Cabinet fails to approve IRP 2019: how does this impact the procurement of new energy projects?

Policy uncertainty for South Africa’s energy mix has discouraged investor confidence in South Africa’s energy sector. Without an updated policy there is no framework to procure the generation of new energy.

The draft 2019 IRP supports an energy mix of coal, gas, nuclear and renewables. It was reported National Treasury allocated about R200 billion towards renewable energy but  without a policy commitment from government these funds remain inaccessible. 

The Department of Mineral Resources and Energy, in July 2019 directed  a clear path for the approval of the draft IRP 2019 by September 2019. Last month the IPPPP Unit (which conducts its activities in accordance with the renewable and non-renewable generation capacity allocated by the IRP 2010) committed to a swift implementation of its procurement programme following Cabinet’s approval of IRP 2019. Without the approved IRP 2019 the IPPPP Unit cannot roll out its procurement programme for the generation of new energy.

All indicators a month ago pointed to Bid Window Round 5 running its course in the first quarter of 2020. These steps are critical to demonstrate policy certainty and a procurement programme which will support investor confidence. Cabinet’s failure to approve the draft IRP 2019 and the lack of a timeline for approval will set back Bid Window Round 5 indefinitely.

The draft IRP 2019 ostensibly identifies government’s objectives and the country’s energy demands but was once again met with resistance – this time by Cabinet, on 18 September 2019. The only indication from the Presidency thus far is the policy would be concluded “soon” but it refused to offer a timeframe for approval.

The Presidency also cited the Eskom paper on restructuring (which is yet to be served on Cabinet) and Finance Minister Mboweni’s paper “Economic Transformation, Inclusive Growth and Competitiveness: Towards an Economic Strategy for South Africa” as key policy documents that require consideration.

What is clear is that the IRP 2019 has the support of both National Treasury and the IPPPP Unit. Renewable energy experts have also reported the sector is on track to meet the 2030 goal to connect 20GW of renewable power to the grid.

The policy was also originally debated through NEDLAC for months earlier this year, and despite “deep ideological differences”, was finally tabled with Cabinet earlier this month. The exclusion of new nuclear projects and the diminishing role of coal were two impasses which required extensive consultation with labour and community representatives. Key stakeholders with strong political, social and economic objectives have now considered and debated the policy at length.

What is unclear is why Cabinet failed to approve the policy. We share in the Minster of Mineral Resources and Energy’s concern: the approval of the IRP 2019 (South Africa’s “energy road map”) will open the way for the procurement of new generation capacity. This will benefit both public and private sector interests and will see large-scale economic (and social) transformation to meet country’s energy demands. Simply stating that the policy will be approved “soon” is insufficient and calls for intervention by all stakeholders to hold Cabinet accountable for its decisions and its failure to act swiftly.

The Ministers’ recent discussions with various representatives from IPPs on Friday, 26 September 2019 shows that there is a commitment  to investment in this sector. In this meeting Minister Mantashe, and Minister Gordhan requested IPPs to voluntarily reduce tariffs. Whilst stakeholders are considering this request, it should not hold Cabinet back from approving the draft IRP. 

Authors:

Nikita Lalla, Chief Executive, Head of Department, Construction, Infrastructure and PPP, LNP Attorneys Inc

Ricardo Pillay, Director, Construction, Infrastructure and PPP, LNP Attorneys Inc