Red Rocket Signs PPA’s for Three Wind Projects in South Africa’s REIPPPP Bid Window 5

• South Africa’s Minister of Mineral Resources and Energy, Mr Gwede Mantashe, has announced that an additional three renewable energy projects have signed project agreements under the 5^th Bid Window of the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP Bid Window 5).
• The three projects, all procured from onshore wind technologies, will be developed by Red Rocket South Africa. 
• The total investment amount for these projects is approximately R 9.3 billion.
• The follows three wind projects developed by French IPP EDF which reached legal close in Bid Window 5 on 23rd September.
• EDF have not confirmed financial close as yet. 

The projects will contribute a total of 364MW of renewable energy to the national grid. These projects are Brandvalley Wind Farm (140MW) and Rietkloof Wind Farm (140MW) that will be located close to Laingsburg in the Western Cape, and Wolf Wind Farm (84MW) that will be located close to Jansenville in the Eastern Cape. Once these projects have reached financial close, the construction timeline is expected to be 24 months.

Minister Mantashe highlighted that this achievement is particularly significant as it also celebrates the signing of the 100th Power Purchase Agreement (PPA) and Implementation Agreement (IA) since the IPP Procurement Programme was launched in South Africa.

Related news: Preferred bidders in REIPPPP Bid Window 5 must shoulder blame for the delays

The agreements that were signed include Power Purchase Agreement (PPA), between Red Rocket South Africa and Eskom, and the Implementation Agreement (IA) which details the Economic Development Obligations that the Projects commit to over the construction and operations period, with the Department of Mineral Resources Energy (DMRE).

As with other IPP procurement, this bid window was also designed to stimulate economic growth and support socio-economic transformation throughout the term of the PPA. In this respect, together the three projects will create a total number of 1 801 job year opportunities for South African citizens during construction and operation periods, and an amount of R 485 million is dedicated to be spent on Skills Development, Supplier Development, Enterprise Development, and Socio-Economic Development over the lifetime of the projects.

Related news: Last month South Africa’s Mineral Resources and Energy Minister, 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. 

The Red Rocket projects will have 60 days to conclude all obligations and conditions precedent in the Implementation Agreement, in order to start drawing down on their lending agreements, and start construction.  In the meantime,  2 of the EDF Renewables projects that signed project agreements (legal close) on 22 September 2022 have reached commercial close on 9^th November 2022, with financial close to follow shortly.

The Department further confirms that more projects under Bid Window 5 will be signed over the coming weeks, and announcements and details around these will be communicated once all governance processes on the side of government and the projects themselves have been concluded. 

Background to the REIPPPP Bid Window 5

The REIPPPP Bid Window 5 Request for Proposals (RFP) was released on 12th April 2021 and was the first bid window to be launched under the Ministerial Determination promulgated on 25th September 2022 under IRP2019. The bid window aims to procure a total of 2 600MW energy, consisting of 1 600 MW onshore wind and 1000MW Solar PV plants.

The Department received 102 bids during bid submission on 16th August 2021, totaling an oversubscribed 9 644 MW. The Minister announced 25 Preferred Bidders on the 28^th October 2021, to provide a total capacity of 2 583 MW. Of this, 1608 MW will be procured from 12 Wind projects, and 975 MW from 13 Solar PV projects. 

The agreements that were signed on 10^th November 2022 include:

• The Power Purchase Agreement (PPA): This agreement regulates the sale of the energy between the respective IPPs and Eskom. This document will be signed by Eskom and the IPPs.
• The Implementation Agreement (IA): The IA includes all the commitments made by the bidders in terms of Socio-economic Development, Enterprise Development, etc. In addition, the IA also provides for the required Government support to the IPPs and the lenders to the project. This document will be signed by the Department and the IPPs; and
• The Direct Agreement (DA): This agreement allows the lenders to have step-in rights, in the event the IPPs fail to honour its obligations under the Finance Agreement. This enables the lender to take over the plant(s) and/or hand it over to another party to operate the plant(s) on its behalf until the lender has recovered the total amount invested on the respective project. This agreement is signed by the Department, Eskom, IPPs and Lenders.

Controversy and lengthy delays in Bid Window 5 

The DMRE along with the IPPO is responsible for energy procurement in the country. 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

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.

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. 

Author: Bryan Groenendaal