The delays in concluding these agreements have been frustrating for those in the sector. However there are some facts about renewable energy and independent power producers (IPPs) that I believe must be shared.
First, the fear of job losses should not be glossed over in a country with high unemployment. I have sympathy for the concerns raised by the National Union of Metalworkers of SA (Numsa) and Transform RSA. However, it should be noted that a number of ageing coal plants are scheduled to be decommissioned, regardless of the progression in the REIPPPP.
The ability for IPPs to create jobs and stimulate economic development in areas where there are few alternatives has been underestimated.
IPP plants tend to be situated in remote areas of the country. The opportunity for employment in these areas is severely constrained, so when an IPP builds a plant in such an area, the benefits extend far beyond jobs created during the construction of the plant. IPPs create platforms for bringing these communities into the mainstream economy and building spinoff businesses in that area.
For South African consumers, the goal of stable power supply at lower rates is what IPPs anticipate. The signing of a 20-year PPA by the IPPs commits the power producers to a static tariff, adjusted annually for inflation only.
Local ownership and the promotion of black industrialists are significant factors and I believe that local ownership is a form of self-regulation. According to Energy Minister, Jeff Radebe, South Africans on average own 48% of the equity of all IPP projects.
IPP projects are obliged to incorporate minimum levels of economic development and socio-economic development in the construction and operation phases of the power plants and most exceed the minimum targets. Local community initiatives taken on by the power plants include creating new businesses, creating feeding schemes and providing bursaries for local students, among others. In our view, this is true impact investing.
