- South Africa’s Department of Mineral Resources and Energy (DMRE) has announced a delay in the deadline for financial close of the 25 projects awarded in Renewable Energy Independent Power Producer Programme (REIPPPP) Bid Window 5.
- In a press release, the DMRE explains that a phased approach will be undertaking with the 25 projects and that they expect that financial close agreements will be concluded by no later than end of September 2022.
- Bid window 5 is expected to inject an estimated R50 billion into the South African economy, creating around 13,912 job opportunities.
This decision, the DMRE explains, was informed by the confirmed timelines from Eskom to issue the Budget Quotes to all Preferred Bidders. The Budget Quotes are required in order to finalize costing and commercial operation timelines, all of which is necessary to be incorporated into the final Project Agreements and preparations for Commercial Close.
The DMRE has engaged Eskom extensively on these matters and Eskom has committed to a timetable that will enable the first batch of 14 Projects to sign their Projects Agreements at end of July 2022, accommodating those Preferred Bidders that will receive their Budget Quotes by the end of June 2022. The remaining 11 Projects are expected to receive their Budget Quotes by August 2022, which will enable the signing of the balance of Project Agreements by the end of September 2022.
Eskom seeks clarity from DMRE and IPP Office
In yesterday’s state of the energy system briefing, Eskom COO Mr Jan Oberholzer indicated said that the utility was seeking clarity from both the IPP Office and the Department of Mineral Resources and Energy regarding the statement by the DMRE where they claim that the BID Window 5 financial close delay was caused by issuing of budget quotations by Eskom.
At the same briefing, Mrs Agnes Mlambo, General Manager of Eskom Distrubution, further elaborated that most of the grid connections arising from Bid Window 5 were in the form of self-build projects, but that Eskom still needed to approve the designs.
Also at the briefing, Eskom CEO, MrAndré de Ruyter, said that Eskom has no incentive to delay the issuing of budget quotes. He stressed that a budget quote represented a binding commitment that could be made only once the designs were approved.
“In some instances, the IPPs do not provide sufficient information for our engineers to complete their designs as quickly as the IPP would expect. So, there are inefficiencies in the process from that perspective, and we can’t willy-nilly give budget quotes based on inadequate information because, eventually, we as an organisation have to pick up the tab,” said de Ruyter.
Bid Window 5 Outcome Controversy
The outcome of Bid Window 5 reveals that a few foreign owned independent power producers (IPP’s) have been successful with multiple projects. Mainstream Renewable Power (Norway/Ireland) won 12 of the 25 projects while Scatec (Norway) and EDF (France) won three projects each. Local IPP Red Rocket own 3 projects and another French IPP, Engie, was also successful with 3 projects.
Winning bidders are required to have a local Broad Based Black Economic Empowerment partner. It is alleged that the same broad based black economic empowerment (B-BBEE) company, H1 Holdings , is an equity partner in no less than 21 of the 25 projects, ironically with Mainstream Renewable Power (12 projects) , Scatec (3 projects) and EDF (3 projects) and local IPP Red Rocket (3 projects).
The onus is on preferred bidders to reach financial close. Bid Window 5 yielded the lowest tariffs in any bid window thus far. 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. Read more
Related news: Bloomberg cites low tariffs as the reason why projects are struggling to reach financial close. Read more
The 5th Bid Window under the Renewable Energy IPP Procurement Programme (REIPPPP BW 5) was launched on 12 April 2021. The Department announced the appointment of 25 Preferred Bidders on the 28th October 2021. The total new contracted capacity will be 2583 MW, of which 1608 MW will be procured from 12 Wind projects, and 975 MW from 13 Solar PV projects. The projects are expected to reach commercial operation within 24 months from commercial close.
Author: Bryan Groenendaal