A technology-agnostic approach to new power generation
The state’s risk-mitigation programme, which seeks to procure 2,000MW of ‘emergency’ capacity from IPPs, is unique and a potential game-changer
In an effort to alleviate the current power crisis the department mineral resources and energy is undertaking an “emergency” power programme known as the risk-mitigation independent power purchase programme.
This 2GW programme is unique in its approach to power procurement in that it is the first time no single technology has been specified. Any technology in any location can be considered, as long as it meets the flexible dispatch requirements in a cost-effective way. This is a bold step forward in the thinking of power procurement for SA and one that may revolutionise the rollout of future power purchase programmes.
Despite the reduced demand due to Covid-19 lockdowns, load-shedding is still commonplace, largely due to the inevitable decline in performance of an ageing coal fleet. As outlined in the economic reconstruction and recovery plan announced last year, the government acknowledges that enhancing energy security and aggressive infrastructure investment is a prerequisite for the country’s economic recovery.
Following the publication of a government determination in August 2020, the department formally released the risk-mitigation programme, which seeks to procure 2,000MW of “emergency” capacity from independent power producers (IPPs) to fill the current supply gap, alleviate supply constraints and reduce the excessive use of expensive, diesel-based, open-cycle gas turbines.
The programme outlined the urgent need for new, dispatchable and flexible capacity that can begin delivering power to the national grid by mid- to late-2022. Projects participating under this programme are free to choose any form of technological solutions as long as certain minimum dispatchability and flexibility requirements are achieved. The programme also allows for multiple facilities at different locations to bid as a single, hybrid project. The contracted capacity of these projects needs to be a minimum of 50MW and a maximum of 450MW to be eligible.
By the final submission date of December 22, 28 bidders had submitted their proposals for consideration. Judging from the list of bidders published by the IPP office, the programme managed to attract a diverse range of IPPs, from smaller, local developers to some of the biggest international names in energy. The developers also represent a mix of renewable, thermal and power ship players.
This programme could make SA the pioneer for multiple ‘mega-hybrid’ concepts, thus moving further away from the current single technology way of thinking in the direction of an open energy market
Despite many differing views in the market, we believe the programme represents a balanced and pragmatic approach by the department and the IPP office in addressing SA’s immediate and future power-sector needs. The technology-agnostic approach and allowance for non-colocated hybridisation permits low-cost intermittent renewables to be combined with flexible, dispatchable facilities (such as reciprocating engines or battery energy storage solutions). This allows for a reduction in energy costs while ensuring much-needed power is delivered to the grid, regardless of wind or solar conditions.
It is likely that the programme will result in a large amount of renewable capacity being added to the national grid. The intermittency caused by such renewables can be offset by new flexible power plants, ensuring the system stability is maintained.
This approach represents a new way of thinking as it places the emphasis on the system operator’s requirements and not on the type of technology to be implemented. This system’s level thinking brings with it several advantages, but importantly it allows developers the freedom to consider the latest proven and efficient technologies available globally. This would, in effect, catapult the SA energy system out of the coal era to the “coal face” of modern power technologies, potentially catalysing previously unexplored investments into SA.
In line with the government’s plans to introduce more gas into the country, the risk-mitigation purchase programme also requires all thermal facilities to be able to operate on natural gas, when available. This forward-looking requirement may prove to be invaluable in securing the necessary anchor demand needed to justify future investment in liquefied natural gas import infrastructure, thus kicking-off the much talked about “gas economy” in SA.
The permitted size range of the projects would, in our view, most likely result in 10-15 projects, to fulfil the 2,000MW capacity requirement. This approach significantly reduces the risk of construction delays and project cost overruns when compared to the implementation of a single 2,000MW “mega-project”. This approach also has the benefit of spreading economic growth and job creation opportunities throughout the country.
In the context of the socio-economic challenges the country faces, the programme places a key emphasis on economic development. It has stringent, but achievable, requirements for local content, job creation and preferential procurement. All projects in the programme would also need to be newly built power plants, which ensures much needed investment in SA’s power infrastructure.
In light of the new “black-box” approach adopted by the IPP office, there were always going to be challenges in designing a request for proposals that accepts all technologies without compromising or biasing some of them, as was evidenced by the more than 1,000 clarifications posed during the process. Many comments were related to the stringent technology experience and testing regime requirements, which made it challenging for pure renewable-plus-storage projects to qualify for the programme.
Storage can undoubtedly play an important role in balancing inter-day renewable fluctuations, but inter-day and seasonal balancing remains a challenge and thermal capacity is therefore still a sensible option for inter-day and seasonal, renewable capacity balancing. For the flexibility requirements specified in this programme, we believe a combination of thermal, renewable and storage hybrids could result in the optimal solution.
On the positive side, this programme has pushed many developers to step out of their comfort zones and explore new and innovative ways to use and mix certain technologies. We suspect no two developers had an identical view when it came to determining which technology mix was the best fit to meet the request for proposal requirements, and it is exciting to see what has, to date, only existed in theoretical power-system models now getting developed into real projects.
If it proves successful, this programme could make SA the pioneer for multiple “mega-hybrid” concepts, thus moving further away from the current single technology way of thinking in the direction of an open energy market, which is in line with the independent transmission system and market operator restructuring progressed by Eskom.
The list of preferred bidders is expected to be announced later in February, with financial closure expected to take place four months later and construction completed by the end of 2022. This is an extremely ambitious target by any standard, but one that should be supported as far as possible to help SA out of its energy crisis.
If successful, this programme will not only help alleviate load-shedding but could also be a stimulus for the introduction of new power technologies and the gas economy to SA. Most interestingly, though, it could result in a fundamental rethinking in the way new capacity is procured, both in SA and potentially abroad. This systems approach to flexible procurement has so far attracted the interest of the biggest players in the sector, but its real success will only be determined in the coming months as preferred bidders are announced and race to reach financial closure.
• Glossop is business development manager at Wärtsilä Energy SA.
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