SA reports big interest in DoE's renewables tender

By: Terence Creamer

The Department of Energy (DoE) reports that 270 bidder applications have already been received for tender documentation related to the renewable energy independent power producer (IPP) programme, under which South Africa will seek to procure the first 3 725 MW of capacity by 2016. The documents were made available on August 3, 2011, and bids have to be submitted before November.

The projects for onshore wind (1 850 MW), solar photovoltaic (1 450 MW), 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) were expected to involve foreign and domestic investment of between $10-billion and $12-billion. The projects needed to reach financial closure by June next year and construction was likely to continue from 2012 through the end of 2016.

The DoE revealed on Wednesday that more than 400 companies had in fact paid the R15 000 application fee to receive the bid documents. But deputy director-general Ompi Aphane said its analysis of the applicants showed that about 270 of those could be considered to be potential IPP developers. The other applications were from potential financiers and equipment suppliers.

Government was pleased with the response, particularly against the backdrop of the initial disquiet expressed by potential developers when it was confirmed that the renewable energy feed-in tariffs (Refit) had been abandoned in favour of a competitive bidding process.

Director-general Nelisiwe Magubane said the response had been "better than expected" and that further applications were likely from foreign and domestic companies ahead of a bidders conference, which would take place on September 14, at Gallagher Conference Centre. She added that the response also bodes well for delivery on the objective of building a "sustainable" renewables industry, which could contribute 42%, or 17 800 MW, of South Africa's new generation capacity by 2030.

It was confirmed that Eskom had been specifically excluded from bidding any of its renewables projects and that the State-owned utility's role was confined to that of buyer and to connecting the projects to its grid. Preferred bidders, which would be named in November, would need to conclude a power purchase agreement with Eskom, finalise a connection agreement with either Eskom or a municipality and sign an implementation agreement with the DoE.

A "two envelope" tender process would be pursued, with the first envelope outlining how a developer planned to meet the specific economic development objectives outlined in the request for proposals (RFP), and the second containing the actual price offer.

PRICES CAPPED

Prices had also been capped per each technology at levels below those promulgated in the 2009 Refit approved by the National Energy Regulator of South Africa (Nersa). For instance, wind project would need to be priced at below 115c/kWh, as opposed to the 120c/kWh outlined in the 2009 Refit.

The other caps were 285c/kWh for solar photovoltaic and solar thermal, 107c/kWh for biomass, 80c/kWh for biogas, 60c/kWh for landfill gas and 103c/kWh for minihydro. Eskom's blended tariff is set to rise to around 66c/kWh by 2013.

Potential developers have indicated that the caps did not appear to be unrealistic, but some were concerned about the number of requirements being added that were unrelated to the core business of power generation.

The National Treasury's Karen Breytenbach indicated that the IPP process had received exemption from the Preferential Procurement Policy Framework Act requirement that price is given a 90% weighting in the selection of a product or service being procured by government. But Aphane stressed that, although the selection was 70% weighted towards price, a bidder's price would only be considered once it had met the other economic development criteria, which carried a 30% weighting in the final selection.

These criteria related to job creation, the involvement of historically disadvantaged individuals in the project, community development and economic spinoffs, such as the localisation of components used in the development of the facilities. Breytenbach reported that applicants had recently received a scorecard to help them calculate whether or not their potential projects were meeting the criteria as outlined in the RFP.

The bid submission date was set as November 4, 2011, and the DoE expected that the first capacity could begin entering the grid during the course of 2012, owing to the modular nature of renewables projects.