Independent renewable energy programme 'taking shape'

1 June 2012

This article was first published in the Business Day

SA’s independent power producer (IPP) procurement programme for renewable energy was taking shape successfully, Michael Eckhart, a Citigroup MD, said yesterday.

The programme is intended to produce 3 7251VIW of electricity from wind, solar concentration, photovoltaism, small hydro-gas, biogas, biomass and landfill gas by 2016.

The programme is a sea change for SA, which gets less than 2% of its energy from renewable resources and has only one substantial electricity provider, state utility Eskom. SA relies on coal, a nonrenewable resource, for more than 90% of its energy requirements.

“Overall, (the programme) seems to be run extremely well,” said Mr Eckhart, who is also his group’s global head of environmental finance and sustainability. “From all the indicators, it is taking shape as a successful programme. Our only worry is the arbitrary deadline for financial closure.”

Mr Eckhart was in SA to address the South African Wind Energy Association.

Citigroup was keen to participate as a refinancier, and the group was looking at syndicating loans to South African financiers, or selling loans to long-term institutional investors. It is in the 1PP rules that local banks finance the programme, which, Mr Eckhart said, was in line with international best practice.

He said the problem with putting a deadline on financial closure was that it could result in a rush job. Citigroup’s preference was an ultimate operations date. It was not a simple matter to secure property rights, obtain permits and licences, complete engineering designs and negotiations with contractors, and negotiate agreements with Eskom. All that had to be done to reach financial closure. “Sometimes it’s good to go back over things 10 times,” he said.

Julian Jackson, a director at Norton Rose, said last week that with the value of the programme estimated at R100bn, debt finance would come to about R7Obn.

Mr Eckhart said there was enormous potential for SA’s renewables market to become a major market, if carefully developed. This would have positive effects on air quality, and job and business creation.

Energy Minister Dipuo Peters announced 19 eligible projects (out of 79) last week for the second bid window. There are three windows. She announced the first 28 projects in November. Out of the 79 projects submitted for the second window, 51 met the programme's qualification criteria. That meant a number of bids had qualified, but had to wait for the next bid round.