In April South Africa’s Department of Energy (DoE) made a spate of announcements related to the procurement of additional new power generation in the country. During this announcement by minister of energy, Ben Martins the DoE confirmed that there will be additional projects awarded preferred bidder status under the third bidding window of the Renewable Energy Independent Power Producers Procurement (REIPPP) programme;
It also confirmed that window 4 of the REIPPP programme is expected to entail the procurement of a further 1,000 MW of renewable power and is on track for bid submission in August 2014.
Further it was announced that the DoE intends to start the procurement process for 800 MW of cogeneration this month and 2,500 MW of coal generation in May. This is an important announcement since South Africa desperately needs more power to keep industry and the economy growing, and to keep the lights on. It will be interesting to see if the procurement model to be used will be similar to that used for the REIPPP, which has rand denominated funding requirements. Should this be the case it will be interesting to see whether the South African banks, already highly committed in the sector due to the REIPPP, will have sufficient resources to meet funding requirement locally, or whether other mechanisms come into play.
Although Eskom is developing additional capacity itself, IPPs using renewable resources, cogeneration, and conventional fuels will play a key role in the 50,000 MW of additional capacity that is estimated to be needed.
The DoE initiated the REIPPP Programme in 2011 and some of the first projects awarded preferred bidder status have already reached commercial operations.
Legal group Macfarlanes Africa in its newsletter says that although the DoE had previously indicated that it may add to the 17 projects already awarded preferred bidder status in bid Window 3, the confirmation that this is indeed going ahead will have surprised many investors as more recent indications had suggested that there would be no further allocation in Window 3, but instead an increased allocation for Window 4. The announcement states that in making the additional Window 3 allocation, the DoE will follow due procurement process but does not give any further indication as to what this will involve or the anticipated timing. This has created uncertainty in the market and it is difficult for those with projects bid in Window 3 to start preparing for bid Window 4 until the final allocation for Window 3 is confirmed.
Nevertheless, confirmation of the timing for the start of the procurement processes for cogeneration and coal and the next bid window for renewables will be welcome news to investors planning to participate in the various programmes. Investors will also be keen to see South Africa’s draft Gas Utilisation Master Plan and revised IRP when these are published in due course.