Minister Kgosientsho Ramokgopa briefs media on the independent power producer programme
Good morning to the colleagues from Eskom, the interim CEO of the NTCSA Mr Segomoco Scheppers and our colleagues from the Independent Power Producer program (the IPP office) and let me also extend my warm and sincere greetings to members of the media and just to convey our sincere appreciation at your availability. Always making time to join us during these media briefings so that we can use you as a conduit to communicate with the rest of the country, the households and business at large. I also want to take the opportunity to greet the viewers back at home.
Today I stand before you to present the update in relation to our Independent Power Producer procurement program and this media briefing signals a significant moment because now we are pivoting away from just focusing on the performance of the grid that is largely Eskom but also to ensure that we are able to update the country in relation to other programs and initiatives that are underway to ensure that we are able to build conditions of energy sovereignty.
We are able to ensure that we attain an optimal mix in relation to the fuel sources that power the South African economy but also try to illustrate to the country that you are doing everything possible to ensure that we are able to exploit the reforms on the generation side as best by the amendment in relation to the Electricity Regulation Act and also to illustrate that we are doing everything possible to ensure that we are able to achieve our Nationally Determined Contributions (NDC).
These are a set of voluntary targets that the country has set itself to ensure that we are able to transition, we are able to green the South African economy (the generation capacity in the country), that we are able to make our contribution in relation to the reduction of the greenhouse gas emissions. So, it’s important that the country can keep to its promise. We’ve made this before the global community, the international community.
It’s important that we continue to give that assurance not just to the international community but most importantly to the South African citizens that we do have an appreciation that the issues of climate change and its relationship to greenhouse gas emission is something that has been established by a rich body of science. The scientific community has made that connection - the correlation of greenhouse gas emissions and climate change - we also know that its devastating large parts of the country KZN is exposed to extreme weather occurrences.
We have seen this in parts of the Western Cape - in parts of the North-West and across the length and breath of the country. It is our collective responsibility to ensure that we can transition and reduce the greenhouse gas emissions. For us to be to achieve this we need to accelerate the onboarding of renewables as part of the aggregate mix. Today, we are going to share that bold program to ensure that we achieve the targets we have set for ourselves.
As a starting point, Eskom continues to register the kind of performance that is going to help the country’s economy to recover. We’re going to move away from celebrating consecutive days of no load-shedding. Suffice to say there was a reason why we were emphasising this performance - we were able to give this account because we just came from year 2023 where we saw the highest intensity of load-shedding and the highest number of days of load-shedding. So it was important to give assurance to the country that the Energy Action Plan is in full motion and is giving the kind of results that are desired.
We do want to get to a point where we don’t even count the number of days without load-shedding because the expectation is that there shouldn’t be load-shedding, there must be consistency of supply. The reason why we’ve been giving this account was to illustrate that the measures we have been taking over a period of time as codified in the Energy Action Plan are yielding the kind of results required and that’s why when I started, I said we are pivoting.
It’s not about the number of days without load-shedding but the additional interventions we are making to ensure load-shedding won’t come back and ensure we are able to attain energy security as we green electricity generation in the country. Some of the important features of this recovery plan shows that the Unplanned Capacity Loss Factor (UCLF) has been able to improve from 33.79% and now sitting at 25.5%, an 8% decrease in the UCLF.
It’s a very important measure of the health of the system. The lower it is indicates that the system is getting healthier and looking at what the UCLF recorded over the past seven days, shows that we are averaging it about the 10, 500 MW so essentially 10, 500 MW of capacity that is installed was not available on account of a various reasons - units failing and units not performing at their optimal capacity. In comparison to the same period last year its an improvement of about 5000 MW. That is significant from where we started and that’s why we have been able to keep the lights on for a considerable period.
It’s important to juxtapose this performance against the summer outlook of Eskom. We have a baseline of 13 000 MW, so if we achieved 13 000 MW of UCLF the optimistic case means we won’t have load-shedding. What we are seeing now is an improvement of 3000 MW on our own outlook and it’s thanks to the work that Eric led by Bheki Nxumalo are doing at Eskom. So, it’s important to consistently improve these kind of results.
In numbers terms it means there’s less reliance on diesel to power our electricity requirements and in rand value terms compared to the same period last year starting 1st April to the 17th of October we had spend about the R18 billion of diesel to keep the lights, compare with the period this year 2024 1st April to 17th October 2024 that number is about the 12 billion less than what we had attained last year. It’s a significant shift and we are sustaining it 66% below what was the same period last year.
There’s a structural shift - there’s less reliance on diesel and looking at the load factor, the percentage of time that we were relying on diesel the same period last year we were sitting at about 8.95% and this year we are sitting at about 4.59%. This improvement in the health of Eskom is going to be passed onto the end consumer. When the tariff structure is determined, it’s also a function of fuel sources.
If there’s less reliance on diesel it means that Eskom will make lesser tariff applications to Nersa because they’re becoming more efficient and the expectation of the regulator and the legislation is that Eskom must be an efficient generator, so we are getting to that stage, we taking small steps but significant in the context of where we’re coming from. I thought it’s important to do that reality check.
The big message I want to convey to the country is that it’s an anomaly for us to celebrate the fact that it’s 208 days of no load-shedding. The standard is that there shouldn’t be any load-shedding, and the standard should further suggest that we should not rely on expensive fuel sources to keep the lights on. I thought it’s important to make that point. We do have that appreciation that this is not an achievement it’s a step in the right direction.
An achievement will be when there’s absolutely no load-shedding and we are able to use cheaper forms of electricity generation for us to keep the lights on and that’s where the Independent Power Producer program comes in. It was introduced in August 2011; this is a disciplined the way of government going out into the public through a transparent and competitive bidding process to procure cleaner forms of electricity generation. The first generation of these bid windows were focusing on the PV and wind. We’ve now had a cycle of 9 bid windows since the inception of the program in August 2011.
Trailblazing - transformational developed with the office. We think that the opportunities are vast going into the future and with introduction of the NTCSA better
alignment on this procurement of renewables or cleaner forms energy generation supporting and following the Transmission Development Plan is going to help us to accelerate the onboarding of renewable energy generation capacity.
I’ve made the point that the 7th administration - the Energy and Electricity Department is going to accelerate this procurement program, and we want to be aggressive, and I’ll show some of the interventions having engaged with the developers, the financiers, the stakeholders in this ecosystem. Some of the proposals that have come through are receiving our urgent attention on how best to improve this procurement program so that we are able to realise our ambitions.
Of the 9 bid windows, we have had 141 preferred bidders appointed and the total of these preferred bidders is about 13 422 MW. That’s significant, it doesn’t necessarily follow that the entire 13 422 MW is operational. Of that 13 422 MW, about 7335 MW are operational coming from 95 projects of those 141 projects and it includes peakers that burn diesel, Avon and Didiza are part of the first generation of the IPPs that we were able to procure.
What is under construction is about 1897 MW and this comes from 17 projects, and we also know that there’s 1183 MW from 9 projects that are preparing to reach commercial and financial close. What is telling about the prospects and opportunities that lies ahead is that there’s 8231 MW capacity currently in the market to be evaluated between now and next year. That’s significant clearly indicating that there’s a ramp up of this program but from where I’m standing, I don’t think that it is enough. I think that we should be multiplying this - what that multiplication is, is a conversation we are having with the IPP office, with all the players in the ecosystem.
One of the things that we have achieved in the first few days of the 7th administration was our ability to exploit our convening power and call everyone in this space into one room so that we can critique the 9 bid windows and see how best each and everyone can contribute towards a very efficient and seamless procurement of renewable energy program. I’ll highlight some of the interventions that are under consideration - I’m confident that in the next 4 to 5 weeks we will come out to the market with a degree of certainty on those reforms that we are introducing - the improvements that we’re making to ensure that we are able to accelerate this program.
This program is important because we have said to the rest of the world that we see ourselves contributing a reduction of anything between 350 to 420 000 000 tons of CO2 equivalent per annum going into the future as part of our ambition to decarbonise the commitments we have made at the COP as part of our Nationality Determined Contribution. So, it’s important to accelerate this and we’re going to de-risk energy generation from monopoly that is Eskom and then we can have multiple generators of electricity in the country.
We’ve seen the downside of a monopoly, when a monopoly fails it drags the entire country with it. We’ve seen the challenges Eskom over-exposed as a country, significant generation capacity 100%, it has come down about the 90% of total generation coming from Eskom. If Eskom fails, then it means that the electricity generation fails so important that we are able to reform - introduce other players and we’re able to de-risk and thats the direction we are taking.
I really want to commend the team at the IPP office led by Mr Bernard Magoro and his exceptionally competent team. One of the things that the team have done especially looking at the first 3 bid windows was to say that there’s an opportunity to refinance these projects because if you look at bid windows already, they’re six years into operation - seven years into operation - a lot of those first generation of projects have already paid their debts so there’s an opportunity for us to negotiate a refinancing instrument.
I want to congratulate the team that as a result of that innovative approach we’ve been able to see that the refinancing has been able to give us a savings of about R5.1 billion and part of that gets to be passed on to the end-consumer over a period of time. Half of that sits with the project developers and half of it IPP and by extension the consumer. That’s the kind of innovative work that the team has done over a period so that we are able to first green the South African economy - make sure that electricity is affordable. It’s those little steps that the team has been able to master that over a period time is going to give us the kind of results that we want to achieve.
One of the big areas of conversation and attention - the focal point of the Ministry is to ensure that we are able to reduce the cost of electricity in the country, make businesses competitive and ensure that we cushion the household. What we know in rand value terms in relation to the health of this program - the first thing I want to convey is that there’s significant market confidence even outside the borders of the country. So, from all over the globe there have been significant players who have come and bidded into this program.
They have participated in this program, we have seen companies coming from Germany, France, Italy, Luxembourg, Netherlands, Spain, Turkey and Denmark that have also participated. We have seen companies coming from Saudi Arabia and Japan, Korea have also participated. I think it’s important that to have a general appreciation of the confidence that the market has not only the domestic market but the international market on the credibility of the program that is run by the IPP office, and I really want to congratulate the team of men and women exceptionally talented engineers accountants and lawyers.
They’ve been able to be very clinical transparent in a manner in which we have been able to run this program and that’s why there’s increased market confidence. Out of this we’ve seen investments of about R272 billion but something that is understated in this is that only 18% of the 272 billion comes from outside (from those countries that I’ve mentioned) and the 82% of this investment comes from the South African commercial banks, comes from own DFIs in the form of the IDC and the DBSA.
This talks to the robustness and resilience of the South African finance community. This is important that the first people to show confidence in the program even before there’s international interest is our own domestic markets and these domestic markets have come and they’ve been able to invest in this programs and for me that’s one of the biggest highlights. When we do the balance sheet of what has been the success of this program, the focus shouldn’t just be on the megawatts - the megawatts are important for obvious reasons, we want the lights on, we want the economy to grow but the opportunity that has been created for domestic capital to be able to invest in this program, this is something for me that is commendable.
There’s about 8250 MW of this project that are either in operation or construction. One of the things that are telling about these statistics - we’re doing a geographic mapping of where these projects are. The first one is something we’ve been stating over a period - there’s been over- subscription in the Cape provinces - Northern Cape, Western Cape and Eastern Cape because that’s where you find optimal renewable energy sources.
In radiation levels the Northern Cape is exceptionally better than any other place in the country - the wind speed and efficiency is there. The Cape provinces are exceptionally better than any part of the country. As seen, there’s been a concentration of investments in those areas. The density of these projects sits in there, but we know there’s capacity in other parts of the country and KZN outside the peaker which uses diesel there hasn’t been any renewable energy program in that province.
It’s important to have alignment of where the capacity is and the resource, to ensure that we are able to accelerate this procurement program but essentially what we’re trying to illustrate is that almost every province has benefited but the concentration of these benefits is in the Cape provinces. Its something working with the NTCSA, the markets, developers and financiers we’re able to suggest a way to direct and manage this program going forward as we’re looking for the NTCSA to build the kind of capacity that is necessary to allow us to further exploit these resources. The point is that these are geographically spread with the concentration in the Cape provinces.
We have taken a major step forward, remember the bid windows I’ve been accounting for - the 8000 plus MW of wind and solar - what we’ve done with a bit of peaker, we’re going into the next generation of battery storage Independent Power Producer program. This is important because it’s going to help us to fully exploit the benefits of these renewables. We know during the day we’ve got excess capacity we can use that capacity to power the batteries, so essentially there is batteries storage and then during the peak when we don’t have wind when we don’t have sun we draw from that stored capacity.
In that way it’s able to flatten the profile of generation and availability in that we are using technology to store this excess generation capacity. Bid window 1 projects have reached commercial close, some of them are working towards commercial close. Bid window 2, bids are already in evaluation phase and what the team is doing is the evaluation of bids for battery and also for the last bid window. It just shows the capacity and the dynamic nature of the team, that over a period of time the team has been a bit more dynamic and a bit more agile in how we are able to evaluate these bids and we’re becoming more efficient and thanks to the work Mr Magoro is doing with the team.
We have identified the spine areas where there's no capacity essentially grid capacity. We are expanding the renewable energy capacity in those areas - parts of the North-West, Free State and the Cape provinces. There's a science that underpins the work the team is doing to ensure that as we grapple with the issues around the transmission development plan there’s things that we can do immediately and battery storage offers a significant opportunity.
The expected the total of these bid windows is about 1744, these are gradual steps but I'm sure that we can continue to perfect - get it right and I'm sure we can go large scales so that we are able to benefit from these natural endowments. Storage is an important part of the conversation of the story for us to be able to ensure that it approximates base load conditions. An important feature of what we have observed over a period of time, through a longitudinal study starting from 2011 bid window number 1 and then do an assessment 13 years later, what has been the improvement in the technology resulting in the price point.
We have seen that when we started with regards to solar a kilowatt hour it was coming in at about R4.66 and today as I speak to you its at about 56c kWh. That's a decrease of about 88% over that period of time and on the wind, what has been the price we have seen that the first generation bid window 1 came in at about R1.93 kWh today it's at about 58c kWh. On the aggregate, if pulled together we have seen the price decrease of about 85% so we're coming in at about 56c kWh. This is important, outside the issues around greening electricity generation, it’s going to translate into cheaper electricity over time.
The story about the price point, the effectiveness - the efficiency of these technologies is illustrated in this - just our own experiences in South Africa before we draw from other international experiences and couple this with battery storage, I think we can get maximum value out of this. In making this point I do acknowledge the technical limitations, non-dispatchable nature of this technology, that it’s intermittent but we've been able to illustrate as a country that it can be done - a transparent competitive process.
The prices have been coming down, now we introducing battery de-risking electricity generation away from Eskom and finding new sources of electricity generation and hopefully over a period time we will see that benefit trickling to the end consumer.
The socio-economic impact of these programs is important. We are not going to de-couple the conversation about the need for us to accumulate and acquire the megawatts necessary for us to power the South African economy and ensure that we are able to attain energy security. We must be able to incorporate in this conversation - in this program other elements that are able to ensure that we are able to achieve the transformational ability or capability of this program. Some of those significant features are 85,800 job opportunities created for South African citizens over a period of time.
The peak of those job opportunities is during construction once in operation the number of jobs come down significantly, but you can't take away the fact that we that over that period and especially the peak we’ve been able to employ about 85000 plus people. On the CO2 equivalent, we have an ambition of greening the South African economy and have an appreciation of our obligations as a country contributing about the third of the emissions on in Sub-Saharan Africa, so we've got a disproportionate amount of responsibility to ensure that we are able to contribute to the reduction.
The million tons offset of about 114.8 million tons that have been achieved since the inception of this program. The shareholding - the money that resides with South Africans of this total investment is sitting at about 37.7% of black South Africans. This is important, thats why i referred to the transformational aspect of this program to deracialise participation. Thanks to our commercial banks - the DFIs - they have sat behind black shareholders, put their faith in them and we are beginning to see the kind of results that are desired.
More impactful is communities, this land belongs to communities so they must have equity in these programs and overtime we can continue to improve this aspect but what we have achieved is there's 9% shareholding by local communities. The spend on the local content is about R76.6 billion and the contribution of the socio-economic aspect to this work is about R3.8 billion and the significant savings to water - if we were to generate this outside using other technologies we would’ve spend about 135.7 million kilolitres of water if we had not gone through this program but relied on other technology sources.
This is the amount of contribution and development that we have seen overtime and the BEE spend is about R105 billion. That is significant, we want to show to the countries that are alive to the socio-economic impact as we continue to accelerate this program to give us the kind of results required.
Those results are measured using multiple matrices not only in megawatts but what are the socio-economic impacts - the participation of the local market in this program. 82% of the 276 is rand based, that's the kind of investment that has been made overtime. As I conclude we think there can be improvements, and this is part of the conversations we've had with the players in the space.
We hosted a seminar where we brought the financiers, project sponsors - the chaps who are sitting with the technology, engineers, the IPP office, the NTCSA everyone in the public sector ecosystem to say let's have this conversation. There shouldn't be a separate discussion by the developers on one hand and then you have the financiers, let’s come into one room because the success of this program is
predicated on a seamless working relationship of the interest of the various players in that ecosystem. It's important that we are able to address that.
What are some of the issues that we’ll come out to announce in the next a few weeks on how best we are going to deal with them - some of them are apparent, it’s things that we have known. The first one working with Eskom we will find ways to reduce CELs and budget quote timelines. What we seen is the timeline it takes obtain this is inordinate and undermines the bankability - the credibility - the efficiency of this program.
So, it's important to address this question and this sits with us, it’s in the stable of the public sector. Its in our interest that we should be able to truncate those processes and in so doing we are able to ensure that the projects reach financial close much quicker. We also know that there are over 10 gigawatts of determined renewable energy capacity that is currently available for re-allocation in new bid windows.
We know we can re-allocate this in the next new bid windows so in this way we are able to ensure that before you talk even the next round there's 10 gigawatts that is available as a function of the conversations with NTCSA. Without putting them in the limelight, one of the issues that requires attention is for them to look at this and see how best they can contribute towards ensuring that we are able to free these gigawatts so that the economy can benefit from that. That’s a conversation we’ll have with the NTCSA.
To the extend that this can be done I'm sure that will be able to come out into the public and share with you how we going to address this. There's an idea that we are entertaining that the next bid window should target projects that have already secured budget quotes. What we know is that there are delays, there are projects that are sitting with budget quotes and go through the same process as all other projects. For those who have an appreciation of how this procurement process works, is that budget quote is a critical milestone in getting to commercial close.
We think that there's a way for us to nuance this procurement process and ensure that those that have already secured budget quotes are the ones that are first online.
Like I said that’s the discussion we’re having but we are gravitating towards all these things. The point here is that there's appreciation that there are things that can be done even before announcing the next bid windows that can ensure that it restores or strengthens the confidence of the market in this program. Another point we’re making is that there should be a geographic targeting of procurement rounds. We know there are corridors where there’s no grid capacity.
I've made the point of KZN - outside the peakers - there is no application in relation to renewables. We know that many parts of the country especially inland and towards the north where we've got grid capacity. It might be possible that consistent with the Transmission Development Plan that the CEO of NTCSA is working on, we are able to ensure that there's alignment of the capacity and therefore direct the market in the right place because the success of this program just strengthens the credibility.
We have not been able to allocate close to 3000 MW in the last bid window because of grid capacity so the market will not have confidence in this program. It's important that there’s greater levels of alignment. The TDP that Mr. Scheepers and the team are working on, once they announce it so that there is great deal of alignment. We are not having separate conversations; we have an appreciation that we are part of the ecosystem and we’re able to identify where these opportunities are.
There is a possibility of establishing solar or wind parks. The Indians have gone this route, and I think the Saudis too. Whether it will work for us is something the team is entertaining to ensure we improve the state of readiness and success of this program which could include programs that are combined with transmission strengthening and plans. Essentially huge hectares of land are carved out for solar parks generating gigawatts of energy. Undoubtedly that should be aligned with the Transmission Development Plan.
We are entertaining the multiple configurations on how we can improve this procurement going forward so that the ambition of ensuring that we are able to accelerate renewable energy generation in the country gets to be realized. It’s drawn from a very deep and robust critique of the 9 bid windows. There are lessons to be learned and unlearned, we know there are things that can be done better internally and we’re working on those. We have identified what those are, the NTCSA is an indispensable feature of that conversation, and the market also has its own obligations. We are entertaining an idea of separately releasing RFPs for wind and PV.
We’ve seen in many instances that the PVs will exhaust grid capacity - this is also function of curtailment - so these are the conversations we are having to realize that for us to be able to better manage this competition can we go out and have a bid window just for wind and then go for a bid window for PV so that we’re able to manage the issues of grid access.
We want to consider technology agnostic system requirements focused on bid windows. We're not necessarily specific, we can state the solution we want without necessarily prescribing what the technology is. That’s conversation that we’re having internally. We have learned from abroad that there are possibilities that presents - as a result of what is called online auction models and is drawn from international experience and have been investigated - will likely reduce the cost and timelines of bid evaluations.
There's a lot of investments that players invest in preparing these documents putting together bids and we think from the preliminary work the team has done in relation to online auction there’s possibility of reducing both the cost and time in relation to bid evaluation. There’s appetite to develop a credit see-through for IPP program and work with the dtic. If we have see-through of what the pipeline looks like the dtic can design an instrument that can help - taking into consideration the kind of legislation and policy instruments to be able to localize the content of some of these components that goes into these programs.
We have achieved some degree of localization we think we can do better, the only problem with the current process is the stop-start approach. There's no way to build with some degree of confidence elevated requirements for local content because you don't know - you can’t build industry on the basis of uncertainty. Capacity utilisation will decline, investments will be lost as a result but if there’s see-through of how long
the process will take industry will respond and the necessary policy instruments to make possible for local content.
Some of it might come at a premium with regards to the price point, but its a premium that any country should be prepared to pay because it subsidizes job creation, skills, our ability to broaden the industrial floor and also the national fiscus is able to benefit from this.
That’s a comprehensive set of considerations that will receive attention as part of these interventions that we are making. There's a need for us to constantly communicate with the market in order to mobilize potential bidders to start the required process with regards to the BQ. One of the things we have identified is our inability to communicate with the market and this presser helps us to say to the market that this is the direction we are taking.
These are some of the considerations we are making - we will come back and articulate in the most absolute fashion what these interventions are that will be put in place to ensure that there's greater levels of efficiency and greater confidence in the program and that we are able to onboard as quickly as possible and we are able to de-risk away from Eskom and achieve conditions of energy security.
That’s the direction we’re taking, so if you had to ask me what is the overall performance of this program - I think its good - we want to take it to a point where it’s excellent and the team has done that - like I said trailblazing first generation of this kind of program on the continent and the team has consistently tried to improve and perfect it. There's a point beyond which it requires executive authority, it requires greater levels of coordination and alignment, and we have started those conversations.
We’re not talking as separate players but we see ourselves as one but playing different roles within that ecosystem and that’s why that conversation with the market players, the developers, the financiers, stakeholders has been able to help us to fashion a set of possible interventions to help us to ensure that we accelerate this program and able to improve on it’s benefits both transformational and
developmental. We have seen from the 9 windows there is a huge amount of potential out of this program.
Thank you very much.
