Recent delays in the financial close for the third bid window projects of South Africa’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) has led to concern.
According to Engineering News, the REIPPP currently has 26 projects that have already been connected to the grid following three bid windows during which more than 60 renewable energy projects were selected to proceed. The concern arises from the fact that financial close has been delayed for the third-bid-window projects due to “grid connection issues”.
The preferred bidders were identified in October 2013 and financial close was initially scheduled for 30 July 2014, ahead of the 18 August closing date for submissions under the fourth bid window. However, the Department of Energy subsequently announced that it was finalising a staggered financial close protocol, which should be concluded in November this year.
The grid connection implications of the third window projects had not been fully comprehended, which led to Eskom raising concerns about the cost of connection. It is also understood that, from the fourth bid window onwards, Eskom will provide input prior to the selection of preferred bidders in an effort to mitigate the problem.
In a recent presentation to Parliament, Eskom indicated that the “low-hanging fruit” had been exhausted and that a strengthening of the network was now required to facilitate the introduction of additional independent power producer (IPP) connections.
The utility also warned that the system impact had not been fully factored into plans, flagging in particular the “need for back-up and minimum generation” as renewables began playing a larger role in the capacity mix.
As of September, over 863MW of renewable energy capacity had entered into commercial operation. However, Eskom has highlight the variable nature of the supply, which it claimed had resulted in it incurring back-up expenses.
Eskom stated that a Renewable Energy Technical Evaluation Committee, comprising representatives from Eskom, the National Energy Regulator of South Africa and the Association of Municipal Electricity Utilities, had been established to certify future IPPs for grid code compliance.
Grid connection has emerged as a key immediate risk for REIPPPP bidders, with some discussions now taking place on the future framework for self-provisioning, with Eskom currently responsible for the ‘deep connections’ and the IPPs for ‘shallow connections’.
South African Wind Energy Association CEO Johan van den Berg says the delays were “not totally unexpected” in light of the rapid growth of the industry, which has stimulated private investment of over R120-billion.
However, he stresses that the wind industry wants predictability to build investor confidence and that the delay, together with concerns about the financial position of Eskom, which could cause delays to work on substations, is concerning.
Chairperson of the South African Photovoltaic Industry Association, Davin Chown, says “the delays mean more costs incurred by bidders and this is unfortunate as it always has a negative impact on projects. We are confident that the solar projects will close, and will be built and operational on time and on budget as has been the case in other rounds.”
The delays are also “not acceptable” in light of the constrained power network and the fact that only renewables and cogeneration IPPs are realistically in a position to fill the generation supply gap ahead of the introduction of large-scale baseload capacity.
Similarly, Southern Africa Solar Thermal and Electricity Association CEO Ntombikanina Malinga cautions that delays are having financial, social and economic impacts. “We can live with a delay of three months, [but] if we go beyond that, it starts to become a big issue.”
Chown is also concerned that the fourth bid window may confront similar problems as the evaluation criteria remain weighted towards price, which could mean that the lowest-tariff project wins even when the project faces significant connection constraints.
“The procurement process should ensure that Eskom is mandated and incentivised to ensure connections are available and made in time. Eskom must allow bidders to go the self-build or own-build routes as a matter of course, not as a matter of exception to the current rule.”