Independent energy producers were finally making headway in their bid to persuade government to revive long-stalled plans to buy more renewable power when they encountered a new obstacle: the coronavirus.
A five-week shutdown that was imposed in a bid to curb the spread of the disease has sent electricity usage through the floor and left Eskom, which supplies about 95% of South Africa’s power, with excess capacity. Economic growth and energy demand are likely to remain muted for several years, casting doubts over when additional plants will be needed.
Eskom, which was previously forced to implement rolling blackouts because its ageing plants couldn’t deliver sufficient output, has already declared force majeure with wind-energy producers because it doesn’t need their output. And the government, which pledged as recently as February to seek new bids from renewable suppliers, has gone to ground on when that will happen.
Eskom’s decision to renege on its contracts “really undermines the confidence and the trust that investors have” in the government’s commitment to source additional renewable energy, said Paul Semple, joint head of unlisted credit at Futuregrowth Asset Management, the country’s biggest specialist bond fund manager.
Investments in renewables projects are based on 20-year returns, and if those don’t materialise as anticipated, the cost of funding for future projects will go up, according to Semple. Futuregrowth’s Power Debt Fund has invested more than R8-billion in energy-related projects in South Africa.
The South African Wind Energy Association is banking on the government implementing its approved energy blueprint that determines the generating capacity it will buy over the next decade, according to Ntombifuthi Ntuli, its CEO. She also expects President Cyril Ramaphosa’s administration to formulate a plan to counteract the economic effects of the pandemic that will promote private generation.
“We are expecting that wind energy and other renewables will be part of that stimulus package, since it is infrastructure investment that government does not have to put capital investment in,” she said. “Energy security will be a big part of helping the economy get back on track.”
South Africa’s power demand has plummeted by as much as 9GW since the lockdown came into effect on 27 March. Just days earlier, Eskom had issued a request for proposals to supply it with emergency power, with submissions due to close on 30 April.
“Post the lockdown, Eskom expects demand for electricity to rise to more or less the same levels” as before, the utility said. “That means there will still be a need for increased independent power producer contribution into the grid.”
The department of mineral resources & energy didn’t immediately reply to e-mailed questions about when the next bid round for renewable projects will go ahead. — Reported by Paul Burkhardt, (c) 2020 Bloomberg LP