THE investment required for renewable energy projects in South Africa translates to anything north of R500 billion in the short to medium term, according to estimates by Pranisha Sahadeo, the senior transactor for Infrastructure Sector Solutions of Rand Merchant Bank (RMB).
She said last week that once one included the costs of increased maintenance of Eskom’s plants, and importing excess energy from South Africa’s neighbours, this figure would increase further.
Last month, Eskom’s general manager for strategy and planning, Matthew Mflathelwa, revealed for the first time that the energy transition could cost as much as R1.2 trillion.
Mflathelwa said about R990bn of that sum would be for generation in the energy transition plan, while R330bn would be for meeting compliance regarding air-quality requirements.
However, Mflathelwa said Eskom would not be able to foot this energy transition bill as it was still saddled with at least R400bn debt.
This as President Cyril Ramaphosa last month announced an “energy action plan” aimed at improving the performance of Eskom’s existing fleet of power stations, accelerating the procurement of new generation capacity, significantly increasing private investment in generation capacity, enabling businesses and households to invest in rooftop solar; and fundamentally transforming the electricity sector and positioning it for future sustainability.
Sahadeo said independent power producer (IPP) projects would typically be funded from a mixture of debt and equity.
“In terms of the total required investment, this will be dependent on a variety of factors. Some of these factors include the planned decommissioning of Eskom’s existing coal-fired power stations, unplanned outages, the growth of the economy and its increased energy requirements in the short to medium term,” Sahadeo said.
She said indications were that the current energy shortfall was up to 6000 MW, with this number becoming significantly higher once unplanned outages in Eskom’s fleet were taken into account.
“We’ve seen instances whereby unplanned outages in Eskom’s fleet amounted to 15 000 MW and this figure will increase over time as the energy availability factor of Eskom’s coal-fire stations continues to decline, and those plants are taken off line permanently.”
RMB said South African financial institutions supported the need for a just energy transition to a renewables-based economy and were able to use the funding it raised via various sources in order to deploy funding into an attractive long-term stable asset class.
More recently, changes to Regulation 28 of the Pension Funds Act would serve to crowd in a much broader universe of investors into the infrastructure sector generally, including the power sector, which would assist in the raising of the required debt quantum for these projects, she said.
“We’ve also noticed interest from international funders, more so in the case of development finance institutions, in the provision of capital to fund these types of projects.”
As showcased by the Renewable Energy Independent Power Producer Procurement Programme, RMB said there was also significant local and international interest in equity investments in the South African renewable energy sector.
“Ultimately, crowding in the private sector to fund the investment demands required to bring these projects in the power sector to fruition will lead to greater efficiencies, lower costs, a reduced burden of risk being allocated to the public sector and a higher chance of projects successfully reaching financial close,” Sahadeo said.
Dr Bheki Mfeka, a development economist and director at SE Advisory, a South African-based consulting firm, said about R100bn was set aside for IPPs and buying power from others, while R20bn was set aside for maintenance.
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