A business model to improve the management and value creation of renewable independent power producer plants in South Africa.

Abstract

ABSTRACT The study proposes a renewable Independent Power Producer (IPP) business model. The model is a framework that identifies a number of business activities that need to be performed by managers in order to ensure that a IPPs business yields value for the shareholders and stakeholders. The main objective of the study was to propose an IPP business model by examining the various inputs, business processes and activities in an IPP plant that are designed to yield value to shareholders through effective and efficient management of resources. The study is important because IPPs are exposed to numerous business risks and challenges. These include construction risks, such as the risks of cost overruns and contractor underperformance. There are also operational, market and political risks to which IPPs are exposed. Additionally, existing business models don’t sufficiently capture the business risks that renewable IPPs are exposed to. These include market, technology, reputation and risks of change in legislation. This study was conducted in two stages. The first stage was conducted through interviews with managerial employees of the first 40 IPP companies that were successful bidders of the Renewable IPP Programme of the Department of Energy (REIPPP). The second stage of data collection was through a survey questionnaire to test themes and items that will be included in the proposed business model. The survey questionnaire findings were used to analyse the importance of each variable in order to make a decision whether to include it in the proposed business model. The main findings of the study are that the renewable IPP business model consists of a number of unique components which represent the chose inputs, business activities, outputs and outcomes that can be used by an IPP businesses to deliver value to its shareholders and stakeholders. These components consists of a number of themes relating to managerial activities should be executed to improve the management of IPPs, reduce business risks and create value the renewable IPPs in South Africa. Some of the inputs include pre-investment activities, post-investment activities, Engineering, Procurement and Construction (EPC) management, grid management, planning and executing operations and maintenance (O&M) activities. iv The study succeeded in collecting and contextualising the experiences of new IPPs and linking those to relevant business sector trends. The findings of this study make a contribution towards the existing body of knowledge in the fields of management as well as energy studies. One of the research gaps emanating from this study is that there is insufficient empirical research to understand the components of business models as a managerial concept. This study makes a contribution towards closing these gaps. The study also makes a contribution in the academic knowledge in the subject of business models by expanding on the knowledge about the components of business models and their importance as a management tool. The proposed business model is presented as an original contribution to the management of IPPs, based on empirical data collected from IPPs operating in South Africa. From a management point of view, the components of the business model can be used as a guideline for business management and improvement.