Ramokgopa moves to cancel failed IPP project bid bonds to free up grid capacity

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Watch the video:ย Minister of Electricity and Energy Dr Kgosientsho Ramokgopa briefs the Media on IPP Programme

  • South Africa’s Electricity and Energy Minister, Dr Kgosientsho Ramokgopa, has announced that Eskomโ€™s unplanned capability loss factor (UCLF) has significantly improved, indicating that the system is becoming healthier.
  • On loadshedding, he said that the standard is that there shouldnโ€™t be any load shedding, and the standard should further suggest that we should not rely on expensive fuel sources to keep the lights on.
  • On theย IPP programme, Ramokgopa said that the programme has procured 15 432 megawatts of renewable energy since its inception in 2011, with 8 231 megawatts currently in the market to be evaluated and 1 897 megawatts under construction.
  • He added that theย seventh administration plans to be aggressive in procurement, with interventions to improve the programmeโ€™s structure and efficiency.
  • This includes the pulling of IPP project bid bonds where projects have failed to reach financial close.ย 
  • The Minister was briefing media in Pretoria on the Independent Power Producer (IPP) programme as part of his regular energy security updates.ย 

โ€œIf you look at what the UCLF recorded over the past seven days, you see that weโ€™ve been averaging at about 10 500 megawatts, essentially 10 500 megawatts of capacity that is installed was not available on account of various reasons. [These include] the units failing and units not performing at their optimal capacity. If you had to compare this with the same period last year, itโ€™s an improvement of about 5 000 megawatts.

โ€œThatโ€™s significant, and thatโ€™s why we have been able to keep the lights on [for a]very considerable period,โ€ Ramokgopa explained on Monday.

โ€œItโ€™s important that weโ€™re able to consistently improve this kind of result. And of course, in numbers, it means that thereโ€™s less and less reliance on diesel to power our electricity requirement.โ€

Starting from 1 April to 17 October 2023, Eskom spent about R18 billion to prevent power cuts, down by R12 billion compared to the same period this year.

โ€œThereโ€™s less reliance on diesel. And if you look at the open cycle gas turbines (OCGT) load factor, the percentage of time that weโ€™re relying on these at the same period last year, we were sitting at about 8.95% and this year, we were sitting at about 4.59%,โ€ย Ramokgopa said.

The Minister believes that this speaks to the improvement of Eskomโ€™s systems, which he stated will be passed on to the end consumer.

Ramokgopa said it was an โ€œanomalyโ€ to celebrate the fact that there were 208 days of no load shedding.

โ€œThat should be the standardโ€ฆ The standard is that there shouldnโ€™t be any load shedding, and the standard should further suggest that we should not rely on expensive fuel sources to keep the lights on.

โ€œThis is not an achievement but a step in the right direction. An achievement will be when thereโ€™s no load shedding and [we]can use a cheaper form of existing generation for us to keep the lights on. And thatโ€™s where the Independent Power Producer programme comes in.โ€

Pulling of IPP project bid bonds

Shifting his focus to the IPP programme, Ramokgopa said that the programme has procured 15 432 megawatts of renewable energy since its inception in 2011, with 8 231 megawatts currently in the market to be evaluated and 1 897 megawatts under construction.

Ramokgopa said the seventh administration plans to be aggressive in procurement, with interventions to improve the programmeโ€™s structure and efficiency. The Minister wants to onboard renewable energy capacity at scale but grid capacity constraints are hampering progress. Read more

The IPP Office has been criticised for incompetence and a lack of capacity to understand wind and solar project financial modelling. They have appointed preferred bidders with projects that are not bankable. This has resulted in multiple financial close deadline extensions and failure of much needed new generation capacity to come online. Read more

There are many wind and solar projects in South Africa that have a Cost Estimate Letter (CEL) from Eskom reserving grid feed in capacity allocation which have failed to reach financial close. These include projects in the countryโ€™s REIPPPPP and Risk Mitigation IPPPP programmes. One international IPP,ย ย Mainstream Renewable Powerย owned by Norwayโ€™s AKER Horizons, controversially won 12 of the 25 projects in REIPPPP BW 5 amid tender rigging allegations back in October 2021. To date, none of the 12 projects have reached financial close. There are also five projects totalling 1.6 GW which have failed to reach financial in the Risk Mitigation IPPPP programme which is also racked with controversy. Read more

Related news:ย Mainstream’s CEO Eddie O’Conner resigns after making deplorable comments about the African renewable energy sector

Ramokgopa said the pulling of the bid bonds was necessary for the credibility of the programme.

โ€œThese (bid bonds) are legally binding documents, we are going to pull the bid bonds,โ€ he said, expressing impatience with the fact that contracts were not being honoured. โ€œIf we land in court, letโ€™s land in court, we must stick to the rules of this programme,โ€ he added.

Without giving specific details, Ramokgopa said mega-procurement rounds or implementing smaller, more frequent bid windows were under discussion. Ramokgopa said that reforms to the countryโ€™s IPP procurement programme will be finalised in the next three to four weeks. The outcomes โ€œshould help to address the stop-start nature of procurement that had undermined the certainty required by industrialists to invest in local capacity to supply into the renewables projectsโ€.

Related news: IPP’s must shoulder blame for delayed outcome in REIPPPP Bid Window 5

He added that the visibility of a consistent project pipeline would enable the Department of Trade, Industry and Competition to introduce incentives that could further accelerate local industrialisation of the renewables supply-chain.

The Minister pointed out that the IPP procurement programme has created 85 800 job opportunities and contributed significantly to local economies, with a focus on socio-economic transformation.ย Ramokgopa announced that the project has seen significant market confidence, with international and domestic investments totalling R272 billion.

Author: Bryan Groenendaal

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