South Africa proposes voluntary reduction of tariffs awarded in first three REIPPPP rounds

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The South African government has offered renewable power project owners the option of voluntarily reducing the payments they receive per kilowatt-hour of electricity generated in return for longer deals and upgraded projects boasting more generation capacity.

Minister of mineral resources and energy Gwede Mantashe and public enterprizes counterpart Pravin Gordhan offered the deal after meeting coal industry representatives and the holders of power purchase agreements (PPAs) awarded from 2011-13, under the first three rounds of the national Renewable Energy Independent Power Producer Procurement Program (REIPPPP).

The meeting was held last week to discuss energy security and reliability of supply, sustainability and the economy, the Ministry of Mineral Resources and Energy said in a press release. That official bulletin made no mention of any intent to discuss renegotiation of the tariffs awarded through the PPAs although that will have been high on the agenda, with debt-stricken national utility Eskom desperately needing to reduce its outgoings.

Longer deals

“I’m relieved to hear renegotiation of South Africa’s renewable power contracts will be voluntary, as forced changes would have increased both risks and costs for future IPP [independent power producer] projects,” said Chris Ahlfeldt – an energy specialist at Blue Horizon Energy Consulting Services. The analyst told pv magazine: “[Industry body] the South African Renewable Energy Council is helping coordinate a response from IPPs, lenders, financial advisers and legal advisors from REIPPPP rounds 1-3 on a short and long-term solution before it meets again with government this Friday.”

Although new PPA contract terms have yet to be agreed, extending the 20 year payment period could leave room for renewables operators to reduce prices, Ahlfeldt said. “There is also potential to expand renewable capacity at some plants by adding lower cost and more efficient solar PV modules to existing facilities,” he added.

However, the analyst does not believe renegotiating renewable energy contracts will be a silver bullet for Eskom, which still needs to unbundle its energy monopoly and resolve maintenance issues at its coal plants.

REIPPPP to return?

The South African government has never explicitly stated the next, fifth round of the REIPPPP hinged on renegotiating earlier power payment deals. However, at the Africa Energy Forum held in Lisbon in the summer, Nomfundo Maseti, from the National Energy Regulator of South Africa, said the the next round of the incentive scheme was ready and her preference was to find a solution to the crisis at Eskom to move clean energy development forward.

PPA contracts initially awarded in the fourth round of the REIPPPP were renegotiated before they had been signed off.

The fifth, 1.8 GW stage of the procurement scheme was originally planned for last year. If implemented, the next round would help the country return to clean energy development after a hiatus of more than four years.

According to the latest statistics published by the International Renewable Energy Agency, South Africa had around 2.55 GW of installed solar generation capacity at the end of 2018. The South African Photovoltaic Industry Association believes the country needs to deploy at least 1.5 GW of solar per year.