South Africa’s Risk Mitigation IPPP: Breaking New Ground in Flexible Power Procurement

Opinion

In an effort to alleviate the current power crisis, the DMRE is busy undertaking an “emergency” power programme known as the ‘Risk Mitigation Independent Power Purchase Programme’ (RMIPPP). This 2GW programme is, however, unique in its approach to power procurement in that it is the first time that no single technology has been specified and that any technology in any location could be considered so long as they meet the flexible dispatch requirements in a cost effective way. This is a bold step forward in the thinking of power procurement for South Africa and one which may revolutionize the roll out of future power purchase programmes. In this article, we reflect on the context and nuances of this programme with views shared on what this programme could mean for South Africa if proven successful.

Emergency Procurement Plan

Despite the reduced demand from COVID lockdowns, load-shedding is still commonplace largely due to the inevitable decline in performance of an ageing coal fleet. As outlined in the Economic Reconstruction and Recovery Plan announced last year, the Government acknowledges that enhancing energy security and aggressive infrastructure investment is a prerequisite for the country’s economic recovery.

Following the publication of a Government determination, in August 2020, the Department of Mineral Resources and Energy (DMRE) formally released the RMIPPP. The RMIPPP sought to procure 2000 MW of “emergency” capacity from IPP’s to fill the current supply gap; alleviate supply constraints; and reduce the excessive use of expensive diesel-based open cycle gas turbines.

The RMIPPP outlined the urgent need for new dispatchable and flexible capacity which could begin delivering power to the national grid by mid to late 2022. Projects participating under this programme were free to choose any form of technological solutions so long as certain minimum dispatchability and flexibility requirements where achieved. The programme also allowed for multiple facilities at different locations to bid as a single hybrid project. The contracted capacity of these projects would need to be a minimum of 50MW and a maximum of 450MW to be eligible under the programme.

By the final submission date of 22 December 2020, 28 bidders submitted their proposal for consideration. Judging from the list of 28 bidders published by the IPP Office, the programme managed to attract a diverse range of IPP’s from smaller local developers to some of the biggest international names in energy. The developers also represent a mix of renewable; thermal; and power ship players.

Flexible and Forward-Looking Power Procurement

Despite many differing views in the market, Wärtsilä believes that the RMIPPP represents a balanced and pragmatic approach by the DMRE and the IPP Office to addressing South Africa’s immediate and future power sector needs.

The technology agnostic approach and allowance for non-co-located hybridisation permits low-cost intermittent renewables to be combined with flexible dispatchable facilities (such as reciprocating engines or battery energy storage solutions). This allows for a reduction in energy costs whilst ensuring that much needed power is delivered to the grid regardless of wind or solar conditions.

It is likely that the programme will result in a large amount of renewable capacity to be added to the national grid but the intermittency caused by such renewables will be offset by new flexible power plants ensuring that the system stability is maintained.

Related news: List of 2000MW Risk Mitigation IPP Bidders Announced

This approach represents a new way of thinking as it places the priority on the System Operator’s (SO) requirements and not on the type of technology to be implemented. This systems level thinking brings with it several advantages but importantly, it allows developers the freedom to consider the latest proven and efficient technologies available globally. This would effectively catapult the South African energy system out of the coal era and into the ‘coal face’ of modern power technologies and potentially catalysing previously unexplored investments into South Africa.

In line with the Governments plans to introduce more gas into the country, the RMIPPPP also required all thermal facilities to be able to operate on natural gas when available. This forward-looking requirement may prove to be invaluable in securing the necessary anchor demand needed to justify future investment in LNG import infrastructure thus kicking-off the much talked about ‘gas economy’ in South Africa.

The permitted size range of the projects would, in Wärtsilä’s view, most likely result in 10-15 projects in order to fulfil the 2000 MW capacity requirement. This approach significantly reduces the risk of construction delays and project cost overruns when compared to the implementation of a single 2000 MW “mega project”. This approach also has the benefit of spreading economic growth and job creation opportunities throughout the country.

In the context of the socio-economic challenges the country faces, the RMIPPP places a key emphasis on economic development. The programme has stringent, but achievable, requirements for local content; job creation; and preferential procurement.  All projects in the programme would also need to be newly built power plants, which ensures much needed investment in South Africa’s power infrastructure.

Related news: SA’s 2000MW risk mitigation new generation capacity to be online by June 2021

Positives and Negatives

In light of this new ‘black-box’ approach adopted by the IPP Office, there was always going to be challenges in designing an RFP which accepts all technologies without compromising or biasing some of them as was evidenced by the >1000 clarifications posed during the RFP process. Many comments were related to the stringent technology experience and testing regime requirements which made it challenging for pure renewable+storage projects to qualify for the programme. Storage can undoubtedly play an important role in balancing inter-day renewable fluctuations however, inter-day and seasonal balancing remains a challenge and therefore, thermal capacity is still a sensible option for inter-day and seasonal renewable capacity balancing. For the flexibility requirements specified in this programme, Wärtsilä believes that a combination of thermal/renewable/and storage hybrids could result in the optimal solution.

On the positive side, this programme has certainly pushed many developers to step out of their comfort zones and explore new and innovative ways to use and mix certain technologies. We suspect that no two developers had an identical view when it came to determining which ‘technology mix’ was the best fit to meet the RFP requirements and it is exciting to see what has to-date only existed in theoretical power system models now getting developed into real projects. If proven to be successful, this programme could make South Africa the pioneer for multiple ‘mega-hybrid’ concepts thus moving further away from the current ‘single technology’ way of thinking and moving in the direction of an open energy market which is in line with the ITSMO restructuring currently progressed by Eskom.

Next steps and Conclusion

The list of preferred bidders is expected to be announced in February, with Financial Close expected to take place four months later and construction completed by end-2022. An extremely ambitious target by any standard but one which should be supported as far as possible to help South Africa out of its current energy crisis.

If successful, this programme would not only help alleviate load shedding but could also be a stimulus for the introduction of new power technologies and the ‘gas economy’ into South Africa. Most imterestingly though, it could  result in a fundamental rethinking in the way new capacity is procured both in South Africa and potentially abroad. This systems approach to flexible procurement has so far attracted the interest of the biggest players in the sector but the real success of this approach will only be determined in the coming months as preferred bidders are announced and race to reach Financial Close.

Author: Wayne Glossop

About the author

Wayne Glossop is the Business Development Manager for Wärtsilä Energy Southern Africa. He has been in the Business Development field for 8 years prior to which he has undertaken project development; project management; consulting; and engineering roles with BioTherm Energy and Eskom. With over 15 years experience in the power sector, Wayne is well versed in the challenges and opportunities within the regional power sector and is passionate about driving for positive change towards establishing a sustainable society within his markets. Wayne has a Masters in Power Engineering; an MBA; and is a registered Professional Engineer and is based in Johannesburg, South Africa.