An independent power producer is a privately-owned power plant, operating outside of the traditional utility grid owned by the State. They operate with different renewables, fuels and technologies: wind, solar, bioenergy, landfill gas, biogas, biomass, combustion, and small hydro plants.
The Status Quo
Considering the current problems that beset the government’s main energy utility, the provision of power from these entities is considered vital to keep the lights on and the economy turning. It is a field that provides considerable engineering, financial, employment, and career opportunity.
The progress to achieving the full utilisation of these entities as supportive and supplementary sources of energy for the country, has been complex and challenging:
- the renewables market in South Africa is small
- the process of marketing the benefits of IPPs has required patient and strategic engagement with various government stakeholders, such as: National Treasury, the Department of Energy, the Department of Trade and Industry, and Eskom.
- new approaches had to be developed to work within the South African regulatory framework in ways that would facilitate deployment and evaluation – while at the same time building a trusting working relationship with clients and government.
The value of Independent Power Producers
IPPs are able to generate electricity for sale to the national electricity network. They can also sell power to a single third-party through a power purchase agreement (PPA). If mechanisms permit, IPPs may use the national electricity networks distribution system, or alternatively provide electricity via a private wire direct to the customer.
The IPP also has the potential to be used as a district energy scheme: through the system of heating schemes, heat is recovered from the engines using cogeneration and sold to local customers; district cooling schemes use absorption chillers to convert heat into cooling that can be used in air-conditioning or refrigeration plants.
Using gas engines for IPPs has a number of benefits, including: gas engines have high electrical efficiency, and facilities can be built as modular solutions consisting of individual engines. There is significant flexibility in ramping power production up and down. An individual engine can operate down to 50% of the full fuel gas input. In addition, facilities can be deployed rapidly compared to other major centralised power plants.
The South African space
- South Africa has been suffering from chronic power shortages with regular load reductions since 2007. Up to 2030 the country will need environmentally-friendly energy sources in order to retire the current fleet of coal-fired power stations, providing interesting opportunities for various companies to enter the power sector in South Africa.
- The country’s aging fleet of coal-fired power stations with high unreliability will be retired in stages – and it is expected that they could be replaced with more environmentally friendly energy sources, with a strong emphasis on renewable energy and gas. This will present opportunity for the provision of complementary products and components once the power programmes are planned, and the extent of market demand is understood. As things stand, IPPs are more than capable of providing the megawatts needed to bolster the aging power generating systems of Eskom.
- South Africa has a highly regulated power sector, but it is slowly undergoing changes to enable IPP’s to operate in the market. However, there remains a high degree of regulation restrictions to negotiate.
- For large-scale power generation projects, procurement programmes are possibly the best access for IPPs to enter the market. These programmes are supported by government backed Power Purchase Agreements (PPA’s) which facilitate project financing and licensing.
- South Africa is aware it has a very large carbon footprint per capita and will need to reduce this dramatically – a factor that further drives opportunities for IPPs. There are already plans to procure a further 11 800 MWs of power over the next 10 – 15 years, which should provide exporters of components and systems in the power space with a lot of opportunity.
The future boom of business
There are two ways to enter the power generation market in South Africa: using the IPP Procurement Programme run by the Department of Energy OR approaching private companies directly who are currently detrimentally exposed to load-shedding, and who seek alternative, reliable power supplies – such as companies within the mining, agriculture and manufacturing industries.
Numerous small renewable energy solutions such as solar and wind companies have formed in the last 7 years, seeking ‘smart’ solutions for their private sector clients, and often providing hybrid solutions. In addition, the replacement of power capacity with non-dispatchable generation has opened the market for large-scale power storage devices. Countries with this advanced technology will be well placed to export to South Africa over the next 10 years. As the sector currently stands, the demand for private power solutions can only grow in demand and popularity.
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