By Corrie Kruger
Caveat Emptor, the Latin legal phrase that states, buyer beware!
South Africa seems not to have learned anything from the mistakes made at Kusile and Medupi. The writer is no expert on these matters, but how can the participants in the scheme state that this deal has the potential to be scaled economically.
British International Investment (BII), the UK’s development finance institution (DFI) and impact investor, has partnered with Standard Bank and H1 Holdings. BII is proud to back a project at the forefront of renewable energy technology that has the potential to be scaled commercially.” Macaulay of BII, states that “BII’s flexible capital is playing a crucial role in backing pioneering solar PV and battery storage technology, which, if proven to be commercially competitive, can significantly catalyse the market for hybrid renewable and storage projects. Is South Africa now the guinea pig of the world?
Amabunghani reports “Peter Hain, a British peer made headlines in South Africa when he campaigned against state capture. But Lord Hain does not appear to be applying the same high standards to his own commercial dealings in Zimbabwe, as an examination of his business partners reveals. The contribution Hain has made at the State Capture report makes it clear in which political camp he operates from. It may just be that he was instrumental to the introduction of British International Investment (BII), the UK’s development finance institution (DFI) and impact investor. To South Africa.
The long-term energy plan for the country (the Integrated Resource Plan of 2019) calls for about 20 000 MW of renewable energy over the next 10 years. This is a sizeable chunk, given that peak demand for South Africa in 2020 was 34 200 MW. “South Africa needs a lot more of these projects to make a real difference to energy availability. The government has come, to what is known as the Risk Mitigation Independent Power Producers Procurement Programme (RMIPPPP). This sounds impressive yet South Africans have become increasingly sceptical of government policy implementation.
Kenhardt has for a long time been the most remote Settlement in the North-Western Cape, founded in 1868. Kenhardt became a Municipality only in 1909. South of Kenhardt is Verneukpan. This consists of a vast dry pan on which Sir Malcolm Campbell tried to set a new World land-speed record, in 1929 in his Blue Bird 1.
The population consist of the following:
The English word for verneuk could be any of the following, deceit, unfaithfull or perhaps defraud or swindel. The area may soon add to its infamous name to live up to it’s name.
Oslo / Cape Town, 19 July 2022: Scatec ASA,with headquarters in Askerkroken11 Oslo Norway, a renewable energy solutions provider, is starting construction of the three Kenhardt projects in the Northern Cape Province of South Africa under the Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP)
Once operational the project will have a total solar capacity of 540 MW and battery storage capacity of 225MW/1,140MWh, and provide 150 MW of dispatchable power under a 20-year Power Purchase Agreement to the Kenhardt region. The project will be the largest investment in Scatec’s history with a total capex of approximately ZAR 16.4 billion (USD 962 million) to be financed by equity from the owners and ZAR 12.4 billion (USD 727 million) in non-recourse project debt. The debt will be provided by a group of Lenders which includes The Standard Bank Group as arranger and British International Investment. The power will be sold under a 20-year PPA. The project is expected to be funded by project finance debt from a consortium of commercial banks and Development Finance Institutions with expected debt leverage of 80%. British International Investment (BII), the UK’s development finance institution (DFI) and impact investor, has partnered with Standard Bank and H1 Holdings to successfully reach financial close on the first sizable battery energy storage and photovoltaic (PV) solar project in South Africa. The total $720 million senior debt facility is arranged by Standard Bank, in cooperation with BII. In its role as Lead Bank, BII has provided a $135 million senior debt investment along with an additional $26 million mezzanine financing to H1 Holdings – a South African Broad-based Black Economic Empowerment (BBBEE) renewables investment and development company, and an investor in the project. H1 Holdings is a partner of choice for BII, owing to the company’s expertise on several renewable power projects and its deep commitment to energy sustainability.
Scatec will own 51% of the equity in the project, with H1 Holdings, a local Black Economic Empowerment partner owning 49%. (H1 Holdings Registration Number is 1996/005471/07.) The equity partners for all three solar plants are Norfund, BEE Industrial (H1) and BEE Trust. Lenders are Standard bank + syndicate lenders. Scatec will be the Engineering, Procurement and Construction (EPC) provider and provide Operation & Maintenance as well as Asset Management services to the power plants. One can only wonder what is the function of H1 Holdings? The equity for their account comes in the form of a loan.
Reyburn Hendricks is the managing director of H1 Holdings, an investment company established in 2000 to provide expansion and buyout capital to companies in partnership with management. Prior to joining H1 in 2007, Hendricks worked in corporate finance and private equity for 12 years at Southern Life Asset Management, African Harvest and Hosken Consolidated Investments. He has extensive experience in asset management, corporate advisory and private equity. He has a Bachelor of Business Science (Actuarial Science) from The University of Cape Town and is a Chartered Financial Analyst
Scatec will be the Engineering, Procurement and Construction (EPC) provider and provide Operation & Maintenance as well as Asset Management services to the power plants. The value of Scatec’s Development and EPC contract for the project is approximately ZAR 13.7 billion (USD 800 million). John Andersen Jr. acts as Chair of the Board, Terje Pilskog is the Chief Executive Officer and Mikkel Tørud is the Chief Financial Officer. It is not clear what operational function Hi Holdings would engage in.
Projected Costs of Generating Electricity – 2020 Edition is the ninth edition of the report on electricity generating costs published jointly every five years by the International Energy Agency (IEA) and the OECD Nuclear Energy Agency (NEA).
Evaluating the merits of this transaction requires substantial further information to be fair. Yet a basic calculation reveals that the Intended Investment of R16, 400,000 for a small town with a population of 4,842 people would result in a per capita spend of R3,387,030. I was hoping to get off the grid for less than R100,000 for my family of 7, making it less than R15,000 per person. If one were to take the per capita capital cost and apply it to the population of South Africa it would require over 200 Trillion Rand. Something is seriously amiss. There is already electricity in the town and even if they sell the surplus usage to ESKOM at what cost would that be?
In the light of occasionally incomplete national data, methodological conventions and default assumptions serve to complete and harmonise data. Decisions on methodology were prepared by the IEA and NEA Secretariats and taken in the EGC Expert Group by consensus. What follows is an overview of key assumptions and conventions.
The EGC harmonised expected lifetimes for each technology across countries are as follows through consensus: Battery storage: 10 years Solar PV, onshore and offshore wind: 25 years Gas-fired power plants: 30 years Coal-fired power and geothermal plants: 40 years Nuclear power plants: 60 years Hydropower plants: 80 years Additional lifetime after nuclear LTO: 10 or 20 years, depending on regulatory framework.
We have addressed certain questions to Scatec, the answer will be disclosed once received.
Another is the exact details of the 20 year PP agreement to which the people paying for electricity is entitled. We can only wonder what political power is at play to implement deals such as these. Can the solar panels last for 20 years and can the batteries last for this period, what cost has been provided for maintaining design capacity? Medupi and Kusile are examples of paper based goals compared to reality. It is obvious that the people of the Kenhadt area, is not going to repay the debt of this experiment. We must assume the few consumers who do pay for electricity service delivery is in for another hiding.
The NATIONAL ENERGY REGULATOR OF SOUTH AFRICA (NERS) has reported on the matter regarding Concurrence with the ministerial determination on the procurement of 404 MW new generation capacity from Battery Energy Storage Systems and Solar PV By THE DEPARTMENT OF MINERAL RESOURCES AND ENERGY (DMREA. In the repost the following is a copy of the information (lack thereof).
The crux of this deal is the price the consumer has to pay once this price is factored into the average cost of electricity. True to form we the consumers are left in the dark. As can be seen from the above extract the relevant information is blacked out.
NERSA reports that Eskom’s latest application, (plus three additional amounts since it was filed), could result in a price of 202.29c per kilowatt hour (c/kWh), an increase of 38.10% up on the current price. This price excludes VAT, which is added to all the tariffs, and would take the price to 232.63c/kWh.
In addition, it has been reported that Eskom has indicated that President Ramaphosa’s new energy plan, which includes additional power purchases, more maintenance and more skilled personnel, will require that Eskom will have to adjust this application to ask for additional increases.
In their latest newsletter OUTA states:- “Should these excessive price increases become a reality, it will push electricity into the realm of a luxury item, not only for many households, but also for businesses and institutions.”
Corrie Kruger is an independent analyst.
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