Open-Ed
- South Africa’s Independent Power Producers Office (IPP Office), the entity responsible for managing the country’s Renewable Energy Independent Power Producers Procurement Programme (REIPPPP), recently confirmed that it has called the bid bonds (termination) on 14 projects which failed to reach commercial close in Bid Window 5.
- The projects were awarded preferred bidder status in October 2021.
- Oddly, the IPP Office recently awarded preferred bidder status to an independent power producer (IPP) it is in litigation with over the failed payment of bid bonds.
The outcome of Bid Window 5 has been racked with controversy and allegations of tender rigging. Twenty-one of the twenty-five preferred bidders were found to have the same Broad Base Black Economic Empowerment (BBBEE) local partner in H1 Holdings. Most of the projects that won preferred bidder status were not shovel-ready and had outstanding development works activities including environmental impact assessments, grid feed-in cost estimate letters and other permitting. The tariffs bided were unsustainably low and not bankable. The average weighted price bid for solar came in at (R) 42.9c kW/h while the average bid for wind was (R) 49.5c kW/h. Only eleven of the twenty-five projects reached commercial close after multiple commercial close deadline extensions.
In one of his recent press briefings, Minister of Electricity and Energy, Dr Kgosientsho Ramokgopa, said pulling the bid bonds was necessary for the credibility of the REIPPP Programme. “These (bid bonds) are legally binding documents, we are going to pull the bid bonds,” he said, expressing impatience with the fact that contracts were not being honoured. “If we land in court, let’s land in court, we must stick to the rules of this programme,” he added.
Of the fourteen failed projects, one bidder, the TotalEnergies/Mulilo/Du Plessis 75MW solar PV project consortium has agreed to pay their outstanding bond of R15 million.
Foreign independent power producer (IPP), Globeleq, and the Ikamva Consortium made up another foreign IPP, Mainstream Renewable Power plus local BBBEE partners, Africa Rainbow Energy & Power (AREP) and H1 Holdings, who make up more than 45 % of black ownership, are contesting payment of bid bonds for six 75MW solar projects and six 140MW wind projects. According to clauses 26.1 and 26.2 of the general requirements, rules, and provisions of REIPPPP Bid Window 5, the consortium is liable to pay the IPP Office a total of R254.8 million calculated at R200000.00 per MW as a preferred bidder.
The Engie/Pele Green Energy/Sannapos Solar PV Consortium are also allegedly contesting payment of their bid bond of R15 million for a failed 75MW solar project.
The Globeleq consortium offered the following response:
‘Mainstream Renewable Power (“Mainstream”) and Globeleq, confirm that demand for payment of the preferred bidder guarantees has been issued in relation to six wind projects and six solar projects which were bid under Round 5 of the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP). Mainstream and Globeleq have applied to interdict payment of the guarantees and a hearing is expected in mid-2025.
Mainstream and Globeleq worked diligently with the Independent Power Producers Office, the Department of Mineral Resources and Energy and Eskom to deliver these projects under Round 5, and due to a range of factors beyond our control, it is regrettable that this objective could not be achieved. All the projects are construction-ready and will support South Africa’s energy transition.’.
Mainstream/Globeleq failed REIPPPP BW 5 projects re-emerge in Bid Window 7
The preferred bidder’s list for Bid Window 7 was recently been released by the IPP Office. Bid Window 7 seeks to procure 3200 MW of wind and 1800 MW of solar power.
Some of the 12 failed Globeleq/Mainstream consortium BW 5 projects were re-submitted under different names in REIPPPP Bid Window 7 however, these projects failed in their bids.
The list of REIPPPP Bid Window 7 bids received in August 2024 revealed an under-subscription for wind technology at 1692MW while solar PV is oversubscribed with a total of 8526MW capacity. Eight solar projects totalling 1760MW capacity have been awarded preferred bidder status in REIPPPP BW 7. The projects are located in Mpumalanga, Free State, North West and Limpopo provinces which all have available grid feed in capacity.
No wind projects were awarded. Ramokgopa explained that the bid tariffs received for wind projects were too high and there is room for further negotiation. He added that the consumer must be protected in energy procurement in this regard. The minister also made the point that a lack of grid capacity was limiting new-generation procurement.
The CEO of the IPP Office, Mr Bernard Magoro, added that a request has been made for re-allocation of capacity to allow more solar projects to be considered in Bid Window 7. An announcement on this request will be made by Ramokgopa in due course.
Controversy
The Mulilo and Scatec consortiums were awarded 240 MW each while Infinity Power (part of Masdar) dominated by winning six of the eight projects totalling 1280MW with local Broad Based Black Economic Empowerment (BBBEE) partner, Pele Green Energy. This has raised questions on the preferential treatment of BBBEE partners and how the IPP Office adjudicates projects because Pele Green Energy, along with their consortium members, is contesting payment of a bid bond relating to Bid Window 5.
Pele Green Energy offered the following response,
‘The specifics around the BW5 bid bond are in front of the courts and we are unable to comment at this time. What we can confirm is that we will abide by the decision of the courts. We can confirm that neither us nor the other organisations that have had projects not reach financial close, are in any way precluded from participating in any bid window and have continued to do so under the rules of the programme’.
Possible reforms on the cards
REIPPPP Bid Window 8, which seeks to procure an additional 5000 MW of wind and solar power is expected to be launched in Q1 2025. The challenges from previous windows may see the following reforms on the cards:
- Digitising and converting the auction process to an online system with set qualification criteria.
- Bid bonds must be paid upfront in full by IPP project owners at the time of being awarded preferred bidder status.
- Any bidder in litigation with the IPP Office over non-payment of bid bonds or any other reason, will be disqualified from bidding and forfeit their grid capacity allocation to new bidders.
- A drop in government debt cover (sovereign debt) from 80% to 0% should Eskom default on power purchase agreements. Treasury has previously stated that it is considering pulling all debt cover in future REIPPPP bid windows.
- An increase in local equity ownership to above 49% for all project bids.
- An increase in project capacity parameters from 50 MW and 240 MW for wind and solar project bidders to 75MW and 380MW or more to encourage new generation build at scale.
- Future bid windows may be split according to technology resulting in dedicated bid windows for solar and wind.
- To overcome grid capacity challenges, future bid windows may include pre-specified power generation and energy storage capacity as a combined project for specific locations.
- Rewarding of curtailment for solar and wind projects as an incentive in the power purchase agreement.
Author: Bryan Groenendaal
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