Perfect storm brewing for South Africa as load shedding intensifies

 ·12 Sep 2022

South Africa’s plans to add 5,200MW of renewable energy to its grid faces pressure from a perfect storm of global events, which will push up prices and hamper progress.

Business Leadership South Africa chief executive officer Busi Mavuso said that South Africa risks falling behind in its plans as many countries turn to renewable energy in reaction to growing demand and geopolitical events that have erupted over the last few months.

This is while South Africa itself is in crisis and desperate for new power generation amid the worst levels of load shedding on record.

Mavuso pointed out key events that are creating a storm for future energy plans:

  • In South Africa, Eskom’s grid is under constant pressure, with load shedding becoming more frequent and higher stages more common.
  • California had warnings of blackouts last week as extreme temperatures led everyone to switch on their air conditioners and put the grid under unprecedented pressure.
  • The EU and UK are facing record gas and electricity prices, leading to a cost-of-living crisis. The EU is desperately trying to reduce its reliance on Russian gas for energy.
  • China plans to add at least 100,000MW of renewable energy over the next five years.

This means there is a global rush on components for solar and wind energy production that will complicate global supply chains and capacity, Mavuso said – just as South Africa is planning an aggressive ramp-up in build rates of its own.

“Already we have been tripped up by global conditions. Round 5 of the Renewable Energy Independent Power Producers Programme has been caught out by delays between the finalisation of preferred bidders and financial close.”

Financial close happens when all financial terms, including the amounts needed for capital expenditure and the cost of finance, are agreed upon and signed off. Up to that moment, projects are vulnerable to moving market prices.

“When Round 5’s preferred bidders were announced, they came in at a record low average of 47c/kWh – less than 20% of the average cost of Eskom’s existing production. But the price hikes since have tripped them up. It is now doubtful that all, or even most, of the projects will be able to close,” she said.

With global demand for renewables now increasing, Round 6 of the programme will also be affected.

“We are now progressing into a massive new 5.2GW Round 6 of the programme that will be hitting global production capacity at the same time as global demand has spiked. Prices are very likely to exceed what was bid in Round 5,” Mavuso said.

The business leader said that South Africa needs to learn the lessons from the previous bid window and move quickly. “We must ensure we can swiftly get from preferred bidder status to financial close. We need to minimise the risk of markets turning against us, and we need to ensure electricity is added to the grid as quickly as possible.”

“Delays must be avoided at all costs. The longer the time between preferred bidder and close, the higher the chance that market prices will move.”

Read: Eskom announces stage 2 and 3 load shedding for the week – here’s the schedule

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