Posted in: Utility scale solar

SOLA signs land lease agreement with Eskom

SOLA signs land lease agreement with Eskom for renewable energy development

We have concluded land lease agreements with power utility Eskom, to develop some of its underutilized land in Mpumalanga. SOLA Group will use this land to develop two large renewable energy projects, with a combined generating capacity of approximately 345MW. We intend to conclude corporate PPAs with wheeling with either existing SOLA clients or new off-takers in the market.

Eskom issued a request for proposals in April 2022, which was followed by a meticulous selection process. At the end of the process, we were one of the four awarded bidders. The bidders will collectively lease over 6,000 hectares of land for a period of between 25 and 30 years each. 100% South African owned SOLA has been awarded land parcels alongside major international companies and a large green hydrogen company.

The key objective of this Eskom initiative is to provide relief to the constrained electricity system as quickly as possible. There is a dire need to alleviate pressure on the system by adding as many megawatts as possible in the shortest possible time, thus increasing Eskom’s ability to conduct maintenance at its existing fleet, reducing load shedding and the usage of expensive open cycle gas turbines.

Our projects will be developed rapidly in order to meet Eskom’s timelines and contribute to resolving the energy crisis as timely as possible. We already have a strong footprint of large-scale renewable energy projects in most provinces, but these will be our first utility-scale projects in Mpumalanga.

SOLA signs land lease agreement with Eskom

SOLA has already completed several smaller projects for commercial and industrial clients in that Province, but we are excited to expand the scale of our operations in the province and continue our role in the Just Transition in Mpumalanga. This region is set to become a focus for renewable energy activity due to grid connection availability in other provinces becoming constrained. As Eskom coal-fired power stations come offline at the end of their usable
lifetimes, grid capacity will be available for cleaner renewable energy projects, and Mpumalanga is preparing to become a focal point for re-skilling and training of resources for renewable energy projects as South Africa fast-tracks its movement towards clean energy.

Eskom plans to make more land available around its power stations where there is sufficient grid capacity to connect clean energy producers. This is the first batch of lease agreements to be signed with private companies.

It is expected that the generators will be connected to the grid in 3-4 years, subject to environmental and other regulatory approvals.

Schedule 2 of the Electricity Regulation Act of 2006, as gazetted by the Department of Mineral Resources and Energy in August 2021, permits independent power generators to wheel electricity through the transmission grid, subject to wheeling charges and connection agreements with the relevant transmission or distribution license holders. The lifting (and expected removal) of the NERSA generation license cap has allowed SOLA to take other similar large wheeling projects to Financial Close very quickly, and we plan to also advance these projects as fast as possible.

Sick of load-shedding? How wheeling can save the South African electricity landscape

Just as South Africans start forgetting about the resources that go on behind the scenes when they switch on the lights, they’re reminded about how much they’re actually reliant on Eskom. But the return of load shedding spells something even more concerning than the inability to make supper or catch up on the latest series: how South African industry suffers when Eskom can’t keep up with demand.

Private companies have, however, not been complacent when it comes to their power procurement strategies. As electricity provision and stability becomes a significant business risk, they are seeking out alternative strategies to procure the power that they need. They are demanding more from the market – they want stable, cost effective power – and the market is adapting to meet their needs. This is where renewable energy wheeling comes in.

Wheeling is a financial transaction that allows power to be produced in one location and billed to an energy user in another region via the grid. This allows power to be generated for a private company in bulk amounts, without the generator needing to be geographically located at the site of use (“embedded generation” has been the chief way of providing back-up power until now, through diesel generators, solar PV systems and energy storage or batteries). This enables corporate users of electricity to procure power for their operations, and for the market to provide solutions for them based on their needs.

Wheeling can take place through a wheeling-use-of-system agreement with Eskom, based on the principle of non-discriminatory access, provided that compliance with Nersa and other regulatory requirements are met. This has been in place since 2009, but has rarely been used; the SOLA Group signed the first large-scale wheeling agreement for private buyer Amazon in late 2020. Technically, any form of electricity generation could provide private power through wheeling, but companies who pursue this type of power procurement, like Amazon, are more likely to choose the most cost-effective and sustainable option: renewable energy.

With South Africa’s abundant resources in both solar and wind energy, renewable energy options are proving to be more cost effective than other forms of energy generation – particularly when the generation plants are located in areas with abundant resources of wind and sun. In addition, these forms of energy generation are low-impact to the environment – meaning that they produce very little greenhouse gasses to manufacture and operate throughout their lifespans. This is particularly important for international companies such as Amazon and ABinBev, who have committed to aggressive carbon reduction targets for their operations.

As alternative power procurement grows, it will relieve Eskom’s capacity constraints by providing additional power to the grid. Eskom has reported its urgent need for an additional 4000 – 6000 MW of generation capacity to assist the utility with power provision, alongside its accelerated maintenance programme, in order to reduce load shedding risk.

This could be great news for the economy: load shedding purportedly cost South Africa’s economy around R75 billion in 2020, draining at least 2% to South Africa’s GDP loss during 2020, a year in which economic activity was actually subdued due to the pandemic.

There are legitimate concerns about the phasing out of coal, both from a technical and social perspective. The technical concerns are easily addressed through the provision of energy storage facilities and on-demand back-up power sources like green hydrogen; the social issues by keeping the Just Transition front and centre of the picture. Part of this is recognising the extreme business and social risks that a rapidly warming planet will bring, particularly in countries like South Africa.

As renewable energy wheeling becomes the go-to option for business consumers of electricity, the phase-out of coal will be more achievable. But renewable energy wheeling does not spell the end of Eskom – it just modernises the utility’s function. Wheeling requires a fee to be paid for every kWh wheeled through the grid. It is a great model for the utility, as they get paid to maintain the gridlines that provide South African businesses and citizens with the electricity that is central to their operations and livelihoods. 

Wheeling is the start of a modernised electricity picture, as it uses Eskom’s grid to connect private buyers and sellers together, in turn making more space for competition and choice for private buyers. A modernised grid could see private buyers and sellers of energy trading, whilst Eskom is paid to maintain its important grid infrastructure. This could provide more generation capacity, reduce South Africa’s carbon footprint, and ultimately spell the end of load shedding.

Adams solar facility in the Northern Cape

What does the first large-scale wheeling project mean for South Africa?

SOLA has officially launched a first-of-its-kind 10 MW solar plant in the Northern Cape three months ahead of schedule, which provides clean energy to Amazon Web Services via the Eskom grid. Energy wheeling, a new model of private energy procurement, allows power to be generated and purchased in geographically distinct locations. The Adams Solar PV project will provide over 28 million kWh of clean electricity to Amazon Web Services annually. 

This is the first operational large-scale solar PV wheeling project in South Africa, and the model is futuristic: it uses Eskom’s grid to connect private buyers and sellers together making the way for more choice and competition.  It’s the first step forward in creating grid independence where private buyers and sellers of energy can trade with each other.

This means that the renewable energy plant will provide a low-carbon alternative to coal-fired power for a private offtaker (in this case Amazon Web Services) without needing to be geographically located at the site of use. 

How? The solar PV plant comprises over 24 000 bifacial solar modules on single axis trackers, covering an area of 20 hectares. It is situated in the Northern Cape, where the solar resource is one of the best in the world. The solar PV facility tracks the sun throughout the day and absorbs irradiance from both the sky and reflected light from the ground. This design will see over 25 000 tons of carbon emissions being avoided annually – the equivalent of taking 5400 cars off of the road for a year. 

This model could also help South Africa significantly in sticking to its carbon emission reductions targets whilst supporting economic growth and a just energy transition.

Amazon, like other large corporate consumers of energy, have committed to aggressive renewable energy procurement targets – in their case, 100% by 2025. But the successful provision of renewable energy can only be provided in an environment that supports it. Recently, the Department of Minerals and Energy, NERSA and Eskom have become supportive of renewable energy generation, which has allowed for the approval of renewable power plants such as this. 

This is great news in light of the onslaught of load shedding in South Africa. Power generated from wheeling projects will increase the amount of IPPs and relieve the sole electricity provision burden on Eskom.

The support of renewable projects means the equal prioritisation of economic and social factors. The Adams project is more than 63% black owned, with investor Mahlako a Phahla Financial Services holding stakes in the project, who are committed to delivering returns for local black investors. SOLA is also 100% South African owned, including a 40% shareholding by black investor African Rainbow Energy and Power.

Renewable energy projects which take into account local development are able to develop South African skills and provide jobs. During construction, the Adams Solar Project created 167 jobs, 63% of them from the local surrounding area, and it will sustain permanent jobs for its lifetime in electrical maintenance, cleaning and security. Wooden waste generated during construction, including pallets and electrical cable drums, were donated to local furniture businesses and special skills schools, in order to further bolster the SMME contributions of the project. 

Although the Adams Project is just the start of an energy wheeling and trading landscape in South Africa, it’s indicative of where the picture is heading: toward a modernised grid with renewable energy at its core. It also demonstrates the willingness of the government and the private sector to work together on solving South Africa’s electricity crisis.

Read more about the project here.

Energy Wheeling supplies power to areas located away from the direct source of power

SOLA gets approval for largest solar PV wheeling agreement in South Africa

A flagship renewable energy project, commissioned by Amazon, is set to demonstrate the flexibility and convenience of procuring independent power through the electricity grid. The project will see 28 GWh of solar energy wheeled via Eskom’s utility grid from a solar farm in the Northern Cape to Amazon’s facilities each year.

Energy wheeling holds tremendous value in that it enables the supply of energy to urban areas from energy projects in outlying areas, such as a solar farm located in an area where the sun is most powerful and consistent. This is done through the transfer of electrical power via a utility’s distribution system. In other words, the power generated in a sunny area is distributed to an offtaker where there might be less solar resource. 

Chris Haw, SOLA’s Executive Director, explains that although the concept of wheeling energy using Eskom’s existing infrastructure has been in place since 2008, certain administrative barriers have hindered the uptake of such services. “This project, which comprises a 10 MW solar PV farm, has also received a sought-after generation license from NERSA, a milestone that other similar projects have struggled to achieve.”

SOLA will be responsible for developing the project and will build, own and operate the solar facility.

Haw explains that the NERSA process requires a signed Power Purchase Agreement and fully developed project in order to obtain approval. “This creates contractual challenges because many inputs, such as the foreign exchange rate, are still fluctuating whilst the application process is underway. The high standard of development required for submission means that NERSA are not handing out licenses to projects that won’t proceed, which is a very good thing.” 

The project aligns with the South African Government’s intent to open the electricity grid, allowing independent generators of electricity and consumers to enter into bilateral agreements to optimise the cost and sustainability of energy, which has previously been difficult to achieve. The generation license received from NERSA is one of the first granted as part of the recent allocation made for distributed electricity generation in order to plug the short-term capacity gap.

Haw says that SOLA will deliver the energy via the Transmission Network though a Wheeling Use-of-System agreement. “This Wheeling Use of System Agreement is the first of its kind and the largest solar PV wheeling arrangement in South Africa to date.”

Haw credits the company’s multi-disciplined skillset and 10-year track record of developing, financing and building solar PV projects in South Africa with overcoming the many challenges that were faced.

The SOLA Group has a history of breaking down barriers to enable renewable energy projects in South Africa. The group developed some of the county’s first IPP projects, signed the first bi-directional metering agreements with municipalities, and are responsible for innovative solar-plus-storage projects like the microgrid currently powering Robben Island.

The project will be majority black South African-owned, demonstrating a pivotal dedication to transformation in South Africa’s energy sector. Mahlako a Phahla Investments, a black women-owned and operated energy and infrastructure investment holding company will own 45% of the project.

Other investors into the project include African Infrastructure Investment Managers (AIIM), through the IDEAS Fund, one of South Africa’s largest domestic infrastructure equity funds and one of the largest investors in the country’s renewable energy landscape.

The project’s success could mean that more companies like Amazon will look to procure cleaner independent power through the grid.

“This project is the tip of the iceberg in terms of what the electricity picture in South Africa could look like,” says Haw. “Projects like this demonstrate the potential of a truly modernized electricity market where consumers can procure cleaner energy through state-owned grid lines whilst paying for their upkeep in the process,” he adds.

The project will begin construction in early 2021.

Mining in africa

Why remote mines in Africa should be considering energy storage

There is no doubt that solar PV is the cheapest form of electricity generation globally. However, how does its application apply to remote mining operations? Africa is blessed with great solar resource, as well as mineral and metal resources – making mining an important industry on the continent. But remotely-located mining operations often mean that energy generation is an important concern. 

If a mining operation is located close to a utility grid, there could be an option to commission a new power line or grid connection to the mine. Whilst this may seem like an appealing option, there are many uncertainties in the creation of a new power line, and even in connecting to an existing one. How long will the powerline take to build? How will it be maintained and/or repaired when necessary? What would the costs be of such a connection? These questions need to be asked in conjunction with the political, regulatory and logistical risk considerations in taking on such an intervention. There is also the risk of the existing grid or utility being unreliable with frequent outages. 

Another consideration is the risk of using an outmoded form of technology, and what the implications of this might be for the future of your mining operation. Using mobile technology as an example, Africa has been able to leapfrog fixed line telecommunications straight to mobile phones, which has improved livelihoods on the continent substantially. A similar argument can be made for the fixed line electricity grid: decentralised electricity supply enable the opportunity to leapfrog outdated technology and maintenance that comes with fixed power lines to provide decentralised, reliable power. 

As such, many mines in Africa do rely on decentralised power, either in the form of diesel or solar PV. In addition to these decentralised power generation sources, battery storage is a great option to reduce costs and risks of power supply. 

Lithium Ion Battery Storage solar PV microgrid

The most common go-to option for remote mining solutions is diesel generation, due to its portability and reliability for remote mining operations. However, diesel is a costly option. Typically, diesel costs in African gold mining countries are around US$1 per litre of diesel – which translates to US 30c per kWh. This is in comparison to US 5c per kWh of solar PV electricity. Another consideration is the transportation of diesel to the mine site, which ironically is burning diesel to, in turn, burn more diesel. Despite the greenhouse gas emissions implications of this, it also adds an unnecessary layer of costs to the mining operation.

But is there another way? As mentioned above, many remote mines in Africa, whilst distanced to the utility grid and/or high-voltage grid connections, have fantastic solar resource. With the affordability of solar PV solutions, it makes sense to explore a solar PV system for mining operations in Africa. However, to provide power after hours and/or during the early hours of morning or late hours of evening, solar PV needs to be used in conjunction with a backup supply to keep the energy supply consistent. This might take the form of diesel generators, but energy storage – particularly in the form of lithium-ion batteries – is quickly becoming a less risky option. This is, in part, to the falling costs of energy storage technology. 

With costs of storage rapidly decreasing, energy storage provides a much more stable cost profile than grid-powered or diesel generated electricity, which both have unknown future cost fluctuations and risks. Similarly, the increased interest in electric vehicles, as well as global uptake of off-grid electricity, have sparked a sharp decline in battery costs.  

In addition, battery manufacturing capacity is expected to increase significantly by 2021 from just under 150 GWh/year in 2018 to 350 GWh/year in 2021, with the bulk of manufacturing taking place in China and the US. A similar forecast predicts an increase in manufacturing capacity from 350 GWh/year, to ~700 GWh/year. Similarly, the average battery plant manufacturing size has increased significantly, from around 10 GWh/year to just under 30 GWh/year. 

In conjunction with increased global demand and manufacturing capability, the costs of lithium-ion batteries have decreased significantly from 2013 – 2019, from around US$ 446 per kWh in 2013 to US$ 112 per kWh in 2019. 

Should the application of a solar PV and battery storage microgrid system be unfeasible for a mining operation, battery storage can still assist mining operations to save money by extending the life of generators by creating spinning reserve. This can create a ~2% diesel saving – or 2 MVA of batteries of spinning reserve could save ~260 000 litres of diesel.

A solar PV and energy storage microgrid ensures the control of power and energy sources. A high concentration of renewable energy, such as solar PV, in conjunction with storage, enables complete control of energy costs, eliminating logistics risks and price fluctuations. There are also various financing options available, such as buying the system outright or entering into a power purchase agreement. 
As mentioned, solar PV on the African continent is a no brainer. However, for remote mines, it may be necessary to install solar PV alongside battery storage solutions. Whilst solar PV saves money, energy storage solutions solve a few problems: they provide consistent energy supply and handle load changes, and also ensure that the costs of supplying power to the mining operation are known. This reduces much of the risk of electricity supply for both planned and existing mining operations.

Can urban high-energy consumers benefit from solar PV?

It’s no surprise that high energy consumers are those that might benefit the most from renewable energy. In South Africa in particular, the coal-based electricity system means that large energy consumers carry large carbon footprints, which can undermine sustainability efforts and targets. But simply adding a few solar panels is not necessarily the answer either. 

That’s because renewable energy – in particular solar – needs space in order to effectively produce the necessary energy. For large energy consumers, the required space can be substantial – requiring a large solar farm situated in an area with excellent irradiance (solar resource). Whilst it does sometimes happen that the energy consumer is situated in an area with large land and good irradiance, this is not always the case. 

Open energy markets allow the trading of energy from different sources of production – either governmental, such as an Eskom-owned and operated coal-powered generation plant – or independent power producers (IPPs) – typically solar, wind, gas, and so forth. When energy is at its cheapest – as solar is during mid-day – consumers can buy this power and benefit from the associated cost savings. This is the type of energy market which is common overseas in places like California, where a central body facilitates the provision of power from various different sources. 

In South Africa, we are not yet at an open energy market situation. Energy is still provided almost exclusively by Eskom, with a few IPPs contributing to Eskom’s grid. But wheeling of power – forming an arrangement between an IPP and a commercial offtaker to use power via Eskom’s grid – is a possible workaround for large energy consumers. This fits with global trends that show that businesses are taking a more active role about procuring the type of power they want, according to Bloomberg.

Wheeling is essentially like a remote Power Purchase Agreement – it is a way for a corporate consumer of energy to procure electricity from an independent party. But unlike typical PPAs, wheeling enables larger amounts of power to be transferred, because the generation source – such as a solar PV system – doesn’t have to be situated geographically close to the offtaker. 

This means that a large solar farm – producing several MW of power in the highest solar resource areas of the country- could generate electricity for a high-energy consumer on the other side of the country, using the national electricity grid.

In South Africa, wheeling currently involves amending the System of Use Agreement from Eskom to stipulate that the energy can be wheeled – or generated in one source and consumed in another. The actual energy generated by the plant does not get transferred physically to the consumer, but electricity meters at either end (both at the producer and consumer) measure how much energy was generated and consumed and will be accounted for, respectively. 

The industries that can benefit from wheeling include large corporate energy consumers, such as mining operations, smelters, or data centres. All of these operations are suitable for wheeling because they are large energy consumers, but may have neither the space nor the inclination to build a large solar plant located at their operations. Wheeling agreements can ensure that they meet their sustainability targets, by reducing their carbon emissions, and cut operating costs, by procuring cheaper power when this is available.  

So wheeling can help to facilitate energy markets by allowing IPPs to produce affordable, clean power and sell it directly to corporate consumer, helping the latter to reduce costs and carbon emissions. Is there a catch?

There are a few different aspects of a wheeling agreement that can influence the tariff costs. Firstly, there are the wheeling fees, which Eskom charges in order to recoup the costs of utilising their grid to distribute power. These costs mean that economies of scale are still needed in order to make the tariff an affordable one – making wheeling suitable for very large consumers of energy only. 

Secondly, the regulatory environment can take time to navigate. In South Africa, Eskom has a wheeling framework that enables wheeling, but these agreements are still subject to approval by the National Energy Regulator, Nersa, who need to give overall permission for the arrangement. Navigating the two entities can take time, and therefore wheeling agreements typically take a while to come online. 

Nevertheless, wheeling of power has great potential to assist large energy consumers to optimise their energy loads and provide cost savings, whilst also reducing pressure on Eskom. Wheeling means that Independent Power Producers can supplement the grid and provide clean electricity to those companies that wish to procure it.