New Rules in South Africa’s IPP Procurement Programme Bid Window 6

Under the leadership of the IPP Office’s head, Mr. Bernard Magoro, participants and the broader renewable energy industry were heartened by the bullish environment and strong indicators of rolling procurement rounds, further signalling a healthy uptake in this clean power technology. In particular, the imminent release of the 513MW storage RFP, before October 2022, and the announcement of another procurement round, BW7, before the end of this year.

“Our country is urgently in need of this accelerated uptake in new generation capacity, which will help stabilise the country’s energy supply, so that we can move away from our ongoing struggle with power shortages.  Furthermore, the sector relies on rolling procurement to attract the necessary market investment, unlock economic benefits, and support the local industrialisation of the industry across the value change,” said Niveshen Govender, CEO of the South African Wind Energy Association (SAWEA).

The country can expect to see larger utility-scale wind farms as the contracted capacity range has been increased to a minimum 50MW and maximum of 240 MW.  This is a significant increase from the 140MW maximum project capacity that has been in place since the first bid, over a decade ago.  This change takes into account the lifting of the cap allowing private sector projects up to 100MW without licensing requirements, which came into effect last year.

In line with the NDP, the Programme continues to deliver more than clean power generation, as it is designed to stimulate investment and deliver economic and socio-economic benefits for the country.  Hence, the circa 800 participants were reminded that bidders will be required to demonstrate South African Entity Participation of at least 49%, at least 30% shareholding by black people in the IPPs.  This is in addition to 25% ownership by black people, and in particular 10% ownership by black women, in construction and operations contractors.

The bidder’s conference has addressed all pressing issues raised by the wind sector. These engagements between the IPPO and industry are increasingly more important to have a common understanding of new requirements added to the bidding documents. We encourage more and better engagement to clarify matters of concern so that we can work together to achieve more.

Restricted Participation 

The IPPO sighted that risk of concentration and noted the trend in BW5 of similar participants dominating a large number of bids. While the IPPO explained that “Members are restricted from participating in more than one set of sister bids”, the definition of “members” and “sister bids” remain unclear. What is clear is the IPPO’s attempt to increase competitiveness, reduce the potential of anti-competitive behaviour, and encourage the introduction of new players.

Local content

The BW6 local content threshold has been retained at 40%, in line with previous rounds, with designated local content, which, over and above the threshold, requires bidders to procure certain specified components locally. Should these components be unavailable, bidders can apply for exemption, which needs to be lodged with the Department of Trade, Industry and Competition (DTIC).

While the wind industry has always achieved beyond the local content thresholds, reaching 47% in previous bid windows, a coordinated plan, with guiding policy and local incentives, needs to be developed to promote more local manufacturing to achieve industrialisation. This would be a positive development as it facilitates augmented job creation and skills development as the economy recovers from the COVID-19 pandemic and looks to accelerated economic growth.

Ancillary Services

For the first time in REIPPPP history have we seen the introduction of ancillary services to support grid stability – in addition to energy provision. The performance parameters for instantaneous and regulation reserves have been unpacked for better understanding. IPPs will need time to understand the impact this will have on the design of the generation plant and the associated cost implications.

The wind industry continues to raise the concern on the forecasting penalty. While we understand the rationale for better and more accurate forecasting to support the grid operator to balance and manage the system, research has shown that there is limited development in forecasting solutions and weather models creating a serious need for capacity and capability improvements.

This translates to IPPs employing the best available solution and still facing heavy penalties. The industry is advocating for a fair and durable compromise of applying penalties from 6hrs before real time, as opposed to the 12hr requirement and compared to the international best practice of 1hr for wind projects.

Bid Window 6 and Beyond

SAWEA confirms that the industry remains confident in its ability to build new renewable energy generation capacity while meeting economic development objectives and reiterates that it has no doubt that the sector will respond positively. The Association’s engagements with DMRE, DTIC and the other key sector stakeholders have strategically mapped the way forward to deliver on the just energy transition mandate.

Key dates for Bid Window 6 include the following:

  • The deadline for applications for a Cost Estimate Letter was 11 May 2022;
  • The deadline for requests for clarification on the RFP was 30 June 2022;
  • The deadline for compulsory Bid Registration, including the payment of the Bid Registration Fee is 14 July 2022;
  • The deadline for submission of responses to the RFP is 11 August 2022;
  • Preferred Bidders will be announced approximately two months following the Bid Submission Date;
  • Signing of the PPA and IA (“Commercial Close”) is scheduled to take place approximately six months following the announcement of Preferred Bidders;
  • A long stop date of one month following Commercial Close has been set for the achievement of Financial Close; and
  • The Scheduled Commercial Operation Date is set to take place at a long stop date of 24 months following Commercial Close.

Author: Bryan Groenendaal

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