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Clarity on policy will deliver more success for energy procurement

Sep 09 2016 14:34
By Paul Semple

SPONSORED:

future growth

The debate around the future of renewables in South Africa can easily detract attention from the bigger picture – the country’s longer-term energy requirements and how they will be met timeously and with maximum efficiency.

Some will say that South Africans have short memories because just more than eight years ago rolling black-outs (load-shedding) suddenly became part of our national discourse and magnified a desperate shortage in energy production.

Contrary to public perception, this crisis did not suddenly happen in 2008. The seeds were planted many years earlier compounded by inadequate foresight and planning,  a shocking level of complacency by government about the sufficiency of South Africa’s energy supply and our historical reliance on coal power.   

Thankfully a single form of technology is no longer part of our country’s future energy mix as set out in government’s Integrated Resource Plan (IRP 2010) for the next 15 to 20 years.

Although the IRP 2010 is at least three years out of date, renewables are not any less important in their contribution to the power that  keeps our lights on these days. But then they were never intended to be the only alternative to reducing our dependence on coal.

Renewables, nuclear and natural gas power are all included alongside coal in the longer term energy mix for  South Africa. Comprising 13% of future energy generation, nuclear and natural gas are important planned contributors towards the base load energy mix to reduce our dependence on coal.

Given the lead time for rolling out new sources of energy generation (at least 10 years for nuclear) it is critical that the IRP 2010 is updated as soon as possible and new procurement programmes are implemented to ensure that future energy requirements are met for the continued growth of our economy.  

In the meantime, the renewable procurement programme (REIPPPP) has been an incredibly successful initiative by government resulting in almost R200bn of fixed investment in projects mostly located in rural areas. These have contributed to the creation of thousands of new jobs over the past four years.

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The programme has also provided a speedy introduction of new power to the grid during a period when it was desperately needed and has contributed to the stability of the country’s electricity system.

Some important lessons have been learned from REIPPPP, most importantly the strength of a public private partnership (PPP). The government will do well to repeat the following principles when procuring new forms of power in future:

  • Ensure there are transparent rules of engagement with the private sector;
  • Consistently communicate updated planning with all stakeholders;
  • Clear bid qualification and evaluation criteria supported by standardised documents drafted in consultation with the industry;
  • Make a commitment to dealing with any form of corruption promptly, harshly and with serious legal consequences.

At the heart of the success of REIPPPP is the trust that has been established with the private sector. This has promoted a huge increase in the competition to build projects and supply energy to Eskom in each subsequent round of bidding, resulting in some of the cheapest electricity being procured globally today.

Unfortunately the recent statements by Eskom about the future of renewables, and the lack of clarity about additional bidding rounds, has severely shaken the private sector’s ongoing confidence in the programme.

Whatever the updated decision on the most appropriate future energy mix, South Africa is at risk of repeating the complacency that lead up to the most recent electricity crisis.

Clarity around the IRP 2010 is urgently needed together with a commitment by government to pursue the same principles that have worked so well for REIPPPP, in order to encourage further private sector involvement in the energy sector.

Paul Semple is Futuregrowth's Portfolio Manager of the Power Debt Fund and  an Investment Analyst.

FAIS disclaimer: Futuregrowth Asset Management (Pty) Ltd (“Futuregrowth”) is a licensed discretionary financial services provider, FSP 520, approved by the Registrar of the Financial Services Board to provide intermediary services and advice in terms of the Financial Advisory and Intermediary Services Act 37 of 2002. The fund values may be market linked or policy based. Market fluctuations and changes in exchange rates may have an impact on fund values, prices and income and these are therefore not guaranteed. Past performance is not necessarily a guide to future performance. Futuregrowth has comprehensive crime and professional indemnity in place. Performance figures are sourced from Futuregrowth and I-Net Bridge (Pty) Ltd.

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futuregrowth  |  eskom  |  old mutual  |  renewable energy
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