- At the Solar Show Africa 2023 which kicked off in Sandton on yesterday, South Africa’s newly appointed Minister of Electricity in the Presidency, Dr Kgosientsho Ramokgopa, said that government was looking at unveiling a 15000MW renewable energy Bid Window.
- Last week, Ramokgopa presented a plan to create 12000MW of additional capacity in 18 months which includes the purchase of R30 billion in diesel to reduce loadshedding. Read more
- The responsibility of new energy procurement falls under the control of the country’s Mineral Resources and Energy Minister, Mr Gwede Mantashe, who has not added a single megawatt to the grid since taking office four years ago.
The people of South Africa face up to 10 hours of loadshedding (blackouts) daily because of poor planning, incompetent management, corruption, theft, looting and sabotage at the state owned and state-run energy utility, Eskom. Read more
The utility also faces unsustainable debt of over R400 billion and the South African taxpayer is in line to pay nearly R495 billion in bailouts by 2026. Read more
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 and Energy (DMRE), the ability of the country to procure new generation capacity has declined dramatically. The Department of Mineral Resources and Energy (DMRE) along with the Independent Power Producer Office (IPPO) is responsible for energy procurement in the country.
Related news: The bull in a china shop : Gwede Mantashe
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. Unaware that IPPs were gobbling up feed-in capacity for private PPAs, in early September, Mantashe upped the capacity of Bid Window 6 to 4200MW (1000MW for solar PV tech and 3200MW for wind). Read more
In total, 8700MW is to be procured under the three programmes yet to date only 150MW ( 3 x 50MW projects) and two 140MW wind projects have reached financial close and are expected to feed electrons into the grid at the end of Q4 2023.
The 13 projects announced by Mantashe bring a total of 19 of 25 projects to the legal close stage. This news follows Red Rocket and EDF signing Bid Window 5 legal close on three wind projects each in the last two months. EDF has reached a financial close on two of its three wind projects while Red Rocket is still in the financial close process.
In the Bid Window 6, the Department received onshore wind bid responses amounting to 4 116 MW for Bid, all of which are located in the Eastern Cape and Western Cape supply areas. Following the confirmation from Eskom during the evaluation that no grid capacity was available to connect any proposed Onshore Wind projects in these supply areas, Mantashe announced that the Department could unfortunately not award any of the wind projects up to the allocated 3 200 MW under Bid Window 6.
Unbalance, delayed energy procurement outcomes with glaring red alerts
REIPPPP Bid Windows 1 to 4 had largely uncontested and very balanced outcomes. The projects that were awarded preferred bidders status in these rounds achieved financial close within three to four months largely because projects were chosen that were shovel ready or close to shovel ready (shovel ready meaning ready to be constructed).
Related news: SAWEA on REIPPPP: Delays, Inconsistencies and Halted Bidding Windows
The results of REIPPPP Bid Window 5 under the current IPPO reveal a very unbalance outcome and projects are struggling to reach financial close. Taking a closure look at the outcome of Bid Window 5 there are several standout red alerts:
- One international IPP, Mainstream Renewable Energy, 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). The underlying principle of B-BBEE is to spread wealth sustainably and as far as possible, to the previously disadvantaged.
- 21 of the 25 projects were won by foreign-owned IPPs
- 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. Industry experts claim that the winning tariffs are too low to be realistic. 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.
- The criteria set for local content are unrealistic and cannot be implemented.
Unbalance outcomes extend to RMIPPPP
The lack of capacity at the DMRE extends to the Risk Mitigation IPP Procurement Programme (RMIPPPP) where there are key contractual issues, and the majority of projects are not bankable and/or EIA-approved. Simply put the tender programme was badly managed from the outset. There is also no coincidence then that the only three projects totalling 150MW that achieved financial close in the 2000MW RMIPPPP have the same BBBEE partner that won 21 projects in REIPPPP Bid window 5.
Related news: Cabinet tells electricity minister to take his energy crisis solutions to NECOM
Shift to decentralised energy market
South Africa’s President, Cyril Ramaphosa , recently confirmed that the 100 MW licensing threshold for embedded generation projects was in the process of being lifted entirely. He also confirmed that after increasing the license waiver threshold from 1MW to 100MW in August 2021, a vibrant market was created resulting in a pipeline of private embedded generation projects with a combined capacity of around 9000MW. Read more
South Africa’s Treasury recently appointed a group of German consultants to assess Eskom’s operational ability after committing to a R254 billion bailout for the utility.
Eskom falls under the authority of the minister of State Owned Enterprises, Mr Pravin Gordhan. New generation procurement falls under the Ministry of Mineral Resources and Energy where Gwede Mantashe is the appointed minister. This leaves the appointment and role of Ramakgopa in question as he does not appear to have any authority or mandate regarding South Africa’s energy crisis.
Author: Bryan Groenendaal
