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Dropping costs and localisation demands see consolidation of REIPPP bidders

By Nathan Venter, GM of Schletter SA

The cost to produce renewable energy has dropped by around 40% in the solar photovoltaic (PV) segment of the market since the renewable energy independent power producers programme (REIPPP) began, which has led to increased competition and, coupled with localisation demands, consolidation of bidders to roll out infrastructure.

Localisation becomes a factor when considered in the global context: wind turbine energy sees a global manufacturing glut and the blades for the turbines constitute 60% to 70% of the total facility, which makes local content figures of 60% difficult at best. Transportation of the blades from ports is also a problem since there is a scarcity of rail facilities.

By contrast, solar PV had an average tariff of R2,75 per kilowatt hour (kWh) during the first window of bidding but that has now dropped in the second round to around R1,65kWh – a 40% decline. The change comes from advances in solar PV technology and increased competition thanks largely to the department of energy’s (DoE) competitive programme structure. The closing date for submissions for the third round is in August and an even more competitive feed in tariff is expected.

In the first round, however, bidders for all forms of renewable energy came under pressure when there was a three-month delay awarding the 28 successful bids for 1 416MW, which placed many of the smaller companies under cash flow pressures. The initial round was worth nearly R50 billion. The second window saw 19 successful bidders for 1 043MW for a total value of around R28 billion.

While many large, international companies were successful bidders, they now face rising demand for local content aimed at ramping up local manufacturing and employment in terms of broad-based black economic empowerment (BBBEE).

Contrasting the wind turbine sector, advances in solar PV technology and rising demand for global renewable energy have resulted in a manufacturing shortfall. Solar PV currently produces 0,25% of the world’s electricity supply but the number is increasing rapidly and grew by 86% in 2011 alone.

South Africa’s REIPPP stems from a desire to reduce greenhouse gas emissions by 34% by 2020 and simultaneously overcome electricity supply in a critical condition.

Supply is so crucial that many local organisations, particularly mines and manufacturing concerns heavily dependent on electricity, maintain their own smaller, regional power supply stations that use a combination of sources, including diesel generators. They are incredibly expensive to operate and maintain compared with solar PV and other renewable energy sources.

Localisation focuses largely on local employment and meeting BBBEE demands. However, many foreign companies that have been operating in the solar PV field have found labour relations to be specifically challenging with the result being several wildcat strikes at installation sites. They lack site managers with a strong understanding of local labour markets and requirements and how best to deal with these. Smaller firms have also come up against the lack of mature processes and experienced labour relations officers.

Since competition is increasing and margins declining the localisation demands in the third window of the REIPPP are now placing many companies under immense pressure to remain competitive. Local manufacturing of products that meet stringent international standards is absolutely essential, a fact recognised by the DoE in its mature approach to the REIPPP, hence the many partnerships and consolidation of bidders, both local and foreign, now emerging in the sector.

For additional information, please do not hesitate to contact:

Monica Braganca

marcusbrewster

T: (011) 022 9711

M: 071 685 6476

E: monica@marcusbrewster.com

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