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South Africa’s govt and IPP reach agreement to lower electricity tariffs

A R5 billion transaction for the refinancing of the Bokpoort Concentrated Solar Power (CSP) plant was concluded by Investec Bank

South Africa’s Department of Mineral Resources and Energy (DMRE) says it has completed its first refinancing agreement with an independent power producer (IPP), ACWA Power, for the Bokpoort Concentrated Solar Power (CSP) plant in the Northern Cape.

This is part of an initiative to lower electricity tariffs from the earlier rounds of South Africa’s Renewable Energy Independent Power Producer Programme (REIPPP).

Project financiers, led by Investec Bank concluded a R5 billion transaction for the refinancing of the Bokpoort Concentrated Solar Power (CSP) plant.

We hope that this will encourage other Bid Window 1-3.5 IPPs to also participate and jointly contribute to a reduction in the wholesale price of electricity

Bernard Magoro, Head of the Independent Power Producers Office

The need to lower electricity tariffs

The refinancing initiative was launched by the Department of Energy and Mineral Resources in October 2019 to get IPPS from bid window 1 to 3.5 to lower their tariffs to competitive levels. Independent Power Producers from the bid windows 1 to 3.5, totaling 64 projects were invited to voluntarily participate in the initiative.

The earlier projects of South Africa’s IPP windows experienced resistance from the labour unions for being too costly to the state utility Eskom. Refinancing the projects will be key to reducing the cost burden on Eskom as most of the projects were procured at a time renewable energy technology was 70% higher than it is today.

“Accelerating South Africa’s transition to a cheaper and more sustainable energy mix requires innovative funding solutions,” explains Andre Wepener, Head of the Power & Infrastructure Finance team at Investec Bank.

“This refinancing transaction increases gearing and creates more favourable debt terms, effectively reducing the project’s cost of capital. The structure unlocks a reduced tariff to Eskom under the Power Purchase Agreement (PPA), which directly impacts the cost of electricity for South African consumers.”

Refinancing IPP projects stimulate economic growth

Reports say that refinancing earlier IPP projects could stimulate economic growth in South Africa through passing any reduction in tariffs back to the consumer. South Africa’s renewable energy sector agrees with the DMRE’s view that it is unlikely that refinancing IPPs would negatively impact market confidence in future procurement rounds.

“The refinancing of existing IPPs is something new to our fairly nascent industry, but it indicates that the renewable energy sector in South Africa is starting to mature,” says Ntombifuthi Ntuli, CEO of SAWEA.

Around 70% of South Africa’s 64 IPPs confirmed that they will participate in the department’s renewable energy project refinancing initiative. The refinancing of the Bokpoort Concentrated Solar Power (CSP) will result in a 3% reduction in the IPP bill charged to Eskom.

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