Mega bid window to be released to market in June — but SA’s big challenge is grid capacity, says electricity minister

2 May 2023

‘You can run as many bid windows as you want, but if you don’t have grid access there’s no value,’ said Minister of Electricity Kgosientsho Ramokgopa.

Last week, Minister of Electricity Kgosientsho Ramokgopa unofficially announced plans for a “mega bid window” of more than 15,000 megawatts (15 gigawatts) of additional renewables.

During an interview with Daily Maverick at his new office at the Union Buildings in Pretoria, Ramokgopa said while it’s planned to have the bid open before the end of June, opening it is the easy part — the challenge is grid capacity.

“You can run as many bid windows as you want, but if you don’t have grid access there’s no value,” said Ramokgopa.

To date, there have been six bid windows released as part of the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), four of which have projects connected to the grid, totalling about 6,000MW (6GW) of installed capacity — only 5% of SA’s energy supply.

According to the 2019 Integrated Resource Plan, about 30GW of new generation capacity, most of which consists of renewables, must be added to the grid by 2030.

Read more in Daily Maverick: How the ANC’s years-long delays on renewables plunged SA into darkness and scuppered plan to end blackouts

Ramokgopa said this 15GW window could be called Bid Window 7 or “a rolling bid window — essentially, when it opens it doesn’t close”.

Ramokgopa said the National Energy Crisis Committee had approved the rolling bid window, which brings about desperately needed generation capacity, the size and scale of which abate the “genuine concerns that we are not committed to decarbonisation”.

‘Good and bad’

Wikus Kruger, a research fellow who deals with power sector investment in Africa at UCT’s Power Futures Lab, told Daily Maverick, “The plan to procure 15GW is, in principle, both good and bad.

“The good… we need a lot of new capacity really quickly. The bad is, if you run an auction for that round, you will not get any competition and prices will be really high or higher than they need to be.”

Kruger explained that if there’s so much capacity up for grabs in a bid window, there’s no competitive pricing because all the bidders know they will win — which is what happened in the first bid window, where there weren’t enough projects ready for the amount of energy on offer, resulting in bids being close to the ceiling price, which was very expensive.

“Ideally, you’d want to have double that amount of capacity being bid in the round to get competitive pressure,” said Kruger.

He said that before a company bids to be part of the REIPPPP, it has to have secured land (bought or leased), a firm estimate of whether an Eskom substation can take the power and what it would cost, and all the necessary land, water use and environmental permits.

“But that takes a lot of time, and it takes a lot of money,” said Kruger. “So I don’t think we have 15 gigawatts’ worth of projects that are ready.”

Kruger suggested that the mega bid window needs to be staggered over time to ensure competitive pressure.

Tech Central reported that in a presentation to the ANC by Ramokgopa, requests for proposals for 5GW of solar and wind technologies where grid connections are available will be released in June, as well as 1.2GW of battery storage and 3GW of gas.

‘The grid is tied up’

It’s a term that is thrown around a lot — often cited by Eskom and Ramokgopa as a reason for the REIPPPP delays — “the grid is tied up”.

Segomoco Scheppers, the group executive for transmission at Eskom, said at the signing ceremony for Bid Window 5 last September: “The reality is that where we find the best renewable resources in the Northern, Eastern and Western Cape, the network is not adequately developed.”

Jesse Burton, an energy policy and just transition researcher with the Energy Systems research group at UCT, explained: “Think of the grid as like a pipeline or a hose. You need to squeeze the water being ‘made’ through the wires.”

So if there is a lot of new generation capacity in one area (such as in the Northern Cape which has 3.3GW of power from the REIPPPP connected to the grid), but less infrastructure (transmission grid) to move the power to other parts of the country, the grid is tied up.

Eskom’s latest Generation Connection Capacity Assessment estimates that upgrading transmission infrastructure, which includes transmission lines and substations, will cost R180-billion between 2022 and 2031. Nearly 2,600km of transmission lines must be built by the 2026 financial year (73% more than was constructed in the previous five years), and 5,800km of transmission infrastructure must be built by the 2031 financial year, according to Eskom.

Ramokgopa said what’s important about this bid window, along with the scale, is the speed at which grid access is provided.

“So we can announce, and then you respond, you do financial close. And then, of course, you won’t get to financial tools until you have grid access. and then everything stalls there, so essentially it is a public relations exercise. You haven’t done anything,” said Ramokgopa. He acknowledged that out of the 6,000MW of power built in the first four rounds of the REIPPPP, 800MW were “stranded” in the Northern Cape.

“And that’s why part of the conversation with the partners [those sponsoring South Africa’s Just Energy Transition Investment Plan] was important to say that there’s a facility for grid capacity.”

Currently, there is no grid capacity left in the Northern Cape, and the best potential lies in Mpumalanga, KwaZulu-Natal, North West and Eastern Cape.

“As we decarbonise, when we do the computation of the cost of renewables… you must also consider the cost of grid expansion,” said Ramokgopa.

How to finance the grid expansion

“We’ll do the study,” said Ramakgopa about the financing model to expand the national grid. “But I can tell you that the Eskom balance sheet won’t carry it. So we need to find a financing dispensation.”

When asked about the $8.5-billion climate finance deal offered to SA by the European Union, Germany, France, the UK and the US at COP26 to accelerate South Africa’s decarbonisation plans, Ramokgopa said that a “significant proportion” of the money was for the grid — but the National Treasury has restricted Eskom from borrowing.

The financing deal, initially said to be in the form of grants, concessional loans and investment and risk-sharing instruments, including mobilising private-sector funding, has been met with criticism as to when and where the funds will be implemented.

“In fact, we’re having a meeting tomorrow in Cape Town, just with finance and the team to see how best we can resolve that situation. We are making the point that we want to tap into that [$8.5-billion],” said Ramokgopa.

“And we are going back to the Treasury to say that there is no other option, but there is this facility that is available. If it’s concessional, meaning that they were getting it at rates better than what National Treasury can get on the bond market, then let’s go for it.” DM/OBP

Categories:

Tags:

DM is much better if you are signed in...

Business Maverick

‘Good and bad’

‘The grid is tied up’

How to finance the grid expansion