Most Read Contributor in South Africa, September 2016
It's been some three years since the Department of Energy
(DoE) launched the Integrated Resource Plan (IRP). As part of this
initiative, the DoE established the Renewable Energy Independent
Power Producer Procurement Programme (REIPPPP). The REIPPPP aimed
to procure 3 725 MW of power from seven renewable energy sources by
the year 2016. The renewable sources that have been designated are
the following: onshore wind; concentrated solar thermal power
(CSP); solar photovoltaic (PV); biomass; biogas; landfill gas; and
small hydro power projects.
The initial thinking was that there would be five rounds of
bidding under the REIPPP, but it's unclear whether that many
will even be needed. Two rounds of bidding have already been
completed. The last few weeks were an exciting time
as financial close was reached for first round projects -
many at these offices where the sound of popping corks was much
more appreciated than the preceding sounds of fierce negotiations.
After just two rounds, 2 459.9 MW of the 3 725 MW have already been
accounted for, leaving just 1 165.6 MW still to be allocated. That
may not be the end of the matter, however, because at the recent
South Africa-Spain Business Summit, the DoE's Acting Chief
Director, Thabang Audat, announced that his department had put
forward a proposal to procure a further 3 200 MW of renewable
energy by the year 2020 under the REIPPPP.
In the first round of the REIPPPP, 53 bids were submitted on or
before the cut-off date of 4 November 2011, and 28 preferred
bidders were announced on 7 December 2011. The 28 selected projects
have a total energy potential of 1416 MW and they are collectively
valued at R46 billion. The projects are made up as follows:
eight wind projects totalling 634 MW; two CSP projects totalling
150 MW; and 18 solar PV projects totalling 631.5 MW. The projects
that were selected in the first round are expected to start
generating electricity by 2014, with the exception of CSP which has
been given a deadline of 2016. Will these deadlines be met?
Only time will tell - there were certainly considerable delays in
reaching financial close in the first round.
In the second round of bidding 79 submissions were received on
or before the deadline date of 5 March 2012, and 19 preferred
bidders were announced on 21 May 2012. These 19 projects comprise a
total of 1 044 MW and they are collectively valued at R28 billion.
Wind projects were again prominent in this round, with the seven
wind projects that were selected adding up to 562.2 MW.
As a condition precedent to financial close, each preferred
bidder must secure a power generation license from NERSA, conclude
a Power Purchase Agreement and a Connection Agreement with Eskom,
and an Implementation Agreement with the DoE. Financial close for
the first round was scheduled to take place between 9 and 20
July 2012, but it was postponed due to delays in obtaining certain
guarantees required from the buyer of the power, Eskom, which would
protect the Independent Power Producers in the event of Eskom's
default. The National Treasury approved and signed off on these
guarantees on 5 October 2012, and the DoE began signing its
agreements from the last week of October 2012. As a result of this
delay, financial close for the second round has been re-scheduled
and is now expected to take place between 18 – 20 March
As mentioned, the 47 preferred bidders selected thus far in the
two rounds will be providing 2 459.4 MW of renewable
energy. Yet only four of the seven designated technologies
have been used so far, namely wind, solar PV, small
hydro projects, and CSP (the full 200 MW CSP cap has, in fact,
already been reached). Bid submissions for the remaining 1 165.6 MW
are expected to close on 7 May 2013. If the full amount is
not allocated during this third round, a fourth phase will be
introduced. Clearly if the DoE's proposal to procure a
further 3 200 MW is approved by NERSA, the REIPPPP may well become
an on-going method of procurement. With bid submissions for the
third round only commencing after financial close is reached for
the first two rounds, we are optimistic that the bid submission
process will be more efficient, and that the operation of
subsequent rounds will be smoother. The DoE, lenders, sponsors and
contractors have all gained valuable experience from the challenges
that arose in the first round so here's looking forward to
quicker negotiation times and closings.
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