‘Emergency’ IPP power projects to be grid-connected by mid-2022

25th September 2020 By: Marleny Arnoldi - Creamer Media Online Writer

‘Emergency’ IPP power projects to be grid-connected by mid-2022

The Department of Mineral Resources and Energy (DMRE) and the Independent Power Producer (IPP) Office has set the long-stop date for projects under the Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP) to start commercial operation as the end of June 2022. 

The programme was gazetted by the department on July 17, with the aim of filling the current short-term energy supply gap that South Africa has, which the Integrated Resource Plan 2019 has determined to be 2 000 MW.

The RMIPPPP serves as an “emergency” power generation programme for accelerated assistance to the national grid amid electricity supply constraints, while the next bid window for the Renewable Energy Independent Power Producer Procurement Programme is being prepared.

Subsequently, the DMRE started a request for proposal (RfP) process for the risk mitigation programme on August 23, inviting IPPs to submit bids that can soon reach financial closure and start with construction.

IPP Office head Tshifhiwa Bernard Magoro on September 25 said the bid notification period would close on October 30, while November 24 was the last day for bid submissions.

To allow for Covid-19 safeguarding, the bids will only start to be evaluated from November 30.

Magoro affirmed that the DMRE and other relevant departments would prioritise licencing and other approval processes related to the risk mitigation programme to help ensure timely finalisation of the bids.

“It is not business as usual of just putting megawatts on-line. A defining and innovative feature of the RMIPPPP is that it is a one-of-a-kind output-based RfP that seeks to procure an optimal solution to meet grid requirements, without being prescriptive in terms of the technology to be procured.”

IPP Office legal head Lena Mangondo explained during a Bidder’s Conference hosted virtually on September 25 that the bid responses would be evaluated in two stages – qualification and evaluation.

The bids would first be checked for compliance and eligibility for the programme, following which proposals would be comparatively evaluated for final selection.

The 2 000 MW of new power generation will be procured from a range of energy technologies, since the programme is technology-agnostic.

The minimum contracted capacity of a project will be 50 MW and the maximum contracted capacity will be 450 MW.

The RMIPPPP will procure dispatchable flexible generation that should be able to provide energy, capacity and ancillary services, which will all be compensated for either immediately or over a longer term by government.

The plants should operate between 05:00 and 21:30 and must have automatic generation control load following capacity factor – as well as be “scalable” when capacity requirements change.

The power must be connected to the grid by June 2022.

The RMIPPPP will provide for long-term power purchase agreements up to 20 years.

The key principles for the design of the RfP will be based on a least cost, least regret basis, taking into consideration the present socioeconomic challenges that the country faces and therefore the importance of affordable electricity for economic growth.

Magoro said the IPP Office and the DMRE would do a price benchmarking exercise as a first step in the bid evaluation process, to ensure that projects with the  most competitive and value-for-money pricing were considered.

IPP Office infrastructure finance head Elsa Strydom pointed out that, in fostering an environment that would allow for least-cost options, the DMRE would introduce the opportunity for a bidder to bid in a portfolio manner with the objective of combining a range of technologies that will meet the system operator demands, but also, through the use of a cost optimal approach, combine technologies to reduce the average bid tariff and ultimately the cost of electricity to the end consumer.

The project may, therefore, comprise of a single facility using a single technology solution, on a single project site; multiple facilities using different technology solutions, including fuel and nonfuel-based generation, on a single project site; or multiple facilities using different technology solutions, on multiple project sites.

Mangondo pointed out that if the storage system and renewable facility were not feeding power at the same connection point, then the facility wa not a dispatchable facility.

She noted that bidders who wished to use brownfield sites for the purposes of the project would have to ensure that the existing equipment and machinery used for the generation of electricity were completely decommissioned and that a new facility was built on the existing site.

Should the old equipment be used, then it would have to still be under the original-equipment manufacturer guarantee, said IPP Office technical head Pervelan Govender.

He explained that bidders were required to submit documentation around the structure of the project, the legal status of the project company and the nomination of sponsors, contracts entered into with key equipment suppliers, fuel suppliers and water supply rights, provision for the decommissioning reserve, land acquisition and land use criteria and evaluation, and environmental consent criteria and evaluation.

Govender further said the bidders needed to complete various forms and tables of the RfP, including on project development, design standards and certifications, water and fuel supply arrangements, head balance diagrams and carbon dioxide emissions, projected energy output and loss of energy owing to reduced availability, as well as ancillary services charge rates verification.

Cross border projects would not be considered.

In terms of the financial aspects, Strydom added that bidders had to adhere to the RMIPPPP’s criteria, including an evaluation price compliance test, financial standing and robust of the funding proposal and robustness of the financial model.

IPP Office economics head Deon Fourie pointed out that the RMIPPPP had a local content threshold of 40%, with the Department of Trade, Industry and Competition having designated 14 local components, as well as an expanded list of subcomponents, that could be procured locally.

He said exemptions could be applied for when the local content requirements could not be met considering certain technologies and its component requirements.

Among the economic development requirements of the RMIPPPP are that at least 30% of total procurement be spent with broad-based black economic empowerment businesses.

The RfP is aligned with the socioeconomic needs of the country and therefore prioritises female ownership and procurement from female-owned businesses.

Contract management acting head Louis Moyse added that 10% of the sellers’ operational spend should be on enterprise development and socioeconomic aspects, including skills development, which government would compensate for over certain time periods.

Magoro confirmed that preferred bidders would be announced during December or early next year.