The Independent Power Producers Programme Office (IPPPO), which is run by the South African Department of Mineral Resources and Energy (DMRE), aims to procure 2000 megawatts of electricity in its latest Request for Proposal (RFP). This is in an effort to secure new generation capacity under the Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP) and is in response to SA’s ongoing short-term electricity supply gap. However, the industry and country face a conundrum that appears to be derailing the process with unrealistically tight deadlines.
The IPPPO originally held a workshop in January 2020 and stipulated that the RFP would need to be completed within a short construction period. Unfortunately, it took the IPPPO over eight months after this workshop was held to officially issue the RFP. With the pending bid submission date being the 24th of November 2020, it has placed companies under extreme pressure to ensure that their bids are compliant and ready to start by mid-2021. Moreover, due the historic inconsistent behaviour and unnecessary delays by government, many organisations are hesitant to fully invest in this project.
The current impact – the current pressure
The anticipated date for the announcement of preferred bidders is the 15th of December 2020 and the planned financial close for these projects will take place on the 30th of April 2021. Projects will then need to be constructed within a 12-month period, with commercial operations up and running by the end of June 2022. Regrettably, this means that typical renewable energy sources such as wind and solar may have limited opportunities within this bidding round as it usually takes longer than 12 months for these types of projects to be built.
The current state of affairs also leaves questions for those participating in the tender, such as whether the relevant authorities will be able to issue the relevant permits required for construction timeously. For example, it can take up to 6-18 months for a water use licence permit to be issued, something which is crucial for the construction of these projects.
The RFP therefore doesn’t allow for sufficient time for bidders to obtain the required contractual permits and comply with other legal requirements in order to meet the short development timelines. For example, one of the requirements is the need to adhere to the Carbon Tax Act. Here, solar and wind farms may not apply but for those projects that want to provide liquefied petroleum gas (LPG) or liquefied natural gas (LNG), they will be subject to the Act.
Possible positives, but ultimately a chicken and egg scenario
Currently, the RFP requires 40% of goods and services to be procured locally. In doing so, government is trying to ensure that the local economy reaps the rewards. However, South Africa’s shrinking economy and the fact that many organisations have shut down since the national lockdown hasn’t been taken into account. Nor has the fact that the country is facing a brain drain as more locals move overseas. Even though these bidders are being forced to use local resources, they are struggling to identify the skilled individuals who will assist to complete the job effectively.
Fortunately, it has been noted that there will be investment into industry infrastructure, and this comes just in time for an already struggling industry. But the industry needs government commitment, infrastructure investment, support and cash flow to be able to become operational again and produce.
The underlying concern
With the renewable energy sector having to deal with historical delays, coupled with the uncertainty brought about by continued rumours of a nuclear build, companies are still scurrying to meet the submission deadline. At the same time, they are extremely conservative with their bid preparation requirements.
Both the renewable energy industry and government need to take a step back to realise the immense disconnect between resources, compliance requirements and where South Africa’s economy lies. Further complicating the issue is the bidders’ struggle to obtain the necessary skills. Government should therefore look towards a more effective communication strategy that ensures the industry is aware of their plans timeously whilst removing any doubt and uncertainty around these kinds of projects.
Furthermore, the DMRE must understand that the renewable energy industry as a whole will plummet should government elect to proceed with a nuclear build, and more so, if they do not stick to their timelines and thereby cause unnecessary delays with the implementation of both this risk mitigation RFP as well as the planned Round 5 of the Independent Power Producers Programme.
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