South Africa's active solar regions to multiply as firms factor in grid risk

Solar Capital's giant 175 MW De Aar solar farm exemplifies the solar power boom taking place in the sun-drenched Northern Cape while alternative provinces and grid funding models will be the engines of future growth.

Image credit: homegrowngraphics

South Africa's energy minister Tina Joemat-Pettersson opened March 17 the latest phase of Solar Capital's 175 MW De Aar solar farm, making the project the largest solar farm completed in Africa and the Middle East.

The farm was built in phases of capacity 85 MW and 90 MW and the whole plant took 28 months to complete.

South Africa has seen a rapid expansion in renewable energy capacity since it launched its Renewable Energy Independent Power Producers Procurement (REIPPP) Program in 2011. Faced with ongoing financial difficulties, state power utility Eskom has not been able to match the expansion in generation capacity with necessary strengthening of the power grid.

South Africa has set a target of 8.4 GW of solar PV capacity by 2030 and so far the country has procured some 2.3 GW of PV projects.

Average prices for South African solar PV projects have fallen from 3.44 rand/kWh ($0.22/kWh) in the first round of the REIPPPP, to 0.85 rand/kWh in rounds held in 2015.

In an expedited tender round held in 2015, renewable energy submissions were five-times oversubscribed, Joemat-Pettersson said in a speech March 17. Renewable energy submissions totalled 9.5 GW and 6.5 GW of this capacity was for projects in the Northern Cape province, the minister said.

While the energy minister reaffirmed the government’s plans to build a 1.5 GW solar power park in the Northern Cape, she said most of the 3.2 GW network capacity between the province’s Karoo and Namaqualand areas has already been allocated and future projects may have to make grid investments, potentially though co-funding mechanisms.

The energy minister noted that required strengthening of the Northern Cape grid network has not been budgeted for in the current regulated multiyear price determination (MYPD3) for 2017/18 electricity tariffs.

“Until more funds are made available for transmission projects, development costs and relevant capital costs to connect IPPs, private investment in the grid remains an option to address the funding and implementation constraints experienced,” the minister said.

Siting shift

A lack of South African grid capacity is seen as a key risk for renewable energy projects going forward, particularly in provinces such as the Northern Cape which has seen an explosion in project activity.

“The Northern Cape offers some of the best conditions in the world for solar electricity generation, and therefore it is not surprising that the province hosts 100% of the CSP and 65% of the solar PV capacity procured in bid windows to date in the REIPPPP in South Africa, contributing 72.5% or 2,112MW of the total 2,992MW solar power in the country,” the energy minister said.

Many other regions of South Africa offer high irradiation levels and have less grid capacity constraints than in the Northern Cape. Provinces such as Free State, Limpopo and Mpumalanga, and sites where there are stranded assets such as closed mining facilities, could provide the necessary sunlight and grid infrastructure for profitable solar projects.

Proximity to load centres must be taken into account to avoid disproportionate wastage in grid losses, and the extent of grid reinforcements required will depend on where future growth is concentrated.
According to an analysis paper written by advisors to the government’s IPP Office and Eskom the first three REIPPPP Bid Windows consumed much of the available transmission grid capacity in the Northern Cape, Eastern Cape and Western Cape.

“There is an urgent need to create additional transmission grid capacity for the REIPPPP,” the authors said in the analysis paper, originally published by Energize in June 2015.

The study projected the effect of different levels of infrastructure spending, based on allocated renewable energy projects. The study warned that major grid projects such as transmission substations could take four to five years to complete, while new transmission lines might take up to eight years to come online.

“A phased capital expenditure plan must be developed, whereby upfront investments can be initiated to obtain the necessary consents and secure servitudes, as well as undertake the associated detailed engineering designs. This will dramatically reduce grid project lead-times and risks,” it said.

Self-build solutions

In the most recent project bidding rounds, developers have had the option of developing grid connections themselves. Developers are required to include the grid connection costs in their REIPPPP bids and substantial grid connection work can significantly raise capital costs.

This can impact the competitiveness of the bid and it is expected that renewable energy procurement regulations will evolve to take into account the cost of grid connection proposals in the bid process and compensate developers for independent grid investments.

"There are various different models which have been used all over the world, Public-Private Partnerships and concession models for transmission," said one industry expert.

"We will have to have an arrangement whereby an asset can be created by the private sector and they get a reasonable return on that investment and allow the generation projects to proceed accordingly...there is work underway," the expert said.

"There are opportunities, the [energy] minister herself has spoken about co-funding, there are internationally well-accepted models that South Africa could adopt and [are] under consideration."

South Africa’s rapid renewable energy expansion has made it a bright spot for the global solar industry, but significant developer interest must now be matched with appropriate regulatory support to allow the sustained growth of capacity across the country.