Cheap South African Solar Projects Challenged by Cost Surge

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LAGOS (Capital Markets in Africa) – Solar projects in South Africa’s latest renewable power procurement round may have difficulty reaching financial close due to issues including rising supply chain costs, according to people familiar with the details.

Some of the bids are experiencing trouble ahead of a deadline to complete financing arrangements, according to the people who asked not to be identified because the information isn’t public. South Africa’s Department of Mineral Resources and Energy expects the projects to close in April. Supply chain issues have emerged for the photovoltaic plants as shipping costs surge, according to one of the people. As an example, freight costs out of China increased 476% and polysilicon prices climbed 365% during the period between January 2020 and November 2021, according to a BloombergNEF report.

Mainstream Renewable Power Ltd., backed by billionaire Kjell Inge Rokke’s Aker ASA, is developing 450 megawatts of the solar projects picked last year in the fifth round of South Africa’s auctions for clean power from private developers. Their six projects were the cheapest at 374.79 rand ($24.32) per megawatt hour.“We haven’t had any formal submission from preferred bidders over those concerns,” a DMRE spokesman said. “Our intention is for the fifth-round projects to reach financial close as planned.” Mainstream declined to comment on financial close timelines. 

Any delay in the projects would mean an additional lag in South Africa’s effort to add generation capacity to a grid that currently fails to meet demand that resulted in record power cuts last year. Plans to expand renewable auctions and bring more power plants online has fallen behind schedule.

In the fifth round, 1,000 megawatts of solar projects with a weighted average price of 429 rand per megawatt hour were chosen, along 1,600 megawatts of onshore wind projects at 495 rand. 

Source: Bloomberg Business News

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