50% stalled! South African renewable energy projects face difficulties

About 50% of the winning projects in a restarted renewable energy purchase program in South Africa have encountered difficulties in development, two government sources told Reuters, posing challenges to the government’s use of wind and photovoltaic power to address a power crisis.

South African President Cyril Ramaphosa said that the aging Eskom coal-fired power plant often fails, causing residents to face daily power outages, leaving South Africa facing a gap of 4GW to 6GW in installed capacity.

After a six-year hiatus, South Africa held a tender round in 2021 seeking to tender for wind power facilities and photovoltaic systems, attracting strong interest from more than 100 companies and consortia.

While the tender announcement for the fifth round of renewable energy was initially optimistic, the two government officials involved in the renewable energy program said only half of the 2,583MW of renewable energy expected to be auctioned was likely to materialize.

According to them, the Ikamva consortium won bids for 12 renewable energy projects with record low bids, but is now facing difficulties that have stalled the development of half of the projects.

South Africa’s Energy Department, which oversees renewable energy tenders, has not responded to an email from Reuters seeking comment.

The Ikamva consortium explained that factors such as rising interest rates, rising energy and commodity costs, and delays in production of related equipment in the wake of the COVID-19 outbreak had impacted their expectations, resulting in cost inflation for renewable energy facilities beyond the price of Round 5 tenders.

Of a total of 25 renewable energy projects awarded bids, only nine have been financed due to financing hurdles faced by some companies.

The Engie and Mulilo projects have a financial deadline of Sept. 30, and South African government officials hope the projects will secure the necessary construction funding.

The Ikamva consortium said some of the company’s projects were ready and were in discussions with the South African government to find a way forward.

A lack of transmission capacity has become a major constraint on South Africa’s efforts to address its energy crisis, as private investors back projects aimed at increasing electricity production. However, the consortium has yet to resolve questions about the expected grid transmission capacity allocated to its projects.

Post time: Jul-21-2023