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Myths and truths around South Africa’s recent renewable energy auction
10 November 2021, 6:41 PM

South Africa’s Department of Mineral Resources and Energy recently announced its choice of companies to build and operate a new “batch” of renewable energy projects. This is part of a programme in which the government invites private companies to compete for contracts to produce electricity and sell it to the national utility, Eskom.

In this most recent auction of contracts, known as “bid window 5”, 25 projects – 12 solar and 13 wind – totalling close to 2,600 MW of capacity got the go-ahead. These projects are expected to come online in the next two to three years. The contracts last for 20 years.

The power companies’ bids are scored mainly (90%) on the price at which they will sell electricity. The rest of the scoring (10%) is based on socio-economic development criteria.

Bid window 5 marks the end of a long gap in procurement of renewable energy. South Africa started the procurement programme in 2011, and over the next four years awarded 102 renewable energy projects totalling more than 6,300 MW. The programme was stopped in 2015 when Eskom’s leadership at the time refused to sign any more of these power purchase agreements.

The bid window 5 results announcement signals a renewed commitment. Prices of awarded projects are extremely competitive – as low as 34.4c/kWh (about US$0.02) for onshore wind and 37.4c/kWh for solar PV. The average price for projects in the previous bid window was R1.03/kWh (about US$0.07) in April 2021 terms. The prices are now competitive with Eskom’s average cost of buying coal in the past financial year: 42c/kWh. And, of course, Eskom has the additional cost of running coal plants.

Thus, it is now theoretically cheaper for Eskom to buy renewable energy from independent power producers than to run its more expensive coal power stations.

The problem is that the power system is severely constrained, and needs much more capacity before this is a realistic option. One also needs more flexible resources on the grid to ensure reliability, and this adds to the costs.

Read more:
South Africa’s electricity supply: what’s tripping the switch

But I’ve been involved in research that shows renewable energy procurement programmes like this can secure projects that are built cost competitively – if well designed and implemented. This is so even in difficult investment contexts in the global south.

My view is that South Africa’s renewable energy procurement programme has the potential to help restore energy security and eventually reduce power prices. This is despite some concerns that have been raised about the latest bid results. I will explain here why these issues aren’t reasons for concern.

The concerns

Three main concerns have emerged in response to the bid window 5:

  • the prices are too low to be realistic,
  • a few bidders will dominate the market and
  • tariffs for renewables can’t be compared with baseload tariffs.

First, let’s consider the claim that “these prices are way too low. The projects will never be built at these costs.”

While the announced prices are indeed around half of those of previous rounds, they aren’t unrealistic. Global renewable energy auctions have regularly delivered prices like these or even lower in the past two or three years. Examples can be found in Kazakhstan, Saudi Arabia, Portugal, Chile, Abu Dhabi, the US, Brazil and Uzbekistan. That’s of course without the additional requirements embedded in South Africa’s procurement programme – which push up capital and operating costs – but the point remains that these prices are feasible.

South Africa also has one of the most onerous and expensive bidding programmes in the world. This is to guard against unrealistic bids being made. The country’s rate of successful bids that translate into projects is more than 95% – one of the best in the world.

In short, there’s no reason to believe that new projects will not reach commercial operation because of prices.

Second, there’s the concern that “we are seeing projects awarded to fewer and fewer bidders. Soon the market will be dominated by only a handful of international companies.”

While it’s true that a small number of winning bidders were awarded the lion’s share of projects in this latest auction, it’s not true that this has resulted in market domination. The fact is that competition has been fiercer in each consecutive bidding round, and no company has been able to dominate the market from one round to the next.

A degree of market concentration is inevitable in a competitive bidding process such as South Africa’s. This is because the larger, more experienced bidders are able to use economies of scale, financial innovation, stronger negotiation positions with suppliers and contractors and vertical integration to reduce costs. In turn, they can offer more competitive tariffs. But a number of medium sized companies have also been successful.

And lead bidders represent only one part of the project value chain. Over the years, an extensive ecosystem of service providers and suppliers has grown around these projects. In addition, lead bidders aren’t the only shareholders in these companies. South African shareholders, including black economic empowerment partners and community trusts, own 49.4%, on average, in these projects.

A third claim is: “you can’t compare the tariffs of these intermittent renewables with that of ‘baseload’, like coal or nuclear”.

Let’s address a few issues here. Renewable supply is variable – not intermittent. Power system operators have become good at forecasting when the sun won’t shine or the wind won’t blow. That means that the flexible supply to complement renewable energy can be predicted.

Anyway, “baseload” is an outdated concept. It comes from highly centralised power systems where the cheapest electricity was produced by massive coal or nuclear plants that couldn’t be switched on or off quickly. Cheap renewables are challenging this paradigm. Future power systems will be dominated by these variable resources backed up by storage and flexible resources such as gas or hydro-power.

South Africa’s 2019 integrated resource plan is premised on supplying reliable power. Its least cost scenarios all pick wind, solar PV plus a flexible resource to meet future power demand securely.

Going forward

There are other concerns around the country’s renewable energy independent power producers procurement programme auctions. Maximising and broadening local benefits is important for the wider acceptance of this programme, which cumulatively has resulted in R250 billion (about US$16 billion) investment. But concerns should be based on facts.

The latest auction has resulted in great prices for consumers and the majority of these projects will be built. Although a small number of international companies are prominent, competition is still fierce. There’s a place for local partners and smart medium sized companies.

As these renewable energy auctions are rolled out, coupled with complementary flexible resources, the country can consign power cuts to history.The Conversation

Wikus Kruger, Researcher in Renewable Energy, University of Cape Town

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Italy issues arrest warrant for grandfather of cableway disaster survivor
10 November 2021, 6:03 PM

Italian magistrates have issued an international arrest warrant on kidnapping charges for the grandfather of an Israeli boy who was the only survivor of a cable car disaster in May, prosecutors said in a statement on Wednesday.

While visiting six-year-old Eitan Biran in Italy in September, his maternal grandfather, Shmuel Peleg, picked him up and brought him back to Israel without the consent of the paternal aunt he was living with, triggering a custody battle between the two families.

The boy’s parents, younger brother and 11 other people died in the cable car crash disaster in northern Italy in May.
The arrest warrant targets Peleg as well as Gabriel Abutbul Alon, who allegedly helped him with the plan, the statement said.

Magistrates in the northern city of Pavia have asked for the two men to be extradited to Italy once they are arrested, the statement said.

Peleg’s lawyer in Italy told Reuters he had already filed an appeal against the warrant.

The Italian justice ministry said Israel was unlikely to send the suspects to Italy due to a reservation it had made to the Paris European Convention on Extradition of 1957, according to which Israel does not extradite its own nationals.

Peleg and Alon allegedly drove the boy to Switzerland and then flew him to Tel Aviv paying 42 000 euros ($48,568) for a private plane. Peleg’s former wife, Esther Athen Cohen, is also under investigation.

The magistrates said that the maternal family’s determination to bring the boy back to Israel so the child could live with them was “the origin of the criminal plan carried out with clear premeditation and meticulous organisation by the suspects”.

Last month, an Israeli court ruled that the boy must be returned to relatives in Italy, where the aunt, Aya Biran, had been granted guardianship rights. He still remains in Israel.

The aunt’s lawyers declined to comment. A lawyer for Alon could not be immediately reached for comment.

Current power crisis will take at least five years to sort out : Analyst
10 November 2021, 5:45 PM

Energy analyst Adil Nchabeleng says it will take South Africa at least five years to cross over the current power crisis.

He says the 4000 to 6000mw of power needed to be added to the grid that has to be procured from outside sources takes time as these processes can not happen overnight.

Nchabeleng adds that there is no real commitment from Eskom to improve capacity.

He says, “The load shedding saga is a crisis to the economy, it is devastating lives, devastating businesses and not only that, jobs are being shed just because government refuses to take decisive action.”

Nchabeleng says the turning around of Eskom to work optimally requires a dedicated focused team of people, particularly a CEO and a Board that is dedicated.

“Right now, we can see the Board has made its own strategic decision, as well as its strategic objectives. They are not interested in repairing problems that occurred and are occurring within Eskom.”

Nchabeleng’s full interview:

Only choice is to privatise Eskom: Themba Godi
9 November 2021, 9:24 PM

African People’s Convention leader and former chairperson of the Standing Committee on Public Accounts, Themba Godi says the current crisis facing power utility Eskom makes it inevitable that the SOE should be privatised.

Godi was responding to an earlier media conference by Eskom management on current blackouts hitting the country.

Godi says, “So I stand by my view and all that has happened that we moving in that direction [of Eskom being privatised].”

Godi added that the question of privatising Eskom is a policy decision that has to be made by the government and not by Eskom executives and the Board.

Godi’s full interview:

Some political parties are calling for the resignation of Public Enterprises Minister Pravin Gordhan and Eskom CEO Andre de Ruyter.

They’re accusing government of using a lackluster approach in solving the energy crisis in the country.

South Africa has seen rolling blackouts for about two weeks as Eskom announced ongoing generation capacity shortages.

De Ruyter says he will not resign from his position at the embattled SOE despite the rolling blackouts experienced in the country and growing calls for him to step down.

He says the energy crisis that has gripped the country cannot be solved with a change in leadership. The energy crisis has ripple effects and with the country fresh off the heels of an election, political parties are presenting solutions to the problem.

Some political parties call for Gordhan and Eskom CEO to resign
9 November 2021, 9:10 PM

Some political parties are calling for the resignation of Public Enterprises Minister Pravin Gordhan and Eskom CEO Andre de Ruyter.

They’re accusing government of using a lackluster approach in solving the energy crisis in the country.

South Africa has seen rolling blackouts for about two weeks as Eskom announced ongoing generation capacity shortages.

De Ruyter says he will not resign from his position at the embattled SOE despite the rolling blackouts experienced in the country and growing calls for him to step down.

He says the energy crisis that has gripped the country cannot be solved with a change in leadership. The energy crisis has ripple effects and with the country fresh off the heels of an election, political parties are presenting solutions to the problem.

DA Leader, John Steenhuisen says the solution is Independent Power Providers (IPPs).

Load shedding kills jobs, it prevents people from running their businesses and it hurts our economy and it inconveniences and it devastates the ordinary lives of South Africans. One of the things that must immediately happen is that the grid must be handed over to an independent producer. We must then waive all these silly tariffs and restrictions on private generation of electricity. We must open up the grid to IPPs and most importantly we must allow cities to be able to procure power directly from IPPs so that we can keep the lights on, the factories moving and jobs coming in across South Africa.”

Freedom Front Plus leader Pieter Groenewald has echoed Steenhuisen’s sentiments, calling for private producers of electricity.

Groenewald has accused the management at the public entity of failing to be truthful in its engagements with the public.

“It is quite clear that Eskom is not playing open cards with the public of South Africa and the management of Eskom as well as the Minister must tell us exactly what is the problem with Eskom so that we can be prepared, specifically businesses. The load shedding is damaging the economy and will result in job losses. It is totally unacceptable that there was enough electricity for the election and then suddenly thereafter we move to Stage 4 load shedding. Eskom and the government must allow private producers for energy immediately to produce the electricity and to become part of the system to ensure that we don’t have load shedding.”

COPE Spokesperson Dennis Bloem has called on President Cyril Ramaphosa to fire Public Enterprises Minister Pravin Gordhan.

“This devastating load shedding is collapsing the economy. The ANC has failed to govern this country. President Cyril Ramaphosa must fire Minister Pravin Gordhan immediately because he is the political head of the department. He must be fired and take full responsibility for what is happening in our country.”

ATM Spokesperson Sibusiso Mncwabe says there is no political will to tackle the crisis, calling for the heads of the Eskom management and Gordhan to roll.

“It’s now clear to us as a party that it might happen that some people somewhere are benefiting from these blackouts. It can’t be that in 13 years, we are unable to resolve this problem as a country with so many billions that have been given to Eskom. Nothing is happening. A new power station has been built, nothing is happening to resolve the problem. It becomes clear that there is no political will to resolve the matter. As a party, we are calling for the dismissal of the CEO, the entire board of Eskom as well as Pravin Gordhan as the Minister.”

NFP Secretary-General Canaan Mdletshe says the energy crisis has become eminent and highlights the ripple effects of the blackouts.

“Load shedding has become an eminent problem in South Africa merely because we’ve got Minister Pravin Gordhan who is failing in his duties. He has a responsibility to ensure that we’ve got enough energy to take care of us. Our kids are writing exams as we speak but they are affected by load shedding because each and every second hour, there is no electricity somewhere in South Africa. I think also it’s high time that the Eskom Board is dissolved because they have failed in their mandate to ensure that we’ve got enough electricity. We cannot continue like this when people are failing in their responsibilities.”

Political parties weigh-in on current blackouts:

During a briefing held by Eskom management, De Ruyter placed some of the blame on municipalities.

He says apart from breakdowns at power stations and liquidity challenges, blackouts have been exacerbated by municipalities who have not been implementing power cuts as required by the power utility.

Eskom says blackouts will be reduced to stage 3 from 5 o’clock tomorrow morning.



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