Preferred Bidder IPP’s Must Shoulder the Blame for Delayed Outcome in South Africa’s REIPPPP Bid Window 5

Open-Ed

I recently reached out to competing IPP’s and a component supplier for comment on the extended delays in REIPPPP Bid Window 5 finalisation.

One IPP who declined to be named said that “the likes of Mainstream Energy should know better but they went ahead with ridiculously low tariffs and spoilt it for all of us”. Another IPP, who also declined to be named said, “at the time of the preferred bidder announcement last October, our team ran the numbers using the higher tariffs stated for wind and solar projects and found that there is no way the projects will deliver an IRR (internal rate of return) that is bank presentable. We submitted bankable solar project bids with contingency for Covid-related challenges which included component price volatility and higher logistics costs because these factors were known at the time, but still lost out”.

A pattern of failures are emerging with some IPP’s like Mulilo Renewable Energy who have failed so far to reach financial close in the country’s Risk Mitigation Independent Power Producer Procurement Programme as well as REIPPPP Bid Window 5.

Quality and honesty of bidders questioned

Mainstream Energy’s Waaihoek wind project in northern Kwazulu Natal, which won preferred bidder status in Bid WIndow 5, did not have environmental impact assessment (EIA) in place for their 40km + transmission feed in line to the nearest substation, at the time of bid submission. Their original EIA for the line had expired. They had to re-negotiate lease agreements with landowners plus reroute the line after winning preferred bidders status.

Did they disclose the status of their line to IPPO in their bid submission? If yes, why did IPPO award preferred bidder status to a project that still needed to submit an EIA for their transmission line? An EIA can take anything from 12 to 24 months to be approved. It is common knowledge that a project has no chance of reaching financial close without an EIA in place.

How many other projects with preferred bidder status had undisclosed outstanding EIA’s, CEL’s and permits, at the time of submission to IPPO?

Component suppliers reluctant to commit to production facility investment

Speaking informally in confidence with me, a senior representative of a very large global component supplier to the solar industry said that it was very difficult to make a decision of whether or not to set up a production plant in South Africa. “the controversial outcome of Bid Window 5 and associated delays have taken us back to the five year delay in Bid Window 4. We would prefer a more predictable path for REIPPPP leading up to 2030 before making a long term investment on a production facility in South Africa.”

Unprecedented outcome

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:

Reputational damage

The Department of Mineral Resources and Energy (DMRE) along with the Independent Power Producer Office (IPPO) is responsible for energy procurement in the country. As such, they must also take responsibility for the delayed outcome.

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

Further delays and babysitting?

Late last month, during the height of a stage 6 load-shedding programme that was being rolled out in the country, Mantashe announced three power purchase agreements (PPA’s) under the 5th Bid Window with EDF renewables. The three projects have until the end of November to reach a financial close. Read more

 At the signing ceremony, it was announced that the DMRE and IPP Office are currently engaging with the remaining 22 Preferred Bidders under REIPPPP Bid Window 5 with a view to finalizing the conditions precedent to enable the signing of the Project Agreements. “A number of bidders who have recently received their Budget Quotations will be scheduled for signing of agreements once these have been finalised. Announcements around this will be made shortly. Some bidders have challenges around their issued BQs that must be resolved first before their legal agreements can be finalised, ” said the DMRE.

Why is the DMRE babysitting the IPP’s? 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

Perhaps its time to scrap Bid Window 5 and start again.

Author: Bryan Groenendaal

Disclaimer: The articles and videos expressed in this publication are those of the authors. They do not purport to reflect the opinions or views of Green Building Africa, our staff or our advertisers. The designations employed in this publication and the presentation of material therein do not imply the expression of any opinion whatsoever on the part Green Building Africa concerning the legal status of any country, area or territory or of its authorities.

Leave A Reply

About Author

Green Building Africa promotes the need for net carbon zero buildings and cities in Africa. We are fiercely independent and encourage outlying thinkers to contribute to the #netcarbonzero movement. Climate change is upon us and now is the time to react in a more diverse and broader approach to sustainability in the built environment. We challenge architects, property developers, urban planners, renewable energy professionals and green building specialists. We also challenge the funding houses and regulators and the role they play in facilitating investment into green projects. Lastly, we explore and investigate new technology and real-time data to speed up the journey in realising a net carbon zero environment for our children.

Copyright Green Building Africa 2024.