The recent unveiling of the four independent power producers (IPPs) that succeeded in navigating Eskom’s inaugural leasing of grid-ready land in Mpumalanga included a number of important signposts in South Africa’s electricity market-reform journey.
Firstly, it showed that, despite its deep problems, South Africa’s electricity market remains of interest to investors, with the successful bidders for parcels covering 6 184 ha of land near the Majuba and Tutuka coal stations (HDF Energy South Africa, Red Rocket, Sola Group and Mainstream Renewable Power Developments South Africa) all having strong credentials.
Secondly, the leases include “use-it-or-lose-it” clauses, vital in the current electricity-short environment, as it means that Eskom has some leverage should projects fail to meet certain developmental milestones.
Thirdly, there were some interesting technology announcements. Given their commercial and construction advantages, all the bidders are naturally seeking to build either solar photovoltaic (PV) or wind farms. However, battery storage also features, as does an interesting hybrid combination of solar PV and hydrogen production.
Fourthly, Eskom has confirmed that more such leases will follow and that it will issue tenders, in phases, for other land parcels every quarter to release up to 30 000 ha for electricity development. 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.
Fifthly, it appears that efforts will be made, under the aegis of Operation Vulindlela, to ensure that various land-use and environmental authorisations are secured on an expedited basis. This is crucial if the 2 000 MW potential of these parcels is to be unlocked within two years.
Sixthly, the interest in wind and solar in Mpumalanga puts paid to the long held, yet incorrect, notion that the province is not a good location for renewables. To be sure, it does not have the jaw- dropping resources of the Cape provinces, but they are still more potent than those in many other countries, and all the more so when grid capacity is added to the mix.
Most importantly, though, all these projects will be developed on the back of private bilateral power purchase agreements, most probably with multiple offtakers.
This means that, while Eskom facilitated, the projects will attract no National Treasury guarantees, as is currently the case for the utility-scale projects procured through the Renewable Energy Independent Power Producer Procurement Programme. The same will be the case for the many so-called embedded generation projects currently being registered by miners, manufacturers or their IPP partners.
Together, these initiatives will start loosening the shackles of the single-buyer model, which, given the financial predicament of Eskom, cannot yet proceed in the absence of such guarantees, which add to the contingent liabilities of the national accounts.
These guarantee-free developments are at the vanguard of what will eventually become a merchant market that, if managed properly, will go a long way to derisk an energy supply industry that is currently groaning under the weight of a failing monopoly supplier.