MechChem Africa

Peter Middleton looks at grid parity based on the latest UK and South African IPP bid prices and argues for accelerating the adoption of renewables.

Peter pic latestThe UK media is currently reporting ‘a huge boost for renewables as offshore windfarm costs fall to record lows’. In The Guardian, the Liberal Democrats and The Green Party are quoted as saying that ‘the results should sound the death knell for Hinkley Point C’, the nuclear plant to be built by France’s EDF and its Chinese partner, CGN, using Areva’s EPR technology.

Wind turbine bid prices in the UK were expected to be at record low levels of somewhere between £70 and £80 per MWh, already below the agreed £92.50 bid for Hinkley Point C. In September 2017, however, two new windfarms – the Hornsea 2 project off the Yorkshire coast and the Moray offshore windfarm in Scotland – secured guaranteed prices for their power of £57.50/MWh from the UK government, well below the agreed nuclear bid price and half of the price being awarded to new offshore windfarms just two years ago.

Denmark’s Dong Energy and Spain’s EDP were winning bidders at £57.50/MWh for Hornsea 2 and Moray offshore windfarm projects, respectively, while a higher bid price at £74.785/MWh was accepted from Germany’s Innogy for a project off the Lincolnshire coast at Triton Knoll – this to reflect its one-year earlier delivery date in 2021/22.

These bid prices translate into R0.97 and R1.27 for wind and R1.57 for nuclear at a R17/£ exchange rate.

Wind bid prices for our own REIPPP programme are even more dramatic: For onshore wind projects, the average price that Eskom will pay IPPs has dropped from R1,51/kWh in Bid Window 1 to R0.62/kWh from preferred bidders for the latest Bid Window 4 projects. Similarly for PV, which started from a high of R3.65/kWh and was also down to an average of R0.62/kWh by the end of Bid Window 4.

Following the results of the first Coal IPP Bid Window 1 in October last year, the CSIR’s Tobias Bischof-Niemz and Ruan Fourie of the CSIR’s Energy Centre decided to consolidate the achieved tariffs for electricity from IPPs. Their analysis is summarised in a presentation called Cost of new power generators in South Africa: Comparative analysis based on recent IPP announcements.

A clear conclusion is that as a ‘consequence of renewables cost reduction for South Africa, solar PV and wind are 40% cheaper than new baseload coal today’ – R1.03/kWh for coal and between R0.56 and R0.62/kWh for wind and PV.

Also, as part of the analysis, Bischof-Niemz and Fourie ‘levelised’ the high capacity factor Eskom new-build costs for Medupi and Kusile – R1.05 and R1.16 per kWh, respectively – and baseload nuclear – R1.20 to R1.30 and R1.17 if using low-capex technology such as Rosatom’s.

We include an article about the Allianz Climate and Energy Monitor 2017 in our Power generation, sustainable energy and energy management feature for this issue, in which South Africa emerged 10th among G20 countries for general renewable energy investment conditions and 12th for its investment attractiveness.

But while we have been steadily increasing our renewables capacity through the REIPPP programme and, consequently, we have a high presence of leading renewable energy businesses, our investment attractiveness index has dropped from 45 to 41 between the 2016 and 2017 reports.

Also, our renewable investment needs ‘for creating a Paris Agreement-compatible and climate-resilient power infrastructure’ based on the combination of absolute 2017 investment needs, investment needs relative to electricity consumption, and the vulnerability of electricity supply in 2017, are the second highest of all G20 nations, with only India requiring more.

The report’s ‘insight’ into South Africa’s score summary acknowledges that South Africa has a national strategy to tackle climate change ‘but the ambition level is relatively low and there is no existing plan to decarbonise the electricity sector’.

And on the REIPPP programme, it says: ‘the current auctioning system is insufficient to create a level playing field for renewables compared to fossil-fuel electricity infrastructure’.

The World Economic Forum’s Renewable Infrastructure Investment Handbook: A Guide for Institutional Investors, published in December 2016, cites two developments making investing in renewable energy more attractive.

First, renewable infrastructure now exhibits sizeable investment potential – an additional US$1-trillion in annual renewable infrastructure investment is needed by 2030.

Second, renewable energy technology, especially solar and wind, has made exponential gains in efficiency in recent years, enough to achieve economic competitiveness and, in an increasing number of cases, grid parity.

‘By 2020, solar photovoltaic is projected to have a lower LCOE (levelised cost of energy) than coal or natural gas-fired generation throughout the world,’ the Forum report states.

Grid parity is no longer an excuse to block the advancement of renewables; renewable energy investment now makes financial sense. With investors lining up to develop independent plants, why are we so reluctant to open up the market?

BANNER 8

Contact MechChem Africa

Title: Editor
Name: Peter Middleton
Email: mechchemafrica@crown.co.za or peterm@crown.co.za
Phone: +27 11 622 4770
Fax: +27 11 615 6108

Title: Editor
Name: Glynnis Koch
Email: mechchemafrica@crown.co.za
Phone: +27 11 622 4770
Fax: +27 11 615 6108

Title: Advertising Manager
Name: Brenda Karathanasis
Email: brendak@crown.co.za
Phone: +27 11 622-4770
Fax: +27 11 615-6108

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