By James Cumming, GM of African Clean Energy Developments

On many occasions, while on a Teams or Zoom conference call, negotiating construction contracts or funding agreements for renewable energy plants, the meeting has ironically been cut off due to load shedding. When the call resumes (for those lucky enough to have an alternate power supply), in response to the often-used, ‘sorry, load shedding’, we cheekily say, ‘we’re working on that’.

The trouble is, it’s getting harder and harder to ‘work on that’ at the scale required and in the areas best suited to renewable energy projects. These areas have a vast stock of highly competitive, fully-permitted wind and solar projects, ready to be funded and built. The challenge is not because of issues that used to plague the renewables industry - overly burdensome bureaucratic red tape in developing projects, delayed and unpredictable timing of the Department of Minerals, Resources and Energy (DMRE) Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) Bid Windows (BW), or political interference. The renewables industry is facing a new challenge. There is extremely limited power line and transformer capacity for connecting additional generation to the grid in the Cape provinces. This lack of grid connection capacity is a serious issue as these areas, with high wind and solar resources, are home to more than 75% of the most competitive shovel-ready renewable energy project stock available.

We must commend the Government, largely driven by the Presidency, for how, over the last 12 to 18 months, they have created an enabling environment for renewable energy and private power generation and offtake to help solve South Africa’s power crisis. The Government has mostly done away with protracted NERSA generation licensing processes and project-size thresholds. They have expedited permitting timeframes and made various government agencies available to unlock bottlenecks to bring generation online faster, where possible. Renewable energy is by far the cheapest form of electricity generation. It is sustainable and climate-friendly. One would therefore assume it should be completely unhindered in solving the power crisis.

However, to address the grid constraints, we need multi-billion Rand upgrades in the form of new power lines and substations. This could take five to eight years, potentially longer, if the private sector isn’t involved alongside Eskom and the Government. Eskom are also fixated on N-1 levels of security in power supply – i.e. N-1 security means that power evacuated by a transmission line must have an alternate evacuation route in the event that it fails. The grid is therefore already effectively doubled up relative to the capacity that Eskom has it rated for. Ensuring this level of grid security at a time when we don’t have any semblance of power security needs serious consideration.

The renewables industry is also facing the complex issue of developers and IPPs oversubscribing for grid connection capacity in Eskom’s grid access application process via the Commercial or Industrial (C&I) market. While there is currently availability of technical connection capacity in these areas, the opening up of the South African renewables industry for the private offtake/ wheeling market, coupled with the grid connection application process, has resulted in this confusion and over-subscription.

The impact of this is that Eskom and the DMRE cannot adequately assess private project feasibility and maturity. In the absence of an Eskom connection application queuing system, in REIPPPP BW 6, no wind farm projects were awarded when the allocation up for grabs was 3.2GW. It was widely believed that at least 2GW of capacity was (or is) available.

Challenges facing the renewables industry

While it is excellent that the C&I market is growing so fast, it’s still in its infancy and cannot be built at the scale and timelines that the country requires to solve the electricity crisis. As we saw in BW6, REIPPPP could have procured up to 4.2MW of renewables projects yet only awarded 860MW of solar PV in areas with less contested grid capacity. BW6 projects had to commence construction by mid-2023 to comply with the bidding rules, which was achievable. By comparison, the largest single private power procurement process to date has only been circa 600MW, which is significantly larger than the next biggest.

Furthermore, timelines for construction commencement in the C&I market are delayed by extended contract negotiations. Despite all of the activity in the C&I market, only about 250MW of wheeled power projects had reached financial close by the end of 2022. Between 400-600MW are due to close in the first half of 2023. It will take two to three years before the C&I market can do 4.2GW in a single procurement event. That BW6 was not fully allocated is a wasted opportunity for a further 3.4GW of renewables projects that could have started construction by mid-2023.

This grid connection capacity issue means there will be a significant lag in getting renewables projects developed and constructed at scale in other parts of the country (Free State, North West, Mpumalanga, KZN) as studies and permits take time, especially for wind projects. These provinces are more densely populated, with sensitive environments in parts, which can lead to further complications and smaller projects. Wind and solar resources are worse relative to the grid-constrained areas, which means power from these plants will be more expensive.

Solutions are available but timing and coordination are critical

The private sector must be allowed to implement grid upgrades on behalf of Eskom. We need to move beyond the privatisation of generation only and either amend regulation or develop a procurement process for grid expansion. This could be similar to a toll road or concession model, which successfully privatised public infrastructure in the past. Furthermore, with a review of the rules and the models used to manage the grid, determine capacity, and N-1 requirements, one could unlock very significant capacity at the stroke of a pen. Then the IPP market could rapidly mobilise and provide over 10 GW of fully permitted wind and solar projects.

In addition, grid access where grid is available needs to be improved. The lack of Eskom queuing rules is behind the failure of BW6 and much confusion and speculation in the C&I market. This must be addressed immediately to ensure certainty in renewables procurement at scale, fast. It is unlikely that we can solve load shedding without unlocking the grid , as well as ensuring REIPPPP does not fail again, as it did in BW6.