Eskom’s signing of agreements with independent power producers to lease land at Majuba and Tutuka power stations might snag on financial closure as winners of Bid Window 5 are still struggling with obtaining funding months after the bids were awarded.
POWER utility Eskom’s signing of agreements with independent power producers (IPPs) to lease land at Majuba and Tutuka power stations might snag on financial closure as winners of Bid Window 5 under the risk mitigation independent power producer procurement programme (RMIPPPP) are still struggling with obtaining funding months after the bids were awarded.
Energy analysts said the signing of lease agreements did not automatically guarantee funding for the projects by bid winners HDF Energy South Africa, Red Rocket SA, Sola Group and Mainstream Renewable Power Developments South Africa, which are all expected to add to the grid 24 months after they obtain the financial close.
“It is anticipated the generators will be connected to the grid within 24 to 36 months from financial closure, subject to environmental, land zoning and other regulatory approvals,” Eskom said on Friday.
An energy analyst said that while Eskom’s initiative looked good on paper, the reality was that a lot of IPPs struggled to obtain funding and he cited the postponements for winners of Bid Window 5, which was postponed at least three times from July 2021 to September last year, and ultimately to the end of January 2022.
“It is understandable that Eskom is trying to get more producers into the grid, but there are considerations financiers have to make that do not align with the urgency Eskom is trying for,” he said.
He said the urgency of South Africa’s independent power producer procurement programme is so delayed by red tape and lack of confidence by financiers that the projects tended to take as much time as standard undertakings.
“There should be more commitment from National Treasury and the Department of Mineral Resources and Energy to expedite these undertakings otherwise it is all just politicking, load shedding will not stop until serious efforts are made by the government to provide guarantees for the IPPs,” he said.
Eskom said though there would be no National Treasury guarantee issued for the IPPs, and there will be no risk to or burden on taxpayers or on Eskom.
“However, through private investment, new generation capacity will be added on an accelerated basis to alleviate the shortfall,” it said.
Eskom said it would issue new tenders for other parcels of its land every quarter going forward, with a view to enable and accelerate investment in new renewable generation capacity.
Eskom on Friday signed lease agreements at two of its power stations in Mpumalanga for the construction of new clean energy generation capacity.
Eskom said the investors will lease a total of 6,184 hectares (ha) of land for a period of 25 to 30 years each and contribute an estimated 2,000MW to the national electricity grid.
It said the bidders will now do comprehensive feasibility studies to determine which technologies they will be implement at each site – wind, solar and battery storage.
“The exact generation capacity will only be known once the studies have been completed. The bidders will sell the electricity on a bilateral basis to customers that will sign power purchase agreements with the developers. The electricity will be wheeled across the Eskom grid, generating revenue for Eskom from its existing assets,” it said.
The utility envisages that up to 30,000 hectares can be made available for similar projects eventually.
The next phase will focus on properties around the Kendal and Kusile power stations in Mpumalanga, as well as the retired Ingagane Power Station in Newcastle, KwaZulu-Natal.
“Eskom’s land leasing programme is a first of its kind and can be used as a case study in the electricity supply industry (ESI) in terms of partnering with private electricity generators to accelerate the connection of additional capacity to the national grid to improve the reliability of supply. The fact that these land leases will attract an estimated investment of some R40 billion to areas traditionally associated with coal-fired electricity generation makes this a compelling proof point for the just energy transition to a lower carbon economy,” group chief executive André de Ruyter said.
Eskom said the lease model would also help fast track the introduction of clean energy sources to the country’s energy mix, consistent with Eskom’s Just Energy Transition (JET) Strategy.
It said the land parcels were thoroughly screened considering accessibility, areas above underground mines, future mining activities, conservation of environmentally sensitive areas such as wetlands and heritage sites, and the sloping of the land parcels.
– BUSINESS REPORT
