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South Africa’s division of mineral sources and power just lately introduced its selection of firms to construct and function a brand new “batch” of renewable power initiatives. That is a part of a programme wherein the federal government invitations non-public firms to compete for contracts to supply electrical energy and promote it to the nationwide utility, Eskom.
On this most up-to-date public sale of contracts, generally known as “bid window 5”, 25 initiatives – 12 photo voltaic and 13 wind – totalling near 2,600 MW of capability bought the go-ahead. These initiatives are anticipated to return on-line within the subsequent two to a few years. The contracts final for 20 years.
The facility firms’ bids are scored primarily (90%) on the worth at which they are going to promote electrical energy. The remainder of the scoring (10%) relies on socio-economic growth standards.
Bid window 5 marks the top of an extended hole in procurement of renewable power. South Africa began the procurement programme in 2011, and over the subsequent 4 years awarded 102 renewable power initiatives totalling greater than 6,300 MW. The programme was stopped in 2015 when Eskom’s management on the time refused to signal any extra of those energy buy agreements.
The bid window 5 outcomes announcement alerts a renewed dedication. Costs of awarded initiatives are extraordinarily aggressive – as little as 34.4c/kWh (about US$0.02) for onshore wind and 37.4c/kWh for photo voltaic PV. The typical value for initiatives within the earlier bid window was R1.03/kWh (about US$0.07) in April 2021 phrases. The costs at the moment are aggressive with Eskom’s common price of shopping for coal prior to now monetary yr: 42c/kWh. And, in fact, Eskom has the extra price of operating coal crops.
Thus, it’s now theoretically cheaper for Eskom to purchase renewable power from impartial energy producers than to run its costlier coal energy stations.
The issue is that the ability system is severely constrained, and desires far more capability earlier than this can be a real looking choice. One additionally wants extra versatile sources on the grid to make sure reliability, and this provides to the prices.
However I have been concerned in analysis that exhibits renewable power procurement programmes like this may safe initiatives which are constructed price competitively – if properly designed and carried out. That is so even in tough funding contexts within the international south.
My view is that South Africa’s renewable power procurement programme has the potential to assist restore power safety and ultimately cut back energy costs. That is regardless of some considerations which have been raised concerning the newest bid outcomes. I’ll clarify right here why these points aren’t causes for concern.
The considerations
Three primary considerations have emerged in response to the bid window 5:
- the costs are too low to be real looking,
- just a few bidders will dominate the market and
- tariffs for renewables cannot be in contrast with baseload tariffs.
First, let’s take into account the declare that “these costs are approach too low. The initiatives won’t ever be constructed at these prices.”
Whereas the introduced costs are certainly round half of these of earlier rounds, they don’t seem to be unrealistic. International renewable power auctions have often delivered costs like these and even decrease prior to now two or three years. Examples could be present in Kazakhstan, Saudi Arabia, Portugal, Chile, Abu Dhabi, the US, Brazil and Uzbekistan. That is in fact with out the extra necessities embedded in South Africa’s procurement programme – which push up capital and working prices – however the level stays that these costs are possible.
South Africa additionally has one of the crucial onerous and costly bidding programmes on this planet. That is to protect in opposition to unrealistic bids being made. The nation’s charge of profitable bids that translate into initiatives is greater than 95% – among the finest on this planet.
Briefly, there is not any cause to imagine that new initiatives won’t attain industrial operation due to costs.
Second, there’s the priority that “we are seeing projects awarded to fewer and fewer bidders. Soon the market will be dominated by only a handful of international companies.”
Whereas it is true {that a} small variety of successful bidders have been awarded the lion’s share of initiatives on this newest public sale, it isn’t true that this has resulted in market domination. The actual fact is that competitors has been fiercer in every consecutive bidding spherical, and no firm has been in a position to dominate the market from one spherical to the subsequent.
A level of market focus is inevitable in a aggressive bidding course of similar to South Africa’s. It is because the bigger, extra skilled bidders are ready to make use of economies of scale, monetary innovation, stronger negotiation positions with suppliers and contractors and vertical integration to cut back prices. In flip, they’ll supply extra aggressive tariffs. However quite a lot of medium sized firms have additionally been profitable.
And lead bidders characterize just one a part of the venture worth chain. Through the years, an intensive ecosystem of service suppliers and suppliers has grown round these initiatives. As well as, lead bidders aren’t the one shareholders in these firms. South African shareholders, together with black financial empowerment companions and neighborhood trusts, personal 49.4%, on common, in these initiatives.
A 3rd declare is: “you may’t examine the tariffs of those intermittent renewables with that of ‘baseload’, like coal or nuclear”.
Let’s deal with just a few points right here. Renewable provide is variable – not intermittent. Energy system operators have turn into good at forecasting when the solar will not shine or the wind will not blow. That implies that the versatile provide to enhance renewable power could be predicted.
Anyway, “baseload” is an outdated idea. It comes from extremely centralised energy methods the place the most cost effective electrical energy was produced by large coal or nuclear crops that could not be switched on or off shortly. Low-cost renewables are difficult this paradigm. Future energy methods might be dominated by these variable sources backed up by storage and versatile sources similar to gasoline or hydro-power.
South Africa’s 2019 built-in useful resource plan is premised on supplying dependable energy. Its least price eventualities all choose wind, photo voltaic PV plus a versatile useful resource to fulfill future energy demand securely.
Going ahead
There are different considerations across the nation’s renewable power impartial energy producers procurement programme auctions. Maximising and broadening native advantages is essential for the broader acceptance of this programme, which cumulatively has resulted in R250 billion (about US$16 billion) funding. However considerations must be primarily based on info.
The newest public sale has resulted in nice costs for customers and the vast majority of these initiatives might be constructed. Though a small variety of worldwide firms are outstanding, competitors continues to be fierce. There’s a spot for native companions and sensible medium sized firms.
As these renewable power auctions are rolled out, coupled with complementary versatile sources, the nation can consign energy cuts to historical past.
Wikus Kruger, Researcher in Renewable Vitality, College of Cape City
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