OPINION | SA’s renewable energy projects need to strongly focus on social performance | Fin24

The country’s renewable energy procurement programme is one of the better mechanisms to ensure a just energy transition by focusing more strongly on social performance, write Yumnaa Firfirey and Holle Wlokas.

South Africa’s Renewable Energy Independent Power Production Procurement Programme (REIPPPP) has been lauded as one of the most visionary programmes of its kind globally. If there is any national renewable energy programme that has the potential to bring about a just energy transition, it would be REIPPPP.

However, the key question is whether this potential can be realised instead of exacerbating the binding constraints inherent in the South African socio-economic environment.

A just energy transition requires not only a shift from coal-fired power to clean renewables feeding the national electricity grid, but that there is no concurrent loss of livelihoods in the process. In fact, the potential to improve the quality of lives through the transition, should be fully taken advantage of.

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REIPPPP is designed with these dual objectives in mind. It selects project bids not only based on energy tariffs but also a basket of socio-economic contributions, the compliance of which is reported on and assessed quarterly by the Independent Power Producer Office (IPPO). The IPPO is an agency of the Department of Mineral Resources and Energy to manage the implementation of REIPPPP.

These socio-economic contributions of renewable energy projects are potentially very powerful in their collective ability to impact the quality of lives and livelihoods.

The question of whether REIPPPP’s just energy transition potential can be realised rests on whether these baskets of socio-economic contributions yield impactful results for the (most-often rural) communities surrounding these power plants run by Independent Power Producers (IPPs). Some examples of the desired results could include:

• Improvements in the education system that can also enhance the academic outcomes of learners.
• Growing small, medium and micro enterprises and improving their profitability through their growth by meaningful inclusion in regional supply chains, including those of REIPPPP plants.
• Employability improvements among youth and reorienting them away from substance abuse, towards healthy recreational alternatives.

Considering that the project agreements in place between the renewable energy IPPs, government and Eskom span 20 years – it is clear that the IPPs are long-term economic players in the communities in which they operate. Consequently, they also have guaranteed long-term socio-economic development (SED) contribution commitments which are part of these 20-year contracts.

The 20-year contract security allows IPPs to take a long-term view of their SED contributions and their business environment. And there are IPPs in South Africa who do so. Those IPPs are proactively considering strategies for how to best invest in communities in the ways described above. This kind of strategic approach is critical to ensure that socio-economic development and transformative impact are created through REIPPPP and that there are real benefits for the IPPs as profit-making businesses.

The benefits for the IPPs are critically important to fully comprehend and appreciate. In reality, there are very few altruistic businesses and shareholders (besides Patagonia, perhaps) that exist only to mitigate climate change and improve lives and livelihoods.

Local and international investors in South Africa’s REIPPPP expect competitive returns on their investments above all else. That will always be the bottom line. And that is the real advantage of the REIPPPP model – that investors in this programme can be even more profitable because of the in-built risk mitigation element in the form of SED contributions.

Risk mitigation

Not only do these SED contributions allow the IPPs to support the creation of stable, thriving communities surrounding their plants, with a greater probability of capacitated, competent, reliable suppliers and workforce. But more importantly, from a purely business perspective, doing so lessens the probability and risk of protest action. For IPP general managers who take a strategic and systems-thinking business perspective, these SED contributions are perceived as invaluable.

Let’s talk about the issue of risk mitigation. Is it material? Local communities and local governments are seen to be increasingly despondent about the quality and impact of development support they receive. Moreover, the level of resentment and resultant aggression towards the IPP developments, linked to their perception that they are not sharing in the benefits, is growing.

These sensitivities are increasingly precipitating towards protest action. Protest action at any stage of the lifespan of REIPPPP presents a challenge, but especially so during the construction phase of projects, during which they are at their most vulnerable.

Community instability subjects these developments to construction delays, increased construction costs as a result and possibly also delayed power production start dates which means delayed income earned, including the income due for the community shareholding entities in the IPPs. This could significantly impact the financial modelling of utility-scale power production projects upwards, at a time when the trend of REIPPPP project power tariffs is actually moving downward to be cost-competitive.

This makes the application and impact of these SED contributions critical. It hopefully illustrates that they (SEDs) should not merely be seen as a tax or compliance mechanism, but a vital part of IPP operations. SEDs are as important to the organisation’s success as financial modelling, engineering design or people and financial management.

In other words, community investments and benefit sharing are critical to building trusted stakeholder relationships and positive community relations more broadly. However,  done poorly, it can harm reputation and relationships, risking the project and industry’s social license to operate. Thus, if this reorientation is not achieved, we will inherit an energy transition, but with dissatisfied communities surrounding REIPPPP plants – not a conducive environment to renewable energy security.

This will be a wasted opportunity. We do need more and cleaner energy at affordable prices, but we also need impactful socio-economic development alongside this for the benefit of people and profit. It is possible to achieve this, but it will entail a new way of working and a step out of purely compliance mindsets when approaching this opportunity.

One of the tragedies of this situation is that there are so many hard-working, highly skilled and committed professionals in many of these IPPs, passionate about their roles in socio-economic development.

So why then are those efforts not being realised in a better quality of life for those communities’ members?

Primarily because socio-economic development is difficult, complex work that both our government and corporate social investment machines have not managed to nail over the past 28 years. It is, therefore, unlikely that renewable energy companies would be able to get their head (or corporate policies and practices) around these problems in the less than 10 years that they have been operating, regardless of the excellent work of their economic development or social performance teams.

Add to this the dilemma that the REIPPPP requirements place IPPs on a frenetic hamster wheel of spending and reporting on a quarterly basis. They have very limited space and time to consider and structure strategic projects and the possibility of partnering with other IPPs in the same geographies to address the structure of the problems.

Instead, by default, in order not to fall short of compliance requirements and community appeals for support, IPPs understandably often focus on immediate socio-economic symptoms instead of the underlying structural problems.

This becomes all the more pronounced and urgent when IPPs are at the coal face of receiving the brunt of communities’ service delivery dissatisfaction and quasi-government expectations because, in many cases, they fill the gaps that government performance and/or budgets have not been able to stretch to.

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Organisations such as INSPIRE – the Initiative for Social Performance in Renewable Energy – are working to aid this dilemma. INSPIRE is a not-for-profit organisation, providing partnership, research, innovation and capacity-building support for the REIPPPP ecosystem.