SOUTH AFRICA AWARDS CONTRACTS AS IT LAUNCHES PROGRAMME TO DEVELOP GREEN ENERGYDecember 1st, 2012
BY BILL CORCORAN, IN CAPE TOWN
WHEN the South African government signed contracts in early November with 28 independent renewable energy providers, the moment marked a significant milestone in the country’s efforts to reduce its reliance on coal-fired plants for power.
To date, the power needs of Africa’s largest economy have primarily been met by its numerous coal-fired power plants, although around 6.5% of its electricity is also provided by the Koeberg nuclear power station’s two reactors outside Cape Town in the Western Cape province.
South Africa’s state utility company Eskom currently provides more than 95% of the country’s electricity and it generates more than 41,000MWs of power from its generators.
When its new Medupi dry-cooled coal power station comes online next year this will increase its power stock by a further 4,800MW per year, but demand is still threatening to outstrip supply.
In addition, the combination of aging infrastructure, the need for energy to aid economic development and South African president Jacob Zuma’s recent commitment to reduce carbon emissions, has prompted government to look to alternative sources of power.
At the UN climate change conference in Copenhagen in 2009, Zuma announced the country would try to reduce carbon emissions by 34% by 2020 and by 42% by 2025, which some might say was ambitious.
But as well as deciding to expand its nuclear power capacity, government has also looking into a range of other energy generating options, including the development of a local renewable energy industry, according to opposition Democratic Alliance MP Lance Greyling.
“There has been a complete sea-change in attitude towards renewable energy within government since 2006 when it began taking a lead role in developing the renewable sector.
“I think the effects of climate change coupled with some of our own domestic energy shortage problems have really put renewable energy on the map in South Africa in terms of its viability as a resource,” the main opposition shadow energy minister told Energy World.
However, the department of energy’s director general Nelisiwe Magubane, says that while the renewable energy drive has picked up pace since the middle of the last decade, the decision to develop it as a resource goes back to 1998.
“The Energy White Paper (EWP) published in 1998 spells out the energy policy of the country. In this policy it was indicated that the generation mix of SA must move away from a coal based generation to include more modern energy such as renewables.
“In 2008 government took the decision to develop and implement the EWP policy requirement for a national integrated resource plan (IRP) following the power outages of 2007/08. This led to the development of the IRP 2010-30, which spells out the manner and technology for diversifying the generation mix of the country,” she told Energy World.
While more nuclear power stations and coal fired plants will be brought on line over the next 20 years to help meet the country’s power needs, it is envisaged within the IRP that 42% of future electricity production will also be generated by renewable energy sources by 2030.
So, the group of renewable energy companies, from around the world, that have been chosen country’s first allocation of renewable contracts – known as ‘Window 1’ – are breaking ground in a long-term energy policy. They have been tasked by government with supplying the national grid with a total of 1,400MWs.
And there is more to come. The government’s IRP earmarks 3,725 MWs to come from renewable resources by 2030, so more tenders will follow.
In total, the energy department envisages that by 2030 wind projects will contribute 1,850 MWs of power; solar photovoltaic 1450 MWs; concentrated solar thermal 200 MWs; biomass and biogas 12.5 MW each; landfill gas and small hydro projects 25 MW and 75 MW respectively; and other small schemes a further 100 MWs. The power purchase agreement for the companies that secure these contracts will be valid for a 20 year period from their operational date.
To help achieve this, a second group of 19 renewable energy companies that had secured the tenders to supply power to the national grid was announced in March 2011. This secured commitment for the provision of 1,416 MW of renewable energy. A total of 79 Window 2 proposals were received of which 51 met the required criteria and the contracts are expected to be signed in 2013.
A third round of bidding was meant to have been initiated by mid-2012 but has been postponed until the middle of next year.
While more power is central to the government’s energy drive, it has wants the embryonic renewables sector to create jobs and local wealth. As a result the 28 companies that secured contracts in the first round of bidding will invest about South African Rand ZAR47 billion (USD5.42 billion) in wind and solar projects in some of South Africa’s most rural and least developed provinces, including the Eastern Cape, Northern Cape, Limpopo, North West and the Free State.
The bidders have collectively committed ZAR2 billion (USD230 million) towards socio-economic development (they include energy and non-energy projects), and ZAR1 billion (USD115 million) towards empowering women in the energy field, ranging from ensuring women can access jobs, to securing ownership of companies. They have promised to establish their development initiatives within 50kms of each project.
“We will watch this [development] like a hawk,” energy minister Dipuo Peters said at the signing ceremony on November 5, adding that black South African participation in the projects at all levels was essential as the government did not want to order this to happen using existing black economic empowerment laws.
To support these commitments, the first round companies have formed partnerships with 67 South African companies that will help them with supplies.
“In total, these bidders will spend ZAR12 billion [USD1.38 million] over the duration of the implementation agreements on South African contractors, including [black South African owned or run] empowered enterprises, small and women-owned businesses,” Peters added.
The renewable energy projects themselves are expected to be integrated into the country’s national energy grid by the end of 2014, when Eskom will begin buying their power.
Earlier this year Eskom asked national energy regulator Nersa for an annual tariff increase of 16% each year for the next five, 3% of which will be earmarked to buy energy from the independent power producers.
Ireland’s Mainstream Renewable Power was one of the largest beneficiaries in the first round of bidding, and it will start construction on three solar and wind power projects in South Africa by the end of 2012, investing around ZAR5.5 billion (USD634 million).
The Dublin-based company and its partners will build a 138 MW wind farm in Jeffreys Bay in the Eastern Cape, and two 50 MW solar photovoltaic (PV) parks in the Northern Cape – one near De Aar and one at Droogfontein near Kimberley.
All three projects are scheduled to be fully operational by mid-2014.
Mainstream’s head of procurement and project delivery Barry Lynch, told Energy World the company first started to explore opportunities in South Africa four years ago when government announced its ambitious plans for the sector.
“It was great to sign the agreements for our first three renewable energy projects in South Africa in November. Now they are into their third round of bidding for companies to secure projects, and I think there is great potential to hold a bidding round for new projects every year.
“South Africa is a big country that will need a lot of power to meet its needs in the future. There is huge potential in wind and solar, although the former is more confined to the coastal regions while most of the solar potential is inland,” he said.
When it came to bidding for the contracts, Lynch said the South African process was probably the most complex the company had ever dealt with in terms of the amount of detail on their proposals required by the department of energy.
“As a company this is something we like, as it ensures the projects are thought out and prepared to an extremely high standard. When we submitted our bids in late 2011 we needed four vans to ferry the documentation.
“This mass of paperwork addressed the technical specifications of our projects, environmental impact reports, the financial side of things in terms of equity and debt, as well as documentation that demonstrates our construction plans.
“The authorities’ approach to the bidding process was very clever. It got the best out of companies involved as it pitted all the bidders against each other. That in turn meant the South Africans were getting projects of a very high standard and the subsequent rounds have begun to drive the pricing to a very competitive level,” he outlined.
From a technical perspective the Jeffreys Bay Wind Farm has a relatively flat topography, minimal environmental constraints and a 132kV Eskom grid line traverses the site.
The wind farm will be constructed with technical partners and EPC contractors Siemens, who will supply wind turbines, and a South African consortium of Murray & Roberts and Conco supplying the civil and electrical works at the plant.
The project will consist of 60 Siemens wind turbines that were selected on their compatibility with the local wind regime and topography. They will supply enough electricity for 200,000 homes.
The turbines will each generate at 690V, a small transformer located at the base of the tower steps up the voltage to 33kV, finally the larger transformer situated at the substation steps up the voltage from 33kV to 132kV and hence pumped into the Eskom grid.
The 50MW De Aar solar power project is being constructed on approximately 100 hectares of marginal agricultural lands and it will supply enough clean electricity to power 30,000 homes.
The power generated will be fed directly into the Eskom 132kV distribution system. The project consists of 169,100 photovoltaic (PV) panels, 19 inverter systems, and one Siemens 50MVA transformer.
The 50MW Droogfontein solar power project, located 15km outside Kimberley, is very similar in specification to the De Aar project.
While job creation is a stated goal of these investments, projections supplied by the energy department show that most jobs will be created in these project’s construction phase, which means once they are up and running these workers will no longer be needed.
Magubane confirmed to Energy World this was the case, so where is the job bonanza envisaged to come from?
“It is correct that the majority of jobs will be created in the construction phase. However, depending on which window is referred to, there is a requirement for a stated percentage of products to be manufactured locally,” she said.
“This will ensure that a local industry is developed for SA for local usage and export in the near future. This has been shown to be one of the international benefits of renewable energy or the green economy all over the world,” she added.
Mainstream’s Lynch maintained from his company’s perspective there is good job potential in South Africa’s renewable energy drive, in the sense that the government is trying to create a manufacturing industry to complement the sector.
“It now makes sense for us to make turbine blades and towers in South Africa rather than to make them in Europe or China. There needs to be a lot of scale in the renewable energy projects to support this embryonic industry, so that is one of the reasons the projects are rolling out in such large numbers,” he said.
So far, so positive. However there is concern that there is potential for corruption to taint this new industry, given the levels of criminal frauds and graft uncovered within a number of South Africa’s public sector companies and municipalities in recent years.
But Magubane believes the system the government has put in place will make it difficult for officials and independent individuals with a penchant for corruption to satisfy this desire.
“The bid process was designed in a manner that limited government’s role to that of setting the conditions/criteria for an external team to evaluate. In this way government’s role to influence the process in any way is minimised to a level of zero.
“The external sector expert individuals involved in the process are linked to large local or international reputable entities that would not wish to be associated with any wrongdoing. In the event it was found that corruption did occur, this would tarnish the reputations of these entities locally and internationally.
“Thus, we are confident that the individuals who have been recommended by their respective organisations to participate in this manner are above board,” she said.
Finance and expertise are the keys to ensuring South Africa’s renewable energy sector gets off the ground properly, and a year ago a programme called SARI, the South African Renewables Initiative, was launched to secure this much needed investment.
SARI comes in the form of an international partnership between the governments of South Africa and Britain, Germany, Denmark and Norway, along with the European Investment Bank (EIB), but since it was signed at the COP17 climate change conference in Durban there has been little news about it.
The Department of Energy was identified by South African government as the state organ that will co-ordinate this initiative, and Magubane said that at the moment negotiations are still underway.
“This is a very large and new initiative,” she said, “At the moment South Africa is in negotiations with various entities to utilise some of the bilateral agreements that exist between us and other countries and entities to leverage funding.”