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Details of bidding process for renewable energy IPP programme
26 October 2011, News

SESSA – the Sustainable Energy Society of Southern Africa – has applauded the Department of Energy’s (DoE’s) efforts to clarify the bidding process that will be followed for its renewable energy independent power producer (IPP) programme. The programme, one of the largest single renewable procurement initiatives under way globally, calls for bids to supply the first 3725 MW of renewable capacity by 2016.

This has been split into 1850 MW of onshore wind, 1450 MW of solar photovoltaic (PV), solar concentrating solar power (200 MW), biomass (12,5 MW), biogas (12,5 MW), landfill gas (25 MW), small hydro (75 MW) and other small projects of less than 5 MW (100 MW), and is likely to involve foreign and domestic investment of between $10 billion and $12 billion.

South Africa’s Integrated Resource Plan envisages that renewable energy technologies will contribute 42%, or 17 800 MW, of South Africa’s new generation capacity by 2030. Eskom will be the buyer of this capacity and, together with municipalities, also responsible for connecting the projects to its grid.

More than 300 potential developers have reportedly paid the fee to receive request for proposal (RFP) documents for the first stage of the programme, while Eskom has received over 320 applications for grid connections from potential renewable projects. The combined installed capacity put forward by these bidders, according to Eskom’s calculations, tops 27 850 MW from mainly wind and photovoltaic installations, much more than what phase 1 of the bidding project calls for.

The deadline for submission of first bids is 4 November, and the DoE intends announcing its preferred bidders during the seventeenth Conference of the Parties (COP 17) climate conference in Durban starting late November.

SESSA chairman, Henning Holm, attended the Renewable Energy Bidding Conference held recently in Midrand, and reported back to members that it went a long way to clarifying the questions that had been raised since it was announced that RFPs were available. He identified several critical facts about the bidding process:

Four agreements will form the core of the required legal framework: the power purchase agreement (PPA) between the bidder and Eskom; implementation agreements signed with the DoE; direct agreements between financiers and the bidder, for example; and the connection agreement, either with Eskom or the local authority.

There will be five key dates for submission, and bidders will need to ensure their information is complete and timed according to these dates, not always an easy task. For this reason, an environmental impact assessment (EIA) will need to be completed before the document may be handed in.

There’s a ‘penalty’ clause addressing early and late connections. IPPs will not be allowed to connect more than six months in advance and any electricity provided prior to the agreed switch-on date will only be bought at 60% of the agreed tariff. Those IPPs making late connections will be docked two days of their contract period for every day connection is late.

Cancellation of contracts or delivery will be regarded as a measure of last resort; friendly takeover is preferred. Force majeure will not be a reason for cancellation, and allows for an extension of the contract period.

Adjudication will be done on completeness, strength of bidder, normal asset tests, value for money and delivery.

A CPI of 4,2% has to be assumed when calculating costs and revenues. Foreign exchange fluctuations are for the bidder’s risk.

A 1% development fee will be paid by successful bidders to Government for future development.

The contract price needs to amount to 70% and the social development 30% of the tender comparison package; this is far higher than the 90-10% BBBEE split required up to now.

For more information contact SESSA, +27 (0)11 513 4071, info@sessa.org.za, www.sessa.org.za


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