengoa; Rafikh Renewable energy technologies, Ismael of Scatec Solar; Jasandra Nyker of supply: it is capable of producing BioTherm Energy. electricity day and night. with their falling costs, hold massive potential to electrify Africa. Published by Intellidex (Pty) Ltd for Tisa 14 Gibson Bay Wind Farm Blackstar Group. Using technology first developed 32 Hidden benefits 2,500 years ago supplemented by Intellidex (Pty) Ltd In remote modern advancements, today’s 1st Floor, Building 3, Inanda Greens Office areas across wind turbines are efficient Park, 54 Weirda Road West, Sandton, 2194 the country, generators of electricity. Tel: +27 (0) 10 072 0472 www.intellidex.co.za impoverished communities 16 Mulilo Prieska Tiso Blackstar Group have found Hill on Empire, 16 Empire Road, Parktown, South Africa’s sunny skies are their standards of living being put to productive use: the 2193, Tel: +27 (0) 11 280 3000 improving with the arrival of www.tisoblackstar.com plant produces 75MW from a wind turbines or solar panels. remote location in the Northern © Copyright Intellidex (Pty) Ltd. All rights Cape. 32 Onseepkans reserved. A case study of a remarkable 18 Across the country enterprise development project A double-page map highlights the along the Orange River. 27 new renewable energy plants to come on stream and marks 33 Western Cape energy hub the location of all those that are Armed with a special economic already operational. zone and financial incentives, the province is attracting renewable 20 Adams Solar PV2 energy businesses. ADDITIONAL COPIES With 611,100 PV panels forming Additional copies of this publication can be a splendid sheet of silver in the 34 The financing purchased by emailing [email protected] midst of the manganese belt, the Billions of rands have been 24 plant produces 75MW. mobilised to invest in renewables. 21169

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Introduction Standing proudly after a bruising ordeal

Colin Anthony

ambitions and a belief jobs of which 95% are for South African showing how billions of rands have been that the IPPs somehow citizens, mostly during the construction mobilised to invest in renewables. undermined them. The phase. The local community equity Finally, we look at the wider continent industry’s development shareholding in the 27 projects amounts where the renewables industry holds was stopped in its to 7.1% or R1.6bn-worth, and those so much promise. Many South African tracks. shareholders are likely to receive R5.9bn companies are doing business in the Today, the renewable in dividends over the 20-year lifespan of renewables space across Africa (page 30). Photo: Christy Strever energy programme is the projects. Another R9,8bn will be spent back on track but the on socioeconomic development initiatives iven the inability to distribute he environment in which Intellidex environment is starkly different. and R3.4bn on enterprise development electricity in rural areas across and Business day produced their Back then there was perhaps a naivety over the 20-year contract periods. Gmuch of Africa due to lack of Tfirst publication on renewable in the sense of achievement in that there Radebe’s next big achievement has been infrastructure, solar and wind plants energy in South Africa in 2016 is was little understanding of the extent of the publishing of the draft Integrated make for an ideal solution. Plants can be dramatically different to what it is today. damage a few corrupt people in powerful Resource Plan (IRP) 2018, again in the face built in remote areas at small scale and Then, excitement was in the air: a positions could cause in pursuing of resistance, this time spearheaded by supply power directly to consumers. Many new industry was being developed, nefarious agendas. Today that awareness the National Union of Mineworkers. That governments are committed to renewable new businesses were starting up as a is acute, honed by the near death of SA’s maps a path for South Africa’s energy energy programmes and are open to the result, foreign companies were pouring renewables industry. future and instils a sense of certainty in private public partnerships that can make investment into the country. the industry. Investment decisions can be them happen. Asked if their state-owned, Pride was also prevalent. From a base ow, there is a growing sense of made accordingly. monopolist power utilities wouldn’t of zero, 6,800MW of energy capacity had confidence at having overcome The main focus of this publication feel threatened by the competition, one been procured through four bid windows, Nthose travails. Having been so is on the future of energy in SA. It’s an industry source said pragmatism was with a third of that already contributing close to the brink, things are up and exciting time: the IRP opens the way for prevailing. Neither the utilities nor the to the grid. For the first time, significant running again. But there is cautiousness independent power producers within governments have the balance sheets to amounts of power were being generated too; an awareness of how quickly things coal and gas, introducing new elements of take on such projects and the governments by independent producers. State utility can change, of how close the industry competition for Eskom. Indeed, the future recognise that they need private sector Eskom still holds a strangling grip on came to being permanently stunted. The structure of Eskom is pivotal to the future involvement. SA’s energy sector, but a chink had been excited teenager has matured into a more shape of the industry, and we explore This publication, in a small way, has cleaved out of its monopoly. world-weary adult, albeit one whose options that might improve operational followed the travails of the IPP industry The process had been conducted confidence in its abilities has been honed efficiency and financial sustainability over the past two years. Plans to produce professionally by the IPP (Independent by its past successes, both in developing (page 10). And the renewables industry a second edition in 2017 were scuppered Power Programme) Office, a unit jointly an efficient industry and in overcoming its itself is ever-evolving, with technological by the delayed signing of round four set up by the energy department and political struggle for survival. advancements and falling costs making it a projects. However, that is insignificant National Treasury. Extremely strict “When we started with renewables we compelling solution to the ever-increasing compared with the anxiety and trauma security protocols and levels of efficiency just jumped in and swam,” says Karén urgency with which planet Earth has that the industry players themselves had that are not exactly the hallmarks of Breytenbach, who as head of the IPP Office to address the consequences of global to endure. The IPP Office itself had to cut other governmental departments won has overseen the entire renewable energy warming. back to a skeleton staff contingent and, the IPP Office high praise. That, and process. “Now we know; we have learnt. right up until the outcome of the ANC’s the falling prices that resulted from the We need to be ready for what is coming, elective conference at Nasrec in December auction process in which IPPs bid for not just jump in.” Now we last year, believed there was a strong prices at which they will supply electricity Much of the credit for rejuvenating know; we possibility of being shut down. to Eskom, produced the sincerest form the renewables programme can go to “ We offer our heartfelt thanks to the of flattery: countries across the globe Energy Minister Jeff Radebe. He wasted have learnt. IPP Office, not only for the support

emulated the IPP Office’s processes. little time in getting Eskom to sign the it has provided us in producing both Mike Peo, Nedbank’s infrastructure round four procurement agreements with We need to editions, but also for its resoluteness and

head, said at the time: “There’s no the IPPs, notwithstanding continuing determination to get the job done. In the question about it: at every international resistance from the utility – which be ready end it has achieved that. conference on energy, SA is being widely introduced an element of absurd hilarity. “ While the IPP Office is a sponsor of this acknowledged as having the most Last-minute court applications failed to for what is publication, the content was produced successful renewable energy programme stop the process but Eskom continued coming, not entirely independently and credit to it ever undertaken.” to prevaricate and delay, right up to the for not even attempting to influence the That first publication celebrated signing ceremony. First they said they just jump in editorial. However, its staff have offered this success. It remains a remarkable had no mandate to sign, which was us much support when needed and our achievement for a country beset by so immediately dismissed as nonsense. Then thanks go to the team members who so many socioeconomic problems. As we they tried to renegotiate prices and were The visual element is again an important willingly – and cheerfully – gave up their were going to print with it, however, there again rebuffed. Finally, at the signing feature of this publication. We visited time to assist us. Many others also assisted were already rumblings from discontented ceremony, the appointed Eskom official renewable energy plants that have sprung with producing this publication, including quarters. Eskom started raising various shifted in his seat patting pockets, saying up since our initial publication and carry many at the IPPs themselves, from plant objections to signing the power purchase he couldn’t sign as he had no pen. The photo essays of a handful of them. We also managers who took our journalists and agreements with the IPPs from round minister, with alacrity, produced one from look at future projects: those that suffered photographers around to executives who four, confusing its own financial his jacket pocket. from the delayed singing of round four. agreed to interviews, and our thanks go to difficulties with the financing of the Those 27 round four projects, Radebe We tell the stories of the IPPs accompanied them too. IPPs. Its objections, despite contradicting announced at the signing, will inject R56m by images of their existing projects. As always, we’re interested in hearing cabinet-level decisions, created serious of new investment into the economy, put Intellidex chairman Stuart Theobald your thoughts and feedback on the delays. Compounding the issue was downward pressure on the end price of focuses on the financing structures (page publication is welcome. then-president Jacob Zuma’s nuclear electricity and provide 61,600 full-time 34) involved in the IPP programme, Email [email protected] ■

➲8 30 OCTOBER 2018 Forging a new energy path After developing so quickly in a process emulated globally, South Africa’s renewable energy industry has survived a near-death experience. Formidable challenges remain. Colin Anthony

which prices they will supply electricity to he mood in the renewable energy IRP 2030 targeted energy mix industry in South Africa is buoyant Eskom, resulted in prices falling to as low Current Total installed by Installed – things are back on track –but the as 62c/kwh for solar and wind in the latter T bid rounds. That dramatically undercuts (MW) 2030 (MW) capacity mix (%) scars from an agonising delay in signing Coal 29,126 33,847 44.6 off on planned new projects are still raw. the cost at which Eskom’s new coal plants The three-year delay was a shock will produce. But it also resulted in a race Nuclear 1,860 1,860 2.5 after five years of rapid development. to the bottom, with margins so thin there Hydro 2,196 4,926 6.2 are questions about sustainability. IPPs The industry seemingly sprang up from Solar Photovoltaic (PV) 1,474 7,958 10.5 nowhere, with the first plants being are now saying it is time to change to a Wind 1,980 11,442 15.1 commissioned in 2012. Over the last five feed-in tariff system in which prices are years, in a process admired and duplicated fixed for suppliers, providing them with Concentrated Solar Power 300 600 0.9 across the planet, it has generated 24,913 a reasonable margin. That will enable (CSP) gigawatt hours of renewable energy, them to improve their financial stability Gas/diesel 3,838 11,930 15.7 and develop into businesses that are enough to power 750,000 houses for that Other (co-generation, biomass, 499 499 0.7 period. sustainable over the long term, enabling landfill) Over the course of four successive them to grow, employ more people and rounds of auctions, beginning in 2011, improve the support they provide to their on the South African market failed. While Jasandra Nyker, CEO of SA-based project private power producers bid on the price at suppliers, helping to develop that market some stand a chance of being resuscitated, developer Biotherm Energy. “I’m referring which they would sell electricity to Eskom. segment too. That idea will be resisted: the manufacturing segment “died”. As to a renewables programme being rolled With each round, prices fell dramatically the auction system was designed after time went on after round four winners out in a timely manner with a consistent as competition heated up. But then it came government obtained legal advice that a remained unsigned, “there was no frequency where timelines are adhered to. close to being killed off entirely after the feed-in tariff violates the constitutional indication that we would sign. We tried So in the first three rounds it was all good, fourth round was put on hold, even though requirement for government procurement and failed and tried and failed, so all of they were held annually and essentially the auction had been concluded. to be competitive. those jobs are gone.” resulted in an industry being developed. Now it has come back to life, under The low margins for IPPs extend to She says it is not feasible to manufacture But the delay on round four has really a new cabinet appointed by president the entire value chain linked to the IPPs. just for the South African market. “You damaged the industry. That’s where the Cyril Ramaphosa. Had a few more votes Many suppliers were exactly the type of need to export. You need to do things unhappiness is.” gone the other way at the ANC’s elective business the government wants to develop where we have a comparative advantage. She says IPP developers have to look at conference at Nasrec in December, it may and the country so desperately needs to We shouldn’t do PV panels – you can’t the bankability of large, capital-intensive never have been resuscitated. Now the be successful: small black-owned start- compete with China. But there are areas projects, ensure the technology is bankable challenge for the industry is to recover ups. Typically, such businesses need debt where we are competitive such as valves and that suppliers will be around for a from the delays. financing with the repayments slicing and transformers. So there are things we long time – the latter needed to ensure that The renewable energy independent another sliver from profit margins. And can do in SA and should be doing, and in the IPPs’ warranties are meaningful. power producers’ programme (REIPPP) many suffered the concentration risk of difficult times you should be able to scale Nyker believes that while the auction was born when former president Jacob having only one client. With the delay in down and still survive.” system was successful in lowering costs, Zuma committed the country to introduce signing on round four projects, suddenly Rebuilding the supply chain now needs it is time to change to a feed-in tariff renewable energy into its energy mix in there were no more orders. Businesses to be a priority (see page 10). To achieve system. “That’s the only way, I feel, that a big way in 2009 during the Congress of crumbled one after the other. that – along with developing the renewable we are going to leverage the potential of Parties (COP) 15th summit in Copenhagen. Karén Breytenbach, head of the IPP energy industry to its full potential – renewable energy in order to develop a By 2011, when South Africa hosted COP Office, says businesses that banked only government consistency is needed, says sustainable sector. We’re at a point now 17 in Durban, the country was ready to announce the first successful bidders. That was the culmination of months of frantic work in the background, led by a unit put together jointly by the energy department and National Treasury that is now called the IPP Office. The programme was a major success until it got caught up in politics around a purported nuclear build and Eskom’s own new build issues. The success of Ramaphosa at the ANC’s December 2017 elective conference broke the logjam, allowing the programme to proceed with its fourth round. Things now appear to be back on track. Still, the programme faces formidable challenges. The National Union of Mineworkers (NUM) is gearing up for concerted protests after the draft integrated resource plan (IRP) was published in August. It targets a total of 20,000MW for wind and solar by 2030, making up 26.5% of the total energy mix. The union argues that this will wipe out jobs in the coal sector and it is determined to overturn the decision. Other challenges come from within. The auction-based system, in which independent power producers (IPPs) bid at 30 OCTOBER 2018 9 ➲

where prices are highly competitive as until 2025. So, it makes sense to bring the help reduce emissions. Another important equal electricity but includes oil, gas a result of holding auctions. Set a feed- solar and wind procurements and spread aim of the energy policy document is and nuclear) is facing two transitions. in tariff that is highly competitive but them out evenly, starting with round five to reduce the price of electricity for First a “tsunami of change” in terms of one that will enable the local industry to procurement next year.” consumers. Eberhard believes it has the technology is taking place. A wave of new flourish.” Despite the draft IRP’s outlook, Energy potential to deliver on that. “The objective technology is coming in, he says, including She points to the diverse range of Minister Jeff Radebe announced at the function of the IRP model is the least-cost cheap renewable power generation, benefits flowing from the renewables signing of the round four agreements system mix to meet a specified reliability blockchain, Uber, Ride Share, electric industry, including addressing black skills that a fifth round of bidding would be standard. The least-cost mix also has the vehicles, digitisation, many others and the development and other socioeconomic held in November this year, but most best environmental profile and meets SA’s fourth industrial revolution. problems in the country. “If you’re trying commentators believe this will be delayed climate change mitigation targets,” he says. Second is the global move to to push so many levers with one industry until after the elections. The minister However, the introduction of coal decarbonisation of energy. He refers to – which in the operational period does failed to respond to questions on this and IPPs does not fit the least-cost model. Standard Chartered Bank’s recent position not offer that many jobs – it is difficult to other issues. “The energy department forced in two statement that it would “no longer directly continue to compete and ensure the local Radebe has achieved much in a short coal IPPs that were procured through a finance any new coal-fired power plant supply chain can flourish through meeting space of time. He was appointed energy competitive tender but have not yet signed projects, including expansions, in any local content targets. minister in February this year. Two power purchase agreements with Eskom location”. The bank said: “As a key part of With that kind of certainty, IPPs, their months later, he ended the punishing or reached financial close. The least-cost our mission to be here for good, we only suppliers and numerous other players impasse, forcing Eskom into signing the IRP case does not pick any more coal or provide financial services to clients who could build sustainable businesses. power purchase agreements with the nuclear,” he says. manage their environmental and social The delays, she says, hit the suppliers winners of the fourth round auction that The IRP’s plan to develop gas into a impacts responsibly.” This would threaten particularly hard because often they have it had resisted for two years. In August he meaningful player in the energy mix, “is the two coal IPPs, Thabametsi and Khanyis only one product. “That’s the issue: it hits finally published the draft IRP, taking the part of the least-cost mix and complements – and they may also face legal challenges local black businesses the hardest. They first step towards a coherent and agreed the variability of solar and wind energy”. from environmental groups. don’t have a balance sheet and are living plan for future energy supply, no mean Eberhard says the gas plans are viable from project to project.” feat given that the document was caught and attainable for SA. “Many countries In response, the IPP Office says the lower in the political machinations of Zuma’s have achieved this through liquid natural prices from the auction system result in drive for nuclear power development. gas imports or exploiting their own The more improved economic development impacts The IRP, when it is approved by resources.” SA, he says, has still not “ for society and market participants have cabinet, will change things. First, it brings exploited potential shale gas resources continued to show significant interest, certainty to the renewable energy sector. which could be accessed through the competition “while their confidence is entrenched by Second, that certainty means a supply controversial process of fracking. Gas can policy certainty in the future rollout of chain can be built up again with a focus add important flexibility to the overall there is, electrical energy capacity”. The IPP Office on developing more sustainable business power supply system. It can be switched has also already introduced measures to models. Third – and let’s not forget on and off relatively quickly, so it provides bring uniformity to socioeconomic and that this is what it’s all about – South an important backstop to solar and the better enterprise development initiatives. Africa will go a long way to reducing wind energy which depend on weather

Rebuilding the supply chain faces its carbon emissions: it committed to conditions. The IPP Office is now gearing it is for the another problem. Dr Anton Eberhard, cutting emissions by 25% by 2020 at the up for a similar auction-based approach to emeritus professor at the University of Copenhagen climate conference. That purchasing power from gas IPPs. consumer The energy department is finalising its Cape Town where he directs Managing situation has become more urgent with “ Infrastructure Investment Reform the recent release of a report by the UN gas utilisation master plan (Gump) as a Regulation in Africa at the Graduate School Intergovernmental Panel on Climate basis of supporting the objectives of the and the of Business, points out that the IRP only Change warning that there are only 12 IRP. Breytenbach says the gas programme schedules the next tranche for solar and years for global warming to be kept to is still in the conceptualisation stage. economy wind from 2025. “This would be disastrous a maximum of 1.5°C. Beyond that, it “SA does not have the gas available for localisation, local manufacturing and says, even half a degree will significantly right now and is looking to source from jobs,” he says. “For example, a wind tower worsen the risks of drought, floods, Mozambique and LNG imports. We need factory was forced to close with the delays extreme heat and poverty for hundreds of to have infrastructure to bring gas to those Along with those two transitions, in round four. It will now reopen but millions of people. [approved IPP] plants and that will come Crompton says, customers are “voting will almost certainly have to close again The IRP’s increased allocation to at a cost.” with their feet” as electricity costs rise. (perhaps permanently) with the hiatus renewables in the energy supply mix will She hopes that the gas project will “Manufactures are using their own power create a market for further drilling and stations; office blocks are going partly off- exploration. “Gas is a very good energy grid with solar PV and the like. The whole What the REIPPP has achieved source. As a country we don’t use our thing is very dynamic and shifting by the so far: energy in the right way. Most of the time day. So it’s hard to say if we have a supply- • 6,422MW of electricity have been we use electricity for everything, or coal.” demand imbalance – it depends on price. procured from 112 IPPs. Gas she says, would be more efficient. The price moving off-grid is dropping but “We’d use gas for the right reason and use no one knows how far it will go. • 7.776MW of electricity generation electricity where it is required.” “What we do know is that Eskom’s sales capacity from 621 IPP projects have Eberhard says solar and wind energy have been flat or declining over the past been connected to the national grid. have broken through and are now the five years. How much of that is attributable to the low economic growth rate and how • 24,913GWh of energy has been cheapest sources of electricity in many much to price requires urgent study.” generated by renewable energy souces. countries. “It makes sense to maximise their contribution and then build the He emphasises that the modern-day • The REIPPP has attracted investment rest of the system around them with consumer demands choice. “Yet our old- (equity and debt) valued at R201.8bn, of flexible resources such as gas, storage and fashioned electricity market is like Henry which R48.7bn is foreign investment. demand-side management to fill in the Ford’s when he said, ‘you can have any troughs and guarantee reliability. Many colour car as long as it’s black.’ • The REIPPP has created 35,702 job years traditional engineers (who were schooled “The more competition there is, the for South African citizens. in baseload supply supplemented by better it is for the consumer and the peaking power) find this concept of solar economy.” • The programme’s contribution to + wind + gas hard to accept, but it’s the Crompton points out that the 2003 white socioeconomic development initiatives utility of the future and will provide least- paper on renewable energy requires the totals R573.6m. cost, reliable electricity for all.” most efficient technologies to be used. “I • Enterprise development contributions Dr Rod Crompton, director of the take that to be the lowest-cost producers.” total R188.8m. African Energy Leadership Centre at Because of this, he says the IRP is flawed in Wits Business School, points to important that it does not follow government policy • Emission reductions of 25.3 million contextual changes. “If you look at what’s because it selects specific technologies. tonnes of carbon dioxide have been happening in the background, the energy With the economy struggling to attain realised. sector (which he emphasises does not growth, he says, SA needs intermediate ➲10 30 OCTOBER 2018

direct jobs in for example coal mining. 30,000 jobs will be lost in the coal mining The rapidly falling cost of renewable energy It’s about jobs in the entire economy; the industry. Radebe, however, maintains entire economy consumes electricity, the job losses in coal were because mines across the four bid windows (BW) in businesses, in homes. If electricity were coming to the end of their lives. prices fall the consumer will have more “The 30,000 jobs lost because of the IPP Prices in April 2016 terms disposable income to spend, which renewables programme: that perception boosts the economy. If manufacturers pay is wrong,” he told Parliament’s portfolio Solar photovoltaic price trend Onshore wind price trend (R/kWh) (R/kWh) lower electricity prices, they’d be able to committee on energy in May. “The IPP produce their goods cheaper and be more has nothing to do with job losses in the 60% competitive globally. That’s where to look coal sector. They were not established as a for jobs.” competition.” 3.65 That, of course, puts Eskom centre stage. The NUM is also arguing that electricity 21% 75% decrease 50% decrease Even if the state utility is put on a sounder from renewables is more expensive than management footing and corruption is coal. However, that pertains only to the 46% 1.51 27% dealt with, it remains financially unviable first two bid windows and the union with costs exceeding revenue. The fact that is silent on the fact that the in the latter 2.18 1.19 14% municipalities owe it more than R20bn and rounds the prices were far lower than coal. 22% yet it is unable to recoup that money says Questions on these issues to the NUM 0.87 enough. A restructuring is needed and the were not answered. 0.75 longer the status quo is maintained, the Furthermore, the IPPs that secured 1.17 more damaging it will be to consumers contracts at the high prices are coming 0.91 and the economy as electricity tariffs keep under concerted pressure to reduce those escalating. (See accompanying article: prices. Only one has done so but the BW1 BW2 BW3 BW4 BW1 BW2 BW3 BW4 Changes needed at Eskom.) pressure on the others will be cranked up, Source: IPP Office Crompton says that a recently published an industry source says. The argument book by Tobias Bischof-Niemz and is that SA cannot live with those high Terence Creamer, South Africa’s Energy costs for the remainder of their 20-year inputs to be as cheap as possible. “I would was to use energy as a catalyst to reignite Transition, has shown that switching contracts. prefer it if we just talked lowest-cost growth in SA. Crompton, who previously electricity production from coal to The REIPP programme has the potential producers and didn’t specify a preference served on the board of the National renewables yields more jobs than the to achieve a trifecta of wins for South for one technology over another.” He Energy Regulator of SA and was a deputy current coal-based setup. There are more Africa: lower cost energy, lower carbon points to prices in the early bid windows director-general at the department jobs in the renewable energy industry than emissions, and employment. With the of the REIPPP, coming in at about 400% of minerals and energy, says the way coal mining. “The inclusion of coal may be political will once again back to support of Eskom’s average tariff for some that could happen would be to avoid based on the mistaken impression that coal the programme, difficult issues such as technologies. “That’s what happens when trying to pick “winners” (technologies). is more labour intensive than renewables, restructuring Eskom and finalising the IRP you pick the technology.” “Aim to deliver electricity as cheaply as which is apparently not the case.” will need to be managed in order to ensure Radebe has said the government had possible. If the concern is about jobs and That undermines the NUM’s main the REIPPP maximises its potential. The one purpose in finalising the IRP, which job creation, it’s not just a question of argument against renewables – it says country would be the ultimate beneficiary. ■

Changes needed at Eskom — and needed soon

Phibion Makuwerere bills for its Standerton operations to the municipality, power producers, which can produce the electricity challenged that. The North Gauteng High Court ruled at a more competitive cost – a model already in place s there a case for splitting Eskom into three that Astral had to receive uninterrupted supply – and through the IPPs. Eskom can make money from distinct entities – generation, transmission, and Eskom had to pay all legal costs. charging a transmission fee. Idistribution? I think there is, though doing it is Research conducted by the World Bank in some At this stage it seems viable for Eskom to retain both going to be an issue of major political contestation African and Latin American countries makes a transmission and distribution functions. Removing and doesn’t always work to reduce costs. There are strong case for improving efficiencies at electricity municipalities from the value chain will be difficult plenty of examples around the world that prove it. utilities. It found the modus operandi for achieving politically but also legally: the constitution gives The generation unit in particular, which has been efficiencies has been, first, to execute some form of municipalities the right to distribute electricity. expanding its cost base far ahead of revenue, lends operations-splitting (into generation, transmission Some municipalities rely heavily on electricity itself to being hived off as a separate entity. and distribution), and then privatisation. It found that distribution to generate revenue, which they use to The reality is that Eskom has let its operating costs utilities that had done that showed improvements in subsidise other municipal expenses. Statistics SA, get out of hand. Its primary energy costs have risen labour productivity, efficiency and product/service using 2013 financial year numbers, demonstrated how from 24% of its top line in 2003 to 47% in 2017. The quality. the financial viability of many municipalities could be IPP programme initially had the effect of raising the Against this backdrop, disposing of the generation severely compromised if the electricity retailing role cost of generating electricity because power purchase assets makes sense. Then alternative models for was removed. The situation is exacerbated by the fact agreements from the first bid window were as much transmission and distribution can be tried. They could that many municipalities do not expend any capital as 400% of Eskom’s average tariff. But even if you take possibly remain in one entity, but with municipalities towards distribution infrastructure. those costs – which have fallen since the initial bid removed from the value chain. Another option could be Whatever option the government goes for, it cannot window – out of the metric, it is still high, at 36% of to resurrect the now abandoned consolidated regional wait any longer. Electricity is consumed by all elements revenue. electrical distributors (REDs) that were proposed in of the economy: consumers, households, businesses, The distribution component has sections that the 1998 white paper on restructuring the electricity factories, mines. The damage to the economy due to the are already divorced from Eskom, run by various municipalities. This model is cost-inefficient, industry. dramatic increases in electricity costs over the past few particularly for the consumer who has to cover a In 2003 the government established EDI Holdings years is immeasurable. margin charged by those municipalities which has as a subsidiary responsible for the distribution of To highlight but one example that shines a light become a key source of local government funding. electricity. It planned to establish about 180 municipal into a sliver of the economy: a paper by the Centre for Furthermore, numerous municipalities fail to remit and six Eskom electricity distributors into six regional Competition Regulation and Economic Development revenue back to Eskom, making Eskom’s financial electricity distributors (REDs) to serve the entire showed that the high cost of electricity between 2007 position more precarious. The Eskom board told country. However, the plan fell apart largely because a and 2016 saw about 100 out of 265 foundries shut down parliament’s portfolio committee on public enterprises required constitutional amendment (Constitution 17th due to high electricity costs, which form an important in April that municipalities owe Eskom a total of Amendment Bill) stalled. The motivation for creating part of their cost structure. R13.5bn. the six REDs was to build enough capacity in terms That clearly goes against Eskom’s mandate of Eskom’s ability to recoup municipal debt was of scale, finance and skills to ensure the orderly and ■ severely hampered by a court case involving chicken promoting economic growth. producer Astral last year. Eskom wanted to cut equitable supply of electricity to the whole country. ■ Makuwerere is an Intellidex financial analyst who wrote off supply to the Lekwa municipal region for non- The impetus for the restructuring was to use an MBA thesis on a business plan solution for Eskom’s payment but Astral, which had paid the electricity transmission assets as a platform to plug in private waning electricity sales volumes. 11 CORPORATE PROFILE: The Development Bank South Africa

The Development Bank of Southern Africa (DBSA) originates, ergy. Of this investment, around 80% emanated from the private sector with approximately prepares, leads and finances infrastructure integration and de- R50 billion coming from foreign direct investment. velopment projects. As a development finance institution (DFI) The bank played a significant role in the establishment of the Renewable Energy Indepen- its mandate is to promote economic and social development dent Power Producers Procurement Programme (REIPPPP), which has successfully chan- including alleviating poverty, and creating jobs and wealth by nelled substantial private sector expertise and investment into grid-connected renewable mobilising financial and other resources from both private and energy in South Africa at competitive prices. In 2010 the bank signed a memorandum of public investors nationally and internationally to enable sustain- understanding with the Department of Energy and National Treasury and served as the pay- able development projects both in South Africa and on the Afri- ment gateway for REIPPPP and provided local debt funding to the projects in order to facili- can continent. tate black economic empowerment (BEE) and community participation in the deals. Its priority is to generate a developmental impact return as op- posed to a commercial rate of return, both locally and and on the LANGA continent – but particularly in the SADC region - by expanding In South Africa the DBSA has been involved in a number of renewable energy projects access to development finance while at the same time integrat- including the Ilanga CSP1 project, a 100MW concentrated solar power plant situated in ing and implementing sustainable infrastructure development. Karoshoek, near Upington in the Northern Cape. The plant’s position allows it to benefit “We see the bank as playing a dual role,” explains Lucy Chege, from some of the best solar resources globally. With capacity to store energy for 4.5 hours, Head: Energy, Environment and Information Communications the plant will be able to provide solar generated thermal electricity both day and night to (ICT) at the DBSA, “both in terms of providing project prepara- around 80 000 households. The project has created in the region of 1 800 jobs during the tion support where we work with governments and project spon- construction phase and is anticipated to make a significant contribution to socio-economic sors to help facilitate projects, as well the more traditional role development projects in the region over the next two decades. of providing project financing to enable projects to succeed and The utility is the first phase of a significantly larger envisaged solar park complex. Share- be sustainable.” holders in the project include Emvelo Holdings, the developers of the project, as well as the The bank’s strategy, as a DFI, is to increase its developmental Industrial Development Corporation, ACS Cobra, the DBSA and a local community trust. impact by creating opportunities for public-private partnerships Members of the surrounding townships will be beneficiaries of the community trust. and to leverage their own balance sheet by assuming institu- The R11 billion project, which reached financial close in February 2015, is currently- un tional risk. Despite the fact that the DBSA’s balance sheet is just der construction. The DBSA provided project preparation funding for the development of a R80 billion, the organisation has set itself ambitious targets of bankable feasibility study and is the mandated lead arranger and underwriter for senior debt catalysing R100 billion worth of infrastructure projects by 2020. on the project, alongside other local commercial banks. Essentially what this entails is leveraging private capital using its own balance sheet in order to successfully enable more in- WEST COAST ONE WIND PROJECT frastructure projects. The bank then implements a cost-recovery Lucy Chege, Head: Energy, Environment A 94MW wind farm located 130 km north of Cape Town, the site for West Coast One was and Information Communications (ICT) model with the emphasis on sustainability and developmental approved in 2012 as part of REIPPPP. The project was conceived in 2007 in financial part- at the DBSA impact. nership with Investec. Current shareholders of the plant include Investec, ENGIE (formerly GDF SUEZ, France), Investec, Kagiso Tiso Resources and a local community trust. Project REGIONAL INVOLVEMENT construction began in 2013 with commercial operations commencing in June, 2015. The construction phase of the $246.4 million project created 600 jobs. A local community trust DBSA is involved in a number of transboundary projects on the African continent, a number owns 2.5% of the project, with the benefits intended to support and develop the local com- of which are in the renewable energy space. These include the Southern Africa Power Pool munity. project (SAPP), which all members of SADC – with the exception of Mauritius – are signa- tories to. The DBSA provided funding for the BEE and local community trust and is the underwriter for SAPP aims to facilitate the development of a competitive electricity market in the SADC senior debt on the project alongside local commercial banks. region, provide the end user with a choice of electricity supplier, and ensure sustainable energy development through sound economic, environmental and social practices. In addition JASPER SOLAR POWER PROJECT to providing a forum for the development of a world class, robust, safe, efficient, reliable and The fully operational 75MW Jasper Solar Power Project, situated in Postmasburg in the stable interconnected electrical system in the region, one of SAPP’s specific objectives is to Northern Cape, completed construction in October 2014. The project produces approxi- implement strategies in support of sustainable development priorities. mately 180 000 megawatt-hours of energy, sufficient to power around 80 000 homes. It is The membership of SAPP is made up both power utilities in member countries as well as situated adjacent to the Lesedi Power Project and Solar Reserves Redstone CSP Tower independent power producers and transmission power companies. project which offers integrated storage. The challenge faced by many countries in the region, reports Lucy Chege, Head: Energy, Shareholders of the project include SolarReserve, which partnered with local empowered Environment and Information Communications (ICT) at the DBSA, is that many countries rely infrastructure investors including the Public Investment Corporation and Kensani to develop on their utility provider to ensure power purchase agreements for projects are bankable but a large-scale photovoltaic solar energy projects. The project was awarded by the Depart- as a result of financial constraints, currently some of the utilities are not in position to do so. ment of Energy in the second round of bidding under REIPPPP and included a financial Some countries have an over-supply of independent power producers, and need to turn investment from Google, the latter’s first renewable energy investment in South Africa. The their focus away from power generation to transmission. “Through SAPP the intention is to DBSA provided BEE and local community trust funding and has underwritten senior debt strengthen the transmission network between SADC member countries so that countries alongside local commercial banks. with an over-supply of power can supply neighbouring countries with power,” she reports. Ethiopia, for instance, is one country which has the potential for an over-supply of energy. LEARNINGS The country embarked on an ambitious renewable energy programme more than a decade According to Chege, the DBSA – as well as other stakeholders – have come a long way ago and currently generates the bulk of its electricity from hydropower with wind and geo- since 2010 in terms of how they assess projects renewable energy projects, ensure their thermal energy generation facilities to offset seasonal differences in water level. bankability and attract investment. “The industry has become significantly more adept at facilitating projects,” she reveals. Ghana, meanwhile, has implemented plans to promote large-scale solar and wind projects. The country has signed a number of power purchase agreements as well as reviewed its “One of our biggest learnings has been the importance of ongoing, consistent community Renewable Energy Act in order to attract investment to renewable energy programmes. engagement in order to manage expectations,” she reveals. “Ultimately, each project’s sustainability is key and to ensure that, local communities must be involved.”

ITHEZI-THEZI HYDROPOWER GENERATION PROJECT The 120MW Ithezi-Thezi power project is situated on the Ithezi-Thezi dam, which was initially constructed to serve as a reservoir for the Kafue Gorge power station. The first public private partnership in the power sector in Zambia, the hydro power plant was seen as a way to alleviate the country’s power deficit in the late 2000s. The project is owned by Indian power company, Tata Power and ZESCO, a Zambian power utility on a 25-year build-own- operate-transfer concession term. The DBSA provided project preparation funding for the development of a bankable feasibility study and is a co-financier of the project.

CENPOWER GHANA DBSA was a co-financier for Ghana’s 340MW combined cycle gas to liquids power plant. The Cenpwer Kpone Independent Power Plant (KIPP), situated close to Ghana’s capital, Ac- cra, came on stream in 2017. It accounts for approximately 10% of Ghana’s total installed capacity and approximately 15% of its available thermal generation capacity. A combined cycle gas turbine plant, it is Ghana’s most fuel-efficient thermal power station.

PROMOTING SA’S RENEWABLE ENERGY PROGRAMME The DBSA has been instrumental in supporting South Africa’s renewable energy programme. The bank played a catalytic role in the programme by providing funding of R80 million which unlocked over R200 billion worth of investment as well as around 6,000MW of renewable en- ➲12 30 OCTOBER 2018

Photo Essay: XINA SOLAR ONE The power of the sun

Key Facts Technology: Parabolic trough with storage Energy produced: 100MW Location: Poffader, Northern Cape

Site area: 1,482 acres; solar field area: 775 acres

Start of full May 2018 operations: Project cost: R9.4bn REIPP window: 3 Abengoa (40%); IDC (20%), PIC (20%); Owner: KaXu Community Trust 20% Operator: Abengoa Solar

ina Solar One and another concentrated solar power plant, KaXu Solar One, stand adjacent to each other, forming a X stunning blanket of curved mirrors on the flat, dusty plains of the Namaqualand. Each plant produces 100MW to form the largest solar complex in Africa. The technology is impressive. The Xina plant has a five-hour thermal energy storage system using molten salts to overcome the problem of regular PV solar systems that cannot produce electricity constantly. Abengoa stakeholder manager Rudolph van Rooyen explains that the parabolic trough collectors have curved mirrors inside that track the sun, concentrating the heat into a central receiver carrying heat transfer fluids (HTFs). The heated fluids are piped to power blocks in the centre of the solar fields then pumped either to the steam generation units for immediate use, or to the thermal storage area where a heat exchanger transfers the heat to the salt, where it is stored for use when needed. ➲ 13

The heaters for the heat transfer fluids are massive. The plant also has a diesel burner as a backup to heat the fluids in case of emergency. In extreme cold the fluids can solidify, “but we haven’t had to use them yet, we haven’t had Winters like that”, says Abengoa stakeholder manager Rudolph van Rooyen. 30 OCTOBER 2016 13 ➲

The salt storage system is transmitted to a substation water and sustaining the developed by crushing solid where a step-up transformer environment. lumps of salt and heating it with converts it to 132KV for The job creation and liquefied petroleum gas into transmission to Eskom. KaXu community development fluid form. The molten salt gets Solar One produces enough projects are also impressive. added to the hot salt tank. There electricity to power 80,000 More than 1,000 people were is second tank for cold salt. “We households while preventing employed in the construction pump the salt from one tank to the emission of 300,000 tonnes of phase while 80 are now another and in process there is a carbon dioxide annually. permanently employed in O&M heat exchange: so we can either While its output to Eskom is jobs. In terms of its commitment heat the salt from the HTFs or 100MW, it actually produces to the department of energy, 1% use salt to heat the HTFs, for more energy and that is used of the plant’s income is spent example in evenings when we to feed the plant’s auxiliary on socioeconomic development need it. systems. “We meet all our own and 0.0051% on enterprise “Salt is kind of our battery, a power needs on site,” he says. development. medium to store heat energy. “We could probably go up to The focus of the enterprise Once we have that heat energy, around 105MW if Eskom raises development project, Van we can use ‘it’ at any time it’s our cap. Rooyen says, is to train people needed, for example at peak That self-sufficiency extends to in entrepreneurship so they time.” all aspects of running the plant: can develop self-sustaining The portion for immediate it is completely self-sufficient businesses. “We help small use gets taken to the steam in terms of recycling. “We have and medium enterprises with generation area where the a closed system so the water business plans, mentorships, heated fluids produce steam is re-used,” says Van Rooyen. assessments, training and that rotates a turbine to generate The plant is also a zero-effluent workshops. We’re also building electricity. “So instead of using site. “No waste is discharged an SME database for the local coal to generate steam we use into the environment, it all gets community. The socioeconomic sun and liquids,” says Van discharged through evaporation development focuses on Rooyen. “The heat transfer plants.” The underlying education, supporting local fluids are our medium to relay philosophy in producing schools, providing after-care heat/energy around the plant.” green energy is that it is more programmes and bursaries. Once the electricity is than just electricity, it is a total It also contributes to housing generated at 15KV, it is commitment to conserving development. ■

Glinting in the sun, the parabolic trough collectors tower above the the pipe carrying the heat transfer fluids, which gets increasingly wider the closer to the power block it gets.

The power block sits in the centre of the rows of parabolic trough collectors. Photos: Christy Strever ➲14 30 OCTOBER 2016

Photo Essay: GIBSON BAY WIND FARM Ancient technology, modern efficiency

sing technology first developed more than With winds of 12m/s or more, the rated output speed, 2,500 years ago, there is a sense of serene they produce at capacity but cut out in strong winds of timelessness as cattle graze on the fields with 25m/s for safety reasons. Key Facts U windmills all around them, rotating steadily in a strong The physics behind producing the electricity is pretty Technology: Wind wind. That belies the modern-day technology and much what you learned in primary school: wind energy Energy produced: Energy produced: 111MW efficiencies introduced to transform the windmills that is transferred into kinetic energy and then into electrical Location: Gibson Bay, Eastern Cape were developed by the Persians around 500BC to power energy. It is transported from each turbine into a transformer Spread across three farms Site area: grain mills and water pumps into modernized, efficient to produce 33KV. From there, says Morika, it travels via totaling 4,300ha generators of electricity. underground cabling to a substation where it is stabilised at Start of full May 2017 Majority shareholder Enel Green Power, with 132KV, the voltage at which it is supplied to Eskom. operations: engineering procurement contractor Nordex Energy, The disruption to the environment is minimal and Project cost: R2bn developed the Gibson Bay Wind Farm ahead of schedule the farm owners get a share of revenue for each turbine REIPP window: 3 and under budget. A total of 37 of the massive turbines on their property. The farmers go about their business Enel Green Power South Africa were installed, capable of rotating at 1,500 revs per as normal but with an extra revenue stream. As with Owner: 60%; Gibson Bay Community minute. Each turbine produces 3MW to generate a total all renewable energy projects, the community benefits Trust 40% of about 420GWh of power over a year. To produce a substantially – not only in terms of the Gibson Bay Engineering similar amount, a coal-fired power station would emit Community Trust holding a 40% share but also through procurement 383,000 tonnes of carbon dioxide. initiatives backed by Enel. These include a school contractor and Nordex Energy South Africa The turbines start producing energy in what is nothing nutrition programme that has reached 2,850 children and operations & more than a breeze of 3.5 metres per second (m/s) – called free Wi-Fi to schools in disadvantaged areas reaching maintenance: the cut-in speed, says site supervisor Bongani Morika. 1,000 children. ■ 30 OCTOBER 2016 15 ➲

Photo Essay: GIBSON BAY WIND FARM Ancient technology, modern efficiency

Idyllic scenes as farming operations continue around the massive wind turbines. ➲➲1616 3030 OCTOBER OCTOBER 2018 2018

Photo Essay: MULILO PRIESKA Sunny skies, primary energy

where it is stepped up again to 132kV Key Facts – Eskom’s voltage for that distribution Technology: Solar photovoltaic line. It then connects to the main grid at Energy produced: 75MW Eskom’s nearby Kronos substation. Prieska, Northern Location: Mulilo rents the land from famers in Cape an area where the vegetation demands 121 ha; panels Site area: low numbers of livestock feeding on large take up 10ha tracts of land. Start of full July 2016 As with all renewable energy operations: plants, there is a total commitment to REIPP window: 3 environmental sustainability. At both Mulilo; plants, for example, snakes or any other Owner: Sonnedix, Prieska wildlife found on site are caught by trained Community handlers, its condition is checked and EPC and O&M: juwa recorded, then it is relocated to a suitable unny skies in South Africa are environment with the specific GPS co- being put to productive use with ordinates provided by the department of Ssolar plants springing up across the environmental affairs. Any indigenous country. Solar photovoltaic (PV) plants plant life that had to be uprooted for are establishing themselves as the primary construction was replanted nearby and form of renewable energy production in alien vegetation was removed. Deon Pye, operations & maintenance site manager. SA, with seven PV plants developed from The plants also operate boreholes. bid window three and 11 more approved These are not for water consumption but in window four. That brings the total to 45 a requirement from the department of across South Africa from all bid windows water affairs: the water is for sampling and – plus there are seven concentrated solar testing to ensure it is not contaminating the power plants. environment. Mulilo Prieska was developed after The attention to detail is fascinating: a successful bid in window three. It is Deliege Kapongo, asset manager at Mulilo in a remote area, 240km southwest of Prieska, says if a bird’s nest is found on Kimberley, where there is little other than site, the area is barricaded so that no farming activity. one can approach it. “We then compile The concept is simple: transfer solar an awareness document instructing energy into electrical energy. The employees that it’s a no-go area.” technology behind that is impressive. Prieska Mulilo has various local The panels convert the sun’s rays into socioeconomic upliftment initiatives electrical DC power which is captured including a back-to-school campaign; and sent to combiner boxes. At Prieska, supplying children with uniforms; eight combiner boxes are connected to supporting an early childhood an inverter where the power is converted development centre; assisting with from DC to AC. Through a transformer, renovations; and supplying an ambulance the AC power is stepped up from 400 volts and medical equipment to the local to 22 kilovolts and sent to the substation community. ■ The substation steps up the power from 22 kilovolts to 132KV, at which it is supplied to Eskom. 30 OCTOBER 2018 17 ➲

The solar PV plant at Prieska has a total of 275,760 polycrystalline panels, manufactured by Chinese company BYD Solar.

Deon Pye, operations & maintenance site manager. ➲18 30 OCTOBER 2018

SA’s new IPPs Points Pointsof interest, of interest, REIPPP REIPPPbid windows bid windows 1 - 4 1 - 4

Map MapName NameMW MapMW MapName NameMW MapMW MapName NameMW MW Upington Upington 1 Ngodwana1 BiomassNgodwana Biomass62 2462 Perdekraal24 EastPerdekraal Wind Farm East Wind108 Farm 9108Droogfontein9 Droogfontein 2 Solar 752 Solar 75 6 Redstone6 CSPRedstone CSP100 25100Wesley-Ciskei25 Wesley-Ciskei Wind Farm Wind33 Farm 1033 Dyason’s10 KlipDyason’s 2 Klip 752 75 15 Kangnas15 WindKangnas Farm Wind137 Farm 26137Oyster 26Bay WindOyster Farm Bay Wind 140Farm 11140Dyason’s11 KlipDyason’s 1 Klip 751 75 16 Copperton16 WindfarmCopperton Windfarm102 27102Excelsior27 WindExcelsior Farm Wind Farm32 1232 Konkoonsies12 Konkoonsies II Solar II75 Solar 75 17 Garob Wind17 GarobFarm Wind 136Farm 7136Kruisvallei7 HydroKruisvallei Hydro 4.5 134.5Aggeneys13 SolarAggeneys Project Solar40 Project 40 19 Nxuba 19Wind NxubaFarm Wind140 Farm 2140Zeerust2 SolarZeerust PV Solar PV 75 1475 Greefspan14 2 GreefspanSolar Park 2 Solar55 Park 55 Upington’s Upington’ssolar corridor solar corridor 20 Soetwater20 WindSoetwater Farm Wind139 Farm 3139De Wildt3 SolarDe PV Wildt Solar PV 50 1850 Solar Capital18 Solar Orange Capital Orange75 75 7 Solar plants7 withinSolar plants close proximity,within close with proximity, a cumulative with a capacity cumulative of capacity of 21 Golden21 ValleyGolden Valley120 4120Waterloo4 SolarWaterloo Park Solar Park75 75 434 MW, makes434 UpingtonMW, makes an Upingtonemerging an solar emerging power hotsolar spot power hot spot 22 Karusa22 WindKarusa Farm Wind140 Farm 5140Bokamoso5 SolarBokamoso PV Solar PV68 68 23 Roggeveld23 Roggeveld 140 8140Sirius Solar8 PVSirius Project Solar One PV Project75 One 75 Bedford Bedford

Jeffreys Bay Jeffreys Bay Note: On thisNote: map, On referenced this map, referenced markers markers Cookhouse Cookhouse indicate theindicate 27 new the IPPs. 27 The new smaller, IPPs. The smaller, Polokwane Polokwane unreferencedunreferenced markers indicate markers IPPs indicate from IPPs from REIPPP bid REIPPPwindows bid 1 windows- 3.5 1 - 3.5

Mbombela Mbombela RustenburgRustenburg 2 2 3 Pretoria 3 Pretoria 1 1 Kouga’s windKouga’s district wind district Bedford & CookhouseBedford & Cookhouse 4 Wind farms4 inWind close farms proximity in close have proximity a haveAn a emergingAn powerhouse, emerging powerhouse, five wind farms five wind farms cumulative capacitycumulative of 469 capacity MW of 469 MW will have a cumulativewill have a capacity cumulative of 616 capacity MW of 616 MW JohannesburgJohannesburg

4 4 5 5

6 6 7 7 10 8 10 8 9 9 Bethlehem Bethlehem 11 11 12 12

Upington Upington14 Kimberley14 Kimberley De Aar De Aar Pofadder Pofadder BloemfonteinBloemfontein 13 13 16 17 16 17 15 15 Prieska Prieska 18 18 Durban Durban De Aar De Aar Khi Solar OneKhi Solar One Wind & solarWind plants & aroundsolar plants this historicaround this historicAt 50 MW, thisAt is50 South MW, thisAfrica’s is South first Africa’scentral first central railway townrailway provide town 445 MWprovide to the 445 grid MW to the towergrid concentratedtower concentrated solar thermal solar plant thermal plant LoeriesfonteinLoeriesfontein De Aar De Aar Noupoort Noupoort REIPPP REIPPPstatus statusin a nutshell in a nutshell - October - October 2018 2018 Mthatha Mthatha

20 20 Number Numberof Plants of Plants MegawattsMegawatts 19 19 23 22 23 22 Bedford Bedford Online OnlineNearly NearlyBuilding BuildingOnline OnlineNearly NearlyBuilding Building 21 21 complete completestarts starts complete completestarts starts East LondonEast London 24 24 Makhanda Makhanda 2018/19 2018/19 2018/19 2018/19 Saldanha Saldanha 25 25 Solar PV Solar PV 33 33_ _ 12 121 501 1 501_ 813_ 813 26 26 Wind Wind 21 21_ _ 12 121 988 1 988_ 1 _367 1 367 SwellendamSwellendam Port ElizabethPort Elizabeth Solar thermalSolar thermal5 52 2 1 1300 300200 200100 100 27 27 Jeﬀreys BayJeﬀreys Bay Cape TownCape Town Hydro Hydro 2 2_ _ 1 114.3 14.3_ 4.5_ 4.5 Bioenergy Bioenergy_ __ _ 1 1 _ __ 62_ 62 Landfill gasLandfill gas1 1 18 18_ __ _ www.energy.org.zawww.energy.org.za BioenergyBioenergySolar PV WindSolar PVSolarWind thermalSolarHydro thermalLandHydrofill gasLandfill gas TOTALS TOTALS 62 622 2 27 273 800 3 200800 2200 346 2 346 30 OCTOBER 2018 19 ➲

Points of interest, REIPPP bid windows 1 - 4 Points Pointsof interest, of interest, REIPPP REIPPPbid windows bid windows 1 - 4 1 - 4

Upington Map MapName NameMW MapMW MapName NameMW MapMW MapName NameMW MW Upington Upington 1 Ngodwana1 BiomassNgodwana Biomass62 2462 Perdekraal24 EastPerdekraal Wind Farm East Wind108 Farm 9108Droogfontein9 Droogfontein 2 Solar 752 Solar 75 6 Redstone6 CSPRedstone CSP100 25100Wesley-Ciskei25 Wesley-Ciskei Wind Farm Wind33 Farm 1033 Dyason’s10 KlipDyason’s 2 Klip 752 75 15 Kangnas15 WindKangnas Farm Wind137 Farm 26137Oyster 26Bay WindOyster Farm Bay Wind 140Farm 11140Dyason’s11 KlipDyason’s 1 Klip 751 75 16 Copperton16 WindfarmCopperton Windfarm102 27102Excelsior27 WindExcelsior Farm Wind Farm32 1232 Konkoonsies12 Konkoonsies II Solar II75 Solar 75 17 Garob Wind17 GarobFarm Wind 136Farm 7136Kruisvallei7 HydroKruisvallei Hydro 4.5 134.5Aggeneys13 SolarAggeneys Project Solar40 Project 40 19 Nxuba 19Wind NxubaFarm Wind140 Farm 2140Zeerust2 SolarZeerust PV Solar PV 75 1475 Greefspan14 2 GreefspanSolar Park 2 Solar55 Park 55 Upington’s solar corridor Upington’s Upington’ssolarSeven corridor Solar solar plants corridor within close proximity, with a cumulative capacity 20 Soetwater20 WindSoetwater Farm Wind139 Farm 3139De Wildt3 SolarDe PV Wildt Solar PV 50 1850 Solar Capital18 Solar Orange Capital Orange75 75 7 Solar plants7 withinSolarof 434 plants close MW, proximity,withinmake Upingtonclose with proximity, aan cumulative emerging with a capacitysolar cumulative power of hotcapacity spot. of 21 Golden21 ValleyGolden Valley120 4120Waterloo4 SolarWaterloo Park Solar Park75 75 434 MW, makes434 UpingtonMW, makes an Upingtonemerging an solar emerging power hotsolar spot power hot spot 22 Karusa22 WindKarusa Farm Wind140 Farm 5140Bokamoso5 SolarBokamoso PV Solar PV68 68 23 Roggeveld23 Roggeveld 140 140 8 Sirius Solar8 PVSirius Project Solar One PV Project75 One 75 Bedford Bedford Bedford

Jeffreys Bay Jeffreys Bay Cookhouse Note: On thisNote: map, On referenced this map, referenced markers markers Cookhouse Cookhouse indicate theindicate 27 new the IPPs. 27 The new smaller, IPPs. The smaller, Polokwane Polokwane unreferencedunreferenced markers indicate markers IPPs indicate from IPPs from REIPPP bid REIPPPwindows bid 1 windows- 3.5 1 - 3.5

Mbombela Mbombela RustenburgRustenburg 2 2 3 Pretoria 3 Pretoria 1 1 Kouga’s windKouga’s Kouga’sdistrict wind wind district district Bedford & CookhouseBedfordBedford & &Cookhouse Cookhouse 4 Wind farms4 inWindFour close farmsWind proximity farmsin close havein proximityclose a proximity haveAn ahave emerging a An powerhouse, emerging powerhouse, five wind farms five wind farms cumulative capacitycumulativecumulative of 469 capacity capacityMW of of469 469MW MW will have a cumulativewillwill have have a capacity cumulativea cumulative of 616 capacity capacity MW of of 616 616MW MW JohannesburgJohannesburg

4 4 5 5

6 6 7 7 10 8 10 8 9 9 Bethlehem Bethlehem 11 11 12 12

Upington Upington14 Kimberley14 Kimberley De Aar DeDe Aar Aar Pofadder Pofadder BloemfonteinBloemfontein 13 13 16 17 16 17 15 15 Prieska Prieska De Aar De Aar Khi Solar OneKhi Solar One 18 18 Durban Durban De Aar Khi Solar One Wind & solarWind plants & aroundsolar plants this historicaround this historicAt 50 MW, thisAt is50 South MW, thisAfrica’s is South first Africa’scentral first central railway townrailway provideWind town & 445 solar MWprovide plants to the 445 around grid MW tothis the historic towergrid concentratedtower concentrated solar thermal solar plant thermal plant railway town provide 445MW to the grid tower concentrated solar thermal plant LoeriesfonteinLoeriesfontein De Aar De Aar Noupoort Noupoort REIPPP REIPPPstatus statusin a nutshell in a nutshell - October - October 2018 2018 Mthatha Mthatha

Photo Essay: ADAMS SOLAR PV2 Energy amidst tranquility

Each row has 672 solar panels, grouped into ‘tables’ of 21 panels each.

Key Facts dams Solar PV2 near Hotazel is located in the Technology: Solar photovoltaic midst of the manganese belt in the kalahari Energy produced: 75MW, capacity 82.5MW Abasin in the Northern Cape. The road to the Location: Hotazel, Northern Cape plant is bustling with traffic from the mines – heavy Site area: 198ha laden trucks and double-cab bakkies are prevalent. The contrasting stillness and calm as you arrive at the REIPP window: 3 solar plant is noticeable. Its 611,100 PV panels form Owner: Enel Energy a splendid sheet of silver as they absorb the sun’s EPC: Enertronica rays. The energy is produced amid a quiet, almost

A carpet of solar: an aerial view of Adams Solar 30 OCTOBER 2016 21 ➲

Maxwell Sibanyoni, operations & maintenance supervisor at Adams Solar.

somnolent atmosphere. The solar panels are not programme; and runs an agriculture incubation facilitate that,” says Maxwell Sibanyoni, operations & intrusive on the environment and are aesthetically programme that provides specialised training maintenance supervisor at Adams Solar. pleasing – they do not jar on the eye at all. to grow export-quality herbs. It even supplies a The other 90 renewable energy plants in in SA The plant began operations in January 2017 small PV system for the herbal project while it also that are up and running or still being developed producing 75MW. procures maintenance and other services from local have similar initiatives. While the benefits are Its socioeconomic upliftment programmes are SMEs, such as washing and replacing panels, and localised around the plants, taken together they are extensive. Adams Solar runs a bursary fund for local tendering the garden area. Even the on-site canteen is improving the standard of living of multitudes of beneficiaries; is installing wifi facilities for the local an SME operation. “Any way in which the community people, without which they would remain mired in community; has an SME training and incubation can plug into the plant for business opportunities, we poverty. ■ 22 CORPORATE PROFILE: NEDBANK

RENEWABLE ENERGY SET TO CREATE 58,000 JOBS

Droogfontein Solar Power assists in helping South Africa shift towards clean energy production. Arising from the first bid window, Droogfontein Solar Power supplies Eskom with 85,458MWh a year.

OUTH AFRICA’S renewable projects that can demonstrated its ability The government has benefits of the renewed renewable energy now proceed after lengthy to deliver employment been procuring renewable forward momentum in the industryS offers huge delays, Nedbank CIB opportunities. “The energy since 2011. Nedbank renewable energy sector potential now that it’s welcomes this significant previous 62 independent interests involve about are not limited to fueling commitment to establishing step forward for the power producer (IPP) 45% in wind energy, economic growth. “South a viable, low-cost, country’s energy sector. projects that have been 45% in photovoltaic and Africa has an obligation to sustainable energy mix Radebe, in his speech completed delivered almost 10% spread between make every effort to reduce seems to be firmly back on at the signing ceremony, 28,000 jobs during their concentrated solar projects, its carbon emission levels.” track, says Mike Peo, Head admitted that the delay construction phase – 58% hydro and biomass. Aside from these of Infrastructure, Telecoms in moving forward on the more than initially projected. South Africa has about vital social upliftment, and Energy at Nedbank CIB. latest round of agreements Since then, their ongoing 43 gigawatts of total employment creation “The recent signing by had been detrimental to operations have sustained installed capacity, of which and climate change Minister Jeff Radebe of the health of the country’s over 6,700 jobs. Given the REIPPP renewable mitigation impacts, another the Renewable Energy renewable energy industry. this success in terms of energy programme will significant outcome of the Independent Power “Importantly, there is employment creation, the equate to about 6GW. agreements is the positive Producer Procurement a sincere desire by the projects coming out of “The sincere hope is that implications for public Programme (REIPPP) new energy minister and rounds 3.5 and four are the government will keep private partnerships (PPPs) caused a wave of positive his team to work with the anticipated to deliver more procuring renewable energy in SA. “In our experience at sentiment, which was private sector to turn the than 58,000 more full-time at a rate of at least one Nedbank CIB, PPPs remain followed up by the actual country’s renewable energy jobs. When the immense gigawatt a year which is the most effective means of achievement of financial landscape around and make value of renewable energy critical to maintain the level driving vital infrastructure close of all of the projects it the economic powerhouse as a sustainable economic of international and local development and ensuring procured under round four that is has the potential to development catalyst is investment required to build of the REIPPPP,” he says. become,” says Peo. realized, the positive impact a long-term, sustainable sustainable economic As a finance provider He believes that the on South Africa will be industry.” growth that delivers benefits to 12 of the latest 27 REIPPP has clearly evident.” Peo says the long-term for all South Africans.” CORPORATE PROFILE: NEDBANK 23 ➲

12 PROJECTS UNDER WAY

NEDBANK CIB’s Energy also concluded a biomass Finance team recently REIPPP project, which will closed 12 renewable energy use natural waste recovered project deals in the round from Sappi’s Ngodwana mill four bid window. In all and surrounding plantations REIPPPP rounds completed to produce 25MW of to date, Nedbank CIB has energy. arranged and funded a Round four also marked total of 42 transactions, a significant milestone providing a total of R35bn for Nedbank CIB in that of direct lending to these its financing helped Enel projects. Green Power reach financial Its funding for round close on the single largest four amounted to R13bn transaction closed to date provided to four of the in the REIPPP space, for larger portfolio developers, five wind projects. This is including Enel Green Power, attributed to an innovative Old Mutual South Africa, approach adopted in Biotherm and Sappi. These financing the five wind projects will add 1,145MW projects with a total to the national grid. In this capacity of approximately round, Nedbank CIB closed 700MW – a project various projects using solar, financing first for Nedbank photovoltaic and wind, but and the country.

SOCIOECONOMIC UPLIFTMENT

NEDBANK is committed manufacturing and mining training centres as well as the to a clean-energy future are able to maintain training of technicians to be and 20.8% of its total competitiveness in an employed in the operations group lending and finance increasingly globalised world. and maintenance of these commitments relate to the The other significant projects. financing of renewable impact is on direct and There are about 100 energy. Nedbank contributes indirect job creation, local renewable energy projects through a combination of community participation that have been procured direct finance to individual and BEE, as well as local under REIPPPP in the projects which has a community participation country and that have now direct benefit in terms of in the establishment of the been completed or are in socioeconomic development. projects. Communities get development. Nedbank has Procuring the cheapest empowered as a result financed 42 of these, making form of energy has a of the socioeconomic it the single largest debt multitude of significant obligations required under financier under the REIPPP consequences to the the programme. programme. Within each country, not least of which is Examples of significant of those projects there is a the impact on the economy. on-the-ground initiatives substantial socioeconomic By driving down the price of include the establishment development plan in place. energy, industrial production, of schools, clinics and ➲24 30 OCTOBER 2018

Future Projects: IPP: BIOTHERM ENERGY To come on stream: Golden Valley Wind Farm; Excelsior Wind Project; Konkoonsies ll Solar Project; Aggeneys Solar Project

riginally a business converting waste gas into months prior to the first bid window opening. It went Egypt, Zambia and Mozambique. electricity, BioTherm Energy decided to shift in search for the right person to build its renewable Nyker also focused on building local skills and Oits strategy in December 2010 in lieu of the business and zeroed in on Nyker, then in the US 70% of BioTherm employees are black and about half pending birth of the renewable energy industry in running a $680m green energy investment fund. Born are women. Asked how she’d achieve this given that the country. The South African company won three and raised in SA, Nyker has more than 20 years of numerous South African companies often complain projects in the first REIPPP bid window – “developed international private equity and investment experience, about a scarcity of skilled black candidates, she says: on time and under budget”, says CEO Jasandra Nyker including 13 years in renewable energy investments. “You build from the ground up, and you appoint – and four in the fourth window. It has also developed She arrived in July 2011, two weeks prior to the first people with the skill to do it.” extensive operations across Africa. request for proposals being issued for the first round For the most part BioTherm gets them in young and BioTherm has become a South African success of bidding. “Round one was brilliant but chaotic,” she develops them from within – 80% of staff are youth. story, funded by US-based global private equity firm, says. “But the projects have done very well. It also looks for young graduates with potential, and Denham Capital. But in the initial stages nothing was The company failed to win any projects in rounds marries this with experienced hires to complement the assured; it faced fierce competition from large and two and three and used the time to focus on its existing team. experienced international bidders – and it hadn’t left expansion into Africa. “We knew South Africa was itself much time to convert into a renewable energy getting highly competitive and wanteda to diversify.” “We give young people opportunity and company. BioTherm is the preferred bidder in projects in Burkina responsibility,” she says. “If you give people exposure, ■ It made the decision to change strategy only eight Faso, Ghana and Ivory Coast. It is also focused on they will flourish.” 30 OCTOBER 2016 25 ➲

Images of two of BioTherm’s existing plants, the Dassiesklip Wind Energy plant near Citrusdal in the Western Cape (previous page and below); and (top and bottom) the Konkoosies Solar PV plant in the Northern Cape. ➲26 30 OCTOBER 2018

Future Projects: ENEL GREEN POWER

nel Green Power (EGP) develops EGP secured five projects in the end of this year. EGP has started construction of its and manages activities for fourth bid round of the Renewable The company, with its headquarters first plant in Zambia – the Ngonye Solar Ethe generation of energy from Energy Independent Power Producer in Rome, has five renewable energy PV plant. The facility is in Lusaka South renewable sources worldwide. Founded Procurement Programme, all of them plants that are already operational in Multi-Facility Economic Zone, which is in December 2008 the group has a wind farms that will generate a combined South Africa. Approved in the third part of the World Bank Group’s Scaling presence in Europe, the Americas, Asia, 420MW. They are Nxuba, Oyster Bay, round, they generate more than 520MW. Solar programme operated by Zambia’s Africa and Oceania with a managed Garob, Karusa and Soetwater. Each They are Nojoli wind farm (88 MW); the Industrial Development Corporation capacity of around 42GW across all project has a capacity of about 140MW Gibson Bay wind farm (111 MW); the (IDC). technologies: wind, solar, geothermal and and the Enel Group is contributing about Paleishuewel Solar PV plant (82MW); hydropower. In Africa EGP operates in R3.9bn for the construction of the five Tom Burke Solar (66MW): Upington Solar Across the globe, the company has South Africa, Zambia, Morocco, Ethiopia wind farms. Construction of the first (10 MW), Adams Solar (82.5MW) and 1,293 plants that generate a combined and Kenya. project, Nxuba, is expected to start by the Pulida Solar (82.5 MW). 39,681MW. ■

Enel’s 8.9MW Upington Solar PV plant and 87MW Nojoli Wind Farm (top) were developed after successful bids in rounds two and three respectively. SAB and AB InBev Africa harness renewable energy as good for the planet, good for business

The private sector has a clear role, alongside other stakeholders, in creating a Using gas to reduce carbon emissions better world for all. At SAB and AB InBev Africa, we’re proud of what we’ve already In our distribution operations we are also researching alternative fuels, for example accomplished in sustainability, but we know there’s much more to be done. we have approved a pilot to retrofit several of our existing distribution trucks to utilise compressed natural gas (CNG). Brewing our beers is reliant on a healthy, natural environment, as well as on thriving communities. That’s why we’re striving for a world where natural resources Using this LNG to power our delivery trucks not only has the potential to drastically are preserved for the future. reduce our carbon emissions, but has the added advantage of improving the vehicle’s lifecycle maintenance and reduces operating cost significantly. Renewable energy provides on of the biggest opportunities for AB InBev Africa, as this is one sector in which we can support and create jobs, while responsibly The initial pilot will focus on fleet trucks in the Gauteng area, which will be expanded growing the industry. to a significantly larger fleet in 2019 if proved successful.

Fighting climate change by reducing energy consumption Alrode Brewery uses combined heat and power to save electricity Our goal is that by 2025, 100% of our purchased electricity will be from renewable Gauteng’s Alrode Brewery produces around 27% of SAB’s 29 million hl of beer sources and we will have a 25% reduction in CO2 emissions across our value chain. annually. SAB is using biogas from its anaerobic digester to fuel the brewery’s The challenge lies in making a measurable and meaningful difference through our US$ 1.4 million co-generation plant. Of the brewery’s seven kilowatt hours (kWh) commitment to renewables. of electricity per hectolitre (hl) of beer produced, the plant generates between one and 1.2 kWh/hl, a significant saving for the brewery. In addition to saving on SAB and AB InBev Africa is committed to helping drive positive change and playing electricity costs, the plant also helps SAB to reduce its carbon footprint by about a leading role in the battle against climate change by purchasing energy in a 8 000 tonnes of CO2 per year. more sustainable way. Africa has a largely untapped abundance of renewable energy sources, notably solar energy, that presents new economic opportunities This year, we will be undertaking in-depth country reviews in four of our markets and potential competitive advantages as they provide cheaper and cleaner energy across our Africa operations to help us better understand the opportunities, and sources for our facilities. But to effect this change requires a shift in both the mind- define our strategy for renewable electrical energy to ensure we meet our 2025 set of the general public, and a push for supportive policy and regulation, crucial targets. When SAB and AB InBev Africa achieves this target, it will be the same for the success of these initiatives. as taking more than a million and a half cars off the road every year. Through renewable electricity use, brewing efficiency, green logistics programs, and new In South Africa we have initiated a project to implement solar energy at five of innovation, we are already reducing our impact. As we look to the future, we will our breweries in 2018 which, once complete, will account for approximately invest in new technologies for our operations and work closely with our suppliers to 10% of our annual country electricity purchases. To achieve this, we are exploring help them reduce their own emissions. long-term, off-site power purchase agreements, assessing on-site feasibility for installations and working with industry associations to shape regulatory landscape. As it stands, our renewable energy flagship brand, Budweiser, will be 100% brewed by renewable energy at our Rosslyn Brewery by the end of 2018. In addition, we have begun engaging suppliers throughout our other operations in The South African Africa to extend our on-sight solar capabilities. Breweries ➲28 30 OCTOBER 2018

Future Projects: SCATEC SOLAR

catec Solar is a global solar (75MW), Linde (40MW) and Kalkbult energy provider headquartered in (75MW). SNorway with 357MW of installed In round four bidding in SA, Scatec capacity in South Africa, Rwanda, Czech Solar was awarded an additional 258MW. Republic, Honduras and Jordan, and has It will operate the solar plants for at another 1,057MW under construction least 20 years. They are Sirius Solar One across the globe. (75MW), Dyason’s Klip 1 (75MW) and Scatec entered the South African Dyason’s Klip II (75MW). These projects market in 2010. It was awarded three are about to enter construction and are solar plant projects in rounds one and all based around Upington. Commercial two with a total capacity of 190MW, operations are scheduled to begin in the which are all operational: Dreunberg first quarter of 2020. ■

Lightning forms a stunning backdrop to Scatec Solar’s Agua Fria solar plant in the Honduras.

Scatec Solar’s Linde Power plant in the Northern Cape. 30 OCTOBER 2018 29 ➲

Priority is to rebuild the decimated supply chain

Costa John When bidding for a renewable energy project, 70% is based on price and 30% is based on social reliable and predictable rollout and local considerations. “The sector has reached plan is required to generate certain levels of localisation compared to the first Ainvestment interest in the round as a result,” she says. Initially requirements of local participation, renewable energy supply chain that was in PV was around 40% and that has increased decimated by the delay in Eskom signing to over 60%. “It varies from wind to PV, and power purchase agreements for round there are higher levels of localisation in PV,” four projects. she says. “Moreover, there has been some The supply chain has been hit hard by progress, as the value chain has developed the delay. The major components require over the years, to include not only local substantial investment to manufacture, balance of plant and services, but also a few such as wind turbines and blades, solar assembly plants. There are already two or photovoltaic (PV) modules, and inverters three that have been commissioned – two in and transformers. These make up about Cape Town and one in Durban.” two thirds of the cost of an energy plant and are generally imported. Then there Hope of renewal are more general components that have Davin Chown, chairperson of the South also been affected such as steel, cabling, African Photo Voltaic Industry Association, concrete and control buildings, as well as (SAPVIA), says: “The slowdown in large-scale GRI will be manufacturing the wind turbine tower sectors for the R3.1bn Perdekraal East civil and electrical construction work. solar projects has had a marked impact on the Wind Farm in the Western Cape’s Witzenberg local municipality, as well as the 140MW South Africa has missed three years sector. The majority of panel assemblers have Kangnas Wind Farm in Springbok, Northern Cape. Both were approved in bid window four. of renewable energy progression and closed down and relocated to other markets Delivery is scheduled to begin in April next year. the trends internationally have changed. and the small- to-medium-sale market is “Historically a lot of high-quality PV serviced largely from outside SA. Creating an modules were supplied out of Germany,” investment-friendly climate, with clear energy says Rentia van Tonder, head of power and procurement policies and objectives, for Standard Bank Group. “More along with incentives to match what other recently most of the top five module investment destinations are offering, is key. This will ensure we lure back the facilities we manufacturers are now in China.” have lost and draw in the new ones that are PV technology costs have also fallen eyeing SA.” over the past three years, she says. “The There have been steps in the right direction, continuous development in renewable believes Brenda Martin, CEO of the South energy is, to a certain extent, driven by African Wind Energy Association (SAWEA). the decline in technology costs, scale and “Under the new national president and energy continued improvements, which makes it minister, the country’s energy sector is starting more sustainable for countries to use.” But to experience improved policy certainty, because of the delay, South Africa has not transparent decision-making and public capitalised on this. participation. The value of the leadership currently being demonstrated by government The bottleneck cannot be understated – it is directly focused After the initial Renewable Energy on the return of investor confidence, both Independent Power Producer Procurement (REIPPP) programme was launched foreign and domestic.” in 2010, a number of international She says policy certainty and synergy contracts were signed at all.” As a result, he will be a serious challenge to entice international component suppliers invested in setting requires consistent leadership of government up manufacturing facilities in SA. “At one says, local renewable energy plants closed suppliers to set up local factories again.” and institutions, all committed to transparent down as it was not financially viable to run point there were plants making modules, Local development and accountable decision-making that is in plants when there is no market. inverters and wind turbine components,” From when the first projects were closed to the national interest. “Provided the current says juwi Renewable Energies’ EMEA Meiring believes that international investors April 2018, there has been some level of local level of public accountability is sustained operations director, Kobus Meiring. “But have lost their appetite. “Due to the shock supply chain development, notes Van Tonder, and continues to improve, SAWEA does not the stoppage of REIPPP round four led introduced by this stoppage, if the latest “although it hasn’t been as progressive and foresee any obstacles to SA’s commitment to to more than two-year delay where no integrated resource plan (IRP) is implemented, it fast as we would have liked to have seen it”. least-cost energy investment going forward.” ■ Wind tower manufacturers hit by delay

wo wind tower manufacturers, DCD generation. But the project was destroyed by which would have brought much-needed GRI Towers is a 12,000m² manufacturer and GRI, established at the onset of the delayed signing and went bust in 2016. skills development and job opportunities to of wind towers, based in the Atlantis Tthe REIPP programme, have been DCD had been heavily involved the region. The construction of the facility specialised economic zone in Cape Town. hard-hit by the delay in signing on round in the development of South Africa’s was supposed to create 600 jobs including Built in 2014, the development amounted to four bid winners. infrastructure, in particular with regard to 150 skilled positions, and DCD was hoping an investment of €22m that was set to create power generation, having manufactured also to export. The company had intended more than 200 jobs in South Africa. Then the DCD Wind Towers was an integral components for all 22 of the country’s wind on partnering with government to ensure delay hit and GRI Towers had to retrench. participant in South Africa’s infrastructure plants. that local manufacturers got the opportunity The Atlantis facility has capacity to development and played an active role as The factory was set up to produce 110 to participate in assembling turbines and produce 150 towers a year. It became fully a partner of choice to government before turbine towers annually, ranging up to 120 producing other components. The company operational in the second half of 2014, the renewable energy drive was derailed. metres long, with a diameter of nearly five had already given supply quotations to supplying wind towers to the South African Built in the Coega Development Zone, DCD metres and individual sections weighing more than 10 clients. market. Wind Towers was a R300m state-of-the-art up to 80 tonnes. Manufacturing included The DCD manufacturing facility was Spanish company GRI Towers has factory. intensive and highly-skilled processes like more than just an investment in Coega; it been following its main clients to key The wind turbine manufacturer was a sub-arc welding involving numerous safety was a legacy project that could have gone strategic markets, with state-of-the art joint venture between the DCD Group and and quality controls. Once a project was down in the history books as the first facility facilities, to provide them with a global the Industrial Development Corporation. completed, the tower was stored on site of its kind in Africa. and efficient supply. It has a presence The facility was specifically established in before being collected and transported. The Industrial Development Corporation worldwide generating over 1,000 towers a 2013 to support the localisation of wind DCD’s wind power projects were set to (IDC) is reported to be looking for strategic year in Spain, Brazil, the US, Turkey, India, tower manufacturing and marked a new provide green power for the national grid, equity partners to revive the facility. Argentina and South Africa. ■ era for South Africa’s renewable power ➲30 30 OCTOBER 2018 30 OCTOBER 2018 31 ➲ The potential to electrify Africa

Mayo Twala and Colin Anthony energy projects in Africa. The first is in Burkina Faso, Ghana and Ivory Coast energy, says Ehlers, is the generation that a country exposes itself to currency and is also active in Egypt, Zambia and of relatively affordable electricity, enewable energy technologies risk when the renewable energy project Mozambique. especially in the more remote areas in hold massive potential to is financed in a currency other than the Nyker says the limited access of grid Africa. “The cost of renewable energy Relectrify Africa. The ability country’s local currency. (Most large- infrastructure in Africa has created has fallen substantially in the past few to develop wind or solar plants in scale projects in Africa are financed in opportunities in the off-grid space, with years, making it the cheapest form rural areas at a fraction of the cost dollars or euros). Another issue relates the potential – in SA and the rest of the of new energy generation by some of coal-fired plants presents a viable to the credit quality of African utilities continent – to supply power directly to margin”. He says that in the long term, means of overcoming the continent’s and their ability to pass the cost of industrial and commercial consumers. renewable energy in Africa secures infrastructure deficit in relation to power production on to the end user. “This is a strategy BioTherm is power, drives economic development, electrification. BioTherm’s Nyker says a challenge in pursuing.” Asked if there was resistance benefits local contractors, promotes The one crucial ingredient is developing renewable energy projects to this because most state utilities are job creation and gives Africa the governmental commitment. in Africa can be the long duration to monopolies, Nyker says: “In Africa, opportunity to compete with external “There are plenty of developers and make decisions. Governments carry utilities usually don’t have the balance countries. investors interested in projects in Africa, the obligation to provide the requisite sheets to meet the need, so some are The Deloitte Global Renewable there’s no shortage of interest,” says guarantees in order to provide security open to the concept. “ Energy Trends report has found that BioTherm Energy CEO Jasandra Nyker. if in the event an offtaker does not pay. Meanwhile, South African banks are at the cumulative capacity of emerging South African banks constitute a major Ehlers says the investment of local the forefront of the industry’s expansion markets to develop renewable energy part of that interest and have invested and international companies has seen a in Africa. is on the verge of surpassing that of the substantially on the continent, drawn steady improvement in access to energy Absa Corporate and Investment developed world. Emerging markets by the high potential. The International in Africa. A challenge, he says, lies in Banking has green energy projects in have helped bring down the cost of Energy Agency (IEA) states: “Renewable finding the right deals, while funding Ghana, Zambia, Kenya, Uganda and renewables and are innovating in ways energy will have a key role in African them takes time. “Even though there is Mozambique. Ehlers says other deals that benefit the developed world. It development, with growth of installed certainly funding available, what takes are still to be closed and the bank is states that Africa and South America, power estimated at 100GW by 2030.” time is the procurement element in the perusing multiple opportunities across respectively, have the greatest solar and Andrew Wepener, who heads up deals.” the continent.” wind resources, but these remain largely Investec Bank’s power and infrastructure Nyker does believe, however, that Musso says that a key sub-sector untapped, with Africa having one of finance desk for sub-Saharan Africa, there has been an improvement in that RMB is also focused on is the the highest costs for solar PV due to says that infrastructure development how governments are approaching proliferation of off-grid or “own-use” investment costs. is long term by nature and to make it renewables since they’ve seen its ability power generation facilities, which are Musso says that while the cost of economically viable, banks and investors to deliver lower prices of electricity. “I gaining popularity across the continent renewable energy is indeed falling must be in a position to commit to think the falling prices through the first as renewable energy prices continue to globally, location and quality of funding such projects over a period of three rounds of bidding in South Africa fall and corporations seek to reduce their resources remain key criteria in up to 20 years. resulted in the rest of Africa taking dependence on state-owned utilities determining the viability and Renewable energy company Enel notice,” she says. for their power supply. “This sector is competitiveness of projects. “These Green Power reckons that by 2022, the RMB’s Musso says while the rest well positioned to grow, particularly include factors like strength and average annual growth of renewable of sub-Saharan Africa lacks the track as battery storage efficiencies keep consistency of solar or wind resources, energy in Africa will be about 8GW. record of South Africa in terms of large- improving and costs keep dropping.” as well as proximity to grid connection Solar photovoltaic is playing the main scale coordinated renewable energy Musso adds that renewables do not and load centres. Certain countries are part, with about 15GW to install in the programmes, RMB is seeing strong require fuel-supply contacts and so are more suited to renewable energy than coming years. Hydropower should reach moves towards promoting renewable somewhat simpler to deploy. They do, others, owing to their superior solar around 13GW in production followed by energy in many countries. “For example, however, share the same challenges as and/or wind resources or developed wind with 10GW. we recently financed a solar project thermal power projects on the continent, transmission or distribution networks.” Beyond those statistics, the scope for under Namibia’s renewables programme including: lack of creditworthy power growth of the renewable energy industry and are actively looking at financing offtakers; drawn-out risk allocation and Despite these challenges Musso remain massive. The World Bank reports several other projects across sub-Saharan price negotiations; very long lead times believes the renewable energy industry that globally, one-billion people still Africa covering hydro, solar, wind and to financial close; and policy/regulatory is set for significant growth on the live without electricity and three-billion biomass.” uncertainty around the willingness continent as development finance people use polluting fuels to cook, Biotherm Energy, a South African and ability of state-owned utilities to institutions and commercial banks undermining their health, development company awarded three projects in sign up to long-term power offtake continue to move away from financing prospects and quality of life. round one and three more in round commitments. traditional power generation and focus Dario Musso, who heads Rand four, is the preferred bidder in projects The main benefit of renewable on more climate-friendly alternatives. ■ Merchant Bank’s (RMB’s) infrastructure finance team, says several countries have launched renewable energy programmes, assisted by multilateral Emerging markets are overtaking developed countries in solar wind capacity development and development finance institutions. Examples include the International China Emerging markets Developed markets Finance Corporation’s Scaling Solar programme in Senegal, Zambia and Wind Solar Wind and Solar Ethiopia, and German development bank KFW’s GetFit programme in 260 431 473 Uganda and Zambia. In West Africa, 241 408 235 173 381 Musso says, several countries such as 220 212 213 332 Ghana and Nigeria are in negotiations 199 with potential bidders to deliver utility- 185 189 314 scale wind and solar plants. 161 He points out that South Africa 141 244 remains the renewable energy leader in 133 sub-Saharan Africa. 103 177 Theuns Ehlers, head of resource and project finance at Absa, says several companies are making progress on 59 addressing Africa’s infrastructure 36 deficit, boosted also by the World Bank’s financial support of renewable energy 96 131 148 161 25 43 78 131 121 174 225 292 projects in Africa. 2014 2015 2016 2017 2014 2015 2016 2017 2014 2015 2016 2017 There are a few challenges that Ehlers points to in developing renewable NOTE: All numbers are in thousand MW. Source: Deloitte Global Energy Trends report; Irena; Renewable Energy Statistics 2018 ➲30 30 OCTOBER 2018 30 OCTOBER 2018 31 ➲ ➲

Aerial images (above and below) of Scatec Solar’s Gigawatt project in Rwanda. Photos: Scatec Solar Focus: Kenya; Morocco Kenya and Morocco are two countries in Africa that have experienced strong growth in the renewable energy sector. By Mayo Twala

Kenya Morocco The World Bank has supported more than $1.3bn of geothermal generation, Morocco launched its first utility-scale solar energy project in 2015 with the World transmission, distribution, off-grid and clean cooking investments. This support has Bank’s support. helped Kenya increase electricity access from 23% of the population in 2009 to 42% The Noor-Ouarzazate Concentrated Solar Power (CSP) complex is expected to in 2015. There has additionally been a $150m Kenya Off-Grid Solar Access Project achieve more than 500MW of installed capacity, providing power to more than one- designed to provide service to another 240,000 households and to establish the million Moroccons. It is expected to help the country reach its goal of installing two framework for serving Kenya’s remaining off-grid population. gigawatts of solar power in the country and derive 42% of all its electricity through Throughout 2018 there has been movement in Kenya’s renewable energy renewable sources by 2020. development. In May London-based private equity company Actis took an 88% stake This renewable energy project was constructed to help the country reduce its in the 100MW Kipeto Wind Power project after buying out most of the project’s dependence on oil by about 2.5-million tonnes and reduce carbon emissions by shareholders. Craftskills Wind Energy, one of the farm’s founding firms, surrendered 760,000 tonnes a year. some shareholding to Actis and was left with 12% of the project from an initial 20%. In February this year, French renewable power plants operator Voltalia obtained The UK has had a vested interest in Kenya as UK development finance institution permits for two hydropower plants of 9.8MW and 7.2MW. The permits followed CDC and power producer Globeleq secured a deal for a $66m debt investment in technical approvals from Morocco’s National Office of Electricity and Drinking Water Malindi Solar Group during July 2018. The long-term investment is said to provide regarding the connection of the plants to the national grid. The electricity produced power in the Malindi area in the northern coast of Kenya, which struggles with will be sold under long-term private power purchase agreements. regular power shortages and relies largely on expensive thermal plants. In September Blockchain Soluna and DMG Blockchain Solutions signed a In September, Portuguese clean energy company RVE.SOL raised $2.1m through partnership agreement to support Soluna’s large-scale wind farm in Morocco. Soluna international investors to provide solar electricity in Kenya’s Busia County. The plans to develop a 37,000-acre wind farm in Dakhla in southern Morocco. DMG expansion would be channelled towards electrification and providing clean water for signed the partnership to provide Soluna with hardware procurement, data centre up to 50,000 people. The company was in talks with several other counties along the design, mining setup, remote hardware and systems monitoring. ■ border for similar projects. Source: Intellidex; Leriba Africa ➲32 30 OCTOBER 2018 30 OCTOBER 2018 33 ➲

R20bn and rising: IPPs The mechanics of are making a difference a socioeconomic n remote areas across the country, by the IPP Office, a division of the energy impoverished communities have found department. Of that, R16.5bn is specifically their standards of living improving with allocated for local communities where the I CASE STUDY: development the arrival of wind turbines or solar panels. IPPs operate. Assuming an even annual The independent power producers revenue spread over the 20-year power (IPPs) are obliged to spend a percentage period, the average annual contribution is project of projected revenue over the 20-year R1,028bn. operation lifespans of the projects on The target for IPPs to spend on enterprise socioeconomic upliftment and enterprise development is 0.7% of revenue over the 20- nseepkans seemed destined to be another failed government development initiatives. This is an year project operational life and IPPs have community development programme. A stretch of arable land almost hidden benefit to the renewable committed an average of 17% more than Orunning along the Orange River in Namaqualand, Northern energy independent power producers’ the target, the IPP Office says. Enterprise Cape, lay neglected and overgrown. In 1987, when the land was still programme and the IPPs have embraced development contributions committed owned by white farmers, agriculture in Onseepkans was destroyed by this, committing far more than the required so far amount to R6bn, which equates to flooding. By 2005, 118ha of land had been bought from the white farmers minimum amounts. R320m a year. and transferred to 27 community-based close corporations, but the land IPPs are required to contribute a While business mentoring and coaching remained unproductive. percentage of projected revenues – with and education upliftment initiatives are the In 2015, government attempted to kickstart the development again a minimum of 1.5% – accrued over the most common, IPPs do assess local needs. Onseepkans Agricultural Development Project through disaster management interventions, aiming to develop vineyards 20-year project operational life towards As a result there are diverse initiatives such to produce grapes, raisins and dates. It barricaded the river banks and socioeconomic initiatives. In the first four as an alcoholic support programme, one started installing a pipeline to replace the canal, aiming for a more efficient, bid windows, the average allocation to that supplies sanitary pads to impoverished modern irrigation system. By August 2015, infrastructure had been installed socioeconomic initiatives was 2.2% of schools and an agri-incubator for small on a handful of plots but things fizzled out and a few months later these revenue – with a minimum threshold of businesses. One IPP even arranged for a were overrun. 1.5%. Nasa astronaut to visit 1,000 learners on The core problem, says Leon Taljaard, CEO of Talmar Impact Investments Across all bid windows, a total of R20.6bn Heritage day. & Development, is there was a plan for infrastructure but little else in terms has been committed to socioeconomic The adjacent case study focuses on a of implementation and providing extended support. Local communities initiatives, according to figures supplied major enterprise development project. ■ were expected to develop vineyard enterprises but they weren’t equipped

Purchase a panel to invest in solar

Costa John generators but these are expensive to run. A number of landlords of big shopping novel new mobile app enables centres are now seeking an alternative the public to invest directly solution. Fedgroup has partnered with Ain renewable energy, with the Emergent to finance the urban solar farms. promise of returns that are attractive These farms are typically about 2,000 compared with the flat returns over the panels that together can generate enough past few years from traditional investment power to cover 70% of a shopping centre’s assets. power needs, at a price that is at least 10% Fedgroup’s Impact Farming app enables lower than the national grid. This gives Local school reading coaches in the Northern Cape are taking up the opportunity to further individuals to own physical assets such as landlords a cheaper and more reliable their careers a recently launched bursary programme, funded by De Aar Solar Power. solar panels. It is projecting returns of 10% source of power. to 16%. As an impact farmer you can buy one or Investors can own actual solar panels several of the solar panels on these farms. on urban solar farms by purchasing the You receive a share of the profit from individual solar panels through the app. the sale of the electricity to the landlord. This asset, along with the others purchased The actual collection, management and on the app, are installed on an approved maintenance of the panels are managed urban solar farm to form a venture by Emergent. You pay for the upfront network that is managed by experts, who purchase of the panel and its installation. take care of the rest. The panel will last at least 20 years. Fedgroup has contracts with partners A dedicated site owner will consume to ensure that all the energy generated all the power generated by the panel. It is by these solar panels are purchased as therefore economically active at all times they are produced. The owner of the solar while the sun is shining. Direct ownership panels then earns a regular income from provides a share of that profitability. the sale of the energy produced. Each solar facility is also insured to With solar panels you’ll receive an mitigate any risk of destruction, the cost of income every month. Returns will increase over time in line with energy price which is included in the purchase price. At increases. The cost of purchasing one panel the end of the investment term, you could is R5,000 and at the current rate of return take physical ownership of the panel or investors can expect R15,000 per solar take advantage of Fedgroup’s buyback offer. panel over the investment term of 20 years. The Impact Farming mobile app also Impact farming assets also qualify for a tax allows for the purchase of individual Jeffreys Bay Wind Farm’s enterprise development programme has benefited a local farmer, benefit associated with renewable energy. beehives and blueberry bushes on farms, Mr Bosman, on the outskirts of Hankey in the Gamtoos Valley of the Eastern Cape. This Many landlords have installed run along similar lines to the solar panels. ■ enterprise is focused on the cultivation of land for growing vegetables under dragline irrigation. ➲32 30 OCTOBER 2018 30 OCTOBER 2018 33 ➲

to do so. A “solution” was being imposed on them without differently and can contribute to a working concept.” preparation funding “unlocks the investment flow”, says the preparatory work. The next important step is to develop a thorough Taljaard, explaining that it is used for economic analysis, Talmar develops projects from the ground up. “You understanding of the project, and for this endeavor Talmar business planning, legal costs, social facilitation and other first develop relations with the community then build a sits with them to explain the risks and opportunities, it elements required to lay the groundwork for the project. commercial proposition around it,” he says. “You do not develops cartoons to illustrate concepts and continues The plan is to develop water infrastructure and other operate on the concept of ‘buy-in’ from the communities, with this process until it is clear the residents understand support services to develop vineyards for 27 plots owned imposing the commercial structure on them. The exactly what the project entails, including what their by community-owned close corporations. These plots, communities must participate in the creation of solutions.” commitment should be. “For example, they will commit which cover 118ha, are already serviced by the pipeline The business plan, he says, has to match the needs on to supplying their product to a specific off-taker for 20 irrigation system and 58ha are already under production. the ground. Getting to understand those needs is a long, years. The business model is co-created with them and the slow process, one that includes building relationships commitment must be totally their choice.” The 2018 harvest has already generated some sales income. and developing trust. Constant support is a prerequisite. Many would have had no business experience, and Further development of 250ha for a community trust is “You need to take people on a journey enabling them Talmar established a central management hub that creates planned. to understand the issues and contribute to solutions,” the market of buyers and sellers and also offers business Talmar’s involvement will continue beyond the point Taljaard says. “Then they can choose: it should be their support services. where the final hectare of land is under production, with decision to commit to a project.” Taljaard, having been alerted to the then-neglected the roles of impact measurement and ongoing business Talmar has been putting in such groundwork for about Onseepkans project, initially visited the area in January support becoming more important. two years, spending time with residents, understanding 2016. He approached Abengoa, a Spanish company that The Onseepkans Agricultural Development Project is their needs, assessing their capabilities, determining what has invested heavily in SA’s renewable energy sector. It a result of private sector involvement helping to meet support structures are required and – as importantly has developed three solar plants, two of which are nearby: a government need. It highlights the need for thorough – understanding any fears, resentments or misgivings Xina Solar One and KaXu Solar One, outside Poffader. groundwork but also accentuates the fact that with total they might harbour. “Without that the project would “They wanted to leverage more funding to unlock commitment from all parties, meaningful and sustainable be misaligned and that would lead to its collapse,” he greater value and generate a bigger impact.” Talmar development is attainable. In this light, Taljaard doffs says. “Many projects in Africa have failed because those committed itself to that and developed separate exercises were not thorough or were entirely omitted from memoranda for donors and investors. Abengoa, through his cap to the government input. The Northern Cape the process. the KaXu plant, put up the preparation funding for the department of agriculture, land reform and rural The community groundwork is vital, it is a relationship- project. Government carried the initial capital outlay development, he says, has been excellent and hard- based exercise. Once residents have vented their feelings, with a mandate to attract blended funding. It was up to working throughout, and totally committed to the success including any misgivings or resentments, and once they Talmar to assist government to raise the rest, with the of the project. “It’s been a refreshing experience to see the feel those are accepted, they are enabled to see things total development cost estimated at R304m. That initial way they operate.” ■

Western Cape evolving into dynamic energy hub

Costa John UN Framework Convention on Climate “Furthermore, there is a supportive initiative launched by the City of Cape Change signed in Paris in 2015. government that has made ease of doing Town to attract and retain foreign direct he Western Cape is evolving into Concerted strategic efforts are being business and the green economy key investment, “special economic zones a renewable energy hub of South undertaken to further facilitate the priorities. There are five universities [such as the Greentech manufacturing TAfrica. growth of a competitive local renewable with comprehensive research and hub] are key tools used by the South The main reason for investment in energy industry based on demand for development capabilities and dedicated African government for driving this location, says Kobus Meiring, Juwi green energy technologies and related green economy skills programmes, and industrial and economic development”. renewable energies’ operations director knowledge and skills. “The Western a range of investment incentives and Furthermore, these zones are supported for Europe, the Middle East and Africa, Cape provincial government has set special economic zones”. by a range of incentives aimed at “is because the energy plants are placed itself the target of becoming the green attracting local and foreign direct where the climate has the most wind and economic hub of Africa,” she says, “and Special economic zones investment. sun resources”. Cape Town is the province’s centre for The designation of the Atlantis Special Renewable energy companies often innovation and environmental business”. Economic Zone has created significant Investment incentives have an international footprint as a The province is well suited to supply opportunities for investors looking to The regulatory environment has a direct wider geographic spread gives market both imported and locally manufactured take advantage of the growing renewable impact on investment opportunities, stability. “The Western Cape is a components. Wesgro, the official tourism energy market in South Africa. preferred location for many international market growth and job creation. An and trade, investment promotion agency The City of Cape Town established the renewable energy companies and is used investor exploring renewable energy for Cape Town and the Western Cape Greentech Manufacturing Hub in Atlantis as a launch pad to expand into sub- projects requires certainty about the says the province was home to some of in 2011 in response to the Department of Saharan Africa,” says Meiring. policy approach before they invest. the earliest investments into renewable Energy’s Renewable Energy Independent Incentives are in place to drive energy manufacturing in the country, Power Producer Programme (REIPPP). Manufacturing investment into the sector, including: “propelling the region as a leader in the The hub has already attracted four major Mayoral committee councillor Xanthea • Reduced corporate income tax. alternative energy sector. It was the first “greentech” investors that are fully Limberg says the Western Cape is an • Employment tax incentives aimed at province to implement a sustainable operational. ideal centre for the renewable energy encouraging employers to hire young energy strategy, a policy for solar water The Atlantis zone has now entered its industry, including component and and less-experienced work seekers. heaters and to set renewable energy implementation phase. Situated on the system manufacturing. “The City of This reduces the cost of hiring targets”. West Coast 40km from Cape Town, it Cape Town is committed to achieving young people through a cost-sharing capitalises on the province’s booming carbon neutrality by 2050 and to mechanism with government. Ease of doing business renewable energy and green technology • Building allowance, which qualifies construct carbon neutral new buildings GreenCape, an investment research and sector. This includes renewable energy by 2030 under the C40 Cities’ Building promotions agency, says the province technologies, wind turbines, solar panels, renewable energy companies to an Programme, which focuses on delivering provides businesses and investors with insulation, biofuels, electric vehicles, accelerated-depreciation allowance on the ambitions of the Paris agreement.” prime locations, modern infrastructure, a materials recycling and green building on capital structures (buildings). The C40 is a route map for signatory skilled workforce, low operational costs materials. • VAT and customs relief for cities to meet the requirements of the and an abundance of natural resources. According to Invest Cape Town, an companies. ■ ➲34 30 OCTOBER 2018 The finance driving renewable energy

Financing costs have fallen from rounds one to four as the lower prices at which the power producers supply electricity to Eskom have added to the pressure on them to cut their costs

By Stuart Theobald

SA. The successive bid windows have can handle multiple projects rather than brought prices down, including the cost of having a separate team for each project. finance, as banks and other lenders have “In round one, lenders were insisting that developed their models and become more each project had one CEO, one CFO, one comfortable with the risks. At the same community operations officer, and one time covenants and loan conditions have technical head, whereas they are now shifted to be more favourable to borrowers. comfortable for a management services Project owners are also now working team or company to oversee and operate a on lowering the cost of finance for projects portfolio of companies. This immediately in the earlier rounds by refinancing them leads to synergies in overall operational – essentially, paying off high-priced debt costs. It also lowers risk as we have with lower-priced debt. That can be done, wider teams rather than a small group of but only with approval from the IPP Office. individuals managing the companies. The IPP Office has indicated, though, that “Prices have reduced sharply due to it wants to see the financial benefits from a number of factors, and as actual and refinancing being shared, particularly in perceived risks in the projects have enhancing the BEE status of projects. decreased, lenders and shareholders are The exact terms of the financing for more accepting of lower margins,” Elliott any particular project is kept confidential, says. “The continued viability and success but anecdotally sources in the industry of our projects will be through us driving say the cost of funding has declined by financing and operating synergies, and in about 100 basis points between rounds operating them smarter as a portfolio of one and four. Financing is now generally projects.” priced at around Jibar plus 3.2 percentage That also suggests that consolidation points, which currently works out to would help the industry to improve 10.85%. Projects can be priced higher or efficiencies and ensure more sustainable lower depending on the specific features, profit margins. Some transactions have including whether guarantees are in place occurred with buyers taking over interests from international partners, usually large in projects that are now fully operational. foreign utilities that take the lead role in Globeleq, for instance, this year acquired the projects. six different IPP interests from Brookfield But for project owners, the cost of that Brookfield developed from rounds finance is still substantial. As prices have one and two, giving Globeleq the largest come down from rounds one to four, so portfolio in the programme. Globeleq also have the returns to the projects. The typical increased its shareholding in three projects internal rate of return, a measure of returns last year by buying out Mainstream SA’s to investors, in round one was above 20%. minority shareholdings in three wind That level would please most investors, farms. Mainstream had been the initial even in riskier projects. But those have developer and construction manager for Clive Elliott, chief financial officer of several IPP projects within Old Mutual’s African come down to around 13% in round four. the three projects. Infrastructure Investment Managers. That’s lower than the returns on equity This trend also indicates the earned by the JSE top 40 companies. fundamentally different risk and return or the first four rounds of the electricity in each round, the pressure has “We give attention to every single profiles for projects during their lifecycles. renewable energy independent been building to find ways to cut costs. piece of our expense chain,” says Clive Risks are highest during construction Fproducers’ programme (REIPPP), “There are three ways you can improve Elliott, chief financial officer of several and the initial phase of production, when R202bn in investment had been committed returns on a project,” says Rentia van IPP projects within Old Mutual’s African many things can go wrong including to independent power producers, Tonder, head of power at Standard Bank’s Infrastructure Investment Managers and construction delays and equipment according to data collected by the IPP corporate and investment bank. “First is IDEAS funds. Increasingly, he says, a key failure. Once a project is operating, the Office. That represents about a third of the EPC [engineering, procurement and focus is on achieving economies of scale risks are substantially diminished, with total national gross fixed capital formation construction] package. To what extent through consolidating services so that one production levels becoming clearer and the in any one year, so the IPPs have been a can you negotiate that down but still have expected performance of the equipment Debt and equity in IPP projects (Rbn) major contributor to total investment in comfort that it will be built on time? Then now tested in reality. Also, the operations SA. With round four projects now reaching the O&M [operations and maintenance] and maintenance role on the projects can % financial close, construction and spending has to be factored in. Then the third leg Equity Debt be an additional source of profits which will soon begin on the development of 26 is the finance package. How effectively 100 project owners can access by installing new IPPs with billions being invested. can you negotiate that and get the best their own O&M capacity at the projects. Financing this major infrastructure margin? Those three pillars are becoming 78% 27% It makes sense then that projects, once rollout has been an important enabler for so competitive,” she says. It is the last leg 75 they are operational, would be sold either the whole project. The R202bn consists where the banks and other lenders have to investors looking for long-term stable of debt and equity, with both foreign faced increasing pressure to cut the cost of returns, like pension funds, or to investors and local sources. South African lenders, finance. 50 with O&M businesses that earn returns particularly banks and the national Local lenders have so far committed from keeping the project operating. development finance institutions including almost R120bn of debt to projects, with an As the programme continues with more the Industrial Development Corporation average debt:equity ratio of 64:34. South 25 IPPs coming on stream, the pressure will and Development Bank of South Africa, Africa’s banks have had to develop risk stay on finding enhanced efficiencies. The have been important backers of projects. approaches from scratch after the IPP 22% 73% financing arrangements will therefore But as competition has forced down programme created the first ever financing 0 be a constantly evolving aspect of the Domestic Foreign the prices that projects have bid to supply opportunities in renewable energy in programme. ■ Innovative solutions... for all your renewable energy needs

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