{"id":207992,"date":"2021-11-10T19:33:05","date_gmt":"2021-11-10T17:33:05","guid":{"rendered":"https:\/\/www.myza.co.za\/myths-and-truths-around-south-africas-recent-renewable-energy-auction\/"},"modified":"2021-11-10T19:33:05","modified_gmt":"2021-11-10T17:33:05","slug":"myths-and-truths-around-south-africas-recent-renewable-energy-auction","status":"publish","type":"post","link":"https:\/\/www.myza.co.za\/press\/myths-and-truths-around-south-africas-recent-renewable-energy-auction\/","title":{"rendered":"Myths and truths around South Africa\u2019s recent renewable energy auction"},"content":{"rendered":"
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South Africa\u2019s department of mineral resources and energy recently announced<\/a> its choice of companies to build and operate a new \u201cbatch\u201d of renewable energy projects. This is part of a programme in which the government invites private companies to compete for contracts to produce electricity and sell it to the national utility, Eskom.<\/p>\n

In this most recent auction of contracts, known as \u201cbid window 5\u201d, 25 projects \u2013 12 solar and 13 wind \u2013 totalling close to 2,600 MW of capacity got the go-ahead. These projects are expected to come online in the next two to three years. The contracts last for 20 years.<\/p>\n

The power companies\u2019 bids are scored mainly (90%) on the price at which they will sell electricity. The rest of the scoring (10%) is based on socio-economic development criteria. <\/p>\n

Bid window 5 marks the end of a long gap in procurement of renewable energy. South Africa started the procurement programme in 2011, and over the next four years awarded 102 renewable energy projects totalling more than 6,300 MW. The programme was stopped in 2015 when Eskom\u2019s leadership at the time refused to sign<\/a> any more of these power purchase agreements. <\/p>\n

The bid window 5 results announcement signals a renewed commitment. Prices of awarded projects are extremely competitive \u2013 as low as 34.4c\/kWh (about US$0.02) for onshore wind and 37.4c\/kWh for solar PV. The average price for projects in the previous bid window was R1.03\/kWh (about US$0.07) in April 2021 terms. The prices are now competitive with Eskom\u2019s average cost of buying coal in the past financial year: 42c\/kWh. And, of course, Eskom has the additional cost of running coal plants.<\/p>\n

Thus, it is now theoretically cheaper for Eskom to buy renewable energy from independent power producers than to run its more expensive coal power stations. <\/p>\n

The problem is that the power system is severely constrained, and needs much more capacity before this is a realistic option. One also needs more flexible resources on the grid to ensure reliability, and this adds to the costs.<\/p>\n

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Read more: South Africa’s electricity supply: what’s tripping the switch<\/a> <\/strong> <\/em>\n<\/p>\n

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But I\u2019ve been involved in research<\/a> that shows renewable energy procurement programmes like this can secure projects that are built cost competitively \u2013 if well designed and implemented. This is so even in difficult investment contexts in the global south<\/a>.<\/p>\n

My view is that South Africa\u2019s renewable energy procurement programme has the potential to help restore energy security and eventually reduce power prices. This is despite some concerns that have been raised about the latest bid results. I will explain here why these issues aren\u2019t reasons for concern.<\/p>\n

The concerns<\/h2>\n

Three main concerns have emerged in response to the bid window 5: <\/p>\n