The South African government has confirmed that a lack of grid capacity and state utility Eskom’s inability to fund the necessary upgrades has been the primary reason behind the postponement of financial close on 878MW of projects.
The seven projects, which were selected under round three of South Africa’s renewable energy independent power producers programme (REIPPP), were supposed to reach financial close on 30 July.
However, Eskom is concerned that it does not have sufficient funds to complete the required upgrades on time, making it impossible for the government and bidders to sign off on the projects.
Eskom’s funding difficulties are not new, but were exacerbated in 2013 when the government only allowed it to raise its tariffs by 8% instead of the 16% requested. As a result, Eskom has had to re-prioritise and delay some of its investment plans.
Projects in round three and onwards are more likely to require major investment because areas with good grid connections were already targeted in the first two REIPPP bid windows.
The Department of Energy (DoE) is now finalising a protocol to allow the projects to reach financial close on a staggered basis starting in November, giving Eskom time to make the necessary investments. A staggered close will also enable the government to spread the costs and mitigate against the volatility of the rand.
For future bidding rounds, it is anticipated that Eskom will have some input prior to the selection of projects in order to avoid further problems.
The DoE is also in talks with the treasury and national energy regulator Nersa regarding possible alternatives, such as developers paying for grid upgrades or sharing the costs on a case-by-case basis.
Eskom sais it is “committed to working with all parties to resolve the funding mechanism for [bid window 4] and beyond”.
The fourth round closed on 8 August, with the winners expected to be announced on 24 November.