SADC failing to embrace IPPs

> Timo Shihepo

Windhoek – Independent Power Producers (IPPs) holds key to the solution of acute power shortfall in the SADC region, however only a tiny fraction of independent producers are operating in the market, an indication that the region is yet to embrace the idea.

Information at hand shows that the power capacity shortfall of the region stands at over 8000Megawatts, while the Southern Africa Power Pool (SAPP) members only planned to commission 2 763MW of power last year.

This prompted regional leaders to bribing up the issue of IPPs.

SAPP coordination, Dr Lawrence Musaba told the 45th meeting of the regional power pool in Gaborone late last year that governments of SADC countries could not handle power generation alone hence the need for IPPs.

He however warned that it will be difficult because most SADC countries have a strict budget. Energy experts said there are many stumbling blocks that prevent IPPs from making meaningful contributions.

For instance, the Electricity Control Board (ECB) of Namibia has to date issued 35 licenses, to mostly small scale producers mostly for renewable energy but only two IPPs are operational.

The two are Omburu Solar Power Plant, located near Omaruru with 4.5 MW that was commissioned in April 2015 and HopSol, a Solar PV project located near Otjiwarongo with a 5 MW capacity, which was commissioned in November 2015.

Jako Volschenk, a senior lecturer at the University of Stellenbosch Business School with interest in renewable energy told The Southern Times newspaper that there are many reasons as to why IPPs are not thriving in SADC.

“There are a number of reasons. In essence investors want to see that they will not lose their investment. So they want to see if the necessary regulatory framework in place and does it provides certainty.

“Is the developer of the project having the necessary skills and experience? Is there a Power Purchase Agreement in place that guarantees an income for the life of the project? Is the project protected from currency fluctuations? What will be the return on investment and are there any shortfalls for a particular period in the life of the project?” he queried.

He added that all the above can be solved, but it costs money. “To be honest, I think we need more skills in the market. There are not enough suppliers yet to make the market economically efficient,” he said.

It is high time that SADC embraces the use of IPPs because it democratises power and enables entrepreneurs to step into the market, Volschenk said.

ECB’s Chief Executive Officer Foibe Namene said one of the reasons preventing these IPPs from taking off especially those intending to put up utility scale (large) power projects, are generally reluctant to invest in a specific project without government guarantees.

“The absence of any guarantees or support package from government makes the undertaking more expensive due to the high return requirements of the equity providers. These developments are mostly project financed. Currently government does not offer guarantees,” she said.

Namene said in an effort to encourage investment, the regulator has issued a number of conditional licenses for biomass, wind, and solar photovoltaic (PV) and concentrated solar power (CSP) projects.

She however said despite these efforts, to date, the pace of operational IPPs in the country remains slow. Under the Interim Renewable Energy Feed in Tariff (REFIT) programme, about 14 IPPs should become operational as from 2016.

“These are all small scale renewables (solar and wind) with 5 MW capacity totalling 70 MW. Commercial private sector participation in renewable energy is currently marginal, despite the promotional efforts made by the regulator and other stakeholders. For the REFIT, the Power Purchase Agreement has already been signed with NamPower (national utility) with full commercial operations by the end of 2017,” she said.

Namibia has a substantial renewable energy resource with a huge potential to positively impact on the security of electricity supply, she said.

“The ECB will strive to encourage a balanced development of renewable and fossil fuel indigenous resources, to enable Namibia to reach its developmental goals as articulated in the NDP’s (National Development Plans) and Vision 2030. The ECB will also continue to build a stable environment in order to attract private investment as per government policy,” she said.

Lack of full, proper, ethical as top-level decision support system; prevention of projects to wait for black economic empowerment, theft of (business) ideas; and inferior technologies competing on price with superior technologies such as thin film solar are some of hindrance to IPPs development, according to Peter Nutt of the Consumer Advocacy for Electricity (CAE).

Nutt said IPPs are essential because they provide private sector innovation, private capital, reduces pressure on fiscus with capital and guarantees, fast execution, reduced tariffs and affordability of electricity as well as accelerated and competitive economic development.

February 2016
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