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Cape Town looks to IPPs to make the city load-shedding resilient by 2027

11th March 2022

By: Irma Venter

Creamer Media Senior Deputy Editor

     

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Cape Town Mayor Geordin Hill-Lewis is taking steps to protect the city from Stage 3 load-shedding by 2027 at a minimum – but preferably Stage 4 – in a move that he believes will facilitate “meaningfully faster” growth across the metropole.

“Not only is it inconvenient to have load- shedding, but right now the energy crisis is the biggest handbrake on the South African economy.”

The mistake that the City of Cape Town has made for a long time is to assume that there is a credible pathway out of load-shedding at a national level, and that the end of load-shedding is just around the corner, notes Hill-Lewis.

“I think time has shown that this is not the case, and that it is unlikely to be the case for at least the medium term, or until there is significant additional power generation capacity brought on board at a national level.

“However, taking additional capacity on board is taking so long, and there is so much resistance to doing so, that we have realised that we cannot wait for State-owned power utility Eskom or the Department of Mineral Resources and Energy for an answer, and that we must press ahead and do this ourselves,” he says.

“I think we must be really aggressive about trying to reduce our reliance on Eskom, and to bring additional capacity on line as quickly as possible.”

Hill-Lewis believes that reducing Cape Town’s reliance on Eskom should also ease pressure on the national grid, thereby lowering the likelihood of national load-shedding.

“Also, the price of Eskom power is now so high and the price of renewable power so low, that this actually is an opportunity to begin passing on savings to the consumer.”

South Africa’s electricity tariffs have increased by more than 300% over the last decade, while renewable energy is becoming more affordable, with the cost of solar dropping by 90% since 2000.

Power Through IPPs
Cape Town would primarily look to procure additional power through independent power producers (IPPs), says Hill-Lewis.

“Initially, the proportion that comes from IPPs would be so small that it won’t make a difference to the overall price.

“But, as that portion grows and the Eskom portion shrinks, we might get to a situation where you can pass on savings to consumers.”

Tenders to procure up to 300 MW of electricity from IPPs have already been published.

At this point, the city is not looking at building its own power-generation facilities, says Hill-Lewis.

“We are having this debate internally in the city’s structures. Quite a few people think we should do our own project, but I have a fairly strong preference for IPPs.

“But, I do understand that if we do a storage project aimed at load-shedding reduction, then there may – and I stress may – be a stronger argument for doing our own project, but that is still to be determined.”

IPP power generation from renewable sources (mostly solar in this case) will not stop load-shedding in itself.

“If you just have extra energy, you are lowering your load, but you don’t have spare capacity for when load-shedding hits.

“The trick is to combine that with some method of storage. Contracting IPPs is the easy part of this process. Figuring out storage is the real conundrum.”

At this stage, however, the City of Cape Town is going to market to secure IPP renewable generators first, with storage projects to follow at a later stage.

“There are various options available to us,” explains Hill-Lewis.

While the cost of battery storage is falling, it remains high, so Cape Town is also considering other options, including pumped storage.

“We can expand the Steenbras pumped- storage hydroelectricity scheme, but that is very capital intensive. So there are lot of options, but that will follow at a later stage.”

IPP Timelines
“We have very specific timelines for IPPs, at between 40 and 50 months from now to the completion of the projects and for all of the planned power to be available.

“We are not necessarily setting a cap at 300 MW, but I suspect we’ll end up around there. To do considerably more than that enters utility-scale power generation and that it is an order of magnitude more difficult in terms of financing, guarantees, and so forth.”

With the Steenbras scheme already supplying Cape Town with 100 MW of power, Hill-Lewis believes another 300 MW should help the city mitigate up to Stage 3 load-shedding.

As there is a 100 MW cap on the size of individual distributed generation projects that can proceed without a licence, Cape Town would likely procure power from three, or more, IPPs to reach its 300 MW target.

The city currently requires more than 2 000 MW of power in total.

A small number of industrial companies currently use about 80% of the city’s power, with the other 20% made of up residential users.

“The low-hanging fruit, of course, is to make it easier for those industrial consumers to invest in generating their own power to a degree,” says Hill-Lewis.

These consumers may then also generate sufficient energy to feed some of it back into the grid.

Cape Town is currently offering a price incentive to consumers to do this. However, this offer is set to expire soon.

“We are talking about extending it further, and I am very keen to do so,” says Hill-Lewis.

“The system is working well, but unfortunately there is a relatively small number of investments of this type in Cape Town at the moment, so the potential is many multiples of what it is currently.”

Many municipalities across the Western Cape already have the rules and tariffs in place for feeding into the grid when installing a photovoltaic system.

The city and any successful bidders may need Cape Town’s large industrial groups for the projects envisaged under Cape Town’s IPP programme, adds Hill-Lewis.

Any large roof space on offer may be able to provide IPPs with solar-installation solutions, especially as there is limited open land available within the city’s boundaries.

“The potential exists that these industrial groups may also really help with decentralised storage, as well. That is a very important part of the investigation.”

Hill-Lewis says the city is happy to use its own buildings for solar farms.

“We’ll just rent it out to solar investors. This means that they will pay us a small rental for roof space and then sell us the power they generate – meaning they cover the capital costs and not the city.”

National Government’s Role
Hill-Lewis says national government has an important role to play in supporting the roll-out of Cape Town’s IPP programme.

“National Treasury is an important partner as investors start talking about national guarantees the bigger a project becomes.

“This will be an especially important discussion when we get to the storage portion of the programme.

“We may have a strong balance sheet in Cape Town, but some players are not interested in your balance sheet. They want a sovereign guarantee,” says Hill-Lewis.

“This means Treasury has to come to the party and look at our finances and see that there is a reasonable guarantee that we can raise the revenue necessary to pay the IPP for the next 20 years.”

Grey Areas
Hill-Lewis says there has been “tremendous” interest in Cape Town’s IPP programme.

“I can’t keep up. We are fielding enquiries from the US, Germany, France, Spain –you name it. They are all clamouring to invest. And, when we discuss the project with any interested party, the issue is not technology or capability – the issue is the legal framework in South Africa.

“Most of these offers of investment come with offers of funding, which means that finance is not such a concern. It is about gaining regulatory clarity.

“We are our own worst enemy in South Africa,” says Hill-Lewis.

“There are still so many grey areas that exist within our regulatory frameworks. And any grey area is the enemy of investment.”

Hill-Lewis says there remains a high level of uncertainty about the regulatory framework around IPPs, municipal own-generation and power procurement in South Africa.

“I think the only way to clarify the grey is to push ahead with projects such as this one.

“If you are going to wait for national government to clarify its regulations, they are never going to do it,” he notes.

“We are going to push ahead, and that grey is either going to be sorted out in practice, or in court, but it is going to be sorted out either way.”

The City of Cape Town has already played a pivotal role in a protracted legal process that finally allowed municipalities to buy and/or generate its own power.

No Electric Mobility Without Power
The City of Cape Town has no immediate plans to promote or implement electric vehicle use, says Hill-Lewis, this despite a tremendous global push towards electric mobility.

“We need to sort out our power problems first. We are far behind the world in terms of electric mobility, because it predisposes that you have electricity, or security of supply, which we don’t have.

“Our primary objective is to get security of supply and, once we do that, we can have a whole lot of other exciting discussions around electric mobility,” says Hill-Lewis.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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