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South Africa

South Africa

Analysis - wind prices fall to new low in SA tender

SOUTH AFRICA: The average price for wind energy in South Africa's third bidding round fell to ZAR 737/MWh (EUR 54), down from ZAR 1143 in the first round in 2011, energy minister Dikobe Ben Martins revealed.

The Jeffery Bay wind farm also in the Eastern Cape
The Jeffery Bay wind farm also in the Eastern Cape

The statement, which came at the official announcement of the third-round winners, makes wind the country's cheapest energy source.

Seven projects totalling 787MW have been allocated. A consortium led by Mainstream Renewables took the lion's share with 138MW at Khobab, 138MW at Loeriesfontein 2 and 79MW at Noupoort, all in the Northern Cape.

Enel Green Power entered the market with two projects in the Eastern Cape: 110MW at Gibson Bay and 87MW at Nojoli, developed by local companies Red Cap Investments and African Clean Energy Developments (ACED) respectively.

China's Longyuan Power in partnership with local developer Mulilo Renewable Energy also entered the market with the 139MW De Aar 2 North and 96MW De Aar Maanhaarberg projects in the Northern Cape. Guodian will supply the turbines.

Noting the competitive pricing in the bids received, the Department of Energy said it may award further projects from this round.

Process

As a further 787MW of wind power projects (see table) are selected in round three of South Africa's Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), the country has become one of the world's most attractive markets for investors. The process was lauded by Eddie O'Connor, chief executive of Mainstream Renewable Power, which was awarded three projects in this round.

The REIPPPP "is extremely sophisticated, and clean and fair," said Johan van den Berg, chief executive of the South African Wind Energy Association (SAWEA). Investors are also attracted by the large projected ultimate market size of 9GW. Foreign utilities are now coming in, funding projects on their balance sheets and bringing far cheaper capital into the country, van den Berg explained. This has allowed further price drops despite very adverse exchange rates in recent months.

Both Enel Green Power of Italy and China's Longyuan, with equipment supplier Guodian, were awarded projects in this round. "It is interesting to see a turbine manufacturer entering the market as a lead investor," van den Berg noted. This should enable innovative funding structures, which could help make the price more competitive.

Prices have certainly been tumbling, falling from an average of ZAR 1143/MWh (EUR83) in round one, in 2011, to ZAR 737 (EUR54) in round three. This is significantly cheaper than the ZAR 1050/MWh projected for generation from the country's new coal-fired plant.

The fact that wind can offer such competitive prices is particularly impressive given that bidders have promised over 45% local content, alongside job creation and community development programmes. So far, only towers and balance of plant are produced locally, with the hope that blades will follow soon.

Selected bidders must now sign power purchase agreements with state utility Eskom and implementation agreements with the Department of Energy, before proceeding to financial close in July.

A fourth bidding round will take place this summer, with 1336MW remaining of the 3320MW programmed for wind. However, given the high number of bids and competitive pricing, the government has indicated it might select more bidders from round three.

Project    Location    Majority owner    MW    Price (ZAR/MWh)
Gibson Bay    Eastern Cape    EGP    110    664.00
Cookhouse-Nojoli    Eastern Cape    EGP    87    682.00
De Aar 2 North    Northern Cape    Longyuan    139    740.00
De Aar Maanhaarberg    Northern Cape    Longyuan    96    795.00
Khobab    Northern Cape    Mainstream Renewable Power    138    746.40
Noupoort    Northern Cape    Mainstream Renewable Power    79    771.00
Loeriesfontein 2    Northern Cape    Mainstream Renewable Power    138    759.60

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