Open-Ed
- South Africa’s Independent Power Producer Procurement Programme, once globally respected at the best model in the world for emerging market countries, is all but destoyed.
At a signing ceremony for legal close on 13 Bid Window 5 independent power projects last Thursday, South Africa’s energy minister, Gwede Mantashe, threw the country’s state-owned energy utility, Eskom, under the bus by saying that load shedding was becoming worse than state capture because of how it directly affects citizens and takes a toll on the economy.
“Eskom, by not attending to load shedding, is actively agitating for the overthrow of the state”, Mantashe said. Mantashe’s anger was visible but maybe not because of load-shedding. It may be because Eskom and the country’s president has undermined him, out-foxed him and embarrassed him at the same time.
It is important to note that the 13 projects that he announced legal close on are all from Solar PV technology, there were no wind projects announced and there was also no deadline specified for financial close on any projects.
At the same ceremony, Mantashe announced that only five Preferred Bidders are appointed under the 6th Bid Window of the REIPPPP, all from solar PV tech, with a combined capacity totalling 860MW. An eligible 6th bidder has also been identified, and the Department is in discussion with the potential bidder on conditions for appointment, to fill the remaining gap up to 1000MW, which is the total allocation for solar PV technology in the bid window.
The Department received onshore wind bid responses amounting to 4 116 MW for Bid Window 6, all of which are located in the Eastern Cape and Western Cape supply areas. Following the confirmation from Eskom during the evaluation that no grid capacity was available to connect any proposed Onshore Wind projects in these supply areas, Mantashe announced that the Department could unfortunately not award any of the wind projects up to the allocated 3 200 MW under Bid Window 6.
Herein lies the embarrassment for Mantashe because when the bid window was announced openly in April this year, Eskom confirmed that there was grid capacity for REIPPPP Bid Window 6 projects rounding out at 9000MW which included about 5000MW in Western, Northern and Eastern Cape.
What Mantashe did not anticipate is that this feed-in capacity would be snapped up by IPPs with private off-taker PPAs once the country’s president increased the generation license waiver from 1MW to 100MW for wind and solar projects in August this year. Read more
The privateer IPPs secured the capacity by applying for grid feed-in cost estimate letters (CEL) from Eskom which works on a first come first serve basis.
South Africa’s President, Cyril Ramaphosa , recently confirmed that the 100 MW licensing threshold for embedded generation projects was in the process of being lifted entirely. He also confirmed that after increasing the license waiver threshold from 1MW to 100MW in August 2021, a vibrant market was created resulting in a pipeline of private embedded generation projects with a combined capacity of around 9000MW. Read more
To add salt in the wound of REIPPPP Bid Window 6 bidders and Mantashe is that they were only allowed to apply for CELs from Eskom once they were appointed as preferred bidders.
While Mantashe emphasised that the Department is engaging with Eskom to find ways around the grid challenges, especially considering that the National Energy Regulator of South Africa is currently considering a Determination for 14 791 megawatts (MW) of new generation capacity, the reality is that no new capacity will come online any time soon. Eskom’s unbundling of its transmission division into a separate company, which will be responsible for adding feed-in capacity has stalled over parent debt covenants by lenders. Read more
A qualified and competent energy minister would have seen the potential damage of such a scenario playing out and secured the capacity for the REIPPP Programme beforehand. The South African Wind Energy Association (SAWEA) is understandably up in arms and has expressed its distress at the absence of wind projects, noting the expected detrimental effect on investor confidence in the REIPPP programme, overall.
Nail in the coffin for the REIPPP Programme
I think that it is safe to say that South Africa’s REIPPPP as we know it has lost what little credibility was left under the leadership of Mantashe. Many would also argue that looking at his track record as energy minister, he has deliberately delayed government procurement of renewable energy in favour of coal and nuclear technology.
Only 56 bids were received for Bid Window 6. This marks a dramatic decline in bids by around half compared to Bid Window 5 which was massively oversubscribed, attracting a total of 102 bids – REIPPPP BW5 bidders list. Link to the full list of bidders HERE: Bid Window 6 Bids Received.
Had Mantashe fulfilled his mandate properly the latest fiasco would never have happened, the integrity of the country’s REIPPP Programme would be intact and the country would not be experiencing severe load-shedding because 5000MW of new generation capacity would be feeding electrons into the grid. Read more
Instead, he has bungled along incompetently or deliberately, resulting in delays, controversy, accusations of corruption and multiple deadline extensions in procuring new energy generation capacity. Read more
Considering that the leadership at Eskom has repeatedly called out for between 4000MW and 6000MW of new generation capacity over the last three years, Mantashe’s attack on Eskom comes as no surprise. He recently also called for a second state owned energy utility to be created. Read more.
All roads point to Mantashe for causing extended delays in procureing new generation capacity
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 and Energy (DMRE), the ability of the country to procure new generation capacity has declined dramatically.
The Department of Mineral Resources and Energy (DMRE) along with the Independent Power Producer Office (IPPO) is responsible for energy procurement in the country.
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. Unaware that IPPs were gobbling up feed-in capacity for private PPAs, in early September, Mantashe upped the capacity of Bid Window 6 to 4200MW (1000MW for solar PV tech and 3200MW for wind). Read more
In total, 8700MW is to be procured under the three programmes yet to date only 150MW ( 3 x 50MW projects) andtwo 140MW wind projects have reached financial close and are expected to feed electrons into the grid at the end of Q4 2023.
The 13 projects announced by Mantashe bring a total of 19 of 25 projects to the legal close stage. This news follows Red Rocket and EDF signing Bid Window 5 legal close on three wind projects each in the last two months. EDF has reached a financial close on two of its three wind projects while Red Rocket is still in the financial close process.
Unbalance, delayed energy procurement outcomes with glaring red alerts
REIPPPP Bid Windows 1 to 4 had largely uncontested and very balanced outcomes. The projects that were awarded preferred bidders status in these rounds achieved financial close within three to four months largely because projects were chosen that were shovel ready or close to shovel ready (shovel ready meaning ready to be constructed).
Related news: SAWEA on REIPPPP: Delays, Inconsistencies and Halted Bidding Windows
The results of REIPPPP Bid Window 5 under the current IPPO reveal a very unbalance outcome and projects are struggling to reach financial close. Taking a closure look at the outcome of Bid Window 5 there are several standout red alerts:
- One international IPP, Mainstream Renewable Energy, 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). The underlying principle of B-BBEE is to spread wealth sustainably and as far as possible, to the previously disadvantaged.
- 21 of the 25 projects were won by foreign-owned IPPs
- 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. Industry experts claim that the winning tariffs are too low to be realistic. 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 criteria set for local content are unrealistic and cannot be implemented.
Unbalance outcomes extend to RMIPPPP
The lack of capacity at the DMRE extends to the Risk Mitigation IPP Procurement Programme (RMIPPPP) where there are key contractual issues, and the majority of projects are not bankable and/or EIA-approved. Simply put the tender programme was badly managed from the outset. There is also no coincidence then that the only three projects totalling 150MW that achieved financial close in the 2000MW RMIPPPP have the same BBBEE partner that won 21 projects in REIPPPP Bid window 5.
About Gwede Mantashe
Samson Gwede Mantashe, popularly known as Gwede Mantashe is a communist, South African politician, and trade unionist, who as of 18 December 2017, serves as the National Chairperson of the African National Congress. He is also a former chairperson of the South African Communist Party and Secretary General of the ANC.
He studied at the University of South Africa in 1997 and completed a B.Com Honours degree in 2002. He also acquired a master’s degree from the University of Witwatersrand in 2008. He completed his MBA through MANCOSA in 2021
He joined the migratory labour force to eke out a living in the mining industry. Beginning his mining experience at Western Deep Levels mine in 1975 as a Recreation Officer and, in the same year, moved to Prieska Copper Mines where he was Welfare Officer until 1982.
Related news: It’s not ‘foreign forces’, it is people in South Africa that are fed up with Gwede Mantashe
In 1982, Mantashe moved to Matla Colliery where he co-founded and became the Witbank branch chairperson of the National Union of Mineworkers (NUM), a position he held until 1984. He was then elected NUM Regional Secretary in 1985. In recognition of his skills, Mantashe became the NUM’s National Organiser from 1988 to 1993 and its Regional Coordinator between 1993 and 1994. He was elected Secretary-General of the African National Congress at the party’s 52nd national conference in 2007.
Mantashe and his family are implicated in a string of corruption scandals. Mantashe’s daughter received R1 million in illicit Eskom money. His wife’s business received an R639 million catering contract for the still incomplete Kusile coal power plant project that has been riddled with corruption and cost overruns. His foundation is also embroiled in corruption scandals over millions in irregular payments.
In the country’s Commission of Inquiry into Allegations of State Capture, it was revealed that Mantashe received security upgrades to his three homes from the now-defunct company, Bosasa. The commission’s chair, Justice Raymond Zondo, said there was no evidence of contracts being awarded due to Mantashe’s direct interference, but there were “reasonable grounds for suspecting that Mr Mantashe accepted or agreed to accept gratification” from a company (Bosasa) that wanted business from the state and that further investigations had a reasonable prospect of making prima facie findings of corruption against Mantashe. Mantashe of course denies all charges. Read more
It is also important to recall that during Zuma’s ten-year presidency, Mantashe was a key figure in the project to shield him from accountability. As secretary-general of the ANC, he instructed members of Parliament to always side with Zuma or face discipline. As such, he was a key enabler of corruption during the Zuma years and remains part of the RET faction.
South Africa is in a spiralling energy crisis, rotational load shedding is getting worse and the cost to the economy is a massive R950 million a day.
Judging by his track record and the ongoing malalignment with Eskom and his own party, if Gwede Mantashe stays on as energy minister, it is clear the energy crisis in South Africa is only going to get worse.
Author: Bryan Groenendaal
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