South Africa, the southernmost country of the world’s most resourceful continent, is going through successive rounds of load shedding, representing an ongoing period of widespread national-level rolling blackouts as electricity supply falls behind electricity demand
Economists and laureates have estimated that each day of the South African energy crisis costs the economy approximately R4bn to R5bn per day (approximately US$250mn to US$300mn/day), resulting in large-scale job losses.
Synergy Consulting, as a globally leading financial advisory service firm, see the decentralisation of power thereby seeking an increase in the private sector participation in the generation and off-taking of the power as an immediate solution to reducing the impact on the economy.
Several projects have been discussed amongst mining/large industry players and municipalities to develop the project on a bilateral basis in parallel to the traditional procurement of renewable energy projects through the Renewable Energy IPP Procurement Programme (REIPPPP). Despite the growing interest in commercial and industrial power (C&I) solutions, the sector continues to face several challenges that hinder its development such as political and regulatory hindrances delaying in implementation of the corporate power purchase agreement (PPA) under C&I. Apart from these, C&I project needs to resolve some of the challenges such as:
-Regulatory: The C&I markets are still new and authorities have eased various licensing requirements, however, the approval process can be relaxed to enable the development of new C&I projects;
-Financing: Access to debt financing (local or international) is difficult because of the nature of the transaction such as offtaker risk or debt cost. This situation creates an opportunity for developing an exhaustive bankable framework with specific financing instruments, which can be offered by DFIs or the commercial bank.
-Operation: The mining sector has traditionally used off-grid generations to meet energy demands and is now moving towards decarbonisation. Therefore, each project in the C&I sector is different from the other and require unique technical solutions (be it solar, wind or battery) to match the demand.
With regards to REIPPPP, based on Synergy’s experience in advising multiple countries on the procurement side, though REIPPPP is one of the more successful programmes of power procurement in the country, we see that a lot of improvement is needed in REIPPPP procurement and the process must be simplified in terms of procurement to reduce the cost of the development of projects.
Synergy Consulting, with a functional office in Johannesburg, is advising several projects in South Africa (including bid advisory support for Bid Window 6); providing financial guidance and debt raising for the C&I project and strategy; and giving regulatory counselling to the Government on new procurements.
This article is authored by Synergy Consulting IFA.
