Interest in wind projects is growing in South Africa’s C&I sector because it could offer security and predictability of supply and the cost of energy is competitive.

Three established routes to market for the C&I sector to get into the self-generation game currently exist and paint a picture of how it could embrace wind technology. Self-build solar on the roof, long-term PPAs between off-taker and generator or partnerships through joint development agreements and mergers & acquisitions. But, there is no standard template yet for a wind project PPA or wind wheeling deal in the C&I sector.

Self-built solar for the C&I customer is entering a new phase in terms of size. The latest example is the newly installed 40MW solar plant at South Deep mine, which, in a way, paints a broad picture for contracts for wind projects which tend to be sized large from the get-go.

Then there’s the long-term PPA, which sees some very big projects being developed in South Africa. Point in case is the largest corporate renewable energy PPA in Africa in Tronox Mineral Sands 200MW deal with SOLA Group and African Rainbow Energy.

On the joint development agreement side, Anglo American will build 600MW in wind and solar power after establishing a joint venture company called Envusa Energy with EDF Renewables. They eventually aim to develop an ecosystem of renewable energy plants capable of generation somewhere between 3GW and 5GW by 2030.

The project’s first phase would be fully funded through debt, which is how big energy infrastructure projects are typically financed in South Africa, a lesson well-learned through the REIPPP programme over the last decade.

C&I sector needs energy

James Cumming, General Manager at African Clean Energy Developments, said there is no difference between preparing a project for REIPPPP or the C&I sector, with a minor distinction being the scale of finance. “One benefit of the C&I sector is the level of vibrancy in the market, which is developing faster than the REIPPPP [market did],” said Cumming.

He was part of a Windaba panel discussion on Moving towards private offtake markets.

Eskom grid capacity constraints mean a project stock problem exists for all prospective C&I customers wanting to self-procure energy. Energy developers have earmarked projects they would like to pursue across the country but have to wait for Eskom’s grid to expand its T&D infrastructure and create access points in over-utilised provinces.

Al’Louise van Deventer, Senior Manager: Maintenance and Operations at Eskom, said while grid constraint is the current problem to solve, the other side of the coin is funding the very necessary expansion of the grid.

“The money for the grid has to come from somewhere. We speak of transmission grid constraints, but what about distribution? The electricity needs to also get to the customer. There is a handshake that needs to happen… to ensure the megawatts get to onto the grid. Opportunities exist for more collaboration. And, you have to also check – what is the country’s approach?” asked van Deventer.

Managing risk

Financiers are wrapping their heads around where to allocate risk in PPAs around wind power generation for the C&I sector. “Things are getting complicated now that we have PPAs signed for third-party agreements in terms of understanding how to mitigate risk. What has to be worked out is the measures to manage the risk on the grid and to customer,” said van Deventer.

At the same time, Chanda Nxumalo of Harmattan Energy says the argument about who takes responsibility for network risk, especially as loadshedding remains a problem, is also a hot potato.

She would like to see a better emphasis on the technical details as more complex C&I renewable energy project PPAs are created. “Understanding of the technical nature of a project is often missing. Aligning the PPA with what the project does is important. A lot of the time, the lawyers ignore the annexures.

“Also, trying to build on what is happening internationally is important. The C&I space has its own nuances. We’ve been relying on the REIPPPP structure,” said Nxumalo.

The financing of C&I wind projects is not the problem

Logan Govender of Perpetua Holdings said the well-established REIPPPP funding landscape would probably be exactly where C&I customers look to for financing their projects. “We have a well-established lending market with the big five banks in South Africa,” said Govender.

He pointed out there aren’t enough deals going around, so finance pricing from the banks is incredibly competitive.

Lena Chirwa said she expects the private-offtaker-in-wind-market is going to be heavily negotiated, which would affect the setting of tariffs. The creditworthiness plus the balance sheet of the offtaker will be of greater importance in this sector than it is in REIPPPP projects because here, it will be the buyer who has to present a guarantee, not a sovereign government guarantee underpinning the contract.

“Additional liquidity support will be asked for … that will be a heavily negotiated point,” said Chirwa.

“Bridging the regulatory gap” will be another point that needs to be addressed, according to Chirwa. More detailed regulation on responsibilities and spelling out exact standards that need to be conformed to would go a long way to solving current issues holding companies back from creating wind project wheeling and PPA deals in the C&I sector. ESI