South Africa: EDF’s Three Wind Projects Likely to Reach Financial Close at a Higher Tariff

  • Last Friday, South Africa’s Minister of Mineral Resources and Energy, Mr Gwede Mantashe, announced the sign-off on the first three power purchase agreements (PPA’s) under the 5th Bid Window (BW5) of the country’s Renewable Energy Independent Power Producer Procurement Programme. 
  • While Minister Mantashe lauded EDF Renewables for taking up the challenge to invest in the three wind power projects that are going to contribute 420MW renewable capacity to the national grid, the significance and recognition of EDF’s tenacity in achieving such a milestone were muted by the head of the IPP Office, Mr Tshifhiwa Bernard Magoro, who announced that the deadline for PPA’s for the remaining 22 projects, has been further extended by one month to October. 
  • EDF’s three 140MW projects namely; Coleskop Wind Power, San Kraal Wind Power and Phezukomoya Wind Power, will feed much-needed electrons into the South African grid in around eighteen months, provided financial close is reached.

The average weighted price bid for wind projects in BW5 is (R) 49.5c kW/h. EDF’s Coleskop Wind Power in the Eastern Cape comes in at R601.17 per megawatt hour while San Kraal and Phezukomoya wind energy facilities in the Northern Cape, come in at R564.45 per megawatt-hour.

Whilst the tariffs concluded may not be the same as the tariffs in their original bid submission, EDF explains that the tariffs of the 3 projects will mechanically be adjusted on the date of commercial close for foreign exchange and CPI variations, according to the rules of the Request for Proposals (RFP). Such rules apply to all bidders.

Related news: South Africa’s energy ministers considers re-opening of REIPPPP Bid Window 5 

EDF’s project ownership profile reflects goals set out by the government directing majority local ownership in REIPPPP projects. The ownership breakdown for all three projects is 40% EDF-R, 28,75% Gibb-Crede, 28,75% H1 Holdings and 2,5% local community trust.

Absent at the signing ceremony was BBBEE partner, H1 Holdings. H1 Holdings is controversially the BBBEE partner for no less than 21 out of 25 projects awarded in Bid Window 5

When questioned on the integrity of retaining H1 Holdings as a BBBEE partner, EDF responded by pointing out that H1 holdings are a recognized BBBEE investor in the renewables space in South Africa, with an established track record in the REIPPP programme.

“Beyond their investment activities, H1 is also actively involved in Socio-economic development activities in South Africa. H1 has been selected as a partner by EDF-R for their track record, for the quality of their fundings, and strong complementarity with the other members of the consortium,” added Tristan de Drouas – CEO at EDF Renewables South Africa.

When ask if he is confident that EDF will reach financial close within the two-month deadline, de Drouas responded with a resounding yes which will be very comforting to the South African population.

South Africa is in a massive energy crisis. Rotational load shedding is getting worst 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

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 have to be resolved first before their legal agreements can be finalised, ” said the DMRE.

Related news: South African Wind Industry welcomes three new REIPPPP BW5 projects but more work needs to be done. 

Controversial outcome

REIPPPP Bid Window 5 has been marked by extended delays in the financial close deadline and tender rigging allegations. The country’s competition commission is also investigating the skewed outcome. Read more

The tariffs bided were unsustainably low and not 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. Industry experts claim that the winning tariffs are too low to be realistic and may be sponsored. 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. The increase in the cost of components like wind turbines, inverters and solar panels during the extended delay has found winning bidders with ‘stranded’ financial models that may not be bank presentable.

It remains to be seen if the remaining 22 projects will reach financial close.

Author: Bryan Groenendaal

Investing in South Africa’s renewable energy sector is a hot topic the the Africa Energy Indaba 

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