Mantashe has left South African Independent Power Producers out in the cold, and we’re giving up

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31-05-2021
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Daily Maverick
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Minister of Mineral Resources and Energy Gwede Mantashe recently announced a raft of measures aimed at resurrecting the ailing state procurement of renewable energy. However, in a glaring omission, he failed to mention any intention to progress with a set of fully developed and awarded renewable energy projects representing 100MW of locally developed capacity, still awaiting Eskom’s signature.

Now instead of progressing with the projects that have been kept “shovel ready” for five years, he appears to prioritise the awarding of “emergency” projects to foreign-led entities such as those hailing from Turkey and Saudi Arabia.

The Small Projects Programme (SPP) was established in 2013 through the Department of Energy (DoE), in parallel to the conventional Renewable Energy Independent Power Producers Procurement Programme (REIPPPP). It was facilitated by the Independent Power Producers (IPP) office to award projects up to 5MW in size with the stated objective “to allow South African citizens who are, or who own or control, SMEs and or emerging, smaller power developers an opportunity to participate in the Renewable Energy generation sector”.

The high development and capital costs for large infrastructure projects make it difficult for local entities without experience to raise the funding and attract the financial, legal and technical support required for projects of scale. As a consequence, the larger REIPPPP programme, aimed at projects between 75MW and 140MW, has been dominated by international utility companies. The result is that, despite billions of rands of IPP projects being procured, we have almost no local IPP companies able to compete with large foreign utilities representing, for example, the Eskom equivalents of Norway, Italy, France and Saudi Arabia.

Those within Treasury, DoE and the IPP office who understood the importance of establishing local skills and experience, promoted the Small Projects Programme, which was officially launched in the form of a Request for Proposals in August 2013. Prospective bidders were asked to submit projects of up to 5MW in size.  In contrast to the larger REIPPPP, this process mandated higher levels of local ownership, with a specific requirement that 60% of the proposed project ownership had to eventually be held by a South African parent company.

The bid requirements were otherwise substantially similar to the large IPP programme, making submissions time-consuming and costly. All land, grid, environmental and permitting rights needed to be secured and advanced to qualify for evaluation. The costs, amounting to several hundred thousand rands per project, were incurred by local developers seeking to respond to the government’s request for proposals.

In 2015, after two rounds of bidding, the IPP office awarded preferred bidder status to 20 projects ranging across wind, solar and biomass technologies, and representing around 100MW in capacity. The projects were instructed to develop further and prepare for financial close and signature of Power Purchase Agreements (PPAs) with Eskom. 

Since then, after five years of incurring costs to keep the projects on standby for government go-ahead, no PPAs have been signed and no projects have proceeded into construction.

Rather than give a clear message that the state is not proceeding with these projects, the preferred bidder status was renewed by the IPP office no less than six times during the five-year period, leaving companies guessing as to the government’s intent.

In 2020, at the government’s request, and in good faith to South African consumers, the bidders adjusted their tariffs downwards to account for improvements in capital costs over the years of delay. Eight months after the adjusted tariffs were submitted, there is still no progress. Many of the locally owned companies that were investing in developing smaller projects for this process have now put down tools and given up on their projects, due to the lack of government progress and commitment.

Instead of acquiring the necessary track record to participate in larger IPP projects both in South Africa and abroad, local IPPs have been left with stranded projects and five years of costs in keeping them “construction-ready” at the government’s request. Furthermore, along with other larger projects from Round 4 of the REIPPPP, the small projects had to pay legal costs to defend themselves in 2019 (alongside Eskom and the larger projects) against a court challenge from the Coal Transporters’ Forum.

After the court case was successfully won, the government proceeded with the Round 4 projects (mostly led and owned by foreign companies), allowing them to recover the legal expenses, but the 20 smaller local projects were left with further bills to pay and no progress towards recovering these costs. All this against the backdrop of continuous load shedding and, more recently, the procurement of “emergency power” from gas-fired powerships. 

Now as the country prepares to reverse auction more than R200-billion worth of renewable projects in upcoming rounds of REIPPPP, most of the skills and experience reside with large, foreign IPPs. Out-of-pocket local developers and IPPs are left scratching their heads as to whose interests their government has at heart.

My firm, the 100% locally owned SOLA Group, represents three of the awarded projects and we have the first-hand experience of the mixed messaging and poor communication surrounding them. We implore the minister to provide clear and direct communication about the future of these projects. And in the interests of South Africa, to proceed with the conclusion of the contracts that will bring much-needed clean, reliable and affordable electricity to our national grid in the fastest possible time. DM