State eyes next stage in IPP energy deals

Nelisiwe Magubane says a new round of bids might be scheduled for next year. Image: Necsa

Bids for projects in the third window cost far less than the department had expected‚ Magubane said at the the sidelines of a BD Dialogue on renewable energy‚ hosted by Nedbank Capital in Sandton last week.

Magubane said the department expected prices to drop even further‚ once IPP projects from the first round begin to generate electricity in February next year.

The government announced just 17 successful round-three bidders - potentially adding 1‚471.5MW to the national grid - although it received 93 bids. Magubane said it awarded enough bids to reach the department's self-imposed cap. The projects were worth R33bn.

She said the department would now weigh the benefits of using the remaining funds allocated to round three for a new round of bids and an announcement in this regard would be made by 20 November.

SA leading Africa in clean energy field

South Africa was cited as a world leader in green-energy earlier this year in a study by US-based research body the Pew Charitable Trusts. It lauded the country for being a cornerstone of clean energy development for the entire African continent.

According to Pew‚ South Africa is the fastest-growing green energy market in the Group of 20‚ with investment rising from less than US$30m in 2011 to US$5.5bn last year - a 20‚500% increase.

SA leads Africa in terms of wind energy production. Image: Wiki Images

At the BD Dialogue‚ UCT Graduate School professor Anton Eberhard said prices had dropped remarkably over the three bidding rounds‚ which made renewable energy more competitive than previously thought. On average‚ the cost of solar photovoltaic power dropped 68% to 88c/kWh‚ and wind energy has dropped 42% to 74c/kWh.

The cheapest successful bidder is Red Cap Investment's bid to construct a wind farm in the Eastern Cape. It will sell electricity to Eskom at just 66c/kWh.

The drop in price‚ particularly of wind energy‚ strengthens calls for more procurement from renewable sources‚ South African Wind Energy Association's chief executive Johan van den Berg said.

Demand for wind power down

Internationally‚ the demand for wind power fell dramatically in the wake of the worldwide financial crisis and Van den Berg said this led to huge over-capacity in the global manufacture of wind energy products.

"We are at a historical (price) low that makes wind the cheapest form of energy at the moment. This means that we must put in as much if it as we can‚ as quickly as we can‚" he said.

Van den Berg said the energy department's Integrated Resource Plan's intention of procuring 9‚000MW of wind power can easily be achieved.

Magubane said this was partly why the government is considering another round of bids but added that this had to be balanced with the knowledge that the longer the government waits‚ the cheaper the technology is likely to get.

"We made a decision to buy 3‚725MW of renewable energy by 2016. This was to send a signal to the market that we were committed to the process. But at the same time‚ we did not want to lose out on the price benefit‚ which will come later," she said.

South African National Energy Association chairman Brian Statham said the drop in price between round one and round three was due to lower risks‚ rather than new and cheaper technology.

Projects in round one were priced on the assumption of very high risk because investors were uncertain about the government's commitment to the process.