South Africa: Renewable Energy: We Have A Green Light!

Last Updated: 12 December 2012
Article by Nikita Lalla and Zama Ngcobo

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 2013. 

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.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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