Only half of all renewable energy projects procured during Bid Window 5 have come online, with the rest unable to reach financial close due to rising borrowing costs and unsustainable tariff pricing.
4,600MW of renewable energy generation was expected to come online from Bid Window 5 in 2021. However, 12 of the 25 projects have failed to reach financial close while a further 4 are awaiting financial closure.
This leaves only 9 projects that have reached financial close from Bid Window 5.
The 12 projects that have failed to reach financial close so far are from the Ikamva Consortium, which comprises a Danish company and Patrice Motsepe’s African Rainbow Energy, along with other local companies.
The consortium blames rising interest rates, costs of renewable technologies, and declining production of materials used to construct the plants for distorting its calculations.
However, the head of advisory at the Economic Development Platform, Maloba Tshehla, told 702 that many of these projects were too aggressively priced to win the contracts.
This made these projects unsustainable long-term as their tariffs left no space for external shocks or price increases.
“The prices quoted in bid window five were absolutely crazy even at the time of bidding,” Manie De Waal, joint CEO of Energy Partners Group, told Reuters.
Tariffs for renewable energy have been declining sharply in South Africa, with prices for electricity from wind and solar more than halving over the last decade.
However, companies proposed tariffs with razor-thin margins to win contracts offered at the bid windows.
Economic shifts globally after the end of the Covid-19 pandemic and the Russian invasion of Ukraine have dramatically raised the costs of renewable projects, making most projects unviable at their proposed tariffs.
Tshehla said that the government’s Independent Power Producers (IPPs) Office does not give the bidders much room to move after the window has closed.
He called for the IPP Office to set rules around how long it gives projects to change their proposals and outline what happens when a project does not reach financial close.
Bidders, such as the Ikamva Consortium, are taking up vital grid capacity that could be given to projects that are viable and able to produce electricity.
The grid capacity not used during Bid Window 5 should be added to future bid windows or moved to projects that can be executed.
However, Tshehla said that while this outcome is bad, it is not a catastrophe. Other Bid Windows have produced better outcomes, and there is significant private procurement of renewable energy.
The government’s priority must be to ensure sufficient grid capacity for new projects to come online, as that is the primary bottleneck to new generation capacity coming online.
In this regard, Eskom has developed grid queuing rules to determine which projects get grid access.