Popular wind auction prompts price drop

SOUTH AFRICA: Strong competition led to a significant fall in the power price and an increase in local content pledged by bidders in the second round of South Africa's call for bids, for up to 1.85GW of wind capacity under the Renewable Energy Independent Power Producer Programme. There are concerns, however, that the prices bid by some developers might be too low to be viable.

by Jan Dodd 27 June 2012

In May, the energy department announced the selection of 19 projects totalling 1.04GW, of which wind power accounted for 563MW across seven projects. This follows the first round, with wind power totalling 634MW over eight projects.

Bid winners include developer EDF Energies Nouvelles, which will be developing three of the projects, and Vestas, which will be providing 289.4MW of turbines for five of the projects. According to the DoE, the average price dropped by 28% from ZAR 1143/MWh (EUR109/MWh) to ZAR 897/MWh in the second round.

This implies that some bids were lower than ZAR 897/MWh, noted Chanda Kapande, general manager at South African service provider Wind Prospect. This seems very low, she said, especially given the requirement for local manufacturing. In the first bid, the government wanted at least 21% of the value of the content to be made locally, rising to 36.7% in the second round.

The government, which sees the procurement programme as an opportunity to boost the economy, is aiming for 40% local content in round three.

Kapande is concerned that the local procurement will push up prices and wonders how the 40% target can be met without local manufacture. While the big players like Suzlon, Gamesa, Vestas and Goldwind are keeping a close eye on the market, so far only Isivunguvungu Wind Energy Converter (I-WEC) is manufacturing multi-megawatt turbines locally.

Most local content at present comes from balance of plant - all the elements of a wind farm other than the turbines - and electrical work, which does not represent a high share of the total project cost, she said.

Foreign owned

One answer might be that the projects selected in this round are all owned or part-owned by large, foreign utilities or mining companies. Some may have framework agreements with turbine suppliers, which would help bring down prices. By contrast, the winners in the first round were largely local developers with fairly mature projects. Since then, big new players have had time to complete due diligence and buy into projects already under development, Kapande explained.

Round two projects have until 13 December to reach financial close, while those from round one had until the end of June. Some were struggling to meet the deadline, according to energy minister Dipuo Peters.