Page 28 - Energize April 2021

VIEWS AND OPINION

Chris Yelland: You ask the question, why has it taken so long?
Minister Mantashe has previously indicated that the provision It has taken this long because we had to engage extensively
of government guarantees, in respect of funding of future IPP upfront on the specification with the Eskom System Operator. We
projects beyond Bid Window 4 of the REIPPP programme, was even had to involve the Regulator, because of the different views
problematic considering the fiscal constraints of government on the characteristics and nature of the capacity gap.
and South Africa. Do any of the projects announced for the In addition, Eskom is not in the same financial position now
RMIPPP programme and/or their PPAs with Eskom require any compared when we did Bid Window 1, 2 and 3 of the REIPPP
government guarantees, and if so, please can you detail the programme. By the time we did Bid Window 4, Eskom’s financial
extent and nature of these? position was changing, and Eskom was starting to raise issues
around risk allocation. So, we had to deal with those issues.
As you know, Eskom is the buyer of the energy. We had I have to say, Eskom made compromises. In some instances,
discussions with National Treasury, and to ensure certainty they took hard positions, such that if they had stuck with them,
to investors, it was agreed to continue the same government we would not have the RMIPPP programme today. So, we had to
support regime that we had for Bid Windows 1 to 4 of the have those discussions.
Renewable Energy IPP Procurement (REIPPP) Programme. For me, that is why it took the time it did for the RMIPPP
Yes, there are discussions in respect of what may be programme to get off the ground.
required for future bid windows in implementing the Integrated
Resource Plan, IRP 2019, and how we can deal with government Chris Yelland: Government has been adamant that power
guarantees differently. projects should contribute to local manufacturing, localisation,
But for the RMIPPP programme specifically, it has the same and jobs. 1220 MW of the 1845 MW of the RMIPPP programme
setup as for Bid Windows 1 to 4 of the REIPPP programme. to date (i.e., about two thirds) is from a single company,
Karpowership. Where are these powerships manufactured and
Chris Yelland: constructed? What is the local content of this major portion of
The RMIPPP programme was meant to be an emergency the RMIPPP programme? Are these powerships and floating
procurement with quick delivery and short duration of about storage and regasification units (FSRUs) simply rented from
5 years. Why has it taken so long to procure this emergency foreign owners?
power? Why are you now proceeding with 20-year PPAs with
IPPs involving gas-to-power, wind, solar PV, and battery energy We do not have information at our disposal as to where the
storage, including imported powerships moored in South African powerships and FSRUs are manufactured. Indeed, we don’t
harbours for 20 years fuelled by imported LNG, which appears to actually consider where they are manufactured. What we look at
be a world record for emergency power? Would it not have been is the local content.
better to simply implement the IRP? In terms of the law, a ship is an item designated by the
Department of Trade, Industry and Competition (DTIC) for local
Firstly, may I say that gas is in the IRP, battery storage is in the manufacture in South Africa. However, the DTIC has considered
IRP, renewables are in the IRP, and, so far, we are procuring whether the powerships and FSRUs can be manufactured here
exactly these things. From the beginning, we said the RMIPPP and has granted them exemption from compliance with South
programme must align with the direction of the IRP 2019, and we Africa’s local content requirements.
believe, to some extent, it has done this. Furthermore, the powerships and FSRUs that form part
The 2000 MW of the RMIPPP programme is to help close the of the Karpowership bid are leased, and such lease costs are
generation capacity gap identified in IRP 2019. The IRP decision not considered in calculating local content – we look at other
talks to lead-time. It is an emergency in the sense that we are elements that can be done locally, and we use these to calculate
looking at projects that can come online in the shortest possible the local content.
time. So, I guess it is how we use the word “emergency”. That is So, based on what can be done locally – which excludes
why, even in the naming, we call it “risk mitigation”. We did not the powerships, FSRUs and imported LNG fuel – something like
call it an “emergency programme” because we realised that the 63% of the remaining costs spent on preparing the ports, berths,
word “emergency” was causing confusion in the market. connections to the grid and maintenance of the powerships and
The question of how long to contract for is not a function of associated equipment will be the local content.
the fact that you’ve got a gap today – it is a function of what you It should be noted that the local content exemption granted
are willing to pay. If we were to contract the capacity that we by the DTIC for the powerships and FSRUs was on condition
have procured now over a five-year period, we know what would that the maintenance, repair, and overhaul of the ships is done
happen. Those PV, wind and battery storage projects would in South Africa. Over the period of this project, substantial
probably come in at three to four times the tariff that we have economic benefits arise from this.
currently been offered. Yes, the significant majority portions of the Karpowership
It is different for the Eskom Short-Term Power Purchase projects are imported, but they do comply with the requirement
Programme. Those projects already exist, and the capacity has that 49% of the local IPP operating entities are South African
been built. So, the sellers are willing to contract at low cost for owned, and that 30% of this local ownership is in Black hands.
three to five years because the plant is probably paid off, or they We must look at ownership holistically. The Karpowership
are selling power when they do not need it themselves. projects are not simply what one may call “Turkish-owned”.

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