Views
Renewable energy grid matters: An IPP perspective
by Hendrik Reynecke, Mainstream South Africa
There have been various reports and debates recently about the challenges of connecting successful REI4P bidders to South Africa’s
national grid. This debate has been influenced by various factors including energy shortage crises, load shedding, Eskom financial
constraints and pending Eskom applications to NERSA for annual tariff increases.
The perception is usually created that there
is a technical and financial challenge to
connect these projects, meaning that the grid
simply cannot physically absorb the energy
from the renewable energy (RE) projects
without spending significant funds – and that
Eskom does not have these funds available.
In reality there is no technical nor financial
challenge for Eskom in the short to medium
term and South Africa can still connect many
more renewable MWs to the grid without
spending significant funds towards strategic
grid upgrades. This is because Independent
Power Producer (IPPs) are funding and prefer
to build their own dedicated grid connection.
The dedicated costs (or shallow costs)
are those costs that are dedicated to the
respective IPP in order to connect to the
national grid. Deeper costs (costs that are
required to reinforce the grid mostly elsewhere
on the system), which would ultimately be
to the benefit of South Africa and all users
of the grid, but sometimes triggered at
first by a renewable project, are minimal
at the moment. Deep reinforcements are
limited purely because IPPs select projects
as oftern as possible that would not require
deeper grid reinforcement, simply because
Eskom currently operates under financial
constraints, and it will take considerable time
to complete the works. However, there may
be an option for IPPs to fund and execute
deep reinforcements themselves, but at this
stage Eskom is not allowing it and the funding
of deep reinforcements by the IPP may cause
projects to not be financially competitive.
In the longer term, to unlock more MWs of
renewables, strategic deeper grid upgrades
and extension will be required and the debate
about how to plan for this is being undertaken
by various stakeholders informed by innovative
Eskom future scenario planning and will
evolve as we grow our renewable fleet and
experiences.
In the short to medium term, IPPs simply
prefer the self-build option as they can then
control the costs and timing. Initially, during
the first and second round of the REI4P it was
only allowed that IPPs self-build connections
at distribution level (≤132 kV), but pressure
from IPPs (and Eskom’s financial constraints) is
making self-build at transmission (>132 kV) a
reality, especially in the third and fourth rounds.
The reason why IPPs are pursuing projects
where connection requires intervention at
transmission levels is because, particularly
for wind energy, capacity on the distribution
network for financially competitive projects
became limited.
To date Mainstream has received more
than 30 cost estimate letters (CELs - high
level letters required for bidding to the REI4P
confirming capacity, predicted cost and
timing) from Eskom. Mainstream currently have
three projects in operation (240 MW), three
in construction (360 MW) and two nearing
construction (250 MW). From this experience it
is concluded that, in general, IPPs can connect
their projects in half the time and half the
cost if they build the connections themselves
compared to Eskom. It must also be noted
that Eskom still controls the technical, legal
and environmental requirements when the
IPP builds the grid connection and will only
accept and energise the new connection
if it is built according to various required
standards including Eskom’s. All the design and
construction work needs to be completed by
Eskom approved contractors.
It may therefore be asked why there is this
disparity in cost and time between Eskom
build and IPP build. Timing is easier to explain,
as private funding approval and planning is
inherently faster than public. The private sector
has funds available which can be released
to start the work much quicker than Eskom.
Eskom as a public entity needs to go through
various procedural requirements, some driven
by law, in order to secure funding and procure
material. Costing is more difficult to explain, but
it is worth noting that the high level estimates
in the CELs received may be too conservative
and not optimised, as Eskom has vast numbers
of CELs to complete with each bidding round
which makes detailed assessment impossible.
Self-build permission
Securing distribution self-build permission from
Eskom is not a challenge and the process is
currently well understood and executed by all
stakeholders. Distribution self-build has been
done in the past by other large consumers
of energy. Securing transmission self-build
was not possible in the earlier rounds, but in
Window 4 was an option subject to ad-hoc
approval by Eskom. Since the expedited
round submitted to the DOE in November
2015, transmission self-build is more easily
attainable and it is likely transmission self-build
will be available to IPPs in the future.
Unrestrained access to transmission self-build,
with predetermined and clear conditions, is
a necessity for IPPs to effectively plan project
development and unlock new areas on the
transmission grid. It can be expected that the
industry and Eskom is on route to achieve this.
There are, however, several current and future
challenges on the horizon as renewable grid
penetration gets deeper. It should be kept
in mind that the RE sector has privatised a
portion of the electricity generation in our
country and that the status quo and grid
access rules did not necessarily allow for
private sector to participate in generation at
such a scale achieved in the REI4P.
Deep and additional grid
reinforcements
In the short to medium term Eskom would
probably keep operating under financially
strenuous conditions. Thus there would be
renewable energy projects that stay in the
development phase because their grid
solution requires deeper reinforcements. How
do we enable these projects, if financially
possible, to perform the deeper grid upgrades
themselves and carry a reasonable share of
the costs? In addition, there are certain IPPs
today that are confronted by Eskom seeking
dedicated grid works that exceeds the IPP’s
requirements to connect. Sometimes this is
for good reason as it would enable more cost
effective future connections for other potential
IPPs, but who pays for this additional work?
Shared grid connection works and
costs
As the industry starts penetrating the grid,
especially at transmission level, there are
some areas where one project will not be
able to be financially competitive (note that
wind projects are capped at 140 MW and
Energize RE 4: Renewable Energy Supplement - March 2016 – Page 13
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Views
Stats show solar power is shaking things up
I am afraid that this article needs to be on
a more serious than humorous note, and
as a matter of fact, more pertinent to a
fundamental subject which stands at the
very heart of the publishers (and mine):
energy.
Let us look at the data at hand:
I recently came across a study done at
the Swedish Institute for Social Research at
Stockholm University, where they made an
incredible discovery: that access to money
make peoples’ lives satisfactory. Wow, who
would’ve guessed? What a way to spend
one’s energy.
About 20 years ago I wrote an article on
energy being the trading currency (and the
death of money). There’s a book on that too,
authored by Joel Kurtzman and published
in 1993. Imagine a future where instead of
exchanging rands, euros, and dollars for
goods, we exchange kWh (via an electronic
energy-bank card), that would revolutionise
the banks, investors, industry, exchanges. You
name it, it will revolutionise it!
Anyway, let us return to the present. This year
we are experiencing decreasing oil prices (I
wish there was a direct correlation to the price
of petrol and diesel, and the vendors that
often claim that their price increase is due
to the price of oil going up). Coupled with
that, fracking seems to have its own issues
and the thirst for energy continues to grow
exponentially just about everywhere in our
world (maybe in other worlds too, but NASA
is still working on trying to discover them and
spending a lot of energy in doing so, if you’ll
pardon the pun).
l
The cost of generating solar energy has
been decreasing exponentially.
l
The demand for energy has been
increasing exponentially.
l
Estimates of solar making up 30% of power
grid (globally) within the next ten years.
l
In less than three years, Chinese solar
power capacity has increased threefold.
l
World fight against air pollution (coupled
with mitigation costs).
Then there’s the technology components, to
cite just a few:
Dr. Vincent Micali.
With the way OPEC and Iran are behaving,
I don’t expect the prices of oil to increase
significantly unless some rare event occurs.
Some statistical analyses suggest a significant
increase in solar energy (very abundant on
our planet and substantially cleaner) power
plants; by which I am not discounting the
domestic use of solar energy, as this is also a
fundamental factor.
What fascinates me, in this realm, is the
innovation, investors’ belief, technology and
shifts in mind sets – all of which will be taking
the next giant leap into the future. I have to talk
about the future, after all, I am a statistician
and forecasting is my job. So given the present
information, what can one say about the
future ahead?
l
Energy conversion increased.
l
Laser processing for HIT cells.
l
Manufacturing costs decreased, through
for example the replacement of silver with
aluminium.
l
Advances in storage, such as underground
salts for CSP, and Elon Musk’s Powerwall
battery for photovoltaics.
Investors are pouring money into solar energy
generation (we are talking in terms of billions
of US$ in a trillion US$ industry). Bill Gates has
invested $1-billion, Warren Buffett has invested
$15–billion, and a team of 29 billionaires has
committed to invest $20-billion.
With all this data I might be tempted to design
a statistical regression model that would
forecast the solar generation capacity for the
next 20 years. Do I really need to? What I need
to do is to keep myself in my job.
Send your comments to
[email protected]
...Continued from page 13
solar at 75 MW) but multiple projects sharing
grid costs could be financially competitive.
Noting that there are strict anti-collusion rules
in the REI4P and considering that project A
will probably not carry the risk of project B
submitting a compliant bid and eventually
securing financial close, how do we enable
projects to work together on grid before
they are preferred bidders? In Round 4 there
are multiple preferred bidders at the same
transmission grid location, which means
all of them will connect through the same
dedicated grid works. How are these costs
and risks shared and who takes ownership of
building it? Keep in mind that before these
projects were announced as winners there
was no room for working together.
New grid systems
There are renewable sources in South Africa,
specifically wind, that currently cannot be
realised because there is no grid in place. In
the long term, it may be required that these
areas are unlocked by new transmission grid
being constructed. Will Eskom build these,
or will we allow private grid infrastructure
like we allowed private renewable energy
generation?
In the past seven years private sector grid
intervention has grown significantly, mostly
driven by the successful REI4P. This is a prime
example of how government and the
private sector is supposed to work together
in public-private partnerships that add value
to all parties. Private sector has extremely
competitive business ventures with fair and
reasonable returns, and the public sector
has a value-for-money renewable fleet
which resulted in a net saving to the South
African economy of R4,6-billion in the first
half of 2015, including wind energy putting
R300-million cash back in Eskom’s pocket.
South Africans can be excited about the
future possibilities in grid upgrades and
hopefully the same principles will apply in
basic service delivery infrastructure like water.
Contact Hein Reyneke,
Mainstream South Africa,
Tel 083 264-3884,
[email protected]
Energize RE 4: Renewable Energy Supplement - March 2016 – Page 14