The Zambian Government is set to launch the first of three tender rounds for renewable energy projects in that country. The first round announced is for solar energy and includes projects up to 20Mw with a total capacity of 100Mw. The first round tender is part of the GET FIT Zambia Program, administered by GIZ and is expected to be announced during March 2018.
The goal of the tender procedure is to generate the lowest possible tariff bids for ZESCO, Zambia’s Energy Utility and, ultimately, Zambian electricity consumers. The project is now the official implementation program for the Zambian REFiT Strategy, an initiative developed with the support of German development bank KFW, aimed at accelerating private investments in small and medium-sized renewable energy projects in the country.
The initial round is driven by substation identification and their associated feed-in capacity. The substations have been categorised accordingly and listed in the tender announcement. Bidders are expected to secure a tract of land not further that 10Km from these substations. They are then required to size their solar farm according to the feed in a capacity of the identified substation. The options for grid connection are also specified.
Expect a mad scramble but do not underestimate the challenges associated with securing land in the form of a long-term lease or land title for these projects. Africans have a spiritual, tribal and cultural attachment to their land. The Zambian people are no different. The responsibility of securing land lies with the bidders. The time frame and challenges attached to securing land need to be accounted for in terms of the associated risks and cost. Due diligence on behalf of the bidder will go a long way in avoiding contestations over land ownership. Any commitment regarding the land must be made subject to a successful bid.
Another problem is that the substations specified may be ageing or in a state of disrepair. They may need upgrading which makes the playing field uneven for the bidders. As a result we can expect the bidding to be in a wide range from one substation to the next. The challenge is to identify a substation that ticks all the boxes in order for the project to be bankable right through the value chain.
Bidders may bid on a maximum of two sites. The chances are good that there will be competing bidders at a single substation. It must be noted that prior to the final award decision, a full cumulative grid impact analysis and a compliance check with the Zambian Grid Code will be carried out by ZESCO and external grid integration experts. In the event that two or more projects cause congestion (i.e. the capacity required by proposed projects exceeds the available capacity at any given connection point), the available capacities at this connection point will be allocated and awarded competitively and higher ranked projects will be prioritized.
The Power Purchase Agreement period has been stipulated at 25 years. The lifespan of a good quality inverter can be stretched to 20 years. This poses added financial implications regarding warranty extension, replacement costs and maintenance. No doubt there will be penalties associated with non-performance and one would have to run robust financial modelling to accommodate the extra 5 years.
There were other challenges and points raised on issues like financial minimum qualification criteria at the Tender Pre-Bid Meeting held on 7th February 2018 in Lusaka. This has resulted in the latest Clarification of Tender Announcement #3 dated 14th February 2018 which is the last such clarification note to be published prior to the launch of the Request for Qualification expected in March 2018.
Specifying identified substations as a starting point is a unique way of kick-starting a utility scale renewable energy program. The upcoming Request for Qualification should sort the men from the boys and if successful, this type of program could be implemented in other countries in Africa.
Some say the sun looks down on Africa with circumspection. Not in Zambia at the moment.
Author : Bryan Groenendaal