South African Business 2017 edition

SPECIAL FEATURE to have

SPECIAL FEATURE to have South African partners. These are often local energy companies and representatives of residents. Typically, a community trust is established to represent the interest of the local community. Among the international investors active in the REIPPPP process are Enel Green Power (Italy), Scatec Solar (Norway), Globeleq (UK), Mainstream Renewable Power (Ireland), Gestamp Renewable Energies and Abengoa (Spain), Solar Capital (subsidiary of Phelan Energy Group Ireland), SunEdison (USA), ACWA Power (Saudi Arabia), China Longyuan Power Group (China), Engie (France), juwi Group (Germany) and Tata Power of India. The lastnamed company has teamed up with the energy unit of Exxaro Resources to form a company called Cennergi. Partnerships with foreign utilities or power companies are becoming more common as the REIPPPP progresses, in part because the competition is bringing down the price at which bidders are offering to sell power. This makes it difficult for South African firms to compete on their own. Johannes Horstmann of Arup wrote in Engineering News in April 2016 that prices have dropped significantly in the course of the REIPPPP: he cites a 29% cheaper tariff for solar PV in round three than the round before (R786/MWh); and a 25% drop in wind prices (to R619/MWh). This obviously sounds nice for the consumer, but is it sustainable for investors? Horstmann notes that the trend suggests that solar PV prices could further decrease by 19% and wind by 8% but these are likely to correct to rates closer to 6% and 3%. The other factor favouring foreign investors is the fact that many of them have strong reserves of cash and don't need to borrow money. The high price of borrowing makes it difficult for South African firms to compete independently. The national utility, Eskom, is the only buyer of the energy that private companies produce. Central to the business plan of every private producer's bid is the agreement with Eskom that it can sell what it produces, at an agreed price. So there was understandable consternation when senior Eskom executives started questioning whether they would indeed continue to buy power from independent producers. Eskom's single shareholder, the South African government, quickly assured the markets (through SOUTH AFRICAN BUSINESS 2017 26

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