Open-Ed
- Independent power producers (IPP’s) who lost bids in South Africa’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) Bid Window 5 have raised questions regarding the integrity of the bidders who were awarded bidder status.
- They alleged that Bid Window 5 financial close deadline has been delayed repeatedly because preferred bidders submitted projects that were not shovel-ready and/or bankable and should have known better.
- Last month South Africa’s Mineral Resources and Energy Minister (DMRE), Mr Gwede Mantashe, announced that the government is considering reopening REIPPPP Bid Window 5 citing that only one bidder with three wind projects had reached sign-off despite a six-month financial close deadline extension from 31st March to 30th September 2022 and beyond.
- The associated component supplier value chain is also feeling the affects of the uncertainty.
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:
- 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.
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
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