The publication of the Integrated Resource Plan (IRP) 2011 - 2030 paved the way for the Renewable Energy Independent Power Producers Procurement Programme (REIPPPP) in South Africa. Over the past 7-8 years we have seen a significant rollout of a number of RE projects (CSP, Solar PV, Onshore Wind, and Small Hydro & Biomass) which has resulted in the procurement of 6,327 MW of renewable energy across 92 utility-scale projects.
Critical to the REIPPPP has been developer, funder and lender support from the likes of Old Mutual (AIIM & ACED), Mainstream, Scatec Solar, Globeleq, Enel Green Energy, Abengoa, Redcap, Nedbank, ABSA Bank, Standard Bank, Investec, RMB and other local and international developers, funders & financial institutions. These include the Independent Development Corporation (IDC), the Development Bank of Southern Africa (DBSA) and, of course, the IPP Office which has played a vital role in the process. Another noteworthy feature of REIPPPP is the economic development aspects to it which require between 1.5% to 3% of top-line revenue goes towards community development projects. This has contributed to the uplift of the poorest of the poor regions in the country in a very meaningful way.
Over the past four bidding rounds the tariff pricing has reduced significantly - Solar PV by 76% and Wind by 55% - which now makes renewable energy a very viable and attractive option in the energy mix in South Africa.
The REIPPPP was unfortunately marred by a two-year delay on the Round 4 projects following the date that the preferred bidders were announced, primarily due to issues under Jacob Zuma’s presidency from 9 May 2009 until 14 February 2018, which was plagued by alleged corruption and state capture of a grand scale. To exacerbate matters, the Minister of Energy posts have changed seven times since the introduction of the REIPPPP which has had an adverse impact on the REIPPPP’s continuity. The green light for the Round 4 projects was finally received in 2018 and all 27 projects achieved Final Completion (FC) and are now in their construction phase.
All the Round 1 to 3 projects are now fully operational but a considerable number of them have suffered major losses as a result of turbine fires, gearbox failures, transformer failures, switchgear fires, lightning strikes, mini tornadoes and design defects.
South Africa has now overcome many of these challenges, which included the rapid training of a new local workforce to achieve important South Africa BBB local content requirements, limitations on the available in-country craneage and the adaptation of the receiving ports to receive the increasing large turbines with longer blades. The often-demanding inland transit distances which are required to access sites have also been challenging to some of the freight forwarders, resulting in incidents where drivers have lost attention and loads have been shed.
The considerable hardening of the Property insurance market globally has had a major impact on local insurance placements for large utility-scale projects in South Africa; this trend has been particularly relevant to CSP and Onshore Wind projects. Besides the upswing in insurance pricing, higher self-retention levels, coupled with restrictions in coverage, are now the order of the day. The placement process is taking substantially longer than before, and comprehensive risk assessment surveys have become essential as (re)insurers expect to see robust loss prevention and risk mitigation plans in place. This means that underwriting submissions to the market need to demonstrate a very firm commitment to reduction and mitigation of risks with stated timelines wherever feasibly possible.
A change of President took place on 15 February 2018 when Cyril Ramaphosa was elected as the new President of the Republic of South Africa. Gwede Mantashe was subsequently appointed as the Minister of Mineral Resources and Energy, replacing the former Minister of Energy, Lucas Radebe.
Following this appointment, the long awaited updated Integrated Resource Plan (IRP 2019)1 was gazetted in October 2019 and makes an allocation of an additional:
No allocation has been made for CSP up until 2030. The IRP is welcomed at a time when South Africa is once again experiencing major load shedding due to the myriad of issues at the embattled state-owned power utility Eskom, which is a very serious concern for the economy of South Africa. There is now absolutely no doubt that renewable energy technologies can provide the solutions to alleviate the challenges Eskom are facing, particularly after the company recently implemented an unprecedented Stage 6 load-shedding operation, costing South Africa over ZAR2 billion a day2.
The current electricity crisis prompted President Cyril Ramaphosa to cut short an official visit to Egypt and to announce on Wednesday December 11 2019 that the Department of Mineral Resources and Energy (DMRE) would consider several emergency power supply options at a meeting scheduled for Friday 13 December 2019 to assist Eskom with their 5,000 MW deficit that has arisen as a result of the underperformance of its coal-fired power stations. It is also of interest to note that the 5,000 MW supply deficit is larger than the 2000 MW to 3,000 MW shortfall outlined in the IRP 2019.
The DMRE subsequently announced on Thursday December 17 that the much-anticipated Request for Information (RFI) for emergency supply-and demand solutions would be published soon, and also indicated that Section 34 Ministerial determinations needed to facilitate the procurement of new capacity would also be published in the near future, although no timelines were formally communicated. The DMRE subsequently set January 31 2020 as the deadline for the responses to the RFI for 3,000 MW of near term supply in accordance with the Risk Mitigation Power Purchase Programme to alleviate the country’s electricity crisis.
President Cyril Ramaphosa also announced on Wednesday 18 December 2019 that government was fast-tracking applications that would allow industry and business to produce and use its own power and that government is determined to remove the bureaucratic constraints and regulations to self-generation.
The South African Wind Energy Association (SAWEA) has called for an immediate release of available wind power, which is estimated to be about 5,000 MW3. This could be achieved by lifting the Maximum Export Capacity on all operating wind farms, which governs how much electricity is permitted to be exported by wind farm power generators. Furthermore, the South African Photovoltaic Industry Association (SAPVIA) also believes that small-scale embedded generation is key to rapidly expanding electricity generation capacity and have urged the DMRE to swiftly implement regulatory changes to the current arduous NERSA licensing process required to allow generation of less than 10 MW. This could result in an additional 2,000 MW over the next 12 months to the energy mix4.
It is also of interest to note that the City of Cape Town has asked for a Section 34 Ministerial Determination that will allow it to procure 150 MW of solar energy & 280 MW of wind energy directly from IPPs. A court hearing is currently scheduled for May 2020 in this regard and this could well pave the way for other municipalities to do the same. The Mineral Council South Africa has subsequently joined the City of Cape Town in urging government to make it easier for their members to generate their own electricity without the current restraints.
As to when the REIPPPP Bidding Round 5 will take place, a number of credible stakeholders believe that this will happen in Q2 2020 and a “massive” bidding round is anticipated due to the acute electricity crisis currently prevailing in South Africa. Major risk intermediaries are utilizing their insights gained on the previous bids and their own traction with construction and operational risks to ensure the lessons learned are considered during the bidding and subsequent delivery of Round 5.
South Africa is a shining example of new renewable energy deployment around the world. To quote Mike Peo, Head of Infrastructure Energy and Telecommunications, Nedbank Capital: “At almost every international conference on energy South Africa has been widely acknowledged as having the most successful RE programme ever undertaken”.
Chris Nivison is Renewable Energy Specialist, South Africa, Willis Towers Watson.
1 https://www.cliffedekkerhofmeyr.com/export/sites/cdh/en/news/publications/2019/Corporate/downloads/Energy-Alert-22-October-2019.pdf 2 Source: Creamer Media’s Engineering News 3 South African Wind Energy Association (SAWEA) 4 South African Photovoltaic Industry Association (SAPVIA)