Open-Ed
- According to South Africa’s Department of Mineral Resources and Energy (DMRE) IPP Projects website, the request for proposals (RFP) for REIPPPP Bid Window 6 is now expected to be launched towards the end of March 2022.
- The DMRE originally announced a RFP Bid Window 6 target date of 28th September 2021 to open with targeted bid-submission date of 1st February 2022. Read more
- The outcome of Bid Window 5 reveals that a few foreign owned independent power producers (IPP’s) have been successful with multiple projects on the back of exceptionally low tariff bids.
- The B-BBEE profile of their bids have also come into question.
Is the controversy regarding the outcome of Bid Window 5 in South Africa’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), causing the opening of Rounds 6 and 7 to be delayed? A notice on the DMRE’s IPP Projects website merely states that the request for proposals (RFP) for REIPPPP Bid Window 6 is now expected to towards the end of March 2022.
The outcome of Bid Window 5 reveals that a few foreign owned independent power producers have been successful with multiple projects. Mainstream Renewable Power (Norway/Ireland) won 12 of the 25 projects while Scatec (Norway) and EDF (France) won three projects each.
Related news: Aker Horizons of Norway aquires 75% stake in Mainstream Renewable Power
It is alleged that the same broad based black economic empowerment (B-BBEE) company, H1 Holdings , is an equity partner in no less than 21 of the 25 projects, ironically with Mainstream Renewable Power (12 projects) , Scatec (3 projects) and EDF (3 projects) and local IPP Red Rocket (3 projects). I requested clarification from H1 Holdings on the allegation but received no reply.
Why risk putting many eggs in one basket?
Similiar requests for clarification were made to the country’s IPP Office, the energy regulator, NERSA, and Eskom who all referred me to the DMRE. The DMRE failed to respond to our request for clarification on the allegation. I also requested a copy of each winning bidder’s project submission and ownership profile from the DMRE and similarly, received no reply.
I am all for B-BBEE roll out in South Africa’s renewable energy sector. It is much needed and highly relevant in addressing the historical imbalances caused by the evil apartheid system. The underlying principle of B-BBEE is to spread wealth sustainably and as far as possible, to the previously disadvantaged.
Bid Window 5 outcome reveals a very narrow value chain concentrated with a few IPP’s with the same B-BBEE partner. This flies in the face of the country’s B-BBEE Act principles plus it exposes the programme and the country to undue risk in the event of default or non-performance.
The principle of fair competition in respect to project vetting and adjudication is also in question here. How can four competing IPP’s submit projects with the same B-BBEE partner and collectively win 21 out of the 25 projects?
B-BBEE Foreign Funding
H1 Holdings has a 16% share in Revego, Investec’s majority black owned renewable energy investment fund.
Related news: Norway Bolsters African Trade Insurance Agency with US$ 56 Million Grant for Renewable Energy Projects
Revego in turn recently receive £15 million (approximately ZAR 315 million) of follow-on funding from the UK Climate Investments (UKCI). UKCI is a joint venture between the Green Investment Group and the UK Government’s Department for Business, Energy and Industrial Strategy. Read more
Related news: Macquarie-managed UK Climate Investments (UKCI) and Norfund recently announced they are financing a joint venture between H1 Holdings and Pele Green Energy to the tune of US$100 million to fund their 40% equity participation in a 700 MW portfolio of onshore wind farms in South Africa. Read more
Exceptionally low tariffs
Bid Window 5 yielded the lowest tariffs in any bid window thus far. 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. Industry experts claim that the winning tariffs are too low to be realistic. Read more
This raises the question; have any foreign countries subsidised some of the winning bidders in order for them to submit the most competitive tariffs and win the lions share of the projects?
Related news: REIPPPP Bid Window 5 fails in the just transition from coal to renewables – expect delays
South Africa’s bid window 5 was massively oversubscribed with shovel ready solar and wind projects. There were a total of 63 solar PV projects and 39 wind projects submitted. The outcome has left a lot of losing IPP’s scratching their heads over the exceptionally low tariffs and questioning the DMRE’s criteria for project selection, in particular when it comes to B-BBEE requirements.
The DMRE has outlined a three year horizon for the various energy procurement programmes the department has implemented under the country’ Integrated Resource Plan 2019 (IRP 2019) and the Risk Mitigation Independent Power Producer Procurement Programme – which is also riddled with controversy and extended delays. A total of 14400MW wind power capacity plus 6000MW of solar PV technology is allocated for procurement leading up to 2030 in the IRP 2019.
Delayed outcome?
The country desperately needs new generation capacity to come online. Eskom currently has a capacity deficit of 4000MW and the country is vulnerabe to regular bouts of load-shedding.
Related news: SAWEA on REIPPPP: Delays, Inconsistencies and Halted Bidding Windows
The 25 projects with prefferred bidder status in REIPPPP Bid Window 5 will yield 1000MW of new build solar plus 1583MW of wind power. The bidders are required to reach financial close by end of April 2022. The question is will they and how will the current controversy affect Bid Window 6 time lines?
Author: Bryan Groenendaal
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