Is the renewable energy independent power producers’ programme (REIPPP) dead? It’s hard to believe that the ground-breaking programme came to life in the Zuma era but has foundered under Ramaphosa. Having been the one bright light in the energy sector, it is dimming, despite the electricity crisis being as severe as before.
The obvious symptom of the dysfunction is that not one project has reached financial close since the fourth bid window. That was conducted in 2015, though a spirited fight from coal-vested interests delayed financial close to 2018. But all projects procured since — especially the urgent “risk mitigation bidding round” that included Karpowership’s floating gas generators, and the fifth bid window — have so far failed to reach financial close, the point at which all contracts are signed and construction can begin.
To understand what went wrong, let’s first understand how it went right. Between 2011 and 2015 the programme mobilised more than R200bn of investment and pushed SA into the era of renewable energy.
I suspect that Zuma did not understand the implications when he signed SA up to aggressive renewable production targets in 2009 at COP15 in Copenhagen. The ANC was caught off guard. With SA hosting COP17 in Durban two years later, the pressure was on to deliver results. Zuma gave the green light for the National Treasury and the department of energy to make it happen. Only later would Zuma’s vested interests realise what the programme meant for their coal exposures.
After a false start via the National Energy Regulator of SA, the concept of the IPP office was created. This was an odd creature — it was formally a joint venture between National Treasury and the department of energy. Yet it rested on the Development Bank of Southern Africa (DBSA) as the conduit for its budget, which was funded by the projects themselves.
At first that worked. Then finance minister Pravin Gordhan and Dipuo Peters as energy minister had the right chemistry. Karen Breytenbach, an experienced Treasury insider, was appointed as CEO. With the respective directors-general, things moved fast — teams were hired, standards were designed using an army of private consultants from across the world, and procurement rounds held. Remarkably, that until the coal interests began fighting back, there was not one legal challenge in more than R200bn of procurement.
But it worked because of a remarkable chemistry at the time, not because the institutional design made sense. The three parties overseeing it — Treasury, department of energy and DBSA — were not necessarily aligned; it depended on the personalities involved. They were able to break through resistance from various political quarters. They had faith that the private sector could deliver, provided the incentives were designed properly.
Now things have changed. The energy department has been merged alongside mineral resources under Gwede Mantashe. To put it lightly, the minister does not have his heart in energy, and certainly not renewable energy.
Over at the Treasury, finance minister Enoch Godongwana, while long a supporter of the programme from the sidelines, does not have capacity to pay it much attention now.
In the middle, DBSA has become more robust in holding on to the institutional reins, even though its role was an accident in that it provided an institutional backbone for the IPP office. It is conflicted as simultaneously a major funder of projects in the programme. Under its gaze, capacity at the IPP office has dwindled. Breytenbach left in 2019 and several other senior technocrats soon after (though there are some notable ones still there).
The IPP office has lost its political champions. In the vacuum, others have moved in. One is the department of trade, industry & competition. While the programme has always had a local content requirement, this was calibrated to the capacity of the country to produce components needed to build renewable projects.
Under minister Ebrahim Patel, the localisation agenda has been pushed far more aggressively, but without the insight required to understand what is possible. This is the main reason for delay in closing projects for the fifth bid window — the various successful bidders cannot all simultaneously procure enough to meet the localisation targets.
During the delays, commodity prices have soared making many projects unprofitable, so they won’t be able to get funding. It is a mess. And now the sixth bid window is open with bids expected to be submitted in August.
The IPP office has a critical role to play in procuring large-scale electricity production, but its role will diminish. With Eskom gradually being restructured, drawing out an independent system operator that can procure directly, the IPP office will not be the only place the private sector can get access to the electricity market.
With private production now allowed up to 100MW without a licence, the future may include many private producers all individually selling to the system operator as well as directly to each other. The IPP office would become redundant.
That is some way off, though. Given the electricity crisis, we do need the REIPPP to work, much more like it did from 2011-2015, but at much larger scale: 1,000MW projects rather than 100. That will require renewed political will.
A revised institutional structure for the IPP office was developed last year but no moves have been made towards implementing it. If the ANC is serious about solving the energy crisis, it needs to invest political capital in the IPP office.