Touted as one of the world’s best renewable energy tenders, South Africa’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) has paved the way for the private sector and Independent Power Producers (IPPs) to invest in the country’s renewable energy market. However, there could be an additional benefit that may not have been considered as of yet, says Nato Oosthuizen, Partner and Renewable Energy Expert at BDO.
Since its inception in 2011, REIPPPP has enabled 89 IPPs to provide a steady stream of over 6000MW of renewable energy to the country. With expectations that energy procured in Bid Windows 3 and 4 will bring a further 100MW and 75MW online in 2024, and with three projects under Bid Window 5 having started construction with an investment value of over R12 billion, we may not be exactly on target, but progress is certainly positive.
But while the country waits – often in increasingly higher stages of darkness – for these projects to reach completion, is there not perhaps an opportunity to shed some light on the local communities where construction is taking place, instead of shedding more of the load?
As part of the REIPPPP bid process, approved IPPs are tasked to contribute towards local community development through socioeconomic and enterprise development, local ownership and local job creation. These requirements have to be fulfilled within a 50km radius of the project and oblige renewable energy companies to engage with the developmental opportunities and needs of communities around their project sites. Awarded projects are required to spend a certain amount of their generated revenue on Socio-Economic Development (SED) and Enterprise Development (ED) and share ownership in the project company with local communities.
The most critical aspect of the SED and ED element is that initiatives should result in the sustainable economic participation by its intended beneficiaries and discourage perpetual dependence on hand-outs. Many times this simply doesn’t happen as initiatives may start off successfully but then dry up as donations get used towards overhead structures or the initiative simply doesn’t have staying power and eventually fizzles out leaving communities high and dry.
The major impact of mini grids
The majority of REIPPPP projects are being implemented in rural areas that are primed with natural resources such as solar or wind. What if, instead of the revenue going to various SED and ED initiatives, the government mandated this money to be specifically spent on electricity related projects within the community – such as building mini grids that supply power to the community. This would result in many of the country’s most vulnerable being able to reap the immediate and long term benefit of access to electricity, and become active participants in their own economic freedom.
How? Project development teams have specific skills in creating power generating facilities and could probably negotiate a good price with the engineering, procurement and construction (EPC) contractor that is building their own plant. That EPC contractor can then build a smaller plant at the same time in the rural communities and the project can claim the costs back from the ED or SED fund. This way the development of mini grids can be pre-funded and accelerated by experienced individuals. Furthermore, the annual operation and maintenance (O&M) of these grids can be maintained by the same O&M provider that services the primary project.
To take it one step further, local community members could be trained to maintain, run and even provide security for the mini grid which would substantially increase skills development and drive local job creation. This approach would provide an opportunity for those who have the competence to become a much larger player in the solution through a two-pronged approach that creates a sustainable renewable energy source, and empowers a local community at the same time.
Probably the most compelling why this approach should be considered is the fact that IPPs are signing a 20-year contract that locks them in to the community for the long term. These are not fly by night initiatives that are swooping in, giving a hand out and then disappearing. These are institutions that have the skill, the staying power and the funds to impact the power crisis by being part of the solution.
Assume the development of a 100MW solar project where a community trust would be granted a 5% funded shareholding and 2.5% of revenue would be paid to SED/ED contributions for local development.
Rather than giving 5% funded shareholding, construct a 5MW (5% of 100MW) solar plant close to the local community. The funding and repayment of this project costs would be funded by the main project, as it would be allowed to still build a full-size plant of 100MW and earn 100% of the return thereon, rather than having a lower percentage shareholding in the total project. The O&M cost, Insurance, Security, Management fees etc. for running the project can also be paid for by the main project, substituting the payment of previously committed SED/ED costs. The synergies that can be obtained through this cost absorption makes it feasible for a smaller size project to be financially and technically viable.
The ownership of the project can be housed in a Non-profit Organisation. The electricity (or excess) generated by this plant, if not used by the community, can be sold to the local community, municipality or industry at discounted prices with the proceeds of this being used for community projects (i.e. SED/ED type projects). Hence, the community will directly benefit again by paying for electricity (even at reduced prices).
If we have the power to harness resources that spark self-sufficiency, shouldn’t we be exploring every way possible to find solutions that can be felt sooner and last exponentially longer?