- South Africa’s Minister of Mineral Resources and Energy, Mr Gwede Mantashe, will host a project agreement signing ceremony with an expected 13 Preferred Bidders believed to be from REIPPPP Bid Window 5 in Centurion, on Thursday, 8 December 2022.
- Once completed, these projects will add around 975 megawatts to the national grid.
- More details of the projects signing will be made available at the event and in a media release.
This news follows Red Rocket and EDF signing legal close on three wind projects each in the last two months. EDF has reach financial close on two of its three wind projects while Red Rocket is still in financial close process.
Background to the REIPPPP Bid Window 5
The REIPPPP Bid Window 5 Request for Proposals (RFP) was released on 12th April 2021 and was the first bid window to be launched under the Ministerial Determination promulgated on 25th September 2022 under IRP2019. The bid window aims to procure a total of 2 600MW energy, consisting of 1 600 MW onshore wind and 1000MW Solar PV plants.
The Department received 102 bids during bid submission on 16th August 2021, totaling an oversubscribed 9 644 MW. The Minister announced 25 Preferred Bidders on the 28th October 2021, to provide a total capacity of 2 583 MW. Of this, 1608 MW will be procured from 12 Wind projects, and 975 MW from 13 Solar PV projects.
The agreements that were signed on 10th November 2022 include:
- The Power Purchase Agreement (PPA): This agreement regulates the sale of the energy between the respective IPPs and Eskom. This document will be signed by Eskom and the IPPs.
- The Implementation Agreement (IA): The IA includes all the commitments made by the bidders in terms of Socio-economic Development, Enterprise Development, etc. In addition, the IA also provides for the required Government support to the IPPs and the lenders to the project. This document will be signed by the Department and the IPPs; and
- The Direct Agreement (DA): This agreement allows the lenders to have step-in rights, in the event the IPPs fail to honour its obligations under the Finance Agreement. This enables the lender to take over the plant(s) and/or hand it over to another party to operate the plant(s) on its behalf until the lender has recovered the total amount invested on the respective project. This agreement is signed by the Department, Eskom, IPPs and Lenders.
Controversy and lengthy delays in Bid Window 5
The DMRE along with the IPPO is responsible for energy procurement in the country. Since the Independent Power Procurement Office (IPPO) was seconded to the Central Energy Fund in 2017 and then purged in 2019 to fall under the Department of Mineral Resources (DMRE), the ability of the country to procure new generation capacity has declined dramatically. Read more
Mr Gwede Mantashe was appointed Minister of Mineral and Energy Resources in May 2019. That same year Mantashe was credited for promulgating the country’s Integrated Resource Plan (IRP) which seeks to procure 35348MW of a mix of generation technologies by 2030. The following year he gazetted a Sector 34 determination to procure 11813MW of power by 2022.
Since Mantashe’s appointment, three energy procurement programmes have been implemented namely; the Risk Mitigation Independent Power Producer Programme (RMIPPPP) which seeks to procure 2000MW of new generation capacity (launched in September 2020), and the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) Bid Window 5 which seeks to procure 2500MW of new generation wind and solar capacity (launched in April 2021). A third procurement programme, REIPPPP Bid Window 6 which seeks to procure 2600MW of solar and wind capacity, was launched in April this year and updated to procure 4200MW.
In total, 8700MW is to be procured under the three programmes yet to date only 150MW ( 3 x 50MW projects) has reached financial close and is expected to feed electrons into the grid at the end of Q4 2023.
IPPO has delivered a knee-jerk reaction by trying to address the skewed outcome of Bid Window 5 with updated criteria for Bid Window 6 but the reputational damage is evident in the response to Bid Window 6 where the number of bidders has dropped by around half compared to Bid Window 5. Read more
The outcome of Bid Window 5 has been unprecedented globally in any renewable energy procurement tender so much so that allegations of tender rigging have emerged. Taking a closer at the outcome there are also several standouts which differ from previous successful bid windows in South Africa:
- One international IPP, Mainstream Renewable Power, won 12 of the 25 projects.
- 21 of the 25 preferred bidders have the same BBBEE partner in H1 Holdings – Mainstream Renewable Power (12 projects) , Scatec (3 projects) and EDF (3 projects) and local IPP Red Rocket (3 projects).
- 15 of the 25 projects were won by Norwegian IPP’s.
- The tariffs bided were unsustainably low and not bankable. The average weighted price bid for solar comes in at (R) 42.9c kW/h while the average bid for wind is (R) 49.5c kW/h. Read more
- The majority of the projects who won preferred bidder status were not shovel-ready and had outstanding development works activities including CEL, EIA and other permitting.
South Africa is in a massive energy crisis. Rotational load shedding is getting worse and the cost to the economy is a massive R950 million a day. According to a report presented by the University of Capetown, if 5GW of renewable energy was rolled out before 2021, the country would not be experiencing load-shedding. Read more.
Author: Bryan Groenendaal
