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Reaping The Wild WInd of The West

Many scoffed when 28 renewable energy tenders were put out by the South African government. In a year, the program is expected to breathe new life into an energy-starved country.

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In just 18 months, a few modest farms on the plains of the Eastern Cape, South Africa will transform into the third largest wind farm in sub-Saharan Africa. The Dorper Wind Farm will produce 100 megawatts (MW) of energy a year.

For the owners of Rainmaker Energy Projects, it’s hard to imagine what 40 towering wind turbines will look like, but Luke Callcott-Stevens and Gavin James are spending R2.5 billion ($274 million) to find out.

“You build a wind farm in 18 months… after four or five years of hard work,” says Callcott-Stevens.

It was New Year in 2009 when James and Callcott-Stevens—friends since university—decided that they were tired of their jobs and wanted to make it on their own.

At the time Callcott-Stevens was looking for wind farm sites for Australian outfit Macquarie Capital, and James was a lawyer. Shortly after—with a third partner in tow, former Macquarie engineer, Doug Jenman—Rainmaker breezed into the market with government tenders in mind.

That year, the South African government declared its intentions to buy renewable energy at favorable tariffs through its Renewable Energy Feed-In Tariff (REFIT) program. The program gazetted wind energy, promising R1.24 ($0.14) per kilowatt-hour (kWh).

“When we started this out, we couldn’t tell anyone what we were doing and who we were. We were all competing for sites, if you want to go into wind farms now you would have to go and buy it from someone else. But at that point in time we were in frontier country,” says Callcott-Stevens.

The rush to the wild wind of the west had begun with the force of a Californian gold rush. Many companies were looking for coastal sites near Cape Town in the Western Cape and Port Elizabeth in the Eastern Cape, where wind is strong. Rainmaker went its own way inland into the Eastern Cape.

“I racked up 100,000kms driving in a year, just looking for different sites but we couldn’t find another that was as ideal as Dorper,” Callcott-Stevens says.

The site has 10,000 hectares of flat grassland on top of an escarpment flanked by a mountain range, which channels wind to Dorper.

“The whole escarpment is windy, but this is a particularly windy part of that windy escarpment because of this funnel,” he says.

Along with strong wind—which, coincidentally, is at its strongest in winter, when South Africa demands most of its electricity—a wind farm needs to be close to a distribution line to connect to the national grid, South Africa’s national power generator Eskom.

Unlike other companies, Rainmaker is in the unique position that if it wins more phase bids it does not have to look for new sites. With its space, Dorper Wind Farm simply has to construct more 125-meter-high turbines. It has the planning permission to put enough turbines to generate 560MW

Rainmaker has permission to use a 400kV transmission line, which could revive the Canadian Alcan smelter, in Port Elizabeth, which was abandoned because of the country’s power crisis in 2008.

This means that they have the capacity to feed over 1,000MW of energy into the grid.

All seemed lovely in the wind farm industry. In two years, the company struck a deal with an equity partner, Sumitomo Corporation and secured huge bank loans. The Japanese company, says Callcott-Stevens, is a good partner since it helped build one of the largest onshore wind farms in the world: Shepherd’s Flat Wind Farm in Oregon, in the States.

Then in February 2011, disaster struck when the government scrapped REFIT. It was declared an unfair and uncompetitive tender process. This meant a lot of people who had procured loans and deals with renewable energy companies were left high and dry. Government officials mooted a new tariff of 99c/kWh ($0.11/kWh), which meant for many the cost of building farms was just not feasible.

There was a lull for nine months. Rainmaker carried on acquiring loans and negotiating deals with wind turbine companies. Other companies were throwing in their towel at this point.

“We were committed, we were in, we had put our lives on the line,” says Callcott-Stevens.

In June 2011, the wind picked up. The South African Department of Energy (DoE) announced that R47 billion ($5,17 billion) would be thrown into the Renewable Energy Independent Power Producers Programme (REIPPP). The six-phase program picked up where REFIT left off. The government announced it was starting a new bidding process for private business investors to apply for tenders. Investors could procure spots to sell electricity back to the government, not at one set rate, but at a bid price of lower than 115c/kWh ($0.13/kWh).

Eight wind energy projects were chosen, Dorper Wind Farm was one of them. After 2015, REIPPP aims to provide 3,625MW of renewable, clean energy for the country. The largest coal plants in South Africa, like the under construction Medupi coal plant in Limpopo, will generate 4,800MW.

“The next round, we could see a further R7 billion ($700 million) in development and going forward you could theoretically have R30 billion ($3,3 billion) going into infrastructure development in this area in the coming future,” says Callcott-Stevens.

Renewable energy could be a game changer. Ninety seven percent of South Africa’s electricity grid, which has capacity to provide 43,000MW, relies on coal. Even then, it is struggling. Eskom has warned that with overdue maintenance this will be at 33,000MW. This winter could see rolling blackouts; during peak demand periods South Africans can use up to 38,000MW.

A coal plant is able to produce 40 times the amount of energy a wind farm can but new coal power plants will produce power at a higher cost than wind, particularly in South Africa.

According to Ayanda Nakedi, Eskom’s general manager in Renewable Energy, the cost of the rollling blackouts of 2008 was R75/kWh ($8/kWh). This is 84 times the cost of wind power today.

But people should be cautious with wind energy, especially when it comes to solving blackouts, according to Chris Yelland, director of EE Publishers.

“Let us just say that you build a 100MW wind farm. So when the wind is blowing flat out, the wind is going to generate its peak of 100MW…. The reality is it very often generates at an average of 20 to 25 percent. Although it may generate on average 25MW, for a considerable amount of time it’s producing below 25MW. And this makes wind a big problem, so when you may want the power, you may not get it, and when you don’t want the power, you might get it,” Yelland says.

Currently, South Africa lies near the bottom of the global wind power league. In three years according to Nakedi, it will have climbed to fifteenth. A large slice of this could come from the windswept optimists of Dorper Farm.

It may look easy but risk stalks a wind farm. Bids are not guaranteed.

“For every guy constructing a wind farm there are 20 guys who spent a lot of money, who are nowhere, who don’t have a project,” says Callcott-Stevens.

“We could be hit by a strike onsite, or maybe our turbines could sink in the sea, or we miss our dates when we have to be connected to the grid by, and we stand to lose a lot of money. That could significantly affect our returns over the long-term. There have been projects, in America, where blades have cracked on a wind farm. But these risks get less and less once you have been awarded status under the REIPPP up until the point when you have finished construction,” says Callcott-Stevens.

Further costly delays stem from the administration of REIPPP.  According to Yelland, the DoE needs to be cautious when signing 20-year long contracts under the REIPPP.

“Look at long-term supply contracts, like Eskom with BHP Billiton. It now turns out 10 years down the line that Eskom is locked into selling energy that they now regret. If we buy into these energies on a long-term basis the same could happen,” he says.

So far all phase bids have been delayed at sometime or other. But Callcott-Stevens says that the system has been merely ironing out its wrinkles.

“There have been problems and there are still problems but if you look at where we are coming from, South Africa was a totally regulated power market. It takes a long time to deregulate a market. They did this, relatively quickly; we signed our PPAs [Power Purchase Agreements] last November. Effectively power was deregulated in South Africa,” says Callcott-Stevens.

So, if you want to be a wind farmer, all you need is R2.5 billion ($278 million), an open desolate plain to put your mills on, a few years of patience to win over your investors and a bit of luck, from then on, it’s a breeze.

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