On 4 April 2018, Covington’s client Building Energy, a multinational company operating in the renewable energy industry, signed a power purchase agreement (PPA) with the South African state owned utility Eskom Holdings SOC Ltd (Eskom) to build, own and operate a 147 MW wind plant in Roggeveld (on the border of the Western and Northern Cape provinces of South Africa). Building Energy had been awarded preferred bidder status under Round 4 of the South African Department of Energy Renewable Independent Power Producer Procurement (REIPPP) programme for the wind project in April 2015. The Roggeveld wind farm will generate around 613 GWh per year and the energy generated will provide energy to 49,200 households every year, while avoiding the emission of about 502,900 tons of CO2 emissions. Construction work is scheduled to begin in 2018 and the commercial operation date is foreseen to be in April 2021. Matteo Brambilla (Building Energy’s Managing Director for Africa and the Middle East) commented “We are delighted to have signed the agreement in the presence of Minister of Energy of South Africa, for the construction of the Roggeveld plant, which represents our first wind farm in South Africa. We are also excited to develop two of the 2.3GW of renewable energy projects allocated by South African Government in the first major investment deal under President Cyril Ramaphosa”.
The REIPPP programme was implemented to assist the development of the renewable energy sector and encourage private investment in South Africa. The national renewable energy target is for 18,800MW to be supplied by renewable energy by 2030. Furthermore, the programme is designed to contribute to developing foreign investment, socio-economic and environmentally sustainable growth. The REIPPP programme has already delivered 5,243 MW in the space of four years, projects covered by the programme mainly consist of solar photovoltaic, concentrated solar power, biomass, landfill gas, small hydropower and biogas. A large spectrum of funding mechanisms have been utilised, ranging from a variety of foreign private equity, local private equity and large commercial and development banks. Some of the funding is composed of local private equity funds for black economic empowerment purposes to represent surrounding communities. The so-called “Broad Based Black Economic Empowerment” (B-BBEE) legislation is a central part of the South African government’s economic strategy. The B-BBEE policies are an enabling framework that allows government to implement a standard framework for the measurement of B-BBEE across all sectors of the economy. The aim is to increase the number of black individuals that manage, own and control the country’s economy, and to decrease racially based income inequalities. In public sector projects, achieving B-BBEE goals is a significant evaluation criterion.
In the past year the energy sector in South Africa has faced a series of political turbulence pertaining to several factors. The country’s economic volatility was evident when a cabinet reshuffle carried out by former President Jacob Zuma in March 2017 ultimately resulted in South Africa’s economic outlook taking a turn for the worst when credit ratings agencies downgraded the country’s sovereign rating. This was followed by the resignation of President Jacob Zuma, earlier this year, who was subsequently replaced by Cyril Ramaphosa. Eskom has also shown some reluctance to sign PPAs relating to twenty-seven independent power producer projects under the REIPPP programme. The signing was further delayed in March 2018 by an application brought in the North Gauteng High Court by the National Union of Metalworkers of South Africa (NUMSA) and the civic group “Transform Republic of South Africa”, to interdict Eskom from signing the twenty-seven outstanding renewable energy deals. The application alleged that (i) the entry into the PPAs would damage Eskom’s financial position and (ii) the purchase price in the PPAs over the next twenty years exceeded Eskom’s short-run marginal cost and the average price of electricity. The North Gauteng High Court ruled against NUMSA and was of the view that a case for urgency had not been made. As a result the new energy minister, Jeff Radebe, was not prevented from signing the PPAs, including the Roggeveld PPA. The projects are expected to create over 61,000 jobs and draw investment worth 56 billion Rand to the economy, according to the energy department. The conclusion of the projects marks a new dawn for South Africa’s REIPPP programme, as this reaffirms the government’s commitment to renewable energy and reinforces President Ramaphosa’s national agenda.