Independent Power Producers (IPPs) and developers venturing into South Africa’s renewable energy sector face a challenging regulatory landscape characterised by uncertainty in securing grid connections and considerable development costs. This is according to Stefan Bothma, Senior Project Developer at Sustainable Power Solutions (SPS), who notes that Eskom’s approval processes, coupled with complex environmental and land use procedures, contribute to the complexities that IPPs and supplementary power suppliers face.
SPS has the resources to assist IPPs in navigating regulatory challenges.
Project developers moving into the renewable energy market need the support of development funds and strategic partners that can help guide projects to financial closure.
SPS is a renewable energy asset management company that is expanding into the energy trading and wheeling market, which will enable businesses to buy and sell energy directly, promoting a more flexible and cost-effective energy market. Through its projects it is enabling more businesses to transition to renewable energy.
Uncertainties around grid connection
"The regulatory process to obtain grid connection can be quite intricate. While the regulations are clearly defined, the assurance of grid connection and capacity remains variable. Eskom operates within a dynamic market, and although it may indicate capacity availability at the time of application, this status can change by the time the application process is finalised. This variability introduces a level of uncertainty for IPPs in navigating the regulatory landscape," says Bothma.
However, he adds that the uncertainty in the regulatory environment presents an opportunity for a company like SPS, which has the financial resources, experience and patience required to navigate this challenging landscape.
"Although the process is challenging, SPS can leverage its capabilities to capitalise on opportunities that may be out of reach for smaller players. The regulatory requirements, including the need for substantial financial guarantees, have increased the costs involved in getting an application approved. Consequently, not every small developer has the financial resources to see a project through to completion," Bothma adds.
Opportunities for bigger players
“At SPS, we are now seeing more developers approaching us at an earlier stage, once they have secured the land and some of the necessary permits. Previously, the developers would have been able to take projects through to grid connection without needing a partner who can cover the increased costs of the grid application until approval," Bothma notes.
Francois van Themaat, Managing Director: Large Projects at SPS, says, “Ideally, we would like to see more certainty around grid capacity, which is one of the biggest challenges IPPs currently face. By the time the application process is complete, the applicant may already have spent millions of rand, yet there is no guarantee that the required grid capacity will still be available. This uncertainty around capacity availability is a major obstacle for IPPs traversing the regulatory environment,” says van Themaat.
Tariff structures
The ongoing restructuring of Eskom and uncertainty around future tariff changes also pose significant challenges for IPPs. It makes it more difficult for them to sign long-term agreements with clients, as they are essentially locking the client into a certain tariff structure. This is a particular challenge for IPPs looking to secure long-term offtake agreements, which are essential to the viability of their projects.
Growing potential in the renewable energy sector
Despite the challenges, van Themaat says the outlook for the renewables sector is promising as South Africa has abundant solar and wind resources that provide significant potential for renewable energy development.
“Renewable energy prices continue to come down, making it more viable. Among other factors, the growth of electric vehicles and energy-hungry data centres in South Africa creates increasing demand for renewable power,” says van Themaat.
And he says there is a skilled workforce in South Africa capable of developing renewable energy plants, and sufficient funding available through companies like SPS to support the continuing development of renewable energy projects.
For more information visit: https://sps.africa/
